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:

New FinCEN Guidance for Cryptocurrency and Blockchain Businesses

On May 9, 2019, the Financial Crimes Enforcement Network (FinCEN) published FIN-2019-G001, which provides new guidance on the application of the Bank Secrecy Act (BSA) and FinCEN regulations to money services businesses that engage in money transmission involving convertible virtual currencies. While stating that it “does not establish any new regulatory expectations or requirements,” the guidance consolidates existing guidance, and in some areas applies the existing guidance to common business models and activities in ways that clarify how FinCEN intends to treat these activities going forward. The following Bloomberg Law article summarizes this important new guidance as organized by its six sections:

  • Key Concepts
  • General Application of BSA Regulations to Money Transmission
  • Application of BSA Regulations to Money Transmission Involving Convertible Virtual Currency (CVC)
  • Guidance on Application of BSA Regulations to Common Business Models Involving the Transmission of CVC
  • Specific Business Models Involving CVC Transactions That May Be Exempt From the Definition of Money Transmission
  • Available Resources

The article also contains a helpful chart that outlines the money transmitter status of certain common cryptocurrency business activities identified in the FinCEN guidance.

Read more >>

Blockchain Developments: Cryptocurrencies, Enterprise Solutions, New Regulations, SEC Enforcement, Crypto-Mining Malware and More

In this issue:

Stablecoin Activity Heats Up, Bitcoin’s Speculation Problem and Other Payments News

Advancements in Blockchain Solutions for Pharma Supply Chain, Aircraft Parts, Insurance, Identity and Data Privacy

Crypto-Asset Regulatory Frameworks Develop in Europe, Japan, Australia and Malaysia

Cracking Down on Crypto Around the World

New Crypto-Mining Malware Attacks, Phone SIM Attacks and Disappearing Exchanges

Stablecoin Activity Heats Up, Bitcoin’s Speculation Problem and Other Payments News

By: Brian P. Bartish

Despite the increase in major companies opening up payment options in bitcoin, research from Chainalysis shows that only 1.3% of bitcoin transactions came from merchants in the first four months of 2019, starkly contrasting with exchange activity that accounted for 89.7 percent of transactions during that same time period. According to data from the Commodity Futures Trading Commission, Bitcoin Futures contracts exchanged on the Chicago Mercantile Exchange hit a record high between May 27 and June 3, with more than 5,190 contracts outstanding, and many people suggesting increased institutional participation as the reason for the uptick. According to a recent report, interest in bitcoin investment among the superwealthy may lead to a new industry of “boutique” cryptocurrency brokerages, such as the Dadiani Syndicate in London, which coordinates peer-to-peer transfers, avoiding traditional exchanges, including one client who was interested in purchasing 25 percent of all currently available bitcoin.

Data published by blockchain news outlet The Block noted a positive correlation between GDP per capita and cryptocurrency traffic per capita and found that the U.S. accounts for 24.5 percent of total traffic on cryptocurrency exchanges, the most of any country by a significant margin. However, when measuring traffic on a per capita basis, other nations, including Singapore, South Korea and Switzerland, outstrip the U.S. Despite reports of widespread cryptocurrency trading manipulation, recent analysis is offering a new perspective, as trends in overall trading volume appear to correlate with on-chain transfers of the stablecoin tether to cryptocurrency exchanges, particularly in the Chinese market, which accounts for 60 percent of all on-chain transaction value for tether so far in 2019.

Cryptocurrency exchange OKCoin announced that it has launched operations in the EU as of this past week, allowing European customers options for trading in euro pairs for bitcoin, ether and bitcoin cash with additional cryptocurrency offerings planned for the future. OKEx, which shares a common owner with OKCoin, reportedly launched its stablecoin, USDK, in collaboration with its sister company OKLink and a major U.S.-based custodian already holding the collateral for a competing stablecoin. Bitfinex and affiliated firm Tether recently announced that they will be launching the leading stablecoin, tether, on a number of new blockchains, including the Lightning Network, a layer 2 protocol designed to increase the speed and lower the costs of transactions. In Finland, peer-to-peer exchange LocalBitcoins is reported to have removed the option for in-person cash transactions of cryptocurrency after the exchange announced in February that it would comply with the EU’s anti-money laundering (AML) directive.

