MetaMask, Infura, OpenSea May Be Enforcing Sanctions
  The biggest crypto news and ideas of the day Mar. 3, 2022 Was this newsletter forwarded to you? Sign up here. Supported by 
Welcome to The Node.
In today's newsletter: MetaMask and Infura restrict access to users in "certain areas." ConsenSys sued by former employees. And Ukraine cancels a planned crypto airdrop.
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Today's must-reads Top Shelf SANCTIONS COMPLIANCE? Two key pieces of the Ethereum ecosystem – MetaMask and Infura – moved to restrict access to users in "certain areas" amid an industry-wide focus on the risk cryptocurrencies pose for evading international sanctions, the ConsenSys-controlled crypto wallet and the infrastructure provider, respectively, said in a joint blog post. Those "areas" were undefined, though some Venezuela-based users were reporting service interruptions. Elsewhere: Iran-based OpenSea users claim their accounts were terminated on Thursday, in what appears to be a move for the New York-based company to comply with U.S. sanctions against the country. The NFT marketplace has yet to confirm or deny these events.
CONSENSYS SUED: A group of shareholders for Ethereum development company ConsenSys AG have requested that a Swiss court review a deal between two ConsenSys entities that transferred control over popular wallet MetaMask and infrastructure provider Infura, among other key pieces of intellectual property. A number of ConsenSys AG shareholders allege the assets were mispriced during the transaction and that the parent company, ConsenSys, unlawfully delayed meetings and shielded information related to a deal involving JPMorgan.
NO AIRDROP: The Ukrainian government has canceled a planned crypto airdrop meant for those who donated over $40 million in crypto to fund its war effort. The government instead is planning an NFT drop. The airdrop was first announced on Wednesday on the country's official Twitter account, prompting an influx of microdonations on the Ethereum blockchain and speculation over what token might be given as a reward – including one, called "peaceful world," which turned out to be a scam. Follow CoinDesk's continuing coverage of Ukraine.
LEGAL TENDER? Lugano, Switzerland, has formed a partnership with stablecoin issuer Tether to establish bitcoin (BTC), tether (USDT) and Lugano's own LVGA Points token as "de facto" legal tender in the city. News broke at a Thursday hosted by Lugano's mayor, who also said the Swiss franc will remain the actual legal tender in Lugano and elsewhere in Switzerland. Meanwhile, the U.S. Internal Revenue Service on Monday filed to dismiss a lawsuit looking for clarity around tax obligations from crypto staking rewards.
SCAMS TARGETED: The U.K.'s Financial Conduct Authority (FCA) said it opened more than 300 cases in a six-month span in 2021, relating to businesses possibly involved in crypto assets. The financial watchdog said it has 50 ongoing investigations, including "criminal probes," into unregistered businesses and has received thousands of consumer complaints involving "cryptoasset, boiler room and recovery room scams." Meanwhile, hackers have started to return stolen "Smol Brains" NFTs stolen during an exploit of an Arbitrum-based marketplace.
Overheard on CoinDesk TV... Sound Bites  "The order of magnitude of liquidity that would be flowing into the cryptocurrency markets would be detectable."
–Chainalysis' Salman Banaei, discussing the unlikely use of crypto to buck sanctions, on CoinDesk TV's "First Mover."
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Putting the news into perspective The Takeaway 'Crack Down' on Crypto? Maybe, But You Can't Ban Math In recent days, following the invasion of Ukraine and the West's disabling economic sanction of Russia – an unprecedented retaliatory move – there has been increased chatter that governments and international bodies may step up efforts to "crack down" on cryptocurrency.
This fear is partially grounded in fact. Sen. Elizabeth Warren, for instance, tweeted last week, "Cryptocurrencies risk undermining sanctions against Russia, allowing Putin and his cronies to evade economic pain. … U.S. financial regulators need to take this threat seriously and increase their scrutiny of digital assets." The Massachusetts Democrat renewed her call to action today.
Likewise, Federal Reserve Chair Jerome Powell said Wednesday that the ongoing war "underscores" the need for cryptocurrency regulation. European power brokers have voiced similar concerns. French Economy and Finance Minister Bruno Le Maire said: "We are taking measures, in particular on cryptocurrencies or crypto assets, which should not be used to circumvent the financial sanctions decided upon by the 27 EU countries."
