FinCEN Proposed Rule Halted, Exchanges and Banks Expand Crypto Products, SEC Brings Action Against Token Issuer, Crypto Threat Reports Published

In this issue:

Exchanges and Banks Expand Cryptocurrency Services and Products

FinCEN Proposed Rule Halted, Banks and Crypto Exchanges Adjust Policies

SEC Brings Action Against SAFT and Token Issuer, Related Statement Published

Reports Provide Details on Criminal Activities Involving Cryptocurrencies

Exchanges and Banks Expand Cryptocurrency Services and Products

By: Jordan R. Silversmith

A major U.S. cryptocurrency exchange recently announced the launch of its asset hub. The initiative is intended to “streamline the asset listing process … and expand the number of services offered to digital asset issuers.”

A California-based bank with substantial holdings in digital currencies recently announced it had accepted over $2.9 billion in new deposits from new and existing cryptocurrency customers in Q4 2020. The majority of these new deposits came from cryptocurrency exchanges, bringing the bank’s total amount of digital currency customers to 969. Separately, according to reports, a New York-based bank announced that its deposits from cryptocurrency customers now total approximately $10 billion.

Huobi Global, a major cryptocurrency exchange, recently announced an initiative with a British crypto payment services firm to gain more access to European and U.K.-based banking systems. According to reports, the exchange’s over-the-counter platform will now be able to settle transactions instantly in euros and pounds. Meanwhile, this week an Austrian digital investment platform announced the launch of a debit card allowing users to shop with cryptocurrencies.

For more information, please refer to the following links:

FinCEN Proposed Rule Halted, Banks and Crypto Exchanges Adjust Policies

By: Veronica Reynolds

This week the Biden administration froze FinCEN’s proposed rule on “unhosted wallets,” which related to certain transactions involving convertible virtual currency or digital assets with legal tender status. If enacted, the rule would have required exchanges to file “currency transaction reports” for customers engaged in over $10,000 of cryptocurrency transactions per day and to store identifying information for customers transferring over $3,000 per day in cryptocurrency to private crypto wallets.

Meanwhile, several cryptocurrency exchanges and banks have recently taken actions that appear to be based on the evolving regulatory landscape. In the U.S., a major cryptocurrency exchange announced a halt on XRP trading, the latest cryptocurrency exchange to have done so. In the U.K., a major bank has reportedly banned customers from transferring cryptocurrency profits earned through exchanges to their bank accounts; this follows a broader trend in the U.K. banking industry precluding customers from using debit or credit cards to purchase cryptocurrency assets. And in the Netherlands, Bitstamp users are now required to prove ownership of external wallets before transferring funds to such wallets, a requirement that is reportedly a direct response to Dutch anti-money laundering regulations that became operative in late 2020.

For more information, please refer to the following links:

SEC Brings Action Against SAFT and Token Issuer, Related Statement Published

By: Robert A. Musiala Jr.

Late last week, the U.S. Securities and Exchange Commission (SEC) published a cease-and-desist and settlement order (Order) against Wireline Inc. involving an alleged unregistered securities offering related to so-called SAFT agreements. Wireline is described in the Order as “an early-stage project focused on the development of a decentralized, blockchain based platform for ‘microservices’ applications.” According to the Order,

Wireline offered and sold securities in the form of investment contracts when it offered and sold digital assets through simple agreements for future tokens (“SAFTs”). The SAFTs provided that upon the public release of Wireline’s marketplace, Wireline would distribute those digital tokens to investors, who were counterparties to the SAFTs. … The Offering was not registered pursuant to the federal securities laws, and the offer and sale did not qualify for an exemption from the registration requirements. Wireline never distributed the digital tokens to investors.

Regarding the SAFTs, the Order notes that while Wireline “collectively filed three Forms D with the Commission,” it “did not qualify for the exemption under Rule 506(b) because it offered and sold the investment contracts through a general solicitation.” The Order also alleges Wireline “violated the antifraud provisions of the federal securities laws with respect to the offering by making materially false and misleading statements about the viability of its platform and the timetable for the issuance of the tokens.” Among other things, the Order requires Wireline to notify its 28 SAFT investors that it will not distribute any digital tokens, publish notice of the Order on its public website and social media channels, and pay a civil penalty of $650,000.

