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Dutch court orders Facebook to ban celebrity crypto scam ads after another lawsuit



A Dutch court has ruled that Facebook can be required to use filter technologies to identify and pre-emptively take down fake ads linked to crypto currency scams that carry the image of a media personality, John de Mol, and other well known celebrities.

The Dutch celerity filed a lawsuit against Facebook in April over the misappropriation of his and other celebrities’ likeness to shill Bitcoin scams via fake ads run on its platform.

In an immediately enforceable preliminary judgement today the court has ordered Facebook to remove all offending ads within five days, and provide data on the accounts running them within a week.

Per the judgement, victims of the crypto scams had reported a total of €1.7 million (~$1.8M) in damages to the Dutch government at the time of the court summons.

The case is similar to a legal action instigated by UK consumer advice personality, Martin Lewis, last year, when he announced defamation proceedings against Facebook — also for misuse of his image in fake ads for crypto scams. Lewis withdrew the suit at the start of this year after Facebook agreed to apply new measures to tackle the problem: Namely a scam ads report button. It also agreed to provide funding to a UK consumer advice organization to set up a scam advice service.

In the de Mol case the lawsuit was allowed to run its course — resulting in today’s preliminary judgement against Facebook.

It’s not yet clear whether the company will appeal but in the wake of the ruling Facebook has said it will bring the scam ads report button to the Dutch market early next month.

In court, the platform giant sought to argue that it could not more proactively remove the Bitcoin scam ads containing celebrities’ images on the grounds that doing so would breach EU law against general monitoring conditions being placed on Internet platforms.

However the court rejected that argument, citing a recent ruling by Europe’s top court related to platform obligations to remove hate speech, also concluding that the specificity of the requested measures could not be classified as ‘general obligations of supervision’.

It also rejected arguments by Facebook’s lawyers that restricting the fake scam ads would be restricting the freedom of expression of a natural person, or the right to be freely informed — pointing out that the ‘expressions’ involved are aimed at commercial gain, as well as including fraudulent practices.

Facebook also sought to argue it is already doing all it can to identify and take down the fake scam ads — saying too that its screening processes are not perfect. But the court said there’s no requirement for 100% effectiveness for additional proactive measures to be ordered.

Its ruling further notes a striking reduction in fake scam ads using de Mol’s image since the lawsuit was announced

Facebook’s argument that it’s just a neutral platform was also rejected, with the court pointing out that its core business is advertising. It also took the view that requiring Facebook to apply technically complicated measures and extra effort, including in terms of manpower and costs, to more effectively remove offending scam ads is not unreasonable in this context.

The judgement orders Facebook to remove fake scam ads containing celebrity likenesses from Facebook and Instagram within five days of the order — with a penalty of €10k per day that Facebook fails to comply with the order, up to a maximum of €1M (~$1.1M).

The court order also requires that Facebook provides data to the affected celebrity on the accounts that had been misusing their likeness within seven days of the judgement, with a further penalty of €1k per day for failure to comply, up to a maximum of €100k.

Facebook has also been ordered to pay the case costs.

Responding to the judgement in a statement, a Facebook spokesperson told us:

We have just received the ruling and will now look at its implications. We will consider all legal actions, including appeal. Importantly, this ruling does not change our commitment to fighting these types of ads. We cannot stress enough that these types of ads have absolutely no place on Facebook and we remove them when we find them. We take this very seriously and will therefore make our scam ads reporting form available in the Netherlands in early December. This is an additional way to get feedback from people, which in turn helps train our machine learning models. It is in our interest to protect our users from fraudsters and when we find violators we will take action to stop their activity, up to and including taking legal action against them in court.

One legal expert describes the judgement as “pivotal“. Law professor Mireille Hildebrandt told us that it provides for as an alternative legal route for Facebook users to litigate and pursue collective enforcement of European personal data rights. Rather than suing for damages — which entails a high burden of proof.

Injunctions are faster and more effective, Hildebrandt added.

