Topic: Samourai wallet - what went wrong? (Read 143 times)

The government has always had a negative attitude towards cryptocurrencies and intelligence agencies have always hunted for cryptomixers.I would still share the government and the policies of the intelligence services, of which there are very many in the United States, about 20.
And it looks like this: “I see a new threat, here is our plan, I ask you to allocate xxx million to us”

The US government does whatever when it feels it benefits the capitalistic country or when it feels threatened and not in control of the geopolitics. You cannot be a sympathizer of a country that has been in bed with countries that are ruled by dictators. In the name of democracy, they have destroyed several countries but now they are concerned that cryptocurrency will backstab their economy and its ambitions. I think whatever they are doing now against the founder of a big exchange and mixers will only haunt them in this era of AI and Robotics.

Earlier they tried their level best to give Bitcoin a negative identity, look at them now they have launched a Bitcoin ETF which is a massive success. The US government and the deep state will either comply with Bitcoin or will find an option to make Bitcoin traceable for the common public but not for billionaires. Already there is too much negativity escalating within their universities  against their policies against a known country in the Middle East.

Let's discuss if the parties who were arrested were transferring funds on behalf of others.

If they were in fact not doing that, then how do we justify them receiving a fee for transfers done through the wallet? What was this fee for, paid by who and for what exactly? What was Samurai's purpose, why did they set up a company etc.

If Samurai was 100% decentralized and there were no owners weren't established through an official company, maybe there would be plausible deniability. FEDs could go as far as to order a code repo shut down, but who would they go after? An expansive open source dev community? Pseudonymous code authors? Decentralized network node-runners?

Certainly users who were running the Samourai software weren't receiving it from a vague or decentralized source. And in the process of running the software, they were exchanging information and financial transactions with Samourai's company directly. So I think the defense would be pretty weak in terms of the liability part.

Of course here we're always judging this based on the current network. Other jurisdictions may be affording more freedoms to open source devs to develop whatever apps however they want.
Honestly certain rulings the U.S. justice system has delivered are pretty tyrannical and more often than not when an individual or a corporation is set to fight in court against the government it's a guaranteed loss for them. Like the case of the Developer traveling to NK I mentioned in the OP, he was nearly forced to plead guilty to avoid a huge sentence.

Knowing how hostile the U.S. government is towards cryptocurrency, privacy, and its geopolitical rivals, the ways in which they marketed their service were often incredibly foolish. If they were going to be this arrogant they should have made sure to develop the project in total anonymity and located in a jurisdiction with more respect towards individuals' right to privacy and financial autonomy.

The overall case against them has significant flaws. An offhanded remark made on Twitter should not be the reason why they spend decades in prison. Russian oligarchs have far better ways of laundering money through traditional investments and banking institutions. While those comments weren’t very tasteful, it is not enough evidence of a conspiracy to commit money laundering or evade sanctions. It would be different if they had actually been in direct communication with oligarchs, which is not the case.

The indictment documents against Samourai state that “KEONNE RODRIGUEZ and WILLIAM LONERGAN HILL, the defendants,
owned, controlled, managed, and supervised Samourai, which was engaged in the business of transferring funds on behalf of the public." That is not how Whirlpool works but prosecutors are counting on jurors being too ignorant to understand that a non-custodial service does not meet the definition of a money transmitting business. Even some forum members who have many years of experience with Bitcoin did not understand that the coordinator never holds any user funds.

It will be difficult to win against a rigged justice system, but with a strong defense some of the charges might get dropped, which might limit the harm they want to inflict on privacy providers and Bitcoin users.

Russian oligarch wallet Where do these headlines come from? If I had a lot of bitcoins, I would use the original Bitcoin Core wallet for storage. The original wallet has options for secure and anonymous use.
And it’s true that fraudsters and criminals often use privacy tools. But a good specialist knows how to use standard wallets completely safely.

Operating a crypto mixing service knowing the negative stance of the US government against such services - this is precisely what went wrong!

It's not a surprise that US government is extremely negative about the crypto mixing services. They had taken action earlier as well if you remember the case of Chipmixer. So it's no surprise that they kept such services under constant surveillance.

If running a crypto mixer considered a crime, it's a bigger crime to try to run it from the US soil.

There is one other thing I saw in the DoJ report that you don't cite, that they were bragging about working for “grey and black markets”, so they were acknowledging working for illegal activities. If you simply defend privacy and work for it, surely you can defend yourself better when you are accused of money laundering, at least with that of plausible deniability, saying that you offer privacy and you don't know if any of your many honest customers is a criminal.

I think that following the arrest of founders and seizure of Samourai assets, we as a community should do our best to assess the situation in order to better understand privacy's future.

In the last few years we've seen intense international crackdowns on known privacy methods for bitcoin transactions. International police operations were organized against mixers, bitcoins were seized, founders were arrested and on many cases services were shut down completely.

But in the case of Samourai wallet, there's something new. While Samourai wallet's developers also made it explicitly clear that their software and services were provided with the intent of hiding the origin of funds, the difference of their services is that unlike mixers, what Samourai did it was largely decentralized, and also open-source.

So what really went wrong for Samourai?
I'll put some of my own thoughts into this but really the more input the better.

Being too cocky
Samourai wallet appeared to have lots of fans on social media. Not only that, but the wallet's founders also would often bite into it and post provoking comments on social media. Here's a small example below:
Note: The connection between the approach U.S. authorities had and the above screenshot isn't just speculation, it's taken directly from the DOJ's report on the crackdown.

Providing services
Samourai devs didn't stop at just being devs. It was a company, a service and a community. They were earning from fees, selling items, providing advice and doing it all very publicly.
Also from the DOJ's report:

There's a chance, albeit a slim one, that if Samourai was just open source wallet software provided as is, without a company behind it, and without the developers offering for-profit services within their software, that they could have avoided prosecution. Moreover, running a community and having such a pompous social media presence surely attracted a lot of attention.

Being U.S. based
Well, aside of just offering services, Samourai also operated as a U.S. company and openly provided services and sold items to U.S. individuals. Since they decided to go the for-profit route, they could have at least attempted to block U.S. individuals instead of openly advocating them to become clients.

Is there anything that could have been done at all?
Worth noting that if in the U.S. something is seen as a domestic threat politically, feds are known for really throwing the book at someone. For example Ross Ulbricht was jailed for life for operating the Silk Road even though he had never touched the items sold on the marketplace. And even though there was a lot of corruption within his prosecution in terms of what the agents did. The courts didn't care. On another instance, a developer got arrested and sentenced to prison for simply intending to attend a North Korean crypto conference. He didn't even profit or offer services to North Korea, he just wanted to go there and give a speech. And more recently a person that is said to have helped him go to North Korea was also indicted in Spain, just because he's suspect through a "Korean Friendship Association"...

The grasp of U.S. authorities is very far reaching throughout the western world. If they want to silence someone they'll just slap him with unfair charges that will be very hard to fight in court since they're coming from a very high level authority, and the courts are also subservient to the same governments and interests groups.

But even for people running services the US doesn't like while living outside of what we'd consider the western sphere of influence, we've seen them arrested in the past. For example two Russians had been arrested in Argentina for running z-library, a free book download service. This is even though they didn't operate under an official company and hadn't published their names.

So a question that arises, is what can privacy tool developers do realistically?
Try to operate in anonymity, to their best effort remain outside of western countries, not offer any services at an official capacity or establish any companies... And even that probably isn't enough sometimes.
Well under this pretense, it seems like privacy tools for crypto would have to be operated in a very rogue way if they'd want to survive the current U.S. regime. What do you think?