Friday, December 16, 2022

'Luddite' Teens Don't Want Your Likes

Alex Vadukul
Fri, December 16, 2022 

In this article:
Ned Ludd
Person from whom, it is popularly claimed, the Luddites took their name


Logan Lane, the founder of the Luddite Club, in her room at home in Brooklyn, Dec. 11, 2022.
 (Scott Rossi/The New York Times)

NEW YORK — On a brisk recent Sunday, a band of teenagers met on the steps of Central Library in Brooklyn to start the weekly meeting of the Luddite Club, a high school group that promotes a lifestyle of self-liberation from social media and technology. As the dozen teens headed into Prospect Park, they hid away their iPhones — or, in the case of the most devout members, their flip phones, which some had decorated with stickers and nail polish.

They marched up a hill toward their usual spot, a dirt mound far from the park’s crowds. Among them was Odille Zexter-Kaiser, a senior at Edward R. Murrow High School, who trudged through leaves in Doc Martens and mismatched wool socks.

“It’s a little frowned on if someone doesn’t show up,” Odille said. “We’re here every Sunday, rain or shine, even snow. We don’t keep in touch with each other, so you have to show up.”

After the club members gathered logs to form a circle, they sat and withdrew into a bubble of serenity.

Some drew in sketchbooks. Others painted with a watercolor kit. One of them closed their eyes to listen to the wind. Many read intently — the books in their satchels included Fyodor Dostoevsky’s “Crime and Punishment,” Art Spiegelman’s “Maus II” and “The Consolation of Philosophy” by Boethius. The club members cite libertine writers like Hunter S. Thompson and Jack Kerouac as heroes, and they have a fondness for works condemning technology, like “Player Piano” by Kurt Vonnegut. Arthur, the bespectacled PBS aardvark, is their mascot.

“Lots of us have read this book called ‘Into the Wild,’” said Lola Shub, a senior at Essex Street Academy, referring to Jon Krakauer’s 1996 nonfiction book about Chris McCandless, a nomad who died while trying to live off the land in the Alaskan wilderness. “We’ve all got this theory that we’re not just meant to be confined to buildings and work. And that guy was experiencing life. Real life. Social media and phones are not real life.

“When I got my flip phone, things instantly changed,” Lola continued. “I started using my brain. It made me observe myself as a person. I’ve been trying to write a book, too. It’s like 12 pages now.”

The club members briefly discussed how the spreading of their Luddite gospel was going. Founded last year by another Murrow High School student, Logan Lane, the club is named after Ned Ludd, the folkloric 18th-century English textile worker who supposedly smashed up a mechanized loom, inspiring others to take up his name and riot against industrialization.

“I just held the first successful Luddite meeting at Beacon,” said Biruk Watling, a senior at Beacon High School in Manhattan, who uses a green-painted flip phone with a picture of a Fugees-era Lauryn Hill pasted to it.

“I hear there’s talk of it spreading at Brooklyn Tech,” someone else said.

A few members took a moment to extol the benefits of going Luddite.

Jameson Butler, a student in a Black Flag T-shirt who was carving a piece of wood with a pocketknife, explained: “I’ve weeded out who I want to be friends with. Now it takes work for me to maintain friendships. Some reached out when I got off the iPhone and said, ‘I don’t like texting with you anymore because your texts are green.’ That told me a lot.”

Vee De La Cruz, who had a copy of “The Souls of Black Folk” by W.E.B. Du Bois, said: “You post something on social media, you don’t get enough likes, then you don’t feel good about yourself. That shouldn’t have to happen to anyone.

“Being in this club reminds me we’re all living on a floating rock and that it’s all going to be OK.”

A few days before the gathering, after the 3 p.m. dismissal at Murrow High School, a flood of students emerged from the building onto the street. Many of them were staring at their smartphones, but not Logan Lane, the 17-year-old founder of the Luddite Club.

Down the block from the school, she sat for an interview at a Chock full o’Nuts coffee shop. She wore a baggy corduroy jacket and quilted jeans that she had stitched herself using a Singer sewing machine.

“We have trouble recruiting members,” she said, “but we don’t really mind it. All of us have bonded over this unique cause. To be in the Luddite Club, there’s a level of being a misfit to it.” She added: “But I wasn’t always a Luddite, of course.”

It all began during lockdown, she said, when her social media use took a troubling turn.

“I became completely consumed,” she said. “I couldn’t not post a good picture if I had one. And I had this online personality of ‘I don’t care,’ but I actually did. I was definitely still watching everything.”

Eventually, too burned out to scroll past yet one more picture-perfect Instagram selfie, she deleted the app.

“But that wasn’t enough,” she said. “So I put my phone in a box.”

For the first time, she experienced life in the city as a teenager without an iPhone. She borrowed novels from the library and read them alone in the park. She started admiring graffiti when she rode the subway, then fell in with some teens who taught her how to spray-paint in a freight train yard in Queens. And she began waking up without an alarm clock at 7 a.m., no longer falling asleep to the glow of her phone at midnight. Once, as she later wrote in a text titled the “Luddite Manifesto,” she fantasized about tossing her iPhone into the Gowanus Canal.

While Logan’s parents appreciated her metamorphosis, particularly that she was regularly coming home for dinner to recount her wanderings, they grew distressed that they couldn’t check in on their daughter on a Friday night. And after she conveniently lost the smartphone they had asked her to take to Paris for a summer abroad program, they were distraught. Eventually they insisted that she at least start carrying a flip phone.

“I still long to have no phone at all,” she said. “My parents are so addicted. My mom got on Twitter, and I’ve seen it tear her apart. But I guess I also like it, because I get to feel a little superior to them.”

At an all-ages punk show, she met a teen with a flip phone, and they bonded over their worldview.

“She was just a freshman, and I couldn’t believe how well read she was,” Logan said. “We walked in the park with apple cider and doughnuts and shared our Luddite experiences. That was the first meeting of the Luddite Club.”

This early compatriot, Jameson, remains a member.

