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Slaying the Crypto Dragons: Towards a CryptoSure Trust Model for Crypto-economics

Blockchain Versus Trust: The Expert’s View of the Crypto Scammers

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Part of the Smart Innovation, Systems and Technologies book series (SIST,volume 219)

Abstract

In order to move towards a CryptoSure regime, systems based on blockchain and distributed ledger technology have to give up the fiction of ‘consensus trustless mechanisms’, and, if they are to provide socially and legally acceptable security, privacy and trust, within the Rule of Law, have to accept the necessity of a Trusted Third Party. For example, the General Data Protection Regulation (GDPR) includes in its provisions Article 17, the Right to be Forgotten, which could potentially be a formidable barrier to the ubiquitous introduction of cryptographic blockchain software and technology outside of a CryptoSure regime. The investment mania that there has been for blockchain technology, with much money having gone into bitcoin and other cryptocurrencies, blockchain, smart contracts and distributed ledger technology, has been significantly fuelled by the ‘black cash’ of drug-dealers, money-launders, traffickers and the like. Crypto Dragons, the many and varied Financial Disputes over Crypto Assets, have arrived, with legal actions mounted by those defrauded increasing. This is not surprising, given that in Q2 2019 alone, misappropriation of cryptocurrency funds netted criminals some $4.26 billion. The foundations of global digital currencies go back well before the Satoshi bitcoin paper of 2008, and those early digital e-commerce visions did not require a cryptographic blockchain ‘mining’, or ‘distributed consensus’, existential model and were not intentioned of being so readily riven with the criminal black market profiteering of money-launders, scammers and fraudsters that bedevil much current cryptocurrency activity. Looking ahead, Facebook’s Libra digital currency could establish a new global e-commerce paradigm much closer to the pre-bitcoin electronic cash visions, and one more compliant with the existing norms and customs of the Rule of Law, where a responsible Trusted Third Party, in this case, Facebook, is fundamental. Cryptocurrencies apart, some blockchain applications more generally are likely here to stay, and the majority will be robust implementations by established major corporations, with most of us, as consumers, hardly needing to know any of the details. For the properly cautious ICT expert and professional, when considering the use of blockchain for any proposed use case, the ‘fundamental things apply’. There is always the need for Trusted Third Parties, and for probative Electronic Evidence. A key point in any court trial will be examination of the Digital Evidence and, although a Crypto Asset may essentially be ‘decentralised digital vapour’, a Court of Law can make a binding order to get forensic traction on it, because of the legally well-established Obligation of Disclosure. This article concludes with a Checklist giving practical, generally applicable wording for an effective Digital Asset Disclosure exercise.

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Notes

  1. 1.

    ‘Forever on the Chain’ https://hackernoon.com/forever-on-the-chain-c755838dfc79.

    Júlio Santos, November 6th, 2017. https://lifeonmars.pt.

  2. 2.

    ‘Solutions for a responsible use of the blockchain in the context of personal data’

    https://www.cnil.fr/sites/default/files/atoms/files/blockchain.pdf.

    ‘The Blockchain-GDPR Paradox’

    https://medium.com/wearetheledger/the-blockchain-gdpr-paradox-fc51e663d047.

    Andries Van Humbeeck, November 21, 2017. https://theledger.be/.

  3. 3.

    https://bitsonblocks.net/2016/02/29/a-gentle-introduction-to-immutability-of-blockchains/.

    https://www.coindesk.com/blockchain-immutability-myth/.

    https://www.forbes.com/sites/yec/2017/05/04/debunking-blockchain-myths-and-how-they-will-impact-the-future-of-business/#583e1d815609.

    https://www.records.nsw.gov.au/recordkeeping/advice/retention-and-disposal/destruction-of-records.

    https://ct.wolterskluwer.com/resource-center/articles/three-simple-rules-record-retention.

    https://www.proshred.com/documentation-retention-policies-potential-ramifications/.

    http://www.pbi.org/docs/default-source/default-document-library/10778_minimizing-commercial-litigation-risks-(2019).pdf?sfvrsn=0.

    ‘Minimizing Commercial Litigation Risks … 9. Implement a Document Retention Policy…’.

    https://www.scality.com/blog/fuhgettaboutit-the-gdpr-right-to-erasure/.

