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The crypto network Celsius has been hammered by bankruptcy procedures, revealing the recklessness of its management and their incapacity to reimburse creditors. A new dispute surfaced on Thursday after Gizmodo posted a 14,532-page court file to the Internet Archive. The drawback? The file included the user identities and purchase histories of every person who had ever used the service.
The file confirmed, for example, that Celsius executives had withdrawn huge sums of money from the site before suspending withdrawals, but the public instantly labeled Celsius’s data sharing as “doxxing” on social media. Named Celsius users’ on-chain activities and addresses might be easily linked to certain times and dollar amounts by anybody.
Legal Requirement for Celsius
Experts in law and identity say Celsius had to take the step, but that it highlighted the risks associated with trusting a centralized service when dealing with cryptocurrency, especially given the industry’s experience with what is, at best, uneven regulation.
An attorney who heads up Bitcoin.com’s legal and compliance team, Joseph Collement, has said that Celsius’ attorneys did not dox anyone. Celsius was one of the largest crypto-lending platforms and managed about $12 billion in assets before it went bankrupt. It attracted nearly 2 million users by providing rates as high as 17% on deposits.
Celsius behaved like a bank but resisted being regulated as one because of the burden that would place on its business model. Bank customers have the security of bank confidentiality rules on their side. Celsius reclassified its consumers as “creditors,” an exclusive category generally designated for significant financial firms, to sidestep such laws as the FDIC’s requirements.
Collement told Fortune that disclosure of such creditors’ actions is crucial because they pose a systemic danger. Due to Celsius’s user registration, its customers are considered creditors rather than depositors and are therefore entitled to creditor disclosures.
On the surface, this doesn’t make much sense, as Celsius’s consumers aren’t systemically essential like banks’ creditors. He continues to say that they are stuck with the legal framework they have since laws regarding creditor disclosures were not drafted with quasi-crypto banks in mind.
Court Grants Redaction with Certain Conditions
Celsius attempted to have the identities of its customers (or creditors) deleted as part of the bankruptcy proceedings, claiming that doing so would improve the company’s prospects of selling the list as part of its reorganization. At the hearing at the end of September, the judge ruled that Celsius may exclude the home and email addresses of its individual debtors, but that it must publish their names.
A lawyer who talked to Fortune anonymously stated that debtors have to provide the names of any creditors who have received payments or transfers over the past 90 days or the past year, respectively. The fact that Celsius categorized its consumers in an unconventional manner did not make it exempt.
Users Furious Over Celsius Doxxing
Celsius’s inability to secure its consumers is indicative of the perils of centralized crypto platforms, according to Phillip Shoemaker, executive director and CEO of decentralized verification firm Identity.com.
This is problematic, he told Fortune, because blockchain transactions are supposed to by their very nature secure a user’s identify, and it is expected that an individual’s identity is not revealed when working in Web3. Many cryptocurrency users see this move as an attack on decentralization and say Celsius no longer respects their right to anonymity.
Despite Crypto Twitter’s outrage, Celsius’s lack of privacy was not an isolated incident; rather, it was integral to the company’s business strategy and an attempt to cheat the system. With their flaws being exposed in the midst of a market slump, the story shows that many crypto firms’ claim of decentralization is frequently only a façade.
Shoemaker drew a conclusion from this: if a corporation wants to succeed in Web3, it must adopt the ideals of decentralization, security, and transparency that underpin blockchain technology and Web3.
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