When school was back in session, Logan began preaching her evangel in the fluorescent-lit halls of Murrow. First she convinced Odille to go Luddite. Then Max. Then Clem. She hung homemade posters recounting the tale of Ludd in corridors and on classroom walls.

At a club fair, her enlistment table remained quiet all day, but little by little the group began to grow.

Today, the club has about 25 members, and the Murrow branch convenes at the school each Tuesday. It welcomes students who have yet to give up their iPhones, offering them the challenge of ignoring their devices for the hourlong meeting (lest they draw scowls from the die-hards). At the Sunday park gatherings, Luddites often set up hammocks to read in when the weather is nice.

As Logan recounted the club’s origin story over an almond croissant at the coffee shop, a new member, Julian, stopped in. Although he hadn’t yet made the switch to a flip phone, he said he was already benefiting from the group’s message. Then he ribbed Logan regarding a criticism one student had made about the club.

“One kid said it’s classist,” he said. “I think the club’s nice, because I get a break from my phone, but I get their point. Some of us need technology to be included in society. Some of us need a phone.”

“We get backlash,” Logan replied. “The argument I’ve heard is we’re a bunch of rich kids and expecting everyone to drop their phones is privileged.”

After Julian left, Logan admitted that she had wrestled with the matter and that the topic had spurred some heated debate among club members.

“I was really discouraged when I heard the classist thing and almost ready to say goodbye to the club,” she said. “I talked to my adviser, though, and he told me most revolutions actually start with people from industrious backgrounds, like Che Guevara.

“We’re not expecting everyone to have a flip phone. We just see a problem with mental health and screen use.”

Logan needed to get home to meet with a tutor, so she headed to the subway. With the end of her senior year in sight and the pressures of adulthood looming, she has also pondered what leaving high school might mean for her Luddite ways.

“If now is the only time I get do this in my life, then I’m going to make it count,” she said. “But I really hope it won’t end.”

On a leafy street in the Cobble Hill neighborhood, she stepped into her family’s townhouse, where she was greeted by a goldendoodle named Phoebe, and rushed upstairs to her room. The décor reflected her interests: There were stacks of books, graffitied walls and, in addition to the sewing machine, a manual Royal typewriter and a Sony cassette player.

In the living room downstairs, her father, Seth Lane, an executive who works in information technology, sat beside a fireplace and offered thoughts on his daughter’s journey.

“I’m proud of her and what the club represents,” he said. “But there’s also the parent part of it, and we don’t know where our kid is. You follow your kids now. You track them. It’s a little Orwellian, I guess, but we’re the helicopter parent generation. So when she got rid of the iPhone, that presented a problem for us initially.”

He’d heard about the Luddite Club’s hand-wringing over questions of privilege.

“Well, it’s classist to make people need to have smartphones, too, right?” Lane said. “I think it’s a great conversation they’re having. There’s no right answer.”

A couple of days later, as the Sunday meeting of the Luddite Club was coming to an end in Prospect Park, a few of the teens put away their sketchbooks and dog-eared paperbacks while others stomped out a tiny fire they had lit. It was the 17th birthday of Clementine Karlin-Pustilnik and, to celebrate, the club wanted to take her for dinner at a Thai restaurant.

Night was falling on the park as the teens walked in the cold and traded high school gossip. But a note of tension seemed to form in the air when the topic of college admissions came up. The club members exchanged updates about the schools they had applied to across the country. Odille reported getting into the State University of New York at Purchase.

“You could totally start a Luddite Club there, I bet,” said Elena Scherer, a Murrow senior.

Taking a shortcut, they headed down a lonely path that had no park lamps. Their talk livened when they discussed the poetry of Lewis Carroll, the piano compositions of Maurice Ravel and the evils of TikTok. Elena pointed at the night sky.

“Look,” she said. “That’s a waxing gibbous. That means it’s going to get bigger.”

As they marched through the dark, the only light glowing on their faces was that of the moon.

© 2022 The New York Times Company

POETRY
Lord Byron
 
Song For The Luddites
I.
As the Liberty lads o’er the sea
Bought their freedom, and cheaply, with blood,
So we, boys, we
Will die fighting, or live free,
And down with all kings but King Ludd!

II.
When the web that we weave is complete,
And the shuttle exchanged for the sword,
We will fling the winding sheet
O’er the despot at our feet,
And dye it deep in the gore he has pour’d.

III.
Though black as his heart its hue,
Since his veins are corrupted to mud,
Yet this is the dew
Which the tree shall renew
Of Liberty, planted by Ludd


https://www.smithsonianmag.com/history/what-the-luddites-really-fought-against-264412

Ned Ludd, also known as Captain, General or even King Ludd, first turned up as part of a Nottingham protest in November 1811, and was soon on the move from ...

Ford, CATL Plan New US Battery Plant: Report

Shivani Kumaresan
Thu, December 15, 2022 


Ford Motor Company (NYSE: F) and China's Contemporary Amperex Technology Co Ltd (CATL) are planning to build a battery production plant in Michigan.


Michigan and Virginia have emerged as potential spots for the multibillion-dollar facility, Bloomberg reported.


The new facility will likely supply lithium iron phosphate batteries for Ford's electric models.


The report noted that Ford might own 100% of the plant along with the building and infrastructure, while CATL will be in charge of cell technology and operations.


Also Read: Automakers, South Korea Nudge US To Consider Commercial EV Tax Credit


The move to build a U.S. plant is to avail production tax credits under the new Inflation Reduction Act with no direct financial investment from CATL.


"It is incredibly important to own the battery value chain, there's no doubt," the report cited Lisa Drake, Ford's vice president of EV industrialization.


CATL has been mulling to set up production in Mexico and the U.S. to supply cells to automakers.
The auditor of Binance and Crypto.com's reserves has reportedly stopped work with crypto clients in the wake of FTX's collapse

Carla Mozée
Fri, December 16, 2022 

Nurphoto

Mazars Group, which has conducted proof-of-reserve audits for cryptocurrency exchange Binance and others, is halting all work for crypto clients, Bloomberg reported Friday.

