$205 000 USD

JUNE 2018

CHINA

SKYCOIN

DESCRIPTION OF EVENTS

"Taking the idea of net neutrality to the max, Skycoin made its debut at ChainXChange conference in Las Vegas back in August, opening the floors up to Apple co-founder, Steve Wozniak, social media’s Gary Vaynerchuk, and Nobel Prize Winner, Paul Krugman."

 

"Holding itself out as the “third generation cryptocurrency,” Skycoin aims to provide a “new internet” that is global, decentralized, and not controlled by any country, corporation, or government entity."

 

"Its technological hardware innovation, "the skyminer," will allow the company to provide computing power, network capability, and storage capacity necessary for the Skywire network to function. Members of the company, or ‘skyminers’, act as specialized VPN’s and nodes on the network, allowing users to become their own ISP’s (internet service providers), granting complete user freedom within an encrypted network. Adding to the excitement, the Skywire network is private enough that IP addresses cannot be traced, and users are rewarded in Skycoin for providing bandwidth to other users."

 

"EVOLAB the Skycoin marketing team based in China embezzled more than 100,000 skycoins. These unfortunate events took place last year. The team did not account or return the embezzled coins resulting in termination of the connection they had with Skycoin."

 

A "robbery took place on June 13, 2018 and is said to have been led by the marketing team members, Sam Sing Fong, Mary Li, Xiangdong Yan, and Jesse Sun Fei." "[N]ine members of the company’s Asian marketing team broke into the home of Synth, the founder of the Skycoin currency. Then, in an effort to seize his stake in Skycoin’s holdings, the group tied up and beat both Synth and his wife."

 

"Sam Sing Fong led the team in holding Synth's family hostage for close to 6 hours. During this period, they caused the couple harm by beating them up and robbing them." "The nine individuals only managed to seize 18.88 Bitcoin and 6466 Skycoins during the robbery and were quickly identified after the event." "The contractors began dumping their stolen coins onto the market, adversely affecting Skycoin’s price at the time." "Fortunately, the gang's attempt to steal the design framework for the ecosystem belonging to Skycoin failed." "The team specified that the thieves, “attempted and failed to steal the design framework for the skycoin ecosystem.”"

 

"As news about this alleged home invasion began to circulate, many in the crypto community were skeptical that any of the described events actually took place. Many mistook the episode for an exit scam or a smokescreen for internal theft of coins, or some other nefarious conspiracy. This may be where most people lost track of the story, and of Skycoin."

 

"The perpetrators of the crime were each sent to prison to serve sentences from several months to over a year, depending on the role they played in the attack. They were convicted of “illegal detention”, for holding Synth and his wife hostage while they compelled them to surrender cryptocurrency, but in spite of the conviction, Skycoin’s funds were not ever recovered. The perpetrators emerged from their prison sentences facing a civil lawsuit in an effort from Synth to recover Skycoin’s stolen funds."

 

"This most recent case was technically an appeal, brought by the four criminal defendants who had been ordered to return the stolen money in the original proceedings which resulted in their prison sentences. A second lawsuit was launched to recover the funds, and was appealed by the defendants to the First Intermediate People’s Court on the tenuous assertion that digital currency cannot be considered property in China and therefore cannot be returned to an “owner”."

 

"Now, nearly two years later, the saga has come to its conclusion in a court ruling at the Shanghai First Intermediate People’s Court, where Skycoin’s founder, Synth, emerged victorious."

 

"At the centre of the lawsuit was the thieves’ dubious assertion that Chinese law that did not recognize Bitcoin (or other digital currency) as property, and therefore not subject to the rights of fiat currency, or any other tangible form of value. They argued, therefore, that they should not be compelled to return the stolen Skycoin or Bitcoin because those could not be legally considered ‘property’."

 

"Needless to say, this argument was soundly refuted in court, with the judge ruling that digital currency like Skycoin or Bitcoin, despite being virtual property, nevertheless possess the characteristics of ‘property’ as legally understood, including value, scarcity, and fungibility."

While Skycoin was not a cryptocurrency exchange, it helps highlight an important consideration in the security of crypto-assets. Assets were stored in the single individual wallets of the Skycoin founder, and easily accessible in the case of physical intimidation. The members of the marketing team, after a dispute in which they were accused of stealing funds, broke into the founder's house to physically force handing over the coins.

HOW COULD THIS HAVE BEEN PREVENTED?

While it is not possible to reasonable prevent all possibility of physical violence, security of crypto-assets can be better maintained through the establishment of a multi-signature setup. Under such a setup, multiple individuals are required to sign off on a transaction. The security is further improved through keeping the identities of some signers secret, using a variety of storage means, and securing some keys inside of physically protected areas such as banks.

 

Another strategy which can be used by an individual is the creation of a throw-away wallet which has less funds. This wallet can be given up to the attacker in place of all assets. This works as long as the adversary is unaware of the full asset balance.

 

Check Our Framework For Safe Secure Exchange Platforms

Sources And Further Reading

 For questions or enquiries, email info@quadrigainitiative.com.

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