Children and Youth Committee - Senate

Cryptocurrency, which we know we've had the crypto mine issue here and we're trying to navigate through this. So I wound up getting a connection and eventually got to Mr. Zarinsky, who you're going to hear from. I'll let Mr. Zarinsky kind of give his background, but he used to work for Interpol. He's served in the Air Force, has a law degree, and now has a company, and so I let him. Turn it over to him to give a brief introduction. He will go into some of the, the fraud issues and, and cryptocurrency, and I don't know that anybody on our regard, Mr. Zarransky, is going to be able to still let us understand how crypto works a little bit, but, uh, anyway, I'll just turn it over to you if you want to give your background and then, uh, uh, if you, uh, who's testify Anita, you can give your background and then I'll just let you guys go and then I know. Since some of your interviews around and if you kind of follow the interviews, and I know you the, the protocol and we'll just turn it over to you, so. Well, well, thank you very much, Senator King, thank you, Blake, and and other members that are present, even if I, if I can't see you, my name is Adam Zarrazinski, and I'm I'm here with another member of the Inca team, Professor Anita Nikolic, um, and we, um, we've done quite a bit of work in the area of um. Uh, both crypto and national security writ large and specifically um uh uh how and where cryptocurrency mining operations fit into that puzzle. Um, so I'll just give, I'll give a very brief background on myself and then of course, I'm, I'm Anita is, is much more qualified than I, and so she can give you her background and then we can, we can kind of launch into uh what we see from the mining side, but then Senator King, exactly as you said, um, Happy to answer any questions that you or any other senators or members have on any topic related to cryptocurrency, whether it's just how scams and fraud work in crypto to kind of like what we see the trends are. I know Anita has also done quite a bit of work on elderly fraud and elderly abuse in this um uh in this area, so we can talk through that and then yeah, of course, also if you guys just want to talk about how crypto works and It is and and why people see value in it, why we see value in it, um, I'm happy to talk through all of that as well. Um, so as I said, my name is Adam Zozinski. I'm the CEO and founder of a company called Inca Digital. Uh, we do data analytics, um, uh, and intelligence work in the web 3 space and increasingly actually in traditional finance as well. What we do is we just we use cutting edge technology to build, um, to, to take a lot of different unstructured data and Turn that into structured data and then intelligence for our clients. Um, and those clients are, are pretty um pretty broad. Broad array of clients that we have. We have banks as clients. We have trading firms as clients. We've got crypto companies as clients and we have government agencies as clients we work with a number of the state AG's offices, um, and on their cases we work with the Commodity Futures Trading Commission. We work with the Federal Reserve. We even work with the Department of Defense and the intelligence community. Um, and so, you know, I think, um, at the, at the outset, I'll just say one more thing and then I need them to pass it to you for all the substance, um, uh, you know, we, we see crypto and blockchain as as a new technology, right? Um that introduces new challenges to our national security as it relates to our financial system, ultimately it's a, it's a neutral technology, right, that can be used for both good and bad, and so we can Talk through some of what the good is, and of course some of what the bad is too, um, um, and, you know, all, all we're trying to do is just provide data and shed light on, on what's out there. And so, you know, I know Senator King that, you know, one of the, one of the issues that you guys were running into was that mining facility in your district, and so we should uh we should talk through that and and um. And what, especially what Anita sees there. Um, so again, thank you so much for your time. We'll do a short presentation, but then really, um, hope to have a conversation and answer any questions that you guys have. Uh, thank you again, um, and Anita, uh, over to you. OK. I'm gonna screen share and I'm a, I'm a fast talker, so I'll get through this and um Share a little bit about Hopefully everybody can see that. So Let me Make sure everybody can see that. OK. So my background, my name is Anita Nikolic. I'm from University of Illinois Urban of champagne. I also work with Inca Digital. My background is I was a US Marine Corps intelligence officer and spent many years researching looking at critical national security infrastructure. I'm now at University of Illinois. Part of what I do is I look at digital threats against senior citizens, older people. I am part of a project which just resulted in a mobile game called Deep Cover and a learning platform called Dart Academy, which teaches older adults about digital scams. One of the largest vectors, of course these days for digital scams is cryptocurrency in particular crypto ATMs and transfers using cryptocurrency. So again, can be done well, can be done poorly. I was also one of the founders of the first CFTC regulated cryptocurrency exchange, which is how I met Mr. Sarasinski. So for the past two years, uh, we have had a DARPA funded project to look at a few things around crypto. The project overview was to look at key factors that the US needed to map and monitor the risk, the compliance, and the funding flows of cryptocurrencies markets. So part of what we did to start out is identify the critical points that comprises infrastructure. So we're literally, where does cryptocurrency come from? What's the process underneath it? We want to really understand the interplay between the legacy financial markets in the emerging crypto markets and where these intersect. One of the most interesting outcomes of this very large study, however, was we started with something we thought would be maybe not so interesting and it turned out to be very interesting. It was to map all the Bitcoin mining facilities in the United States, and I'm going to start in a very the basics in case you're not familiar with it, uh, Bitcoin mining facilities are several different types. The largest types, probably the easiest to um to look at our ones that are in the form of a data center. These can be existing data that are repurposed, these can be existing plants, for example, in Ohio, the old Goodyear plant has become a data center. Old telephone companies have become data