How the Blockchain Thwarted Insider Trading
On June 1st, 2022, a former employee of Opensea was arrested by the FBI for insider trading that was committed in the middle of 2021. The United States Department of Justice (DOJ) published an announcement on the arrest calling it the “First Ever Digital Asset Insider Trading Scheme.”
Yet, despite the bad press that this event is creating for NFTs (which already holds a poor perception amongst the general public), what we’re really witnessing here is the power of the blockchain and how it was able to provide concrete evidence that someone was doing something illegal.
Who is Nate Chastain
Near the end of summer 2021, an Opensea employee named Nate Chastain was accused of buying NFT projects before listing them on the popular trending page.
This level of exposure was essential for projects and acted like a catalyst that shot the floor price for trending projects upward, creating significant profits for the team and its holders.
How did he commit insider trading?
Because the trending page can create such a substantial impact on the pricing of projects, Chastain’s influence over projects was immense and something that Opensea trusted him to do responsibly.
The DOJ claimed that Chastain was “using his knowledge of confidential information to purchase dozens of NFTs in advance of them being featured on OpenSea’s homepage.”
How the blockchain aided in this arrest
The significance of this arrest can’t be overstated - the public ledger holds people accountable.
Since everything on the Ethereum network is recorded and publicly visible, the illegal activities that Nate Cahstaain was committing were able to be seen by anyone who scrolled through a block explorer.
When @0xZuwu noticed something strange happening to certain tokens reaching the trending page, he took it upon himself to investigate and found some interesting revelations about the Opensea employee using secret wallets to hide his trades that happened minutes before collections were posted to the trending page.
Cryptocurrency’s advantage over fiat
Transparency is a pillar of blockchain technology. It is not a coincidence that the bitcoin network began shortly after the 2008 financial crisis. People’s lives were being ruined because fiat was being exchanged without a public record.
The bitcoin network solved this problem by making every single transaction available to the public. It is impossible to hide illegal activity, making bitcoin a popular currency that holds users accountable for their actions.
Cryptocurrency gets a lot of criticism because of its early adoption by criminals. Many skeptics believe that these digital currencies only exist to help people with illegal activities, but that couldn't be further from the truth.
There is no underlying technological function that can record every single exchange used with fiat the way that block explorers can identify crypto transfers.
In the case of Nate Chastain, we’re seeing the first example of true accountability being brought by the blockchain that’s causing an appropriate legal response by authorities. Users are being held responsible.
As the adoption of different cryptocurrencies continues to rise, this feature of full transparency will continue to prove valuable. Criminal activity will not thrive on a blockchain which publically traces every single transaction.
