BitGo: Crypto Water Cooler —Feb 8

GM. It’s Wednesday, February 8, 2023.

Newsmakers

2023 Crypto Crime Report: Big Numbers in a Small Number of Areas

Previews of the 2023 Crypto Crime Report by blockchain data platform Chainalysis revealed that several new records were set — and not of the kind that draw kudos. The good news is, crimeapos are highly concentrated in one area, and one large, well known perpetrator accounts for the lion’s share.

Hackers stole $3.8B in 2022, the highest dollar amount to date. As in 2021, DeFi protocols were most victimized, suffering $3.1B or 82% of all losses. Within DeFi, cross chain bridges, where jackpots are large and investments in security are small, were the most frequent targets.

Illicit transaction volume hit a record $20.1B with sanctions and scam related transactions accounting for about three quarters of it. Overall, shady transactions accounted for less than one quarter percent of total 2022 crypto volume — a rise over last year but still close to all time lows.

The report, which measures illicit activity by looking at on-chain data, doesn’t include potentially fraudulent off-chain activity by crypto firms or non crypto related crimes such as drug trafficking that are paid for with crypto.

Hacking by North Korean groups also set a new record, accounting for $1.7B (44%) of thefts. That almost quadruples their record $429M 2021 haul. Compare that to the heavily sanctioned regime’s $142M in exports in 2020, and it’s clear that crypto hacking has become a major source of its revenue. It’s widely believed much of the stolen crypto is going to fund their weapons programs — a chilling prospect given the country’s nuclear saber rattling. The country appears to have a $1.6B military budget, minuscule next to U.S. military spending of $801B and even next to South Korea at $45.7B.

Also of some comfort: in 2022, U.S. law enforcement recovered $30M from the hackers, the first ever seizure of funds from North Korea-linked groups. Plus, crypto theft may not be a sustainable source of government income. Chainalysis predicts that hacking overall will become more difficult and “less fruitful” in upcoming years.

Read more →Chainalysis

Shanghai Appears Poised to Usher in New Era for Ethereum

The Ethereum network has another major upgrade on deck for 2023: the Shanghai Fork, currently slated for March. Its September 2022 upgrade, “The Merge”, was a monumental achievement for Ethereum developers. However, it did not include the ability to unstake ETH and accrued rewards. Validators, some of whom had been staking ETH on the Beacon Chain since December of 2020, had to commit to locking in their staked ETH for an indeterminate amount of time. Once Shanghai is complete, about 16 million ETH and about 1 million units of ETH in accrued rewards will be eligible to be unlocked.

Opinion is split on whether this will place selling pressure on ETH or create more incentive to stake. Many validators are likely interested in getting their long-awaited rewards. On the other hand, those willing to lock up their ETH indefinitely may be in it for the long haul. Research from Bernstein shows that 70% of Ethereum that is staked through exchanges or liquid staking pools is more likely to be held by short-term investors whereas ETH staked on the Beacon Chain is likely to be in the hands of long-term holders.

In a sense, Shanghai is really the final stage of The Merge. As Coindesk’s Margaux Nijkerk notes, the proof of stake network may be operational but, without the ability to unlock coins and rewards, it’s not fully featured. So, despite all the buzz around The Merge, it’s really Shanghai that will usher in the new era for Ethereum.

Read more →CoinDesk

The First NFT Launched on Bitcoin. How’s That Going?

The debut of Ordinals, the first ever Bitcoin NFT, launched at the end of January to a mixture of excitement, experimentation, and dismay from the let’s-stay-the-same purists. Ordinals allows people to directly inscribe text, images — and even videos — on the Bitcoin blockchain. Despite being a bit late to the game and currently not having a secondary market, 7,000 Ordinals have already been inscribed.

Ordinals uses Bitcoin’s native currency — satoshis — to create transferrable images with structures similar to NFTs. All trading takes place over the counter with someone sending money to the owner in exchange for the Ordinals image with creators acting as the middle party. The space these images take up, and resulting more costly transaction fees, have triggered high emotions in purists who argue that Bitcoin and its blockchain space should be reserved for payments. There’s also been heated debate about whether this is really the first Bitcoin NFT. For a decade, digital artists have linked their creations to the Bitcoin blockchain through sidechain or layer-2 solutions.