  4. 4.

    https://internetofbusiness.com/solid-pods-how-sir-tim-berners-lee-aims-to-inrupt-the-web-from-within/.

    The position, security, ownership, handling, (mis)use, etc. of ‘personal data’ and who should profit from such data, is becoming central to the future social media and digital economy, globally. Sir Tim Berners-Lee has introduced a new breed of ‘…personal online data stores, or Pods, that contain the wealth of information people generate, and are their exclusive property …', as part of the future ‘Web 3.0’.

    My own www.Zykme.net, a new P2P cross-platform comms App (hybrid, beta test version), designed to provide instant private one-to-one secure transfer of personal data using a unique proprietary one-time Zykword code protocol, is consistent with this Pod Philosophy. The Zykme App does not demand the user’s email address, nor any other ‘logon’ ID data; and, as made clear at the foot of its ‘Your ZykPod History of Contacts Received” page, 'NOTE Unlike other social media, this unique Zykme App, which securely provides instant two-way peer-to-peer communication, does not and will not acquire, store, process, analyse, use nor pass on to any third party any of your entered data. Using Zykme, your personal ‘My details’ information as ‘Sender’ remains completely under your control, and, at entirely your own decision and choice, is privately and confidentially shared and exchanged between you and your selected ‘…Receiver’ alone, when you press ‘Share info’'.

  5. 5.

    What the ECU stands for’, Stephen Castell, Letter in Computing, 20 July 1995.

    Ye Nom De Das Geld’, Stephen Castell, GONG Magazine, December 1971, pp. 16–18.

    https://www.arachnys.com/2019/10/22/addressing-the-aml-risks-of-cryptocurrencies/.

    ‘Addressing the AML risks of cryptocurrencies OCTOBER 22, 2019 BLOG With the recent explosion in cryptocurrencies, from the early beginnings of bitcoin back in 2009 through to J.P. Morgan testing their own digital coins for institutional clients in 2019, there still remains serious unanswered questions about the money laundering risks they bring to banks, consumers and regulators. Ciphertrace’s ‘Q2 2019 Cryptocurrency Anti-Money Laundering Report’ makes some stark revelations. It claims that theft, scams and other forms of misappropriation of funds 'from cryptocurrency users and exchanges netted criminals and fraudsters' approximately $4.26 billion in aggregate. … Dr. Stephen Castell, an independent FinTech consultant, admits that there are few innocent investor protections to fall back on: 'This is essentially the case worldwide today, and it looks like it will continue that way for the foreseeable future'. He reminds us that there is a need to keep everything in perspective, suggesting that “the actual, and potential, total global ‘crypto’ business for banks and other financial institutions is tiny—in the less than 1% area”. So, with the increased anti-money l laundering (AML) risks associated with blockchains and cryptocurrencies, he believes it’s right for the compliance departments of banks to proceed cautiously, if at all…'.

    '…Traditional exchanges around the world will be looking at Binance’s latest quarterly results with envy, as in the last two years it has made over $1billion of profit. CEO of Binance, Changpeng Zhao, … established Binance only in 2017. Binance raised $15 million via an Initial Coin Offering (ICO) and CZ is reported to be worth $1.2 billion. Binance, based in Hong Kong, is different from its competitors which, apart from Huobi (Singapore), are based in the USA, e.g. Coinbase (San Fran), Kraken (San Fran), Bittex (Las Vagas) and Bitbox (NYC). The amount of Cryptos that were traded in September 2019 on exchanges like Binance was still over $500 billion-down from nearly $800 billion in June 2019. According to the website Coin.Market, there are now over 260 different crypto exchanges …'.

    Digital Bytes, Weekending 26th October 2019, TeamBlockchain Ltd.

    http://www.teamblockchain.net/.

    https://hackernoon.com/the-amazing-story-of-cryptocurrencies-before-bitcoin-fe1b0e55155b.

    'The Amazing Story of Cryptocurrencies Before Bitcoin Marcell Nimfuehr, 14 October 2019 What—you exclaim with disbelief. Cryptocurrencies before bitcoin? Yes, indeed. Do not get me wrong, Bitcoin was the first blockchain-based currency. But by far not the first purely digital money. That one has a colourful history of dreams, prosecution and failure…'.

    https://www.dcforecasts.com/libra-coin-news/chinese-crypto-czar-facebooks-libra-might-be-unstoppable/.