“It clearly demonstrates that Facebook is an advertising platform that can be held liable under Dutch tort law for not taking adequate measure to remove fake ads, provided certain conditions apply (such as that the request for an injunction is sufficiently specific),” she said. “It also clearly demonstrates that filing an injunction to stop unlawful behaviour based on tort law can be very efficient, without having to prove damages, because the injunction can be enforced by way of penalty payments for each day that it is not complied with.”

“I believe that this is the kind of action Member State should enable under art. 79 GDPR [General Data Protection Regulation] in the case of unlawful processing of personal data,” Hildebrandt added.

“Art. 80 GDPR allows data subjects to mandate their right to file such an injunction to a dedicated NGO (thus enabling collective action). This is not the case for a tort actions suing for damages, in that case the GDPR leaves it up to the Member States whether or not to allow such mandating. On top of that suing for damages is very cumbersome in the case of unlawful processing, because it is usually very difficult to prove damages and to prove causality.”

The judgement also raises questions around the burden of proof for demonstrating Facebook has removed scam ads with sufficient (increased) accuracy; and what specific additional measures it might deploy to improve its takedown rate.

Although the introduction of the ‘report scam ad button’ does provide one clear avenue for measuring takedown performance.

The button was finally rolled out to the UK market in July. And while Facebook has talked since the start of this year about ‘envisaging’ introducing it in other markets it hasn’t exactly been proactive in doing so — up til now, with this court order. 

This report was updated with additional comment 

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Ripple Tops List of Blockchain Capital Raisers in 2019




Ripple raised the highest amount of funding among blockchain companies last year, according to a report by CB Insights.

Ripple Raises $200 Million at a Valuation of $10B

Last month, we reported that Ripple secured $200 million in a Series C round from investors like SBI Group, Tetragon Financial Group, and Routee 66 Ventures. The blockchain firm led by Brad Garlinghouse was valued at $10 billion at the time.

The investment round helped the XRP issuer to top the list of blockchain firms by the amount of funds secured last year. Ripple plans to use the funds for talent hiring, opening new offices overseas, and enhancing balance sheet flexibility.

Ripple was followed by Figure Technologies in the list of largest funding rounds. The latter raised $103 million to support the expansion of its blockchain-based platform Provenance. Figure uses the platform to help users get home equity loans within minutes.

Digital Asset and PeerNova came next with $35 million and $31 million, respectively. The former intends to fund developer community project related to its Digital Asset Modeling Language (DAML), which is used to faster asset settlement. Elsewhere, PeerNova is eyeing expansion of its technology that helps financial institutions handle their data workflows.

Investment to Blockchain Firms Declined in 2019

Even though blockchain has gone mainstream, 2019 was not as successful for specialized startups as the previous year in terms of raised funds.

According to CB Insights, total equity funding to blockchain startups dropped more than 30% last year compared to 2018. Mentions of blockchain in public earning reports also declined. Ripple’s $200 million wouldn’t have even made the top 3.

The research authors suggest that the reason for the decline is that many startups are still trying to figure out product market fit.

In the last quarter of 2019, blockchain firms raised a combined $785 million across 164 deals, down 36% compared to the same period in the previous year.

In 2018, blockchain giants like Bitmain and Coinbase had great contribution, being among the top two fundraisers with $400M and $321M, respectively. Ripple raised only half of the amount secured by Bitmain.

Do you think 2020 will be a better year for blockchain startups? Share your expectations in the comments section! 

Image via Shutterstock, CB Insights

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Securities Regulator of India Bets on Blockchain




The Chairman of Security and Exchange Board of India(SEBI), Ajay Tyagi makes a bet on blockchain technology and urges exploration of the best possible usage of blockchain in securities markets.

SEBI is the regulator of the Indian securities market. On Jan 23, speaking at a research conference on ‘Changing Landscape of Securities Market’ organized by the National Institute of Securities Markets, Patalganj, Tyagi said that applications of blockchain, artificial intelligence and machine learning have the potential to bring a paradigm shift in the securities markets landscape.

“Blockchain could be used in clearing, settlement and record-keeping given its benefits in maintaining records in distributed ledgers, while still being a single source of truth.”

He takes example of some international blockchain projects and asks for research in these areas. 