What kinds of inscriptions are creators coming up with? Well, an independent developer claims to have created Bitcoin’s largest transaction to date: a 3.94 megabyte bald, bearded wizard wearing sunglasses and touting “magic internet JPEGs,” an homage to an early Bitcoin meme.

Read more →Bitcoin Magazine and Nasdaq

News In Brief

Regulation and Security

• India’s 2023 Budget Retains Restrictive Crypto Tax Rules, Penalties — CoinDesk
• Britain’s Finance Ministry Lays Out Draft Crypto Regulation — Reuters
• Coinbase Wins Dismissal in Unregistered Securities Case — Reuters

Business of Crypto

• Digital Bank Revolut to Offer Staking to UK, EU Customers — CoinDesk
• Binance Acquires Majority Stake In Korean Exchange GOPAX — TechCrunch
• Gemini, Genesis, Reach Agreement on Earn Asset Recovery — Decrypt

DeFi and Web3

• AWS Looking to Hire For Web3 — CoinDesk
• Toyota to Sponsor Web3 Hackathon to Generate Management Tool Ideas — CoinDesk
• Hypernative Secures $9M in Seed Funding for Web3 Threat Detection — CoinDesk

Midweek Market Pulse

Total Market Cap: $1,070,358,874,430–7 day change as of Tuesday 2/7/23 Noon EST: 1.65%

Source: Messari

Bitcoin (BTC, -1.0%) was relatively unchanged while Ethereum (ETH, 2.8%) again crept higher as global crypto market cap hovered above $1T for another week.

Polygon (MATIC, 10.8%) enjoyed media buzz from Bloomberg, which highlighted the layer-2 in its crypto outlook. Among its reasons: Polygon has the third-largest number of dApps of any blockchain (359) and more developers than many layer-1 blockchains. It also has a growing roster of corporate partnerships with companies like Starbucks, Nike, and Reddit.

Indexing protocol The Graph (GRT, 104.1%) more than doubled in price to surpass $1b in market cap. The Graph indexes data from blockchains and allows developers and others to query on-chain data for a fee. The Graph may be benefiting from its association with artificial intelligence at a time when interest in all-things AI-related is running high with the frenzy over ChatGPT.

Liquid staking tokens gained in advance of Ethereum’s Shanghai hard fork. Frax Shares (FXS, 27.5%) continued its hot start to 2023. Data from Nansen shows that Frax Ether’s (frxETH, 3.55%) TVL has climbed 77% to above $140m over the past month. The entire space continues to enjoy momentum with Lido DAO (LDO, 14.3%), Lido Staked Ether (stETH, 3.3%), Rocketpool (RPL, 11.1%), and Rocket Pool Eth (RETH, 2%) all rising.

Elsewhere, BNB (BNB, 5.1%) shrugged off news that Binance will pause transfers of U.S. dollars.

The Last Word

Satoshi

noun

: The smallest denomination of BTC, equal to one one-millionth of a Bitcoin

// The Satoshi is named after the anonymous creator of Bitcoin, Satoshi Nakamoto.

About BitGo

BitGo provides the most secure and scalable solutions for the digital asset economy, offering regulated custody, borrowing and lending, and core infrastructure to investors and builders alike.

Founded in 2013 — the early days of crypto — BitGo pioneered the multi-signature wallet and later built TSS to improve upon other companies’ MPC offerings. Between multi-sig and TSS, BitGo offers the safest technology on the market and safeguards over 600 tokens across a wide variety of blockchains.

Over the years, BitGo has expanded from offering wallets into providing a full-suite solution that lets clients hold assets safely and then put them to work.

BitGo launched BitGo Trust Company in 2018, providing fully regulated, qualified cold storage to complement BitGo Inc’s original hot wallet solution. In 2020, BitGo launched BitGo Prime, which allows its clients to trade, borrow, and lend. Moreover, BitGo also provides access to DeFi, staking, NFT wallets, and beyond, and serves as the world’s sole custodian for WBTC, or wrapped Bitcoin.

Today, BitGo is the leader in digital asset security, custody, and liquidity, providing the operational backbone for more than 1500 institutional clients in over 50 countries — a list that includes many regulated entities and the world’s top cryptocurrency exchanges and platforms. BitGo also processes approximately 20% of all global Bitcoin transactions by value.

For more information, please visit www.bitgo.com.

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