Unlike banks, which require know-your-customer (KYC) information prior to opening an account, a significant number of crypto exchanges offer tether (USDT) bonuses for submitting KYC information like name, address, ID card, and contact information.

To be clear, these KYC bonuses are not account opening bonuses. In many cases, crypto exchanges allow customers to open small accounts and trade without submitting any KYC information. Moreover, the tether bonus doesn’t require any bank-like task, such as signing up for direct deposit or holding a large initial balance. Rather, this tether bonus is simply for submitting a valid ID card.

Therefore, although it’s commonplace for banks to offer an account opening bonus for customers who complete significant banking tasks, US banks typically do not pay anything for simply opening an account and submitting an ID card.

Moreover, a US bank may not open an account without an ID card; KYC documentation is federally mandated. Similarly, money transmitters like MoneyGram, PayPal, Venmo, and CashApp require KYC documentation prior to sending money, and they don’t pay anything for completing KYC.

Nevertheless, crypto exchanges are happy to pay customers KYC bonuses.

• Binance is paying some customers three USDT to pass KYC.
• BTCC is paying 20 USDT and specifically targets US residents.
• MEXC is paying 20 USDT.

USDT bonuses for submitting an ID

USDT payouts are curious for two reasons. First, exchanges consistently denominate payouts in tether more than any other stablecoin, which raises questions about whether the stablecoin’s issuer, market-makers trading USDT, or some other entities are somehow involved in the promotions.

Unfortunately, this type of skepticism is warranted, as crypto exchange operators have a long history of trading against their own customers — especially on USDT trading pairs.

If the bonus is simply a way to attract new customers to trade USDT and slowly give it all back (and often more) to sophisticated quants or market-makers, paying up to 20 USDT for a steady stream of new losers is a rational economic decision.

Second, it’s concerning that many crypto exchanges, which almost always must register as a money transmitter, don’t mandate KYC in the first place. Banks and registered money transmitters don’t pay customers for KYC; they simply require it.

Notice to crypto exchanges about their registration requirements for money transmission is frequent and obvious. Last month, the US Department of Justice indicted the cofounders of Samourai Wallet, repeatedly admonishing them for ignoring the obvious notices from the Finance Crimes Enforcement Network (FinCEN), Financial Action Task Force (FATF), the Federal Bureau of Investigation (FBI), and a variety of other government agencies. Similar indictments have charged criminals for ignoring the laws of money transmission for decades.

Read more: The history of crypto exchanges trading against their own customers

Money transmission businesses must KYC their customers

Specifically, it is a crime to operate an unlicensed money-transmitting service serving US customers per Federal statute 18 U.S.C. § 1960. This statute defines money transmitting as ‘transferring funds on behalf of the public by any and all means.’

The Bank Secrecy Act (BSA) 31 U.S.C § 5330 defines a money transmitting service as ‘accepting currency, funds, or value that substitutes for currency and transmitting the currency, funds, or value that substitutes for currency by any means.’ Section 5330 also clarifies that a money transmitting service includes ‘any person who engages as a business in an informal money transfer system or any network of people who engage as a business in facilitating the transfer of money domestically or internationally outside of the conventional financial institutions system.’

(All statutes above provide some exceptions to Network Access Service Providers like telecoms and couriers that indiscriminately facilitate access to a broad network.)

If anyone is in the business of accepting and transmitting money on behalf of US residents, they probably have to register as a money transmitter. In other words, this isn’t something that a business owner should give customers the option to complete with a USDT bonus. On the contrary, it’s a requirement before allowing any customer to transmit money.

However, many crypto exchanges claim to not be money transmitters because, for example, public blockchains like Ethereum are broad networks and, they say, the crypto exchange merely facilitates access as a network access service provider. This is one of their arguments, at least.

In this view, because they are simply facilitating customers’ access to a broad network, they don’t need to register as a money transmitter and, therefore, don’t need to complete KYC checks prior to customers initiating payments.

Read more: Sources confirm Binance helps users avoid KYC/AML

KYC bonuses for compliance

Perhaps, a final option might be that the crypto exchange is simply whitewashing its efforts at compliance. Many of these USDT bonuses for KYC are hidden in foreign languages, time-sensitive offer webpages, geofenced advertisements, or ephemeral social media posts. These giveaways might simply increase the number of KYC checks during key periods, such as the end of a fiscal year, for a crypto exchange looking to boost its compliance numbers during annual reports, or occasional surveillance check-ins with law enforcement. 