In a public statement, SEC Commissioner Hester M. Peirce noted “a concern about the settlement.” According to the statement, “[B]y including a provision whereby Wireline will not distribute the tokens pursuant to the SAFTs, [the] settlement perpetuates an approach that suggests that tokens themselves are securities and thus complicates the development of crypto networks.” Among other things, Commissioner Peirce noted that “the security label applied to tokens … stifles network effects before they even have a chance to make the network vibrant.” According to Commissioner Peirce, “A better course would be for us to treat the original capital-raising event for an unlaunched network as a sale of securities, but not to stretch the securities analysis to include subsequent sales of tokens for use on a launched network.”

For more information, please refer to the following links:

Reports Provide Details on Criminal Activities Involving Cryptocurrencies

By: Jordan R. Silversmith

A recent report by Chainalysis on cryptocurrency crime in 2020 finds that while scams and darknet markets dominated the year by total revenue, ransomware continues to be a problem. The report showed a drop in the criminal share of all cryptocurrency activity in 2020, falling to just 0.34 percent, or $10.0 billion in transaction volume, from 2019’s numbers of 2.1 percent, or roughly $21.4 billion, worth of transfers. Scams continued to make up the majority of all crypto-related crime, but ransomware increased over 311 percent from 2019 as increased work-from-home opened up more vulnerabilities for hostile actors. Chainalysis also recently released a report alleging that personalities involved in the riot at the U.S. Capitol had received over $500,000 in bitcoin from a French donor one month prior to the events.

For more information, please refer to the following links:

Crypto Trust to Become Bank, FinCEN Comment Period Extended, Navy Awards Blockchain Contract, Dark Market Seized, Illicit Exchange Owner Sentenced

In this issue:

Crypto Trust to Convert to Bank, FinCEN Extends New Rule Comment Period

Bitcoin Firms List on Public Markets, Japan Diverges from SEC on XRP Status

Navy Contracts for Blockchain Solution, SSI Report and Market Data Published

Enforcement Actions Target Dark Web Market and Illicit Crypto Exchange

Crypto Trust to Convert to Bank, FinCEN Extends New Rule Comment Period

By: Veronica Reynolds

The Anchorage Trust Company, a subsidiary of Anchor Labs, an advanced digital asset platform (Anchorage), secured conditional approval this week from the Office of the Comptroller of the Currency (OCC) to convert to a National Trust Bank. As a trust company, Anchorage offers custody services related to transactions in digital assets and cryptocurrencies, as well as governance, staking and settlement services, and will continue to perform the activities of a fiduciary, agency or custodian post-conversion. As part of a conditional operating agreement underlying the conversion, Anchorage agreed to certain of the OCC’s risk management expectations as well as capital and liquidity requirements.

Also this week, the U.S. Financial Crimes Enforcement Network (FinCEN) announced an extension of the comment period for its proposed rule-making related to certain transactions involving convertible virtual currency (CVC) or digital assets with legal tender status (LTDA). The comment period was extended by 15 days for the proposed requirements on verifying the “identity of customers in relation to transactions above certain thresholds involving CVC/LTDA wallets not hosted by a financial institution” and “CVC/LTDA wallets hosted by a financial institution in certain jurisdictions identified by FinCEN.” Separately, the comment period was extended to 45 days for the proposed requirements that “banks and MSBs report certain information regarding counterparties to transactions by their hosted wallet customers.”

For more information, please refer to the following links:

Bitcoin Firms List on Public Markets, Japan Diverges from SEC on XRP Status

By: Jordan R. Silversmith

This week one of the largest U.S. marketplaces for cryptocurrencies and other digital assets announced that it would become a publicly traded company through a merger. The combined company will be renamed and will be listed on the New York Stock Exchange. Outside the United States, there were announcements this week related to two new bitcoin exchange-traded products (ETPs). In Canada, a prospectus for a new bitcoin exchange-traded fund (ETF) was filed with the Ontario Securities Commission. If approved, the ETF is planned to be listed on the Toronto Stock Exchange. A new bitcoin ETP also recently listed on the Swiss stock exchange SIX. The ETP tracks the price of bitcoin and is physically backed, bringing SIX’s total number of ETP providers to six and the number of ETPs listed to 34.

Following the Securities and Exchange Commission’s (SEC) lawsuit against Ripple Labs alleging that its XRP token is a security under federal law, a major U.S. digital currency manager announced it had begun dissolution of its XRP Trust. According to reports, the company will distribute cash proceeds from the trust’s liquidated store of XRP to trust shareholders. Meanwhile, Japan’s Financial Services Agency (FSA), the country’s securities regulation body, has reportedly said that XRP is not a security under Japanese law. This marks the first time that the FSA has commented directly on the legal status of XRP.