“Blockchain-based solutions are being developed by some foreign exchanges for settlement and by domestic exchanges for KYC recordkeeping purposes. There is a need for active research into these technologies to explore their best possible usage in securities markets.”

More weight on the latest technologies

Tyagi also emphasized the use of the latest technologies, including artificial intelligence, machine learning and blockchain to streamline the securities market. Technology has played a major role in transforming the capital markets. He said:

“Catching malpractices in the market using the standard tools is increasingly getting difficult. SEBI has already planned Data Lake project to augment analytical capability with advance analytical tools viz., AI/ML, deep learning, big data analytics, and natural language processing, etc.”

Although the Indian government is positive about the use of blockchain in multiple cases, it is not specifically positive on cryptocurrency. As Cointelegraph reported, the Supreme Court of India is hearing a petition filed against the ban on the banking channel imposed by Reserve Bank of India. The next hearing on this case is scheduled for Jan. 28.


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How Payswap Can Confuse Blockchain Analysts, Benefiting Bitcoin Privacy for All




Although Satoshi Nakamoto’s white paper suggests that privacy was a design goal of the Bitcoin protocol, blockchain analysis can often break users’ privacy. This is a problem. Bitcoin users might not necessarily want the world to know where they spend their money, what they earn or how much they own, while businesses may not want to leak transaction details to competitors — to name some examples.

But there are solutions to regain privacy. A new solution was proposed on the bitcoin-dev mailing list this week, by the Bitcoin and Lightning developer who goes by the pseudonym “ZmnSCPxj.” Called Payswap, the proposed solution offers a simple-yet-effective trick to confuse blockchain analysis by inverting the relation between payer and payee.

Here’s how that works. 

The Traceability of Bitcoin Payments

A typical bitcoin transaction is a payment from one person (the payer) to another (the payee). Let’s say, for example, Alice wants to pay Bob 3 bitcoin. If Alice owns a chunk of coins (a UTXO) worth exactly 3 coins, and we for simplicity ignore fees, she could create a transaction with one input (referring to her address holding 3 coins) and one output (referring to Bob’s Bitcoin address). The chunk of 3 coins would essentially move from Alice’s address to Bob’s address. Simple.

However, more often than not, Alice won’t have a chunk of the exact right amount of coins she needs to pay Bob. Alice may, for example, only have chunks of 2 coins. In this case, she can still create a transaction. This transaction would have two inputs (two chunks of 2 coins, presumably from two different addresses), and also two outputs: one output worth 3 coins attributed to Bob’s address, and one output worth 1 coin, which she sends back to one of her own addresses as change.

Unfortunately, exactly because such a transaction is so typical, it would reveal information to blockchain analysts. They will assume that the chunk of 3 coins constitutes the payment (to Bob), and that the 1 coin is change (back to Alice). After all, if the payment only constituted 1 coin, Alice wouldn’t have needed to include two inputs. This enables blockchain analysts to trace payments over the blockchain and ultimately allows for address clustering and more privacy-infringing strategies. 

Enter Payswap

Payswap essentially replaces the payment from Alice to Bob with two payments: one from Alice to Bob, and one from Bob to Alice. Doing this securely requires some technical complexity — more on that below — but let’s for now ignore that. 

In this case, Alice would still create a transaction with two inputs: two chunks of 2 coins. But this time, the transaction would include only one output: She would send all 4 coins to Bob. Already, this may confuse blockchain analysts. Because most typical payment transactions include a change address, and this transaction doesn’t, they may (falsely) assume that this is a transaction in which someone is, for example, moving their own funds around to a new wallet. 

Meanwhile, Bob would also create a transaction to Alice. Let’s say Bob has chunks of 0.6 coin. He would create a transaction that includes two inputs (chunks of 0.6 coin), and two outputs: 1 coin for Alice, and 0.2 coin as change. This would look just like a regular transaction (1 coin from Bob to Alice). 

If different Bitcoin addresses are used, a blockchain analyst will not be able to tell that the two transactions described here happened between the same two people (Alice and Bob). Instead, on top of the false assumption they may have made about Alice’s transaction to Bob, they may now also have a wrong assumption about Bob’s transaction to Alice. Overall, they may think that Bob paid Alice 1 bitcoin, while in reality Alice paid Bob 3. 