    ‘Chinese Crypto Czar: Facebook’s Libra ‘Might Be Unstoppable’ September 20, 2019 Stefan'.

  6. 6.

    Blockchain Standards

    https://www.iso.org/committee/6266604.html.

    ISO/TC 307 Blockchain and distributed ledger technologies.

    Scope: Standardisation of blockchain technologies and distributed ledger technologies.

    8 ISO standards under development under the direct responsibility of ISO/TC 307.

    34 Participating members 12 Observing members.

    ‘Blockchain—The Legal Implications of Distributed Systems’, The Law Society HORIZON SCANNING August 2017, 12 pages.

    Blockchain Patents

    https://worldwide.espacenet.com/searchResults?ST=singleline&locale=en_EP&submitted=true&DB=&query=blockchain.

    https://www.cnbc.com/2019/03/25/bank-of-america-skeptical-on-blockchain-despite-having-most-patents.html.

    https://www.americanbar.org/groups/intellectual_property_law/publications/landslide/2017-18/march-april/patentability-blockchain-technology-future-innovation/.

    https://thenextweb.com/hardfork/2019/03/13/data-china-is-patenting-all-the-blockchain-tech-despite-banning-cryptocurrency/.

    The many blockchain patents—though perhaps not yet all granted, let alone challenged—may illustrate a difficulty that the ISO Working Parties could encounter in trying to define ‘International Standards’, which are essentially meant to be ‘Open Source’.

    https://www.infosys.com/Oracle/white-papers/Documents/integrating-blockchain-erp.pdf.

    http://www.primechaintech.com/assets/docs/PT-BSC-0_4.pdf.

    'Primechain Technologies Blockchain Security Controls Version 0.4 dated 21 October, 2017'

    https://www.dlapiper.com/en/uk/insights/publications/2017/06/blockchain-background-challenges-legal-issues/.

    '2 February 2018 Blockchain: background, challenges and legal issues By: John McKinlay Duncan Pithouse John McGonagle Jessica Sanders (née Turner)'

    https://www.forbes.com/sites/laurashin/2016/05/10/looking-to-integrate-blockchain-into-your-business-heres-how/#4986f47f1a15.

    ‘10 May 2016 Looking To Integrate Blockchain Into Your Business? Here's How Laura Shin Companies … are sprinting to begin adopting blockchain… But many are doing so simply because of fear of missing out, without a clear understanding of how it can be useful …'.

  7. 7.

    https://www.prnewswire.com/news-releases/silver-miller-files-class-action-lawsuit-against-monkey-capital-and-its-principal-daniel-harrison-for-alleged-fraudulently-promoted-and-aborted-initial-coin-offering-300574019.html.

    ‘… CORAL SPRINGS, Fla., Dec. 20, 2017 … www.SilverMillerLaw.com … actions currently Pending against the Coinbase, Kraken, and Cryptsy exchanges … Monkey Capital fraudulently promoted an ICO that violated numerous state and federal securities laws…'.

    https://www.silvermillerlaw.com/david-silver/2017/12/20/silver-miller-files-class-action-lawsuit-monkey-capital-principal-daniel-harrison-fraudulently-promoted-aborted-initial-coin-offering/.

    ‘…As ICOs have become more frequently used as a fundraising tool for start-up blockchain technology companies, so too has fraud upon cryptocurrency investors become more frequent; and Monkey Capital appears to have been a prime example of the harm investors can suffer …See the Class Action Complaint:  Hodges, et al. v. Monkey Capital LLC, et al. …'.

    https://www.silvermillerlaw.com/wp-content/uploads/2017/12/2017-12-19-DE-1-CLASS-ACTION-COMPLAINT.pdf.

  8. 8.

    ‘CASTELL—Legal Due Diligence for Initial Coin Offering 07Feb2018.pdf’. Available privately from the author, on application.

  9. 9.

    The APPEAL Report, Dr Stephen Castell, 1990, May, Eclipse Publications, (ISBN 1-870771-03-6).

    ‘Code of practice and management guidelines for trusted third party services’, S. Castell, INFOSEC Project Report S2101/02, 1993.