According to reports this week, Tether, a leading stablecoin project, announced that it had printed two billion dollar-backed tokens last week. Over 24.6 billion tethers circulate across Ethereum, Tron and Bitcoin’s Omni Layer, a fivefold increase from 4.8 billion in circulation one year ago. In another development, a major U.S. financial services company with significant investments in bitcoin recently announced a grant to fund a bitcoin developer’s work on software to improve the pool hash power of mining collectives. The grant comes in the form of an undisclosed sum for work on an implementation of Stratum V2, the next iteration of bitcoin mining protocol software.

For more information, please refer to the following links:

Navy Contracts for Blockchain Solution, SSI Report and Market Data Published

By: Robert A. Musiala Jr.

According to a recent press release, blockchain enterprise firm SIMBA Chain has been awarded a $1.5 million Small Business Innovation Research contract by the U.S. Office of Navy Research “to design and build a blockchain solution to enable demand sensing for the Defense Logistics Agency.” The press release notes that “demand sensing is essential to ensuring the U.S. military has critical replacement parts for various weaponry available when required.” The goal of the project will be “to use blockchain to dramatically improve vital supply chain interactions … to mitigate against disruption, issues, and threats to engineering and maintenance operations.”

In an article published this week, a leading self-sovereign identity (SSI) organization provided an overview of its work building solutions for digital identity management leveraging blockchain technology, cryptography, and supporting software and standards. The article discusses key areas of focus for SSI solutions, including vaccination credentials, government-issued IDs and expanding interoperability across SSI networks.

According to a recently published report by a technology research firm, “industrial blockchain revenue” is expected to reach $374 million in 2020, increase to $1 billion in 2022 “and then double by 2025.” The report attributes this expected growth to advancements in using blockchain to track and trace product supply chains in the food and beverage, transport, retail, and consumer sectors. The report also notes growing consumer interest in product provenance for ethical and environmental reasons.

For more information, please refer to the following links:

Enforcement Actions Target Dark Web Market and Illicit Crypto Exchange

By: Teresa Goody Guillén

According to a press release this week, the world’s largest illegal marketplace on the dark web has been taken offline as the result of an international operation involving law enforcement from Germany, Australia, Denmark, Moldova, Ukraine, the United Kingdom and the United States. The marketplace is reported to have had almost 500,000 users, more than 2,400 sellers, over 320,000 transactions, and over 4,650 bitcoin and 12,800 monero transferred, which collectively correlates to over US$169.6 million transacted on the site. It is believed that the vendors on the marketplace traded various drugs and sold counterfeit money, stolen or counterfeit credit card details, and anonymous SIM cards and malware.

According to another recent press release, a Bulgarian national was sentenced to 121 months in prison for his role in a transnational and multimillion-dollar scheme that defrauded at least 900 Americans. As reported, trial evidence showed that, among other things, the defendant owned and managed RG Coins, a cryptocurrency exchange headquartered in Bulgaria; and the defendant knowingly and intentionally engaged in business practices designed to assist fraudsters in laundering criminal proceeds. The criminal conspiracy engaged in a large-scale scheme of online auction fraud in which false advertisements were posted to popular online auction and sales websites (e.g., craigslist and eBay) for high-cost goods (typically vehicles) that did not actually exist. Upon receiving victims’ money, the conspiracy engaged in a complicated money laundering scheme including converting funds to cryptocurrency and transferring proceeds in the form of cryptocurrency to foreign-based money launderers.

This week, the United Kingdom’s Financial Conduct Authority (FCA) warned consumers that investing in cryptoassets, or investments and lending linked to them, generally involves very high risk, and consumers should be prepared to lose all their money. The FCA announcement cautioned against investments advertising high returns based on cryptoassets and noted specific concerns related to consumer protection, price volatility, product complexity, charges and fees, and false marketing materials.

For more information, please refer to the following links:

NY DFS Approves New Stablecoin Co., Blockchain Data Solutions Announced, New Cryptocurrency Regulatory and Enforcement Actions in U.S. and Abroad

In this issue:

NY DFS Approves New Stablecoin Company, Crypto Financial Products Continue Growth

Blockchain Used To Enhance Auto Geofencing and Combat Whiskey Fraud

US Financial Regulators Continue Crypto-Focused Regulatory Proposals

OFAC Settles With Crypto Custodian; Enforcement Actions in UK, Italy, Iran

NY DFS Approves New Stablecoin Company, Crypto Financial Products Continue Growth

By: Jordan R. Silversmith

New York’s Department of Financial Services (DFS) recently granted a charter under New York Banking Law to a Japanese cryptocurrency firm operating as a limited liability trust company. DFS’ approval allows the company to issue, administer and redeem Japanese yen- and U.S. dollar-pegged stablecoins in New York. In other fintech news, a Puerto Rico-based bank was recently given the go-ahead by the Puerto Rico Office of the Commissioner of Financial Institutions to begin providing custody services for multiple crypto-assets in early 2021. Meanwhile, a major American financial services company recently announced that its popular cash-transferal app will allow customers to earn bitcoin on every transaction.