The suspension is taking place because of indications that markets haven't been reassured by "proof-of-reserves" reports.

The crypto industry has rushed to conduct proof-of-reserves audits following the failure of crypto exchange FTX last month.

French accounting firm Mazars Group — which has conducted proof-of-reserve audits for cryptocurrency exchange Binance and others — is halting all work for crypto clients, Bloomberg reported Friday. The move comes at a time when the industry is trying to bolster confidence after FTX's implosion.

The work suspension for crypto firms is taking place because of indications that markets haven't been reassured by the reports it had published so far, Bloomberg reported, citing an email from Mazars it had seen. The firm was also concerned about intense media scrutiny, the email said.

Bloomberg said a spokesperson for Mazars said the company will issue a statement in due course and declined further comment.

An audit of proof of reserves aims to confirm that a company's stated holdings are actually there. Such work could detail where a customer's assets are and where they've been. But there's scrutiny surrounding proof of reserves reports as experts have said they only provide a brief snapshot and do not show a firm's liabilities.

The crypto industry has rushed to conduct proof-of-reserves audits following the failure of crypto exchange FTX last month stemming from accusations it misused customer deposits.

Mazars has produced proof-of-reserves reports for Binance and other crypto exchanges including Crypto.com and Kucoin. In a report released earlier this month, Mazars determined Binance's customer bitcoin reserves have more than enough collateral.

The Bloomberg report noted Binance CEO Changpeng Zhao in an interview with CNBC on Thursday said it hasn't engaged a so-called Big Four auditing firm as such companies "don't even know how to audit crypto exchanges."

A website hosting Mazars's reports for crypto clients was currently inactive, Bloomberg reported.

BNB Plummets as Binance Auditor Mazars Halts Work With All Crypto Firms

Andrew Asmakov
Fri, December 16, 2022 


Auditing firm Mazars Group has dropped cryptocurrency firms as clients, according to crypto exchange Binance.

In a statement to Decrypt, Binance said that “Mazars has indicated that they will temporarily pause their work with all of their crypto clients globally, which include Crypto.com, KuCoin, and Binance.”

“Unfortunately, this means that we will not be able to work with Mazars for the moment,” a Binance spokesperson said, adding that the exchange is looking to “embrace additional transparency, exploring the best ways to share those details “in the coming months.”

The firm will also be moving forward with its Merkle Tree-based proof of reserves (PoR) pilot.

As for working with another accounting firm, the spokesperson said that "we have reached out to multiple large firms, including the Big Four, who are currently unwilling to conduct a PoR for a private crypto company and we are still looking for a firm who will do so."

Binance Coin (BNB), the native token of the exchange, responded to the news with a 5.2% drop on Friday, currently trading around $251, according to CoinGecko.

A Crypto.com spokesperson told Decrypt that the exchange completed its proof-or-reserves attestation with Mazars "successfully."

KuCoin did not respond to Decrypt's request for comment.

Mazars' reports pulled off

Last week, Mazars published a proof-of-reserves assessment of Binance, reporting a 101% collateralization ratio for 575,742 Bitcoin in net customer deposits as of November 22. The link to the report on the French firm’s website, however, is no longer working at press time.

Mazars also performed a proof-of-reserves assessment of Kucoin and Crypto.com exchanges, finding that BTC, ETH, USDT, and USDC reserves at Kucoin were overcollateralized as well, while Crypto.com had a 1:1 backing of its reserves.

Both reports have been pulled off the firm’s website as well.

A Mazars spokesperson told Decrypt that it "has paused its activity relating to the provision of Proof of Reserves Reports for entities in the cryptocurrency sector due to concerns regarding the way these reports are understood by the public."

Former SEC Regulator: Binance's Proof of Reserves Audit 'How I Define Red Flag’

The financial health of crypto exchanges came under scrutiny following the collapse of FTX in November, with many trading platforms moving to conduct proof of reserves reports for the likes of Binance and other large exchanges.

Binance’s proof of reserves report has faced hefty criticism, as it was not a full or official audit. It also referred to a snapshot of the exchange’s assets at a certain point of time and did not disclose its liabilities.

Audit firm Mazars ceases proof-of-reserves work for Binance and others



Romain Dillet
Fri, December 16, 2022 

Global audit firm Mazars has deleted the website that hosted proofs-of-reserves work for cryptocurrency exchanges. The company told Bloomberg that it is suspending its work with crypto companies on proofs-of-reserves reports going forward.

Mazars appeared a few times in crypto news over the past few weeks because it started issuing those reports for cryptocurrency exchanges. The idea is that exchanges could reassure their users after the FTX downfall. Mazars also used Merkle trees so that users could check that their crypto assets are included in the report by entering a hash.

Clients of the audit firm include Crypto.com and Kucoin. But the most prominent client was Binance. Mazars certified last week that Binance held enough bitcoins and wrapped bitcoins to cover all users’ balances on the exchange as of November 22 at 23:59 UTC.

But when Binance and Mazars announced the proof-of-reserves report for the exchange’s bitcoin reserves, many people were quick to point out that this report only covered a small portion of Binance’s activities.


It could be seen as a step in the right direction, but it doesn’t mean much when it comes to Binance’s handling of all crypto assets across all its products. Similarly, it’s hard to see whether user assets are separated properly from Binance’s own balance sheet.

As long as Binance doesn’t share the full picture, it’s impossible to say with 100% certainty that Binance currently holds user accounts in segregated crypto wallets without any market exposure.

Mazars’ move doesn’t mean that the reports were wrong. It just means that the audit firm doesn’t think working with crypto firms for these reports is worth the risk. People have paid a lot of attention to these reports, which means that Mazars is putting its reputation on the line if one of those exchanges fail in one way or another.

Building trust requires a lot of effort and these auditing reports appeared a bit too quickly after the collapse of FTX. While they were a step in the right direction, proving that user assets are safe will require a more thorough approach.

Binance’s bitcoin reserves are fully collateralized according to auditing firm Mazars
CRIMINAL CRYPTO CAPITALI$M
How stable is Binance, really?