In the end, it’s impossible to know exactly why crypto exchanges are paying for the basic task of KYC. Not only is it a requirement of US money transmission services (if crypto exchanges are, indeed, money transmitters), but it’s never a compensated task by traditional financial companies like banks, PayPal, Zelle, MoneyGram, or Venmo. For some reason, crypto exchanges are willing to pay customers up to 20 USDT to submit their ID. It’s certainly suspicious.

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Crypto exchange BitForex has started blocking access to its website through Cloudflare. Cryptocurrency investigator ZachXBT took to X (formerly Twitter) to highlight suspicious behavior, including shutting down withdrawals and outflows of over $56 million on Friday. 

ZachXBT also highlighted that BitForex chief exec Jason Luo stepped down from his role last month. 

The exchange’s X account has been silent about these issues, with its last post asking simply, “What are the top encryption projects in 2024?” The BitForex team also looks to have gone silent across its other channels, not responding to questions via Telegram or on its Discord server. 

Read more: Hackers switching to centralized exchanges to fund crypto attacks

Last year, BitForex was one of the exchanges named by Japan’s Financial Services Agency in a letter that accused it of operating without the appropriate registration. It has previously been accused of inappropriate behavior, including in a 2019 Chainalysis report that suggested it was using wash trading to increase its apparent volume.

The combination of outflows, its website shutting down, and a lack of communication from its team suggests another exchange could be on its way to joining the long list of cryptocurrency platforms losing or misappropriating customer funds before shutting down.

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There is growing concern about the number of crypto hackers using centralized exchanges to fund their attacks.

In order to pay the transaction fees necessary to carry out attacks, hackers must first fund their wallets. However, given the transparency of a public ledger, they have to carefully consider how to do this without linking themselves to the crime.

Tornado Cash used to be the industry standard for covering one’s tracks, used by hackers and privacy advocates alike.

Now, it appears that in many cases, hackers simply opt to skirt their way around exchanges’ know-your-customer (KYC) procedures when funding their accounts.

Blockchain monitoring firm Forta Network’s analysis of funding sources for recent attacks shows that the hacker’s favourite Tornado Cash now represents just under half the hacks studied, with funds coming from centralized exchanges (CEXs) in a third of cases.

Other funding methods included novel privacy tool Railgun and ‘middleware operations software’ UnionChain, making up 6.7% apiece, as well as cross-chain swaps via Squid router, which accounts for 3.3%.

Read more: Explainer: What to know about crypto mixer Tornado Cash

The dataset is made up of addresses used in 30 recent flash-loan attacks, including November’s intricate $48 million hack of decentralized exchange KyberSwap, back-to-back attacks on Arbitrum projects Radiant Capital and Gamma Strategies, and a thwarted $1 million governance attack on NFT project Loot last month.

Although Tornado Cash remains the dominant source of funding for on-chain hacks, matters have been complicated for hackers trying to cash out after the US Treasury placed sanctions on the crypto mixing service in August 2022.

After the sanctions, addresses that have touched any ‘tainted’ funds originating from the mixer are generally flagged by exchanges, making it a poor choice when needing to convert any ill-gotten gains to fiat currency.

A recent article from 404 Media claims to have used a $15 AI-generated fake ID from a website named OnlyFake to pass KYC checks on OKX, the funding source of one of the attacks studied by Forta.

With these AI tools, there is no need to purchase stolen credentials, or ‘fullz’ on the darknet, hackers can simply generate an entirely new person, and all their corresponding documentation. 

Such a significant proportion of attacks being exchange-funded shows just how easy bypassing KYC has become, a trend that is likely to continue with more widespread use of similar tools.

Read more: Iranian crypto exchange Bit24 reportedly leaks 230,000 users’ KYC data

Although the hackers run the risk of the CEX blocking their funds, they might feel somewhat safer leaving less of a trail on-chain.

While dodging genuine KYC checks may present a problem to the crypto industry in on-ramping hackers, the problem is bound to affect many other industries. Ironically, the widespread use of cryptographic proofs, the technology underlying cryptocurrencies, may be the solution to these kinds of issues in the future.

However, for now, there are reasonable doubts over how seriously exchanges take their role and how stringent KYC controls really are.

