{"id":30078,"date":"2020-10-14T12:09:09","date_gmt":"2020-10-14T09:09:09","guid":{"rendered":"https:\/\/forklog.com\/en\/?p=30078"},"modified":"2025-08-27T20:26:39","modified_gmt":"2025-08-27T17:26:39","slug":"coin-metrics-arrest-of-two-of-bitmexs-three-founders-could-have-led-to-withdrawal-problems","status":"publish","type":"post","link":"https:\/\/u1f987.com\/en\/coin-metrics-arrest-of-two-of-bitmexs-three-founders-could-have-led-to-withdrawal-problems\/","title":{"rendered":"Coin Metrics: Arrest of two of BitMEX&#8217;s three founders could have led to withdrawal problems"},"content":{"rendered":"<p>Coin Metrics researchers in a new report disclosed the specifics of how Bitcoin is stored on BitMEX. Thanks to this arrangement, the crypto-derivatives exchange continued to meet its obligations to clients after a lawsuit by U.S. regulators.<!--more--><\/p>\n<blockquote class=\"twitter-tweet\">\n<p dir=\"ltr\" lang=\"en\">Impressive forensics work by <a href=\"https:\/\/twitter.com\/coinmetrics?ref_src=twsrc%5Etfw\">@coinmetrics<\/a>, who used time zone data to make an educated guess about which multsig key each of the <a href=\"https:\/\/twitter.com\/BitMEX?ref_src=twsrc%5Etfw\">@BitMEX<\/a> founders used for daily exchange withdrawals.<\/p>\n<p>A \u2014 Samuel Reed<br \/>B \u2014 Ben Delo<br \/>C \u2014 Arthur Hayes<\/p>\n<p>Read the analysis here: <a href=\"https:\/\/t.co\/xxlWfdCjvB\">https:\/\/t.co\/xxlWfdCjvB<\/a> <a href=\"https:\/\/t.co\/brW2YX8S8I\">pic.twitter.com\/brW2YX8S8I<\/a><\/p>\n<p>\u2014 Spencer Noon (@spencernoon) <a href=\"https:\/\/twitter.com\/spencernoon\/status\/1316007082965913600?ref_src=twsrc%5Etfw\">October 13, 2020<\/a><\/p>\n<\/blockquote>\n<p><script async src=\"https:\/\/platform.twitter.com\/widgets.js\" charset=\"utf-8\"><\/script><\/p>\n<p>On October 1, the U.S. Commodity Futures Trading Commission (CFTC) and the U.S. Department of Justice <a href=\"https:\/\/u1f987.com\/en\/news\/u-s-residents-identified-among-bitmex-traders\">accused<\/a> the exchange&#8217;s CEO Arthur Hayes and its co-founders Ben Delo and Samuel Reed of deliberate evasion of anti-money-laundering measures and violations of the Bank Secrecy Act. Reed was arrested on that same day; on October 9 he was <a href=\"https:\/\/u1f987.com\/en\/news\/bitmex-cto-samuel-reed-released-on-5-million-bond\">released<\/a> on bail.<\/p>\n<p>In the week following these events, the number of bitcoins on BitMEX wallets <a href=\"https:\/\/u1f987.com\/en\/news\/bitmex-bitcoin-reserves-fall-nearly-40-in-a-week\">fell<\/a> by 38.4%. In the first hours from the exchange, 37,000 BTC were <a href=\"https:\/\/twitter.com\/coinmetrics\/status\/1311965179580686336?ref_src=twsrc%5Etfw\" target=\"_blank\" rel=\"noopener noreferrer\">withdrawn<\/a> from the exchange. Throughout this period the platform duly met its obligations.<\/p>\n<div id=\"attachment_113195\" style=\"width: 933px\" class=\"wp-caption alignnone\"><img loading=\"lazy\" decoding=\"async\" class=\"size-full wp-image-113195\" src=\"https:\/\/u1f987.com\/wp-content\/uploads\/photo_2020-10-14_11-57-51.jpg\" alt=\"Coin Metrics: arrest of two of BitMEX's three founders could have led to withdrawal problems\" width=\"923\" height=\"578\" srcset=\"https:\/\/u1f987.com\/wp-content\/uploads\/photo_2020-10-14_11-57-51.jpg 923w, https:\/\/u1f987.com\/wp-content\/uploads\/photo_2020-10-14_11-57-51-300x188.jpg 300w, https:\/\/u1f987.com\/wp-content\/uploads\/photo_2020-10-14_11-57-51-768x481.jpg 768w\" sizes=\"auto, (max-width: 923px) 100vw, 923px\" \/><\/p>\n<p id=\"caption-attachment-113195\" class=\"wp-caption-text\">Dynamics of the number of bitcoins on BitMEX wallets. Source: Coin Metrics.<\/p>\n<\/div>\n<p>BitMEX stands out among other cryptocurrency exchanges for how it stores Bitcoin. Instead of a system of cold and hot wallets, it uses only cold storage. Withdrawals are made once a day, usually around 16:00 MSK. Approval of withdrawals requires signatures from two of the three founders.<\/p>\n<p>On October 1, BitMEX abandoned its usual practice and carried out six withdrawals over two days, signaling that traders&#8217; funds were safe.<\/p>\n<p>Technically, each BitMEX address corresponds to a multisignature wallet that requires three of four keys. One key belongs to each of the founders. The fourth key is minted to ensure BitMEX addresses begin with a special prefix (3BMEX or 3BiTMEX).<\/p>\n<p>The fourth independent key is always used to sign transactions. Analysts indicate that for this reason only two of the three founders&#8217; keys are required. The fourth key would not be needed at all if all three co-founders signed a transaction. But, according to the researchers, they did not observe such cases during the entire period under review.