centers, so these can be existing structures or they can be new structures. You need 3 things to build out a Bitcoin mining facility. You need an additional land in a building, you need power at a reasonable price. Power can be a combination or one of these types, electric grid, flare gas, solar. There's some nuclear powered ones in Arkans. Arkansas offers such a great rate. There's a tariff rate which is about 1 cent per kilowatt hour, so, so cheap electricity. Minerss need water and they need some form of internet connectivity to get the mind bitcoin somewhere on the internet. Any specialized computers. These are computers that are specially built just to mine Bitcoin. Primarily these are Manufactured by a company called Bit Main, which I'm going to get to, and then you need mining software so everybody who minds the cryptocurrency. They are tied to the global ecosystem with some underlying software. So there's a very rough, um, you can see very rough map of mining facilities in the US Their facilities, as far as we could find in 21 states, probably more, and I'll get to why it's not clearly clear, but 21 states, a clustered largely in the the the bubbles here reflect the size of the power, which again, that's kind of the key for bitcoin miners, clustered primarily of course Texas has about 25 to 30% of the US's bitcoin mining, and then Georgia, New York. With new construction ongoing all the time, the largest facility that will be in the US is currently under construction in Abiling, Texas, and that'll be several gigawatts worth. So in terms of finding these facilities, the Department of Energy estimates about 137. We found many more in our study. At the moment there are no federal reporting requirements of any type if you're a mining facility. About a year ago, a portion of the Department of Energy called the US Energy Information Administration announced they wanted to do an emergency data collection, um, in January, um, primarily they wanted to get a handle on mining facility power consumption. This was eventually suspended. So that would have given some insight as to um the location of these mines, but that was suspended so there's no kind of official inventories that were Bitcoin mines. I'll go over just a few trends. Um, so some of the trends because mining is very expensive, as you can imagine, just to get a power contract, for example, Energy in Arkansas, you need to commit to buying at least 150 megawatts of power. That's a lot of power. It's a big contract. Because the startup costs are so high that there's an ongoing consolidation we're seeing of ownership. We're seeing increased foreign investments due to the high startup costs. So some recent investments, um, in Oklahoma about about 6 months ago by a Chinese government-backed YCY capital, the total is gonna amount to about $1 billion. 90%, as I mentioned, you need specialized hardware for for Bitcoin mining. 90%, probably more, but we a reasonable estimate is about 90% is from a company called Bit Main. Shipments from From Bitman, which the chips are made in Taiwan, the computers are constructed in China. Shipments to the US are bit main equipment increased 15 fold in the past 3 years, and we've seen this from shipping records. Uh, it's, it's interesting to note that Bitmain as I mentioned, you need some specialized software to communicate between the minors. Bitman had a back door that was discovered in their firmware, which runs the computers. Um, they said it was resolved. Um, whether it was, you know, we, we can trust more, we cannot trust them. A Bitcoin data centers is interesting because A Bitcoin data center might not come and get a permit to be a bitcoin data center. They're building a data center. Increasingly, as we've seen with the one that's been built in Abilene, Texas, it is actually going to be used for AI computing and other computing in addition to just the bitcoin mining. And some bitcoin mining facilities in your state as well as others are just containers. So instead of building a large new data center. It's just a kind of a, if you imagine a shipping container, you know, maybe like a dozen of these that are on a piece of land. Some land acquisition trends. There are a lot more foreign land purchases in general, um, you know, DOD facilities and military bases. There's been some well publicized ones and I'll talk about Wyoming a little bit in North Dakota and Wyoming, there's installation um by Huawei, which is a Chinese company that the US government does not allow. If you're getting government money, you cannot buy Huawei equipment, but there's been installation of kind of critical internet services, at least in these two states, and we've seen many others of this, this banned equipment because it's cheap. Uh, the land purchases, I'm gonna talk about Wyoming a little bit, are conducted generally via this conglomerate of companies with various names and locations that are very difficult to trace. Often the companies might be registered locally, then through a network we see really kind of the hub is either offshore or the the US address tends to be an unoccupied business park address where there's no one actually there. But Chinese companies, if you didn't know, both state owned and private, they operate under their own legal framework this 2017 Chinese National Intelligence law. This requires that they must cooperate with China's intelligence services are requested, and it applies even to those who set up shop outside China. So just a little bit if you haven't seen this in the news, it's it's an interesting one because it's a very, very long story that I'll summarize very quickly, but there's kind of two parts to this, um. Long story short is that um, This map here is a portion of Cheyenne, Wyoming which has and cars the National Center for Atmospheric Research. There's a large supercomputers that do all the computing about weather in the US. The Microsoft Data Center is a DOD Department of Defense data center, and about 1 mile away is Warren Air Force Base. So this land owned by YZY Capital, they're the same ones that just set up shop in Oklahoma. Microsoft was very concerned about the ownership proximity to both. Microsoft DOD, the atmosphere computing and an Air Force base which has nuclear missiles. So they contacted the Committee on Foreign Investments in the US to say this is just, you know, it just isn't a good look. The business has never filed with CFIA, but this is what prompted this investigation to say, are these folks legit or what's the nature of why they are situated a mile away from Warne Air Force Base. Uh, kind of at the same time and overlapping efforts, a local company, local Wyoming company called Bison Blockchain, 