Friday, February 3, 2023

RaiBlocks Traders Hit, Non-Europeans Told to Bail in BitGrail’s Epic Fail

RaiBlocks Traders Hit, Non-Europeans Told to Bail in BitGrail’s Epic Fail

Citing regulatory requirements, the controversial Italy-based exchange BitGrail announced on January 24th it would prevent unverified non-E.U. users from withdrawing funds from their accounts. Furthermore, according to an update on January 30th, it is no longer (officially) accepting new non-E.U. unverified account holders at all. Nano (formerly RaiBlocks) token users are the hardest hit, with their trade making up a large majority of BitGrail’s business.

[Update Thursday, February 1, 2018 5:30PM]: BitGrail says non-European residents are still able to verify accounts. Please see below for details.

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BitGrail’s Sudden Change Angers Users

BitGrail’s abrupt move sparked widespread outrage from customers wondering how, or if, they’d be able to access their funds. It highlighted a key concern surrounding online cryptocurrency services — terms and local regulations can change almost on a whim, rendering services useless or funds inaccessible.

The announcement effectively froze withdrawal capabilities for non-European, unverified traders. KYC (know-your-customer) requirements were to be implemented immediately, and non-European traders would be given two weeks to verify themselves and remove their funds — but only via a transfer into bitcoin.

Amid swirling reddit accusations of exit scam fraud, BitGrail released a blunt statement via Twitter on January 31st:

Confusion Over Whether Non-EU Residents Can Verify

However, in a dramatic shift of events, a screenshot of the identify verification process taken today revealed that non-E.U. residents cannot actually verify their identities, even if they want to.

This would have left non-E.U. traders with only one way to access their funds: terminate their account, submit a BTC address, and hope for the best.

However BitGrail’s operator “Francesco The Bomber” later tweeted that this is not the case. The “country” selector is only an optional field that users may leave blank if they wish.

Several users still complained that the process was confusing — and were met with blunt responses from Francesco.

“I am trying to defend BitFrail from this. We are (in) compliance with the law in Italy and Europe,” he posted on reddit. He claimed to have received “legal and physical threats” from many users but said this would not change his mind:

RaiBlocks/Nano Traders Blocked

Community rage ensued after the original announcement, especially among RaiBlocks token holders. According to CoinMarketCap, RaiBlocks XRB/BTC transactions account for roughly 85 percent of the exchange volume on BitGrail, with XRB/ETH accounting for a further 6 percent. BitGrail accounts for some 30 percent of worldwide RaiBlocks trading volume.

The exchange is operated by an anonymous individual going by the name of Francesco The Bomber on Twitter or TheBomber9 on reddit. The Bomber was also one of the developers of the RaiBlocks currency, one which has grown into a top 20 currency by market cap ($2.5 billion USD at press time) and is widely loved by its community for its speed and zero transaction fees.

Predictably, as investors rushed to transfer XRB into BTC in order to withdraw their funds, the price of RaiBlocks plummeted over 30 percent with the news.

RaiBlocks announced Wednesday it would be rebranded as Nano, effective immediately. Within 24 hours of the announcement, RaiBlocks/Nano bounced back and surged by 41 percent.

User Petition Calls for Fair Treatment

A petition argued that the swift policy change was unfair and urged Francesco the Bomber to “Roll Back this unfair Withdrawal Policy, which has negatively affected thousands of BitGrail users today, and give these users immediate access to the funds that they purchased and rightfully own, WITHOUT further delay.”

The RaiBlocks/Nano project has asked The Bomber to speed up the verification process, which since December has been slow. A manual process handled by two people had 2000 ID verifications to conduct, according to BitGrail. The overwhelmed exchange is unlikely to garner much sympathy from the RaiBlocks/Nano community, however, as it contrasts markedly with the haste with which the new KYC rules were announced.

XRB Design Limits Exchange Use

The XRB cryptocurrency has a unique design which has hindered its adoption on larger exchanges. Its infrastructure is implemented using what is referred to as the “block lattice”, in which every account on the blockchain has its own private chain.

Nano RaiblocksWhile its design makes it fast and fee-free in general, it’s limited — each individual account can only process up to six transactions per second. This structure means that over the long-term it is scalable in theory, but could face problems when faced with a dramatic surge in usage on the network that a listing on a larger exchange could create.

Because of its technological features, at the time of writing it can only be traded on KuCoin, BitGrail and Mercatox. However, after having worked through the technological challenges the currency poses, popular exchange Binance announced an impending listing on January 9th.

When the Crypto Space Meets Regulators

The BitGrail episode is not the first time crypto traders have come off second-best when an exchange interfaces with government regulators. BTC-e traders remember only too well being tainted by association with the company when the FBI seized the exchange and its wallets mid-last year. The original domain remains in the possession of the US government.

BTC-e was forced to shut after Greek authorities arrested alleged operator Alexander Vinnik at the request of the FBI. The 38-year-old Russian was suspected of running a criminal organization accused of laundering over $4 billion through BTC-e. He has also been accused of laundering bitcoins that were stolen during the notorious hack of Mt. Gox in 2014.

BTC-e later “reopened” but with a condition that sounds familiar: users could withdraw half their balances with no questions asked, or complete an ID verification process and receive “debt tokens” that would hopefully be paid back to the full original value of their balances. Many opted for the former option.

‘Getting Ahead’ of Regulation

While the current BitGrail incident appears to be more a case of one understaffed exchange trying to get ahead of KYC regulations most in the crypto-space see coming, the handling of it suggests the interface between the digital currency world and regulators is going to be awkward for a while yet.

BitGrail logoAs governments around the world, most vocally France, Korea and China, press for more stringent regulations of cryptocurrencies and seek to remove the cherished promise of anonymity for its users, incidents such as these are only going to become more, and not less, common.

The blunt tool of regulation is going to feel increasingly sharpened as hapless exchanges race to verify the identities of their traders before facing forced closure.

It may be cold comfort for non-European enthusiasts of the currency formerly known as RaiBlocks — who are now technically unwilling Bitcoiners.

Do you, or have you used exchanges like BitGrail? What was the experience like? Let’s hear your thoughts in the comments.

Images via, RaiBlocks/Nano, BitGrail

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