For more information, please refer to the following links:

Advancements in Blockchain Solutions for Pharma Supply Chain, Aircraft Parts, Insurance, Identity and Data Privacy

By: Robert A. Musiala Jr.

According to reports this week, the world’s largest retailer by sales has joined MediLedger, a pharmaceutical industry consortium that is working to build a blockchain solution for tracking the provenance of pharma products. The company is already well known for its involvement spearheading the blockchain industry consortium known as the IBM Food Trust. In other supply chain news, a recent report provided details on GoDirect Trade, an online marketplace for used aircraft parts that is powered by blockchain and hosted by a major global aerospace firm. According to the report, by leveraging blockchain, GoDirect Trade enables more efficient tracing of the origins and certifications of aircraft parts, which are heavily regulated. Late last week, Hyperledger announced the launch of the Hyperledger Supply Chain Special Interest Group, an organization intended “to facilitate focused technical and business-level conversations related to appropriate use cases for blockchain technology across Supply Chain management.”

In a recent press release, two major U.S. insurance companies announced a “joint subrogation solution” that will leverage blockchain to improve the speed of the auto claims subrogation process. The solution is being billed as “the first of its kind between two major leaders in the insurance industry.” In the banking sector, a blockchain-based identity management system co-developed by Brazil’s central bank and a major global technology firm was reported this week. The solution is reportedly built on Hyperledger Fabric and is intended for eventual integration into payment systems used by all financial institutions in Brazil. Also this week, a major U.S. technology and camera-related products company announced the launch of a blockchain-based document management platform designed to enhance information safety and security.

Late last week, a Big Four accounting and consulting firm released the code for its experimental Ethereum-based “Nightfall” solution on GitHub, the open source software repository. Nightfall reportedly uses “zero-knowledge proofs” to enable ERC20 tokens to be transacted on Ethereum with “complete privacy.” A recent report by Gartner addressed the multitude of blockchain platforms in the market and predicted that 90 percent of current enterprise blockchain implementations will need to be replaced within the next two years, due in part to the lack of industry consensus on product concepts, feature sets, core application requirements and target markets.

For more news on blockchain payments, please see the following articles:

Where Blockchain Adoption By Governments And The Private Sector Stands: An Overview

Crypto-Asset Regulatory Frameworks Develop in Europe, Japan, Australia and Malaysia

By: Simone O. Otenaike

Last week, a Switzerland-based global financial stability regulator proposed a more global approach to the regulation of crypto-assets. The regulator suggested that national authorities responsible for the regulation of crypto-assets need to work toward international coordination and the development of global standards. According to the regulators’ reports, the crypto-asset market requires continuous evaluation of risks associated with crypto-assets as potential regulatory gaps emerge due to rapid technological change in the industry. In related news, last week, the board of the International Organization of Securities Commissions solicited comments on a proposal that outlines the issues associated with crypto-asset trading platforms. The proposal also aims to aid regulatory authorities in the evaluation of crypto-asset trading platforms within the context of their regulatory frameworks.

The Japanese House of Representatives recently approved a new bill to amend its crypto-asset laws and regulations. The bill, prepared by Japan’s Financial Services Agency, reportedly introduced amendments that promote user protection, tighten regulations on crypto derivatives trading, mitigate trading risks like exchange hacks and establish a more transparent regulatory framework for the new asset class in the Act on Settlement of Funds and the Financial Instruments and Exchange Act. The bill is expected to go into effect in April 2020. In Australia, the Australian Securities & Investments Commission released new guidance for firms involved with initial coin offerings (ICOs) and crypto-assets last week. The new guidance offers information on how the Corporations Act may apply to businesses that raise funds through an ICO or offer services related to crypto-assets. Early this week, the Securities Commission Malaysia announced that three Recognized Market Operators (RMOs) are now authorized to operate digital asset exchanges in Malaysia. While the RMOs may begin operations under such authorization, the RMOs will have nine months to satisfy all regulatory requirements.

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

Cracking Down on Crypto Around the World

By: Jonathan D. Blattmachr

This week, the Securities and Exchange Commission (SEC) announced an action against Kik Interactive, Inc., alleging an illegal $100 million digital securities offering through which more than 10,000 investors worldwide bought one trillion “Kin” tokens. The SEC alleged that Kik sold the Kin tokens without registering them.