1 and as I mentioned, the power contracts are always the critical thing about setting up shop for bitcoin mining. They want a 5 year, $300 million largest blockchain deal in Wyoming history, and Wyoming is very crypto-friendly, by some blockchain was going to build the data center, set up shop. They ended up partnering with the New York-based crypto investment company to help them because it's a very large investment. This company didn't disclose their ties to China. Uh, an investigation that took well over a year showed that there were just multiple points of entry and multiple ties back to the Chinese government. Ultimately, mind one is also tied. Very closely with the company called Bit Origin, which rebranded themselves from a pork processor and there's about a glomerate of about a dozen companies. This took not only a translator but about, again, about a year's worth um because of this, this company Bison Blockchain was essentially had the rug pulled out from underneath him. How that happened was this company they partnered with stopped making payments, uh, shut the doors, lock the doors, took over mine operations, installed Bitman as the operator, and shut up by some blockchain. That was a situation that resulted in a White House order in May 2024, which is actually fairly quickly after this happened where there was actual a White House executive order that mine won, the real estate company that came in has to divest their land within 6 months. Uh, the rationale being the proximity of foreign owned cryptocurrency facilities near strategic missile base present a national security risks. Uh, you, you all probably know this, um, just a summary, kind of what we found is there's a, there's um Quite a number of companies in addition to these ones that operate in Arkansas, United Bit Engine, um, they started a splinter company called United Bid Engine Neptune, um, which has some links to a group who's an investor in that Chinese company, and then there's a whole um host of companies that I will just say they appear to be related. This wasn't, you know, we weren't investigating the companies we were investigating the relationships with them to the mines, but these 5 companies are inextricably linked to each other, and we found this through Um, through filings to the Secretary of State, we found we found these two official documents to show the CEOs, the holdings were very, very tied together. Uh, 2 more slides here, so. Just a summary, you know, last year, 33 states introduced a total of 81 bills that would prohibit uh Chinese government and China-based businesses from buying farmland or property near military bases, the executive order, um, this Committee on Foreign Investments in the US hadn't really been Very active to date. There was an executive order about 2 years ago that said they must now consider different factors when reviewing transactions in light of national security risks. And finally this executive order for Mawan. Some takeaways, um. that we believe as suggestions to folks we talk to different states that are looking at mining are proactive oversight at the state level of foreign investments in critical infrastructure is very key, so not just the Bitcoin mining, but other things, um, although this comedian Foreign Investments monitors foreign acquisitions. It has no enforcement power ultimately, so it's really, you know, we really recommend people at the state level take a take a hard look at these investments. Um, in terms of Bitcoin itself, Hash power, which is obtained through the blockchain processing in the mining centers. This enables influence over Bitcoin if you were to see, you know, more companies offering Bitcoin investments, whether you believe in it or not, it's become part of our national financial infrastructure. As China indirectly gains more hash power via ownership of these facilities, its influence over cryptocurrency is growing. Um, we know that states need to balance investments in emerging technologies with due diligence and I would just caution that as we've seen that states and communities should be mindful of who signs, who owns these very large power contracts cause they could have implications um that are all sorts of levels. So I'll, I'll stop there with my, uh my overview and I'm sure you all may have some questions for Adam and I. OK, thank you. And I have some questions trying to understand the whole and like I said, I appreciate being able to, to look at some of your interviews, so just trying to understand this, you talked about analytics and crypto versus forensics and explain for us that probably need crayons or myself to need crayons to understand things. Explain the difference between analytics and forensics and what in the whole world that you guys operate in? Yeah, yeah, um, Anita, if you don't mind, I can take it first. So um. Uh I think what you're referring to is just what Inca does versus what some of the forensics companies do, Senator, when, when we spoke. So um an integral part of cryptocurrency is that it operates on a blockchain, right, like the Bitcoin blockchain, um, the, the blockchain itself is a a a fully auditable um ongoing ledger that tracks every single. Transaction. It's it's pseudo-anonymous, which means um and I'm gonna give you an analogy, but it means that you can see. Money sent from wallet A to wallet B. Ultimately, so the way that you kind of think about a blockchain, the analogy that I use is it's kind of like um a Google Sheet like an Excel spreadsheet where you can see Adam sent Anita $5 and then those $5 went to Blake and then the $5 went somewhere else and it's it's a pended only, which means you can't go back and edit anything that happened in the history, but you can add another line. of um of where money is being sent and then the other thing with it is instead of Adam and Anita, it's just a string of numbers and letters, those are wallet addresses. Um, what, what you do in forensics is, you know, you can, you can imagine this gets infinitely more complicated as new technology is put on top of the blockchain as transactions are are moving from wallet to wallet in seconds, right, globally all the time you have Forensics companies that that have built businesses around unraveling all of those transactions and making sense of them for people that need intelligence on what where money is moving for different reasons. Um, so those, those companies are wonderful at their at their jobs and and have very good tools. Companies like Chainalysis, TRM, elliptic, they're all, they're all very good and they all, there's there's nuances and differences them, but they all kind of do the same thing, which is unraveling those transactions when you refer