Jeff John Roberts
Fri, December 16, 2022

Just last month, Changpeng Zhao looked like the undisputed king of crypto. The upstart exchange FTX had spectacularly imploded in early November, and Zhao, the CEO of the exchange giant Binance, had carried out the kill shot by dumping FTX's native crypto token and triggering a liquidity crisis that sank FTX and its founder and CEO, Sam Bankman-Fried. For a few days, it even looked like Binance would acquire FTX.

In the weeks since, FTX's disordered collapse has risked pushing an already-stressed crypto industry over the brink. Prosecutors and regulators have alleged that FTX was not just a company in distress, but a massive fraud, and Bankman-Fried was arrested Monday in the Bahamas. The FTX debacle has also triggered widespread mistrust among crypto survivors, who are watching for what dominoes might fall next—and whether one of them might be Binance.

Binance is the world's largest crypto exchange by volume. But it has been plagued by trouble with regulators and is facing potential criminal charges related to money laundering and sanctions violations. Misgivings about the company accelerated this week after customers pulled billions worth of assets from its platform and Binance temporarily halted withdrawals of a key asset. Other crypto companies held crisis meetings to plan how they'll respond if Binance's situation worsened.

So, how much trouble is Binance in? It's not as bad as FTX, insiders say, but it's still not good.

Senior executives at several other well-known crypto firms, including Binance's biggest rivals, told Fortune they do not believe Binance is on the cusp of insolvency—a conclusion bolstered by blockchain data that shows the company holds ample stores of Bitcoin and liquid assets. While some casual observers have drawn parallels between Binance and FTX, those within the industry aren't going there.

Zhao acknowledged this week that the company and crypto more broadly are enduring a tough stretch. In a memo to staff, he wrote that the industry is undergoing an "historic moment" and that the next few months would be "bumpy," but assured them that Binance "will survive any crypto winter."

Nonetheless, the company and its CEO are under scrutiny like never before—and the next few months will determine whether Binance has a long-term future.
Binance's very bad week

While this week's news cycle has been consumed by Bankman-Fried, and crypto-related testimony in Washington, D.C., a fresh drama about Binance played out quietly in the background. It began when the analytics firm Nansen published data to show customers cashed out around $3.6 billion worth of assets over seven days from Binance, including almost $2 billion in a single day.

The spur for the withdrawals was likely a report published Monday that claimed factions in the Justice Department are pushing aggressively to file criminal charges related to sanctions violations and money laundering against Binance and its CEO. The full extent of the outflows may have been higher than reported, since the Nansen data includes withdrawals of Ethereum and stablecoins but not Bitcoin. An executive at a Binance rival, who requested anonymity because he was not authorized to speak publicly, told Fortune that his company's internal estimates suggest that total outflows may have been as high as $6 billion to $8 billion, including cash-outs of Bitcoin and other currencies like Tron.

The alarm over Binance increased amid reports that the company was failing to process withdrawals of USDC, one of the more widely used stablecoins pegged to the U.S. dollar. This is part of what made it feel urgent to map out the worst-case scenarios involving Binance, the executive at the rival company said.

That worst-case scenario might sound familiar: It speculates that Binance could be using a token called BNB, which is native to Binance's own blockchain, as collateral for loans. Binance denies this practice, but if it were true, it could leave the company vulnerable the same way FTX's FTT token did. The value of BNB could crater if the market were to grow uneasy about Binance's health, which would leave Binance unable to pay back loans, leading it to sell its holdings of the wildcat stablecoin Tether. That in turn could lead to Tether—whose reserve structure has always been murky—failing to maintain its $1 peg, which would set off a wide conflagration across the crypto markets.

A spokesperson for Binance told Fortune that the exchange has never used BNB as collateral. But speculation about such a disastrous scenario is making some in the industry uneasy about Binance's large holdings of assets like BNB and Tether, which offer little transparency. Another executive, who likewise insisted on anonymity, said their own firm convened a special meeting in the wake of this week's Binance headlines to explore how it would react if the giant exchange collapses over the holidays.

Binance itself has responded forcefully to all of this dire prognosticating (which might be more reassuring had we not all seen similar behavior from other troubled crypto leaders).

Late on Tuesday, amid widespread murmurings about the situation at Binance, CEO Zhao took to Twitter to downplay the recent outflows, noting that the company has experienced bigger ones in the past and suggesting such events amount to healthy "stress tests."

https://twitter.com/cz_binance/status/1602881018029015042


By the end of the week, outflows from the platform had begun tapering and fears about its financial health quieted down some.


A screenshot from Nansen taken mid-day Thursday that shows 7-day outflows at Binance exceeded all other crypto exchanges but that it had declined to $2.6 billion compared to the $3.6 billion figure reported earlier this week.


Just a 'stress test'?

Other crypto industry figures agreed with Zhao's assertion that concern about the outflows were overblown. These included the venture capitalist Nic Carter, who rejected claims of a "bank run" at Binance as hyperbolic, and noted that total assets on its platforms dipped 15% at most and that much of the money had already flowed back.

https://twitter.com/nic__carter/status/1603096457082540032

As for Binance temporarily halting withdrawals of USDC, the company says that occurred for technical reasons rather than due to any existential threat to Binance's financial health. The backstory is complicated but it involves a recent decision by Binance to convert its holdings of USDC—which is controlled by rivals Circle and Coinbase—to its own stablecoin, known as BUSD. Binance likely made this decision to favor its own coin, as other exchanges have recently done, because stablecoins have become an increasingly important source of revenue for their issuers as interest rates climb. (Issuers typically invest the dollars backing the stablecoins into T-bills and pocket the interest.)

Binance does, however, let customers convert any USDCs that were forcibly converted to BUSD back to USDC for the purpose of withdrawals. The upshot is that, when nervous investors sought to redeem their USDC from Binance this week, the company did not have enough on hand to immediately honor the withdrawals. This meant Binance had to wait for its American banking partner—a New York company called Paxos that tokenizes assets and issues white-labeled stablecoins for Binance and others—to obtain more USDC on its behalf. In an interview with Fortune, Paxos confirmed this, saying many of the withdrawal requests occurred outside of banking hours, which slowed its ability to deliver USDC to Binance.

