Blockchain Continues to Disrupt Across Industries, Cryptocurrency Services Expand, Malware Threats Identified

In this issue:

Blockchain Clearing, Settlement, Custody and Capital Markets Developments

Cryptocurrency Exchanges and Payment Applications Continue to Expand Services

Blockchain Pilots for Mortgages, Recycling, Supply Chain and Digital Identity

Cryptomining Malware Found in Study Materials, Other Malware Uses Bitcoin to Proliferate

Blockchain Clearing, Settlement, Custody and Capital Markets Developments

By: Diana J. Stern

This week, R3 and a major multinational financial services company announced a partnership to develop and pilot a cross-border payments solution built on blockchain. According to reports, the financial services outfit will be the network operator for clearing and settlement, and R3’s Corda technology and ecosystem will support blockchain implementation for the use case.

Reports indicate that the bitcoin futures platform, Bakkt, launched its regulated custodian this week in anticipation of opening bitcoin futures trading later this month. The Blockchain Monitor covered Bakkt and its regulatory approvals here. In related news, documents filed by Bitwise on Wednesday show that the cryptocurrency index and beta fund provider has engaged an American worldwide bank to be the administrator and transfer agent for its proposed bitcoin exchange-traded fund.

This week Gemini announced that it is expanding its cryptocurrency custody solution through its Qualified Custodian, Gemini Trust Company, LLC. Among other new features, it will now support 18 different digital assets. In a final notable development, Blockstack announced that its SEC-qualified token offering has closed with a total of $23 million raised from more than 4,500 individuals and entities.

For more information, please refer to the following links:

Cryptocurrency Exchanges and Payment Applications Continue to Expand Services

By: Robert A. Musiala Jr.

According to two recent announcements, Binance, the largest cryptocurrency exchange in the world as measured by trading volume, will launch U.S. operations “in the coming weeks” and “will open account registration … on Wednesday, September 18, 2019.” According to another recent report, BUSD, Binance’s new stablecoin, which will be backed 1:1 by U.S. dollars, will be made available for trading on a major U.S. cryptocurrency exchange beginning next week.

This week the Swiss Financial Market Supervisory Authority (FINMA) published new guidance on stablecoins. According to the press release, “The requirements under supervisory law may differ depending on which assets (e.g. currencies, commodities, real estate or securities) the ‘stable coin’ is backed by and the legal rights of its holders.” FINMA also confirmed that it had received a request from the Libra Association “for an assessment of how the supervisory authority would classify the planned Libra project.” At a conference this week for the Organization for Economic Cooperation and Development, a French official said, “[W]e cannot authorise the development of Libra on European soil.” The French official advocated creation of a “public digital currency” to compete with the proposed Libra project.

In Japan, late last week the country’s financial regulator granted a cryptocurrency exchange license to an affiliate firm of a popular instant messaging app. According to another recent report, the highly anticipated Telegram Open Network blockchain project is due to launch by the end of October. Also, this week the Stellar Development Foundation announced that it will “airdrop” 2 billion XLM tokens into the accounts of users of another popular encrypted messaging app.

For more information, please refer to the following links:

Blockchain Pilots for Mortgages, Recycling, Supply Chain and Digital Identity

By: Simone O. Otenaike

Late last week, one of the nation’s leading mortgage companies successfully originated a loan on Provenance, a blockchain platform that reportedly allows lenders to originate, service and finance loans with lower costs and reduced risks throughout the loan process. The mortgage company will originate home equity line of credit loans through Figure, a SaaS that offers borrowers the ability to complete the lending process digitally and access their funds in days. Also this week, a digital logistics firm, Marine Transport International, launched Traca – a blockchain-based tool that reportedly enables recycling companies to relay essential data to value chain stakeholders (e.g., trash producers, recyclers, regulators and processing centers) in an accelerated time frame. Traca’s first trial reportedly cut administrative processing times from a few hours to minutes during the transport of used paper containers to Thailand from England.

A global professional services firm recently partnered with TruTrace Technologies to deliver a blockchain-based traceability solution for the cannabis industry. TruTrace’s technology reportedly collects and stores plant-testing data and genomic verification using a blockchain-powered database. Also this week, another leading global professional services firm released a report on blockchain technology in the industrial manufacturing sector. Topics addressed in the report include blockchain solutions to address supply chain transparency, track credentials of key personnel, and improve audit and compliance measures. According to the report, the industrial manufacturing sector is ranked second to financial services among industries leading the way on blockchain.

