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Zoe Thomas: This is your Tech News Briefing for Friday, February 11th. I'm Zoe Thomas for The Wall Street Journal. You know what's a lot of bitcoins? 94,636. That's how many the US government said it recovered in its largest ever financial seizure this week, the equivalent of over $3 billion today. So how did the government track down these digital tokens that were stolen in a hack nearly six years ago and what does its ability to trace the accused money launderers' say about how it fights crypto crime? On today's show, WSJ reporter Paul Vigna, who covers digital currencies joins us to discuss. That's after these headlines.Tesla is being sued by regulators in California over allegations of racial discrimination and harassment at its main US car plant in Fremont. In a lawsuit filed Wednesday, the California Department of Fair Employment and Housing cited hundreds of complaints from workers at the plant and said there's evidence that the factory is "racially segregated". Tesla didn't respond to a request for comment, but in a blog post ahead of the suit's filing, the company called the investigation misguided and said it strongly opposes all forms of discrimination and harassment.Twitter reported lower than expected quarterly earnings yesterday, blaming higher expenses from increased staffing and marketing costs. But the upshot for the microblogging site was that it mostly dodged the impacts of privacy changes brought on by Apple that have hurt ad sales at other tech companies like Meta, the parent of Facebook. Twitter saw daily active users grow by just over 2.8% and revenue go up by 22% from a year earlier.And can tech make old age a little bit better? There are a lot of gadgets out there to help fight off some of the challenges we face as we age, many of them equal parts wacky and practical. From brain implants to restore our sense of smell, to VR headsets that make up for failing eyesight, even jewelry that helps combat loneliness. WSJ contributor, Ben (Walmiren) has been checking some of them out.
Ben Walmiren: We're seeing a convergence between consumer electronics and medical grade devices and that should be even more pronounced in the future. One example is the hearing aid, which used to be this obtrusive device that was also socially stigmatized. Now it's completely invincible. You could be wearing one, I wouldn't see it. And those hearing aids pack in AI technology to fulfill what they were designed for, which is to make sound around us crystal clear, amp up speech, reduce noises, but they could also be integrated with things like smart glasses and whisper in your ear the name of the person sitting next to you at this business meeting. And that is an interesting aspect that I expect we're going to be seeing more broadly.
Zoe Thomas: All right, coming up, cryptocurrencies have a reputation for anonymity, but now the government is sending a message to crypto thieves, they can track you down. We'll discuss after the break.This week, the US government said it recovered about $3.6 billion of stolen bitcoin. The coins were allegedly taken in 2016 during the hack of crypto exchange, Bitfinex. The justice department also announced the arrest of a married couple, which it accused of laundering the stolen crypto. Officials say the recovery marked the largest ever financial seizure by the justice department and it was a significant step forward in showing how law enforcement can track the movement of digital currency to catch suspected criminals. So how did it all go down? Joining us to discuss this is our cryptocurrency reporter, Paul Vigna. Thanks for being here, Paul.
Paul Vigna: Hi, Zoe. How are you?
Zoe Thomas: I'm doing great. Paul, maybe you can start off with a little bit of background. Tell us about the hack of Bitfinex in 2016.
Paul Vigna: In August of 2016, Bitfinex, which at the time was one of the largest exchanges in the crypto market got hacked. About 120,000 bitcoins were taken out of accounts that were the exchanges accounts and ostensibly disappeared. That was client money that was just gone. At the time they were worth about 65, $70 million and at the time it was a really big deal. This was one of the largest exchanges and what it said was that the security at these exchanges was not good. It was not up to standards.
Zoe Thomas: Okay. And now there's this couple that has been arrested. Can you tell us who they are? Do we know anything about them and what are they charged with specifically?
Paul Vigna: So this week, the government announced that they arrested two people, Ilya Lichtenstein and Heather Morgan in connection with the movement of the stolen funds from Bitfinex. What they specifically were charged with were money laundering with moving the money and lying to the government about it.
Zoe Thomas: Okay. So that's the laundering. Has anybody been charged with the actual hack?
Paul Vigna: No. Heather and Ilya were not charged with the hack and nobody else has been charged with the hack, which is sort of an interesting question. Look, we don't know if they did it at all, but the government is not saying that they were actually involved in the hack itself. The government is just saying that they moved the money.
Zoe Thomas: Have we heard at all from Mr. Lichtenstein or Ms. Morgan? We know their lawyer made an appearance in court.