The complaint alleges that Kik’s business, a messaging service, was foundering by late 2016, and the company expected to run out of money within a year. Kik allegedly decided, therefore, to pivot to its Kin offering, which could fund its ongoing operations. Kik issued a white paper, and its CEO made a speech about the offering in May 2017; Kin would fund an ecosystem in which Kin could be used to buy goods and services. According to the SEC, “Kik relentlessly pitched Kin and the prospect that Kik’s future efforts to develop the Kin Ecosystem would drive an increase in Kin’s value.”

Kik distributed the Kin through a Simple Agreement for Future Tokens (SAFT), which offered wealthy investors a discount on the price offered to the general public. Kik also conducted a general public offering. Each offering raised about half of the $100 million total, $55 million of which was raised from U.S. investors. The SEC has alleged violations of the Securities Act, seeks to permanently enjoin Kik from further similar offerings, and seeks disgorgement and civil penalties.

The SEC also brought an action against Longfin Corp., its CEO and a consultant, with the Commission alleging they falsified Longfin’s revenue for the purpose of fraudulently securing the company’s listing on Nasdaq. The SEC previously obtained a preliminary injunction against these defendants (and others), which froze $27 million in purportedly illegal trading proceeds and unregistered stock distributions. The Commission alleges the defendants obtained Reg A+ qualification by falsely representing in SEC filings that the company was principally managed and operated in the U.S., when, instead, it was managed and operated in India. The company also allegedly had no actual assets, with only $75 in cash on hand and a few hundred thousand dollars of receivables. The SEC alleged violations of multiple Securities and Exchange Act sections, and it seeks permanent enjoinment, civil penalties, an industry bar for the CEO, disgorgement and civil penalties.

In literal and figurative dark news, the U.S. Attorney’s office for the Northern District of Texas has indicted an alleged darknet drug dealer. The accused has been charged with conspiracy to possess with intent to distribute a controlled substance, specifically fentanyl. The defendant allegedly tried to purchase the deadly drug, an opioid, by sending more than $120,000 in bitcoin to wallet addresses that federal agents controlled as part of the sting.

QuadrigaCX investors lost about $150 million earlier this year when its co-founder and CEO died, and the company reported no one could access the wallets that held their money. The FBI is now getting involved and has launched a website asking those who believe they are victims to provide information.

Outside the U.S., the Italian securities regulator has suspended investment firm Tessline and its cryptocurrency for violations of Italian finance law. Separately, the European Commission recently warned Malta that it needs stronger AML enforcement in the crypto sector, citing concerns that “[g]overnment shortcomings” could negatively impact the business environment and investments. In Australia, tax officials are reportedly investigating a dozen schemes that appear to center on cryptocurrencies, including investigation of a global financial institution that may have helped taxpayers hide assets and avoid taxation and/or aid criminal activities.

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

New Crypto-Mining Malware Attacks, Phone SIM Attacks and Disappearing Exchanges

By: Jordan R. Silversmith

According to recent reports, scores of crypto users were hit last week by SIM-swapping attacks in what appears to have been a coordinated wave of attacks. SIM swapping, also known as SIM jacking, is a form of account takeover (ATO) attack, where hackers use techniques like social engineering to transfer a victim’s phone number to their own SIM card in order to reset passwords or obtain two-factor verification codes to access protected accounts. Victims of the recent attacks were reportedly all members of the crypto community living in the United States, with one victim admitting to losing over $100,000 of cryptocurrency.

A China-based malware campaign dubbed the “Nansh0u campaign” has been in progress since February, reportedly breaching more than 50,000 servers across the world and infecting more than 700 new victims a day with crypto-mining malware. According to reports, most of the firms affected are in the healthcare, telecom, media and IT sectors, and the malware packages were written using sophisticated Chinese language tools and placed on Chinese language servers.

According to recent reports, a new malware called BlackSquid employs at least eight of the most dangerous exploits currently available to hackers to infect servers and install Monero coin mining software on them. The majority of BlackSquid attacks so far apparently have occurred in Thailand and the United States, with the last week of May having been the most active period for the malware yet. Another recently reported crypto-mining malware campaign involves a fraudulent website impersonating the Cryptohopper trading platform. When visited, the malicious website reportedly executes an attack that installs crypto-mining malware and a “clipboard hijacker.”