In international news, the government of Catalonia announced plans to develop IdentiCAT, a decentralized identity platform for its citizens. The Catalonian government’s new self-sovereign system reportedly seeks to allow any user to verify the legal age of a citizen with the ID system, without the citizen providing either his or her birth date or place of birth. IdentiCAT ultimately aims to empower citizens to control and manage their own identities with complete privacy.

For more information, please refer to the following links:

Cryptomining Malware Found in Study Materials, Other Malware Uses Bitcoin to Proliferate

By: Veronica Reynolds

A global cybersecurity company recently reported that cryptomining malware hidden in digital textbook downloads was the second most common type of malware spread under the guise of study materials. The malware, Win32.Agent.ifdx, is a program that opens a text file when launched to trick the user into thinking the file is benign. Once installed, the malware can download other pieces of malware, including cryptominers that allow hackers to generate profits through use of the host’s processing power.

According to another recent report, the Bitcoin blockchain is being used by the Glupteba malware dropper to improve the malware’s connection to command-and-control servers (C2 servers), which hackers use to control compromised systems. When a compromised system disconnects from a C2 server, hackers can use the Bitcoin network to replace C2 servers, allowing the compromised system to reconnect. The report noted that the Glupteba malware is also capable of implementing cryptomining and can steal browser data and passwords.

For more information, please refer to the following links:

Blockchain Developments: Energy Grids, Automobiles, Stablecoins, International Regulations, SEC Enforcement

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

Blockchain Developments for Energy Grids, Automobiles, Enterprise Protocols

International Developments in Blockchain and Cryptocurrency Regulation

NY DFS Approves Gold-Backed Stablecoin, Financial Institutions Pursue Blockchain Pilots

SEC Settles Charges, Treasury Hears Testimony, Cryptojacking Report Released

Blockchain Developments for Energy Grids, Automobiles, Enterprise Protocols

By: Simone O. Otenaike

Earlier this week, TFA Labs, an internet-of-things security startup, announced plans to explore Factom’s protocol as a solution for validating the health and status of devices on the U.S. national power grid. According to reports, TFA Labs will store raw data on the Factom blockchain and assign a digital identity to the permanent software installed on devices. Any change to a file or software installed on a device reportedly will produce a unique cryptographic hash that does not match the digital identity, alerting TFA to potential manipulation. The project is currently backed by a $200,000 grant from the U.S. Department of Energy.

Also this week, PlatOn, a privacy-preserving computing network, announced plans to partner with the Beijing-based division of a global automobile manufacturer to develop a solution for evaluating the value depreciation of its cars. PlatOn’s solution is a blockchain-based used car value management platform that reportedly will store static and dynamic vehicle data over the course of the vehicle’s lifetime, which ultimately allows companies to compute the residual value of vehicles at any given point in time. The solution also reportedly preserves the integrity of such vehicle data by embedding the data into a blockchain-based network that cannot be altered without the explicit approval of all the stakeholders in the value chain.

In another recent announcement, the Customs Department of Thailand will adopt the TradeLens blockchain platform for logistics and shipping container tracking. According to reports, Thailand will be the second member of the Association of Southeast Asian Nations to employ the platform, following Singapore.

Hedera Hashgraph, a distributed ledger network for enterprises, recently added one of the largest commercial aircraft manufacturers to its governing council. Hedera’s distributed ledger technology reportedly enables micropayments and distributed file storage and supports smart contracts. According to reports, the newly added firm will be the 10th member of Hedera’s governing council.

In a final noteworthy development, last week Hyperledger added a new codebase, Besu, to its portfolio. Hyperledger Besu is unique among other Hyperledger codebases because it reportedly links businesses directly to the public Ethereum blockchain and integrates with existing Hyperledger codebases. This will reportedly enable companies using competing blockchain networks to work together more easily.

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

International Developments in Blockchain and Cryptocurrency Regulation

By: Jonathan D. Blattmachr

Starting in January 2020, the Dutch central bank will regulate cryptocurrency service providers and, it has declared, at that time they must register with the central bank if they want to keep operating. Those companies that must register include wallet providers and those offering exchange services (e.g., facilitating trading Euros for bitcoin). The providers must show their processes are designed to prevent AML and terrorist financing, and that the companies’ policymakers adequately manage those processes.