    ‘Green paper on the security of information systems’, Commission of the European Community, ver. 4.2.1, 1994.

    See also in:

    ‘Security Issues On Cloud Computing’, Pratibha Tripathi, Mohammad Suaib; Department of Computer Science and Engineering, Integral University, Lucknow, Uttar Pradesh, India.

    International Journal of Engineering Technology, Management and Applied Sciences http://www.ijetmas.com/ November 2014, Volume 2 Issue 6, ISSN 2349-44761. Available from:

    https://www.researchgate.net/publication/272945014_Security_Issues_On_Cloud_Computing.

    The Draft Convention on Electronic Evidence has recently been published, in the Volume 13: 2016 issue of the Digital Evidence and Electronic Signature Law Review. It is authored by Stephen Mason (http://www.stephenmason.eu/), a barrister of the Middle Temple and a recognised authority on electronic signatures and digital evidence, with contributions by Dr Stephen Castell. To obtain and review the Draft Convention on Electronic Evidence:

    1. 1.

      Go to http://journals.sas.ac.uk/deeslr/issue/view/336/showToc.

    2. 2.

      See ‘Documents Supplement’ at foot of contents; click on ‘Draft Convention on Electronic Evidence’ to see Abstract: http://dx.doi.org/10.14296/deeslr.v13i0.2321.

    3. 3.

      Then, click on ‘PDF’ (http://journals.sas.ac.uk/deeslr/article/view/2321/2245) to download the full text of the draft convention.

  10. 10.

    ‘Authored by AI—Here be crypto dragons: it’s all about the evidence, proclaims the CastellGhostWriteBot’, Stephen Castell, Solicitors Journal, October 2019, pages 43–45.

    https://www.solicitorsjournal.com/feature/201910/authored-ai.

    ‘Can you tell if this has been authored by a robot? Would it matter, legally or otherwise, if you couldn’t? Are you crypto-friendly, or if not, at least crypto-aware? …'.

    And see:

    ‘The future decisions of RoboJudge HHJ Arthur Ian Blockchain: Dread, delight or derision?’, Castell, S. (2018), Computer Law & Security Review, Volume 34, Issue 4, August 2018, Pages 739–753, the Landmark 200th issue of CLSR under the Editorship of Emeritus Professor Steve Saxby. https://doi.org/10.1016/j.clsr.2018.05.011. While many are concerned about defining and developing AI Machine Ethics, Castell’s Second Dictum: 'You cannot construct an algorithm that will reliably decide whether or not any algorithm is ethical' (2017) reveals that this is a futile exercise. 'Talking about the ethics of machines might be like speaking of the happiness of water' (page 743).

    ‘Revolution of securities law in the Internet Age: A review on equity crowd-funding’, Tao Huang and Yuan Zhao, Computer Law & Security Review, 33, (2017) 802–810.

  11. 11.

    https://www.slideshare.net/shaunaksontakke/batch-25-it-erp.

    'ERP Case Study—Failure case—FoxMeyer Case Shaunak Sontakke … April 17, 2014 … FoxMeyer was the fifth largest drug wholesaler in the United States (1995) with annual sales of about 5 billion US$ and daily shipments of over 500,000 items. …FoxMeyer was driven to bankruptcy in 1996, and the trustee of FoxMeyer announced in 1998 that he is suing SAP, the ERP vendor, as well as Andersen Consulting, its SAP integrator, for $500 million each…'.

    http://calleam.com/WTPF/?p=3508.

    'FoxMeyer Drugs A $65 M investment in an Enterprise Resource Planning System (ERP) and new warehousing facilities results in the destruction of a $40B business. … Delays in delivery and the failure to fully realise the business benefits results in the organisation being unable to profitably service contracts it had entered into. … cash flow issues forced the company into Chapter 11 bankruptcy. The company that had been worth $40 B prior to the project was then sold off for just $80 M to rival McKesson Corp…'.

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Castell, S. (2021). Slaying the Crypto Dragons: Towards a CryptoSure Trust Model for Crypto-economics. In: Patnaik, S., Wang, TS., Shen, T., Panigrahi, S.K. (eds) Blockchain Technology and Innovations in Business Processes. Smart Innovation, Systems and Technologies, vol 219. Springer, Singapore. https://doi.org/10.1007/978-981-33-6470-7_4

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