Even so, a significant number of Binance's customers appeared to have dropped Binance's stablecoin in favor of the one issued by Circle and Coinbase. “We saw record-making history yesterday with more than $2.5B USDC issuance in a 24-hour period," Circle's CEO, Jeremy Allaire, told Fortune.

While Binance appears to have survived the events of the last week relatively unscathed, its biggest battles lie ahead.

Binance's fight for legitimacy

Binance burst on the scene during the crypto boom of 2017, and soared to popularity by offering a cornucopia of digital assets and innovations, including its own blockchain. It soon became the biggest crypto exchange in the world by trading volume, thanks in part to Zhao's ruthless growth-at-all-cost strategies that included hopscotching the world in search of favorable regulatory environments and—in its early days—lax application of know-your-customer laws.

But even as Binance became the dominant player in the crypto world, Zhao has maintained the status of an outsider. This may be because he is not part of the clique of entrepreneurs who brought Bitcoin into the mainstream during crypto's early years, and who still wield outsize influence at conferences and on social media. Or it may be because the crypto establishment is uneasy with Binance's initial cowboy approach to regulation—even though nearly every popular crypto company also played it fast-and-loose in their early days. Whatever the reason, Binance has few friends in Washington, D.C., which has become the de facto center of global crypto regulation—a situation that could spell trouble for the company as U.S. lawmakers move to impose new laws on the controversial industry.

In recent months, Binance has sought to portray concerns about the company as a xenophobic response to Zhao's Chinese heritage. In a September blog post, Zhao—whose parents moved the family to Vancouver when he was 12—suggested that competitors were trying to undermine him by playing up his ethnicity. "I am Canadian citizen," he wrote. "Period." He has echoed those sentiments on Twitter in recent weeks.

But despite Binance's disavowal of ties to China, rumors persist. One credible report, for instance, suggests the company maintained an office in Shanghai that was shut down in late 2019, though Binance has denied its existence. The company has shifted headquarters between various jurisdictions known for light regulation, including Malta, and does not provide clear information about where its headquarters is located today. A spokesperson said Binance has "regional hubs" in Dubai and Paris.

And then there is the matter of Binance's finances. Zhao has repeatedly asserted on Twitter that every asset a customer places on Binance's platform is backed 1:1 by assets held by Binance. Earlier this week, the company published an audit, an apparent attempt to reassure customers that their funds were safe. But it did little to quiet fears. The audit was prepared by the South African branch of global firm Mazars, rather than by one of the Big Four accounting firms, and critics noted that the document was woefully incomplete. One accounting professor went so far as to call it "worthless."

In response to an inquiry from Fortune about the audit report, a well-known crypto founder—whose company competes with Binance—likewise blasted the report as insufficient. "It really comes off as if they're covering up something. ... [They're] trying to show collateral value rather than 1:1 assets vs liabilities. The collateral trick is exactly the game FTX was playing, borrowing good money from users with bad money for collateral. It's very suspicious," wrote the founder, who asked not to be identified.

In response to an inquiry about why Binance did not use a Big Four firm, a spokesperson said the company asked the firms to do conduct a so-called proof-of-reserve audit but that "they are currently unwilling to conduct a PoR for a private crypto company." They added that Binance in the meantime intends to use technological solutions known as Merkle Trees and zk-SNARKs to provide evidence to customers that their funds are safe.

As for BNB, the Binance-created token was released in 2020 and is today the fifth-most-valuable cryptocurrency, with a market cap of around $43 billion. In response to an inquiry from Fortune, a Binance spokesperson strongly argued that BNB is not analogous to FTT—the illiquid token that FTX's disgraced founder Sam Bankman-Fried created and then used to as collateral.

"Binance has never used BNB for collateral, and we have never taken on debt as an organization. BNB is a blockchain token, which means it is the official currency of BNB Chain, the largest chain by active users on the globe—even larger than ethereum," the spokesperson wrote. "This is the utility that BNB provides to millions of users across the globe each day and why it is highly liquid and has organic demand. Furthermore, BNB is a finite asset that is algorithmically burned periodically and is managed by a voting protocol within the BNB Chain community. FTT on the other hand, was an 'exchange token' which provided little to no utility to the marketplace and was entirely illiquid."

Binance has sought to portray BNB and its associated blockchain as largely decentralized, and akin to Bitcoin or Ethereum. These claims have been greeted with skepticism, however, within the broader crypto community, particularly after a revealing incident: The Binance chain got hacked for $570 million in early October. In response to the hack, Binance quickly "paused" the chain's activities—a feat that could not be easily undertaken on a decentralized blockchain. The incident provoked mocking responses like the one below about who actually controlled the chain:

https://twitter.com/lopp/status/1578150389991763968

'No choice but to go legal'

For now, the opinions of the crypto world are likely to have less of a say in shaping Binance's future than the opinions of another influential body: the U.S. government.

While Binance has been under scrutiny for years by various governments—as have numerous other crypto firms—the company today appears to be facing an unprecedented level of legal peril. Recent Reuters reports, based in part on leaks from the U.S. Justice Department, have highlighted a series of actions by Binance that have put the company and Zhao in the crosshairs of federal prosecutors.

Those actions include Binance permitting actors in heavily-sanctioned Iran to conduct millions of dollars of transactions on its platform, and a 2018 plan—first reported by Forbes—to use a U.S. subsidiary as a Potemkin Village to distract regulators while the company continued to allow American customers onto its unregulated international exchange. (Binance says it never put the plan into place, and suggests that it's unfair to impugn the company for an aborted plan hatched over four years ago).

In its most recent report published on Monday, Reuters cites Justice Department sources who say prosecutors within the agency aim to file criminal charges against Binance and Zhao in the near future—though the agency is reportedly divided over whether to do so. Reuters also cites discussions between the Justice Department and Binance lawyers about a potential plea deal.

