Blockchain Financial and Capital Markets Initiatives, U.S. Enforcement Across Agencies, Ethereum Vulnerability Paper Published

In this issue:

Blockchain Capital Markets Platforms Achieve and File for Regulatory Approvals

New Initiatives by Cryptocurrency Exchanges, Payment Platforms and Financial Institutions

U.S. Enforcement Actions Continue from OFAC, SEC, DoJ and IRS

Study of Ethereum Vulnerabilities and Defenses Released, While Dusting and Mining Malware Attacks and Cryptojacking Continue

Blockchain Capital Markets Platforms Achieve and File for Regulatory Approvals

By: Simone O. Otenaike

The Intercontinental Exchange recently received approval from the New York State Department of Financial Services for its emerging bitcoin futures exchange platform, Bakkt. According to reports, Bakkt previously received approval for its bitcoin futures product from the U.S. Commodity Futures Trading Commission through the self-certification process. The recent approval allows Bakkt to hold custody of customers’ bitcoins through its Bakkt Warehouse, which utilizes the same physical and digital protections of the New York Stock Exchange. Additionally, Bakkt may soon allow investors to buy derivatives that pay out with bitcoin. Bakkt recently reported that it aims to promote institutional investment in bitcoin by addressing concerns related to a lack of liquidity, market reliability, regulation, fees and operational risks, with a transparent offering. The first contracts will reportedly be offered Sept. 23, 2019.

Earlier this month, the Financial Industry Regulatory Authority (FINRA) approved the application of Houston-based IOI Capital and Markets, LLC (IOICM). This approval allows IOICM to be a placement agent for digital private securities issued on the blockchain-based platform developed and operated by its parent company. According to reports, the firm’s Iownit platform will seek to digitize the securities issuance, asset life cycle management and secondary trading processes to create an efficient private market for institutional and accredited investors. The firm reportedly plans to act as a placement agent for privately placed digital securities on a permissioned Hyperledger Fabric blockchain.

According to reports this week, Securitize is now the first SEC-registered transfer agent with a working blockchain protocol, active issuers and integrations that allow trading of digital securities on SEC-registered alternative trading systems. Securitize also reportedly offers a transfer verification tool that allows investors to pre-check the transfer of any digital security token powered by its DS protocol.

This week Gibraltar-based cryptocurrency trading platform INX indicated plans to launch a security token initial public offering (IPO). According to the draft prospectus filed with the SEC on Monday, INX plans to raise $130 million through the sale of 130 million INX tokens, which are based on Ethereum’s ERC-20 standard. The prospectus further outlines the firm’s plans for the IPO proceeds – up to $8 million for research and development, up to $2.93 million for sales and marketing, up to $3.2 million for regulatory and legal, and up to $1.6 million for product development. According to reports, INX token holders will not be equity holders but will be entitled to 40 percent of the company’s net cash flow from operating activities.

For more information, please refer to the following links:

New Initiatives by Cryptocurrency Exchanges, Payment Platforms and Financial Institutions

By: Robert A. Musiala Jr.

This week, major U.S.-based cryptocurrency exchange Gemini announced that it has officially launched operations in Australia. According to a press release, Gemini is now available in “49 U.S. states, Washington D.C., Puerto Rico, Canada, Hong Kong, Singapore, South Korea, the United Kingdom, and Australia.” Also this week, Binance, the world’s largest cryptocurrency exchange by volume, announced plans to launch “Venus, an initiative to develop localized stablecoins and digital assets pegged to fiat currencies across the globe.” Binance is reportedly seeking to launch the initiative in partnership with national governments. Some reports have described the initiative as a potential competitor or alternative to the recently proposed Libra project. According to a report published early this week, the Libra project is on the agenda of a delegation of U.S. lawmakers that will visit Switzerland, where the foundation governing Libra is based, to meet with the Swiss Federal Data Protection and Information Commissioner.

This week Lolli, a bitcoin rewards platform, announced a new partnership with a U.S. online food delivery service that will allow users to earn bitcoin when making online purchases. According to another report this week, a luxury condominium complex in Florida has partnered with bitcoin payment processor BitPay to allow purchases of real estate with bitcoin. And new data cited this week indicates that the philanthropic arm of a major U.S.-based multinational financial services firm has received more than $100 million in cryptocurrency donations since 2015.

Blockchain initiatives at two other major financial institutions were reported this week. One involves a major Spanish bank that has expanded its use of a blockchain-based remittance platform. Another relates to a recently published patent application by a U.S. bank that describes a “Multi-Tiered Digital Wallet Security” system that appears aimed at providing increased security and control over cryptocurrency funds.

For more information, please refer to the following links:

U.S. Enforcement Actions Continue from OFAC, SEC, DoJ and IRS

By: Joanna F. Wasick

On Wednesday, the U.S. Office of Foreign Assets Control (OFAC) identified three Chinese nationals and a related entity for allegedly manufacturing fentanyl and other drugs and distributing them to numerous countries, including the United States. As part of the action, the government identified and blocked bitcoin public key addresses associated with the purported drug ring. This marks the second time OFAC has blacklisted cryptocurrency accounts, leading some to remark that the practice will likely become commonplace. Earlier in the week, an individual in California was sentenced to 70 months in prison by a federal judge for crimes related to his purchase and sale of fentanyl and other drugs. As part of his guilty plea, the defendant forfeited millions of dollars in cryptocurrencies, and admitted that these funds were proceeds from drug trafficking and were used in money laundering over the Dark Web.

The Securities and Exchange Commission (SEC) announced this week that ICO Rating, a Russia-based analytics firm, agreed to pay $268,998 to settle charges that the company failed to disclose payments received from issuers for publicizing their digital asset securities offerings. An SEC associate director remarked, “The securities laws require promoters, including both people and entities, to disclose compensation they receive for touting investments …. This requirement applies regardless of whether the securities … are issued using traditional certificates or on the blockchain.” Last week, the Maryland attorney general announced the Maryland Securities Division’s participation in “Operation Cryptosweep,” an initiative of the North American Securities Administrators Association, which, since the beginning of this year, has been involved in 35 enforcement actions against initial coin offerings and related cryptocurrency investment products. In conjunction with that initiative, the Maryland Securities Division began its own enforcement action against a bitcoin trading platform, and a Maryland resident operating on it, for falsely informing investors that they could earn as much as 150% in passive cryptocurrency investments.

According to reports, the Internal Revenue Service (IRS) recently issued a second round of tax warnings to cryptocurrency investors. The letters reportedly informed recipients that their federal tax returns did not match the information received from cryptocurrency exchanges (although the IRS acknowledged that the exchanges may have made errors in reporting). In July, the IRS sent similar letters to more than 10,000 investors, warning that they may owe taxes on cryptocurrency transactions.

For more information, please refer to the following links:

Study of Ethereum Vulnerabilities and Defenses Released, While Dusting and Mining Malware Attacks and Cryptojacking Continue

By: Diana J. Stern

According to reports, late last week a large-scale dusting attack affected almost 300,000 litecoin wallets. By leveraging the divisibility of cryptocurrency, dusting attackers can target certain networks by sending tiny amounts of litecoin, bitcoin and other cryptocurrencies (“dust”) to many different wallets. There can be a number of motives for this kind of attack.

Also this week, it was reported that crypto-mining malware was recently found hidden in popular Ruby code libraries. According to reports, half of the malicious libraries were blockchain-related, and they were downloaded hundreds of times.

An academic paper published last week surveyed Ethereum vulnerabilities, attacks and defenses. Aimed at an audience of researchers, practitioners and students, the paper highlights the need for more secure programming languages. The paper also discussed how Ethereum smart contracts introduce new kinds of vulnerabilities that do not have traditional counterparts. The authors systematize 26 attacks according to layers of the Ethereum architecture, as well as 47 proactive and reactive defenses.

For more information, please refer to the following links:

ICO Enforcement Actions, Applications for Wine and Web Browsers, AML Analyses

Blockchain network concept , Distributed ledger technology , Block chain text and computer connection with blue matrix coded backgroundIn this issue:

Multiple ICO Enforcement Actions by SEC and State Regulators

Blockchain Applications for Enterprise Networks, Wine, Web Browsers and Drones

Blockchain Analytics Firms Publish Reports, Details Emerge on North Korea Investigation

Multiple ICO Enforcement Actions by SEC and State Regulators

 By: Robert A. Musiala Jr.

This week the U.S. Securities and Exchange Commission (SEC) announced that it has settled charges against SimplyVital Health Inc. related to an initial coin offering (ICO) presale, in which the company allegedly raised $6.3 million in an unregistered sale of securities that took place between September 2017 and April 2018. After being contacted by the SEC, SimplyVital canceled its scheduled ICO and voluntarily returned to investors substantially all the funds raised in the unregistered offering.

