Blockchain Developments: Bitcoin ATMs, Token Listings, Voting Pilots, Shipping Competition, Global Enforcement, Tax and More

In this issue:

NY DFS Grants License to Bitcoin ATM Operator, Exchanges Make Announcements

Capital Markets Developments in Regulatory Guidance, Value of ICO Offerings and Banking

Blockchain Pilots for Voting and Supply Chain, Global Shipping Business Network Challenges TradeLens

Multiple Enforcement Actions in US and Abroad Seek to Quell Blockchain Industry Crimes

Tax Compliance Stakes Raised for Cryptocurrency Issues

NY DFS Grants License to Bitcoin ATM Operator, Exchanges Make Announcements

By: Joanna F. Wasick

The New York State Department of Financial Services (DFS) announced last week that it approved Coinsource, Inc.’s application for a virtual currency license. Coinsource presently operates 40 Bitcoin teller machine (BTM) kiosks in New York, allowing customers to buy and sell bitcoin for cash. DFS says its approval was based on stringent requirements related to various risk controls and consumer protections. Coinsource is the only company operating BTMs with this type of license; however, DFS previously approved more general licenses for other companies in the cryptocurrency marketplace. One licensee, Square, a payments company that recently integrated cryptocurrencies, announced on Thursday that it generated $43 million in bitcoin revenue this quarter (up $6 million).

In token news, Coinbase announced it will support BAT, tokens issued by Brave, which runs an internet browser that “pays” users in BAT to view ads. In addition, Stably, a Canadian startup, recently announced the early-access launch of StableUSD, a stablecoin issued with an equivalent unit of U.S. dollars held in escrow accounts. Tether, another stablecoin issuer (criticized by some for opacity), issued a letter earlier this month stating it had a $1.8 billion account with a Bahamas-based financial institution to back up its Tether coins. Days later, the bank issued a statement that the letter was legitimate. To help determine the best places to trade and store cryptocurrencies, the cybersecurity company Group-IB has announced its system of grading the security of various exchanges. Its methodology, which will be used to determine insurance premiums, tracks factors such as cyberattack losses, anti-money laundering (AML) policies and storage capabilities.

Outside the U.S., Binance Uganda reportedly signed up 40,000 users in the first week after it launched its cryptocurrency exchange. And Bithumb, a South Korean cryptocurrency exchange, announced a partnership with a major Asian e-commerce company that will enable customers to make purchases via the Bithumb Cache system, a password-protected payment service that allows Bithumb customers to convert their cryptocurrency funds for use as payments.

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

Capital Markets Developments in Regulatory Guidance, Value of ICO Offerings and Banking

By: Jonathan D. Blattmachr

There are (as usual these days) many interesting developments in the blockchain capital markets space this week. First up, Securities and Exchange Commission (SEC) director William Hinman announced the Commission intends to release “plain English” guidance for ICO issuers. This information may help those gearing up for an offering to determine whether the SEC will consider the token a security. Hinman is the same director who gave an interesting speech in June about what should be considered a security, which we wrote about here.

Also in regulatory news, the Swiss Financial Market Supervisory Authority (FINMA) has weighed in on capital adequacy requirements for crypto assets, recommending (but not requiring) that investors should be “assigned a flat risk weight of 800% to cover market and credit risks.” This would mean, for example, that for each bitcoin held, a bank should assume a value of eight times that amount in fiat currency when calculating the risk-weighted value of its assets. FINMA also recommends institutions limit their crypto trading activities to 4 percent of total capital, including long and short positions.

While everyone agrees the capital markets have raised a significant sum from initial coin offerings (ICOs) this year, what the total amount is depends on who’s asked. Estimates range anywhere from $11 billion to $22 billion; the divergence exists because while the issuers have self-reported how much they raised from their ICOs, market watchers can take those numbers at face value or adjust. That said, according to a recent report, Israel-based ICOs have raised $606 million during the third quarter this year. Israel has reportedly attracted $1.3 billion in blockchain investments so far, with the plurality of the money going into the fintech space.

In the world of banking, Bancor announced it will provide cross-blockchain token swaps between ether and EOS-based tokens, without exchanges. The company believes this will allow its users to “seamlessly interact with any blockchain which best suits their needs.” And a major Spanish bank announced it has completed a test program that placed a $150 million syndicated loan on the Ethereum blockchain. The pilot reportedly eliminated the need for banks to share information via fax, a slow and costly process.

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

Blockchain Pilots for Voting and Supply Chain, Global Shipping Business Network Challenges TradeLens

By: Diana J. Stern

In this year’s midterm elections, West Virginia conducted a statewide pilot utilizing a private blockchain, smartphones and facial recognition so that Americans abroad could vote more easily. One election security expert advised this would likely be superior to submitting absentee ballots by email but far less secure than in-person voting.

In another recent pilot, hardware manufacturer Seagate and a large, global technology company will seek to stop counterfeiting in the computer hard-drive supply chain. Hard drives produced by Seagate for the other company’s servers will include a physical marker and corresponding electronic key, which will be stored on a blockchain platform, where it will be available for verification at any time.

In a digital supply chain use case, smart contract outfit OpenLaw created an end-to-end demonstration of how artists can utilize their smart contract tools to manage fragmented ownership interests and commercialization strategies for their intellectual property in a more automated way – from proving ownership and issuing licenses to receiving royalty payments. In the demo, the artist uploads art as a nonfungible token on the Ethereum blockchain, then creates licenses linked to that token and finally enters into a written contract with the counterparty through a partially automated process. By tying the smart contracts to the token, OpenLaw aims to have the payments mechanism follow the license each time it is transferred. In related news, a U.S.-based software company was awarded a patent for a blockchain-based platform that would seek to prevent spam email.

Following our previous coverage of TradeLens, reports state the platform may have hit tumultuous tides as competitors attempt to work together, and efforts to achieve a network effect have fallen short with respect to carriers. One contributing factor may be that carrier Maersk is essentially steering the ship. On the other hand, customs authorities, logistics companies and a total of 94 players have reportedly integrated with TradeLens, and this week, the Port of Authority of Valencia in Spain joined as well. Still, multiple carriers have sailed over to a competing consortium, the Global Shipping Business Network (GSBN), affiliated with the Ocean Alliance. The recently announced GSBN is composed of ocean carriers serving the trans-Pacific market that collectively represent approximately one-third of global container ship capacity.

A major global enterprise software firm recently announced its HANA blockchain, which leverages the company’s databases and cloud platform and is compatible with Hyperledger Fabric and MultiChain and soon will be compatible with Quorum. In addition, Hyperledger Fabric recently announced support for Ethereum Virtual Machine (EVM) bytecode smart contracts. Among other features, Fabric now integrates with Solidity, a popular programming language used to write smart contracts.

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

Multiple Enforcement Actions in US and Abroad Seek to Quell Blockchain Industry Crimes

 By: Simone O. Otenaike

This week, the SEC announced that it has settled charges against the founder of EtherDelta for operating an unregistered national securities exchange. EtherDelta is a digital token trading platform for blockchain-based tokens commonly issued in ICOs. According to the SEC’s order, EtherDelta’s founder agreed to pay $300,000 in disgorgement plus $13,000 in prejudgment interest and a $75,000 penalty. This is the SEC’s first enforcement action against a digital token trading platform for operating as an unregistered national securities exchange. The SEC has previously brought enforcement actions relating to unregistered broker-dealers and ICOs, some of which were traded on EtherDelta. The SEC’s recently released annual enforcement report for the 2018 fiscal year cites three specific ICOs that defrauded investors of a combined $68 million.

In more SEC-related news, the crypto fund Blockvest LLC asked a federal court to require the SEC to submit admissible evidence before allowing the agency to block its ICO. Blockvest LLC argued that the SEC should be required to make more specific allegations and argued that evidence submitted in support of the SEC’s application for a temporary restraining order is based on hearsay and thus inadmissible. On the state level, this week the Texas State Securities Board filed an emergency cease and desist order against Automated Web Services Mining (AWS Mining), an Australia-based cloud mining company, for selling unregistered crypto mining power contracts. According to the order, AWS Mining, along with its officers and partners, failed to register as dealers or agents for securities offerings and failed to register its contracts as securities.

A leading web analytics platform, StatCounter, was breached late last week through an external JavaScript tag. The service is used by more than 2 million other websites, including several government-related websites, to gather statistics on website visitors. This breach was unique because the hackers compromised StatCounter’s external JavaScript tag, not StatCounter’s website. The hackers used an external resource that touches millions of other sites just to steal bitcoin from one cryptocurrency exchange website. The attack demonstrates that well-maintained and protected websites are still susceptible to flaws in external resources that are under the control of third parties.

On the international front, regulators continue to put pressure on hackers. Late last week, the Financial Markets Authority (FMA) of New Zealand blacklisted three new crypto-related websites – Crypto Gain, Russ Horn and Zend Trade. Meanwhile in Turkey, the Cybercrime Department of the Turkish National Police arrested 11 suspects for an alleged crypto hack that resulted in more than $80,000 in losses. In South Korea, intelligence officials have solved the first known case of cryptojacking in South Korea. Cryptojacking is a hacking method where the hacker secretly takes control of personal computers to mine cryptocurrency. While the four hackers collected only about $895 worth of virtual money, they will stand trial for infecting over 6,000 PCs during the course of their scheme.

On Monday, Cybersecurity experts at Japan Digital Design, a subsidiary of Mitsubishi UFJ Financial Group, announced the discovery of incriminating evidence against the hackers of Japanese crypto exchange Zaif. Back in September, Zaif lost roughly $60 million worth of crypto assets. The experts have provided all relevant information to the authorities. Also this week, Taiwan’s legislature bolstered current cryptocurrency regulations with the passage of amendments to its existing AML and counterterrorism financing laws. The amendments give Taiwan’s Financial Supervisory Commission (FSC) the power to prohibit anonymous crypto transactions and to allow banking organizations to reject anonymous transactions and report suspicious ones to the FSC. These changes promote AML compliance and allow Taiwan to better align with international AML standards.