to analytics. Inca does something a little different in that we are, we're uh you mentioned that I, I, I came from Interpol. We just take in all source or an open source intelligence approach to to creating intelligence in this space, so we do, we do incorporate some blockchain data, but really what we're looking at is is more of a top down approach. We're looking at what people are involved, what companies are involved, where, where are people communicating? About using crypto in a particular way for foreign direct investment or for money laundering or for terrorist financing or for good things too, like, you know, which, which banks are getting involved in for, for what reasons and where, where our investments being made from traditional finance to Web 3 and so we, we pulled, we pull data from a lot of different sources everywhere from um um um trading data at centralized exchanges to pulling data from social media. To identify, to identify where actors are operating to as Anita referenced public filings with different corporations and um uh who owns those corporations and where they're operating at a really broad brushstroke level, that's the difference and and that's what we do. So ultimately I apologize for the pain. Ultimately we're we're an intelligence company that provides intelligence to our clients using data. That's what we do, yeah, so in trying to understand this, and like I said, until the crypto mine came in my district, I just paid attention to business channels that they followed everything, uh, can you talk about the difference between centralized when you say and decentralized crypto and how those things operate. Can you explain that to us? Yeah, yeah, um, Anita, I'm gonna, I'll I'll I'll do a couple of sentences and then I'll call on you too. So, um, because, because I need a I need a rand one. so, um, at, at, at in in summary, um, what, what, what, well, if we're just focusing on on blockchain bitcoin blockchain in particular. What, what you're able to do is you are able to um send value directly to another person without any intermediary if you want, right? So my phone just dinged, right? I have, I have a cryptocurrency wallet on this phone, just like I have a wallet in my pocket, right? I own that wallet and I control the keys and nobody else controls my wallet. It's not at a bank. It's not at an exchange. I'm the only one who controls it, and I have the keys. Um, and Senator, if you had a wall It without any intermediary, I could right now send you 50 bucks. Worth of bitcoin and you would get it not instantaneously, but with some complications very fast, um, and I can send that to you digitally and there's there's no intermediary, right? There's no intermediary like a bank or like PayPal who operates something similar, right, but still you're relying on a company to uh to to operate a network that allows us to send and send value. Each other and transact. So the big kind of like the big innovation with blockchain is that we can send value and value can be defined in a lot of different ways to one another without any intermediary. We exchanges come into play is when I say a centralized exchange that is an intermediary, a company coming in to facilitate those transactions and Frequently traded, right? So you can go and you can, you can go to a centralized exchange like Coinbase, and you can trade your Bitcoin for US dollars or you can trade your Bitcoin for a different type of cryptocurrency, and people do this for different reasons, maybe to because they wanted, they just want to buy a different cryptocurrency to send somewhere or maybe oftentimes to trade it as a commodity or, you know, there's there's arguments of whether it's a commodity or a security, but to trade it in hopes to additional value from that token. So you can do that in centralized exchanges, but you don't have to. You can do it off of an exchange. You can do it off of an exchange completely or you can do it at what's called a decentralized exchange and I'll end it on this, which is there's, it's um. It's technology that's released that facilitates trading without any centralized party owning the actual technology, so that's what I'm referring to Anita, if you could. Clear that up now that I've messed it all up. I think that's a good summary, I guess, you know, the key differences just to add on to what Adam said is centralized tends to follow. Anti-monitoring, you know, AML rules, you know your customer rules, the custody of your currency is with that entity and therefore by and large, almost all these centralized entities have some form of insurance. They are regulated with things like money transmitter licenses and primarily when you hear centralized people think mostly of Bitcoin when you hear decentralized exchanges and decentralized finance, one kind of key thing to keep in mind. As many of these are built on what's called smart contracts, which is this computer code and knowing how buggy computer code can be and knowing that you don't have any anti-money laundering or KYC or D5, that's kind of a high level the major differences in terms of risk. OK, so. I mean, and I'm probably going to use old terms and you know, when I came into this chairmanship, you know, we deal with a lot of, you know, Child trafficking issues, that kind of stuff, and so, you know, we used to call it the black market. I mean, can you like, I guess crypto kind of started with the dark web and those activities, so, can you explain how people are using crypto on the dark web or not anymore, and then is there some way to say like there is a way to do crypto offline, which is almost somebody told me it's very hard to trace versus online in the blockchain that you can trace kind of easily. Can you explain those two things? I'm going to highlight one thing that I'm going to let Adam talk about the dark web. In light of kind of the scope of the committee, I want to highlight just because I work in this area of older folks and digital thought and uh before we talk about dark web, I'll I'll just talk about it. It's very easy to use crypto, not even on the dark web, and one of probably the biggest, so if you all don't know the figure, FBI IC 3 figures from 2022 with that those over 65 lost $3 billion in almost 1.2 of that billion of that was lost via cryptocurrency, either scammy investments or pig butchering romance scams, the way that the crypto is lost is a couple ways, and one of the primary things we're seeing these days is older folks will go to a crypto ATM. These crypto ATMs, you see them all over gas stations or whatnot and they will go there and you think that you don't even have to be technology savvy. You can go there with your cash and an address