Got a tip? Send us an email or ProtonMail. For more informed news, follow us on X, Instagram, Bluesky, and Google News, or subscribe to our YouTube channel. 

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Iranian crypto exchange Bit24.cash has reportedly leaked the personal and financial details of its 230,000 users following a security flaw in its know-your-customer (KYC) database.

The exchange’s KYC and anti-money laundering (AML) measures stipulate that users must submit a photo of themselves alongside their ID, credit card, and written consent to trade on the site.  

However, a report from Cybernews details a flaw in the exchange’s cloud software that has let slip the identifying details of its customers. According to the report, researchers accessed KYC data stored in S3 buckets, a form of cloud storage, by exploiting a misconfigured MinIO.  

Read more: Chinese billionaire behind Himalaya Exchange indicted for $1B scheme

Researchers say this flaw “poses a severe threat, as threat actors could potentially exploit the exposed data for identity theft, fraudulent transactions, and phishing attacks.” 

They added, “With access to such comprehensive personal and financial data, malicious actors could impersonate individuals, gain unauthorized access to accounts, execute fraudulent transactions, and potentially cause substantial financial and personal harm.”

According to crypto analytics firm TRM Labs, Bit24 is the fifth largest crypto exchange in Iran when it comes to incoming volume.

Bit24 responded to the Cybernews report, calling it “inaccurate and misleading.” A security engineer said, “The reference to a misconfigured MinIO instance granting access to S3 buckets containing KYC data is wholly untrue and does not align with our system architecture or security protocols.”

The engineer said Bit24’s security is one of its ‘utmost priorities’ and that concerned users should contact the exchange. According to Cybernews, the security flaw is no longer present.

In a comment to Protos, Bit24 added, “Our platform utilizes state-of-the-art security infrastructure to safeguard user information throughout the KYC process and beyond.

“We can confirm that our MinIO setup and cloud storage containers remain secure, and there has been no unauthorized access to any sensitive user data.”

Despite these claims, Cybernews, which says it employs white-hacking techniques to unearth cybersecurity flaws, told Protos, “We firmly stand by our findings and report.”

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Edit 18:20 UTC, Jan 8: Updated to include response from Bit24.

Edit 13:15 UTC, Jan 9: Updated to include response from Cybernews.

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Kevin O’Leary, a TV personality and self-described ‘Mr. Wonderful,’ has decided to endorse a new cryptocurrency exchange called M2. In a 54-second video clip posted to X, O’Leary details how soon the new exchange will launch, how it will be the largest regulated crypto exchange, how half of Binance’s accounts will switch to M2, and how there are billions of dollars in backing from serious financial institutions.

The video also includes a 14-second ad in which O’Leary claims, “I am Mr. Wonderful and I am small business.”

This isn’t O’Leary’s first exposure to ‘regulated’ crypto exchanges, and he’s previously insisted that FTX was an exemplary exchange and one where he felt confident that “if there is ever a place I can be where I’m not going to get in trouble, it’s FTX.”

Since then, FTX has declared bankruptcy, its CEO Sam Bankman-Fried has been convicted of seven felonies, and several other executives, including Caroline Ellison, Gary Wang, Nishad Singh, and Ryan Salame, have also pleaded guilty to felony offenses.

O’Leary was a paid spokesperson for FTX, claiming that he received approximately $15 million in exchange for his support. He claims that this money was almost all lost after a series of bad crypto investments.

In his endorsement, O’Leary said that M2 is based out of Abu Dhabi, which is somewhat true. M2 Global Wealth Limited is incorporated out of the Bahamas, and its initial licensing came under the Bahamas DARE Act. Confusingly, it appears that M2 received a ‘Financial Services Permission’ in the Abu Dhabi Global Market in August. However, the Security Commission of the Bahamas ‘Register of Digital Asset Businesses’ for September 30, 2023 doesn’t have this license listed on its registration. 

Despite the fact that the company is set up and initially licensed in the Bahamas, O’Leary isn’t completely wrong that the firm is based in Abu Dhabi, with investment and executives for M2 coming from the Abu Dhabi-based Phoenix Group.

UAE links raise red flags

The firm also has connections to the government of the United Arab Emirates, with the chairman of the Phoenix Group Board being H.E Tareq Abdulraheem Al Hosani, who manages procurement for the armed forces of the UAE and the Police for Abu Dhabi.