All of this coincides with a strong push by Binance over the last 18 months to repair its earlier outlaw reputation. This push has included hiring figures who occupied senior positions at enforcement agencies such as Interpol and the IRS, and setting up a U.S. entity run by experienced American executives.

Finding a way to walk the straight and narrow has become necessary, one individual who has reported closely on Binance told Fortune, because the company's offshore operations and large volumes of cash floating across its platform have become too big for regulators to ignore. "They got so big they had no choice but to go legal," said the individual.

Whether Binance succeeds in this gambit is another matter. For all of this to work out, the company must not only avoid the full wrath of the Justice Department, but also reassure investors and the rest of the crypto industry that it will be transparent about the true nature of everything on its books—including its hoards of BNB, Tether, and other coins. To date it remains unclear what, exactly, is on Binance's balance sheet.

CRIMINAL CRYPTO CAPITALI$M BINANCE



After FTX, Are Binance's Days Numbered?

FTX rival Binance is at the center of wide bankruptcy 
speculation.

The poison of suspicion is terrible in the cryptocurrency industry. 

A month after the overnight implosion of the crypto empire of Sam Bankman-Fried, 30, it is another lord of the crypto sphere who is now the subject of the wildest rumors about the solvency of his crypto kingdom.

This is Changpeng Zhao, the founder and CEO of Binance, the world's largest cryptocurrency exchange by trading volume. Ironically, it was a tweet from Zhao that sparked the beginning of the end for FTX and its sister company Alameda Research, the two jewels of the Bankman-Fried empire

On November 6, Zhao announced in a post, on Twitter, that his company had made the decision to sell $530 million worth of FTT coins, a cryptocurrency issued by FTX. Binance had received its coins when the firm sold its stake in FTX in 2021. 

In his announcement, he added that the decision to liquidate FTT coins was due to recent revelations which appeared to be about Alameda's balance sheet.

FTX v. Binance

In a November 2 article, Coindesk claimed that most of the balance sheet of Alameda Research, Bankman-Fried's trading platform, was comprised of the FTT token, the cryptocurrency issued by FTX. Clearly, if the token collapsed, Alameda would be left with nothing. This revelation surprised investors who thought the firm had other assets.

The post caused a run on the bank and, five days later, FTX and Alameda filed for Chapter 11 bankruptcy.

Binance and Zhao "put FTX out of business," Shark Tank star Kevin O'Leary, who was a FTX's ambassador, told U.S. Senators on December 14.

But for the past few days, Binance has been at the center of speculation itself, that the platform would not have enough reserves to survive a run on the bank.

It is therefore no surprise that many Binance customers have rushed to try to withdraw their funds, deposited on the platform in the form of cryptocurrencies.

"Binance has had the highest daily withdrawals since June, with over $2B* in net outflows since December 12," data research group Nansen, said on December 13.

Reserves

But Nansen added that the platform has enough liquidity to withstand a major exodus of assets. The firm has $62.6 billion in reserves, which should be enough to satisfy customer withdrawal demands, Nansen estimated.

The problem is that it's tough to really assess the financial health of Binance, because the full accounting of the firm’s assets and liabilities is not available.

This opacity and a controversial decision by Binance, only fuels FUD, a slang in the crypto sphere that refers to Fear Uncertainty and Doubt. The platform paused withdrawals linked to cryptocurrency USDC on December 13, in order to facilitate a "token swap" of USDC stablecoins for its own BUSD stablecoins.

The company explained it as a measure to loosen up liquidity in anticipation of additional withdrawals but for many crypto fans on social media this was bad, as FTX did the same thing just before filing for bankruptcy.

"Things seem to have stabilized," Zhao tweeted on December 14. "Yesterday was not the highest withdrawals we processed, not even top 5. We processed more during LUNA or FTX crashes. Now deposits are coming back in. 🤷‍♂️💪"

The CEO reiterated that no amount of withdrawals can cause issues for Binance, during an interview with CNBC on December 15. He added that the firm holds assets one-on-one and declared that Binance never uses customers' funds.

"Binance doesn't owe anybody any money," Zhao said when asked about the company's liabilities.

This does not prevent rumors from continuing to circulate on social networks, one of the main information channels for players in the crypto sphere.

As a result, BNB, the cryptocurrency issued by the Binance ecosystem, has been impacted by the FUD: BNB prices are down almost 14% in the last seven days, according to data firm CoinGecko. By comparison, Bitcoin (BTC) prices are down 1.2% in the same period.

TheStreet sent a series of questions to Binance that were not answered.

Opaque

What has also fueled and continues to fuel suspicion around Binance is that the firm is not regulated, unlike its rivals Coinbase  (COIN) - Get Free Report and Kraken for example. All this means that Binance is not obligated to reveal its accounts and can do what it wants. Customers and investors must believe what the platform tells them. They have no way to verify.

The company also does not say where its headquarters are based. Founded in China, Binance left the country in 2017 before the country banned cryptocurrency trading. 

An audit on the state of the firm's reserves took place over the weekend of December 11, to prove that every customer dollar is guaranteed. But in truth, what this so-called game of transparency has shown is that the assets were not fully collateralized and Binance was very selective about its disclosures. 

The so-called proof-of-reserves, which was destined to re-establish consumer trust in the platform, was mocked on social media, forcing Binance to play defense.

The other worrying issue is an investigation by the Department of Justice (DoJ) that could lead to money laundering charges against Binance and some of its top executives, including Zhao, Reuters recently reported.

The investigation began in 2018 and is focused on Binance’s compliance with U.S. anti-money-laundering laws and sanctions. At the end of 2020, the DoJ asked Binance to submit internal documents relating to how the firm ensured that users of  its platform do not launder money

CRIMINAL CAPITALI$M
Nikola’s Ex-CEO Has Sold Stock Almost Daily for Three Months

Craig Trudell
Thu, December 15, 2022 


Nikola And Plug Announce Strategic Collaboration To Push Hydrogen Economy

(Bloomberg) -- Nikola Corp.’s former chief executive officer has sold more than a third of his direct stock holdings since the electric-truck maker announced his retirement after the end of this year.