The cryptocurrency debit card market continues to grow. According to reports from late December 2020, a crypto on-ramp service provider announced that it is partnering with a major American financial services company to offer cryptocurrency debit cards to its customers. The companies hope that the partnership will lead to greater access to cryptocurrencies by creating a “fiat-like convenience” for using cryptocurrencies online and in physical locations. The same American financial services giant also announced it had offered membership in its European program to a London-based payments platform that has issued a “crypto-enabled payment card.” Membership in the program allows companies to issue mainstream credit cards.

A major American cryptocurrency exchange recently announced its first Bitcoin Core developer grants to two developers. One plans to improve existing open source tools, including a web interface visualizing forks, while the other plans to improve the Bitcoin Core UI on Android and iOS. In a final notable development, a New York-based blockchain technology firm recently released a new guide on blockchain for decentralized finance. The guide outlines the uses of the Ethereum blockchain for developing new economic systems that shift from traditional, centralized financial institutions to P2P finance on the Ethereum blockchain.

For more information, please refer to the following links:

Blockchain Used To Enhance Auto Geofencing and Combat Whiskey Fraud

By: Teresa Goody Guillén

A major automaker announced that it conducted a three-year study showing how emerging technologies, such as dynamic geofencing and blockchain, can combine with hybrid-electric vehicles to help improve air quality. In Europe, low-emission zones are increasingly common in urban centers. The dynamic geofencing feature enables the vehicle’s zero-emission electric-drive mode to be activated automatically whenever it enters a low‑emission zone and constantly adjust the boundaries based on air quality, without any action by the driver. The study also used blockchain technology to record the time a vehicle entered or left a geofenced zone. The permanent time‑stamped records on the blockchain serve to ensure that “green miles” driven can be safely stored and potentially shared with other parties, such as city authorities and fleet owners.

According to recent reports, a technology company and university in Scotland are working together to tackle fraud within the whisky industry and estimate that as many as 40% of all rare vintage whiskies in circulation could be fake. As part of their proposed solution, rare whiskies will be authenticated for provenance and fitted with intelligent anti-tamper bottle closures. The bottles will then be protected and connected to a blockchain using near field communication tags, creating a digital record certifying the whisky’s origin and age. This further enables a digital record of any future chain-of-custody data such that the provenance of the bottle and its entire historical journey can be viewed, protecting and enhancing the bottle’s overall value by ensuring its authenticity.

For more information, please refer to the following links:

US Financial Regulators Continue Crypto-Focused Regulatory Proposals

By: Veronica Reynolds

National banks and federal savings associations (collectively, banks) have been granted permission to participate in independent node verification networks, such as those facilitated by distributed ledger or blockchain technologies, and use stablecoins (a type of cryptocurrency pegged to a stable asset) to facilitate payment activities, according to a letter published by the Office of the Comptroller of the Currency (OCC) this week. This permission allows banks to lawfully operate as “nodes” to “validate transactions, store transaction history, and broadcast data to other nodes” and use stablecoins “as a mechanism to facilitate payment activities,” such as the payment of remittances.

Just before the new year, the U.S. Financial Crimes Enforcement Network (FinCEN) noted its intent to amend the Report of Foreign Bank and Financial Accounts (FBAR) regulations with the goal of requiring the reporting of offshore accounts that hold cryptocurrency. According to reports, the proposed amendment to the regulations would likely align current FBAR regulations regarding cash held outside the U.S. by citizens or other U.S. persons with those related to cryptocurrencies and “could have the most visible impact on users of crypto exchanges like Bitstamp and Bitfinex.”

As previously reported, over the holidays FinCEN proposed rules to address what it refers to as the “illicit finance risks” posed by the existence and proliferation of cryptocurrencies. This week, multiple cryptocurrency-focused businesses publicly shared their responses to the FinCEN proposal, many of which outline opposition to the proposed rules.