Also this week, the SEC filed an emergency action in federal court and an application for a temporary restraining order (TRO) against Reginald Middleton, Veritaseum Inc. and Veritaseum LLC, seeking to freeze approximately $8 million of proceeds raised in what the SEC has alleged was a fraudulent ICO scheme and unregistered securities offering that took place in 2017 and 2018. According to the complaint, after being contacted by the SEC, “Defendants moved more than $2 million in remaining Offering proceeds from a blockchain address they controlled into other addresses, and used a portion of those funds to purchase more precious metals.” The TRO application seeks to freeze U.S. dollars held in multiple bank accounts and ether held in multiple Ethereum public key addresses.

In a third ICO-related action this week, the SEC filed a proposed settlement agreement with PlexCorps, the defendant in an SEC enforcement action involving an alleged fraudulent ICO scheme that took place in 2017. Penalties under the settlement agreement include forfeiture of ill-gotten gains, civil penalties of $1 million per individual defendant, injunctions against “engaging in any offering of digital securities,” and barring one individual defendant from serving as a director or officer in a public company.

Late last week, the Texas State Securities Board issued an emergency cease-and-desist order against Forex and Bitcoin Trader. The order alleges Forex and Bitcoin Trader, which advertises on Craigslist Dallas, is misleading investors and falsely claiming to be a licensed broker.

In foreign enforcement news, according to reports, the British tax authority recently contacted several cryptocurrency exchanges to request user information related to tax enforcement actions. Additionally, the U.K. Advertising Standards Authority recently issued a decision in favor of complaints alleging misleading advertising by a foreign-based cryptocurrency exchange.

For more information, please refer to the following links:

Blockchain Applications for Enterprise Networks, Wine, Web Browsers and Drones

By: Simone O. Otenaike

Early this week, a multinational technology firm and an Indian telecommunications firm joined the governance council of Hedera Hashgraph, a public, permissioned blockchain for enterprises. Hedera’s public network reportedly facilitates micropayments and distributed file storage and supports smart contracts for private networks. Governance council members reportedly receive compensation for running nodes.

According to recent reports, a multinational professional services firm will provide the technology support for WiV Technology, a fine wine investment trading platform. WiV’s platform seeks to enable investment trades of bottles and cases of wine and direct shipment from producers to a bonded warehouse with full traceability. The professional services firm has reportedly developed a non-fungible ERC-721 token structure for the platform that will be deployed on the Ethereum blockchain. Each wine case will be allocated a token that has a unique identifier and that stores the wine’s properties, such as origin, quality and value, as metadata on Ethereum. A smart contract will then track the token ownership, provenance and transaction history.

In other recent enterprise news, Brave, a web browser that blocks advertisements by default, is estimated to have more than 226,700 verified publishers that use the platform. According to reports, this is a 1,200% increase in verified publishers over the past year. In related news, a new patent application for a blockchain-based web browser emerged late last week. The application comes from the same multinational technology firm that recently joined Hedera’s governance council. The browser reportedly would collect prespecified information from web browsing sessions, such as websites visited, bookmarks, task performance, geolocation, plug-in installation and security patches, and then transfer the information to a network of peer-to-peer nodes for collection and storage.

Two blockchain patent applications from a multinational retail firm were recently published by the United States Patent and Trademark Office. The first patent application deals with an unmanned aerial vehicle (UAV) blockchain-based coordination system, while the second patent application deals with a digital currency application. According to reports, the blockchain-based coordination system will be used to transmit key UAV information, such as identification numbers, flight heights, flight speeds, flight routes, battery information and loading capacity, to other UAVs. The firm reportedly sought a patent for a blockchain-based drone package delivery system in 2017.

To read more about the topics covered in this week’s post, see the following:

Blockchain Analytics Firms Publish Reports, Details Emerge on North Korea Investigation

By: Robert A. Musiala Jr.

This week CipherTrace published its Q2 2019 Cryptocurrency Anti-Money Laundering Report. According to the report, approximately $4.26 billion in cryptocurrency funds have been lost in the first half of 2019 to various criminal activities including cyberthefts, scams, misappropriation and insider fraud. The report notes that hacks alone have resulted in $227 million in cryptocurrencies stolen from exchanges in the first half of 2019, and “exchange and infrastructure thefts” totaled more than $480 million. The report provides details on multiple 2019 trends related to global criminal activity, enforcement actions, regulatory developments and industry initiatives.

Late last week, Elliptic published the Elliptic Data Set, which is a “sub-graph” of the Bitcoin transaction graph. The dataset comprises “203,769 nodes and 234,355 edges,” while the full Bitcoin transaction graph “is made of more than 438 million nodes and 1.1 billion edges.” According to a press release, “[t]he task on the dataset is to classify the illicit and licit nodes, given a set of features and the graph topology.” The press release notes that “[t]wo percent (4,545) of the nodes are labelled class1 (illicit); twenty-one percent (42,019) are labelled class2 (licit)” and the remaining nodes “are classified as ‘unknown.’” According to the press release, Elliptic published the dataset “with the hope that it will inspire the academic and crypto community to help build a safer financial system based on crypto currencies.”

According to cryptocurrency analytics firm Clain, approximately 4,836 bitcoins (valued at over $50 million) that were stolen from the cryptocurrency exchange Binance were recently sent to Chipmixer, a bitcoin “tumbler” that obfuscates the origin of funds on the Bitcoin blockchain. According to the report, “[b]ecause of this huge volume, it is correct to assume that any outflow coming from Chipmixer these days is likely related to the same owner.”

This week more details emerged on an ongoing United Nations investigation into North Korean cyberattacks. According to reports, the primary operations of the hackers include stealing cryptocurrency “through attacks on both exchanges and users” and “mining of cryptocurrency as a source of funds for a professional branch of the military.” Another report published this week provided details on a new type of crypto-mining malware attack that “employs evasion techniques to hide from analysis and avoid discovery.”

For more information, please refer to the following links:

Blockchain Solutions Announced for Financial Services and Supply Chain, ICO Enforcement Actions Continue at State and Federal Levels

In this issue:

Blockchain Payment Solutions, Patents and Market Data Announced

Blockchain Supply Chain Pilots Announced Across Industries, New Studies Published

ICO Enforcement Actions Continue Amid Tax Bill, Senate Hearing and UN Report

Blockchain Payment Solutions, Patents and Market Data Announced

By: Diana J. Stern

Late last week, a major U.S. financial services firm made headlines with several blockchain-related developments. The first relates to a credit card that will be offered by cryptocurrency lending startup Nexo that would provide a revolving line of credit backed by the card holder’s cryptocurrency assets. In addition, the same financial services firm announced a partnership with an iconic clothing retailer to showcase its blockchain-based provenance solution at the retailer’s flagship store in California. The solution seeks to tackle the multibillion-dollar online counter-fitting problem by allowing customers to scan a QR code and view the product journey of limited-edition fashion items.

A major U.K.-based financial services firm announced two blockchain developments this week: one for supply chain finance and another for cross-border letters of credit for the oil industry. The firm and its strategic partner Linklogis provided the supply chain solution to digital government services provider Digital Guangdong, a joint venture among several Chinese firms. The letter of credit was executed as a pilot transaction for an oil shipment from Thailand to Singapore using the Voltron blockchain platform.

Two notable blockchain patents targeted at financial services and capital markets were announced this week. A multinational retail corporation and one of the world’s largest companies filed for a patent related to a fiat-backed stablecoin. Also, a different retail giant’s subsidiary, tZERO, was awarded a patent for the Time Ordered Merkle Epoch methodology. According to a press release, the solution can link the settlement of tokenized blockchain-based securities on a public blockchain to legacy trading systems.

According to earnings reports published this week, the Cash App of a major U.S. financial services and mobile payments company brought in $125 million in bitcoin sales in the second quarter of 2019 – almost doubling its record-breaking first quarter. Another report published this week found that 318 addresses hold approximately 80% of the stablecoin Tether. The report explained that this concentration of ownership increases risk for all cryptocurrency users because many exchanges are dependent on Tether for liquidity.

For more information, please refer to the following links:

Blockchain Supply Chain Pilots Announced Across Industries, New Studies Published

By: Simone O. Otenaike

Early this week, a multinational technology firm launched Trust Your Supplier, a new blockchain network designed to improve supplier qualification, validation, onboarding and life cycle information management in the supply chain industry. Leading technology, telecommunications, pharmaceutical, beverage and manufacturing firms have already joined the network as founding participants. The same multinational technology firm also recently partnered with a California-based technology firm to pilot a blockchain project that will track hard drives through the supply chain. The multinational technology firm is both the customer of these drives and the provider of the underlying blockchain platform. According to reports, the supply chain solution will track products sold to the customer and products returned to the supplier to ensure that only genuine devices, rather than counterfeit ones, are returned.

