MIT students stole $25M in seconds by exploiting ETH blockchain bug, DOJ says

🌈 Abstract

The article discusses a cryptocurrency scheme allegedly carried out by two highly educated brothers, Anton and James Peraire-Bueno, who are accused of stealing $25 million from the Ethereum blockchain in just 12 seconds. The scheme involved exploiting vulnerabilities in the Ethereum blockchain to alter pending transactions and divert the funds to their own accounts.

🙋 Q&A

[01] The Alleged Cryptocurrency Scheme

1. What were the key details of the alleged cryptocurrency scheme carried out by the brothers?

• The brothers, who studied computer science and math at MIT, allegedly used their specialized skills and knowledge to tamper with and manipulate the protocols relied upon by Ethereum users globally.
• They allegedly exploited the Ethereum blockchain in the moments after a transaction was conducted but before it was added to the blockchain, by establishing a series of Ethereum validators through shell companies and foreign exchanges to alter the transaction order and seize the Ethereum.
• The brothers allegedly deployed "bait transactions" to catch the attention of specialized bots used to find lucrative prospects on the Ethereum network, and then exploited a vulnerability in the block structuring process to reorder the transactions to their advantage.
• The brothers allegedly took steps to hide their ill-gotten gains, such as setting up shell companies, using multiple private cryptocurrency addresses and foreign exchanges without strict "know your customer" (KYC) procedures, and researching money laundering techniques.

2. What was the impact of the alleged scheme on the integrity of the Ethereum blockchain?

• According to the U.S. Attorney, the alleged scheme "calls the very integrity of the blockchain into question," suggesting that it has the potential to undermine trust in the Ethereum network.

3. What were the charges brought against the brothers, and what are the potential penalties they face?

• The brothers were charged with conspiracy to commit wire fraud, wire fraud, and conspiracy to commit money laundering.
• Each brother faces a maximum penalty of 20 years in prison for each count.

[02] The Investigation and Implications

1. How did investigators uncover the alleged scheme?

• Investigators "simply followed the money," using cutting-edge technology and traditional investigative work to trace the flow of the stolen funds.

2. What are the potential implications of the alleged fraud for the Ethereum ecosystem?

• The alleged fraud could fuel skepticism from the SEC as it reviews the potential approval of an Ethereum exchange-traded fund (ETF). SEC Chair Gary Gensler, a noted crypto skeptic, wants to ensure investor protection before approving any potentially dangerous listings.