For more information, please refer to the following links:

OFAC Settles With Crypto Custodian; Enforcement Actions in UK, Italy, Iran

By: Joanna F. Wasick

Last week, the Office of Foreign Assets Control (OFAC), a financial intelligence and enforcement agency of the U.S. Treasury Department, announced that it entered into a $98,830 settlement with BitGo Inc., a California-based technology company that offers noncustodial cryptocurrency wallet management services. OFAC had asserted that, as a result of deficiencies related to BitGo’s sanctions compliance procedures, BitGo failed to prevent persons in Ukraine, Cuba, Iran, Sudan and Syria from using its wallet services, thereby violating federal prohibitions against engaging in such business with people in those areas. OFAC had further determined that BitGo wrongfully failed to self-disclose these violations. The OFAC announcement goes on to list certain aggravating and mitigating factors assessed for the settlement. That BitGo had reason to know the location of its users was one of the factors weighing against the company, whereas the fact that it had cooperated with the investigation weighed in its favor.

Italian police announced early this week that a series of hacks that caused the theft of €120 million from the now-bankrupt BitGrail exchange may have been an inside job. A 34-year-old man from Florence, who had worked at the exchange and cooperated with police in 2018 during the initial investigation, was arrested on charges of computer fraud, fraudulent bankruptcy and money laundering. Authorities said the individual was either behind the breaches or purposefully took no action to prevent them after the first attack. An official stated, “It is not yet clear whether he participated actively in the theft or if he simply decided not to increase security measures after discovering it.”

In the U.K., 21 individuals were recently arrested as part of an operation targeting customers of an online criminal marketplace that advertised stolen personal credentials. Charges were brought under the Computer Misuse Act and fraud offenses. Bitcoin, valued at €41,000, was also seized. In Iran, Iranian authorities reportedly have shut down 1,620 illegal cryptocurrency mining farms that were siphoning over 250 megawatts of electricity from the subsidized national power grid over the past 18 months. While mining is permitted in Iran, miners must be registered and follow certain regulations.

Last month, Crystal, a blockchain analytics firm, released its Blockchain End of Year Report for 2020. The report states that bitcoin funds received by virtual asset service providers increased by $118.6 billion to $272.9 billion in 2020. The amount of bitcoin received by darknet entities increased by $0.3 billion to $1.6 billion. And the amount received by mixers increased by $0.5 billion, meaning mixers received $1.4 billion bitcoin in total this year. According to the report, the amount transferred by darknet entities to exchanges increased slightly, to $533 million. The report also provides information on a number of other topics in the digital asset and blockchain space, including money laundering, security breaches, dormant bitcoin addresses and usage on different international cryptocurrency exchanges.

For more information, please refer to the following links:

FinCEN Proposes New Crypto Record-Keeping Rules; SEC and CFTC Issue Digital Asset Guidance; SEC Closes 2020 With Multiple Enforcement Actions Against Blockchain Firms

In this issue:

FinCEN Proposed Rule Creates New Cryptocurrency Record-Keeping Requirements

SEC Issues Statement on Digital Asset Custody, CFTC Issues Digital Assets Primer

SEC Closes 2020 With Multiple Blockchain Industry Enforcement Actions

FinCEN Proposed Rule Creates New Cryptocurrency Record-Keeping Requirements

By: Robert A. Musiala Jr.

On Dec. 18, 2020, the Financial Crimes Enforcement Network (FinCEN), a bureau of the U.S. Department of the Treasury, published a notice of proposed rulemaking that would create significant new requirements for cryptocurrency exchanges, as well as other money services businesses (MSBs) and banks that facilitate transactions in convertible virtual currency (CVC) or digital assets with legal tender status (LTDA). The proposed rule would require banks and MSBs to file reports with FinCEN on CVC/LTDA transactions that exceed $10,000 in value by a customer within a 24-hour period. The reports would be required to be filed within 15 days of the reportable transaction(s). The proposed rule would also require banks and MSBs to keep certain records of CVC/LTDA transactions involving counterparties that involve “an unhosted or otherwise covered wallet and the transaction is greater than $3,000.” The records required to be collected and retained by the bank or MSB would include the following:

  • Name and address of the financial institution’s customer;
  • Type of CVC or LTDA used in the transaction;
  • Amount of CVC or LTDA in the transaction;
  • Time of the transaction;
  • S. dollar value of the transaction based on the prevailing exchange rate at the time;
  • Any payment instructions received from the financial institution’s customer;
  • Name and physical address of each counterparty to the transaction;
  • Other counterparty information as the Secretary of the Treasury may prescribe;
  • Any other information that uniquely identifies the transaction, the accounts and, to the extent reasonably available, the parties involved; and,
  • Any form relating to the transaction that is completed or signed by the financial institution’s customer.

FinCEN provided an accelerated 15-day comment period for the proposed rule due to various stated factors, including “significant national security imperatives that necessitate an efficient process for proposal and implementation of this rule.” Comments on the proposed rule were due on or before January 4, 2021.