Mark Russell has offloaded just over 1 million shares worth $17.2 million, selling almost every day since Sept. 15, according to data compiled by Bloomberg. His latest disposal, disclosed in a regulatory filing Wednesday, leaves him with 1.96 million shares.

A representative for Nikola didn’t immediately comment.

Russell took over as CEO in the days leading up to Nikola’s merger with a blank-check company in June 2020, replacing founder Trevor Milton. Soon after the electric-truck maker made its stock market debut, Milton’s pronouncements about the pre-revenue company sent its market capitalization soaring, briefly surpassing Ford Motor Co.’s valuation. It has fallen precipitously since those heady days two and a half years ago.

Shares of the company declined 0.5% Thursday to $2.10 as of 1:50 p.m. in New York.

 The stock is down about 78% this year.

Milton was found guilty in October of securities and wire fraud. Russell told the jury during the monthlong trial that Milton often made exaggerated statements that concerned him and was focused on day-to-day moves in Nikola’s stock price.


While Russell testified that he had conflicts with Milton leading up to his dismissal in September 2020, the two are still linked through a jointly owned entity called T&M Residual. T&M holds about 8% of Nikola’s shares, according to data compiled by Bloomberg. Nikola has said Russell manages the T&M shares independently of the company.

Nikola announced on Nov. 3 that Russell would retire two months earlier than previously planned. He ceded the top job to Michael Lohscheller, an auto industry veteran who’s worked for manufacturers including General Motors Co. and Volkswagen AG. Russell remains on the company’s board.

CRIMINAL CRYPTO CAPITALI$M

FTX's alleged run-of-the-mill frauds depended entirely on crypto


How else do you create billions in collateral from thin air?


By Tim Fernholz


The arrest of FTX co-founder Sam Bankman-Fried on a variety of fraud charges has been greeted in some quarters as a vindication for the cryptocurrency economy. After all, the allegations focused on generic financial crimes, and the government agencies involved didn’t use the occasion to zero in on hot-button debates about how crypto assets should be regulated.


That has led to some celebration. “They’re not really crypto crimes—and that’s a big relief for the broader crypto industry,” is the summary offered by The Information. But don’t get it twisted. Beyond the court room, it’s clear that Bankman-Fried’s alleged fraud could not have been accomplished without crypto technology and the hype around it.

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Sam Bankman-Fried's other big con was perfectly legal

Sam Bankman-Fried was arrested in the Bahamas one month after FTX's collapse

Consider the alleged fraud: The best picture we have so far is that FTX, the cryptocurrency exchange, took money from customers in exchange for purchases of, or bets on, a variety of crypto assets, while Alameda Research, Bankman-Fried’s hedge fund, also made bets on the exchange. The money that customers sent to FTX wound up at Alameda and was used to pay for the hedge fund’s failed bets, as well as a variety of personal and philanthropic expenses by Bankman-Fried and his inner circle. When enough customers asked for their money back, FTX declared bankruptcy.

Crypto ingredient 

1: The hype about the financial future you just can’t miss

Every con is a story. Why does the sucker part with their money? What compelled people to give $8 billion to FTX over its two and a half years of existence?

Analogous schemes in traditional finance, like commodities broker MF Global, which used $1.6 billion of customer funds to pay off a lost bet in 2011, or Bernie Madoff’s multi-decade Ponzi scheme, which robbed its victims of perhaps $19 billion before its collapse in 2008, did not manage to make off with so much money so fast. FTX depended on the crypto bubble and the perception that people were getting rich quick—an idea it drove with its own massive advertising campaign.

Of course, any asset class can be subject to bubble dynamics, from land in Florida to particularly attractive tulip bulbs. But usually there is some underlying material object, or at least a cash flow, behind the maniacal overbidding. The meme stock mania in recent years is likely to vaporize a lot of money, but however overvalued Gamestop’s stock is, the company still had revenue of more than $1 billion last quarter.

The underlying economic value behind FTX is a lot less clear.

Crypto ingredient 2: The power to create assets out of thin air

The balance sheet that Bankman-Fried was using in his last vain attempts to raise money showed that the bulk of the company’s “assets” were crypto tokens that were either created by or dependent upon FTX.

This included most famously FTT, a token issued by FTX that was effectively linked to the exchange’s value. But it also included Serum, MAPS, and Solana—other coins whose value depended at best on realizing venture capital-style risk, and on the fact that a relatively small number of the coins were tradeable.

FTX’s customers probably didn’t realize how much of their deposits at the exchange were backed by these tokens. Indeed, the public revelation that Alameda had a huge position in FTT led to a fire sale of the tokens and the run that collapsed the exchange.

But the people operating FTX and Alameda, if you believe their public story about their actions reflecting mismanagement and not outright theft, thought the coins they helped create were sufficient collateral for obligations in US dollars. Cynical or not, absent their belief in tokenomics, this fraud would have crashed to a halt sooner than it did.

If FTX isn’t crypto, what is?

Some crypto true believers argue that FTX’s existence as a centralized exchange was the real problem here, and that truly decentralized on-chain transactions wouldn’t have led to similar dynamics. But they need to reckon with the fact that the value of their crypto investments is enormously dependent on the investor access provided by centralized exchanges like Coinbase, Binance, or FTX. Crypto as we know it seems to require exchanges and dollar-pegged stablecoins simply to function.

Another argument is that if crypto assets were properly regulated, this sort of thing wouldn’t happen. That may be true, but it’s also not clear what “proper” regulation would be—or that much of crypto’s “value” as a speculative asset or tool for regulatory arbitrage might be eliminated by the kinds of disclosure and capital requirements that apply to traditional securities or commodities.

One thing to watch will be what kind of recovery there is for the victims of this alleged fraud. MF Global’s customers were made entirely whole, with the owners and counter-parties of the firm taking the losses. For the Madoff fraud, two different funds have together distributed more than $17 billion to victims and other creditors by clawing back cash from beneficiaries of the scheme.