Late last week, a global automobile manufacturer announced production of the first cars containing recycled cobalt verified through blockchain technology. The manufacturer also announced plans to join a separate project to track cobalt from the Democratic Republic of Congo. In more supply chain news, a major wine importer in China, in conjunction with VeChain, launched the second phase of the Wine Traceability Platform to combat wine counterfeiting. In the new phase, each wine bottle has an encrypted tag that allows customers to access immutable product information stored on the blockchain. According to reports, since the platform’s launch, 20-plus imported wine products have been made available on the platform and the importer has seen a 10% increase in wine sales.

The UCL Center for Blockchain, in conjunction with the Retail Blockchain Consortium, recently released a market report surveying the adoption of blockchain in the supply chain industry. The report reviewed over 100 projects and notes that 15% of projects analyzed have moved into the production stage. Another recently released report comes from a multinational professional services firm and evaluates blockchain use cases in the insurance industry.

For more information, please refer to the following links:

ICO Enforcement Actions Continue Amid Tax Bill, Senate Hearing and UN Report

By: Joanna F. Wasick

Earlier this week, cease and desist orders were issued against two online investment entities, Zoptax LLC and Unocall, as part of an ongoing effort coordinated by the North American Securities Administrators Association (NASAA), a task force comprised of North American state and country officials working together to stop fraudulent initial coin offerings (ICOs) and cryptocurrency-related investment schemes. NASAA was organized in April 2018. Since January, its members have initiated over 130 investigations into ICOs and similar products, and completed 35 enforcement actions.

Also this week, Kik Interactive Inc. (Kik), a defendant in an ICO-related enforcement action initiated by the U.S. Securities and Exchange Commission (SEC), denied conducting an unregistered securities offering. Kik stated in its filed response that the SEC “twisted the facts” in its complaint. The SEC began the action in June, asserting that Kik’s sale of Kin, Kik’s digital token, constituted the sale of unregistered securities. Kik sold $100 million worth of Kin in 2017; $55 million was purchased by U.S. investors.

In late July, a bill aimed at alleviating cryptocurrency investors’ tax burden was introduced by U.S. Congressman Ted Budd. The bill would ensure that the exchange of one cryptocurrency for another would be treated the same way as like-kind exchanges of real property. On July 30, the U.S. Senate Committee on Banking, Housing and Urban Affairs held a hearing on regulatory frameworks for cryptocurrencies and blockchain. The Congressional Research Service published its prepared testimony for the hearing, which stressed the need for harmonization of global cryptocurrency regulations. Also this week, the United Nations issued a report finding that North Korea has generated $2 billion through cyberattacks targeting banks and cryptocurrency exchanges. The proceeds are reportedly being used to fund the country’s weapons program.

For more information, please refer to the following links:

Crypto Exchange and Payment Solutions Expand, New UK Guidance Issued, US Enforcement Actions Continue

In this issue:

Cryptocurrency Exchange and Payment Solutions Continue to Expand

New UK Guidance Published, Licenses Received by Cryptocurrency Firms Across Globe

Cryptocurrency Enforcement Actions Continue From IRS and DOJ

Cryptocurrency Exchange and Payment Solutions Continue to Expand

By: Nicholas C. Mowbray

This week, Blockchain.com, a London-based supplier of digital wallets, announced that it is moving into the trading side of cryptocurrencies with a London-based exchange. The exchange will offer Bitcoin, Ether, Bitcoin Cash, Tether Litecoin and Paxos Standard (PAX), with customers being able to deposit funds immediately and trading to begin shortly thereafter. This week Bittrex announced that it is partnering with a Bahrain-based cryptocurrency exchange and custodian to launch a digital asset trading platform for customers in the Middle East and North Africa. The platform will offer all tokens that are currently available on Bittrex, including four bitcoin trading pairs with local fiat currencies.

This week Prime Trust, a crypto custodian and trust company, issued a press release announcing new features that reportedly allow its account holders to “instantly transfer any crypto asset with other account holders in real time.” Another announcement this week provided details on a partnership between bitcoin rewards company Lolli and a major U.S. grocery store chain. The partnership will allow users of the rewards company to receive fractional amounts of bitcoin for all online purchases the users make with the grocery chain. It marks the first major collaboration between a major grocery chain and a bitcoin rewards company in the United States. A final development on cryptocurrency payments comes from Brazil, where the city of Fortaleza is reportedly exploring an option to allow bitcoin payments on its public transportation network.

In the traditional financial services sector, this week one of the world’s largest money transfer platforms announced a two-year partnership with a well-known blockchain technology payments and remittance firm. The partnership will reportedly include cross-border payments and foreign exchange settlements via digital assets, with the goal of providing increased liquidity and settlement. In related news, an international bank this week announced the launch of a payment-focused stablecoin pegged to the Philippine peso. The stablecoin is intended to provide transparency and automate payment executions by resolving reconciliation issues and easing audit and compliance issues.

For more information, please refer to the following links:

New UK Guidance Published, Licenses Received by Cryptocurrency Firms Across Globe

By: Robert A. Musiala Jr.

This week the UK Financial Conduct Authority published its Guidance on Cryptoassets Feedback and Final Guidance to CP 19/3, which “aims to give market participants and interested stakeholders clarity on the types of cryptoassets that fall within the FCA’s regulatory remit and the resulting obligations.” This “Final Guidance” defines three key categories of cryptoassets: “exchange tokens” for buying and selling goods and services; “utility tokens” for accessing a product or service; and “security tokens,” which provide rights and obligations akin to specified investments. Elsewhere in Europe, beginning Jan. 1, 2020, German cryptocurrency-related businesses such as exchanges and wallet providers will be required to be licensed by the German Federal Financial Supervisory Authority (BaFin) and comply with AML regulations.

In Switzerland this week, Aximetria, which offers a personal finance app for cryptocurrencies, was reportedly awarded a license from the Swiss Financial Services Standards Association (VQF), which allows the firm to start operations as a crypto financial intermediary under the Swiss Anti-Money Laundering Act. In another report from Switzerland, Zug-based startup Smart Valor has announced a new exchange operating from both Switzerland and Liechtenstein that will provide custody, trading and brokerage services.

In Gibraltar this week, Quedex announced that it was granted a Distributed Ledger Technology (DLT) Providers license for trading of cryptocurrency derivatives and for custody of cryptocurrencies by the Gibraltar Financial Services Commission. According to reports, this makes Quedex “the first regulated entity of its kind globally.” In Bermuda this week, XBTO International (XBTOI) became the third firm to receive a Bermuda Monetary Authority License under Bermuda’s 2018 Digital Asset Business Act.

Finally, in the U.S., a press release this week announced that startup ALTA has been accepted into the Arizona Attorney General’s Office FinTech program. According to the press release, ALTA is seeking to launch a service that would allow cash-intensive businesses “to pay each other for goods and services using a proprietary blockchain-based, U.S. dollar-backed stablecoin digital asset instead of cash.”

For more information, please refer to the following links:

Cryptocurrency Enforcement Actions Continue From IRS and DOJ

By: Joanna F. Wasick

The IRS is prioritizing tax compliance for cryptocurrency investors. According to reports, last week the agency began sending letters to thousands of U.S. taxpayers warning of potential civil and criminal enforcement action if they do not amend their returns to accurately report any cryptocurrency-related income. “Taxpayers should take these letters very seriously by reviewing their tax filings and when appropriate, amend past returns and pay back taxes, interest and penalties,” IRS Commissioner Chuck Rettig said in a statement. He further emphasized that the IRS is increasing its use of data analytics to expand its efforts involving this space.

Late last month in California, BTC-e, a now-defunct cryptocurrency exchange, and Alexander Vinnick, a Russian national and BTC-e senior executive, were indicted for money laundering, operating an unlicensed exchange and unlawful money services business, and other related charges. BTC-e reportedly touted itself as an anonymous way to trade cryptocurrency and, over its six years in operation, reportedly served 7,000,000 users who traded over $296 million worth of assets. The government charges that a significant amount of those assets were proceeds from illegal activity. The defendants face penalties of over $100 million. Vinnick is currently detained in Greece, with both the U.S. and Russia seeking his extradition.

The U.S. Attorney’s Office of the Southern District of New York recently announced charges against Jon Barry Thompson, the principal of the cryptocurrency escrow company Volantis Escrow Platform LLC (Volantis). According to the government, Thompson induced investors to transfer millions of dollars to Volantis for further investment into cryptocurrencies. However, Thompson allegedly stole the funds instead of investing them. He faces up to 60 years in prison. Also in New York, Lawrence Ross was arrested for charges related to the importation, manufacture and distribution of over 10 kilograms of ecstasy and over 45 grams of methamphetamine. According to the government, Ross sold the drugs through the Dark Web and Wickr (an instant messenger application), distributed them through the U.S. mail, and accepted bitcoin as payment.