on a phone, put it into a machine, and it is not traceable, so you don't even need the dark web or anything that has a layer to to use cryptocurrency in that manner. I just want to highlight that and I'll let Adam talk about the dark web. No, that was very important. Yes, sir. So, so, um. Uh, generally speaking, on the dark web, cryptocurrency is used to transact. It is, it's not the only method that is used you know, we, we also see credit cards being used, debit cards being used, cash, checking accounts, you know, there's uh you know, online financial service providers, all are used to facilitate money laundering purchases and sales of You know, you name it, um, child trafficking, drugs, drug precursors, weapons on the dark web and now cryptocurrency is among the different the different financial vehicles that is used to do this, um, sometimes it's used more, sometimes it's used less. It kind of, it kind of depends on the on the dark market and and and uh what the, what the money laundering is being used for. But it is among the other things that are used, um, and, and in terms of tracing, uh, it is, it cryptocurrency depending on the again depending on which cryptocurrency is being used, which blockchain is being used, it is traceable. It's just, it's varying degrees of traceable. It's, it's not always that we're going to be able to pinpoint exactly where the money is exactly who the bad guy is. Exactly where the money has been moved to, um, however, oftentimes, actually, um, you know, if, if, if a bad guy uses cryptocurrency for a bad thing, we can, we can find out more about um why and where it has been used than we could if it was, you know. Cash For example, so, um, you know, there are some benefits to bad guys using crypto, but also a lot of challenges along the way as well, and yeah, and Anita's figures, um, are, are, are spot on, right, with the billions and billions of dollars are being lost annually in scams in the United States, people in a very large percentage of that is crypto. One of the other When the reasons for this is, is just because of the speed with which you can move value in crypto, right, so you can go from investing a certain amount of money, you know, let's say, you know, in a typical like cryptocurrency romance scam, Senator, you brought up when we spoke, you brought up pig butchering, right? So, um, you can go from meeting somebody online to investing $1000 to investing your life savings, you know, oftentimes these people don't have um. You know, they're not millionaires, right? They're just normal everyday Americans. They're investing their life savings, which, which might be 200 $300,000 into a fake scammer account and that money is gone within seconds. Um, so really the, the speed of the technology and the speed with which you can transact, makes it makes it facilitates money laundering at a global scale that we haven't seen before, um, and that's just, that's a function of the technology. Yeah, so, uh. Can, can you give the example of the dating website I believe it's a teacher in Chicago that you worked with about and it was connected back to the Chinese. Can you give that example? Yes, sir. Yeah, yeah, yeah. So, um, yeah, it was um in um in in Troy, Michigan, so, um, and you know, you'll remember this one. This is one of our, our first pig butchering cases. So, um, Inca for some time had had um been investigating a global cryptocurrency scam that these scammers themselves call pig butchering. That's where the name comes from, not us. And, and what they do The reason why they call it pig butchering is they identify the pig, they fatten the pig, and then they butcher the pig that that and again, this is how we found out about this was actually their training manual. So we have, we actually have their training manual where they go through how to identify victims. How did you get those victims hooked and then and then how to steal money from those victims. Um, and so we had, we had done some initial research and then a victim out to reached out to our website and I happened to get the email, so I called her up and she was a a public school teacher in the in a Detroit suburb out in Michigan. And her story is really emblematic of what's happening hundreds if not thousands of times per day across the United States, which is she has two children, she's a public school teacher. She's trying to make ends meet and short on cash, recently divorced and decided that she would get back out onto the dating scene. She so she joined Coffee Meets Bagel, which is, it's a, it's an online dating application and she met somebody there. Started talking and they developed an online romantic relationship over the course of a period of weeks and then the um the male individual that she had met online said something like, hey, I know you're, you know, you might also be short on cash, um, why don't you invest in my friend's cryptocurrency hedge fund, you might make a little bit of money, and she's like, Oh, I don't know, you know, I don't I don't want to send a stranger money and he goes, Well, it doesn't have to be a lot. You know, just, just invest $1000 and see what happens. He eventually convinces her. Um, and so she, she sends, she is then instructed to transfer money from her bank account, $1000 from her bank account to a cryptocurrency exchange and so now she has $1000 worth of bitcoin sitting at her cryptocurrency exchange account, and then she sends that from her wallet to the scammer wallet, um, the, the scammer, the guy that she's been dating online, says I I received the money. Thank you so much. You can log And see your account here. And she's able to go to basically a fake website and and she can see how much she invested and then over the course of, you know, probably a week, week and a half, she sees her $1000 increased to 3s and she makes about $3000 over the course of a week and a half, and oh my God, she says, you know, I made, I made $2000 on my $1000 I want to like pull the money out. And um, and, and use it, and he goes, go right ahead, right? So she's actually able to pull the money out from that fake account that she has and deposit it into her bank account. So now she's um she's got $3000 and then, and then she says, well, this is a real thing. I made money. Now I'm going to invest a lot more, and she, she pulled all the money out of her bank account. Her father had recently passed and so she invested all of her inheritance, and she took out a second mortgage on her home. In total it was about $500,000 that she was able to invest. She gave it, she went through the same process, transferred that transferred all those funds to Coinbase. It's a local cryptocurrency exchange and then sent it to