A popular crypto exchange unexpectedly shut down its services in April and has allegedly disappeared with customer funds. Though the exact amount involved in the alleged fraud by Coinroom, the Polish crypto exchange, is not yet known, customers with deposits ranging from around $79 to $15,660 recently reported the theft. Founded in 2016, Coinroom was one of the most widely used digital asset exchanges in Poland and offered fiat-based crypto trading to its clients.

A recent report by blockchain analytics firm Chainalysis found that upwards of 64% of ransomware attack cash-out strategies use crypto exchanges to launder funds. The report also indicated a shift in how ransomware attacks are carried out. According to the report, while the tendency before had been to conduct wide and shallow attacks, infecting myriads of random victims and demanding small amounts to decrypt the files, criminals are beginning to home in on targets with legally or politically sensitive data and demanding larger payments to ransom the data.

For more information, please refer to the following links:

Cryptocurrency and Blockchain Applications Gain Adoption, Enforcement Actions Continue

A side view on a digital panel merging binary numbers with an integrated circuitIn this issue:

Established Firms Implement Cryptocurrency Payments, Blockchain Tracking and Data Management Systems

Unlicensed Money Transmitter Sentenced, P2P Exchange Retreats From Iran and a Benevolent 51% Attack

SEC Enforcement Actions Continue as New Cryptocurrency-Based Assets Launch

Established Firms Implement Cryptocurrency Payments, Blockchain Tracking and Data Management Systems

By: Diana J. Stern

Late last week, a major multinational telecommunications conglomerate announced it is the first major mobile carrier to accept online bill payments from customers in cryptocurrency through its deal with BitPay, a cryptocurrency payment processor. Also at the end of last week, a global consulting firm struck a deal to build a blockchain-based platform with Blockchain Wine Pte. Ltd. that will leverage the firm’s OpsChain Solution for tracking the authenticity, quality and provenance of vintage wines. On the high seas, a recent report announced that the world’s second- and fourth-largest container shipping companies are joining TradeLens to digitize maritime shipping. According to reports, paperwork accounts for 20% of the cost of shipping a container from one place to another, and by adding these two players to its platform, TradeLens will now track nearly half of all cargo being shipped by sea.

According to media outlets, three of the largest banks in Ireland are collaborating on a pilot with a major consulting firm to provide bank employees with digital wallets that hold their educational and regulatory credentials, which can be verified and tracked using blockchain technology to facilitate compliance. In other news, a leading cloud-based software provider recently released a blockchain product that enhances its CRM services. The tech giant reportedly has three clients already testing the product in different verticals. Another development of note this week emerged from the University of Surrey, which is using computer vision and a proof-of-authority blockchain to develop a solution for securing national digital video archives worldwide.

For more information, please refer to the following links:

Unlicensed Money Transmitter Sentenced, P2P Exchange Retreats From Iran and a Benevolent 51% Attack

By: Joanna F. Wasick

According to a press release published this week, Morgan Rockcoons of Las Vegas, Nevada, has been sentenced to 21 months in prison for wire fraud and operating a bitcoin exchange without registering with the U.S. Financial Crimes Enforcement Network (FinCEN). The press release states that Rockcoons advertised his exchange services on LocalBitcoins.com and conducted more than 1,000 bitcoin trades with more than 644 people. Late last week, the Financial Action Task Force, an intergovernmental organization, announced plans to finalize new global standards that aim to intensify anti-money laundering regulations of cryptocurrencies. Among other things, these regulations would require cryptocurrency exchanges to comply with the “travel rule” for funds transmittal by identifying and recording parties to virtual asset transactions, just as other financial institutions do with wire transfers.

According to a recent report, LocalBitcoins, a Helsinki-based peer-to-peer exchange, has shut off service for Iran-based users. The exchange did not publicly state a reason for the change, but most agree that U.S. sanctions were at the root of the decision. LocalBitcoins has been one of the most popular bitcoin trading websites among Iranian cryptocurrency users. The exchange did not require international credit card information, and allowed users to pay with their local bank accounts.