Human Rights Watch details how “UAE authorities arbitrarily targeted Pakistani Shia residents by subjecting them to enforced disappearance, incommunicado detention, and eventually groundless deportations.” Furthermore, “in late June, UAE authorities reportedly arrested hundreds of African migrant workers from Cameroon, Nigeria, and Uganda, arbitrarily detained them for weeks, and illegally deported them en masse without allowing them to challenge their deportations.”

These abuses are even more common “in cases purportedly related to state security.” Furthermore, the UAE military continues to provide support for Yemeni forces committing abuses.

M2’s actual products seem extraordinarily high-risk, offering unsustainable rates on its ‘Earn’ product, 11.5% APY on USDT, 10.5% APY on Bitcoin and Ethereum, and a variety of other unsustainable rates. The terms of service for this product detail how it will take your coins and then use them for “mining, staking, liquid staking, borrowing and lending, proprietary trading, and decentralized finance.”

If things go wrong, be forewarned that these things “could result in financial losses for the Earn User.”

Outside of irresponsible Earn products, M2 also ensures that it’s a fully modern exchange by offering the nearly obligatory exchange token in MMX. The MMX tokens offer “Privledged [sic] access to new coin listings” and promises that “10% of M2 earnings” will be paid out to MMX investors quarterly. It’s not clear if those earnings are revenue or profits.

Despite O’Leary’s claims that M2 is on the verge of taking half of Binance’s accounts, it’s currently a very small exchange, with the reported 24-hour volume on its BTC/USDT pair at about four cents. This is about 0.0000000018% of the $2.1 billion in 24-hour volume on that pair reported by Binance.

Protos has reached out to O’Leary through his O’Leary Ventures website to determine if he’s a paid spokesperson for M2 or Phoenix Group. Protos has also reached out to M2 to determine whether it’s notified the Bahamian Securities Commission about its new licensure in Abu Dhabi.

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When Mark Karpelès’ MtGox exchange went bankrupt in 2014, a decade-long saga began. Nowadays, it’s incredibly difficult to determine who owns MtGox bitcoin claims with many claimants having sold their claims to third-party speculators.

In addition, customers have learned that Russian nationals Alexey Bilyuchenko, Aleksandr Verner, and their co-conspirators stole at least 647,000 bitcoin during MtGox’s lifetime — the vast majority of customers’ 850,000 bitcoin.

Of those 647,000 bitcoin, 300,000 went to one exchange, BTC-e, whose operator was extradited to the US on money laundering charges.

Despite those stolen bitcoin, as of September 2019, MtGox’s Japanese bankruptcy trustee disclosed holdings of 141,686 BTC plus 142,846 Bitcoin Cash (BCH). At today’s prices, its BTC and BCH is worth approximately $4.8 billion.

The banktupcy trustee also held hundreds of millions of dollars worth of cash, which has slowly dwindled due to bankruptcy legal fees.

As of September 2019, MtGox’s bankruptcy trustee Nobuaki Kobayashi had received 8,095 formal claims from creditors, then worth approximately $8.2 billion. At that time, the trustee fully recognized just $1.6 billion of those claims and was still processing the remaining claims.

An earlier report by the bankruptcy trustee tallied an even higher figure of 24,750 MtGox customers who have filed claims. This figure consolidates into the trustee’s 8,095 formal claims because many customers opted to file consolidated claims through third parties like Kraken.

These 24,750 claimants represent just 2% of MtGox’s 1.1 million total customer accounts in 2013. Indeed, the vast majority of MtGox customers either had a near-$0 balance or were able to fully withdraw prior to the exchange’s total collapse in February 2014.

Read more: US wins extradition war for Russian crypto exchange operator Alexander Vinnik

Brief history of MtGox

Jed McCaleb founded MtGox.com in 2007 as an online exchange for physical, Magic: The Gathering cards. However, by 2010, he had had pivoted MtGox into a bitcoin exchange.

In 2011, Mark Karpelès purchased it from McCaleb and by September of that year, Alexey Bilyuchenko and Aleksandr Verner had hacked the exchange and began siphoning bitcoin out of its wallets.

By January 2014, MtGox was processing at least 70% of global bitcoin transactions and at points in 2013, it processed over 90% of bitcoin trading volumes.

The exchange went bankrupt in February 2014, taking at least 141,686 of customers’ bitcoin into bankruptcy proceedings.

