Cypherpunklabs: A Skeptic’s Lesson

I met “Daniel Jones” or @ nixops on Twitter about a year ago. Daniel portrayed himself as a knowledgable Bitcoin OG — he boldly claimed he knew who Satoshi was and spoke of his technical prowess regularly.

While I, to this day, believe some of the details of his story (I think he’s been involved in the space for quite some time, I think he knows how to code, and have to admit he is an absolute blast to talk to), I also have seen a lot of the facts laid out for me and some of the statements just don’t add up. Let’s go over how a self-proclaimed skeptic got taken for a ride.

Trust

Regardless, Bitcoiners pride themselves on not needing to trust — ya know, cause the software speaks for itself. Fair enough, the only people being relied on when one owns Bitcoin are the developers (the people maintaining the code) and the miners.

But what coiners fail to acknowledge regularly is that every time you choose to buy or sell those Bitcoin — be it for an alternative cryptocurrency or fiat — you’re relying on a third party. Trust is 100% necessary for the function of Bitcoin.

And that’s how I think about the financial space in general — it relies almost exclusively on trust. There’s a lot of people I trust. Maybe some I shouldn’t.

Cypherpunklabs

Unfortunately, the Cypherpunklabs company, which first was supposed to exist as an LLC (in August), then as an S Corp (in September), then as a C Corp (in October, all in Delaware), failed to materialize — there is no Cypherpunklabs in Delaware as of November 24th, 2020:

Outside of the scope of running exit nodes, Daniel and his business partner sought out journalists and researchers who wanted to run darkweb sites, like myself. This was intended to be a free service provided by them to certain people, not just to be philanthropic sweethearts, but because helping people with reach is good publicity.

I take zero issue with this.

In fact, I offered to *donate* $120 to the cause.

No, donations wouldn’t help them. They’re a business. If I wanted to give money, I should buy something, like a year’s worth of exits, and in return, my site would stay up for two years.

Sounded marvelous. Daniel helped me set up my site — he spent a ton of time walking me through it, even though it was an embarrassingly simple process. I very much appreciated that.

In return, I wrote up my article about the importance of Tor, and in a since deleted bit, told anyone who wanted something similar to my onion site, or to spin up their own exit nodes, to reach out to Cypherpunklabs or nixops.

And everything was good.

A Storm’s (and Some Hurricanes) a-Brewin’

On Novermber 7th, nixops and CPL went dark. People, including me, were concerned for him — and not in a “SCAM!” way, but in a “Is he hurt? Did someone come after him?” way.

No response, except through a third party, who relayed “Nixops is okay, he’ll be back on Tuesday.”

Tuesday arrived. More of us grew concerned.

Another relayed message: “Nixops is alright. He’ll be back this weekend.”

And that’s when nixops’ business partner — a mutual friend of ours — came to me and laid everything out: they’d gone into this together, no business had ever actually been set up despite numerous promises, the mutual was owed thousands of dollars, the mutual was supposed to be bought out, all the nodes had gone offline, the CPL website was down, and all of the hyperbolic stories from Daniel— including three broken phones in a matter of days, to slipping in a shower and giving up, to FBI agents hunting for him — didn’t add up. The mutual shared thousands of DMs that took place over months. He was embarrassed and ashamed that he’d been taken for upward of $2,500, but he couldn’t help sharing it now, especially since he knew I was publicly advocating for their ““company.””

The series of events was hilarious, if not so personal. Daniel, who adamantly proclaimed his personal wealth, his ability to retire in four years, etc., would be asking the business partner for $100 here, $400 there, another $100 advance. Why? The reasons ranged from incorporation fees, lawyer fees, gas, whatever.

After a month or so, HUGE NEWS! They were being offered a 15% buyout opportunity from an *extremely wealthy investor*. The total valuation for the 15% purchase of the company? $500,000 ($568,312.18 AFTER TAXES lmfao). Meaning both owners of Cypherpunklabs would receive $250,000 and the total valuation of the company would be $3,333,333.33… they were millionaires!

Myths, Legends

Two of Daniel’s personal narratives have altered my perception of why his business partner is out $2.5k.

  • Net Worth
  • Experience

Net Worth

  • he has 20,000 Bitcoin <<somewhere>> (~roughly $380,000,000, if we include fork coins, too)
  • he regularly mixed 10 BTC at a time
  • he couldn’t sign any early coins because “IRS”

Whether the discussion is about almost half a billion dollars or $200k, it’s strange to see so many financial headwinds in the face of a founder who claims so much wealth.

