Two brothers who studied at the Massachusetts Institute of Technology were arrested on Wednesday on US charges that they carried out a cutting-edge scheme to exploit the Ethereum blockchain’s integrity and steal $25 million worth of cryptocurrency.
Federal prosecutors in Manhattan called the scheme perpetrated by Anton Peraire-Bueno, 24, and James Peraire-Bueno, 28, “novel” and said the case marked the first time that such a fraud had ever been the subject of U.S. criminal charges.
Authorities said they executed their elaborate heist in April 2023, stealing $25 million from traders in just 12 seconds by fraudulently gaining access to pending transactions and altering the movement of cryptocurrency.
“As we allege, the defendants’ scheme calls the very integrity of the blockchain into question,” U.S. Attorney Damian Williams said.
An indictment charged them with conspiracy to commit wire fraud, wire fraud, and conspiracy to commit money laundering. Anton Peraire-Bueno was arrested in Boston, while James Peraire-Bueno was arrested in New York.
Both brothers had attended Cambridge, Massachusetts-based MIT, where according to prosecutors they studied computer science and math and developed the skills and education they relied upon to carry out their fraud.
The indictment alleged that for months, the Peraire-Bueno brothers plotted to manipulate and tamper with the protocols used to validate transactions for inclusion on the Ethereum blockchain, a public ledger that records each cryptocurrency transaction.
Prosecutors said they did so by exploiting a vulnerability in the code of software called MEV-boost that is used by most Ethereum network “validators,” who are responsible for checking that new transactions are valid before they are added to the blockchain.
Prosecutors said that after carrying out the heist, the brothers rejected requests to return the funds and instead took steps to launder and hide the stolen cryptocurrency.
The history of Ethereum crypto
Ethereum was conceived in 2013 by programmer Vitalik Buterin. Additional founders of Ethereum included Gavin Wood, Charles Hoskinson, Anthony Di Iorio, and Joseph Lubin.
In 2014, development work began and was crowdfunded, and the network went live on 30 July 2015.
Ethereum allows anyone to deploy permanent and immutable decentralized applications onto it, with which users can interact. Decentralized finance (DeFi) applications provide financial instruments that do not directly rely on financial intermediaries like brokerages, exchanges, or banks. This facilitates borrowing against cryptocurrency holdings or lending them out for interest.
Ethereum also allows users to create and exchange non-fungible tokens (NFTs), which are tokens that can be tied to unique digital assets, such as images. Additionally, many other cryptocurrencies utilize the ERC-20 token standard on top of the Ethereum blockchain and have utilized the platform for initial coin offerings.
On 15 September 2022, Ethereum transitioned its consensus mechanism from proof-of-work (PoW) to proof-of-stake (PoS) in an upgrade process known as “the Merge”. This has cut Ethereum’s energy usage by 99 percent.
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