ShapeShift is still punk rock

It’s more than fair to have deep misgivings about alternative coins, tokens and the like. Security reasons. Economic reasons. Technical reasons. I have considered them all, and even found some persuasive. It’s an important conversation.

I fall on the thousand flowers blooming end, trusting markets to regulate themselves and for folks to take whatever cryptocurrency is, and fashion it in the way they’d like. If my personal favorite, Bitcoin Cash (BCH), is ultimately chosen, awesome. If not, and markets have looked elsewhere, so be it.

Lemonade

ShapeShift is still punk rockWhatever the case, September was a shitty public relations month for ShapeShift, a veteran digital asset exchange within the ecosystem for half a decade. It began with the company having to disclose it will no longer allow relatively anonymous transactions on its platform. “Nothing changed,” its CEO Erik Voorhees posted in answer on an Andreas Antonopoulos Twitter thread. “I am still those things. Yet, I must also calculate risks carefully. I’ve always despised taxation, yet I pay it. Same situation here. Financial privacy is absolutely a right and I will continue struggling for it in ways that are effective.”

Mr. Antonopoulos struck out at the company, tweeting “Very disappointed that @ShapeShift_io is implementing KYC. Just goes to show that any centralized entity will be pushed in that direction, which is why LN, atomic swaps and Decentralized Exchanges are the only way to resist surveillance economics. In the end,” he followed up, “strength of principles is less effective defense than decentralized architecture: ‘can’t do evil’ is the only effective approach.”

How ShapeShift Is Keeping Your Data SafeShapeShift is still punk rock came the announcement drawing all the ire. The exchange’s CSO, Michael Perklin, outlined its all-of-the-sudden Membership Program. “However,” Mr. Perklin was careful to write up front, “becoming a member requires verification of basic customer information. This changes the way ShapeShift handles data– now that we have to collect and store your information, we need to do everything possible to keep it safe.”

Mr. Voorhees described the move as preemptive, a way to scale, taking government mandated lemons and making freer market lemonade. ShapeShift has grown and was growing, and it was beginning to attract more and more attention, not all of it wanted. And much of that notice was coming from regulators who, especially in the United States, have been closing in all around companies like it who dealt in anonymity. It for sure had taken a while. Regulators aren’t the sharpest tools in the shed, and they spent the better part of the last 10 years trying to digest the neologism cryptocurrency—forget trying to explain ShapeShift’s business model.

Punk rock

Through a series of encrypted methods, “a 4096-bit RSA key using the widely-used open-source GPG software,” Mr. Perklin detailed, “stored in our database and in most cases is never used again,” the company essentially, and seemingly voluntarily, changed a fundamental reason for its existence. It certainly isn’t a first in the ecosystem, and it will not be the last.

At some point, however, it was clear to the company’s leadership a reckoning was about to happen. There are, essentially, four choices at such a realization: 1, complete capitulation and hope for the best; 2, rogue rejectionism and hope for the best; 3, close the business altogether; 4, move into something like the inevitable regulation, and perhaps permanently avoid numbers 1 through 3.

It’s 4 ShapeShift has opted, and that’s due to the leadership’s tenacity, chess-playing acumen, and punk rock ethos. It’s somewhat like when The Clash, the late 70s and early 80s British pop band, strayed from the garage and incorporated horns. They did lose some edge, some grit, but they managed to survive a few years longer in order to tour and continue doing what they’d always done, make music.

ShapeShift is still punk rockStill, the move under question herein hasn’t stopped longtime fans from openly wondering at the company’s future. Businesses building on the Bitcoin Cash (BCH) chain, the most punk rock of all blockchains, such as Money Button, were asked about their plans going forward. CEO Ryan X. Charles started Money Button as a micro tipping payment platform, one without recourse to KYC and AML, and ShapeShift was a big help when dealing with multiple cryptos. “Have you spoken with Erik about shapeshift integration once KYC is required?” a curious tweeter asked of Mr. Charles. “No,” he answered, “we may either integrate with the KYC system somehow or switch to another service.”

He then elaborated, and promptly hit the nail on the philosophical head. “TBH, long-term, KYC for exchanges is inevitable,” Mr. Charles continued. “I wouldn’t bet on being able to do anonymous exchange legally for much longer.” Again, there are four choices, basically, from that realization. See above.

Legacy financial news outlet attacks

ShapeShift is still punk rockThat shittiness continued in a big way toward the end of September, when the Wall Street Journal (WSJ) completed a nearly half of a year investigation into the doings of crypto exchanges such as ShapeShift. Immediately, the article turns sour, playing on scares long drummed up by mainstream media hysterics. “Since bitcoin was introduced nearly 10 years ago,” the WSJ began, “law-enforcement authorities have worried the technology could ease money laundering. Now a new breed of cryptocurrency intermediary is giving fresh urgency to those fears, operating in plain view with scant policing and often allowing users to engage in anonymous transactions.”

Circling back to our above discussion, get this: “Most operate beyond the reach of U.S. authorities,” the WSJ scolds about exchanges within the space, “with unidentified owners and addresses in places such as Eastern Europe and China. Not ShapeShift, the largest recipient of the funds with a U.S. presence. The company is officially registered in loosely regulated Switzerland, but it is run out of a 1980s-era office building in a Denver neighborhood packed with tech companies and marijuana entrepreneurs. ShapeShift’s founder and chief executive, Erik Voorhees, along with its chief operating officer and its marketing chief, all live in the Denver area.” Readers might be ready to believe journalists are citing these facts as lauds. Not so fast.

