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Some crypto investors reacted with dismay on social media after Ledger introduced a recovery tool for its hardware crypto wallets that’s designed to provide a backup if the seed phrase is lost.

The feature, called Ledger Recover, allows users that opt in and subscribe to use it as a backup for their private keys. The service splits the user’s seed phrase into three encrypted shards and sends them to third-party companies. This information, when combined and decrypted, can be used to reconstruct the seed phrase. Yet the proposal has sparked a backlash among security experts and many Ledger owners. 

“It’s a horrendous idea, DON’T enable this feature,” said Polygon Labs Chief Information Security Officer Mudit Gupta on Twitter. “The problem here is not splitting the key in 3 parts. That’s actually good! I may or may not be doing that personally as well 🙂 The problem here is that the encrypted [key] parts are sent to 3 corporations and they can reconstruct your keys.”

Other high-profile members of Crypto Twitter piled on. 

“WTF are you guys doing? This is going in the wrong direction fast,” a pseudonymous crypto investor known as DC Investor opined to their 229,000 Twitter followers. “I would recommend no one upgrade to such firmware.”

On Reddit, Ledger owners demanded clarity over how this process works and whether the information is sent directly from the wallet or if users would need to type their seed phrase externally into the device. 

Nicolas Bacca, co-founder and VP of Innovation Lab at Ledger, replied on Reddit that, “The device sends encrypted shards of your seed to different companies if you decide to use the service. You can of course still choose to backup it yourself.”

“This doesn’t change the security assumptions compared to a firmware update,” he added.

Could Ledger update be exploited?

Bacca’s post didn’t erase all the concerns, however. Multiple Redditors replied that this feature simply existing was a concern to them and disputed the notion that it doesn’t change the security assumptions. 

“It does because now basically the firmware has the functionality of sharing the seed phrase with the computer, so it’s just a matter of time before a bad actor exploits it,” said one Redditor known as Veloder.

On Twitter, 1inch co-founder Anton Bukov noted the Ledger co-founder’s comments and similarly claimed that it was breaking the hardware wallet’s main security assumption that there’s no way to expose the seed phrase.

Ledger is one of the biggest providers of hardware wallets to crypto investors. The Paris-based company received a huge sales boost after last year’s bankruptcy of exchange giant FTX left hundreds of thousands of clients with assets frozen in their accounts. 

The Ledger Recovery service will cost $9.99 a month, according to Wired, and it will rely on three custodians: Ledger, Coincover and EscrowTech. It will initially be available in the U.S., UK, European Union and Canada and will later be rolled out to more countries.

© 2023 The Block Crypto, Inc. All Rights Reserved. This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.

OKX wants a piece of the booming Bitcoin Ordinals and BRC-20 action.

The crypto trading platform is launching new features that will allow customers to mint and trade Bitcoin Ordinals and BRC-20 tokens using the OKX wallet, according to a company statement. 

The exchange’s move follows both the market capitalization for BRC-20 tokens — thus far mainly memecoins like ordi — growing exponentially in recent months and the world’s largest cryptocurrency exchange, Binance, announcing last week its NFT marketplace will support Ordinals trading.

“Adding Ordinal support and BRC-20 support just makes sense. This is going to be a key pillar of what people are going to be doing as they interact with web3,” said Jason Lau, OKX’s chief innovation officer.

OKX taps Ordinals and BRC-20 boom

A rise in activity on the blockchain has simultaneously caused Bitcoin transaction fees to skyrocket as of late. More than $35 million in fees have been charged, according to data from Dune Analytics. In parallel, the market capitalization for BRC-20 tokens exceeded a total market value of $900 million in recent days.

A few days ago, the number of daily Bitcoin transactions set a record high, according to data from The Block Research. The increased activity, however, has caused fees to rise while the number of active addresses on the Bitcoin network declined.

Although Lau is generally bullish on Ordinals and BRC-20 tokens’ future prospects, he realizes the situation is fluid and sentiment could change.

“It’s obviously still early,” he said. “There is a lot of work to make sure that this [growth] sustains. One challenge that we are keeping an eye on: there are within the Bitcoin camp some divergent views on how this will play out.”

Not all of OKX’s new features will be available immediately. While the option of trading BRC-20 tokens will be available to users this week, customers will only be able to mint Ordinal inscription NFTs and BRC-20 tokens later this month. By June, OKX said, users will possess the ability to trade Ordinals.

Chatter about forking Bitcoin

Lau also commented on how he and his team will be keeping a close eye on the Bitcoin community as significant moves could be coming down the pike.