The Swiss tax authority has issued a working paper describing new rules regarding crypto assets. The paper sets out tax treatment of crypto held by investors as private assets as well as the tax consequences of ICOs and ITOs for the issuers. For example, the authority has determined that “cryptocurrencies in the form of pure digital means of payment” are subject to wealth taxes, which shall be valued at the market value at the end of the tax period. In another example, if an issuer sells “participation tokens,” the money the issuer raises is generally subject to income tax at the time of issuance. In a contrasting approach, the Portuguese Tax and Customs Authority recently published guidance confirming that cryptocurrency payments and the exchange of cryptocurrencies for fiat money are exempt from value added tax.

In the UK, London’s High Court has taken steps to recognize bitcoin as legal property, though it stopped just short of doing so. The presiding judge issued an asset preservation order to stop the dissipation or transference of bitcoin stolen as part of a phishing attack. This decision marks the first time a court has considered whether cryptocurrencies are property, but it did not go so far as to determine whether cryptocurrency is a “chose in possession” (an actual thing) or a “chose in action” (something that can only be claimed by taking legal action, not by physical possession). If it is determined that cryptocurrency is legal property, that would allow those assets to be used like other property, such as allowing its owner to grant a security interest in it.

For more information, please refer to the following links:

NY DFS Approves Gold-Backed Stablecoin, Financial Institutions Pursue Blockchain Pilots

By: Robert A. Musiala Jr.

This week the New York State Department of Financial Services announced that it has authorized a major U.S. cryptocurrency exchange and custodian to offer two new virtual currency products. The first product, “PAX Gold,” is an Ethereum-based token that is backed by gold ‒ the first product of its kind to be authorized by DFS. The second product, Binance USD (BUSD), is an Ethereum-based “stablecoin” that is pegged 1:1 to the U.S. dollar. BUSD is being launched in partnership with Binance, a foreign-based cryptocurrency exchange, and will be backed by U.S. dollar reserves held by the U.S. cryptocurrency exchange and custodian, which will act as custodian and issuer for BUSD. In other cryptocurrency exchange news, cryptocurrency news outlet Bitcoin.com recently announced the launch of a new cryptocurrency exchange that is intended to compete with other large exchanges.

In capital markets news, one of several firms that has unsuccessfully sought Security and Exchange Commission (SEC) approval for a bitcoin-based exchange traded fund (ETF) has reportedly changed its approach in an effort to bring its product to market. The firm has reportedly altered its proposed product, limiting participants to certain institutional buyers such as hedge funds and banks, in order to avoid certain regulatory requirements.

In the traditional banking sector, one of the world’s largest banks recently announced that it has completed “the first yuan-denominated blockchain based letter of credit transaction.” The transaction reportedly took place on Voltron, a blockchain platform developed by a consortium of major international banks. Also this week, a major U.S. financial services firm announced that it has joined the Marco Polo Network, a trade and working capital finance network powered by the Corda blockchain platform.

In payments news, this week the Luxembourg office of a “Big Four” global accounting and consulting firm announced that it will soon begin accepting bitcoin as payment. Additionally, a U.S.-based online legal technology firm has announced plans to launch its own “stablecoin” that would be used in conjunction with smart contracts deployed though its platform.

For more information, please refer to the following links:

SEC Settles Charges, Treasury Hears Testimony, Cryptojacking Report Released

By: Joanna F. Wasick

Late last week, the SEC announced that it has settled charges with Bitqyck Inc. and its founders, Bruce Bise and Sam Mendez, alleging that they defrauded investors in the securities offerings of two cryptocurrency tokens, and had operated an unregistered exchange. According to the SEC, the defendants lied to investors and fraudulently raised $13 million through unregistered token sales. Without admitting or denying the allegations, Bitqyck consented to an order requiring it pay back investor money, with interest, and a civil penalty of nearly $8.4 million. Bise agreed to pay disgorgement, interest and penalties of $890 thousand; Mendez agreed to $850 thousand.

David Murray, a vice president at the Financial Integrity Network and former U.S. Treasury Department director, recently provided expert testimony to a U.S. Senate subcommittee about how cryptocurrencies are facilitating human trafficking. Murray advocated for regulating cryptocurrency mining under the Bank Secrecy Act, and requiring miners to ascertain who is on the other end of transactions, and to vet any issuers, exchanges or custodians they serve. In response, critics, including Peter Van Valkenburgh of the think tank Coin Center, have argued that such regulation would act as a ban on miners participating on public blockchain networks, and would ultimately prove ineffective in crime prevention.