For more information, please refer to the following links:

SEC Issues No Action Letter, Pilots Announced Across Industries, U.S. Enforcement Agencies Remain Active

In this issue:

SEC Issues No-Action Letter, Financial Services Firms and Major Exchanges Make Moves, New Products Launched in Europe

New Pilots Announced for Voting, Autonomous Vehicles and Digital

Multiple U.S. Enforcement Actions Target Cryptocurrency Crimes

SEC Issues No-Action Letter, Financial Services Firms and Major Exchanges Make Moves, New Products Launched in Europe

By: Robert A. Musiala Jr.

This week, the U.S. Securities and Exchange Commission (SEC) issued to Pocket Full of Quarters Inc. (PoQ) a no-action letter related to PoQ’s distribution of its Quarters product, an ERC20 token. The SEC Division of Corporation Finance stated that it will not recommend enforcement action based on offers and sales of Quarters that take place without PoQ registering the Quarters under Section 5 of the Securities Act and Section 12(g) of the Exchange Act. This is only the second no-action letter issued by the SEC related to a blockchain token distribution event.

According to reports, late last week the “crypto arm” of a major U.S. financial services firm filed an application to become a New York trust. This would allow the firm to expand its digital asset custody business to serve institutional clients in New York state. Another report this week highlighted a recently published patent application by a major U.S. financial services firm that describes a blockchain-based settlement system for interbank transactions.

This week, a major U.S. cryptocurrency exchange announced plans to move a majority of its operations offshore to Bermuda, becoming the first major cryptocurrency exchange to receive a “Class F” license under the Bermuda Digital Assets Business Act of 2018. The move was reportedly taken due to regulatory pressures and the lack of regulatory frameworks in the U.S. The world’s largest cryptocurrency exchange by volume, Binance, recently announced the launch of a new stablecoin, Binance GBP, that will be backed 1:1 by British pounds. Binance GBP will be offered by Binance Jersey, the exchange’s Jersey-based platform.

This past Tuesday, a German blockchain startup, Fundament, received approval from Germany’s financial regulator to issue what is being reported as Germany’s first tokenized real estate-backed bond that is approved for offer to individual investors. According to reports, the Fundament tokens will be ERC20 tokens that will be available for purchase with bitcoin, ether, U.S. dollars or euros. In more news from Europe, a Norwegian air carrier has announced plans to begin allowing customers living in Norway to purchase airline tickets using bitcoin. According to reports, the air carrier also plans to launch its own cryptocurrency exchange.

For more information, please refer to the following links:

New Pilots Announced for Voting, Autonomous Vehicles and Digital

By: Simone O. Otenaike

Utah County is the latest governmental entity to pilot Voatz, a blockchain-based mobile application for voting. According to reports, the county will offer the blockchain-based voting platform to active-duty military, their eligible dependents and overseas voters during its August municipal primary election. To date, Voatz has conducted more than 40 pilots, including municipal elections in Denver and two primary elections in West Virginia.

Early this week, a German multinational automotive firm announced plans to partner with Riddle & Code to create a hardware wallet for automobiles. According to reports, the wallet creates a cryptographic identity for vehicles and could offer autonomous and semiautonomous vehicles the ability to relay traffic patterns in real time, integrate with smart city infrastructure, transfer accident information to authorities and insurance providers, and verify vehicle maintenance.

Also this week, a major American newspaper, in conjunction with a multinational technology firm, launched the News Provenance Project, a research initiative that evaluates the use of blockchain technology to track and validate the provenance of digital media. The initiative reportedly aims to build an immutable record for each image published by an established news organization. The record will reportedly include metadata, detailed tamper-evident history, and a “visual signal” that will link to the original source, context and full journey of the image.

A recent report on blockchain patents indicates that the compound annual growth rate of blockchain-related patents from 2013 to 2018 is estimated to be 285.6%. As of April 30, 2019, reportedly 14,035 blockchain-related patent applications are on file, with roughly 62% of the applications originating in China and roughly 22% of the applications originating in the U.S.

To read more about the topics covered in this week’s post, see the following:

Multiple U.S. Enforcement Actions Target Cryptocurrency Crimes

By: Joanna F. Wasick

The U.S. Commodity Futures Trading Commission (CFTC) has reportedly been investigating whether BitMEX (a cryptocurrency exchange based in Hong Kong, registered in the Seychelles but unregistered in the U.S.) violated securities rules that prohibit transactions by Americans. While BitMEX bars trading by U.S. residents and nationals, some have allegedly skirted the ban by masking their location and assigning their computers an internet protocol address from a country where use of BitMEX is permitted. In related news, Treasury Secretary Steven Mnuchin recently announced that U.S. regulators will likely issue new rules on cryptocurrencies to prevent their negative impact on the overall financial system. Mnuchin emphasized concerns that cryptocurrencies were being used for criminal activity.

In New York last week, the U.S. attorney announced the arrest of Hugh Brian Haney for laundering, through cryptocurrencies, more than $19 million of proceeds made from illegal drug sales conducted on the “Silk Road,” the infamous Dark Web site that was shut down in 2013. The U.S. attorney’s office stated, “Today’s arrest should be a warning to dealers peddling their drugs on the dark web that they cannot remain anonymous forever.”

Last week, the New Jersey attorney general filed a lawsuit against Pocketinns Inc., a New Jersey-based blockchain online rental marketplace, and its president, Sarvajnya G. Mada. The complaint alleges that the defendants sold more than $400,000 in unregistered securities called PINNS Tokens. While defendants represented that the tokens were sold pursuant to a registration exemption for sales to accredited investors, the government charges that the defendants failed to take reasonable steps to ensure that investors met this criteria. Also, in New Jersey, William Green was charged earlier this week with operating an unlicensed money-transmitting business by operating a website, Destination Bitcoin, through which Green would receive customers’ funds and convert them into bitcoin for a fee. Officials charge that Green never obtained the proper licenses for his money-transmitting business. He faces a maximum penalty of five years’ imprisonment and a $250,000 fine.

Israeli enforcement agencies indicted Eliyahu Gigi last week for allegedly stealing NIS 6.1 million ($1.75 million) in cryptocurrencies from various foreign citizens. Gigi allegedly created and managed a criminal enterprise involving numerous websites through which he distributed software enabling him to access victims’ computers and steal their cryptocurrency.  Gigi also was charged with various tax-related crimes. In South Korea, the government recently issued a report finding that nearly 2.7 trillion won ($2.3 billion) has been lost to cryptocurrency-related crimes, including Ponzi schemes, embezzlement, illegal exchange transactions and other scams. The total did not include losses caused by exchange hacks.

For more information, please refer to the following links:

Crypto and Blockchain Markets Signal Growth Amid Regulator Skepticism, Hacks and Sanctions Warnings

shiny bitcoins with stock market background.In this issue:

Cryptocurrency Exchanges Obtain New Licenses Across Globe Amid Market Growth

Corporations Continue New Blockchain Pilots, New Market Projections Released

Libra Faces Skepticism, Virtual Commodity Organization Launches, French Law Set to Take Effect

Exchange Hacked, Analysts Warn on Sanctions, Miners Targeted in Iran and China

Cryptocurrency Exchanges Obtain New Licenses Across Globe Amid Market Growth

By: Joanna F. Wasick

The New York State Department of Financial Services (DFS) announced early this week that it approved a virtual currency license for Seed Digital Commodities Market LLC (SCXM), and a virtual currency license and a money transmitter license for Zero Hash LLC. Both companies are subsidiaries of Seed CX Ltd. SCXM will serve as a matching engine and platform for cryptocurrency buyers and sellers. Zero Hash will function as the money transmitter for SCXM’s trading activity. In the announcement, DFS noted it has now approved more than 20 virtual currency businesses. In Europe, Prasos Ltd., a Finland-based cryptocurrency brokerage and exchange firm, was granted a Payment Institution License, enabling it to offer specific fiat currency payment services and to have a customer fund account from a Finnish credit institution. Prasos is only the third cryptocurrency firm in Europe to receive this license.

The Japanese government has reportedly taken major steps to establish an international network for cryptocurrency payments, similar to the SWIFT network used by banks. A person purportedly familiar with the plan stated that it has already been proposed by Japan’s Ministry of Finance and its national regulator, the Financial Services Agency (FSA), and was approved for oversight by the Financial Action Task Force. In related news, the FSA recently announced that 110 cryptocurrency exchanges are in various stages of registration with the Japanese government. This marks a significant change – in 2018, the FSA approved zero such exchanges, and in 2017, approved only 16.

According to a recent report, as of mid-July, the Bitcoin network is moving over $3 billion daily on average – a 210% rise since April. The spike in volume is significantly higher as compared with other cryptocurrencies, such as Ether (which saw a 77% increase over the same time period) and XRP (up 61%).