SEC Issues Statement on Digital Asset Custody, CFTC Issues Digital Assets Primer

By: Robert A. Musiala Jr.

On Dec. 23, 2020, the U.S. Securities and Exchange Commission (SEC) “issued a statement and request for comment regarding the custody of digital asset securities by broker-dealers in order to encourage innovation around the application of Securities Exchange Act Rule 15c3-3 to digital asset securities.” According to the statement, Rule 15c3-3, also known as the Customer Protection Rule, “requires a broker-dealer to promptly obtain and thereafter maintain physical possession or control of all fully-paid and excess margin securities it carries for the account of customers.” The statement sets out the SEC’s position that for a period of five years, broker-dealers that operate according to certain criteria will not be subject to an SEC enforcement action on the basis of the broker-dealer having “obtained and maintained physical possession or control of customer … digital asset securities for the purposes of … Rule 15c3-3.”

The SEC statement identifies nine specific criteria or “circumstances” that the broker-dealer would have to meet in order to avoid enforcement action. These include having the ability to access and transfer the digital asset securities; adhering to certain business limitations; maintaining written policies and procedures designed to mitigate specific risks related to digital asset securities; providing specific written disclosures to prospective customers; and entering into written agreements with each customer that include specific terms and conditions.

In other regulatory news, on Dec. 17, 2020, the Commodity Futures Trading Commission released its Digital Assets Primer “to provide updated information to the public about emerging concepts in digital assets.” According to a press release, the Digital Assets Primer focuses on “not only virtual currency, but also smart contracts and other digitized representations of value or ownership.”

For more information, please refer to the following links:

SEC Closes 2020 With Multiple Blockchain Industry Enforcement Actions

By: Robert A. Musiala Jr.

On Dec. 22, 2020, the U.S. Securities and Exchange Commission (SEC) filed a complaint in the U.S. District Court for the Southern District of New York against Ripple Labs Inc. (Ripple) and two Ripple executives, alleging that Ripple and the executives “raised over $1.3 billion through an unregistered, ongoing digital asset securities offering.” The SEC’s complaint alleges, among other things, that beginning in 2013, Ripple sold its digital asset, XRP, in an unregistered securities offering to investors in the U.S. and worldwide; the company distributed billions of XRP in exchange for noncash consideration; and its executives effected personal unregistered sales of XRP totaling approximately $600 million. The SEC’s complaint alleges that Ripple failed to register offers and sales of XRP or satisfy any exemption from registration, in violation of the federal securities laws. The SEC seeks injunctive relief, disgorgement with prejudgment interest and civil penalties.

On Dec. 21, 2020, the SEC published a cease-and-desist order (Order) and settlement with ShipChain related to a $27.6 million initial coin offering of the company’s SHIP tokens that took place in late 2017 and early 2018. According to the Order, the SHIP tokens “were offered and sold as investment contracts, and therefore securities, pursuant to SEC v. W.J. Howey Co., 328 U.S. 293 (1946) and its progeny,” including the cases discussed in the SEC’s DAO Report of July 25, 2017. ShipChain therefore violated Section 5(a) and Section 5(c) of the Securities Act by offering and selling the SHIP tokens “without having a registration statement filed or in effect with the [SEC] or qualifying for exemption from registration.” As part of the Order, ShipChain agreed to pay a civil monetary penalty of $2.05 million; transfer all SHIP tokens in its possession to an SEC-appointed fund administrator; and request removal of SHIP tokens from digital asset trading platforms. The Order noted that ShipChain “has decided to cease all operations.”

In a third enforcement action, publicized on Dec. 28, 2020, the SEC “announced that it filed an emergency action and obtained an order imposing an asset freeze” against Virgil Capital LLC in connection with the company’s cryptocurrency trading fund. The SEC’s complaint alleges the defendants defrauded investors “by making material misrepresentations about the fund’s strategy, assets, and financial condition.”

For more information, please refer to the following links:

Canadian Ether Fund Launches, Swiss Bank Tokenizes Shares, Crypto Regulation Evolves in UK, Estonia and Germany; Blockchain Solutions Launch for Wine, Royalties, Clothing

In this issue:

Canadian Ether Fund Launches, Swiss Bank Tokenizes Shares, New German Law Passed

Blockchain Solutions Launch in Wine, Royalties Management and Clothing Industries

UK and Estonia Take Diverging Approaches to Crypto Registration, Dark Market Seized

Canadian Ether Fund Launches, Swiss Bank Tokenizes Shares, New German Law Passed

By: Joanna F. Wasick

Earlier this month, 3iQ Corp., a Toronto-based investment management firm, announced the listing of its fund, The Ether Fund (the Fund), on the Toronto Stock Exchange, following the recent completion of its initial public offering for approximately US $76.5 million. The Fund aims to provide investors with the ability to purchase shares in the Fund and receive exposure to changes in ether’s price over time. The same company launched a similar bitcoin fund earlier this year.