The major MtGox bitcoin claims owners

MtGox claims are highly concentrated among the largest holders. Just 226 claimants own over 50% of MtGox claims. These 226 claimants could receive 84,650 bitcoin.

Researchers found that the median claim was worth just $92,500 as of August 9, 2022.

Due to bankruptcy proceedings in Japan, the identity of each claimant is not public. However, many claimants have volunteered their identity to the media. Below is a list of some of the largest known creditors of the failed bitcoin exchange.

• The Mt Gox Investment Funds (MGIF): MGIF is the largest creditor of MtGox as of March 8, 2023.
• Fortress Investment Group: Not to be confused with Fortress Trust, the group has offered cash buyouts to MtGox claimants.
• Kraken: Jesse Powell of Kraken has a long history of attempting to assist MtGox customers. Powell worked at MtGox as a consultant. At Kraken, Powell created a web portal for thousands of victims to file claims. Many smaller MtGox claims have consolidated via Kraken.
• Tibanne: Claims to own as much as 88% of MtGox equity.
• CoinLab: Claims that MtGox owes it at least $170 million and as much as $16 billion. In 2019, CoinLab increased one of its lawsuits to a staggering $16 billion, disputing a revenue-sharing deal with MtGox. Its $16 billion claim far exceeds the combined claims of all other creditors and eclipses all assets held by MtGox’s bankruptcy trustee. The settlement figure of this lawsuit is uncertain.
• Jed McCaleb: Might own up to 12% of MtGox equity.
• Bitcoinica: Is requesting a $29 million payout.
• Roger Ver: Claims 577 lost BTC personally.

Bitcoinica and MGIF collectively hold about 20% of the claims. In February 2023, they agreed to receive about 70% of their payout in bitcoin to alleviate worries about a sudden sell order. They decided to take their payout this year rather than wait for other lawsuits to be settled. MGIF later reiterated that it would not immediately sell the bitcoin.

Read more: After failing to conquer cross-border payments, Jed McCaleb sets his sights on space

Kraken and Jesse Powell

Roger Ver and colleague Jesse Powell tried to help customers of MtGox in the days leading up to its collapse. Powell, who would later found Kraken, also tried to get MtGox back up running during an earlier hack in 2011 while Mark Karpelès took time off. As detailed in Nathaniel Popper’s historical book Digital Gold, both men attempted to assist Karpelès with avoiding a bankruptcy, to no avail.

In 2014, the MtGox bankruptcy trustee selected Kraken to assist with some claims processing. Kraken said it would help with investigation of lost or stolen bitcoin, create a system for filing and investigating claims, help distribute bitcoin and fiat currencies to creditors, and swap between bitcoin and fiat currencies.

Attorney and MtGox creditor Daniel Kelman set up MyGoxClaim.com, where certain claimants could sell their claims to interested buyers. Kraken assisted with facilitating the processing of some of these claims. Kelman noted that claims buyers were primarily interested in claims worth over $10,000. The Financial Times also reported that four other hedge funds were bidding for claims.

As of May 26, 2016, 24,750 creditors filed claims via Kraken’s platform. Accepted claims totaled $417,436,518. Of the claims that the bankruptcy trustee rejected, most of the fiat value came from one claim — 260 trillion Japanese Yen (JPY) out of the rejected claims’ total value of 263,473,658,709,868 JPY (over US$2 billion).

MtGox claims for pennies on today’s dollar value

Users who lost bitcoin in MtGox’s final collapse had to wait at least until April 2015 to start filing their claims. The final deadline for claims arrived in March 2023. The MtGox trustee offered 90% of the lost assets’ value as part of a civil rehabilitation plan.

Due to the length of time the bankruptcy was taking, several smaller MtGox users naturally gave up and sold their claims to third parties like Fortress Investment Group.

Fortress Investment Group offered up to 80% of the claims’ value. It had reportedly been buying claims for years, once paying as high as $1,300 per bitcoin. One of its selling points was that claim holders would no longer have to wait for a payout under the civil rehabilitation plan when they could get cash or bitcoin now.

That Fortress Investment Group was willing to pay above $1,000 per bitcoin reflects the evolving state of legal claims against the MtGox bankruptcy estate.

Originally, or at least as of February 2017, buyout offers for MtGox claims were calculated based on the price of BTC at the time MtGox went into liquidation: approximately $438 USD per bitcoin. At that time, purchasers offered claimants a buyout discounted from that calculation — not the current value of the bitcoin.

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