24.10.2020

Crypto Payments for Child Porn Grew 32% in 2019

The 2019 figure comes in spite of law enforcement agencies’ global rush to dismantle online CSAM operations, including some of the largest ever uncovered. March 2018’s cross-border takedown of the Welcome to Video CSAM ring shuttered a darknet site that had collected some 420 total bitcoin across its nearly three-year reign.

Nearly $1 million in bitcoin and ethereum flowed into child pornography-linked wallet addresses in 2019, continuing a multiyear upward trend that captures the complicated realities of mass crypto adoption.

The statistic, disclosed in a Tuesday blog post by forensics firm Chainalysis, is a tiny sliver of overall crypto usage – even on March 31, 2019, one of the slower trading days of that year, Messari’s estimated $128 million worth of bitcoin in transit dwarfed the nearly $930,000 that Chainalysis traced to addresses flagged by the Internet Watch Foundation across 365 days.

But the troubling total nonetheless documents crypto’s growing popularity as a method of payment for child sexual abuse material (CSAM). Last year, 32 percent more crypto value moved into CSAM than in 2018, which itself was 212 percent higher than 2017’s total. Chainalysis based its totals on the cryptos’ value at time of transaction.

While Welcome to Video’s downfall did not stop 2018 or 2019 from hitting record usage highs, it does illustrate one of the upsides – from a law enforcement standpoint – of people using crypto to pay for CSAM. Bitcoin and ether are inherently traceable, and when users pay for CSAM without attempting to thoroughly obfuscate their tracks, they’re surprisingly easy to find and jail.

Most of the funds come right from exchanges, said Nina Heyden, an economist at Chainalysis. Better yet: from compliant exchanges who collect their users’ identity data as required by law.

“The good thing about that is those exchanges often cooperate with law enforcement when law enforcement requests more information during investigations,” Heyden said.

For example, law enforcement used crypto tracing software to arrest hundreds of Welcome to Video customers whose transaction trails often led to identifiable exchange accounts. Tracing also helped investigators uncover other CSAM rings associated with Welcome to Video via its users’ wallet addresses, as with DarkScandals.

Crypto Portfolio App Ember Seeks $1 Million in SEC-Registered Securities Sale

Ember Fund, makers of an AI-managed cryptocurrency portfolio app, is seeking to raise up to $1 million through a Securities and Exchange Commission-registered securities sale.

The year-old company revealed their intention in today’s filing with the SEC, detailing their sale of “Crowd SAFE” securities that will occur through the end of January 2020 on Republic, an online startup investment platform. SAFE stands for “simple agreement for future equity;” it is an investment contract entitling holders to equity if and when Ember Fund is acquired or goes public. Investors must post a $100 minimum buy-in.

Ember Fund markets itself as an app-based equivalent to crypto hedge fund, with an automated AI system re-balancing a portfolio of cryptocurrencies. Ember is not itself a hedge fund, however; as a non-custodial service Ember Fund never actually touches or transmits crypto – all coins remain on users’ phones.

In May, Ember Fund CEO Alex Wang told CoinDesk that the service, that he and two others bootstrapped in 2018, saw nearly $2 million in transactions in April 2019.

The current financial status is unknown because the company’s public reporting is until the end of 2018. The four-person company reported in their filing with the SEC that they had only $2,557.00 in cash on hand on December 31, 2018. Ember Fund’s reported loss for the year was $24,523.00. Wang told CoinDesk that they began processing transactions in November 2018.

Ember Fund’s target fund numbers are relatively low; the minimum target sale is $25,000 and a maximum of $1,070,000. But Wang told CoinDesk the funding round – which he said is directed at “friends and family” – is small by design.

“Our hope is really to raise as little money as possible,” said Wang, who wants to ensure that he and his founding partners Guillaume Torche and Mario Lazaro retain control of the company they founded, and funded, in 2018.

Since that time Wang said they have learned their user acquisition costs and value, enabling Ember Funds to develop a strategy for continued growth. This, he said, makes them different from many move-fast-and-break-things-type California startups rushing to trade their equity for capital.

“A lot of companies go out and raise a ton of money without having a business model. We took the other approach: let’s have a business model and then scale it up.”

A transcript of a marketing video included in the SEC filing indicated that Ember Fund will use the capital to expand. The narrator, CTO Guillaume Torche says:

“We have already processed about $10 million to the platform without any marketing budget. We’re at a point where we’re ready to scale.”

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