This week, Sygnum announced that it was the world’s first bank to tokenize its shares on a distributed ledger, thereby laying the foundation for a future public offering. The bank currently holds a banking license in Switzerland and a Singapore asset management license, and it plans to eventually list shares in those two countries. The announcement states that tokenization will allow the share registry to continuously and automatically update whenever capital increases or share transfers occur, allowing the bank to manage primary and secondary market transactions in a fully digital manner.

On Wednesday, the German government passed legislation to introduce all-electronic securities as part of a wider blockchain strategy. The law relaxes rules that had required issuers and holders of securities to document transactions with hard-copy, paper certificates. The country’s finance minister stated that electronic certification, which includes blockchain-based securities, is “the future” and will cut costs and administrative burdens.

For more information, please refer to the following links:

Blockchain Solutions Launch in Wine, Royalties Management and Clothing Industries

By: Robert A. Musiala Jr.

Late last week, a major global technology firm and eProvenance, a “company specializing in monitoring and analyzing wine shipment conditions,” announced the launch of VinAssure, a “blockchain-powered platform that offers a smarter and highly secured way to track wines as they move through distribution from vineyard to consumer.” According to a press release, the first member of VinAssure is “a U.S. importer of responsibly-sourced wines, cider and spirits from independent producers in Spain and France.”

This week, a different major global technology firm and a Big Four professional services firm announced the expansion of a “blockchain-based solution for gaming rights and royalties management to provide a financial system of record, from contract creation to payment and reconciliation.” According to a press release, the solution now, among other things, improves the process for recording royalties and generates “accounting entries from the blockchain platform into existing ERP applications.”

According to another recent report, a French fashion brand has partnered with blockchain startup SUKU to begin tracing provenance data related to recycled clothing. The SUKU platform is reportedly powered by the Ethereum-based Quorum blockchain.

For more information, please refer to the following links:

UK and Estonia Take Diverging Approaches to Crypto Registration, Dark Market Seized

By: Jordan R. Silversmith

The UK’s Financial Conduct Authority (FCA) has set up a Temporary Registration Regime to allow cryptoasset firms that have applied for registration with the FCA to continue trading. The Temporary Registration Regime is meant for existing cryptoasset businesses that applied for registration before Dec. 16 and whose applications are still being assessed. New businesses are required to have full registration with the FCA before trading.

Estonia, on the other hand, has cracked down on cryptocurrency companies. According to reports, Estonia has withdrawn licenses from over 1,000 crypto companies in 2020 due to the cost of monitoring compliance. Meanwhile, Europol released a press release this week announcing that the Finnish Customs have shut down the Sipulimarket dark web marketplace and seized all of its content. This takedown was carried out in collaboration with the Polish Provincial Police Headquarters in Wroclaw and Europol’s European Cybercrime Centre and Eurojust.

For more information, please refer to the following links:

Telegram: Deconstructing One of the Biggest Blockchain Cases of 2020

The Telegram case is arguably the most important case of 2020 involving the legal classification of blockchain-based digital assets. Because it is often cost-prohibitive for companies to challenge the government in court, the Telegram litigation offered a unique opportunity for the parties to present arguments on several complex legal issues. Given the lack of judicial precedent in this area, as well as the size and profile of the Telegram project, the Telegram case was closely watched by blockchain industry participants and represents a significant development for this emerging market. Here we provide an overview of the case, an analysis of the Court’s ruling, details on the final resolutions, and some key takeaways.

Read the article.

Traditional and Crypto Firms Across Globe Launch New Initiatives, UN Designs Blockchain Land Registry, Privacy Wallets Spark Debate, Crypto Enforcement Continues

In this issue:

Cryptocurrency Firms and Legacy Financial Instituadingtions Worldwide Make Crypto Moves

Traditional and Crypto Firms Partner to Launch Tokenized Stocks and Other Products

UN Designs Blockchain Land Registry; Solutions Address Supply Chain, Energy Efficiency

Crypto Privacy Wallets Spark Debate, Blockstack Says STX Will Shed Security Status

U.S. and Foreign Actions Target Crypto Tax Evasion, Securities Fraud and Other Crimes

Cryptocurrency Firms and Legacy Financial Institutions Worldwide Make Crypto Moves

By: Veronica Reynolds

Two cryptocurrency firms filed applications this week with the Office of the Comptroller of the Currency to become federally regulated banks in the U.S. The first, BitPay, a bitcoin payments company, submitted an application for the BitPay National Trust Bank, to be headquartered in Georgia. The second application was submitted by Paxos, a stablecoin issuer and cryptocurrency services firm, for the Paxos National Trust. As a next step in the process, each application will undergo a 30-day comment period.