Experience

  • knows who Satoshi is (and insists anyone can figure it out)
  • friend’s with Satoshi’s wife
  • determined vulnerability to take down all BTCcore nodes (also Lightning Network vulnerabilities and Signal vulnerabilities)
  • created a neighborhood-wide meshnet to identify intruders in the area
  • used to work for the NSA/FBI
  • ability to turn a welding machine into a power generator (?)

Given all that has transpired since these bold statements were made, one would believe that someone so informed on so many topics could easily find well-paying job opportunities, but alas, the business partner is still out ~$2.5k.

Upon reflection, these red flags seem laughable — but they were said in all seriousness! Perhaps you’re scratching your head, wondering WTF to one, if not all of these. No one bothered questioning him about it, either, because they seemed difficult or impossible to prove, or questions would be laughed off/unexplainable.

To add to this, none of these lies harmed anyone — no one was betting that Daniel knew Satoshi, no one’s life was disrupted because he made those allegations. But maybe all of us should’ve pushed back harder when any and all of these claims were made.

The First Excuse

For those less tech-savvy, like myself, it comes off as feasible. There’s a lot to unpack, but there wasn’t anything immediately suspect.

But for anyone else, a lot of questions lie within. We’re talking unexplained DDOS & Sybil attacks, deployment of <<better>> <<<automation>>> (implies both previous automation and… a better version of it?), how and why these attacks effected customers, and, as far as anyone knows, there never was any investment negotiations.

The Second (More Private) Excuse

Never were the eight reasons that are listed above stated as the actual reasons. Instead, what was spoken of, was that there was no cash. Daniel’s bank account was in the red. The money, which should’ve been spent on the company, had been spent on other things. He admitted to owing the mutual friend a considerable amount of money, though he failed to mention the promised “buyout”. He assured us that everything would be back online soon and that the mutual would be paid.

At no point did he:

  • publicly disclose this information
  • take responsibility for spending money inappropriately
  • start the company

Oh, and did I mention that he magically appeared as soon as the mutual shared DMs with a group chat? It was kismet!

Moar

Maybe because “What coins?”

The more eyes that looked at the DMs and escapades, the more people agreed, none of it, including the lengthy and haphazard secondary excuse, made a lick of sense. No one could tell truth from fiction anymore, and Daniel was someone we were all closely communicating with for a year or more.

There were promises made that now make zero actual sense:

  • he was going to hire two fulltime developers to work on the project/site (for what and why and with what money?)
  • he was going to be running upwards of 1/3 of all Tor exit nodes
  • he had spoken to @ pokkst about a massive purchase of 50 BCH worth of exit nodes

You can check the veracity of the last claim here:

Intentions

What I’m still struggling with is why Daniel won’t admit this to the public-at-large, which is why I’m sharing this story.

I pride myself on being a skeptic and on asking questions. I urge readers to never dive into investments or strategies without first doing due diligence. And for the first time in a cool minute, I am very guilty of not practicing what I preached. It’s refreshing, in a sense, to be reminded just how big of a fool I — and anyone, for that matter — can be.

I’m not upset about the $120 or the site, and don’t want either back. I’m more struck with a deep sense of betrayal by someone I considered a friend who cannot seem to bring himself to tell the truth.

That’s likely the way a lot of businesses fail.

It’s Important To Admit

It doesn’t feel good writing this piece, and, at the end of the day, whistleblowing never feels good. Whistleblowers are rarely heralded as harbingers of truth, rarely are they celebrated as spreaders of honest gospel. There are reasons people stay silent: from fear of being doxxed, to the amount of money being insignificant, to lawsuits and retribution from disrupted parties. Those are fair reasons for not coming forward, and like an investment, I think whistleblowing requires the whistleblower to ascertain their own level of risk.

I do this on principle and to make sure that everyone knows, just like them, I get fooled regularly, too. I don’t wish for the destruction of Daniel’s reputation, I don’t wish for any harm to come of him — in fact the opposite: I hope for nothing but his success. I just wish he’d learn to be honest — and that goes for a lot of people in finance.

Stay skeptical, friends.

Fraud. Fraud everywhere.