In what appears to be a first-of-its-kind event, two Bitcoin Cash mining pools recently carried out a “51% attack” on the blockchain in order to thwart another miner’s attempt to steal coins in the wake of a planned hard fork that occurred May 15. A 51% attack entails one group with a majority of the hash rate executing commands they are normally precluded from carrying out, such as rewriting the network’s transaction history. While the 51% attack is usually considered something done by wrongdoers, here it was apparently undertaken to do something beneficial.

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

SEC Enforcement Actions Continue as New Cryptocurrency-Based Assets Launch

By: Marc D. Powers

The SEC has brought a civil injunctive action in federal court against a California man claiming to be selling instructional packages, which also provided “points” that could be converted into digital assets known as PRO Currency. The agency claims that the multilevel marketing companies offering the packages and digital tokens were involved in a fraudulent pyramid scheme which raised over $25 million between January 2017 and March 2018 in an unregistered securities offering. The SEC further alleges that Daniel Pacheco, the mastermind behind the companies providing the instructional packages and tokens, which traded on several cryptocurrency exchanges, used a portion of the funds raised to purchase a new home for $2.5 million and to buy a Rolls-Royce for himself. The SEC also seeks the return of the proceeds from various relief defendants, apart from Pacheco.

The messaging app Kik, which raised $100 million in 2017 in an ICO of the Kin token, and which was recently told by the SEC that it is likely to be sued by the agency for an unregistered securities offering, appears to be preparing financially for its defense and a long fight. It recently set up a crowdfunding campaign, complete with a podcast explaining its proposed defense, to raise $5 million.

For several years, Grayscale Investments has been offering to accredited investors the opportunity to purchase interests in Bitcoin, Ethereum and several other large-cap cryptocurrencies through its trust structure, with the hope and expectation that after a one-year holding period, the trust interests would be available for sale legally in a secondary market. This has previously been the case for Bitcoin under the symbol GBTC, which has been available for trading in the over-the-counter market since early last year. Within the past two months, that also became true for Ethereum Classic. Late last week, Grayscale announced that FINRA had approved the secondary market trading of its Ethereum Trust shares, each of which is the equivalent of about 1/10th of an ether. Once trading begins, all investors, not just those whom are deemed accredited, will be able to purchase interests in this digital asset in their traditional and IRA brokerage accounts.

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

Race to Build Crypto Payment Systems and Blockchain Solutions Continues As Governments Continue to Fight Crypto Crimes

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

Industry Initiatives Indicate Growing Interest in Cryptocurrency Payments

Pilots Target Energy Grids and Garments, Blockchain Patent Race Continues

Enforcement Actions Against Cryptocurrency Crimes Continue Across the Globe

Industry Initiatives Indicate Growing Interest in Cryptocurrency Payments

By: Robert A. Musiala Jr.

Late last week, Reuters reported that “[s]everal of the world’s largest banks are in the process of investing around $50 million” to create “… a digital cash equivalent of central bank-backed currencies like the dollar or euro that would run on blockchain-based technology.” The institutional cryptocurrency would be “convertible at parity and backed by cash assets held at a central bank.” According to other reports this week, one of the world’s largest social media companies has formed Libra Networks, a Swiss-based financial technology company. The company is reportedly planning to begin testing its own cryptocurrency aimed at making it easier for people without a bank account to send and receive money.

This week, a major U.S.-based cryptocurrency exchange added USD Coin (USDC), a cryptocurrency pegged 1:1 to U.S. dollars held in FDIC-insured banks, to its merchant payment platform, enabling online merchants to accept USDC as payment. The firm behind USDC recently released a report from a major U.S. accounting firm attesting to the U.S. dollar reserves backing the stablecoin.

This week another major U.S.-based exchange disabled trading by U.S. customers of nine assets, stating that “it is not possible to be certain whether U.S. regulators will consider these assets to be securities.” Meanwhile, Bitfinex, a foreign-based exchange, has reportedly launched UNUS SED LEO, “a utility token … to maximize the output and capabilities of the Bitfinex trading platform.” According to a press release, the exchange “conducted and completed a private sale of 100% of outstanding UNUS SED LEO tokens in exchange for one billion USDt worth of Bitcoin, USD, and USDt.” Bitfinex is currently involved in litigation related to an investigation by the New York Attorney General.

