Stolen Funds, Coordinated Attack: IOTA “Halted,” Announces “Working With Law Enforcement”

TL;DR: Investigating stolen funds on Mainnet was posted on February 12, 2020, explaining the IOTA “Coordinator is halted until further notice to investigate reported issues with stolen funds. We ask you to keep the Trinity wallet closed for now until further notice.” Hours later, on February 13, 2020, IOTA updated its status to include the number of victims and the problem’s scope.   

IOTA “Halted,” Announces “Working With Law Enforcement”

“Currently, #IOTA is working with law enforcement and cybersecurity experts to investigate a coordinated attack, resulting in stolen funds,” its official Twitter accounted alerted followers early morning of February 13, 2020. “To protect users, we have paused the Coordinator and advise users not to open Trinity until further notice.”

[David Sønstebø] posts this medium post and later ‘Jinn is dead, [Sergey Ivancheglo] is crazy.’ [Sønstebø] says he owns 100% of Jinn, assigns the (worthless) brand and name to [Ivancheglo] – but keeps $20M worth of IOTA tokens held by Jinn Labs. A fair deal, according to him. [Ivancheglo] responds by leaking private chats (tweets are now deleted). This leads to the first wave of drama in Discord (thread). [Sønstebø] apologizes (…)

u/catlong-is-long

While the announcement to outside observers seemed sudden, back on February 8th, 2020 Redditor u/catlong-is-long posted about how the project was “in full meltdown mode – leaking chats, founders threatening each other with lawsuits & police,” hinting the team was trying to pull a $20 million exit scam.

IOTA co-founders Sergey Ivancheglo, Serguei Popov, David Sønstebø, and Dominik Schiener came out of the JINN project, itself considered secretive and hard to pin down. As a Stack Exchange answer attempted to explain, “Nobody knows much about Jinn project except its global scope. The idea is to develop a low energy ternary processor. Everything else remains secret. It’s important for IOTA because IOTA uses ternary to compute hashes and so all computation to sign transactions involves ternary operations, which are not optimal on binary processors. It’s important because a ‘low-energy-processor’ is particularly adapted to [internet of things (IoT)] devices.”

$20 Million in IOTA Tokens Suspected to be in Danger

IOTA is effectively a rebrand of JINN after a questionable token sale in legal terms back in late 2014, arguably start of the initial coin offering (ICO) boom. As IOTA, the project turned into a utility token by 2015, MIOTA, and is currently ranked 23rd by market capitalization. Its IOTA Foundation has been able to grab collaborations with the likes of Volkswagen and Bosch eager to engage in IoT blockchain hype.

David Sønstebø

“For 6 years,” however, according to u/catlong-is-long, its founders “have said they’ve been making progress, and a finished product is around the corner – everyone effectively expects some product announcement. Instead, [David Sønstebø] posts this medium post and later ‘Jinn is dead, [Sergey Ivancheglo] is crazy.’ [Sønstebø] says he owns 100% of Jinn, assigns the (worthless) brand and name to [Ivancheglo] – but keeps $20M worth of IOTA tokens held by Jinn Labs. A fair deal, according to him. [Ivancheglo] responds by leaking private chats (tweets are now deleted). This leads to the first wave of drama in Discord (thread). [Sønstebø] apologizes (…), which leads to a ceasefire lasting a few hours,” u/catlong-is-long detailed.

The Redditor goes on to assert the tokens Sønstebø allegedly claimed “it turns out, during the IOTA crowdsale, some people never picked up the tokens they bought. So David decided he owns them now, and them in his 100% owned company, IOTA AS. And the community, having donated ~5% of the total IOTA supply ($ double/tripple digit million) to the foundation, is not happy. Not to mention the holders of the Jinn tokens, who aren’t getting anything.” Again, that was all alleged some 8 days ago. It’s unclear if that post and the present circumstance are related.

Please Note that Data Transactions are not Affected

An up-to-date as of publication response from IOTA claimed they “are still evaluating multiple possible root causes, including an exploit of a previous Trinity version with all its dependencies. We have been working on the investigation of attacked seeds and analyzed the attack pattern, using a set of newly developed tools, as well as finishing a complete manual verification (to validate tooling reliability).”

They’ve apparently brought aboard “several cyber forensic experts” in order “to perform deep scans of Trinity’s dependencies as well as affected systems. First (but not all) exchanges have responded, reporting that no monitored funds have been transferred or liquidated,” the team assured. “Please note that data transactions are not affected.”

Conclusions drawn by IOTA’s internal investigation include an unknown cause of seed theft, less than a dozen victims who used the Trinity wallet, and “about half of the victims with confirmed funds moved out are already in contact with the IOTA Foundation.” Vowing to “share a full transparent report of all events once this has concluded,” the IOTA team also acknowledged not being able to “rule out other [scenarios],” as “information is not conclusive.”

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