“There is some chatter about forking Bitcoin itself. Some people don’t want this activity on Bitcoin,” said Lau. “We’re keeping an eye on that. We don’t necessarily agree… we think that these transactions are valid. They adhere to network rules and conditions and there’s nothing wrong with that.”
 
OKX describes itself as the second largest crypto exchange by trading volume.

© 2023 The Block Crypto, Inc. All Rights Reserved. This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.

U.S. Securities and Exchange Commission Chair Gary Gensler said he believes the crypto markets are “generally non-compliant” and based on a “false narrative” of decentralization.

In a question-and-answer session at the 27th annual Financial Markets Conference, held by the Federal Reserve Bank of Atlanta yesterday, Gensler was asked about the SEC’s dispute with Coinbase and crypto regulation generally, and he gave a bleak appraisal of the legal position of the crypto economy as a whole:

• “Their business models, though, tend to be built on non-compliance. Their business models tend to be built on customer funds, commingling it, they’re rife with conflicts,” he said.
• By comparison, the SEC would never let the New York Stock Exchange operate the way crypto platforms work, where an exchange might trade its own book on its own platform, act as a market maker or hedge fund, or borrow off its own token, and not disclose what it’s doing publicly, he said.
• He also noted that three of the four recent bank failures in the U.S. “had significant crypto books,” in remarks intended to underline the notion that the more interconnected the worlds of traditional finance and crypto become, the more likely it might be for “financial market fires” to get started.

Coinbase and ‘the generally non-compliant crypto markets’

The session began with a speech about the SEC’s role in preventing systemic contagion in the traditional banking sector. In a throwaway remark while talking about digital banking, Gensler said “I’m not talking about the generally non-compliant crypto markets.”

Tom Barkin, the president and CEO of the Federal Reserve Bank of Richmond, then asked him to comment on the dispute with Coinbase. The SEC has served Coinbase with a Wells notice (probably based on the suspicion that Coinbase may be marketing unregistered securities) and in response Coinbase sued the agency in an attempt to force it to make new rules for the crypto industry.

“Why doesn’t the SEC want to publish rules for that market?” Barkin asked.

“Because, Tom, the rules have already been published and to make it quite direct this is a field that has been operating largely non-compliant. Our agency has put out rules about what it is to be an exchange, what it means be a broker-dealer, what it is to be an adviser of custody and assets, and how to register a securities offering. Those rules are in existence and there’s nothing about a new technology that makes it non-consistent with the public policies that Congress has laid out.”

‘They’re rife with conflicts’

“We’ve looked at the intermediaries in the middle,” he said. “Financial intermediaries in the middle, nodes in the network, and they need to come into compliance if they’ve got securities on their platforms.”

“We stand ready to help those intermediaries come into compliance. I would say that their business models though tend to be built on non-compliance. Their business models tend to be built on customer funds, commingling it, they’re rife with conflicts, Tom. We wouldn’t let the New York Stock Exchange operate direct on the exchange as market makers, as a hedge fund, and commingle all these things, and have a token themselves and raise money off the token, leverage off, borrow off the token, and not even give public disclosure in a proper way. All we call upon in our rules for the tokens is, register and have full, fair and truthful disclosure and the intermediaries to register, of course. Deal with the conflicts and ensure they have time-tested rules against fraud and manipulation and the like.”

Gensler then expanded into the SEC’s philosophy on how the regulation of securities relates to crypto, by summarizing a legal doctrine known as the Howey test. “If the public is investing money anticipating profit, based on the efforts of others, in a common enterprise, that’s a security, an investment contract.”

Gary Gensler speaking at the meeting of the Atlanta Fed.

‘We don’t know who Satoshi Nakamoto is yet’

He also talked more broadly about the disconnect between the way crypto natives see their industry and the way the government sees it, arguing that most “decentralized” platforms or protocols are in fact actually centralized around a few operators in some way.

“We don’t know who Satoshi Nakamoto is yet, who she, or he, or they, were. It’s a field built off of sort of a concept to not use centralization even though finance since antiquity tended toward centralization. To be decentralized, lack of authorities, anti-commercial bank, anti-central bank, a worldwide off-the-grid approach. And yet it very much relies on the law when they go bankrupt and they’re in bankruptcy court. And you know what we’ve seen.”

“But there’s this field that arose where the investing public, 24 hours a day, seven days a week, around the globe — it’s not just a U.S. market it’s largely an international market — is investing their hard-earned money hoping for a better future and that therein lies the core of what a security is… It’s a false narrative to say that these things are that decentralized. They tend toward centralization. You can find a website for nearly [all]. If there’s 12,000 or 23,000 tokens you can find some group of entrepreneurs in a website, in a Reddit channel, in a Twitter channel around most of these, again without prejudging any one of them.”