the scammer. And um. And uh then the scammer disappeared, never to be heard of again, and now she's she's out her entire life savings and everything in her bank account, and that that is a, like I said, that is a story that um that happens many, many times to everyday Americans every single day, every single day. Um, so we are, you know, Inca Digital is working to the entire, the entire company is working to stop this as much as we possibly can. Um, we are, um, we're even going so far now as trying to sue the scammers in civil court and and and recover funds for victims, but and we're using those data analytics, Senator, that that we were talking about earlier to try to identify victims and identify where their money is. But yeah, it's a, it's a massive problem and something that we need to address at a national scale if we want to get it under control, you know, it's like for us, it's Older, you know, you go from, you know, let's say somebody scammed me out of $3000 and I wrote him a check or they did something. I mean, it seems like an internet where we like the technology out fast things can move and do that, but it also no national security person told me that, you know, once this money moves then it's moved offshore. And then, you know, we have local law enforcement can't go to Kansas City or somewhere and track this down or do something and so this was all connected back to eventually the scammers are connected back to either Jamaica. or China or some other entity most generally, is that correct? In large scales primarily primarily they're offshore increasingly pig butchering is an artifact that comes from China some out of Malaysia and Taiwan, mostly out of China, pig butchering, OK. And then can you give the example of the seahorse, I know, uh, situation that you looked in, I think it was in South America somewhere, uh. Adam the river, that situation, can you talk about that a little bit? Yeah, yeah, yeah, sure, sure. That's, that's just another interesting one, and I think goes to the um uh goes to some of the um the complications and the nuances around what we see, um, with, um, money laundering and illicit markets globally, so we had done some work for the Department of Defense a couple years ago where Um, we were looking at um the purchase and sale of um. Um, Uh, endangered spec uh endangered species, uh, for the Department of Defense, which you, you wouldn't necessarily connect together right away, so we were, we were looking at things like the, the uh the capturing and sale of endangered seahorses and stingrays and um and and shark fins, um, things like this at major ports in South America. And I was surprised initially that the Department of Defense was interested in this and how and and a lot of this was bought and sold with cryptocurrency, um, and the reason why we were doing it for the DOD was twofold first, the trafficking routes that were being used for for for trafficking in in those animals are the same trafficking routes that are used to traffic fentanyl precursors for fentanyl being a um Uh, brought into the United States for human trafficking, for drug trafficking, etc. um it's all, it all kind of, it all happens along the same routes. And then the other reason why is because we were exploring the use of cryptocurrency uh to launder funds for illicit material at major ports in South America by by the Chinese, among others, um, and it's, um, it's certainly there and, and it's growing. Um, and, and I think, um, as As um. As cryptocurrency grows and as uh Companies, right, kind of like what you guys, not too far from what you guys are dealing with, Um, company offshore companies expand their power um globally, we're going to start seeing more and more of this, um, I think the flip side of that actually is that we need more innovation here in the United States. We actually need more small businesses that are working in crypto, uh, both for financial services and for data analytics like what we do, um, so that we can um We can impute our values, right? Um, um, globally as well and compete. Uh, but yes, yeah, that, that was another very interesting example of kind of like dark markets and how crypto is being used globally. Back to you soon. I apologize, sir. I, I seem to have lost audio. I'm sorry, I didn't have my mic on. So following the Looking at AML laws, anti-money laundering laws, know your customer. Do you feel like crypto would be better if it was in maybe more used or accepted or more understanding or trusted if, uh, if they followed AML laws or know your customer laws? Oh, I'll just say having come from an exchange where we did all that we could to get in front of the CFTC. This is back in 2018, 2019, absolutely 100% when it is very clear what you need to comply with, whether it's security audits, whether it's, you know, being able to do suspicious activity reports and having to do that, the expanded bank secrecy Act, crypto would be well served to follow as many of these regulations as possible. Yeah Adam, you feel the same way. Yes, sir, yeah, and I would say generally speaking, most, most, most major cryptocurrency companies, whether in the United States or offshore are willing to, are willing and want to follow, um, uh, the rules, they do, um, and, and, and, and actually more and more and more do. I'm actually seeing, you know, in the markets I'm seeing much more of a like a. A polarization, if you will, between the good guys and the bad guys like the companies that are saying, OK, um, pardon my French, but like we're going to get our shit together now and we're going to follow, we're going to follow the rules to the best to the best degree that we can. I think in the United States one of the challenges or at least what you'll, what you'll hear from some crypto companies, is they aren't sure which rules to follow and that there's not necessarily clear guidance about what they should be doing, so um and and and that's I think that's, you know, mostly at the federal level, um, and I'm not going to advocate for one policy or another while I am an attorney. I'm I'm a mediocre one at best, but I, I would say that that most uh most companies do want to follow the rules and are trying to do so to the best of their ability or are working to get there and um. It's, it's just some middle ground that I think that needs to be met. Now all that said, there are plenty of other companies that uh mostly offshore that uh won't even respond to a subpoena, won't won't respond to anything, won't respond to law enforcement requests won't respond to don't do any KYC or AML at all as part of their policy and those are our problem. Yeah, well, it is something I like I said, once it, I did not understand