URGENT WARNING TO EXCHANGES - DO NOT RUN HF23 UNTIL STOLEN FUNDS ARE RETURNED - DOING SO MAY IMPLICATE YOU IN A CRIMINAL CONSPIRACY

in #hf235 months ago

I am writing this post in reference to this notice from Binance stating that they intend to run HF23, despite their statement that:

Binance would like to confirm that we do not condone this type of behavior and believe that blockchains should not be used as a tool for censorship or editing user balances.

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I understand Binance and other exchanges are in a difficult position, because not running HF23 currently means users cannot deposit or withdraw Steem.

However, user inconvenience is insignificant compared to the potential for becoming implicated in a criminal (felony theft) conspiracy and Binance and the other exchanges have other legally appropriate options.

Running HF23 prior to rectification of theft may implicate exchanges in a criminal conspiracy

As I have stated in my Pro Bono Legal Opinion on HF23, in my legal opinion HF23 is an implementation of criminal theft and the Steem witnesses, and persons who controlled them, have committed the criminal offences of theft and criminal conspiracy to theft in multiple jurisdictions. Defined terms used in that opinion are used here.

In this open letter to exchanges I warned exchanges not to run HF23. This warning stands until the theft is rectified.

Because of the actions of @community321, Bittrex now has the opportunity to rectify the theft by returning the stolen Steem & SBD to the owners of the Targeted Accounts on Bittrex's own platform.

All exchanges risk becoming part of the criminal conspiracy or accomplices or accessories to it by running HF23 before this rectification occurs. Updating exchange Steem nodes to HF23 constitutes agreement to HF23 which may make the exchanges part of the conspiracy.

Only after the theft is rectified and the criminal conspiracy is thwarted can exchanges and others run this legally tainted code.

As exchanges are the only way Steem can be converted to other cryptocurrencies and fiat currency, running HF23 before rectification facilitates the theft and may lead to exchanges being considered accessories after the fact.

It is likely that law enforcement authorities will become involved in this matter and they will make their own decisions as to who to prosecute. While we in the crypto space understand the difficult position exchanges are in, law enforcement may not see it that way.

The exchanges should all get their own independent legal advice before taking any action this matter.

Exchanges have other legally appropriate options to protect users

In the event that Bittrex is unwilling or unable to rectify the theft, the exchanges have the power, both directly and indirectly, to reverse HF23 and force the Steem blockchain back to its pre-theft state.

Firstly, the exchanges can demand the Steem witnesses reverse HF23 under threat of de-listing.

Secondly, the exchanges can power up their Steem and elect new witnesses to reverse HF23.

Unlike Justin Sun's false claims of malicious actors stealing which led to Binance, Huobi and Poloniex assisting the ouster of the community elected witnesses on 2 Mar 2020, this is a genuine case of malicious actors using the Steem blockchain code to steal user funds, as outlined in a detailed legal opinion.

In my legal opinion, this is the most legally appropriate course of action for the exchanges if Bittrex is unwilling or unable to rectify the theft.

They may need to seek approval from relevant competition law authorities if there is any coordination between them regarding this, but if each acts directly on their own legal advice without coordination then competition law should not be triggered.

The exchanges should seek their own detailed legal advice about this matter, including potential competition law issues, before taking any action to implement HF23.

If they have already started running HF23 they should immediately stop and await rectification of the theft.

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I saw the other day in your Pro bono legal opinion that Dan appreciated your help, I would like to suggest that after consulting with the witnesses and other users affected by the theft could be a good idea to initiate legal actions with the funding of the DAO, could be a gratitude action from the Hive users to support the people who built this blockchain risking their own funds. Imo that can be widely supported, I'm not suggesting though that you should take the case yourself maybe is better look to lawyers in the jurisdiction that should judge the case and that have a better knowledge of it.

I do appreciate a lot your involving in all this and have in high concept your opinions about this case.

Cheers.

#POSH Shared to twitter:

With the current witness situation on Steem, what would happen if bittrex returns the funds? Wouldn't there be just the next HF/SF and it starts all over again?

If it returns the Steem on the Bittrex exchange platform then the victims can sell it into other cryptocurrencies.

I see what you mean. If the funds remain at the bittrex account but are simply credited to the original owner's bittrex wallets, there's nothing JS and the Steem witnesses could do - unless they dare to touch bittrex' balance... But it also puts some validation work on bittrex to sort out who's eligible for what.

Bittrex already asked rightful owners to prove ownership and a bunch of them have filed tickets doing that. But so far I've not heard anyone got anywhere and Bittrex's last communication on this made it sound like they believe Sun's interpretation of who has rightful ownership (whoever the blockchain last said did, regardless of when the chain itself was compromised).

