Ethereum’s Sunday scaries bring Monday morass

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Ethereum, the self-proclaimed “world computer,” has a serious case of the ‘I Don’t Like Mondays’ after a series of public relations black eyes.

On Monday, the U.S. Attorney’s Office for the Southern District of New York announced that Ethereum developer Virgin Griffith had pled guilty to conspiring to violate the International Emergency Economic Powers Act (IEEPA) by instructing North Korean officials on how to use cryptocurrency to evade economic sanctions and fund the nation’s nuclear weapons program.

The DOJ’s statement says that Griffith formulated plans to assist the North Korean regime in 2018, then traveled to North Korea in April 2019 to give a presentation to local officials, despite the U.S. State Department denying Griffith permission to travel to the so-called Hermit Kingdom. (Griffith appears confused as to the standard Crypto Costanza tactic of acting illegally, then pleading ignorance of the law and begging forgiveness.)

The DOJ says Griffith and his co-conspirators “provided instruction on how the DPRK could use blockchain and cryptocurrency technology to launder money and evade sanctions,” including through the use of smart contracts. Griffith hatched a plan to facilitate crypto trades between North and South Korea, attempted to recruit other U.S. citizens into the scheme and tried to introduce North Korean agents to unspecified crypto and blockchain service providers.

Griffith’s charge carries the threat of a potential maximum of 20 years behind bars when he’s sentenced on January 18, 2022, by U.S. District Judge P. Kevin Castel. However, Griffith reportedly worked out a deal to drop his defense in exchange for a custodial sentence topping out at six-and-a-half years.

Griffith didn’t earn the court’s sympathy after violating his bail conditions in May through his attempt to access his crypto holdings on the Coinbase exchange, reportedly in order to pay his attorneys. Monday’s plea deal included a court order that allowed Griffith to access his Coinbase account for the express purpose of transferring payment to his attorneys.

After Griffith’s November 2019 arrest, Ethereum founder Vitalik Buterin issued a statement in which he “refuse[d] to take the convenient path of throwing Virgil under the bus, because I firmly believe that would be wrong.”

I refuse to take the convenient path of throwing Virgil under the bus, because I firmly believe that that would be wrong. I'm signing. Reasoning below.https://t.co/E44p5caeJO

— vitalik.eth (@VitalikButerin) December 1, 2019

Buterin went on to justify this stance by stating his belief that Griffith “made no personal gain from the trip” and didn’t give North Korea “any kind of real help in doing anything bad.” Which really only confirms that Buterin is not a local fisherman who constantly scans the horizon for signs of an incoming NK missile test launch into the Sea of Japan.

Buterin also signed a Change.org petition calling for Griffith’s release from prison and the dropping of all charges against him. As of Monday, the petition had garnered only 532 signatures, suggesting few Ethereum users shared Buterin’s willingness to stick by old comrades who felt themselves above the law.

DeFi… it’s a gas

The United Kingdom is currently undergoing a petrol shortage that resulted in panic buying not seen since the start of the COVID-19 pandemic in spring 2020. Meanwhile, gas is also an extremely pricey commodity on Ethereum-based DeFi platforms, where at least one transaction hit absurd new heights on Monday.

Early Monday morning, reports surfaced of an ERC-20 token transfer of around US$100,000 worth of Tether (USDT) on the Ethereum-based DeversiFi decentralized exchange. The transaction cost the sender nearly 7,700 ETH in gas fees, or roughly $23.7 million in greenbacks. That’s a new all-time high for the network and a considerable premium on a transaction that ordinarily would have incurred a gas fee of around $40-50 (which is still preposterously high, much like you’d get if you directly inhaled diethyl ether).

The transaction originated from a wallet owned by the Bitfinex exchange, whose parent company also controls the Tether stablecoin. DeversiFi began a few years ago as an offshoot of Bitfinex—DeversiFi was originally known as Ethfinex—and the two companies announced a new partnership just last Thursday that ironically promised “the first bridge between a centralized and Layer-2 (L2) decentralized exchange, enabling fast and low-cost transfers for ERC-20 tokens, starting with Tether tokens.”

As speculation about the suspect transaction mounted, DeversiFi tweeted a statement referencing “an erroneously high gas fee.” The company said it was “investigating the cause” of this apparent cockup while assuring that “no customer funds on DeversiFi are at risk” and “operations are unaffected.”

Bitfinex then tweeted that the fees would be “shouldered by third party integrations with Bitfinex,” adding that Bitfinex would “look forward to DeversiFi’s investigation and to their having this matter sorted on their side.”

However, Paolo Ardoino, CTO of both Tether and Bitfinex, later tweeted that in the “worst case scenario Finex will take care of it with it’s [sic] company funds.” That’s a rather benevolent gesture considering the fat-fingered fault is allegedly all on the other side of the ledger. Still, Ardoino may have felt extra self-conscious after issuing a tweet on Sunday that the new Bitfinex-DeversiFi partnership was “Working like a charm!”

Working like a charm!@bitfinex 🤝 @deversifi https://t.co/VMrA8ZQFhV

— Paolo Ardoino 🤖🍐 (@paoloardoino) September 26, 2021

Speculation has now turned to the unknown miner that received that ‘erroneous’ $23.7m payday. Said miner ranked ninth among ETH miners over the past week, credited with just under 3.2% of all blocks mined.

As Monday progressed, word came that the miner had returned all but around 290 ETH ($1.4m) of the excessive gas fee to DeversiFi, with Ardoino chiming in that the “rest will come soon.” That said, given that Monday’s events involved the reliably noxious nexus that is Bitfinex/Tether, where nothing is ever as it seems (or its backers would have you believe), the sector will be watching to see if any additional connections to this mystery miner emerge over the coming days.

Proof of futility

In the day’s final Buterin-based development, the second-largest Ethereum mining pool is officially calling it quits at the end of this month. Hangzhou-based SparkPool stated last week that it had stopped providing services to new Chinese customers in keeping with Beijing’s latest crackdown on all things crypto.

But the company issued a fresh statement on Sunday announcing “a complete shutdown for all SparkPool services and operations for the existing users, at home or abroad,” effective September 30. SparkPool said the abrupt shutdown was made “under the premise of ensuring the safety of our users’ assets.”

pic.twitter.com/hLPamoSwk1

— SparkPool (@sparkpool_eth) September 27, 2021

SparkPool launched operations in 2018 and grew to account for over one-fifth of Ethereum’s hash rate, only a few points behind frontrunner Ethermine. All ETH miners are facing an eventual reckoning when the technology makes its long-delayed switch from a proof of work (PoW) consensus mechanism to the new proof of stake (PoS) model, which will further centralize control of the network in the hands of a few ‘validators’ who accumulated vast quantities of pre-mined ETH tokens.

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