The Actual Pirate of Silicon Valley: John McAfee’s use of Privacy Cryptocurrencies and Exchanges means his Fortune is Literally Buried Treasure.
Your wallet will become your bank, and if that wallet cannot be looked into, meaning you’re using privacy coins, and all your activity is in a distributed exchange, then no one will know what you do with your money, and nor should they. It’s your fucking money people.
-John McAfee, speech at the Barcelona Blockchain Week 2019
Disclosure- I am by no means a crypto expert, these are just my opinions. If you are a crypto expert please shoot me a message- I’d love to talk/get your feedback.
The phrase “Pirates of Silicon Valley” has often been evoked to characterize the rebellious culture of tech tycoons who make fortunes subverting society’s norms. While the saying comes from a 1999 movie on Steve Jobs and Bill Gates, no entrepreneur more embodies this phenomenon than noted international fugitive, cybersecurity pioneer, John McAfee.
McAfee has gotten arrested once again. This is a pretty frequent occurrence for the eccentric millionaire, whose famous cybersecurity company went public today, with a recent summer arrest for wearing women’s underwear instead of a mask in Norway.
However, what makes this arrest different is that according to the New York Times, the United States is seeking extradition. The June Indictment specifically cites that he failed to pay taxes from 2014 to 2018 on assets that the DOJ states to be “millions of dollars in crypto, yachts, and real estate.” If found guilty, and odds are he will since, as this tweet shows he openly admits to the crime he is accused of, he faces several years in prison- effectively a life sentence given that he’s 75. While McAfee’s extradition comes as no surprise, it is still surreal to see a man who so often stuck his finger to the government finally get caught.
On a personal note, the fact that I also got a chance to speak with him back in July for my podcast, only adds to the overall surrealness of this.
2020 has truly been the weirdest.
Now back to the story. McAfee, if he practiced what he has been preaching, likely has the majority of his money in private cryptocurrencies, and has exclusively used decentralized exchanges for his financial activity. What this results in is his money in effect being untraceable by anyone, including the government.
The results of this are: On a tangible note, this may cause enough of a mainstream media frenzy to crack down and shame privacy coins-perhaps out of existence.
On a poetic note, this effectively makes John McAfee literally live up to the phrase “Pirates of Silicon Valley,” as he leaving behind his fortune in buried digital treasure.
So, why is this important?
Aren’t all cryptocurrencies like Bitcoin covert? Why does this make his money untraceable, especially by the US government-that seemingly can find anyone and their money if they want to? (check out this funny Batman clip where even the Joker says he’s afraid of tackling on the IRS)
Well to the first question-no not all cryptocurrencies are covert. Bitcoin, and other non-privacy coins, while having a vibe of anonymity, primarily due to its early adoption by internet criminals like the Silk Road users, are actually not that anonymous. Smart tech dudes, and especially the big boys at the IRS/FBI can trace transactions done using these non-privacy coins, especially if they were done on Coinbase or other centralized exchanges.
Here are some ways that the crypto company ShapeShift, in a brilliant article on privacy coins, explains that Bitcoin could be tracked.
Bitcoin is a peer-to-peer network where nodes can be connected to each other. Anyone with sound deductive reasoning skills and a penchant for digital forensics can theoretically connect the dots (nodes) together and uncover transactions. This is not easy, but certainly possible.
Know Your Client Verification
Users trading Bitcoin on an exchange and identifying themselves, makes tracing transactions back to that user easy.
The Public Ledger
Bitcoin’s blockchain serves as a public ledger. Transactions are open to everyone, which means addresses are traceable. If even one address is tied to a specific user, other addresses in that group of transactions on the blockchain can be tied to that very same user.
Enter privacy coins.
Privacy coins, unlike Bitcoin, Ethereum, Litecoin, and the other non-privacy coins are untraceable.* Monero is the most famous, but there are more than a handful including Zcash, Dash, and McAfee’s own Ghost (that he had abandoned pre-arrest). Each of these coins uses a unique way of making transactions unlinkable and untraceable, i.e. using ring signatures and stealth addresses or Dash’s Privatesend (if you want to learn more, read the ShapeShift article).
To put this in simple terms, if I sent you four dollars in Bitcoin, then as a result of that transaction, I could, if I was a smart techy dude, use your wallet address to see all of the transactions you‘ve ever made. Through reverse engineering, I could get a rough estimate of how much money you have. By using privacy coins, however, McAfee has in effect precluded himself from all third parties locating his crypto wallet. Meaning that it’s going to be very hard to gain an estimate of how much money he is worth and even harder to access his money if he does in fact get convicted of tax evasion and the IRS levies his properties.
What further complicates tracing and estimating McAfee’s fortune is his use of private, decentralized crypto exchanges for his financial activity. If you are an American reading this, you likely use Coinbase, Gemini, or Binance (soon becoming decentralized). These centralized exchanges, as McAfee himself put it, are “like banks.” As you may have encountered yourself, in order to sign up for them you need to provide identification about yourself, stuff like your driver’s license, passport, or bank information. What this means is that if someone like the United States government were to come looking for a history of your transactions, they’d be able to see who you were transferring money to. While it would be hard, odds are the IRS and the FBI would be able to find some way to piece together a rough estimate of how much money he has.
With decentralized privacy exchanges, none of this is asked of you. McAfee, if he once again followed the advice he gave to others, has no available record of the transactions that he has made, and who he has been transacting with for years. In effect, his total fortune is literally untraceable, untrackable, and hidden.
Instead of a tree, McAfee’s treasure is buried under layers of anonymous digital code.
The implication of all of this:
Firstly, the phrase I mention throughout the article is “if he practiced what he preached.” I did this because knowing McAfee there is a chance that he may have been preaching this idea of extreme secrecy with his finances only to have been operating similarly to us, though I personally doubt that he’d lie about this specific action.
*Second, I put a caveat in the privacy coins paragraph because most of the coins that exist in the market at the moment have actually had their codes cracked. The big exception is Monero, and likely some smaller privacy coins that most of us wouldn’t have ever heard of. That said, McAfee is literally one of the foremost experts on not only crypto but also cybersecurity. If there’s one man who could find a way to hide his money using privacy coins, it’d be him.
What’s going to happen?
My prediction is that if the government struggles to make an accurate guess as to what his fortune is (he claims to be broke, but he also recently bought a yacht) there’s going to be a lot of media attention given towards privacy coins in particular.
You don’t need to be an expert on cryptocurrencies to know that their values are heavily tied to hype. McAfee himself made a small fortune hyping up small cryptocurrencies and then selling them when they hit a high (note this is literally a pump and dump scheme). With increased exposure, there’s a chance that they go up in value.
The other implication and this one I think has a strong likelihood of happening is that a crackdown of privacy coins occurs. As Forbes reports, The IRS has actually already created a $625,000 dollar ransom for anyone who can crack the privacy algorithm of the most famous privacy coin Monero. They’ve even contacted their first companies, Chainanalysis and Integra (.625 million each), to give it a swing.
These privacy coins, while providing a clear value for private transactions, have created to potential to allow for all people to safely hide their money from third parties. If there’s one thing governments hate-it’s people hiding how much money they have. I think that McAfee’s arrest and likely attempted seizure of assets is the perfect scapegoat for the government to crack down on these anonymous currencies.
John McAfee’s storied career in tech, followed by an equally infamous life as an international fugitive/presidential candidate seems to have come to a halt. In truly poetic fashion, it seems as though he has ended his career fully living up to the ethos of a Silicon Valley Pirate.