With help from Sam Sutton In recent weeks I've written about "on-chain analysis" of cryptocurrency, and what it can and can't tell regulators about the mechanics of crypto's financial crisis. Analysis is an important part of the crypto industry. In theory, the shared public blockchain behind each cryptocurrency should give the system more transparency than traditional finance, and firms scour its data for important information about how currencies flow. In practice, however, that data can only tell you so much, and even experts are often forced to rely on guesswork to fill in their understanding of what really happened. Now, the courts are in for a crash course in the limits of on-chain analysis, courtesy of DFinity Foundation, a Swiss nonprofit that works on a blockchain network called the Internet Computer. Last week, Dfinity sued the New York Times and Arkham Intelligence, a crypto research firm, in the Southern District of New York, alleging defamation and unfair trade practices related to a June 2021 Times article about a crash in the price of the blockchain's tokens. The complaint alleges a plot — aided behind the scenes by an unnamed "uber-wealthy" party — to orchestrate misleading coverage of the Internet Computer project. The alleged goal was to suggest that insiders profited as the price of the tokens plummeted, while average investors were left holding the bag. According to the complaint, the Times article relied on Arkham's misleading analysis of the project's blockchain records. Among the arresting details, the complaint alleges that the authors of the offending Arkham report have fled from Austin to London, where they "reside—frat boy style—in a huge mansion." It also cites a website called "CryptoLeaks.Info" that purports to show people affiliated with Arkham making incriminating confessions in undercover video stings. The Times is standing by its story. "We're confident in the accuracy of our reporting and plan to defend against this suit vigorously," said Times spokeswoman Danielle Rhoades Ha. Arkham did not respond to a request for comment. Corporate intrigue and private intelligence set-ups are nothing new in the financial world. But at the crux of the complaint is the allegation that the defendants misinterpreted public on-chain data in a way that was harmful to Dfinity. Both sides seem to agree on the bare facts of what the analysis showed: That tokens distributed by Dfinity to a small group of addresses were then quickly moved to addresses associated with crypto exchanges. The question is what that meant. According to the complaint, defendants falsely insinuated that these movements implied large-scale selling of tokens by insiders. The complaint offers an alternative explanation: that tokens were moved to wallets at exchanges for safekeeping. (Also in dispute is whether or not the Internet Computer token qualifies as a security, an area of regulatory ambiguity for many blockchain tokens.)
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