Similar efforts will likely follow at FTX, but will there be anything left in the rubble for them to return to investors?

FTX’s Bankman-Fried could face long road to fraud trial

By Jack Queen

(Reuters) - FTX founder Sam Bankman-Fried was swiftly indicted after the collapse of his crypto empire, but a trial in New York is likely more than a year away as prosecutors build out their case and both sides spar over evidence.

The bare-bones indictment against Bankman-Fried - which could be amended with more details and co-defendants as the case progresses - suggests prosecutors have a long road ahead piecing together what they have described as one of the biggest financial frauds in American history. Pretrial litigation can also be a lengthy process as both sides argue over the admissibility of evidence, what can and cannot be argued at trial, and whether the case should be dismissed.

“A trial is probably 14 to 18 months out,” said Michael Weinstein, a white-collar criminal defense lawyer and former federal prosecutor.

On Tuesday, U.S. Attorney Damian Williams in Manhattan said a grand jury had indicted Bankman-Fried on wire fraud, securities fraud, commodities fraud, campaign finance law violations and conspiracy charges. Williams said the investigation is "ongoing" and that more announcements are to come.

The indictment came just weeks after Bankman-Fried's $32 billion crypto exchange collapsed - an extraordinarily fast turnaround for prosecutors.

Bankman-Fried has apologized to customers but said he is not guilty of any crime. A representative of the crypto entrepreneur declined to comment.

Bankman-Fried was arrested in the Bahamas on Monday but indicated he would fight extradition to the United States. He is behind bars in a Bahamian correctional center and will not enter a plea until he is arraigned in the United States. His absence keeps potentially years-long pretrial litigation on hold.

COMPLICATIONS

Legal experts are doubtful Bankman-Fried will prevail fighting extradition, though he could relent in the coming months after a Bahamian judge denied him bail. Bankman-Fried's lawyers filed a new bail request on Thursday.

Regardless of where Bankman-Fried is held, prosecutors will spend the coming months poring over evidence and interviewing witnesses before potentially filing a so-called superseding indictment with new details or co-defendants. The limited information in the indictment unveiled on Tuesday suggests there is plenty of work to do, according to legal experts.

“The indictment does not have smoking-gun details like emails and documents that you’re used to seeing in fraud cases,” said Renato Mariotti, a former federal prosecutor with experience in financial fraud cases. “That suggests that they put this together quickly, but they wouldn’t bring high-profile charges like this if they didn’t think they had the goods.”

FTX has been described by its restructuring executive as a chaotic operation that shuffled assets without basic accounting or record-keeping protocols, which will likely complicate prosecutors' efforts to build out their case further.

Securing the help of former FTX employees who can make sense of the incomplete records could take a long time, especially if negotiations for immunity or plea deals in exchange for cooperation are involved.

“They will need an insider who was part of the decision-making process or was privy to how things worked internally,” Weinstein said.

Williams, the U.S. attorney, on Tuesday pointedly addressed people who may have information about FTX's downfall.

"If you have not reached out to us to talk to us, I would encourage you to do so, and do so quickly."

(Reporting by Jack Queen in New York; Editing by Noeleen Walder and Matthew Lewis)

FTX files in bankruptcy court to sell four of its businesses
Aislinn Murphy
Thu, December 15, 2022

FTX, formerly one of the largest cryptocurrency exchanges in the world, is seeking to sell four of its businesses.

In a filing submitted Thursday to the Delaware bankruptcy court, FTX said it is soliciting bids for Embed Financial Technologies, LedgerX, FTX Japan and FTX Europe.

According to the filing, the cryptocurrency exchange said the four businesses have "experienced regulatory pressures which merit an expeditious sale process," as well as "significant customer and employee attrition pressures," according to the filing.

WHERE DID THE MONEY GO IN FTX CRYPTO COLLAPSE?

Representations of cryptocurrencies are seen in front of an FTX logo and decreasing stock graph in this illustration from Nov. 10, 2022.

"Because each of the Businesses was acquired by the Debtors fairly recently, but before the Debtors commenced these Chapter 11 Cases, the Businesses have each operated on a generally independent basis from the Debtors’ other operations, holdings and investments," the filing stated.

"The relative independence of each of the Businesses’ operations from the remainder of the Debtors’ core business operations make a potential sale process for each of the Businesses relatively less complex."

FTX FRAUD WILL MAKE ‘ENRON LOOK LIKE PEANUTS’: FORMER US ATTORNEY

FTX has received "significant interest expressed by third parties" about acquiring the units and determined "pursuing one or more sales of the Businesses is important to preserve and maximize the value of the Debtors’ estates," according to the filing.

The court document included a detailed outline of how bidding and auctioning the businesses would work, including deadlines for submitting bids, conducting auctions and holding hearings to consider any sales.

This illustration photo shows a smartphone screen displaying the logo of FTX, the crypto exchange platform, with a screen showing the FTX website in the background Feb. 10, 2022.

FTX, once valued at $32 billion, filed for Chapter 11 bankruptcy in November along with Alameda Research, West Realm Series and 130 affiliated companies. At the same time, founder Sam Bankman-Fried stepped down as the crypto exchange’s CEO, handing over the position to former Enron liquidator John J. Ray III.

Authorities arrested Bankman-Fried in the Bahamas earlier in the week. He has since been hit with charges from the Southern District of New York and the Securities and Exchange Commission.

Sam Bankman-Fried, co-founder and CEO of FTX, in Hong Kong, China.

Bankman-Fried is accused of "perpetuat[ing] a scheme to defraud customers of FTX by misappropriating billions of dollars of those customers’ funds," according to the Department of Justice’s press release.

SAM BANKMAN-FRIED'S RELATIVES ASKED BAHAMAS PRISON IF HE COULD GET VEGAN MEALS THERE: REPORT

He allegedly used customer funds for "his personal use to make investments and millions of dollars of political contributions to federal political candidates and committees and to repay billions of dollars in loans owed by Alameda Research, a cryptocurrency hedge fund also founded by the defendant," the release said.