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

Tax Compliance Stakes Raised for Cryptocurrency Issues

By: Roger M. Brown and Heather K.P. Fincher

At the International Tax Symposium held in Houston on Nov. 8 and 9 by the State Bar of Texas Tax Section, Daniel N. Price of the IRS Office of Chief Counsel reportedly said the IRS is not contemplating a separate disclosure program related to offshore cryptocurrency reporting. The IRS recently closed a comparable program, the offshore voluntary disclosure program (OVDP), in which taxpayers with foreign accounts could voluntarily report transactions to the IRS and receive certain benefits, and Mr. Price’s comments were meant to dispel a rumor that the IRS would launch a similar program encouraging taxpayers to disclose virtual currency transactions.

Many taxpayers struggle with a myriad of tax issues that arise in the cryptocurrency context, including the following:

  • Whether taxable gain arises from the exchange of one cryptocurrency for another (including potential application of the pre-2018 like-kind exchange rules).
  • Tax treatment of hard and soft forks, air drops, and exchanges of tokens for goods, services or other items of value.
  • Valuation issues arising from a variety of transactions, including token grants, option grants and air drops.
  • FBAR reporting for cryptocurrency assets held offshore.
  • Ability of non-U.S. persons to trade in cryptocurrencies through U.S. agents without being subject to U.S. tax.
  • Tax treatment of ICOs.
  • Classification and potential tax treatment of non-U.S. entities that may be used in effecting ICOs.
  • Potential application of broker, barter exchange and other reporting rules.

The absence of an OVDP-type program means that taxpayers will not have the benefit of reduced penalties if their tax treatment and reporting of these and other issues are incorrect. Further, because no reference to guidance related to cryptocurrencies is made in the 2018-2019 Priority Guidance Plan, released yesterday by the IRS and Treasury, it is unclear whether the IRS will be providing any additional guidance for taxpayers anytime soon. Thus, traditional means of reducing penalties by taking positions based on a learned application of the tax law to a taxpayer’s facts will be needed to minimize tax-adverse consequences that may arise when dealing with cryptocurrencies.

Global Blockchain Developments: Zero-Knowledge Proofs on Ethereum, New Foreign Regulatory Frameworks, Continued Enforcement Actions

In this issue:

Supply Chain and Banking Pilots Expand, Zero-Knowledge Proofs Meet Ethereum

Cryptocurrency Exchange Announcements, Malta Blockchain Laws Take Effect

Global Developments in Enforcement, Regulatory Frameworks and Court Rulings

Supply Chain and Banking Pilots Expand, Zero-Knowledge Proofs Meet Ethereum

By: Jaime B. Petenko

This week, a leading diamond mining company announced that it joined the Tracr diamond blockchain traceability program, which aims to provide consumers with confidence and information about their diamonds and raise the bar for the traceability, authenticity and provenance of diamonds. Also this week, the Canada Border Services Agency announced that it will pilot TradeLens, a blockchain platform for supply chains that enables participants to track import and export data in real time with a secure audit trail, which could reduce transit times and costs by improving visibility and communication. While more than 100 participants have signed on to TradeLens, the platform is reportedly facing challenges attracting other shipping carriers due to concerns related to the terms of engagement, including ownership of intellectual property rights. In related news, a leading enterprise software company recently announced that in early 2019 it will launch a suite of blockchain applications for supply chains that will focus on four specific use cases and offer packaged solutions requiring minimal system integration and customization.

Recently, the world’s leading provider of financial transaction messaging services and a voting solutions provider teamed up to demonstrate a blockchain proof of concept for voting built on Hyperledger Fabric. Also this week, a Big Four accounting firm announced the launch of a prototype for the world’s first implementation of zero-knowledge proof technology on the public Ethereum blockchain. The technology seeks to enable companies to use the standard, secure infrastructure of the public Ethereum blockchain but keep transactions private. According to a press release, the technology intends to support payment tokens and tokens similar to Ethereum ERC-20 and ERC-721 tokens, with the goal of allowing companies to reduce the costs and resources required to set up their own networks.

Last week, a multinational financial services corporation announced the expected launch date of Q1 2019 for its blockchain-based digital identity system for cross-border payments. The system, which is designed for financial institutions, seeks to allow for quick and secure business-to-business global payments. The system will reportedly utilize tokenization of an organization’s sensitive business information (e.g., account numbers and banking details) to produce a unique cryptographic identifier to facilitate transactions. In related news, a Japanese multinational information technology company announced that it has been selected as an application development vendor for a field trial by nine Japanese banks for a blockchain-based interbank settlement system. According to a press release, the proposed solution would utilize the technology firm’s peer-to-peer money transfer platform as well as “a digital currency” for interbank settlements. According to reports, in China the Shenzhen Court of International Arbitration officially recognized bitcoin as property, thereby allowing bitcoin to be owned and transferred without violating financial regulations. The decision by the court allows merchants to legally accept bitcoin as a form of payment.

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

Cryptocurrency Exchange Announcements, Malta Blockchain Laws Take Effect

By: Simone O. Otenaike

On Monday, a Belgium-based investment company acquired Bitstamp, the largest digital currency exchange in the European Union by volume, with turnover of $100 million per day. The acquiring company has more than 2 billion euros in assets under management and is the European subsidiary of the South Korea-based investment company that owns Korbit, a South Korean cryptocurrency exchange. Also this week, Bittrex International announced plans to launch a digital trading platform that will feature a streamlined and feeless token approval process. The platform will seek to identify tokens that are consistent with their jurisdiction’s regulatory environment and match token teams to a network of international exchange partners. According to a press release, Bittrex International will operate within the regulatory framework established by the European Union and the Malta Virtual Financial Assets Act.

Malta, recently dubbed “Blockchain Island,” is scheduled to host the Malta Blockchain Summit this week. During the summit, three new blockchain technology bills that were adopted earlier this year will take effect: (1) The Malta Digital Innovation Authority Act, (2) The Innovative Technological Arrangement and Service Act, and (3) The Virtual Financial Asset Act. The Malta Digital Innovation Authority Act establishes an agency that will regulate the blockchain industry, protect consumers and financial markets, and promote transparency. The Innovative Technological Arrangement and Service Act establishes a regime for the registration and certification of technology service providers and lays the groundwork for future technology developments. And The Virtual Financial Asset Act establishes the “financial instruments test,” which provides guidance on whether a cryptocurrency or token issued in an initial coin offering (ICO) constitutes a security. Any asset that does not squarely pass the test will be deemed a “virtual financial asset” regulated by the new law.

On the domestic front, a major national bank received a patent on Tuesday for a device that securely stores cryptographic keys, which have been prone to hacking and cybertheft. The patent presents a significant business opportunity for the bank since most cryptographic keys are used for blockchain platforms. And a report published this week states that if bitcoin were to become a true global transactional currency, the electricity needed to mine bitcoin would generate enough carbon dioxide emissions to warm the planet beyond 2 degrees Celsius within 25 years. Critics challenge the research’s assumption that bitcoin’s energy consumption will increase linearly, claim it is too speculative to conclude whether or not bitcoin will become a true global transactional currency, and assert that hydroelectric power and other renewable energy resources provide the potential for bitcoin mining to go green.

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

Global Developments in Enforcement, Regulatory Frameworks and Court Rulings

By: Taylor Thompson

On Oct. 29, the U.S. Attorney’s Office for the Southern District of California announced that a criminal defendant pleaded guilty in federal court to operating a bitcoin exchange without registering with the Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) and without complying with anti-money laundering (AML) laws. The defendant used a bitcoin exchange in Hong Kong to purchase more than $3 million in bitcoin in hundreds of separate transactions on behalf of customers who paid him in cash at above-market rates. According to the announcement, between 2016 and 2018 the defendant arranged to import more than $1 million in U.S. currency from Mexico and exchanged the dollars with a San Diego precious metals dealer, structuring transactions to avoid reporting requirements. In other AML-related news, a recent report claims that the Russia-based cryptocurrency exchange WEX had its funds frozen by the Malta-based Binance exchange after users claimed WEX was involved in money laundering. The same report indicates that WEX, where bitcoin trades well above global norms, is a follow-on to BTC-e, an exchange subject to an investigation in the U.S. and Greece regarding a $4 billion fraud and money laundering scheme.

Recent reports claim that the U.S. Financial Industry Regulatory Authority (FINRA) will soon issue guidance to broker-dealers on how to apply the SEC’s Rule 15c3-3 to digital assets such as cryptocurrencies. And a multinational financial services firm has announced that it will launch cryptocurrency trading and custody services, amid news that competition is escalating among potential qualified custodians for digital assets. Meanwhile, the British government’s Cryptoassets Taskforce recently released a comprehensive final report claiming that there is “limited evidence of the current generation of cryptoassets delivering benefits, but this is a rapidly developing market and benefits may arise in the future.” H.M. Treasury, the Financial Conduct Authority and the Bank of England all pledged to support the development of “legitimate” crypto-related activities while cracking down on “illicit” activities.