cryptocurrency. I really didn't get into it, but you know, as we've talked about, you know, I can look back at my 30 years ago self and say, would I use a credit card like I do today, like then I would say that's irresponsible, but so I'm in this thing. I really don't know what's going on with it. There's this debate about, and a few other members have any questions, I'll, I know I've taken over this, but I cryptocurrency a security or is it a commodity or is it depends on the situation. We're waiting to hear the same thing, Senator. It's a, yeah, at the federal level, it's uh. The official ruling is still to be determined. OK, I'm sticking with that one, sir. What's that? I'm sticking with Anita on that one, sir. OK. Senator Payton, you're recognized if you have a question. Thank you, Mr. Chair. So I want to ask questions along the same lines they're, um, Early in your presentation you talked about identifying funding flows. And from listening to you, it seems that The cryptocurrency, which number one, I guess I'd like to ask how many different cryptocurrencies are there? Uh there are hundreds, thousands, or what? How many,000,000. OK, um, but it seems like these cryptocurrencies are measured, their value is measured by the US dollar. Is that true with all of them, or some of them measured by foreign currency or? Both, yes, sir. So, so, um, uh, the, the value of any cryptocurrency can be measured in many different ways. It can be it can be in a, and it depends on where and how it's traded, um, you know, uh uh crypto to fiat trading pairs exist for almost every fiat currency globally, so you can trade Bitcoin to um yeah, basically any currency, you know, so. To include but not limited to the US dollar. Well, obviously you can transfer the US dollar into any currency too. I'm just, I'm trying to figure out what is the route measurement because, you know, you're saying somebody goes to ATM and put you in cash and it's measured and the cryptony value changes daily or by the minute, so yeah, and that would be, that would be Bitcoin the US dollar for for those transactions, right? So I'm wondering. The US dollar is a promissory note against the faith and credit of the United States. It's no longer gold. However, gold, Globally is measured by the US dollar. So, so is there any global Um, recognition. Of, of what is the baseline for the cryptocurrency. And the reason I ask that is, you know, we know China wants to take over the position of the US dollar with the yen to where everything would be measured in yen and and and everything other than the yen would be secondary. I mean, basically, the global markets right now, the dollar is primary and and all the other currencies are secondary. Gold trades in US dollars. So my question is, I mean, China seems like they're very interested in controlling this cryptocurrency. Technology. The mining of it and everything else, is that because they're trying to position it. In a way to take down the US dollar as the global exchange. So my opinion is I don't know if I'd go that far. I do think that that having control over Bitcoin considering again considering mainstream financial institutions are now allowing even, you know, Main Street investors to have some stake in Bitcoin. I do think. The race is for dominance over Bitcoin. I don't know whether or not it's for the US dollar, but it's definitely to get a majority share of control of Bitcoin. And when you say Bitcoin, are you talking about one particular, uh, currency, or are you talking about? Like we call a Coca-Cola or we call a Coke, you know, right? No, Bitcoin is, is a type of currency, it's the oldest. It is the one the particular bit, correct, yeah, that's someone that primarily when you hear about cryptocurrency mines. It's Bitcoin, and much of that is done again. 90% of it is mined by Bit main machines and much of that is sent straight back to China. OK. And one other question I had was You, you said, uh, under the Bitcoin mining facilities in the US says the Department of Energy estimates 137. We found many more. Do you have a number on that? When you say you found many more? So bitcoin mines fluctuate, so they close, they open. When I say many more, we, we, this is a rough estimate because this is 6 months ago and times can change. We found a little over 200, so probably 220. Thank you. Appreciate it. OK, um, Does anybody else have any questions? So this cloud thing of like, and correct me if I'm wrong, I've tried to say these crypto minds and ideas, they can be crypto minds. They could be data collection centers. They can be, uh, AI, whatever, we really don't know. I mean, I kind of compared like they can be ships out on the ocean where we don't know where they are, where they're going, but they do. I mean, we need to be more proactive in knowing, are you who you say you are and are you doing what you say you're doing? Would that be fair? Particularly in, yes, because, you know, not to get too detailed, but within a data center, you know, as you mentioned, they can do AI, they can do Bitcoin, they can do just regular hosting of of cat videos, but it is key to understand. What the equipment is doing because the implications on energy and all sorts of other things, so the other thing to distinguish is that the person who owns the facility, who owns the data center, might not be the same entity that is mining within the data center, and that's a situation you see you saw in Wyoming and other states where so and so buys, you know, Adam's data center, but within that the miners doing their business, and you may not know who the occupant of the data center is. So again, it's kind of like killing an onion back, but it's really Due diligence on the ownership of the mine and who the occupants are without, of course, you know, extending overreach beyond what's reasonable, but you need to understand both those things to know the activity going on inside, yeah, in trying to find out that in from sources that may be correct or not, I mean, seemed to be that one of these facilities may be just contracting out, but So it may be contracting out to all different kinds of entities and things like that, so that is a very typical, yes, yeah, Bitman is the main maker in most of these crypto machines and everything they're doing now. Did I understand Anita, your part of your presentation that they have to report Chinese law makes them report back to something where we don't report anything. What was, I can't remember the part on the slide about, uh, Yeah, so in the US, you know, we have the Committee on Foreign Investments, which does not, there is no enforcement power to that. Let me go back to that slide in terms of CFIA on our side in terms of the