The Department of Justice has charged a former executive at OpenSea in connection with an NFT insider trading scheme, the agency announced on Wednesday. It is the first time that such charges have been laid in the realm of digital assets. 

Nathan Chastain was the head of product for OpenSea, which is the largest online marketplace for NFTs. Prosecutors allege that Chastain used his insider knowledge to purchase NFTs from collections that were about to be featured on the marketplace's homepage for personal financial gain. The activity occurred between June and September 2021, prosecutors allege, and Chastain sold his NFTs for two- to five-times his initial investment. He also sought to hide his activity with anonymous crypto wallets and accounts, the DOJ says. 

The charges Chastain faces are one count of wire fraud and one count of money laundering, each of which has a maximum sentence of 20 years in prison. 

“NFTs might be new, but this type of criminal scheme is not," U.S. Attorney Damian Williams said in a statement. "As alleged, Nathaniel Chastain betrayed OpenSea by using its confidential business information to make money for himself. Today’s charges demonstrate the commitment of this Office to stamping out insider trading—whether it occurs on the stock market or the blockchain.”

Chastain's alleged activities were first brought to light in September by independent sleuths on Twitter, who uncovered a pattern of activity on the blockchain showing that someone was frontrunning OpenSea homepage features and attributed the activity to Chastain. Given the evidence, OpenSea eventually admitted to an employee conducting insider trading in a blog post, calling it "incredibly disappointing." The company also said it was implementing new measures to prevent employees from trading NFTs using insider knowledge. 

Chastain left OpenSea shortly after the incident came to light, but has been working on a new platform for NFTs called Oval. 

"As the world’s leading web3 marketplace for NFTs, trust and integrity are core to everything we do," an OpenSea spokesperson said in an emailed statement. "When we learned of Nate’s behavior, we initiated an investigation and ultimately asked him to leave the company. His behavior was in violation of our employee policies and in direct conflict with our core values and principles." 

Though the charges concern NFTs specifically, it's notable that the DOJ is coining it as the first insider trading charges in digital assets generally. Outside of NFTs, project insiders frequently profit by selling tokens to retail investors who enter after them. It's the first example of such charges, but may not be the last.

A group of U.S. senators are asking the Treasury Department if it is capable of ensuring sanctions against Russian entities and individuals are enforced in the crypto markets as the invasion of Ukraine continues. 

In a letter to Treasury Secretary Janet Yellen sent on Wednesday, Democratic Sens. Elizabeth Warren, Mark Warner, Sherrod Brown, and Jack Reed expressed concern over the possibility that Russia could use crypto to evade sanctions and inquired what the Treasury's capabilities in the space are and if it needs more tools, funding, or authority.

“We write to inquire about the Treasury Department’s progress in monitoring and enforcing sanctions compliance by the cryptocurrency industry and to express our concern that criminals, rogue states, and other actors may use digital assets and alternative payment platforms as a new means to hide cross-border transactions for nefarious purposes,” the letter states. “Given the need to ensure the efficacy and integrity of our sanctions program against Russia and other adversaries, we are seeking information on the steps Treasury is taking to enforce sanctions compliance by the cryptocurrency industry.”

That Russia could use cryptocurrency to evade sanctions is a fear that has been raised in the media and by Warren previously. However, cryptocurrency advocates and the Treasury itself have expressed that the risk of this happening at a meaningful scale is low. 

"The scale of what they have to move, and where they have to move things from, [crypto’s] not necessarily going to be that concerning,” Todd Conklin, counselor to the deputy Treasury secretary, told Politico last week. Moving that much money through exchanges would cause “a bit more of a spike in the crypto market, in my view, than has been observed lately," he told the outlet.

In a tweet, Jerry Brito, director of D.C.-based cryptocurrency think tank Coin Center, highlighted this apparent "disconnect" and pointed to a Treasury report on money laundering that was released on Monday. That report stated that "the use of virtual assets for money laundering remains far below that of fiat currency and more traditional methods," although law enforcement has seen an uptick in crypto usage in various crimes including ransomware. 

Popular blockchains such as Bitcoin and Ethereum are public, which means that funds are easily tracked by law enforcement, blockchain analysis firms, exchanges, and anyone with enough time on their hands. Spikes in trade volume on many exchanges are also easily discoverable by the public; this data already revealed this week that both Russians and Ukranians have been buying more crypto as their respective currencies lose value. If billions of dollars in rubles suddenly started flooding exchanges, observers would certainly see it. Even off exchanges, when it comes to a centrally-controlled stablecoin like Tether (USDT), the firm analyzes currency movements and has the ability to freeze funds if they run afoul of the law. 

Indeed, American law enforcement appears to be very capable when it comes to tracking cryptocurrencies. For example, authorities recently arrested a U.S.-based couple for conspiracy to launder billions of dollars in Bitcoin that was stolen from an exchange in 2016 after tracking the funds; a crime that many assumed would never come to any sort of conclusion.

The picture isn't so rosy everywhere, however. The Senators' letter highlights DeFi, or Decentralized Finance, an emerging corner of the cryptocurrency industry characterized by complex investing mechanics, a YOLO attitude, and scams. Lots and lots of scams. "Unlike traditional financial institutions, or even the larger, centralized cryptocurrency exchanges, DeFi protocols rarely apply Know Your Customer/Anti-Money Laundering screenings to the activity occurring on their platforms," the Senators' letter says. 

It's hard to imagine Russia laundering a meaningful amount of money through protocols with names like Magic Internet Money, however, and many DeFi projects run on top of public blockchains like Ethereum. 

While sanctions cover the Russian government, its functionaries, and other important entities in the country like banks, average Russians are not being directly sanctioned as a whole right now. The sanctions also come with carve-outs that give Russia a continuing financial lifeline via its substantial energy exports. 