According to a recent report, in June 2018, the Chinese Hangzhou Internet Court accepted blockchain data as evidence in a “right of communication” infringement case. The case centered on one company’s allegedly unauthorized distribution of a newspaper article. The court relied in part on data from a blockchain-based third-party data preservation firm to conclude that the plaintiff’s right of communication had, in fact, been infringed, and that all electronic data, including blockchain data, should be considered on a case-by-case basis. Meanwhile, the Thai Securities and Exchange Commission (SEC) recently issued warnings about investing in nine specific ICOs, and warned of crypto-based Ponzi schemes. Finally, multiple reports indicate that Hong Kong’s Securities and Futures Commission (SFC) will regulate cryptoassets “to regulate the management or distribution of virtual asset funds in one way or another so that investors’ interests would be protected either at the fund management level, at the distribution level, or both.” The SFC announced that “[i]ntermediaries which distribute virtual asset funds, whether or not they are authorised by the SFC, are required to ensure compliance” with applicable regulations. Additionally, “the SFC will explore whether virtual asset trading platforms are suitable for regulation in the SFC Regulatory Sandbox,” but it may also deny a license to such platforms altogether. The SFC cited valuation, volatility and liquidity risks; cybersecurity; AML/CTF risk; conflicts of interest; and fraud as potential risks for the crypto space, though it also said it “will keep the development of activities related to virtual assets in view and may issue further guidance where appropriate.”

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

SEC Launches FinHub, FATF Publishes Guidance, Futures and Stablecoin Markets Mature

In this issue:

SEC Launches FinHub, FATF Revises Cryptocurrency Guidance

Capital Markets Developments in Futures, Stablecoins, Custody, ICOs

Blockchain Enterprise Developments for Gold, Ports, BaaS and Developers

SEC Launches FinHub, FATF Revises Cryptocurrency Guidance

By: Taylor Thompson

On Oct. 18, the Securities and Exchange Commission (SEC) announced the creation of the Strategic Hub for Innovation and Financial Technology (FinHub). According to an SEC press release, the FinHub will serve as a centralized resource on the SEC’s fintech initiatives, including those relating to blockchain, digital marketplace financing, automated investment advice and AI. SEC Chairman Jay Clayton said, “The FinHub provides a central point of focus for our efforts to monitor and engage on innovations in the securities markets that hold promise, but which also require a flexible, prompt regulatory response to execute our mission.” Valerie A. Szczepanik, Senior Advisor for Digital Assets and Innovation and Associate Director in the SEC’s Division of Corporation Finance, will lead the FinHub, which will be staffed by members of various SEC divisions and offices with fintech expertise.

Earlier this week, the SEC announced the suspension of trading in the securities of a U.S.-based retail company. The SEC alleged the company made false claims that it had partnered with an SEC-qualified custodian for cryptocurrency transactions and was conducting a token offering registered under SEC regulations. In related news, the Commodity Futures Trading Commission (CFTC) announced that a federal district court has ordered a New York-based corporation and its CEO to pay more than $2.5 million in civil penalties and restitution in what the CFTC called its first-ever anti-fraud enforcement action involving bitcoin. The CFTC brought the action in response to a Ponzi scheme in which the defendants generated false statements showing gains from bitcoin trading to solicit more than $600,000 from at least 80 investors between 2014 and 2016. According to a recent report, the Australia Securities Investments Commission (ASIC) has shut down a Brisbane-based initial coin offering (ICO) project that intended to raise up to $50 million USD to create a cryptocurrency trading platform.

A study published last week claims that Lazarus, a hacker group thought to be sponsored by North Korea, has stolen $571 million in cryptocurrency during 2017 and 2018, out of an estimated total of $882 million stolen from online exchanges in that time. The Financial Action Task Force on Money Laundering (FATF), an intergovernmental organization initially founded by the G-7, recently announced an update to 2015 guidance that set out requirements for combating money laundering and terrorist financing in the virtual currency space. According to the FATF, the updates are designed to make clear that virtual assets and their service providers “are subject to AML/CFT regulations, for example conducting customer due diligence including ongoing monitoring, record-keeping, and reporting of suspicious transactions.” The FATF said it would consider further updates over the next 12 months, as it tries to strengthen the global AML/CFT regime while also creating room for innovation.

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

Capital Markets Developments in Futures, Stablecoins, Custody, ICOs

By: Jonathan D. Blattmachr

There were several developments in the crypto capital markets space this week. ICE Futures U.S. Inc. announced it will list the Bakkt Bitcoin (USD) Daily Futures Contract on Dec. 12, 2018. This physical-settled futures contract calls for delivery of one bitcoin and will trade in U.S. dollars.

Coinbase now offers its customers the ability to trade the USD Coin stablecoin, which is pegged to the U.S. dollar on the Ethereum blockchain. The coins are collateralized by corresponding greenbacks. In similar news, Novatti Group, an Australian online payments processor, will issue a stablecoin tied to the Aussie dollar, with 1:1 fiat currency being held in trust.

The New York State Department of Financial Services, the state’s financial regulatory agency, recently announced its approval of Coinbase Custody Trust Company LLC, a Coinbase Global subsidiary. Coinbase Trust will be licensed to offer custody services for bitcoin, bitcoin cash, ether, litecoin and other virtual currencies. G4S also announced a new, high-security, offline storage for protecting virtual assets. Citing an estimate that more than $1.2 billion in cryptocurrency has been stolen since 2017, G4S believes its offline storage is superior, with assets fragmented and distributed across various vaults. And a major investment bank is investing $15 million in cryptocurrency custodian BitGo Holdings Inc. to offer a secure way to hold its clients’ digital assets. BitGo raised $57.5 million in this round of fundraising, but the endorsement by a household banking name may mean even more.

Ernst & Young has released a study about the ICOs that debuted in 2017, and the results are not inspiring: 86 percent of coins are below their listing price, with 30 percent now virtually worthless. Ninety-nine percent of the net gain was concentrated in 10 offerings, the majority of which involved blockchain infrastructure ventures. E&Y compared the current environment with the dot-com bust.

In Bermuda, fintech company Uulala has become the first applicant under the country’s new regulatory regime to receive approval for an ICO. The company is seeking to raise $50 million from its offering, which will support its platform of blockchain-enabled financial services being made available to underserved communities in Latin America. Also offshore, Swiss financial services provider Swissquote is claiming to be the first bank to offer purchase and custodial services for ICO participants. This announcement comes on the heels of Russia’s largest majority state-owned bank confirming it had completed a mock ICO as part of its regulatory sandbox test run.

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

Blockchain Enterprise Developments for Gold, Ports, BaaS and Developers

By: Joanna F. Wasick

The London Bullion Market Association recently announced plans to use blockchain technology to track the movement of gold, with the aim of taking gold that was illegally mined or used to finance conflict out of the global supply chain. In another recent announcement, the Port of Rotterdam is partnering with banking and tech businesses to launch a pilot program that uses a blockchain-based platform for more efficient, transparent and paperless administration of processes used for large-scale container transport. And this week a major global software provider launched a suite of blockchain-based applications for businesses of all sizes that want new ways to track and analyze their production stream and sales. According to a recently published report, demand for blockchain engineers increased by 400 percent from late 2017, and annual salaries now average between $150,000 and $175,000, putting them on par with those for specialists in AI technology.

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

Institutions Adopt Cryptocurrencies, CFTC Warns on Smart Contracts, “Crypto-sweep” Continues

In this issue:

Cryptocurrency Capital Markets Announcements by Institutional and Startup Firms

Public and Private Blockchain Pilots Announced, CFTC Warns on Smart Contracts

Crack Down on ICOs Continues, U.S. Marshals Prepare to Auction Seized Bitcoin

Cryptocurrency Capital Markets Announcements by Institutional and Startup Firms

By: Jordan R. Silversmith

On Oct. 15, a major global financial services firm – the fourth-largest asset management firm in the world – announced plans to spin off a new company focused on making it easier for institutional investors, such as hedge funds and family offices, to invest in digital assets such as Bitcoin and Ether. The announcement comes amid positive news for institutional cryptocurrency exchanges Paxos and Gemini, which both recently launched stablecoins backed 1:1 by U.S. dollars. This week, Paxos reported that its stablecoin, Paxos Standard, has been listed on more than 20 exchanges and over-the-counter desks around the globe. According to reports, Gemini’s Gemini Dollar (GUSD) traded above its $1.00 peg this week, reaching a high of $1.19. In other institutional news, a major multinational options and futures exchange announced that the daily average trading of its bitcoin futures products increased 41 percent from Q2 to Q3.

In the startup space, this week New York-based media startup Civil was forced to cancel its ongoing initial coin offering (ICO) and issue refunds to token purchasers after failing to reach its preset funding minimum of $8 million. Another New York-based startup, BlockFi, recently announced that it is adding Litecoin and GUSD to the crypto assets it will accept as collateral for loans. Overseas, the world’s largest cryptocurrency exchange by volume, Binance, announced that beginning Oct. 17, users of Binance Uganda, Africa’s first cryptocurrency exchange, will be able to make deposits in leading cryptocurrencies bitcoin and ether as well as the Ugandan Shilling. Binance’s move into Uganda is part of the exchange’s plan to expand into Africa – a continent with one of the youngest populations in the world and very limited access to traditional banking services.

For more information on this post, please see the following:

Public and Private Blockchain Pilots Announced, CFTC Warns on Smart Contracts

By: Brian P. Bartish and Robert A. Musiala Jr.

New blockchain pilots for shipping and property registries were announced this week. A subsidiary of Abu Dhabi Ports and the Port of Antwerp signed a memorandum of understanding to launch a pilot that seeks to use blockchain to secure transactions, including identification and acknowledgement of cargo documents, and reduce costs at their respective ports. In Australia, the state of South Wales is reportedly partnering with a Swedish startup to build a proof of concept for a blockchain-based land registry system.