<\/p>\n<p>Determining which founder owns which key is, according to analysts, not an easy task. By collecting information about recent withdrawals from BitMEX and aligning the keys&#8217; usage over time, Coin Metrics arrived at certain conclusions.<\/p>\n<p>Based on the activity map shown below, indicating which key is signed for which withdrawal party, they conclude that key &#8220;A&#8221; belongs to Reid. In the image, the transactions conducted at unusual times are highlighted in red. All of them fall on October 1 or 2, when the BitMEX CTO was in custody.<\/p>\n<div id=\"attachment_113196\" style=\"width: 938px\" class=\"wp-caption alignnone\"><img loading=\"lazy\" decoding=\"async\" class=\"alignnone size-full wp-image-113196\" src=\"https:\/\/u1f987.com\/wp-content\/uploads\/photo_2020-10-14_12-01-42.jpg\" alt=\"Coin Metrics: arrest of two of BitMEX's three founders could have led to withdrawal problems\" width=\"938\" height=\"344\" srcset=\"https:\/\/u1f987.com\/wp-content\/uploads\/photo_2020-10-14_12-01-42.jpg 938w, https:\/\/u1f987.com\/wp-content\/uploads\/photo_2020-10-14_12-01-42-300x110.jpg 300w, https:\/\/u1f987.com\/wp-content\/uploads\/photo_2020-10-14_12-01-42-768x282.jpg 768w\" sizes=\"auto, (max-width: 938px) 100vw, 938px\" \/><\/div>\n<p>Subsequently, this &#8220;A&#8221; key was used to sign transactions twice more, when Reid was already free. Analysts also concluded that keys &#8220;B&#8221; and &#8220;C&#8221; belong to Ben Delo and Arthur Hayes respectively.<\/p>\n<blockquote>\n<p>&#8220;The fact that all three keys were used to sign transactions after the lawsuits against BitMEX were filed should reassure the platform&#8217;s clients. If Reid had not been released on bail, and Hayes or Delo had been arrested, withdrawing cryptocurrency from the platform would probably have been impossible,&#8221; the analysts say.<\/p>\n<\/blockquote>\n<p>Under the terms of his release, Reid is barred from contacting other defendants without a lawyer present. But as Coin Metrics\u2019 analysis shows, after the CTO&#8217;s release on October 1, all founders&#8217; keys were used to sign transactions.<\/p>\n<p>Technically, Bitcoin multisignature is a non-interactive protocol. Signing transactions on BitMEX likely requires some interaction among the founders.<\/p>\n<p>Experts wonder whether these keys have fallen into new hands. The three founders <a href=\"https:\/\/u1f987.com\/en\/news\/arthur-hayes-steps-down-as-bitmex-ceo-after-u-s-regulators-lawsuit\">left<\/a> leadership roles at 100x Group, the parent company of BitMEX, which increases the chances that this has already happened or will happen.<\/p>\n<p>Coin Metrics researchers concluded that BitMEX&#8217;s method of storing Bitcoin shielded its customers from the problems that Mt. Gox or QuadrigaCX faced after the arrest or death of its operators.<\/p>\n<p>Follow ForkLog news on <a href=\"https:\/\/www.facebook.com\/forklog\" target=\"_blank\" rel=\"nofollow noopener noreferrer\">Facebook<\/a>!<\/p>\n","protected":false},"excerpt":{"rendered":"<p>Coin Metrics researchers in a new report disclosed the specifics of how Bitcoin is stored on BitMEX. Thanks to this arrangement, the crypto-derivatives exchange continued to meet its obligations to clients after the US regulators&#8217; lawsuit.<\/p>\n","protected":false},"author":1,"featured_media":30079,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"select":"1","news_style_id":"","cryptorium_level":"","_short_excerpt_text":"","creation_source":"","_metatest_mainpost_news_update":false,"footnotes":""},"categories":[3],"tags":[788,1394],"class_list":["post-30078","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-news-and-analysis","tag-bitmex","tag-coin-metrics"],"aioseo_notices":[],"amp_enabled":true,"views":"13","promo_type":"1","layout_type":"","short_excerpt":"","is_update":"","_links":{"self":[{"href":"https:\/\/u1f987.com\/en\/wp-json\/wp\/v2\/posts\/30078","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/u1f987.com\/en\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/u1f987.com\/en\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/u1f987.com\/en\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/u1f987.com\/en\/wp-json\/wp\/v2\/comments?post=30078"}],"version-history":[{"count":1,"href":"https:\/\/u1f987.com\/en\/wp-json\/wp\/v2\/posts\/30078\/revisions"}],"predecessor-version":[{"id":30080,"href":"https:\/\/u1f987.com\/en\/wp-json\/wp\/v2\/posts\/30078\/revisions\/30080"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/u1f987.com\/en\/wp-json\/wp\/v2\/media\/30079"}],"wp:attachment":[{"href":"https:\/\/u1f987.com\/en\/wp-json\/wp\/v2\/media?parent=30078"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/u1f987.com\/en\/wp-json\/wp\/v2\/categories?post=30078"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/u1f987.com\/en\/wp-json\/wp\/v2\/tags?post=30078"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}