According to a recent report, data from three major Japanese trading platforms indicates an increased interest in cryptocurrencies, with new account openings up 200% in the past two months. At the same time, a paper recently published by the European Central Bank found that cryptocurrencies do not currently pose a threat to financial stability in the euro zone. According to the paper, “in the current market, crypto-assets’ risks or potential implications are limited and/or manageable on the basis of the existing regulatory and oversight frameworks.”

For more information, please refer to the following links:

Pilots Target Energy Grids and Garments, Blockchain Patent Race Continues

By: Simone O. Otenaike

A leading Japan-based automaker and an American automaker recently announced plans to join a research project that will evaluate the potential use of electric vehicles’ storage batteries to stabilize the renewable energy power supply in smart grids. The research will be conducted under the framework of the Mobility Open Blockchain Initiative, an international consortium of automotive, IT and other businesses that promote blockchain standards in the mobility industry. Another leading Japan-based automaker, in conjunction with a Japanese university and a Japanese renewable energy retailer, also announced plans to test a project on the efficient usage of electricity. The firms’ research project aims to enable homes, businesses and electrified vehicles to trade electricity using blockchain technology.

Last week, a luxury fashion brand announced plans to implement Iota’s distributed ledger technology for the firm’s supply chain tracking. The brand is known for its strong emphasis on sustainability by use of recycled materials. The firm aims to provide customers with the opportunity to verify any assertions made about the garments in their supply chain and track garments from creation to point of sale. Also last week in textile industry news, a world market leader in textile fibers made from renewable wood announced plans to use Textile Genesis, a Hong Kong-based blockchain platform, to support its business. The textile firm will reportedly offer a QR code on the final garment so that consumers can trace the fibers in the finished product.

The U.S. Patent and Trademark Office has granted a patent for various techniques used to build a proof-of-work cryptographic system, comparable to the cryptographic systems that form the basis of various blockchain-based platforms, to an e-commerce giant based in the United States. According to reports, the patent does not directly discuss blockchains or cryptocurrencies ‒ the patent primarily outlines how a Merkle tree structure, a concept that dates to 1979, allows for verification of data sent between computers on peer-to-peer networks. The second-largest banking institution in the United States also recently obtained a patent that deals with cryptographic systems. According to reports, the patent outlines a cryptocurrency risk detection system that calculates the risk associated with a unique cryptocurrency transaction and assigns a score based on transaction history and IP address. A recent industry report estimates that China-based firms and agencies filed 4,435 blockchain patent applications between 2013 and 2018, roughly 48% of global blockchain patent filings. The same report estimates that U.S.-based firms and agencies filed 1,833 blockchain patent applications, which is roughly 21% of global blockchain patent filings.

The Ethereum Foundation recently announced plans to invest $30 million in key projects across the Ethereum ecosystem over the next year. The funds will support the research and development that powers active engineering projects like ETH 2.0 and live applications like Ethereum 1.0. Funds will also promote developer relations, education and on-boarding to increase access to the Ethereum community in other parts of the world and ensure Ethereum’s continued success. The announcement comes on the heels of news that Ethereum clients’ failure to patch known vulnerabilities may pose a security risk to the entire network. A recent report indicates that many nodes using the Parity and Geth clients on the Ethereum network remain exposed after patches for security flaws were released.

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

Enforcement Actions Against Cryptocurrency Crimes Continue Across the Globe

By: Joanna F. Wasick

This week, the SEC obtained a court order shutting down a $30 million Ponzi scheme operating out of Florida through Argyle Coin LLC, a purported cryptocurrency business, and its principals, Jose Angel Aman and Harold and Jonathan Seigel. According to the SEC complaint, hundreds of U.S. and Canadian investors were tricked into investing in Argyle Coin under the false claim that its tokens were backed by diamonds. Instead, new investor money was used to pay fake returns to prior investors, and to pay for the individuals’ own exorbitant personal expenses. In a similar action, authorities in Brazil shut down Indeal, another cryptocurrency Ponzi scheme, that defrauded 55,000 investors out of about $200 million. The company promised investors a 15% payout in the first month of investment. But as with Argyle (and any Ponzi scheme), new investors simply paid out old investors, with some additional funds going straight to the individuals behind the fraud.

