Memo – Bitfinex Crypto Hack / Robbery – A CPA’s Perspective

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In 2016, 119,754 Bitcoin were stolen from the crypto exchange Bitfinex. 

At the time of this writing, the beginning of 2022, two co-conspirators have been charged with this crime.

Hundreds of articles have already been written about this case, so I’m not going to delve into the technical specifics of how they executed the crime or how they were eventually caught. 

My CPA’s perspective revolves around the fact that the Department of Justice easily tracked, along the “blockchain”, the vast majority of the stolen coins that were stolen through many fictitious accounts and thousands of transfers and other transactions. They eventually obtained a search warrant for the digital wallets holding the stolen coins.

Many people have a false sense of security believing that blockchain technology is magically anonymous and is kept out of the purview of government agencies, such as the Department of Justice and the Internal Revenue Service.

We have to remember that cryptocurrency is seen as a direct attack on the sovereignty of nations and their monetary systems. From crypto’s beginning,  I believe governments have been surveilling all of the blockchain for all of the cryptocurrencies. This case adds weight to my argument.

The most important thing this case proves though, is that the government does have very sophisticated methods in place to investigate transactions along the blockchain. This includes transactions on servers not based in the U.S.A.

For more detail on the exact methods used by the Department of Justice to trace this theft, and the attempted concealment of it, please read some of the many technical articles that have already been written. I don’t want to repeat that here as it’s unnecessary.

This case shows us two things:

1. Online wallets and exchanges can be hacked easily and your cryptocurrency stolen from you. Victims rarely have any recourse.
2. The government can easily trace an unlimited number of transactions, like those used in this case, to attempt to conceal theft or tax evasion.

Remember, these were both done easily. 

Also, remember, there is no FDIC insurance for crypto accounts.

I have gotten criticized in the past for stating that there is no guarantee of anonymity when trading / selling cryptocurrency.

It is foolish to think that the government has not implemented plans and systems within their many security agencies, such as the NSA, FBI and CIA, to remove anonymity from these systems and the blockchain used for transactions.

We still don’t know who created Bitcoin. Are you aware of that? This is shrouded in mystery and folklore. This fact alone should give you pause, at least if you are thinking your crypto transactions can remain hidden from others.

The name “Satoshi Nakamoto” is often given as the creator of Bitcoin and the blockchain,  but this cannot be verified even after all this time.

To be safe, you should assume that the major world governments have been privy to all the blockchain technology from the beginning. We don’t know if that’s true, but my conservative CPA advice would be to assume this and act accordingly.

I don’t think that any major government would allow their citizenry to use a monetary system they couldn’t monitor. Again, it is a direct attack on their monetary sovereignty and could undermine their ability to control the populace.

Assume, in real time, like our phone calls, texts and emails, all of your crypto and NFT (non-fungible token) transactions are being captured and cataloged by all the usual government intelligence agencies and the Internal Revenue Service. To restate, the location of “servers” does not matter.

Using various encryption methods and VPNs does not matter. 

Be safe and report all over your worldwide taxable transactions on your tax returns. 

Governments run on our money, cryptocurrency and fiat. They will do all they can to make sure they collect all taxes that are due and to uncover tax evaders, digital or otherwise.