In the private sector, one of the world’s oldest and most renowned art auction houses recently announced a pilot project with blockchain-powered digital art registry Artory, which will store the purchase history of an artwork on a blockchain, accessible to the buyer via a registration card issued at the time of purchase, thus offering buyers greater confidence in the piece’s provenance. Also this week, a major global electronics and entertainment company announced that it is using blockchain technology to streamline rights management of educational digital content, including digital textbooks, music, films, VR content and e-books. The new system will be able to automatically verify the rights generation, such as the date and time the electronic data was created, of a piece of written work. And in the automotive industry, blockchain advertising analytics are helping improve performance in the $15 billion ad market. The auto industry’s first-ever blockchain campaign reportedly led to a 21 percent improvement in performance over previous campaigns by leveraging blockchain-based digital ad supply chain data. The project was a result of a partnership between startup Lucidity, a major Japanese auto manufacturer, and a global communications and advertising agency.

In a development for merchants, bitcoin payment processor BitPay announced that merchants will now be able to settle bitcoin and Bitcoin Cash transactions in Gemini Dollars and Circle USD Coin, both 1:1 U.S. dollar-backed stable coins. This new service will help decrease the price volatility that merchants are subject to when settling Bitcoin transactions. And in a recent speech at the GITEX Technology Week Conference in Dubai, Brian Quinentz, a commissioner at the Commodity Futures Trading Commission (CFTC), discussed the challenges of enforcing CFTC regulations in the context of smart contracts applications that trigger automatic payments upon the occurrence of specific events. The commissioner suggested that some applications of smart contract-triggered payments may be considered illegal “prediction markets.” Noting the potential for smart contracts to be used to propagate predictive “event” contracts, including those concerning war, terrorism, assassinations or similar events, Commissioner Quinentz stated his view that the coders behind such contracts may be liable under CFTC regulations.

For more information on this post, please see the following:

Crack Down on ICOs Continues, U.S. Marshals Prepare to Auction Seized Bitcoin

By: Taylor Thompson

In an Oct. 11 press release, the office of North Dakota Securities Commissioner Karen Tyler announced the issuance of cease-and-desist orders against three companies “promoting unregistered and potentially fraudulent securities in North Dakota in the form of Initial Coin Offerings (ICOs).” The press release reported that none of the companies has registered to sell securities in North Dakota, and the Commissioner alleges that each of the three entities made false or unsubstantiated claims about the nature, value, or upside potential of their tokens. The Commissioner’s effort is said to be part of Operation Cryptosweep, a coordinated multijurisdiction investigation and enforcement effort involving 40 U.S. and Canadian securities regulators. In a related development, recent reports indicate that two global credit card companies are moving to classify purchases related to cryptocurrencies and ICOs in “high risk” payment categories.

Late last week, the U.S. Treasury Financial Crimes Enforcement Network (FinCEN) issued an advisory to U.S. financial institutions regarding Iran’s efforts to evade sanctions. The advisory included a section on virtual currency, stating that Iran has engaged in millions of dollars of bitcoin-denominated transactions since 2013. The FinCEN advisory included a reference to guidance from the Office of Foreign Assets Control (OFAC), under which “compliance obligations with respect to transactions are the same, regardless of whether a transaction is denominated in virtual currency or not.”

The U.S. Marshals Service recently announced that it will be auctioning off approximately 660 bitcoin forfeited in various federal criminal, civil and administrative cases involving the FBI, DEA, CBP, and other agencies. According to the U.S. Marshals Asset Forfeiture webpage, the sealed bid auction will require a deposit of $200,000.

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

Blockchain Developments: Government, Wine, Journalism, Asset-Backed Tokens, SEC Enforcement and More

In this issue:

U.S. and International Governments Address Smart Ports, Smart Cities, and Cryptocurrencies

Blockchain Enterprise Developments in Wine, Journalism, Real Estate and Mining

Blockchain Tokens Backed by Real-World Assets Appear to Grow in Popularity

SEC Enforcement Actions Announced, New Data on Cryptocurrency Hacks Published

U.S. and International Governments Address Smart Ports, Smart Cities, and Cryptocurrencies

By: Taylor Thompson

According to reports, in an Oct. 3 meeting, representatives of U.S. Customs and Border Protection (CBP) claimed that the agency is testing a blockchain-based supply chain management system to evaluate whether blockchain can contribute to CBP’s efforts to track and verify shipments under the newly negotiated United States-Mexico-Canada Agreement, the intended replacement for the North American Free Trade Agreement (NAFTA). In Spain, officials recently announced an initiative to turn the Port of Valencia into a “smart port” using blockchain and big data, joining Aragon and Catalonia as Spanish municipalities attempting to leverage blockchain for government applications.

According to a recently published report, the European Securities and Markets Authority (ESMA), an EU financial watchdog agency, has budgeted over 1 million euros for its efforts to supervise and regulate new fintech, including cryptocurrencies, with the goal of achieving a coordinated approach to regulation. This milestone in the EU’s attempt to monitor cryptocurrencies and related technologies came as the EU Parliament weighed a wide-ranging resolution to examine and promote blockchain technologies on the continent. The resolution passed on Oct. 4 and recommends that member states take steps to incorporate cryptocurrencies into European payment systems, develop educational and legal frameworks for distributed ledger technologies, and evaluate blockchain-based voting, among other recommendations. In debates over the resolution, some EU officials raised concerns over potential conflicts between the adoption of blockchain and compliance with the General Data Protection Regulation (GDPR), a wide-ranging EU digital privacy law.

CoinDesk reported recently that Rain Financial, a cryptocurrency exchange backed by the Central Bank of Bahrain, expects to launch early next year. Rain’s founders claim that the exchange could encourage new flows of Middle Eastern capital into crypto markets without running afoul of know-your-customer and anti-money-laundering standards applied by Western cryptocurrency exchanges. Earlier this week, Reuters reported that the UAE’s securities and commodities regulator plans to roll out regulations allowing companies to raise capital through initial coin offerings (ICOs) in the first half of next year.

Park Won-Soon, the mayor of Seoul, announced in Zurich recently that his five-year plan to integrate blockchain into public services and turn Seoul into a “smart city” will have a budget of 123.3 billion won ($108 million). Park claimed that services covering everything from welfare to motor vehicles to employment insurance to voting will adopt blockchain. The mayor campaigned on the issue of blockchain adoption and incubation, which the South Korean national government has also made a priority.

Meanwhile, in Latin America, Bloomberg reported that Venezuela’s government will soon require its citizens to pay for passports using Petro, a state-issued, oil- and mineral-backed token. Widely seen as an effort to stem the flow of refugees out of Venezuela, the move will make it even harder for Venezuelans to leave that country. Once the new cryptocurrency comes online, a passport will cost approximately eight times the national monthly minimum wage.

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

Blockchain Enterprise Developments in Wine, Journalism, Real Estate and Mining

By: Simone O. Otenaike

A major online retailer’s blockchain fund added VinX, a blockchain-based wine venture, to its portfolio last week. VinX plans to develop a token-based digital wine futures platform based on the Bordeaux futures model. Given the importance of grape and barrel provenance, the industry is ripe for a more efficient and transparent way to track ingredients. The platform will seek to use blockchain technology to link wine consumers directly with wineries and develop a validation system that will reduce the rate of fraud in the wine industry – experts estimate that 20 percent of all wine in the world is counterfeit. In a recent report, a technology research company predicts that blockchain enterprise solutions in the global agriculture and food supply chain market will be worth over $400 million in the next five years. According to the report, the sector is currently worth $60.8 million and is predicted to grow at a compound annual growth rate of 47.8 percent to $429.7 million by 2023. The report predicts that to drive implementation, blockchain solutions will need to address difficulties like food fraud, which costs the global food industry roughly $49 billion annually.

Earlier this week, a business media giant announced plans to move its content to a distributed ledger-based platform provided by Civil, a blockchain-based journalism company. Through the partnership, both companies aim to provide audiences with an unprecedented level of transparency in news content and expand their influence to a broader audience. As part of the partnership, Civil will permanently archive the media company’s existing content to Civil’s decentralized platform, where the content can’t be removed or altered. Also this week, Meridio, a blockchain-based real estate company, launched its first real estate leasing product, reLease. The product allows anyone to rent workspace for the day through a reservation platform built on top of blockchain smart contract and payment systems. Typically, residential and commercial leasing transactions involve rental applications, paper legal contracts, security deposits, and wire transfers – reLease seeks to eliminate this onerous and time-consuming process by using blockchain technology to digitize the contract and payment processes.

On the international front, a Chinese energy company announced plans to develop a cryptocurrency mining farm that can produce up to 300 megawatts (MW) of photovoltaic power for mining – for comparison, the Bitcoin network consumes roughly 200 MW of energy per day for mining. A recent report shows that crypto-mining is gradually becoming less profitable as electricity prices are steadily increasing. While miners saw a $1.4 billion increase in profits during the first three quarters of 2018 compared to the profits in all of 2017, mining is only becoming profitable for the larger players that can afford to continue opening new pools. An ex-employee of the mining giant Bitmain has launched a new crypto-mining chip company, MicroBT, claiming better power efficiencies than Bitmain’s. According to estimates by a consulting firm, the crypto-mining market is anticipated to grow to $17 billion by 2022.

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

Blockchain Tokens Backed by Real-World Assets Appear to Grow in Popularity

By: Robert A. Musiala Jr.

This week brought more announcements related to stablecoins, with a major Japanese technology firm announcing plans to launch a yen-pegged cryptocurrency in 2019. Additionally, in a recent press release, a Big Four accounting and consulting firm announced a joint business relationship with startup Cred, seeking to “provide valuable perspective on how standards can be enhanced to facilitate a more transparent set of reserve functions, stablecoins and deposit and yield products.” According to Reuters, “Tiberius Technology Ventures has called a temporary halt to sales of its metals-backed digital currency and will refund $1 million to investors.”