Paul Vigna: No, we haven't. We tried to call contact them. They didn't respond and their lawyer declined to comment.
Zoe Thomas: Okay. So let's talk about the government's case a little bit. How do they say the couple tried to launder the money?
Paul Vigna: What the government is saying is that at some point early on, this money went into accounts that were controlled by Ilya and Heather. And what the government is saying is that over the course of several years, these two took that money and moved it around the Bitcoin ecosystem. They had set up accounts that they controlled. They set up accounts at exchanges. They had what are called unhosted wallets, which is basically you just download a piece of software that allows you to buy and sell and hold bitcoins. And the government is saying is that they had basically a couple of dozen different accounts spread out all around and that they were moving the money between all these different accounts in a just a huge series of transactions, which is what money launderers usually do when they're trying to hide their tracks.
Zoe Thomas: I mean, with so many transactions, it seems like it would get pretty complicated. How does the government go about tracking these kinds of transactions in these kinds of crimes?
Paul Vigna: Yes, it is extremely complicated. On the one hand, Bitcoin's transaction history is literally an open ledger. The way Bitcoin operates without a third party is that it's transparent. Anybody can go and look at the history of all these Bitcoin transactions, every single transaction in the history of Bitcoin's operations is on an open ledger that you can track. So with this hack, for instance, you can look at the initial transaction. You can look at the account that held these bitcoins, see when they were moved out, see what wallet they went into. And from that starting point, you can trace their entire history on this open ledger. It is not easy to do however. Like I said, we're talking about probably thousands upon thousands of transactions. What you need is you need software to help you do it. And the government has that. They basically have hired private contractors who have built businesses now building these kinds of analytics programs. And that's what they do. And the government employs these programs and they use them to track these transactions.It's a gigantic digital cat and mouse game. And you can see this hack happened in 2016 and these arrests were made in 2022. So ostensibly, it took the government years to weed through all this stuff, figure out who they think did it, and then make these arrests.
Zoe Thomas: When Bitcoin and cryptocurrency sort of first came into public consciousness, people really thought about it in terms of anonymity and shady dealings. I mean, is there a way to remain anonymous or keep your secrecy in digital currency? Because it sounds like what you're saying is every transaction is wide open.
Paul Vigna: Every transaction is wide open. What is not wide open is the identity of the person behind that transaction. To operate the Bitcoin network doesn't require that. If I go to a bank and I open up a bank account and I want to make transactions in and out of my account, I have to tell the bank who I am. That's how the sort of real world works is that everything is tracked. Everything is known by the private institution that's handling my money. Bitcoin doesn't necessarily work that way. Bitcoin exchanges do do that, but you can operate this software, these unhosted wallets that doesn't require you to provide any kind of identifying information. And in every money laundering case, that's what money launderers do is they just move the money anonymously. However, like I said, every transaction is open and the trick for the government has become, you have this really enticing piece of evidence, which is a transaction history.What you need to do is tie it to a real world identity, find some end point where the money moved that you can attach it to a person in the real world. And once you do that and the government has done this in several previous cases, once you do that, you have a very strong piece of evidence to use in a court of law.
Zoe Thomas: You mentioned that this hack, it was in 2016 and it's taken the government a number of years to build up their case. I wonder if we should expect to see an increase in this kind of charge coming from the government now that they've built up an infrastructure to track these deals.
Paul Vigna: Possibly. Late last year, the justice department formed a new task force expressly about tracking crypto crime. So they have clearly made this a priority. You can probably expect there will be more investigations just like this one. The interesting thing about it is that this was not an easy thing for them to do and it took a lot of resources. So what would become the crux of this is how large is the crime. There's a lot of crypto crime out there. It's endemic. Most of it though is pretty small. They go after individuals, they go after smaller platforms. There's a lot of phishing schemes. There's a lot of influencer schemes. So a lot of it is sort of small and it's being done by offshore entities that are harder for the government, certainly the US government to reach. That is not going to go away. But on these bigger frauds, bigger hacks and cons and scams, I think the message that the US government was trying to send with this is, "Look, we can trace you. We can find you."
Zoe Thomas: All right. That's our reporter, Paul Vigna. Thanks for joining us, Paul.
Paul Vigna: Yep. Thanks for having me.
Zoe Thomas: And that's it for Tech News Briefing this week. Our producer is Julie Chang. Our supervising producer is Chris Zinsli. Our executive producer is Kateri Jochum. And I'm your host, Zoe Thomas. Thanks for listening and have a great weekend.