Still, the fear that crypto could be banned is mostly rooted in uncertainty and doubt. It's worth noting that calls to "crack down" on the industry, a common phrase, are imprecise. What would a "crackdown" look like over and above the rules to increase surveillance and compliance already being discussed or enforced today?
It's true too that Powell, Warren and their ilk are also being fairly cryptic in their calls for increased "scrutiny" of and "measures" over crypto. That could mean anything – hence the fear, uncertainty and doubt. But it cannot seriously mean a blanket ban of blockchains.
You can't ban math Around the time of the fall of the Soviet Union, the U.S. was leading a battle to kill consumer encryption. For most of history, encryption – the ciphers used to send secret messages – was primarily developed and guarded by governments. Various militaries are credited with creating the first paper codices and first digital cryptographies to protect war correspondence. At the height of the Cold War, the U.S. placed strict controls over the export of commercial and military encryption.
This changed with the advent of the internet. Early cypherpunks saw that computer networks could easily be surveilled and worked to design codes to foster privacy. That was the environment in which, in 1991, computer scientist Phil Zimmermann released the public-key program humbly named Pretty Good Privacy (PGP) and kickstarted the "Crypto Wars."
The United States Customs Service alleged that Zimmermann had violated the Arms Export Control Act that forbade the export of "strong" cryptography and opened a criminal investigation. Around the same time, the Clinton administration tried to legally force companies to write in backdoors into commercial encryption technologies, called "clipper chips."
Due to a confluence of factors, including PGP's wide adoption and MIT publishing its code as "open source," regulators were essentially forced to drop the case. More importantly, privacy advocates made the case that code was math, and that math was speech. Suppressing encryption would be unconstitutional – the cat was out of the bag.
"We won in the courts, Congress and public opinion," the Electronic Frontier Foundation, one of the leading organizations advocating for strong encryption, later wrote.
That hasn't necessarily stopped governments from trying to quash a host of industries based on encryption and supercharged by the internet. These include attempts to "crack down" on facial recognition, artificial intelligence and private communication through end-to-end encryption – although strict regulation or bans of those industries might be desirable (considering their dystopian prospects).
Encryption likewise serves as the basis for cryptocurrencies (that's the "crypto" part; I think we're still figuring out what "currency" means). It sounds "just so," but that's essentially the reason that an outright ban of bitcoin (BTC) or ethereum (ETH) is unlikely.
Not only is there legal and constitutional precedent, but knowledge has flooded the plain. (Imagine trying to ban a recipe for cookies.) PGP wasn't nearly as widespread as Bitcoin software is today.
Regulated channels Still, even if cryptocurrencies are open source, open access and protected by speech laws at the command-line level, most consumers access crypto through intermediaries. These on-ramps can and ought to be regulated – and should be part of sanctions packages against Russia.
Indeed, they are. As part of the "Russian Harmful Foreign Activities Sanctions Regulations," the U.S. Treasury's Office of Foreign Assets Control (OFAC) is set to issue new rules to prevent people from interacting with prohibited Russian entities. This means that crypto exchanges and service providers will blacklist any assets believed to be owned by a targeted group of Russians.
Salman Banaei, Chainalysis' head of public policy for North America, said on CoinDesk TV's "First Mover" that there are about 100 wallet addresses identified in OFAC's sanctions package.
Although there are calls, including from the Ukrainian government, to issue a blanket ban to prevent all or most Russians from accessing crypto networks, such rules have yet to be written.
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No one knows who Satoshi Nakamoto is. This is one of the central mysteries of the cryptocurrency industry. To recognize his contribution to the birth of the Bitcoin ecosystem, BitBTC.money is creating a series of Satoshi Nakamoto avatar NFTs that will live in the metaverse. These in turn are being designed to pay tribute to other important Bitcoin contributors.
The core members of BitBTC met Minhua Ouyang (Bonnybb.eth) in New York, where they learned she had started creating NFTs in July 2019 and was one of the earliest NFT creators in the city. After brainstorming with BitBTC team members, she decided to create the Satoshi NFT project.
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