Recently, an asset management company successfully closed an $18 million tokenized real estate offering made through Templum Markets, an SEC-registered alternative trading system (ATS). In a similar development, Propellr Securities, a FINRA-registered broker-dealer, recently assisted in a Reg D offering of tokenized securities on Ethereum for a luxury Manhattan condo development. And blockchain firm Circle signed an agreement to acquire an SEC-registered broker-dealer to move forward with intentions to launch a regulated token marketplace. New research was released this week on ICOs, citing a total of $20 billion raised in ICOs since the start of 2017. Among other statistics, the study reported that 20 percent of ICOs involved fraud and more than 50 percent failed to raise funds.

In Switzerland, the Swiss Financial Market Supervisory Authority (FINMA) recently issued Switzerland’s first cryptocurrency asset management license, which allows the recipient firm to offer blockchain-based asset management services to institutional clients, similar to a traditional asset manager. According to a recent Bloomberg report, bitcoin’s price volatility has hit a 17-month low, while a recent report from bitcoin analytics firm Chainalysis found that contrary to some claims, the trading activity of the largest bitcoin holders has contributed to price stability, rather than exacerbating it.

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

SEC Enforcement Actions Announced, New Data on Cryptocurrency Hacks Published

By: Marc D. Powers

On Oct. 9, 2018, the Securities and Exchange Commission (SEC) filed a subpoena enforcement action in California against an investment trust that failed to respond to an investigative subpoena issued by the staff. The investigation focused on a claim by a penny stock, Cherubim, that it had allegedly executed a $100 million financing commitment to launch an ICO. In another SEC action reported on Oct. 11, 2018, the SEC obtained a court order preventing an ICO that falsely claimed it was approved by the SEC and that a related cryptocurrency fund was “ licensed and regulated” by the agency. Also, a newly unsealed federal indictment charges seven alleged Russian intelligence agents with using cryptocurrencies as part of a broad “influence and disinformation” scheme. And the CFTC has posted a rise in fines in the past fiscal year ending Sept. 30, of approximately $900 million, buoyed by cryptocurrency cases, spoofing cases and settlements dating back to the financial crisis.

According to a recent Reuters article citing a report from CipherTrace, in the first nine months of 2018, hackers stole $927 million in cryptocurrencies from exchanges and trading platforms. A recently released report from bitcoin analytics firm Elliptic provided details on the hack of a South Korean cryptocurrency exchange and demonstrated how the cryptocurrency funds stolen in the attack may have been laundered.

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

Global Blockchain Developments in Enforcement, Payments, ICOs and Enterprise

In this issue:

Cryptocurrency Enforcement Actions Continue Across the Globe

Multiple Blockchain Announcements for Asset-Backed Tokens, Payments and Exchanges

Lawmakers Seek Clarity on ICOs as New Research Is Published

Enterprise Developments: Blockchain Interoperability, Supply Chain, Identity and More

Cryptocurrency Enforcement Actions Continue Across the Globe

By: Panida A. Pollawit 

On Friday, Sept. 27, the SEC and CFTC charged 1pool Ltd. aka 1Broker and its CEO with offenses related to its actions to solicit U.S. investors to purchase swaps and commodity transactions, allow investors to open trading accounts by providing only a username and email address, and require customers to fund their accounts using bitcoin. According to the complaint, 1Broker’s actions violated federal securities laws requiring broker-dealer registration and customer identity verification.

A Colorado judge recently sentenced 25-year-old Filip Lucian Simion, leader of the drug trafficking group ItalianMafiaBrussels, to 11 years in prison for selling MDMA (known as Ecstasy) on the Darknet and using cryptocurrencies to launder the proceeds. In a DOJ press release, the U.S. Attorney for Colorado warned, “Let there be no mistake. As the internet has grown, so has the long arm of the law.” In France, authorities recently arrested a French intelligence agent who was selling state secrets in exchange for bitcoin.

A recent Wall Street Journal investigation identified almost $90 million laundered through 46 cryptocurrency exchanges since 2016. By following the assets from those who had reported hacks, blackmail schemes and other stolen cryptocurrencies, the investigators were able to pinpoint where the cryptocurrencies became untraceable after entering an exchange. And a new report from ICORating analyzing 100 crypto exchanges trading for more than $1 million concluded that approximately $1.3 billion had been hacked from 31 of these exchanges.

In Brazil, antitrust regulators recently sent questionnaires to 10 crypto exchanges whose bank accounts were closed to investigate potential violations of bank account reporting requirements. In Australia, DigitalX, an ICO investment advisory firm, is being sued by investors who purchased ICOs on DigitalX’s advice. According to DigitalX, the investors are asking for $1.833 million plus damages.

In legislative developments, the U.S. House of Representatives recently approved a bill to establish a task force that would develop tools and programs to detect terrorists and their use of cryptocurrencies. The bill, which is currently being considered by the Senate, also proposes to award up to $450,000 to people with information on this subject.

For more information on the above, please see the following links:

Multiple Blockchain Announcements for Asset-Backed Tokens, Payments and Exchanges 

By: Robert A. Musiala Jr.

A Swiss asset manager and commodities trader recently announced the launch of a blockchain-based token that will be backed by a basket of copper, aluminum, nickel, cobalt, tin, gold and platinum. In a similar move, startup Abra has announced plans to launch the Bit10 token, which will be priced based on a basket of the top 10 cryptocurrencies by market capitalization. In Austria, the government recently announced that it intends to auction off 1.5 billion euros in bonds that will be issued on the Ethereum blockchain. And in Italy, the Italian Banking Association recently announced that it successfully completed the first phase of testing a new blockchain-based interbank payment system.

In the payments space, this week Ripple announced that it has integrated its technology with a cross-border payments application of a major global bank based in Europe, and that three additional financial services firms have integrated its technology. Ripple also announced that a remittance application built in partnership with several Asian banks has now gone live. The blockchain payments startup also recently announced a $100 million social giving campaign and the launch of a Washington, D.C.-based lobbying group.

In developments related to cryptocurrency exchanges, Gemini announced that it has secured insurance coverage for cryptocurrency assets held in its custody through a global consortium of industry-leading insurers. And a new cryptocurrency exchange platform, ErisX, has been announced, which will be backed by leading institutional trading firms. The ErisX exchange intends to let investors trade bitcoin, ether, bitcoin cash, litecoin and cryptocurrency futures. This news comes as a recent Bloomberg article reported that hedge funds have now replaced high net worth individuals as the biggest participants in high-value cryptocurrency transactions conducted through private sales. In related news, an article published this week in the Wall Street Journal described concerns over software bots running on cryptocurrency exchanges that may be manipulating the price of bitcoin.

For more information on this post, please see the following:

Lawmakers Seek Clarity on ICOs as New Research Is Published

By: Njeri S. Chasseau

Recently, a group of 15 U.S. lawmakers requested clarification from the Securities and Exchange Commission (SEC) about its position on Initial Coin Offerings (ICOs), specifically with regard to when ICOs should be considered securities sales. The lawmakers’ letter expresses concern that the lack of clarity about the SEC’s position could drive ICO business out of the U.S. The letter arrives in the wake of a recent report finding that ICOs still appear to be lucrative ventures. According to the report, companies that have conducted ICOs “appear to have already sold as much Ethereum as they raised (in USD terms).” The report also found that ICOs that successfully closed in 2017 generated nearly $727 million in net profits.

Another recently released report found that German ICO investors have suffered losses of nearly 90 percent of their capital – resulting in losses of value even greater than Bitcoin and Ethereum. In South Korea, the chairman of South Korea’s National Policy Committee has called for his country’s legalization of ICOs and the development of a regulatory framework. The chairman’s position is in sharp contrast with efforts of South Korean regulatory bodies that have thus far opposed the legalization of ICOs.

In a recent report on venture capital funding of blockchain projects, research group Diar found that the number of deals involving cryptocurrency startups has nearly doubled since last year and that these startups have raised nearly $3.9 billion as a result of venture capital investment. The report suggests that the surge in deals and venture capital fundraising could be due to the major fluctuations in token values that have occurred over the past year.

For more information about the state of ICOs and startup funding, see the following links:

Enterprise Developments: Blockchain Interoperability, Supply Chain, Identity and More

By: Simone O. Otenaike

On Oct. 1, two of the three largest enterprise blockchain communities, the Hyperledger Project (Hyperledger) and the Enterprise Ethereum Alliance, announced plans to join forces. The alliance between the two communities aims to build common standards and data formats between the two platforms that will serve as a basis for all other implementations and corresponding customizations. If implemented effectively, this could be a major step toward interoperability between the Ethereum and Hyperledger blockchains.

The world’s largest telecom firm recently announced plans to launch a blockchain-as-a-service platform that will track the movement of goods from production to consumption. The platform boasts use cases across industries including manufacturing, retail and healthcare and can also be paired with other blockchain platforms and “internet of things” tools to enhance automation and monitoring capabilities.

Another global software company recently announced new services that will promote the integration of blockchain platforms into existing business infrastructures. The company plans to launch two new consortia that aim to spur blockchain innovation between customers and partners by identifying industry-spanning blockchain use cases, areas for cross-industry collaboration and further benefits of blockchain networks. One consortium will focus exclusively on the pharmaceuticals and life sciences industries while the other will focus on the agribusiness, consumer products and retail industries.

According to a major national bank, blockchain will eventually be a multibillion-dollar opportunity for technology companies that plan to pair blockchain with existing cloud computing operations to improve supply chain operations. The bank’s analysis is based on the assumption that 2 percent of servers will be used to run blockchain, at $5,500 per server, per year. In another recent report, a technology research company predicts that blockchain technology in the United States manufacturing sector will grow significantly from 2020 to 2025. According to the report, the market for blockchain technology in the manufacturing industry is expected to be worth $30 million by 2020 and grow at a compound annual rate of 80 percent to $566 million by 2025.