Three recent US bank failures were connected to crypto, Gensler says

Toward the end of his comments, Gensler related the increasing links between crypto and traditional finance, in the context of whether a “fire” might start in one sector that could get out of control.

The collapse of First Republic Bank, Silicon Valley Bank and Signature Bank were the second-, third- and fourth-largest bank failures in U.S. history. A smaller bank, Silvergate, also collapsed. SVB, Signature and Silvergate all had significant exposure to crypto clients and assets.

“Recent banking issues, the four banks that failed, two of them had significant crypto books, the third had a significant stablecoin issuer put their deposits there and it actually led to a depegging, it was called, for the second-largest stablecoin operator. So there was even some interconnectedness in crypto markets and crypto actors with at least three of these banks,” Gensler said.

© 2023 The Block Crypto, Inc. All Rights Reserved. This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.

Milady (ladys), a memecoin styled on the Milady NFT collection, has made some crypto traders millions — at least on paper — as its price jumped since launching earlier this month.

The top 10 ladys whales — large holders of the tokens — are collectively sitting on potential profits that currently total more than $20 million, according to onchain data analyzed by The Block Research via Nansen and Lookonchain. While some of the whales have sold some holdings, they still hold over 176 trillion ladys coins, or around 20% of its total supply, per the onchain data.

The profits result from simple math. The whales paid a weighted average price of $0.0000000037604 per token, and the current price of the coin is around $0.00000012. That’s a lot of zeros, but it adds up to a gain of 3,091%, according to CoinGecko data.

Six of the top 10 ladys whales are sitting on paper profits of over $1 million each, according to on-chain data. Top three of the whales, however, have their address blacklisted, meaning they’ll likely never be able to cash out. It isn’t clear why these addresses have been blacklisted, Lookonchain said it could be due to insider trading.

Realizing profits may not come easy for these whales, given the low liquidity. “There is about $3 million worth of liquidity, spread over Uniswap v2 and v3. If these whales want to close down their position, they should either take into account huge slippage, or they need to wind down the position slowly over time,” said. Simon Cousaert, director of data at The Block.

Meme coin trading volumes are soaring, led by ladys and pepe. Last month, Dogecoin saw volatility after Elon Musk temporarily replaced the blue Twitter bird icon with an image of the doge dog. Last week, Musk also sent the price of Milady NFTs and ladys jumping after he tweeted a Milady meme.“There is no meme. I love you,” the text of the meme read, over an image of a Milady NFT. 

What is Milady meme coin?

The Milady (ladys) meme coin pays homage to the Milady NFT collection, and was launched on May 7. The coin has no association with Charlotte Fang or her creation Milady Maker, according to its website.

“$LADYS is a meme coin with no intrinsic value or expectation of financial return,” the website reads. “There is no formal team or roadmap. The coin is completely useless and for entertainment purposes only.”

Despite the warning, crypto enthusiasts have lapped up the coin and traded it significantly. Pepe is currently the 271st largest crypto token from thousands of tokens in the market, with a market capitalization of over $100 million, according to CoinGecko data.

The total supply of ladys is over 888 trillion and 1% of the total supply was airdropped to all pepe and Milady NFT holders, according to Milady meme coin’s website.

DWF Labs one of the top ladys whales?

Two of the top 10 whales’ wallets seem to belong to DWF Labs, a controversial crypto market maker and investment firm, according to Lookonchain. DWF Labs appears to be depositing ladys to centralized exchanges (CEXs) and could, therefore, dump the tokens, according to Lookonchain. But Andrei Grachev, managing partner of DWF Labs, tweeted today that “no any single $LADYS was sold on CEX. We already approach the wallet owner and he will withdraw all the $LADYS back to the wallet asap.”

“This wallet belongs to one of our partners, not to us. @lookonchain. I have no idea what coins he will buy / send in the future , but it should not be related to us,” Grachev continued. “As I said – for community driven tokens and we are happy to be 100% transparent. We have no intention to sell even a single $LADYS and have long term vision about that.”

Earlier this week, Grachev said some of the tokens were sent to CEXs for market making purposes. DWF Labs did not respond to The Block’s request for comment.

Ladys is down more than 18% over the past 24 hours

Ladys meme coin price, source: CoinGecko

© 2023 The Block Crypto, Inc. All Rights Reserved. This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.