Cryptocurrencies have altered our financial landscape and transformed how many people think about banking. They have also generated legal questions, including those from the notorious Sam Bankman-Fried scandal and a more recent Massachusetts case that involves allegations of stealing electricity to pursue a crypto-mining operation. GBH legal analyst and Northeastern law professor Daniel Medwed joined Morning Edition hosts Paris Alston and Jeremy Siegel to talk about cryptocurrency and the legal landscape surrounding it. This transcript has been lightly edited.
Paris Alston: If there's anyone who can untangle these two complicated things, Daniel, we know it is you. So tell us, how does crypto mining work?
Daniel Medwed: I asked our associate producers, Rachel and Gal, to give me their twenty-something take on this, so they've informed me. Here's my best impression of what's going on. Generally speaking, cryptocurrency is a form of digital coin where you use the encryption algorithms, that's where the term crypto comes from, to generate and amass wealth that you can trade online that's outside the regular banking system, outside the regular currency regime. And that's part of the appeal, that there's limited government oversight. That's one of the reasons people are drawn to this sector.
Now, in terms of crypto mining in particular, here's how it works: you run these supercomputers to solve complex mathematical equations. That's how you produce the digital coins. Then you validate those transactions by putting them on something called the blockchain, and then you can locate the transactions and your wealth essentially through a virtual ledger. So that's sort of the big picture view of how crypto works.
Jeremy Siegel: I think that is about as far as my knowledge goes. For anybody who's still confused by it, crypto mining is like if you took real-world mining but put it on a computer and instead of mining, you're doing equations.
Medwed: Right. Exactly.
Siegel: So Daniel, you mentioned that a lot of people are attracted to crypto because of the absence of significant government oversight, But the absence of government oversight can also make it easy for people to commit crimes, for people to be defrauded, right?
Medwed: I think that's absolutely right. It's a little bit like the Wild West out there, where we're still trying to figure out how to regulate this industry. And that often happens with new financial markets, new trading vehicles, things like hedge funds years ago and the Sam Bankman-Fried or SBF scandal, I think is really illustrative. So in short, here's what happened there. SBF ran a crypto derivatives fund called FTX, and he allegedly used customer assets to cover liabilities for an affiliated research company, Alameda Research. He fled to the Bahamas and he was extradited from there after he was charged with eight federal crimes back in December, including securities fraud and wire fraud. Now he's back in the U.S. And just last week, the feds tacked on an additional four charges related to illegal political donations. So I think SBF is a really high-profile and perhaps extreme example of potential fraud in the industry. Billions of dollars are in play there.
Alston: Yeah, I mean, speaking of Tik Tok, I know the Internet had a field day with SBF and continues to, right? I'm looking at a meme now, you know, the one with the dog and everything is on fire and he has a cup of coffee? He's like, This is fine. It has a huge picture of Sam Bankman-Fried on the front. And wasn't he the son of two Stanford law professors?
Medwed: That's right. He was the son of two Stanford law professors. And there's also a local connection, isn't there always a local connection? He went to MIT.
Siegel: Oh, wow. SBF Going to MIT and starting FTX. All those acronyms are almost making this more confusing for me. So, Daniel, let's get closer to home. Talk about this case in Cohasset, which involves that other end of things, crypto mining, right?
Medwed: Absolutely. So apparently back in December 2021, the facilities manager for the Cohasset Middle and High School noticed that something was awry on campus. He saw this odd array of electrical wires, computers and temporary duct work. So together with the town's I.T. director, they started to investigate and they identified a crypto mining operation that was in a crawl space on campus, and that was connected to the school's electrical system. So they called the police. The police called in some federal investigators who conducted a forensic accounting or examination of these computers. And after a three-month investigation or so, they identified the assistant town facilities manager, a guy named Nadeam Nahas, as the culprit. And apparently, he was accused at least of stealing about $18,000 worth of electricity from the school district.
Alston: It seems like he was essentially doing this to save money, right? Because I understand that crypto mining can rack up quite the electricity bill.
Medwed: Yeah, that's my hunch. I'm not entirely sure, but that seems to be a reasonable inference here, Paris. It takes a staggering amount of electricity, of power, to run a crypto mining operation. You have to keep those supercomputers running fast and as long as possible. And in addition, you have to run fans to prevent the computers from overheating. By one estimate, the amount of power required to run crypto mining for a year across the world is the equivalent of the amount of power required to keep the lights on in a medium-sized European country for a full year, like the Netherlands. So I think crypto not just implicates financial and legal issues, but also environmental ones as well.
Siegel: Daniel, what's the status of the Cohasset case at the moment?
Medwed: Nahas was charged with vandalism and fraudulent taking of electrical services in Quincy District Court, but apparently he didn't show up for his court appearance last week, last Thursday, which led to the issuance of an arrest warrant. So I think we'll have to stay tuned and keep the lights on.