In international developments, the ID2020 Alliance recently launched two pilot programs that will explore the use of digital identities as a means to provide resources to vulnerable populations. One pilot enables access to better healthcare outcomes by linking electronic medical records to individual users through iris recognition. The other pilot facilitates the transfer of liquid petroleum gas subsidies through a biometrically validated digital wallet, thus modernizing the delivery of resources to users who may not have access to a mobile device. In Sierra Leone, the United Nations and microlending nonprofit Kiva are seeking to build a blockchain-based identity and credit-score system. With 80 percent of the country’s citizens lacking identity documents and a mechanism to prove their creditworthiness, modernizing Sierra Leone’s Credit Reference Bureau through this blockchain-based system could transform the country’s financial inclusion landscape and accelerate economic development. And in the U.K., the national property register is moving into the second phase of its research project on the use of blockchain and distributed ledgers for land registration and the purchase and sale of property.

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

Blockchain Applications for Enterprise and Payments Evolve, New Legislation Proposed, Mining Malware Surges and a Bitcoin Bug Is Fixed

In this issue:

Blockchain Initiatives Pursue Solutions for Refugees, Voting, Smart Cities, Defense and Food Safety

Cryptocurrency Legal Developments: Tax, Proposed Legislation, AML and CFTC

Enforcement Actions Continue, Cryptomining Malware Surges, Token Values Fall

Blockchain Payments Products Advance, Investments Continue and a Bitcoin Bug Is Fixed

Blockchain Initiatives Pursue Solutions for Refugees, Voting, Smart Cities, Defense and Food Safety

By: Brian P. Bartish and Diana Stern

The World Food Programme (WFP) and UN Women announced last week that they are collaborating in an initiative to use blockchain to aid Syrian refugee women participating in the UN Women’s cash-for-work program. Building off WFP’s existing Building Blocks project, which utilizes a blockchain-based system to provide cash transfers to more than 106,000 Syrian refugees in Jordan, the new system will allow refugee women to request cash back, or pay for purchases directly, at WFP-contracted supermarkets by undergoing an iris scan that links their identity to their blockchain account. The WFP and UN Women will also partner on an initiative that seeks to educate Syrian women participating in the cash-for-work program on how to manage their personal data and control third-party access to it. WFP also plans to experiment with blockchain technology for tracking food delivery through its operations in East Africa.

In the U.S., West Virginia became the first state to utilize blockchain-enabled voting last Friday, as absentee voters overseas can now use a mobile phone app secured by blockchain encryption to cast votes in the upcoming midterm elections (the app has a number of detractors due to security concerns). And the Naval Air Systems Command (NAVAIR) is looking to blockchain to replace manual systems for tracking aviation parts. Using the SIMBA Chain, a DARPA-led public/private project initially used for tracking secure messages, the project aims to develop a conceptual framework for improving visibility and security while supporting the Naval Air mission through improved safety and reduced costs.

In Dubai, the Dubai Department of Finance and the Smart Dubai Office released a “Payment Reconciliation and Settlement” platform on Sept. 23. The platform aims to enable real-time payments, increase transparency and improve accuracy by and between government entities such as the Dubai transport, police and health authorities. The Smart Dubai Office is part of the Smart City project, a public-private UAE initiative with the goal of leveraging technology to enhance city services. In China, U.S. tech company Ideanomics and the Asia-Pacific Model E-port Network (APMEN) recently formed a joint venture to launch a solution for APMEN ports – starting with the world’s busiest port in Shanghai. The end-to-end platform seeks to leverage both blockchain technology and artificial intelligence to streamline port clearance and shipping handling, as well as provide risk control services for business and regulatory bodies.

This week, Walmart and a major U.S. retail warehouse club issued an open letter with a new business requirement for their suppliers of leafy greens to participate in the Walmart Food Traceability Initiative, a blockchain-enabled solution to advance food safety by improving farm-to-table traceability for produce. Similarly, in a recent press release, the Dairy Farmers of America announced a project with startup ripe.io to track milk products with blockchain. And a major global technology company recently was awarded a patent for a system that increases automation in distributed networks of devices using a blockchain protocol. According to reports, the system could use a peer-to-peer consensus mechanism to diagnose issues so that the devices could be “self-servicing.”

For more information on this week’s post, please see:

Cryptocurrency Legal Developments: Tax, Proposed Legislation, AML and CFTC

By: Heather K. P. Fincher

This week in a letter to IRS acting commissioner David Kautter, Senator Kevin Brady, R-Texas, chairman of the Committee on Ways and Means, and other lawmakers strongly urged the IRS to issue updated, robust guidance regarding the taxation of virtual currency. Brady’s letter expressed concern over increased IRS enforcement actions in the face of inadequate guidance over the past four years since the IRS’s preliminary notice. The lawmakers urgently requested a written response from the IRS outlining where the IRS is in its efforts, what the IRS intends to cover and a timeline for the release of such guidance. The lawmakers also stated they intend to ask the Government Accountability Office to undertake an audit on the matter.

Two days after Brady’s letter to the IRS, Congressman Tom Emmer, R-Minn., announced three bills in support of blockchain technology and digital currencies. Recently named co-chair of the Congressional Blockchain Caucus, Rep. Emmer declared the United States should prioritize accelerating the development of blockchain technology and create an environment that enables the American private sector to lead on innovation and further growth. The proposed legislation includes the following:

  • A resolution expressing support for the blockchain technology industry and development of these technologies in the United States.
  • A bill that would provide a safe harbor protecting software developers and providers of blockchain services that do not control consumer funds from certain licensing and registration requirements.
  • A safe harbor applicable to taxpayers who received forked convertible virtual currency that would protect such taxpayers from certain penalties and additions to tax until Treasury issues regulations or guidance on the tax treatment of hard forks.

On the international stage, the Financial Action Task Force (FATF) is reportedly getting closer to the establishment of a global set of anti-money laundering standards for cryptocurrencies to resolve what some have described as a “patchwork quilt” of current AML standards. And in a case brought by the Commodity Futures Trading Commission, a Massachusetts District Court recently ruled that virtual currency is a commodity subject to the Commodity Exchange Act.

For more information on this week’s post, please see:

Enforcement Actions Continue, Cryptomining Malware Surges, Token Values Fall

By: Jaime B. Petenko

After shutting down PlexCorps in December for alleged securities fraud in relation to the PlexCoin Initial Coin Offering (ICO), the U.S. Securities and Exchange Commission (SEC) submitted a letter to the court this week seeking sanctions and a default judgment against PlexCorps’ founders for ignoring court orders concerning accounting and repatriation of digital assets and evidence discovery. The SEC is currently seeking these actions in order to prevent further dissipation of investors’ assets because it believes a large portion of the funds raised in the ICO are still being held in cryptocurrency wallets controlled by the PlexCorps founders. According to the SEC, the founders have “blatantly and without any justification disregarded the Court’s multiple equivocal orders” and the SEC does not believe that the founders intend to follow court instructions.

In a report this week on cyberthreats for the second quarter of 2018, one of the leading device-to-cloud cybersecurity companies reported a surge in cryptomining malware. The numbers it reports are staggering; after increasing in the fourth quarter of 2017, new cryptomining malware samples increased 629 percent to more than 2.9 million in the first quarter of 2018, and then by another 2.5 million new samples in the second quarter of 2018. The report specifically identifies threats around older malware being retooled with mining capabilities and malware targeting devices other than personal computers.

This week, the Diar, a cryptocurrency research publication, reported that U.S. government agencies have entered into contracts and purchase orders valued at $5.7 million with blockchain analysis companies, triple the amount in 2017. The Internal Revenue Service reportedly accounts for 38 percent of this spending with nine contracts, followed next by U.S. Immigration and Customs Enforcement with nine contracts, and the Federal Bureau of Investigation with  12 contracts. Together, the Diar reports, the three agencies account for 85 percent of the total spending. The Diar also reported this week that ICOs have doubled the amount raised to date in 2018 compared to 2017, but the popularity of ICOs has fallen. Not accounting for the top 100 cryptocurrencies, 70 percent of tokens have seen their value fall below the token value at the time of the ICO. The Diar also reported that of the tokens that completed an ICO in 2017-2018, over one-third of those tokens, having raised more than $2.3 billion, have not yet listed their tokens on any exchange.

Last week, the Australian Securities & Investments Commission (ASIC) announced that it will be increasing its scrutiny of ICOs due to persistent problems associated with the offerings, including the use of “misleading or deceptive” statements in sales and marketing materials and offerors not holding Australian financial services licenses. The ASIC is reportedly concerned that these misleading ICOs could impact investor confidence. Since April, the ASIC reports that it has stopped five ICOs and is currently taking regulatory action against a completed ICO. Of the ICOs that were halted, the ASIC shared that some are being restructured so as to carry out the offering within the confines of the law.

To read more about the topics in this week’s post on crime and enforcement, please see the following:

Blockchain Payments Products Advance, Investments Continue and a Bitcoin Bug Is Fixed

By: Robert A. Musiala Jr.

Three major global banks based in the U.S., Canada and Australia recently announced that they are expanding their blockchain-based interbank payments project to include 75 more banks from around the globe. The project, named the Interbank Information Network (IIN), leverages the Quorum blockchain and seeks to compete with other emerging blockchain payment networks. In Japan this week, a major money transmitter announced a partnership with BitPesa to launch a remittance service that will allow customers to send money to Africa using the Bitcoin blockchain. The service intends to bypass banks that would typically convert yen into dollars or euros before finally converting to African currencies. Also this week, a joint venture between a Japanese firm and a U.S.-based blockchain firm announced that it received a key government registration that will allow it to continue its plans to implement a blockchain-based money transfer application.