Major crypto exchanges like Binance and Coinbase say they are enforcing all existing sanctions, and they have so far declined a request from the Ukrainian government to block all Russian users, citing the possible harm to average citizens seeking escape from the crashing ruble. 

Senator Elizabeth Warren introduced a bill on Thursday aimed at enforcing U.S. sanctions in the global cryptocurrency industry. The bill, called the Digital Asset Sanctions Compliance Enhancement Act, would implement measures criticized as generally unnecessary and unconstitutional by industry advocates.

The role of cryptocurrency firms in enforcing sanctions has been hotly debated since Russia's invasion of Ukraine began. Major cryptocurrency exchanges with U.S. operations all say they are enforcing existing sanctions against specified people and entities—Coinbase touted that it currently blocks 25,000 Russian addresses—while at the same time rebuffing a request from Ukraine to place a blanket ban on all Russian users. 

Industry experts and U.S. officials have said that the risk of sanctioned oligarchs laundering billions of dollars using cryptocurrency is low due to the transparent nature of blockchains and the existence of firms well-equipped to trace criminal actions. During a Thursday Senate hearing on crypto and sanctions evasion, Jony Levin, co-founder of blockchain analysis firm Chainalysis—which works with the government and law enforcement—told Warren "no" when asked if techniques like chain-hopping and mixing made it easier to hide transactions. 

Still, Warren and other lawmakers have been raising the alarm about the possibility of cryptocurrencies being used to evade sanctions at scale, a position that was fueled by unconfirmed reports from anonymous sources in the UAE that told Reuters they received calls from people purporting to be Russians looking to offload billions in crypto. (Many observers were skeptical of this.) 

So, what's in the proposed Act? There's a few main points: Requiring the president to identify foreign people or firms that are facilitating sanctions evasion and sanctioning them; giving the Treasury the power to block U.S.-based actors from interacting with addresses that "are known to be, or could reasonably be known to be, in Russia"; requiring U.S. taxpayers to report transactions greater than $10,000; and requiring the Treasury to produce a report on foreign firms that are "high risk" for facilitating sanctions evasion. 

Washington, D.C.-based think tank Coin Center described the bill as "unnecessary, overbroad, and unconstitutional" in a blog post. 

The bill's current wording counts anyone involved in developing "any communication protocol, decentralized finance technology, smart contract, or other software, including open-source computer code", as being a "digital currency transaction facilitator." Open-source software covers a lot of ground, and could conceivably include anyone who's contributed to Bitcoin's code, for example. Coin Center argues that this risks putting a target on the backs of innocent people, writing that "it is blatantly unconstitutional under the First Amendment to forbid the publication of open source computer code.”

Coin Center also bristled at the idea of giving the government power to compel exchanges to block all Russian users, echoing concerns that this would hurt, not help NATO's mission. "This proposed legislation is dangerously overreaching and opportunistic," the blog states. "It will do nothing to improve sanctions against the Russian war machine and may even increase the Russian government’s ability to isolate and control those within their borders who do not support the war."

It's unclear how much support the bill will have. It was cosponsored by a laundry list of Democrat lawmakers—Senators Tammy Duckworth, Debbie Stabenow, Raphael Warnock, Chris Van Hollen, Tina Smith, Catherine Cortez Masto, and Bob Menendez—but the cryptocurrency industry has found vocal support among GOP lawmakers like Texas Senator Ted Cruz. 

"It is not time to call Congress. This is not a moment to pull the red alert lever. This bill, as it stands, so obviously lacks support that it likely won't move. Let's not cry wolf," Coin Center executive director Jerry Brito tweeted. 

When reached for comment, Elizabeth Warren's office directed Motherboard to a page with prepared comments and the text of the bill. 

“Putin and his cronies can move, store, and hide their wealth using cryptocurrencies, potentially allowing them to evade the historic economic sanctions the U.S. and its partners across the world have levied in response to Russia’s war against Ukraine. I'm glad to introduce the Digital Asset Sanctions Compliance Enhancement Act with my colleagues to strengthen our sanctions program and close off any avenues for Russian evasion,” Warren said in a statement. 

Lawmakers in New York passed a bill on Friday that bans new Bitcoin mines that use fossil fuels for a period of two years due to environmental concerns regarding the massive amount of electricity the industry uses. 

Proof-of-Work cryptocurrency mining is what secures the Bitcoin network (and other cryptocurrencies, like Ethereum), with mining firms using up a ton of energy to power specialized computers 24/7 to validate blocks of transaction data. Much of that energy comes from renewable sources, but also from fossil fuels. New York has become a hotbed for mining activity, which critics have said threatens to undermine the state's climate objectives. 

The bill, which is now headed to Governor Kathy Hochul to be signed into law or vetoed, seeks to address this by cracking down on mines that use fossil fuel sources. If passed, then for two years the state will not approve permits for new mines, and it will not allow existing mines to renew or expand their permits. In the meantime, the government will prepare a report on the industry's climate impacts and open the topic to a public discussion for a period of 120 days. 

If made into law, it would represent the first time that a U.S. state has placed a ban on cryptocurrency mining. New York is no stranger to these debates and similar bans, however, with the city of Plattsburgh putting a temporary ban on new mines in 2018 due to concerns with rising energy prices. 

The question of Bitcoin's energy use has become a topic of heated debate after a crackdown in China sent mining firms packing, many of which ended up in the U.S. Texas has become a top destination for mining firms, for example, with Republican Senator Ted Cruz positioning himself as an ally of the emerging industry. 

With the New York bill moving towards becoming law, it's unlikely that the controversy will cool off.