Chinese, let me get that slide. That is the 2017. Chinese national intelligence law. This requires cooperation. With the intelligence services when requested even to companies that are located outside. The country. OK, um. All right, well, I don't, does any of the other members have any more questions? I mean, this has been such a hard issue for me to not know much about. I'm sure you guys, whenever you visit with fans and friendly and they say, hey, help me explain this and you're like, I'm sure you're very frustrated at those of us that don't know much about dealing with this. So and as a state, you know, we're dealing, and you talk about crypto fraud when we started looking into this, you know, how much of it in the pig butchering and things is not reported at all. I mean, there's, I mean, I was talking to my accountant and it was talking about some client that said that they lost, they put in 3000 and they were making the big butchering and then next thing you know they put in a little bit more and the next thing you know it's gone. I mean, how much of this is fraud is not reported versus what is reported the numbers you gave. So I talked to older adults almost on a weekly basis about digital threats, and I can tell you many, if not most of them are too embarrassed to tell people without putting an exact number. I will tell you, probably the majority is not reported because they either are embarrassed or they think they can't recover it. Mhm Yeah, and that's what your company does, right, Adam, you trying to look at who's credible, who's not, and do background, you know, trying to find out as much background as you can to advise your clients. Let me ask you this, and this is maybe something that may be out there. So you look at how much we use credit cards, Chase, Bank of America, whatever credit card you have, and they, they have a percent, they're the intermediary that quite frankly, I use because at least if I have a dispute, you know, they make their portion out of it. So these bigger, larger, maybe online Retailers, is there a possible day that they come up with their own cryptocurrency that they get around banks and it may be profitable to go that route or would that, will we always go this other route? I mean, what's, what is out there that you see that maybe is some business trend that may happen that this industry, obviously these big banks may not like that. They seem to, you know, and then what do you see out in the future as far as how this is navigating. It's happening right now, sir. It's happening right now. Um, and, and some for the better too, right? Um it's, it's, you know, we've got, we've got a number of great companies here in the United States that are innovating around crypto that are making it easier for people to hold and transfer value globally efficiently, right? And um and so some of that is for the better of the banks themselves and the and the credit card companies themselves are also moving to blockchain Visa, Mastercard, you name it, they're moving to Blockchain solutions and in digital, my company is oftentimes sitting in the background providing some of the data analytics to to discover and take down fraud and bad guys when they're trying to use those types of platforms um, and, and, and yeah, but it's uh I would say generally it it is, it is happening right now across finance and Anita, I know Anita has a ton of you know, more experience than me in this area Ripple, I If you're looking at one technology, I mean that kind of the holy grail for many companies is to do cross border payments and not give Visa their 3% cut. So I'd say one of the ones that we see nationally that people talk about is called ripple or XRP and what they're trying to do are enable cross-border payments and not use to companies like Visa. You can also, by the way, can go to MoneyGram and you can go to MoneyGram and send Bitcoin to people, but I'd say ripple is probably one of the ones that we see quite a bit. Yeah, it just seems like we're going to have to figure out this new technology, what is, you know, how it's operated on, I want to keep calling it the black market, dark web or those type of activities versus everything else. What's traceable, what's not traceable, uh, you know, it's just something we have to deal with and it's somebody that went, I was married and went from growing up in a small town and the Dayton world was more like Mayberry, you know, to that when I got divorced and got online, which I met my wife online on a dating. Site, by the way, and I was like, if you haven't thought the world hadn't went to hell, get on the internet dating and after going through that after that and going that like I did not catfishing to me was a new, I did not know what catfishing was until, uh, you know, I thought catfishing was the way I grew up in the farm that she went down there and grabbed some livers and went down there, catfishing is, is definitely an issue, but, uh, and as far as using the one word that started with an S, Adam, you know, you probably have a chair that deals with Cattle and chickens every day, so that kind of stuff, it's OK to use that word. Uh, we use that quite frankly back home. I tell people all the time I put up with bull stuff, chicken stuff, and political stuff. The first two of Was off of you, the political stuff doesn't wash off as much, but do any of the other members have any more questions or anything like that? So I appreciate you guys. You guys have been a a great opportunity. I mean, it's very hard for us to swallow this. It's almost like in a crypto when you didn't it, it's almost like trying to drink the Pacific Ocean and the way you feel about it, I will say after a year and a half of looking at it, You know, I mean, I feel differently now and I know that it's got a route and do something and so we may visit with you again about states and how you advise things to do, and I appreciate you being able to tie this back to the Chinese and everything. I don't think that here in Arkansas, you know, it's weird that somehow they're concerned about growing soybeans, but on this other stuff, it's like they're protecting it. I mean, it's like very odd what is it's beyond bizarre what's going on in some of these areas, but anyway, I appreciate you guys if the don't have any questions, we'll be following back up with you and I appreciate your time very much. Thank you, Senator. OK, thank you very much. We're here to help in any capacity that you want us just give us a shout whenever, happy to visit and and explain things as you need. All right, I appreciate what you're doing in this field and we appreciate your service to the country, both of you, and like I said, we'll call this meeting