For more information, please refer to the following links:

Corporations Continue New Blockchain Pilots, New Market Projections Released

By: Diana J. Stern

Name-brand food and telecommunications conglomerates recently announced that they have joined a pilot program to test whether blockchain technology can provide end-to-end supply chain transparency for digital ad spend. The Joint Industry Committee for Web Standards (JICWEBS), a British United digital ad trading standards body, developed the pilot that was first announced in May.

Late last week, the fifth-largest oil and gas company in the world invested in New York blockchain startup LO3. LO3’s Ethereum-based platform, Exergy, aims to facilitate markets for locally produced energy, like windmills or solar panels, where individuals can verify the energy they purchased came from those sources. According to reports, the platform will require tokens; and while LO3’s ICO plans are on hold, the oil and gas investor has the option to convert its investment into tokens when Exergy is launched.

According to a crypto media outlet, a major global technology company has increased its blockchain-related patents by more than 300% this year, with 108 active patent families. In other news, a multinational automation company is reportedly investigating enterprise use cases for blockchain technology, particularly permissioned blockchains, in areas including mobility, supply chain and manufacturing.

A new research report revealed that while blockchain and the self-sovereign identity movement are experiencing an average yearly growth of 35%, less than 10% of dedicated identity apps are expected to use blockchain by 2023. Another recent report projects that the global blockchain and healthcare market will reach more than $1.7 billion in value by 2026.

For more information, please refer to the following links:

Libra Faces Skepticism, Virtual Commodity Organization Launches, French Law Set to Take Effect

By: Robert A. Musiala Jr.

This week, David Marcus, the blockchain lead of the social media giant that intends to launch its own cryptocurrency, Libra, testified in two separate hearings before the United States Senate Committee on Banking, Housing, and Urban Affairs and the United States House of Representatives Financial Services Committee. The day before the first hearing, the U.S. House of Representatives Financial Services Committee circulated draft legislation, titled “Keep Big Tech Out Of Finance Act,” that would prevent large technology firms from acting as financial institutions or issuing digital currencies. Also, U.S. Treasury Secretary Steven Mnuchin held a press conference on the day before the first hearing, where he discussed money laundering and terrorist financing risks related to cryptocurrencies. Later in the week the president of the G7 group of advanced economies held a press conference, where he cited “serious regulatory and systemic concerns” related to Libra.

Late last week, a group of four major cryptocurrency exchanges – Gemini, bitFlyer, Bittrex and Bitstamp – announced the formation of the Virtual Commodity Association, a new self-regulatory organization for the cryptocurrency exchange industry. And in France, the country’s Financial Markets Authority recently took steps toward approving the first group of companies that will operate under a new legal framework, set to take effect at the end of July, that is intended to attract cryptocurrency and blockchain-related businesses to France by simplifying and clarifying applicable regulations.

For more information, please refer to the following links:

Exchange Hacked, Analysts Warn on Sanctions, Miners Targeted in Iran and China

By: Simone O. Otenaike

According to a recent report, late last week Japanese crypto-exchange Bitpoint lost $32 million in a hack involving XRP, Bitcoin (BTC), Litecoin (LTC), Ether (ETH) and other cryptocurrencies. After news of the incident, Bitpoint’s parent firm reportedly shed 19% of its shares. In related news, a recent analysis by Coinfirm illustrates the movement of bitcoin stolen from the recent Binance hack into exchanges and potentially into other cryptocurrencies. The Binance hackers have reportedly been able to liquidate at least 1.8087 BTC (21,000.00 USD) on several exchanges.

In a recent report on blockchain technology and economic sanctions, analysts predict that cryptocurrencies may reduce the effectiveness of U.S. economic sanctions, which depend on traditional banks to monitor compliance. Currently, U.S. sanctions can still reach businesses in the cryptocurrency and blockchain space because many blockchain ventures still depend on fiat currency and conventional bank accounts; but the analysts warn that blockchain technology may eventually enable U.S. adversaries to operate entire economies outside of the traditional financial system if regulators cannot harmonize the technology with the traditional financial sector.

According to a recent report, the Iranian government is taking steps to prevent individuals from moving their money from the rial into other currencies, including bitcoin. Iranian government officials are also reportedly concerned that bitcoin miners are abusing Iran’s system of subsidized electricity to earn bitcoin by mining at significantly lower electricity costs. In China, late last week Chinese authorities arrested 22 people and seized roughly 4,000 computers used for bitcoin mining after a local power company reported abnormal electricity usage. The suspects allegedly used theft devices to dodge the power bill and stole power worth nearly 20 million yuan for their bitcoin mining enterprise.

To read more about the topics covered in this week’s post, see the following:

Reg A+ Token Offerings Approved, Custody Guidance Issued, Supply Chain Pilots Announced, Regulators Take Action

In this issue:

SEC Issues Statement on Digital Asset Custody, Approves First Reg A+ Token Offerings

More Pilots Emerge for Food Supply Chain and Academic Records, Cargo Solutions Gain Momentum

US and International Regulatory Oversight of Cryptocurrency Poised for Expansion

SEC Issues Statement on Digital Asset Custody, Approves First Reg A+ Token Offerings

By: Robert A. Musiala Jr.

This week the U.S. Securities and Exchange Commission (SEC) and the U.S. Financial Industry Regulatory Authority (FINRA) issued a “Joint Staff Statement on Broker-Dealer Custody of Digital Asset Securities.” Among other things, the statement highlights the importance of the Customer Protection Rule, which “… requires broker-dealers to safeguard customer assets and to keep customer assets separate from the firm’s assets, thus increasing the likelihood that customers’ securities and cash can be returned to them in the event of the broker-dealer’s failure.” The statement provides details on the issues faced by broker-dealers seeking to trade in blockchain-based assets. According to the statement, “[t]he specific circumstances where a broker-dealer could custody digital asset securities in a manner that the Staffs believe would comply with the Customer Protection Rule remain under discussion, and the Staffs stand ready to continue to engage with entities pursuing this line of business.” The statement also provides examples of noncustodial broker-dealer activities that would not implicate the Customer Protection Rule.

In other news from the SEC, this week the first two blockchain token offerings in U.S. history were approved under the SEC’s Regulation A+ registration exemption. Two blockchain startups, Blockstack and Props, were qualified by the SEC under Reg A+ and will be allowed to sell their “Stack” and “Props” tokens, respectively, to nonaccredited investors, within certain limits. Another recent approval of note was received by ErisX, which just before the July Fourth holiday was granted a derivatives clearing organization license by the Commodity Futures Trading Commission. Along with these new approvals, venture capital remains a strong source of support for the blockchain industry, with a recent report finding that blockchain startups have raised $822 million in 279 separate venture capital deals in the first half of 2019.

Overseas, the U.K. Financial Conduct Authority (FCA) recently proposed new rules that would ban the sale of “crypto-derivatives” to retail consumers. In a press release, the FCA noted concerns related to market abuse, financial crimes, price volatility and a lack of a reliable valuation basis. Around the same time, the FCA approved the first “cryptocurrency hedge fund” as a “full-scope Alternative Investment Fund Manager.” And in more news from the U.K., one of the world’s largest insurance brokers and a major international charity organization announced a project with a tech startup to deploy a blockchain-based platform for delivering “micro-insurance” to smallholder farmers in Sri Lanka.

For more information, please refer to the following links:

More Pilots Emerge for Food Supply Chain and Academic Records, Cargo Solutions Gain Momentum

By: Simone O. Otenaike

A leading company in the door-to-door sale and distribution of frozen foods to consumers recently announced plans to implement a multinational professional services firm’s blockchain solution. The solution will reportedly allow the company’s customers to use their smartphones to scan a QR code on the packaging and review the products’ details for each step of the supply chain from harvest to point of sale. The company intends to pilot the solution with fillets of Northern cod and artichoke heart wedges. Separately, one of the largest food companies in the world also recently announced plans to implement a blockchain solution that would allow consumers to ascertain and certify sourcing facts and product quality. A blockchain solution for the honey supply chain is also reportedly in the works. An American multinational computer technology firm announced plans to partner with the World Bee Project to launch a “BeeMark” label that will designate honey that comes from verifiable organic and sustainable sources. The partnership also will implement data science and install monitoring systems inside beehives to monitor environmental factors and track bee behavior to research population decline. According to a study published this week, the global blockchain supply chain market is expected to reach over $9 billion by 2025.