Dutch authorities, together with Europol and authorities in Luxembourg, recently seized Bestmixer.io – a major “tumbler” (cryptocurrency mixing company that obscures a token’s original source), after investigators determined that a large number of mixed coins were used for money laundering or illegal financing. The action is widely viewed as the first major case against a cryptocurrency tumbler/mixer. In another matter, Dutch police arrested former cryptocurrency entrepreneur Barry van Mourik for defrauding investors out of $25 million in a fake bitcoin mining operation. In China, two over-the-counter (OTC) cryptocurrency market makers were charged with illegally collecting $56 million worth of bitcoin from over 100 OTC traders as part of a massive loan scheme. The two money makers had spent the past two years building up their credibility through an OTC chat group. And in Australia, a government employee is facing charges that he used his position as an IT contractor to illegally siphon off processing power from the government’s computer network in order to mine cryptocurrency.

The U.S. Commodity Futures Trading Commission (CFTC) has a new tactic to combat the upswing in cryptocurrency-related crime ‒ working with whistleblowers. The CFTC issued a statement telling the public they could receive both financial awards and certain protections if they report information that leads to the halt of fraud and manipulation related to virtual currencies. The U.S. Internal Revenue Service (IRS) also made a cryptocurrency-related statement, indicating in a letter to a U.S. Congressman that it is working on new tax guidance for cryptocurrency that will clarify issues such as calculating cost basis, acceptable methods of cost basis assignment and tax treatment of forks. This would be the first cryptocurrency guidance from the IRS since 2014.

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

New Blockchain Solutions Debut Amid Enforcement Actions, New FinCEN Guidance and Warnings of ‘Blockchain Fatigue’

In this issue:

Blockchain Solutions for Supply Chain and Digital Identity Announced Despite Predictions of ‘Blockchain Fatigue’

Blockchain Capital Markets Diversify Amid ICO Slumps; Regulators Issue New Warnings

FinCEN Issues Guidance, SIM Hackers Charged, Bitcoin Ransomware Traced to Sanctioned Countries

Blockchain Solutions for Supply Chain and Digital Identity Announced Despite Predictions of ‘Blockchain Fatigue’

By: Diana J. Stern

With the help of a major technology firm, the company that supplies jet engines to over half of the global airline industry created a production blockchain pilot, using a custom-built fork of Ethereum, to track and trace the engines – a product for which quality is critical and ownership can change hands over time. The goal is for a consortium of industry partners to use the system, internally known as TRUEngine, to track the provenance of engine parts from the moment of manufacturing. Another enterprise blockchain platform for provenance, AURA, was announced this week by ConsenSys, a major luxury brands holding company, and a large technology company. The Quorum-based platform is the result of a traceability program launched three years ago. At one end, the system provides track-and-trace for raw materials, and at the other, customers can use an app to request an AURA certificate of authenticity.

In government adoption news this week, Switzerland’s national post is working with blockchain and IoT company Modum on a device, ThermoCare, that uses a permissioned blockchain to track the temperature of shipments such as food and pharmaceuticals while they are in transit. The rationale for using a permissioned blockchain is that the data has to stay within Switzerland and meet bank security requirements.

There were a number of developments in digital identity this week. A multinational technology company launched Ion, an infrastructure for decentralized identifiers (DIDs) that uses the Bitcoin blockchain. DIDs are used in a number of emerging identity solutions that aim to place control over user data back in the hands of the users themselves. Also this week, Hyperledger added a new identity project, Aries. It is not a blockchain, nor an application, but rather an infrastructure that aims to enable peer-to-peer messaging, interoperability between different blockchains and distributed ledgers, as well as the exchange of blockchain-based data. The Aries tools include an encrypted messaging system, cryptographic wallet and an implementation of the Decentralized Key Management System being incubated in Hyperledger Indy.

In other news, this week the Enterprise Ethereum Alliance released two new specifications: a set of standard APIs for off-chain trusted computation, and a new version of the EEA client specification. The former received contributions from EEA members including two large technology firms, a major bank and ConsenSys.

While supply chain solutions continue to populate the enterprise blockchain landscape, Gartner warns that 90% of them will suffer “blockchain fatigue” by 2023. According to analysts, many will not pass the pilot phase due to the overall immaturity of the technology, overly ambitious expectations, and misunderstandings about how blockchains can and cannot support supply chain management, as well as a lack of standards.