Finally, last week a major cybersecurity firm reported that in the first quarter of 2019, “cryptojacking” (secretly installing software to use a person’s computing power to mine cryptocurrencies without consent) rose 29% and ransomware attacks increased by 118%. The report identifies new types of malware that can infect major operating systems.

For more information, please refer to the following links:

Blockchain for Beer Advertising and the Air Force, DOJ Tackles Crypto Crimes, More Payment Initiatives Announced

In this issue:

Blockchain Applications for Beer Advertising, Hotel Booking and the U.S. Air Force

Traditional and Emerging Blockchain Payments Firms Receive Licenses, Complete Pilots

Multiple Enforcement Actions Against Crypto Crimes, Order Issued in Billion-Dollar Bitcoin Lawsuit

Hackers Wreaking Havoc in the Crypto Space

Blockchain Applications for Beer Advertising, Hotel Booking and the U.S. Air Force

By: Simone O. Otenaike

Late last week, a major U.S.-based beer brewing company launched a blockchain-based trivia game in conjunction with Vatom Labs as part of the firm’s “Know Your Beer” campaign. The mobile game, known as Great Taste Trivia, challenges players to answer 12 trivia questions correctly to win one of 10,000 cash prizes of $5 each. The brewing company relies on blockchain technology to secure and authenticate the $5 rewards. Also last week, a business and consumer travel services firm announced plans to use Hyperledger Fabric to build a system that tracks, manages and accounts for commissions owed to booking agents on behalf of hotel chains. The system will reportedly guarantee that agents’ commissions are paid, which will ultimately reduce the number of payment disputes.

In other news, the U.S. Air Force announced plans to employ the SIMBA blockchain to protect Additive Manufacturing in the field. Currently, long value chains present major security issues in manufacturing military applications, since hostile entities constantly seek to obtain or modify critical data. The Air Force’s Blockchain Approach for Supply Chain Additive Manufacturing Parts project will use the SIMBA Chain platform to decentralize Additive Manufacturing in the field and maintain data integrity. The U.S. Air Force also recently announced plans for another blockchain project with Constellation Network Inc. (Constellation). According to reports, the U.S. Air Force has multiple data sources such as drones, planes and satellites that need to be secured and consolidated so that data can be queried instantly. Constellation will reportedly provide the U.S. Air Force with a scalable and secure blockchain-based solution for big data processing, audit trails and live overview for both Air Force data pipelines and external data sources.

Last month, the World Economic Forum released a white paper that analyzes the question of public versus private blockchain solutions for global supply chains. The paper aims to outline important criteria to understand when dealing with public versus private blockchains and evaluates how each type of blockchain affects the eventual supply chain solution, depending on the context of the use case and its unique requirements. This paper is the third in a series related to responsible blockchain deployment in supply chains. The UCL Centre for Blockchain Technologies also recently released a report that reviews blockchain adoption trends in the global supply chain industry. Among other things, the report highlights that more than half of the projects reviewed employ private blockchains, the grocery sector has the most active projects and roughly 15% of projects have moved beyond concept into production.

For more information, please refer to the following links:

Traditional and Emerging Blockchain Payments Firms Receive Licenses, Complete Pilots

By: Robert A. Musiala Jr.

Traditional and emerging financial institutions around the world made progress on blockchain initiatives this week. In Estonia, German bank WEG Bank reportedly obtained a cryptocurrency trading and custody license. In Switzerland, the Swiss Financial Market Supervisory Authority, FINMA, issued two new banking and securities dealers’ licenses to two “blockchain based service providers,” SEBA Crypto AG and Sygnum AG. Elsewhere in Europe, one of the largest financial institutions in the world financed its first transaction on we.trade, a consortium-based blockchain platform that leverages Hyperledger Fabric to manage, track and protect transactions between small and midsize enterprises. And in the United States, a major bank became the first U.S. bank to process cross-border payments using the RippleNet blockchain platform.

Also this week, the Libra Association launched a public bug bounty program that allows developers to submit bugs and alert the association to security and privacy issues. According to the announcement, the program “is designed to encourage members of the security community to dig deep and help find even the most subtle bugs.” The announcement noted that bounties under the program “will scale up to $10,000 for critical issues on the testnet.” The news comes amid reports that European regulators have launched an investigation into the proposed Libra cryptocurrency related to concerns over anti-competitive behavior and the use of consumer data.

Finally, this week FINMA published new anti-money laundering guidance for cryptocurrency exchangers. According to the guidance, FINMA-regulated entities are prohibited from engaging in cryptocurrency transactions if information about the sender and recipient cannot be transmitted reliably. The new guidance is consistent with recently issued guidance from the Financial Action Task Force.