Two major ocean carriers have announced plans to join the blockchain-enabled digital shipping platform TradeLens. With these additions, the scope of the platform reportedly extends to more than half of the world’s ocean container cargo and supports five of the world’s six largest carriers. According to reports, TradeLens replaces peer-to-peer paper-based exchanges with a platform that enables participants to digitally connect, share information and collaborate across the shipping supply chain ecosystem. Also last week, a major Dutch bank, the Port of Rotterdam and a South Korean-based global technology firm successfully completed the first paperless and fully door-to-door tracked shipments with the blockchain-based DELIVER platform. According to the press release, DELIVER aims to integrate container tracking and the documentation of financial transactions through a secure and paperless logistics process.

A multinational professional services firm recently announced plans to extend its current Health Outcomes Assessment platform with a U.K.-based digital health company and an Amsterdam-based software security company. The platform reportedly provides a blockchain solution for outcomes-based contracting, an emerging concept that purportedly leads to fairer reimbursement and access to novel treatments for patients. Also in recent news, one of the largest public research institutions in the U.S. announced plans to use blockchain for academic record data sharing. The solution seeks to solve the pain point of interoperability of academic records across institutions and would allow participating institutions to securely exchange and verify academic credentials.

To read more about the topics covered in this week’s post, see the following:

US and International Regulatory Oversight of Cryptocurrency Poised for Expansion

By: Brian P. Bartish

Noting serious privacy, money laundering, consumer protection and financial stability concerns, U.S. Federal Reserve Chairman Jerome Powell announced plans for a working group that will track the forthcoming cryptocurrency Libra. Despite uncertainty regarding the Fed’s authority over the project, Powell’s comments that the project “cannot go forward” until such concerns are addressed were followed by a decrease in the price of bitcoin (2.4% lower) and a slight hit to the share price of the social networking company spearheading Libra’s development (although the price recovered shortly thereafter).

A recently disclosed IRS presentation detailed new tactics, including potential Grand Jury subpoenas of leading software providers, that the agency may employ to obtain user records to aid the agency’s efforts to identify criminal tax activity involving cryptocurrency. The disclosure comes amid calls for greater transparency regarding the IRS’s treatment of cryptocurrency, as Congressman Tom Emmer reintroduced legislation to prohibit penalties on owners of “forked” digital assets until the IRS issues guidance on reporting requirements for those assets. A “fork” event is when one blockchain is split into two, resulting in two separate digital assets (such as bitcoin and bitcoin cash).

Internationally, Canada published updates to its anti-money laundering rules this week that will require Canadian and foreign cryptocurrency platforms to register as money services businesses with the Financial Transactions and Report Analysis Centre of Canada and implement full anti-money laundering and countering terrorist financing compliance programs. Canada’s action is part of what Ciphertrace is predicting to be a significant wave of international cryptocurrency regulation aimed at combating a range of cryptocurrency-related crimes and threats, including exchange thefts, fraud and exit scams, which totaled more than $1.2 billion in 2019 Q1 alone. A recent analysis by Chainalysis determined that bitcoin’s use in illegal online marketplaces is set for a record year of more than $1 billion; however, the proportion of bitcoin transactions for illicit purchases, such as drugs or child pornography, appears to be declining.

For more information, please refer to the following links:

Capital Markets Integrate Crypto and Blockchain, New FATF Guidance, US City Pays Bitcoin Ransom and More

In this issue:

CFTC Approves Bitcoin DCM, New Bitcoin ETF Proposed, Crypto IRA and Blockchain Depository Receipts Introduced

Fintech Companies Expand Cryptocurrency Gateways, Analysis of Kin Token Published

FATF Releases New Cryptocurrency Guidance, International Arrests in Crypto Crimes

Exchange Hacks, US City Pays Bitcoin Ransom, Fraudulent Libra Sites Emerge

CFTC Approves Bitcoin DCM, New Bitcoin ETF Proposed, Crypto IRA and Blockchain Depository Receipts Introduced

By: Simone O. Otenaike

The Commodity Futures Trading Commission (CFTC) has announced approval of LedgerX’s registration as a designated contract market (DCM) under the Commodity Exchange Act and CFTC regulations. According to reports, LedgerX will allow consumers based in the U.S. or Singapore to trade on its bitcoin derivatives exchange starting in July. As a DCM, LedgerX will offer Bitcoin derivatives contracts, including options and futures, to retail clients of any size. Prior to approval, LedgerX was registered with the CFTC as a swap execution facility and derivatives clearing organization. Bitcoin derivatives exchanges are reportedly seeing record trading volumes in the market driven by institutional traders.

Also this week, the U.S. Securities and Exchange Commission (SEC) published a rule change proposal that would allow Wilshire Phoenix Funds to list shares of an exchange-traded fund (ETF) backed by bitcoin and Treasury bills on the NYSE Arca exchange. According to reports, a fund manager will manage the trust and invest exclusively in bitcoin and short-term U.S. Treasury securities. The SEC is currently seeking public comments on the proposed rule change and has 45-90 days from official publication in the Federal Register to approve, disapprove or take other action on the proposed rule.

Bitcoin IRA, in partnership with BitGo Trust, reportedly launched the first self-directed cryptocurrency Individual Retirement Account on Tuesday. The retirement account claims to offer $100 million in insurance protection, a 30% percent reduction on wallet fees and 12 different digital assets for customers to diversify their holdings. According to Bitcoin IRA’s CEO, the company exceeds regulators’ requirements for asset capitalization and insurance.

BlockState, a Swiss-based security token firm, recently announced plans to issue six ERC20 tokens from Ethereum, one of the largest public blockchains, on the private R3 Corda blockchain. The tokens will be secured in a smart contract on Ethereum, and “mirrored” versions of the tokens will run on Corda – the process is reportedly similar to that of global depository receipts, where shares of a company are held in custody in one country and a certificate representing ownership of the shares are traded in another country. The transfer or move will take place on R3’s network that is currently in development for the Swiss Digital Exchange (SDX), which is part of SIX, Switzerland’s national stock exchange and the world’s 13th-largest stock exchange.

Also this week, a Chicago-based financial services firm agreed to transfer its private equity asset blockchain platform to a US-based publicly traded corporate services firm. According to a press release, the corporate services firm will develop the platform as an industrywide private equity blockchain solution that provides data and analytics tools for the complex private equity lifecycle. The solution will be available to all private equity funds domiciled in Guernsey and Delaware.

For more information, please refer to the following links:

Fintech Companies Expand Cryptocurrency Gateways, Analysis of Kin Token Published

By: Diana J. Stern

This week, major cryptocurrency exchange Binance teamed up with financial technology and regulated trust company Paxos to launch a new deposit gateway that allows traders to wire fiat to Paxos and receive an equivalent amount of the Paxos stablecoin, PAX, directly in their Binance wallets. From there, the PAX can be exchanged for other cryptocurrencies on Binance’s exchange. In another recent event involving Binance, as part of an internal restructuring this week, the exchange reportedly transferred $1.2 billion in binance coin (BNB) from one wallet to another. According to Binance, the $1.2 billion transaction took 1.1 seconds and cost $0.015 in fees, highlighting some of the benefits of blockchain. In another payments headline, a U.S. fintech firm known for its mobile payments and point-of-sale products recently launched new bitcoin features for its Cash App, allowing users to deposit bitcoin from external wallets directly into their Cash App accounts.

A final notable report this week came from Coin Metrics, which published an analysis of blockchain activity of the Kin token, the token that is a subject of an ongoing SEC enforcement action against the token’s issuer, Kik. The Coin Metrics analysis indicates that some of Kik’s claims regarding the usage and adoption of the company’s Kin token may be inaccurate.

For more information, please refer to the following links:

FATF Releases New Cryptocurrency Guidance, International Arrests in Crypto Crimes

By: Robert A. Musiala Jr. and Joanna F. Wasick

Late last week, the Financial Action Task Force (FATF), an intergovernmental body that sets standards for combating money laundering, terrorist financing and other threats to the integrity of the international financial system, released landmark Guidance for a Risk-Based Approach to Virtual Assets and Virtual Asset Service Providers). The 57-page guidance document provides examples of risk indicators for virtual assets (VAs), discusses the type of activities that will be deemed virtual asset service providers (VASPs) and clarifies that VASPs have the same level of anti-money laundering obligations as do financial institutions. One of the more notable requirements in the guidance is the obligation for VASPs “to obtain, hold, and transmit required originator and beneficiary information, immediately and securely, when conducting VA transfers.” Some other notable requirements include those related to automated transaction monitoring, risk assessments, information sharing procedures and requirements related to new products such as anonymity-enhanced cryptocurrencies. FATF member countries are expected to use the new guidance to design and implement their own regulations, which will eventually be assessed through FATF’s mutual evaluation process.