U.S. firm Circle has announced that it is releasing “USD Coin” (USDC), a cryptocurrency pegged to the U.S. dollar and backed by U.S. dollar reserves. According to reports, dollar reserves backing the so-called “stablecoin” will be verified by a major U.S. audit firm. According to another announcement this week, the recently launched stablecoin, the Paxos Standard Token (PAX), will soon be listed on Binance, the world’s largest cryptocurrency exchange by volume.

In Switzerland, startup SEBA Crypto AG reportedly has raised 100 million Swiss francs to build a bank that will offer traditional bank accounts for cryptocurrency and blockchain firms, while also offering certain cryptocurrency services to businesses and investors. The Zug-based startup is currently seeking a license from FINMA, the Swiss financial regulator. And the China-based company Bitmain, the world’s largest operator and supplier of bitcoin mining equipment, recently announced that it intends to pursue an initial public offering in Hong Kong.

According to reports published this week, the Bitcoin Core developers recently fixed a bug in the Bitcoin code protocol that, if exploited, could have allowed an attacker to create new bitcoin above the 21 million cap programmed into the code. According to reports, once the bug was identified, the core developer team kept it a secret until it was fixed.

For more information on this week’s post, please see the following:

Hard for ICOs to Avoid US Courts: Personal Jurisdiction Found in Two Recent Securities Cases Over Foreign ICO Defendants

Over the past year, the plaintiffs’ bar and Securities and the Exchange Commission (SEC) have brought class and enforcement action proceedings, respectively, against those involved with the issuance and marketing of initial coin offerings (ICOs), including those located outside the United States. The proceedings involving foreign defendants present the interesting and threshold issue in these litigations of whether personal jurisdiction in U.S. courts exists over these defendants. Until recently it was unclear how courts would apply traditional jurisdictional analysis to these token-offering participants.

Continue Reading

Blockchain Developments: NY AG Issues Report, Major Japanese Exchange Hacked, Global Attitudes Diverge and Use Cases for Social Good Emerge

In this issue:

New York Attorney General Issues Virtual Markets Integrity Initiative Report

Major Hack of Japanese Exchange, Multiple U.S. Enforcement Actions

Blockchain Capital Markets Solutions Advance, Global Regulations Diverge

Blockchain Use Cases for the Environment, Digital Identity and State Initiatives

New York Attorney General Issues Virtual Markets Integrity Initiative Report

By: Diana J. Stern

On Sept. 18, 2018, the New York Attorney General’s Office released its Virtual Markets Integrity Initiative Report. The report addressed 10 major virtual currency trading platforms. Key takeaways include the following:

  • Many of the trading platforms that participated in the report lack safeguards to effectively prevent conflicts between customer and insider interests. Items of particular concern include employee trading practices and the manner in which platform operators trade on their own venues.
  • Only a minority of platforms have formal market manipulation policies and restrict, let alone monitor, automated algorithmic trading. There is no mechanism for analyzing suspicious trading strategies across platforms.
  • Consumer funds are at risk because of data security vulnerabilities and an absence of industry standards for insurance and auditing virtual assets.
  • The report concludes with a list of questions customers should ask before participating on virtual currency trading platforms.

Three platforms declined to participate in the report, claiming that they did not operate in New York. However, the Attorney General found otherwise and referred those entities to the New York State Department of Financial Services.

For more information on the report, please see the following:

Major Hack of Japanese Exchange, Multiple U.S. Enforcement Actions

By: Diana J. Stern and Robert A. Musiala Jr.

On Sept. 20, 2018, various news outlets reported that Zaif, a licensed Japanese cryptocurrency exchange, had been hacked, with cyber-thieves stealing approximately $60 million of bitcoin, bitcoin cash and MonaCoin. This news came amid reports that in the first six months of 2018, hackers stole a total of approximately $540 million worth of cryptocurrency from Japanese exchanges and individual wallets. Additionally, according to a recently issued report by the Cyber Threat Alliance, thus far in 2018 there has been an “enormous increase” in illicit cryptocurrency mining activity, with “a 459 percent increase in illicit cryptocurrency mining malware detections since 2017.” And earlier this week, it was reported that a hacker stole approximately $24,250 by manipulating smart contracts run by a betting company that operated on the EOS blockchain.

In enforcement actions, the U.S. District Court for the Eastern District of California ruled in favor of the government to seize the late operator of AlphaBay’s assets, which included a Lamborghini, bitcoin and several beachfront vacation resorts. Also, the founder of cryptocurrency mining companies GAW Miners and ZenMiner was sentenced to 21 months in prison after pleading guilty to charges of wire fraud brought by the U.S. Attorney for the District of Connecticut. And the Texas Securities Commission entered emergency cease and desist orders against three cryptocurrency schemes. One of the targets was a cryptocurrency investment promotor based in Russia that was targeting Texas residents by masquerading as an established U.S. platform. Another offered investors both shares of the company and units of its token in order to fund what the company claimed to be an unhackable cryptocurrency wallet for anonymous, untraceable transactions. Per the order, such investments are securities regulated by Texas law. The company is based in Belize.

In other recent news, the FinCEN Improvement Act (H.R. 6411) recently passed in the House. The bill proposes new language to FinCEN’s authorizing statute that requires the regulator to work with international financial intelligence bodies and tribal law enforcement groups on cryptocurrency matters. While some see the bill as superfluous, reasoning that there was no question as to FinCEN’s authority, it nevertheless underscores FinCEN’s role in regulating virtual currencies and the importance of enforcement coordination worldwide.

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

Blockchain Capital Markets Solutions Advance, Global Regulations Diverge

By: Simone O. Otenaike

Global banks and traders recently announced plans to launch the first blockchain-based platform to finance commodity trading. According to reports, a Switzerland-based venture will run the platform and develop it in partnership with a leading blockchain technology company. The platform is set to go live later this year for the energy industry and then expand into agriculture and metals by early next year. Also this week, one of Wall Street’s largest banks announced that it is moving forward with plans to offer a trading desk that will support various derivatives tied to digital assets, while another major Wall Street bank said it is exploring bitcoin derivatives products.

On Sept. 19, 2018, a top 10 national bank joined a blockchain network that offers real-time cross-border payments. The network includes some of the world’s leading financial institutions and now has more than 100 clients across the globe, and is currently operating in 40 countries. And the South Dakota Division of Banking has approved the world’s largest processor of on-chain bitcoin transactions, as a public South Dakota Trust Company − thus allowing the company to offer digital asset custodial services to institutional investors in the United States. The California-based company processes 15 percent of all global bitcoin transactions and processes $15 billion per month across all digital assets. As a qualified custodian, the company can deliver the highest levels of security and regulatory compliance for institutional investors.

On the regulatory front, the chief accountant for the U.S. Securities and Exchange Commission made a statement earlier this week that the emergence of blockchain technology does not erase the fundamental responsibility of firms to maintain appropriate books and records. Overseas, the U.K.’s Treasury Committee published a substantive report promoting thoughtful regulation of the blockchain industry to improve consumer outcomes, promote sustainable growth and position the U.K. to become the global center for digital asset activity. On the other hand, a recent EU report found no rush to regulate the market, citing concerns related to stifling innovation, with one policymaker commenting that the EU may decide to test different national solutions before implementing a more harmonized approach for the collective EU nations. Coincidentally, earlier this week, France announced that it will now issue licenses to companies that want to raise funds through ICOs in an attempt to attract more digital asset investors into the country.

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

Blockchain Use Cases for the Environment, Digital Identity and State Initiatives

By: John C. McIlwee

In collaboration with a “Big Four” accounting firm and Stanford Woods Institute for the Environment, the World Economic Forum (WEF) recently issued a press release reporting on 65 blockchain use cases for solving the world’s “most pressing” environmental challenges. The nonprofit organization, built on shaping policy for the public good, stated its belief that blockchain will advance environmental protection efforts by offering new financing models for environmental outcomes, realizing nonfinancial assets (such as natural capital), and enabling clean, decentralized and efficient systems. The WEF identified eight categories of blockchain use cases that it deems “game changers” for environmental protection, among them a “see-through” supply chain that promotes transparency and traceability.

Several new pilots also took flight this week focusing on digital identity. Blokusign has developed an app for Gmail that allows users to easily maintain, manage and authenticate documents digitally signed by them without any reliance on third parties. Gemalto, a digital security leader, has partnered with R3, using its Corda platform, to create a blockchain-powered mobile app to protect digital identifiers. Users download the app, control personal data shared therein and then manage information shared with service providers via a consent function.

Poland’s largest bank has also adopted a blockchain-backed system for managing bank records for nearly 5 million of its account holders. In this new initiative, bank documents will utilize a 64-character hash code to permit users to easily verify the documents’ authenticity and to create a decentralized log of activity − even after accounts are closed. And in Austin, Texas, the city and local medical service providers have teamed up to create a blockchain-powered ID system to track services provided to those without conventional forms of identification, such as homeless persons. The pilot links digital copies of records to cellphone numbers and email addresses, which permits a traceable record for those served in the community that could not be established through the paper ID that many lack.

In other developments, South Korea recently announced a blockchain initiative for its customs authority, built on Nexledger. A memorandum of understanding that details the new customs platform includes the signatures of 48 domestic entities and public agencies that look to blockchain technology to curtail forgery and increase export efficiency. Meanwhile, across the Pacific, Oregon Blockchain Venture Studio has launched a campaign to make Oregon the center of the blockchain universe. The incubator-like program, with the backing of at least two U.S.-based multinational corporations and support from the state of Oregon, hopes to accomplish this goal by offering investment capital to promising blockchain startups if they agree to set up shop in the Beaver State.