For more information, please refer to the following links:

Multiple Enforcement Actions Against Crypto Crimes, Order Issued in Billion-Dollar Bitcoin Lawsuit

By: Robert A. Musiala Jr.

Over the past 10 days, the U.S. Department of Justice (DOJ) has published six separate press releases providing details on enforcement actions involving cryptocurrencies. One press release announced that several Arizona residents had pleaded guilty and received prison sentences for their involvement in a conspiracy to distribute controlled substances and launder the proceeds. According to the press release, the defendants sold narcotics on the dark web and attempted to launder the proceeds by selling cryptocurrency through peer-to-peer exchangers. Another press release provided details on the sentencing of a dark market vendor who forfeited “millions of dollars in digital or crypto currency including Bitcoins, Stratis, Ethereum [and] 2350 Monero.” The press release noted that the forfeited assets included cryptocurrencies held in accounts at U.S.-based exchanges.

A third DOJ press release provided details on what is “believed to be the first federal criminal case charging an unlicensed money remitting business that used a Bitcoin kiosk.” The defendant “agreed to plead guilty to federal criminal charges for owning and operating an unlicensed money transmitting business where he exchanged up to $25 million in cash and virtual currency for individuals, including Darknet drug dealers and other criminals, some of whom used his Bitcoin ATM kiosk.” Another press release described charges against two Canadian nationals who allegedly “used a Twitter account with the name @HitBTCAssist to trick victims into thinking they were communicating with a customer service representative from HitBTC,” a Hong Kong-based cryptocurrency exchange.

A fifth press release described the sentencing of an Australian national “for money laundering with Bitcoin.” The investigation involved undercover agents who conducted money exchanges with the defendant, who agreed to exchange bitcoin for cash from narcotics proceeds. Finally, a sixth DOJ press release announced the indictment of a former software engineer at a major U.S. bank for unauthorized intrusion into stored data of the defendant’s former employer and more than 30 other companies. According to the press release, the defendant gained unlawful access to data on cloud servers and “used this access not only to steal data, but also used stolen computer power to ‘mine’ cryptocurrency for her own benefit, a practice known as ‘cryptojacking.’”

In addition to the DOJ actions, a Federal Trade Commission (FTC) press release published late last week described an FTC settlement with the “promoters of recruitment-based cryptocurrency schemes.” The chain referral schemes (a type of pyramid scheme) involved the defendants using websites, YouTube videos, social media and conference calls to claim that they “could turn a payment of the equivalent of just over $100 into $80,000 in monthly income.” The defendants forfeited more than $500,000 and will be permanently barred from operating any other multilevel marketing or pyramid scheme.

In a final notable development, this week a federal court ordered self-proclaimed Bitcoin inventor Craig Wright to transfer half of his bitcoin holdings, which are believed to be worth billions of dollars, to the estate of David Kleiman. According to the order, Wright’s bitcoin holdings were produced in a 50-50 partnership with Kleiman to mine bitcoin and develop related Bitcoin technology.

For more information, please refer to the following links:

Hackers Wreaking Havoc in the Crypto Space

By: Jonathan D. Blattmachr

Gamers found themselves under threat this week, not from virtual baddies but from ransomware targeting players of Fortnite, a wildly popular online game. Some players downloaded what they thought was a helpful in-game add-on, but it turned out to be malware. Once it infects the targeted computer, the “Syrk” ransomware locks out its owner and promises to delete the computer’s files unless a bounty is paid. Fortnite players appear to be favorite targets of bad actors. Other malware infects gamers’ high-powered computers and uses them to mine cryptocurrencies.

French cops have broken up a botnet ring, which some estimate has made millions from fraud. The virus had infected thousands of computers in more than 100 countries, primarily in the Americas. As part of their plot, the fraudsters used ransomware, stole data from Israeli hospitals and patients, and even “mined” the cryptocurrency Monero. Investigators are still looking for those behind the scheme.

Cryptocurrency users are being warned about a new type of online attack, called “dusting.” Fraudsters send limited coins to users’ personal wallets and then track down their transactional activity. The attackers then perform a combined analysis of the pertinent IP addresses to identify the person or company controlling the wallet; phishing or blackmail follows. Experts advise using a VPN to vary IP addresses or using other methods that prevent monitoring by criminals.

For more information, please refer to the following links:

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.

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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.

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