In enforcement news, this week, U.K. and Dutch law enforcement, together with Europol and Eurojust, arrested six individuals in Europe after a 14-month investigation into a €24 million cryptocurrency theft. The six individuals allegedly cloned a well-known online cryptocurrency exchange to access the victims’ Bitcoin wallets, and then stole their funds and login details. The theft reportedly affected at least 4,000 victims in 12 countries. Last week, Israeli police arrested two brothers, Eli and Assaf Gigi, for a similar type of crime. The brothers allegedly created credential-stealing clones of major online cryptocurrency exchanges and wallets, and sent links to phishing sites enabling them to steal victims’ funds. Reports of how much money was stolen ranges from tens of millions of dollars to nearly $100 million. According to reports, the two may also be responsible for the 2016 Bitfinex hack, in which 120,000 bitcoins were stolen.

Finally, late last week, Patrick McDonnell pleaded guilty in Brooklyn to wire fraud in connection with a cryptocurrency investment scheme. For more than three years, McDonnell used social media to solicit investors, promising to invest their money on their behalf, but instead used the funds for his own purposes. At least 10 victims were purportedly defrauded of about $194,000 worth of various cryptocurrencies. McDonnell faces up to 20 years in prison plus forfeiture of his illicit gains.

For more information, please refer to the following links:

Exchange Hacks, US City Pays Bitcoin Ransom, Fraudulent Libra Sites Emerge

By: Jordan R. Silversmith

On June 27, Singapore-based cryptocurrency exchange Bitrue reported that it had been hacked for around $4.2 million in user assets, consisting of 9.3 million XRP worth $4.01 million and 2.5 million cardano (ADA) worth $231,800. The hacker reportedly exploited a vulnerability in Bitrue’s risk review process. According to Bitrue, user funds are insured, and those who lost cryptocurrency will be refunded.

In news closer to home, the city council of Riviera Beach, Florida, recently agreed to pay a ransom of $600,000 in bitcoin to hackers who targeted the city’s computer systems. The attack reportedly began on May 29 when a police department employee opened an email attachment containing malware, which rapidly spread through the city’s computer systems, crippling its email system and, crucially, the city’s 911 dispatch operations. On June 17, the city council unanimously agreed to have its insurance carrier pay the hackers the ransom of 65 bitcoins.

Late last week, a new cryptocurrency mining malware was reported. The malware, called LoudMiner, operates within pirated applications that are bundled together with virtualization software, an image file and additional files. When downloaded, LoudMiner is installed before the desired software itself, concealing itself and only becoming persistent after reboot.

After the world’s largest social media company published details last week on the launch of Libra, a new cryptocurrency that would be backed by a basket of fiat currencies and other traditional assets, scammers are already trying to cash in. According to reports, this week a website emerged that is a mirror image of the company’s legitimate Libra website, except for a slight change to a single character in the URL. The false site reportedly offers “Pre-Sale Libra Currency” ahead of the official launch – which, pointedly, the social media giant has not itself announced. According to reports, prices include 600 “LBR” for 2 ETH and 8,000 LBR for 20 ETH.

For more information, please refer to the following links:

Details on Major New Cryptocurrency Announced, Enterprise Pilots and Enforcement Actions Continue

In this issue:

Libra Cryptocurrency Plans Released, Crypto Exchanges and Payment Options Expand

Blockchain Ripples Into Incumbent Financial Institutions in the U.S. and Abroad

Blockchain to Enhance Drug and Seafood Supply Chains, Energy and Insurance Sectors

U.S. Enforcement Actions Target Cryptocurrency Fraud Schemes and Darknet Markets

Details Emerge on QuadrigaCX Fraud and Recent Cryptocurrency Exchange Hacks

Libra Cryptocurrency Plans Released, Crypto Exchanges and Payment Options Expand

By: Robert A. Musiala Jr.

This week, the world’s largest social media company published details on its plans to launch Libra, a new cryptocurrency that would be backed by a basket of fiat currencies and other traditional assets. According to the Libra white paper, the Libra cryptocurrency would be hosted on a permissioned network governed by a Swiss nonprofit foundation and co-hosted by nodes run by an initial group of 28 founding member firms. The founding member firms include well-known companies from the payments, technology, telecommunications, blockchain and venture capital industries. The day after Libra was announced, the U.S. Senate Banking Committee set a date for hearings to examine the venture, and soon after, France, which holds the rotating presidency of the G7, announced a G7 task force to examine how cryptocurrencies such as Libra are regulated.

Late last week, Binance, the world’s largest cryptocurrency exchange by volume, announced that it will soon stop serving U.S. customers as it begins plans to launch a U.S.-based affiliate exchange that will be licensed and regulated under U.S. laws. In another announcement this week, two U.S.-based technology startups released details on an initiative that would enable customers on the world’s largest e-commerce platform to pay for purchases using ether and other ERC20 tokens hosted by the Ethereum Network.

This week, the Litecoin Foundation announced plans to release a physical cryptocurrency debit card that would allow cardholders to spend Litecoin using traditional credit and debit point-of-sale systems. And according to data released by a Chicago-based global derivatives marketplace, interest in bitcoin futures contracts spiked to an all-time high this week. The data was accompanied by remarks indicating increased interest in bitcoin futures from institutional investors.

For more information, please refer to the following links:

Blockchain Ripples Into Incumbent Financial Institutions in the U.S. and Abroad

By: Diana J. Stern

Early this week, cryptocurrency company Ripple acquired a stake in a major money transfer company. As part of the deal, the transfer company agreed to incorporate Ripple’s xRapid product, which utilizes the cryptocurrency XRP, in its cross-border payments process.

According to reports, Reykjavik-based Monerium ehf recently became the only blockchain company in the world so far that is licensed to operate as an electronic money company under the EU’s E-money Directive. The Financial Supervisory Authority, which oversees financial services in Iceland, was the decision-maker behind this financial regulatory first.

The Italian Banking Association (ABI) has announced that it will be implementing distributed ledger technology to improve the transparency and frequency of interbank reconciliation. The country’s banks could be using the technology as early as March 2020, per the ABI.

Finally, a multinational banking group is rolling out a solution that integrates “tokenization technology” to automate the accounts receivable process. Australian fintech company Identitii Limited developed the technology.

For more information, please refer to the following links:

Blockchain to Enhance Drug and Seafood Supply Chains, Energy and Insurance Sectors

By: Panida A. Pollawit

This week, Forbes reported that the U.S. Food and Drug Administration has approved a partnership between a drug company, its distributor and others to undergo a pilot project using blockchain to track prescription drugs and vaccines from production to purchase in order to prevent counterfeit, stolen or contaminated medicines. In more supply chain news, according to an online newsletter on food safety, the National Fisheries Institute, a U.S.-based trade association representing seafood companies from harvesters to restaurants, is working with a large information technology company to test whether implementing blockchain into the seafood supply chain can create more transparency and reduce costs for seafood businesses. Also this week, Bloomberg reported that Canada’s largest pharmacy chain is partnering with TruTrace Technologies Inc. to use blockchain as a way of tracking the source of cannabis to give patients and their doctors more comfort in prescribing cannabis treatments.

Blockchains may also help Austria meet its 2050 zero-emission and carbon-neutral goals. In Graz, Austria, Power Ledger is partnering with one of Austria’s energy utility companies to see whether they can use blockchains to sell excess energy produced by rooftop solar panels to neighboring homes. According to Power Ledger, users selling excess renewable energy on their platform can keep their identity anonymous under the definition of the General Data Privacy Regulation (GDPR). (You can read more about blockchain and GDPR here.)

Another recent blockchain pilot is taking place in the life insurance industry. According to a recent press release, in Singapore, a media company is teaming with life insurance companies to leverage blockchain to connect, upon consent, those who have recently lost loved ones to potential life insurance policy claims after detecting obituaries reporting the decedent’s death.

New data suggests that blockchain applications are expected to increase. According to a report by BIS Research, the compound annual growth rate (CAGR) for blockchain in the aerospace and aviation industries is projected to be approximately 60 percent over the next decade. The report cites to transparency, reduction of the risk of fraud and reduction in costs as major factors contributing to this growth. BIS Research also pointed to factors that may hinder this growth, including the lack of awareness, regulatory framework, and infrastructure of blockchain technology in the aerospace and aviation industries. Separately, a survey by Wither & Rogers of patents filed in 2016 and 2017 found that blockchain outpaced other emerging technologies in the number of patents filed, and even surpassed the number of patents related to quantum computing.

For more information, please refer to the following links:

U.S. Enforcement Actions Target Cryptocurrency Fraud Schemes and Darknet Markets

By: Joanna F. Wasick

This week, the U.S. Department of Justice unsealed a criminal complaint alleging money laundering and fraud against Swedish citizen Roger Nils-Jonas Karlsson and his company. According to the complaint, Karlsson used websites to trick potential investors into sending him cryptocurrency payments that ultimately totaled about $11 million. The individuals thought they were purchasing shares in investment companies, but in reality, the cryptocurrency funds were converted to fiat, transferred to Karlsson’s bank account and later used to buy real estate in Thailand. Karlsson was arrested on June 18 in Thailand; the U.S. is seeking his extradition.