“A parade of suspected criminals has taken advantage of ShapeShift’s services since the exchange began in 2014, according to law-enforcement officials, independent researchers and the Journal’s investigation,” reporters shrill, pointing fingers at the likes of dastardly North Koreans. “Many cryptocurrency exchanges say they follow federal rules intended to combat money laundering, even though the question of whether they are subject to them hasn’t been tested. They keep records of their customers’ identity and monitor transactions to root out and report suspicious activity,” the WSJ asserts. “Mr. Voorhees has long scoffed at such constraints. ‘I don’t think people should have their identity recorded to catch an occasional criminal,’ he said in a May interview.” Savvy readers can quickly see where this is heading.

“The Journal found that ShapeShift processed nearly $9 million of the suspect funds, more than any other exchange with U.S. offices,” the WSJ claimed. And the accusations fly from there. Tales of its own customers robbing one another, “sextortion,” and all sorts of nonsense seem to be plaguing the exchange. The article is so filled with woe, no one could blame the intended reader, regulators and potential institutional investors, from concluding the entire business is a giant money hole of loss and horror. The WSJ piece devolves into blaming Mr. Voorhees’ libertarian worldview, implicitly, and cherry-picking quotes from talks and panels to paint him as just another crank.

I recommend reading the WSJ piece for no other reason than gaining a crash course in how any crypto business even mildly principled will be treated going forward. Read it. Learn. To a casual crypto enthusiast, it’s pretty damning stuff. Really bad, in fact. But then do yourself a favor and click on over to Shining Light on WSJ’s Attack on ShapeShift and Crypto. It’s Mr. Voorhees’ punk attitude in full force, defending his and his company’s integrity. And you don’t have to like ShapeShift nor Erik Voorhees to understand what all this means in the broader scheme of things. But for sure don’t live in Mr. Antonopoulos’ judgmental, condescending salon. The real world exists, and punk rockers are keen to engage if only to ultimately best it.

Edward Kelso is a financial technology journalist based in Southern California. Follow him on Twitter.

Note: Tokens on the Bitcoin Core (segwit) Chain are Referred to as BTC coins. Bitcoin Cash (BCH) is today the only Bitcoin implementation that follows Satoshi Nakamoto’s original whitepaper for Peer to Peer Electronic Cash. Bitcoin BCH is the only major public blockchain that maintains the original vision for Bitcoin as fast, frictionless, electronic cash.

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ShapeShift hits back at ‘deceptive’ Wall Street Journal report

Erik Voorhees, the founder of ShapeShift.io, has responded robustly to claims made in the Wall Street Journal (WSJ) that he says are “factually incorrect and deceptive.”

In an article entitled ‘How Dirty Money Disappears Into the Black Hole of Cryptocurrency,’ two WSJ journalists who had been working with Vorhees alleged the firm was involved in money laundering, the latest hit piece from a mainstream media outlet to target legitimate crypto businesses.

The WSJ piece implied Voorhees’ firm had been engaged in laundering money for scammers and North Korean spies, claims the ShapeShift CEO flat-out refuted as untrue.

According to the report, “A North Korean agent, a stolen-credit-card peddler and the mastermind of an $80 million Ponzi scheme had a common problem. They needed to launder their dirty money. They found a common solution in ShapeShift.”

In response to the allegations, Voorhees revealed how the company had been working with the journalists on false pretenses for as long as five months, as well as highlighting a number of areas in which their report had deceived or misled on crucial facts around the business.

In a blog post, the ShapeShift chief claimed, “Overall, the article contains factual inaccuracies, omits significant details about how ShapeShift operates, and reflects a fundamental misunderstanding of how blockchain transactions work.”

“Blockchains and cryptocurrency represent a new, fast-evolving technology and industry. For those who are not real experts, it can be confusing. And the WSJ reporters appear to have gotten confused about how our platform functions. Based on our own analysis of the transactions cited in the article, the WSJ erroneously attributed vast sums of allegedly illicit transactions to ShapeShift in a way that exhibits a profound failure to grasp how blockchains, in general, and our system in particular, really work,” Voorhees said.

Roundly condemning the hit piece, Voorhees said ShapeShift’s record in fact compared favourably to its peers.

“The WSJ article’s implication that ShapeShift is somehow negligent or complicit on this issue of money laundering is false and absurd; emblematic of a media industry that cares more about clickbait sensationalism than it does about improving the financial state of mankind. But we should not expect the Wall Street Journal to change Wall Street,” he said. “An objective observer will find no complacency here; ShapeShift’s record (based on facts) compares favorably against any peer, within the crypto industry or without.”

Note: Tokens on the Bitcoin Core (segwit) Chain are Referred to as BTC coins. Bitcoin Cash (BCH) is today the only Bitcoin implementation that follows Satoshi Nakamoto’s original whitepaper for Peer to Peer Electronic Cash. Bitcoin BCH is the only major public blockchain that maintains the original vision for Bitcoin as fast, frictionless, electronic cash.

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