To read more about this week’s articles on enterprise blockchain use cases, see the following:

Stablecoins Launch in US Amid Multiple Securities Enforcement Actions and Bid to Repurpose DoD Data Center for Cryptocurrency Mining

In this issue:

Stablecoins Launch in US as New Data Cites Drop in ICO Funding

SEC and FINRA Issue First-of-Their-Kind Enforcement Actions

Blockchain Enterprise Developments: Mining, Digital Identities and Food Supply Chain

Cryptocurrencies Continue to Enter Traditional Areas of Financial Crimes 

Stablecoins Launch in US as New Data Cites Drop in ICO Funding

By: Robert A. Musiala Jr. and Brian P. Bartish

On Monday, Sept. 10, 2018, the New York Department of Financial Services (DFS) announced that it has authorized both Paxos Trust Company LLC and Gemini Trust Company LLC to offer price-stable cryptocurrencies pegged to the U.S. dollar, commonly known as “stablecoins.” According to a DFS press release, the approvals of these new financial products came after rigorous review and will be subject to ongoing examinations to ensure compliance with BSA/AML and OFAC regulations; adherence to cybersecurity standards; prevention of market manipulation; maintenance of proper information reporting and consumer protection; and assurances that the stablecoins are fully exchangeable for the U.S. dollar. Paxos Standard is built on the Ethereum blockchain and is backed by U.S. dollar deposits held in segregated accounts at multiple FDIC-insured U.S. banks, with the account balances verified by independent audit firms. All Paxos Standard tokens in circulation will be backed by U.S. dollars, and upon redemption for dollars, the Paxos Standard tokens will be immediately destroyed. The Gemini Dollar also runs on the Ethereum blockchain, with each Ethereum-based token backed by a U.S. dollar. The dollars backing the Gemini Coin will be held at a major U.S. bank in an FDIC-insured account, with monthly audits to be performed on the account by a public accounting firm.

Also on Sept. 10, various news outlets reported that a major U.S. bank is planning to begin acting as an agent issuing so-called digital asset receipts (DARs) that would effectively allow parties to trade in bitcoin without having to take actual ownership of bitcoin. According to reports, the DARs would function similar to American depository receipts (ADRs), which enable parties to trade baskets of foreign stocks that do not trade on U.S. exchanges. In the same way that an ADR is held by a bank that issues a depository receipt, with a DAR the bitcoin will be held by a custodian, with a receipt issued by the bank. In a separate report this week, another major U.S. investment bank announced that it is working on a bitcoin derivative product that would be settled in U.S. dollars. And on Sept. 12, startup Seed CX announced a $15 million Series B funding round that it will use to expand its offerings of institutional trading and settlement for cryptocurrency spot markets and CFTC-regulated cryptocurrency futures. These developments come amid the announcement of the Blockchain Association, the first ever D.C. lobbying group dedicated to the blockchain industry.

As institutional products evolve, according to new data published by Autonomous Research, nearly half of all ICOs since 2017 have failed to raise any funds. According to the new research, the month of August 2018 saw the lowest rates of return on startup ICOs since May 2017, with such efforts raising only $326 million compared with the $3 billion-per-month average observed during the first three months of the year. The report also found that roughly 40 percent of the ICOs examined raised more than $1 million each, and found that the number of hedge funds specifically focused on cryptocurrency has increased significantly. The move away from ICOs to so-called securitized token offerings appears to be further illustrated by recent news that the Malta Stock Exchange’s fintech and digital asset subsidiary, MSX PLC, recently signed a Memorandum of Understanding with cryptocurrency exchange Binance to jointly launch a new security token digital exchange that seeks to take advantage of the island-nation’s pro-crypto regulatory stance.

According to joint research from the World Economic Forum and Bain & Company, small and medium-sized enterprises (SMEs), particularly in the developing world, could stand to become some of the biggest beneficiaries of blockchain financing, as global businesses could reduce the supply-demand gap in trade financing and generate roughly $1.1 trillion in new trade volume through effective blockchain deployments. In China, the “Guangdong, Hong Kong and Macao Dawan District Trade Finance Blockchain Platform” has begun pilot operations with the backing of the People’s Bank of China that aim to facilitate cross-border trading across provinces and reduce trade financing costs from 7-8 percent to less than 6 percent for SMEs.

To read more about the above developments, please see the following:

SEC and FINRA Issue First-of-Their-Kind Enforcement Actions

By: Jaime B. Petenko

This week, the U.S. Securities and Exchange Commission (SEC) issued two first-of-their-kind enforcement actions in the blockchain industry. In one action, TokenLot LLC and its owners agreed to pay more than $500,000 in penalties to settle charges that they acted as unregistered broker-dealers in the sale and trading of securities. TokenLot LLC, a self-described “ICO Superstore” where investors could purchase digital tokens and engage in secondary trading, handled more than 200 different digital tokens for more than 6,000 retail investors from July 2017 until February 2018. In the second action, Crypto Asset Management LP, a hedge fund, agreed to pay a $200,000 penalty to settle charges that it operated as an unregistered investment company. The fund raised more than $3.6 million over a four-month period in 2017, while falsely marketing that it had filed a registration statement with the SEC and that it was the “first regulated crypto asset fund in the United States.” In both actions the offending parties, once contacted by the SEC, ceased their activities and began refunding money to investors (in the case of TokenLot LLC) or offering buybacks to investors (in the case of Crypto Asset Management LP).

In another reported first this week, the federal judge in U.S. v. Zaslavskiy issued a ruling allowing the government to proceed with a criminal case in the U.S. District Court in Brooklyn, alleging that an initial coin offering is a security for purposes of federal criminal law. In the case, the defendant is charged with conspiracy and two counts of securities fraud for allegedly defrauding investors in two initial coin offerings for digital currencies backed by investments in real estate and diamonds that did not exist.

After trading began in the United States approximately one month ago, the SEC suspended trading through Sept. 20, 2018, of Swedish bitcoin exchange-traded notes and ether exchange-traded notes due to a “lack of current, consistent and accurate information” leading to confusion among market participants. The SEC noted that differing descriptions of the financial instruments in the broker-application materials, in public sources and in the offering materials led to confusion over the nature of the financial instruments. Because of the confusion, the SEC believes that the public interest and the protection of investors required the trading to be suspended.

Also this week, FINRA reported that it filed its first disciplinary complaint involving cryptocurrencies. FINRA charged Timothy Tilton Ayre with securities fraud and the unlawful distribution of an unregistered cryptocurrency security called HempCoin. From January 2013 through October 2016, FINRA alleges, Ayre attempted to lure public investment in his worthless public company, Rocky Mountain Ayre, Inc. (RMTN), by making material misstatements in RMTN’s public filings about its finance and business and by creating, offering and selling unregistered securities, HempCoin. RMTN publicized HempCoin as “the first minable coin backed by marketable securities.” Investors mined more than 81 million HempCoin through late 2017, and bought and sold the currency on two cryptocurrency exchanges.

To read more about these enforcement actions, please see the following:

Blockchain Enterprise Developments: Mining, Digital Identities and Food Supply Chain

By: Njeri S. Chasseau

A Nevada-based Chinese investment company has its sights set on redesigning a 55,000-square-foot U.S. Department of Defense data center into a new cryptocurrency mining center that will, once completed, contain approximately 1,300 mining machines for a variety of cryptocurrencies including Bitcoin and Zcash. The data center is ideal given the security and power requirements of crypto-mining enterprises, and can be upgraded to increase the number of mining machines required for the company’s operations.

Across the Pacific, Australia’s New South Wales government recently announced a partnership with an Australian IT firm to conduct a pilot project that will store and authenticate driver’s license data for approximately 140,000 license holders in the state. A formal launch of the program is set for 2019, and the New South Wales government hopes to eliminate the need for its residents to carry physical licenses; the program is in line with Australia’s Digital Economy Initiative promoting the widespread adoption and use of blockchain in the country. Similarly, an Icelandic automatic identity verification company last week announced the launch of a new blockchain-based identity management solution aimed at combatting the problems presented by internet “trolls” – internet users commonly associated with bullying and harassing behavior online. The new technology seeks to ensure that once trolls are banned from a particular platform, they will not be able to re-register a new account or re-enter the platform.

This week also saw new developments in blockchain solutions for the food supply chain, with a new food supply chain startup, Ripe Technology, raising nearly $2.4 million in seed funding. The startup aims to bring innovation to the food supply chain by using blockchain to increase traceability and transparency between farmers, distributors, grocers and other major stakeholders in the food industry.

For more about blockchain and current enterprise-related uses, please see the following:

Cryptocurrencies Continue to Enter Traditional Areas of Financial Crimes

By: Robert A. Musiala Jr. and Melonia A. Bennett

New developments show criminals continue to abuse cryptocurrencies in the traditional areas of theft, fraud and extortion. On Sept. 5, a press release announced the guilty plea of Louis Meza for orchestrating the kidnapping and theft of more than $1.8 million in Ether. The press release quoted Manhattan District Attorney Cyrus R. Vance as saying “Louis Meza orchestrated a 21st-century stick-up … Then 21st-century investigators brought him swiftly to justice ….” In an ongoing lawsuit in Vancouver, a judge has ordered the return of a former executive’s company laptop, in an attempt to discover up to $7 million in cryptocurrency allegedly stolen by the executive from his former company. In India, a former politician was recently arrested for suspected involvement in a scheme to frame another man for the purpose of extorting $1.3 million in bitcoins. And in Japan, the trustee of the defunct bitcoin exchange Mt. Gox recently announced that corporate creditors can now enter claims as part of the civil rehabilitation to claw back their bitcoin through a newly approved process.

To read more about the above developments, please see the following:

LexBlog