Also this week, the Commodity Futures Trading Commission (CFTC) filed an action in New York against a purported bitcoin company and its principal, Benjamin Reynolds, from the United Kingdom. Defendants purportedly used a website and social media sites to induce customers to purchase bitcoin and then transfer it to the defendants, who said that expert traders would then invest it. But those investments were never made. Instead, the defendants used single-use cryptocurrency wallet addresses to receive their victims’ bitcoin, transferred it into pooled wallets to conceal the illegal origin and kept the funds for their own use. An elaborate pyramid scheme was used to further hide the fraud. According to the CFTC press release, at least 22,858 bitcoin (worth about $147 million at the time) were stolen from more than 1,000 customers.

Last week in Boston, the U.S. Attorney’s Office indicted three men for conspiring to manufacture and distribute controlled substances. The individuals allegedly advertised the substances on a darknet website called “EastSideHigh.” Authorities confiscated nearly 30 kilograms of drugs from the defendants, in addition to $100,000 in cash and $200,000 worth of bitcoin. To help combat these types of cybercrimes, over 300 cryptocurrency experts from law enforcement and businesses convened last week in the Netherlands at the sixth Cryptocurrency Conference – an event designed to forge a closer relationship between the public and private sectors to reduce cybercrime. Participants shared best practices, and Europol announced a new virtual game to help train authorities in cryptocurrency recovery.

For more information, please refer to the following links:

Details Emerge on QuadrigaCX Fraud and Recent Cryptocurrency Exchange Hacks

By: Simone O. Otenaike

According to a recent report from a global professional services firm, Canadian cryptocurrency exchange QuadrigaCX’s late founder/CEO transferred roughly $200 million USD in cryptocurrency out of customer accounts and into his personal accounts on competitor exchanges. The funds were reportedly used to furnish the late founder’s luxury travel, real estate investments and trading habits. The late founder also allegedly created fake accounts on QuadrigaCX, credited them with nonexistent fiat amounts and used the nonexistent fiat to purchase actual cryptocurrency from customers. The report also detailed QuadrigaCX’s deficient accounting practices and failure to maintain a contingency plan for the loss of funds or its founder. The global professional services firm serves as the court-appointed monitor and trustee for QuadrigaCX’s bankruptcy estate, which consists of roughly $24.5 million assets to cover $190 million in liabilities. Both the FBI and Canadian authorities are looking into QuadrigaCX’s losses.

Earlier this week, a report identified the “Mokes” and “Netwire” viruses as responsible for Coincheck’s industry record-breaking hack involving $534 million worth of NEM. Initial reports alleged that the hack was orchestrated by North Korean attackers. Both viruses enable hackers to operate infected PCs remotely – Morks first emerged on a Russian forum in June 2011, while Netwire emerged roughly 12 years ago and is well known to cybersecurity investigators.

Late last week, Coinfirm reported movement of $6 million USD worth of cryptocurrency funds stolen from Binance in May. According to Binance, the stolen funds constitute roughly 2% of total BTC holdings on the exchange. Coinfirm also noted that the cryptocurrency funds exhibit a pattern of “hops” and “shedding” that may indicate efforts to launder the funds. Also last week, defense experts discovered a new potential threat from the Outlaw Hacking Group. The hacking group’s malware consists of a Perl-based backdoor component that allows cybercriminals to launch distributed denial-of-service (DDoS) attacks and ultimately monetize their malware through mining cryptocurrency and offering DDoS-for-hire services. Users are advised to close unused ports and to secure ports that are regularly open for system administrators’ support.

To read more about the topics covered in this week’s post, see the following:

New Data and Analysis on Crypto-Assets, Blockchain Enterprise Announcements, Various Cryptocurrency Hacks Reported

Blockchain network concept , Distributed ledger technology , Block chain text and computer connection with blue matrix coded backgroundIn this issue:

New Developments and Research on Crypto-Asset Market Activities

Blockchain Developments in Supply Chain, Patient Data and Energy

New Hacks, Old Hacks, Preventive Hacks and the World’s Largest CoinJoin

New Developments and Research on Crypto-Asset Market Activities

By: Robert A. Musiala Jr.

According to data from Bitcoinity, in May 2019, bitcoin trading volume on Coinbase, one of the largest cryptocurrency exchanges in the U.S., reached a 14-month high. This news comes at the same time as a recent announcement that Coinbase plans to launch its debit card product in six more European countries. The debit card allows holders to spend cryptocurrencies at traditional credit and debit card point-of-sale systems. In other cryptocurrency exchange news, late last week, another large U.S.-based exchange, Bittrex, announced that it will remove 32 crypto-assets from U.S. trading.

According to a report this week, one of the world’s largest insurance firms has teamed with a group of other insurers to offer an insurance product specifically designed for cryptocurrency custody providers. According to another recent report, one of the largest banks in South Korea is preparing to launch a custody service for cryptocurrencies and other crypto-assets.

Several notable studies on blockchain were released over the past week. The Financial Stability Board, an international monitor, delivered a report to the G20 Finance Ministers and Central Bank Governors on the potential effects of blockchain and cryptographic assets on the global financial system. In addition, the University of Cambridge released its Global Cryptoasset Regulatory Landscape Study, and a major global consulting firm published a study focused on blockchain applications for the retail banking industry.

A recent report from AnChain.AI, a blockchain analytics and security firm, analyzed data from decentralized application (Dapp) platforms and found that 75 percent of the transactions analyzed were performed by bots. A final notable report released this week analyzed energy consumption of Bitcoin mining activity. The report estimated Bitcoin’s annual electricity consumption at 45.8 terawatt hours and annual emissions at 22.0 – 22.9 metric tons of carbon dioxide. The report noted that the annual emissions figures were comparable to the level of emissions produced by the nations of Jordan and Sri Lanka and the city of Kansas City, Missouri.

For more information, please refer to the following links:

The Carbon Footprint of Bitcoin

Blockchain Developments in Supply Chain, Patient Data and Energy

By: Robert A. Musiala Jr.

According to a report published this week, the eighth-largest retailer in the U.S. has taken a significant step toward integrating blockchain into its business model by joining the Hyperledger Grid Project, an industry working group for supply chain solutions. The report cites a blog posted by the retailer in April 2019 that discusses the benefits of blockchain and the company’s blockchain initiatives. Late last week, the world’s largest beer brewer announced an investment in blockchain startup BanQu, which is working to implement blockchain solutions for unbanked and underbanked farmers and commodity producers in emerging markets.

In the pharma industry, one of the world’s largest pharmaceutical companies recently shared plans to develop a blockchain solution for managing healthcare data for patients with diabetes.

And in the energy sector, a recent publication from the International Renewable Energy Agency analyzes blockchain’s applicability to the power sector. The report found several compelling use cases for blockchain, including the potential to improve power system efficiency by automating processes, accelerate adoption of new power grid and storage technologies, and enable new models for peer-to-peer power trading and energy project financing.

For more information, please refer to the following links:

New Hacks, Old Hacks, Preventive Hacks and the World’s Largest CoinJoin

By: Joanna F. Wasick

Cryptocurrency wallet GateHub recently confirmed a major security breach. A total of nearly 23.2 million XRP (approximately $9.5 million) was reportedly stolen from about 85 customers. ChangeNow, a cryptocurrency exchange, issued a statement that it had flagged certain addresses associated with the hack and helped stop another 500,000 XRP from being taken.

Proceeds from the 2016 Bitfinex hack were recently detected as being transferred on the Bitcoin blockchain after years of inactivity. Those responsible for the $60 million hack have not been identified; however, late last week, 174.54 BTC (about $1.37 million) was transferred from a wallet connected with the theft.

According to reports, Wasabi Wallet, a bitcoin “jumbler/mixer,” recently executed a “CoinJoin” transaction involving 100 people. Jumbling is done by mixing transactions of multiple users in a single group, which works to obfuscate the origin of individual tokens. This is reportedly the largest number of individuals ever involved in a single CoinJoin event.

Earlier this week, cybersecurity firm Trend Micro reported that hackers have been exploiting a vulnerability in a major enterprise application server, which had originally been identified in April. The hackers reportedly used the vulnerability to access computer processing power to mine for cryptocurrencies – a practice known as “cryptojacking” or “crypto-mining malware.”

Cryptocurrency startup Komodo recently took a novel proactive step to protect its users from hacks. According to reports, after finding a back door in one of its wallets, the company’s own security team exploited the vulnerability, hacked into the system and gained control over the accounts in order to secure the funds at risk. All at-risk funds (nearly $13 million) were safeguarded before any “real” hackers could access them.

For more information, please refer to the following links:

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