I really wonder how this all is going to play out! I joined Hive because I want to be for once in my life, on the winning side :)

Clearly a difficult situation for exchanges. The now cursed blockchain Steem is more trouble then good for the business. I can not imagine their reputation is less important than their loyalty to Justin Sun.

Code is law, human rights too

While I'm thankful for your efforts to correct this criminal activity, I do think you should remove one part from your warning.

Secondly, the exchanges can power up their Steem and elect new witnesses to reverse HF23.

If by this you mean help themselves to private Steem as they did once before in aiding Justin Sun in the takeover, that is a big no no. I'm shocked they seem to have gotten away with it virtually unscathed the first time. If they do it again, the negative ripples throughout the world of crypto will simply deepen. Bad enough they showed they were willing to do this once. Worse that Justin shows a chain can just empty ones wallet out at will. If they once again help themselves at the exchanges to their users assets, it will once again affirm only an idiot will participate in crypto with so many masters just willing to help themselves to your property.

Normally I would agree and this is a last resort if the first two options fail (Bittrex returns funds or pressure gets HF23 reversed).

But although it is distasteful and potentially a breach of civil law obligations to users for exchanges to use user funds to intervene in governance, when it is to return stolen property it is a legal obligation under criminal law that over-rides other concerns.

I support binance move. No intention to support fraud

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Exchanges should protect their integrity by avoiding themselves involving in some sort of conspiracy moves that can implicate them.

Am still surprise to see the situation of steem fall so bad down like this. Who would have thought about steem been bad like this at thr early of thid year

That is life friend. When people chose greed over reputations

Upvoting your own comments is just not right.

By all right exchanges SHOULD reject this fork and demand the community or witnesses revert back to hf22 or hf 21 or whatever before allowing withdrawals.

ordinary broad work. after i read some of your posts, it's very clear ..
if I think you are a very experienced person about the world of blockchain ...
this is amazing. About your experience,
👌

Story continues and hopefully it will have a happy end for the account holders. Otherwise the immutable transactions are for nothing.

I understand Binance and actually It’s very logic.. I support them 😉

I'm no legal expert, and I FIRMLY DISAGREE WITH THE THEFT OF FUNDS THAT WERE INITIATED BY THE HARD FORK. However, Exchanges are neutral third parties in this matter and are acting as a currency exchange - if you think in the terms of Fiat - where they take a currency (cryptocurrency instead of hard currency), and give you back a different currency (less a transaction fee). Accepting and converting a given currency is not accepting the political choices of that currency's authority. It's merely a choice of accepting the risk that the original currency has value and that the destination currency has value, and placing a value on the difficulty to transact in those currencies to come up with your fee.

Perhaps there is a Fiduciary responsibility? But at least in the US, this would not be the case today.

I know this isn't what we want to see or hear from a currency, and again, I'm not a legal expert (and this is not legal advice), but I can't imagine that accepting a hard fork is the same as becoming complicit with the fraud or other actions that occur within transactions that are unrelated to the transactions that are actually conducted by a currency exchange. That'd be similar to saying that every bank that holds USD is responsible for every USD Globally and any financial fraud or terrorism paid for by every US dollar is the fault of every bank that holds and transacts in USD.

Fiat currency exchanges don't have to run code that in this case implements theft. Crypto exchanges do.
If you run code that implements theft you may become implicated in that theft.
It is an acceptance of the code to run it.

The code that holds hostage the value that the crypto exchanges maintain as a means to conduct business. The code that the crypto exchanges run in order to continue business operations for all of their customers (not just the handful of illegally affected customers).

Again, I agree that the whole JS shenanigans are ridiculous and should be illegal (regardless of existing law by whatever jurisdiction), but you can't hold exchanges accountable for actions that they are "accepting" on behalf of the 10k+ users who are not negatively affected by this fraud. There are courts to settle the matters of "the few", while a hold-ups like this means that the majority are now being punished by the few.

It's no surprise that JS stole from some of the biggest accounts (full stop). The guy thought he was getting more value from Steem than he'll ever get, even after conducting this abhorrent confiscation of user funds.

Ned screwed everyone, and now JS continues the trend with the whales / witnesses who fought TRON and had any sort of stake to compete with him.

Everyone flipped when exchanges backed JS over the witnesses (that should have been a call to arms / illegal act / made witnesses de-list from the untrustworthy exchanges), now the same people want the exchanges to back the "old witnesses" over the acting witnesses who pushed the new code? ... so, trust the witnesses - but not the ones that are acting on behalf of the blockchain? It's a tough legal argument for me to chew..

Again, illegal, immoral, not something that should ever be done, and anti-blockchain ethos. But I am not seeing how this is the responsibility of the exchanges.

TNX for the great info

free airdrop vs another guy stealing people fund which one criminals? you mad bro?