Finally, a recent Forbes article detailed how enterprises including major coffee, grocery and retail chains are allowing users to pay using an app called Spedn, which accepts cryptocurrency. According to the report, a coffee purchase on Spedn for which the end user provided Gemini Dollars was successful, but none of the app’s clients confirmed their participation in the launch.

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Blockchain Capital Markets Diversify Amid ICO Slumps; Regulators Issue New Warnings

By: Brian A. Bartish

As of this week, the World Bank and Commonwealth Bank have enabled secondary market trading recorded on the blockchain for bond-i (blockchain operated new debt instrument), the first bond to be created and managed through its life cycle using blockchain. According to a press release, this new development marks a significant step for bond-i since its first issuance in August 2018, and helps demonstrate the potential for blockchain to make the process of raising capital and trading securities more efficient and transparent. In related news, a leading multinational professional services firm and an investment firm specializing in digital assets recently released a joint report detailing results of research into 100 of the largest global cryptocurrency hedge funds. The report found that despite the volatility of the cryptocurrency market in 2018, cryptocurrency funds showed surprising success at fundraising, with median assets under management (AuM) growing approximately three-fold as of Q1 2019 from the median AuM at fund launch in January 2018.

The ICO market is seeing a significant slump, according to research by cryptocurrency exchange BitMEX, with Q1 2019 returns at $40 million, down 97% from the same time period in 2018. As returns on ICOs flounder, some projects are opting to rebrand as initial exchange offerings (IEOs). However, an SEC senior advisor recently warned that U.S.-based exchanges that facilitate IEOs may be in violation of the law if they do not comply with applicable licensing requirements for broker-dealers, alternative trading systems or national securities exchanges.

This week, the SEC initiated cease-and-desist proceedings with Canada-based NextBlock Global Ltd. and its owner Alex Tapscott, co-author of the book Blockchain Revolution, for falsely representing that as many as four prominent members of the blockchain community were acting as advisors to NextBlock in order to facilitate fundraising. Noting remediation efforts undertaken by NextBlock and a settlement agreement with the Ontario Securities Commission that required NextBlock to pay $700,000 CAD, the SEC issued a civil penalty of $25,000 against Tapscott.

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FinCEN Issues Guidance, SIM Hackers Charged, Bitcoin Ransomware Traced to Sanctioned Countries

By: Simone O. Otenaike

Late last week, The Financial Crimes Enforcement Network (FinCEN) published FIN-2019-G001, which contains new guidance discussing how FinCEN regulations related to money services businesses apply to certain business models involving convertible virtual currencies (CVCs). On the same day, FinCEN issued FIN-2019-A003, an advisory that highlights suspicious activity and red flags associated with the exploitation of CVCs for money laundering, sanctions evasion and other illicit financing purposes.

Also last week, nine individuals connected to an “SIM Hijacking” group were charged with conspiracy to commit wire fraud and aggravated identity theft in the Eastern District of Michigan. SIM Hijacking involves hacking a phone number to exploit “two-factor authentication” and intercept text messages with the security codes required to access the target’s bank or cryptocurrency accounts. The defendants allegedly facilitated the SIM Hijacking by bribing an employee of a mobile phone provider or by contacting a mobile phone provider’s customer service posing as the victim. Three of the nine defendants named in the complaint were employees of major mobile phone providers and are reportedly the first telecommunications employees to be indicted in an SIM Hijacking case. In other SIM Hijacking news, late last week a court awarded one of the largest court judgments to an individual in the cryptocurrency space. A cryptocurrency investor won $75.8 million in a civil judgment against a 21-year-old who used SIM Hijacking to steal 3 million crypto tokens, worth roughly $23.8 million at the time, from his cellphone account in early 2018.

According to recent reports, two American companies that claimed to help victims regain access to their computers after a ransomware attack by using the latest technology regularly made bitcoin ransom payments to hackers and passed off the costs to the victims. Payments by one of the companies were reportedly traced to bitcoin wallets that are now banned by the U.S. Treasury Department due to sanctions against Iran. In some instances, the victims that unknowingly pay the ransom through these companies are public agencies ‒ thus taxpayer money may be providing support to cybercriminals in U.S.-sanctioned countries.

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