Blockchain analysts, by their false assumptions, would have been misled, benefiting both Alice and Bob’s privacy. By extension, if blockchain analysts’ assumptions are broken through these kinds of tricks often enough, their assumptions become useless overall. 

Adding CoinSwap

In reality the Payswap trick would be slightly more complicated.

In the example above, there is a problem left to solve. Since Alice and Bob don’t trust each other, neither is willing to make their payment first, as this would allow the other to disappear without returning the payment. 

This can be taken care of with an older trick, called CoinSwap. Based on atomic swaps (an even older trick), two otherwise separate transactions can be made dependent on one another; neither party could refuse to return the payment. 

If you know how CoinSwap and/or atomic swaps work, the idea behind Payswap is actually very simple. Instead of using (near-)equal amounts in the atomically-linked transactions, Payswap uses unequal amounts; the difference constitutes the payment. (If this is clear to you, there’s no need to read the rest of this section of the article.) 

In a little more detail, Payswap introduces two additional transactions into the equation. 

First, instead of creating a transaction that sends 4 coins directly to Bob, Alice creates a transaction that sends the coins to a very basic smart contract. The coins can be claimed from this smart contract in two ways. It can either be claimed by Bob, if he also includes a secret number that Bob himself generated. Or, if the coins aren’t claimed by Bob, the coins can be claimed back by Alice after some time has passed. 

Second, instead of creating a transaction that sends a coin directly to Alice, Bob also creates a transaction that sends the coin to a basic smart contract. (And 0.2 coin back to himself as change.) Again, the coin can be claimed in two ways. Either, it can be claimed by Alice, if she includes the same secret number that Bob generated. Or, it can be claimed by Bob after some time has passed. (Slightly more time than in the first smart contract.) 

Both transactions are broadcast to the Bitcoin network to be included in a block. 

Now, when Bob wants to collect his payment (4 coins), he’d create a transaction from the smart contract that Alice created, thus including the secret code he generated, claiming the money. Importantly, by doing so, he reveals his secret code on the Bitcoin blockchain for Alice to see. With it, Alice can in turn create a transaction from the smart contract that Bob created, claiming 1 coin back to her address. 

In other words: Bob can only claim 4 coins by letting Alice claim 1 coin. Either both transactions come through or neither does. 

If, for whatever reason, Bob does not claim his payment, the timelock on the basic smart contract Alice created will expire, and she can claim her 4 coins back. Bob, a little later, can also claim his 1 coin back. No harm done. 

It’s worth pointing out that these smart contracts can be created with fancy mathematical tricks to hide the secret codes in the cryptographic signatures, to prevent the two transactions from being linked by blockchain analysts through the code. The details of how this is done falls outside of the scope of this article, however; if you’re interested in learning more, see this article on Scriptless Scripts

In the end, while using atomic swaps adds some complexity, blockchain analysts would be confused just the same. 

Drawbacks of Payswap

Payswap does come with some trade-offs.

The most obvious drawback is that a payment would require four transactions, instead of just one. Two transactions are needed to get the funds from Alice to Bob, and two transactions are needed to get the “change” back from Bob to Alice. This requires more blockspace and, therefore, more fees. 

Additionally, the payment requires Alice and Bob to interact. Alice can’t simply send funds to Bob’s address; instead, the two have to communicate outside of the Bitcoin protocol to also settle on an identifier (hash) of Bob’s secret number. 

The solution might, therefore, actually be more useful in the context of Lightning. Payment routing on the Lightning Network is entirely based on the exchange of secret numbers, much like the one Bob generated in the example above, so it’s not difficult to see how the same trick would apply. Yet, on the Lightning Network, the extra transactions wouldn’t hit the blockchain, while payments require interaction anyway.

In fact, mostly focused on Bitcoin’s Layer 2 network for fast and cheap payments, ZmnSCPxj originally came up with the idea for Payswap in the context of the Lightning Network, where he simply refers to it as a “self-payment.” But more on this proposal in a future article…


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