The scandal involving the “King of Crypto” and the crash of his FTX cryptocurrency exchange continues to unfold. Former CEO Sam Bankman-Fried is under investigation for financial crimes.
RACHEL MARTIN, HOST:
More fallout from the FTX crypto scandal. Former CEO Sam Bankman-Fried is under investigation for financial crimes. But he and his lawyers, meanwhile, are also making allegations that hackers are stealing customers’ digital money. NPR Cybersecurity Correspondent Jenna McLaughlin is here to explain. Hi, Jenna.
JENNA MCLAUGHLIN, BYLINE: Hi.
MARTIN: So this scandal has gotten so big, I understand, that investors are suing big names – Tom Brady and Steph Curry. What?
MCLAUGHLIN: Yeah, that’s pretty wild. To sum up, Sam Bankman-Fried, in 2018, he created what is called a cryptocurrency exchange, which is a place to trade, exchange, buy, sell different forms of cryptocurrency like Bitcoin. And it quickly became very popular, including with celebrities. But Fried also had this second company, Alameda Capital, which was his own personal trading company. The investigation, of course, is still ongoing. But what has been alleged is that he took money from FTX investors. And he used it to trade with Alameda and lost it.
MARTIN: Alright. But make the connection for me, Jenna. What does this have to do with cybersecurity? Is anyone accusing anyone else of stealing funds besides the founder?
MCLAUGHLIN: Yeah, that’s actually where things get a little tricky. Bankman-Fried and his attorneys claimed that it wasn’t just FTX’s mistakes that left investors with empty pockets. They say there was also a breach after he declared bankruptcy and they hired a cybersecurity firm to investigate. However, I don’t know which one. More recently, Bankman-Fried has changed its tone a bit. During a live interview with The New York Times on Wednesday night, he said he believed money had been seized by Bahamian and US authorities. But he still alleged that an unknown third party took the rest. Regardless of whether the hackers took the money, it is true that cryptocurrency exchanges are quite vulnerable to cyberattacks.
MARTIN: Then explain why. And shouldn’t that be embarrassing enough?
MCLAUGHLIN: Yes, absolutely. This creates some confusion, as you’ve probably heard of this thing called blockchain…
MARTIN: It’s true.
MCLAUGHLIN: …which is a secure record of digital transactions that cannot be altered. But once you transfer your money to exchanges, rather than keeping it safe in your virtual wallet, that’s where the danger comes. So I spoke to Megan Stifel. She is director of strategy for the Institute for Security and Technology. And she testified on this subject for Congress. Here’s how she said it.
MEGAN STIFEL: Not being a regulated space or a commonly regulated space, there aren’t those kinds of requirements – as there are in the financial services industry, per se, more broadly – in terms of cybersecurity.
MCLAUGHLIN: And she said that has led to some really big breaches in the past. For example, in October, one of the largest exchanges, Binance, reported potential losses of up to half a billion dollars after a hack.
MARTIN: So when this is all settled – and it may take some time for that to happen, with all these accusations and allegations – do you think, Jenna, based on your reporting, that this is all going to inspire new cybersecurity requirements?
MCLAUGHLIN: So my source, Megan Stifel, said she thinks it’s too early to tell, especially since we don’t know if a breach happened here. As you mentioned, it might take a while to get some answers. But she said it could be a chance for lawmakers or other countries — FTX is in the Bahamas, for example — to consider how existing regulations might apply to cryptocurrencies. Even so, it’s not a total disaster as it is for investigators, as there are already plenty of tools out there to investigate these kinds of crimes. Cybercriminals, for example, often think that cryptocurrency is truly anonymous, when in reality, that blockchain I mentioned earlier actually records every transaction. Moreover, the process of turning virtual currency into cash is not always so simple.
MARTIN: It’s true. Jenna McLaughlin, NPR’s cybersecurity correspondent. Thanks.
MCLAUGHLIN: Thank you.
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