In the U.K., two major financial services providers have announced plans to launch an institutional-grade custody solution for cryptocurrencies, called Zodia Custody. According to a press release, Zodia would allow institutions to invest in cryptocurrency assets, including transaction and settlement activities.

In Sweden, the Bank for International Settlements’ Innovation Hub (BISIH) Swiss Centre, the Swiss National Bank (SNB) and financial infrastructure operator SIX recently announced the successful completion of a joint proof of concept for central bank digital currencies (CBDCs). The proof of concept reportedly shows the feasibility of linking a digital asset platform to an existing payment system and issuing a tokenized CBDC.

In Singapore, DBS Group Holdings Ltd. (DBS) recently announced a partnership with Singapore Exchange Ltd. to offer new services that include cryptocurrency custody services, secondary trading of digital assets and asset tokenization. The initiative has reportedly received approval from the Monetary Authority of Singapore, allowing DBS to be among just a few banks in the region to engage meaningfully in the cryptocurrency industry.

One of the world’s oldest banks, located in Germany, plans to issue a Euro stablecoin on Stellar, according to recent reports. The bank is working with Bitbond, a tokenization and digital asset custody technology provider, to launch the initiative. Bitbond has reportedly already received approval from a German regulator to issue tokenized bonds, also through Stellar.

For more information, please refer to the following links:

Traditional and Crypto Firms Partner to Launch Tokenized Stocks and Other Products

By: Robert A. Musiala Jr.

According to a press release, the Bitwise 10 Crypto Index Fund, the first publicly traded crypto index fund in the U.S., has qualified to trade on the OTCQX® Best Market, an over-the-counter market of U.S. and global securities that connects a network of broker-dealers. In another development from the U.S. market, a major U.S. financial services firm, in partnership with blockchain startup BlockFi, has reportedly launched an offering for its institutional customers that will allow the customers to pledge bitcoin as collateral for cash loans.

According to another press release, Bittrex Global (Bermuda) Ltd. has announced that it will soon list “tokenized stocks” on its digital asset exchange in cooperation with Swiss investment firm DigitalAssets AG. According to the press release, “the tokenized stocks available through Bittrex Global will allow customers to purchase a fraction of a stock without needing to purchase entire shares, where the underlying risk of the tokens is derived from the tokenized company.” The press release includes a list of publicly traded stocks that will be offered as tokenized assets.

In Switzerland, a new bitcoin exchange-traded product, Bitcoin Zero, has begun trading on the Stockholm-based Nordic Growth Market stock exchange. In more news from Switzerland, the SIX Digital Exchange has announced a joint venture with the subsidiary of a Japanese financial services firm to launch a Singapore-based “digital asset securities and cryptocurrency assets” exchange for institutional clients. The exchange will seek to obtain approval from the Monetary Authority of Singapore. And in the Philippines, a recent press release has announced that a major global financial institution and a Philippines-based bank have completed “a proof of concept for the issuance of a retail bond on a digital platform leveraging blockchain technology for bond tokenization.”

For more information, please refer to the following links:

UN Designs Blockchain Land Registry; Solutions Address Supply Chain, Energy Efficiency

By: Jordan R. Silversmith

Three organizations associated with the United Nations recently announced the release of the first open-source urban land registry solution designed for the government of Afghanistan. The goLandRegistry solution is expected to record land parcels on a blockchain platform designed by the LTO Network. The Solution will reportedly allow landowners to demonstrate the authenticity of property titles through an “Open Source blockchain verification tool.” The tool will be handed off by the UN this month to the Ministry of Urban Development and Land in Afghanistan.

Steve Wozniak is aiming to reform the energy-efficiency market with his second company, Efforce, which will use a novel web-based platform that leverages blockchain and related tokens to help spur global energy efficiency. And in other enterprise news, a Japanese independent coffee company, the fifth-largest coffee roaster globally, has partnered with a major software company to launch a blockchain solution aimed to enable traceability of its coffee to its originating farm.

Two recent reports indicate that the role of blockchain usage across the supply chain is expected to continue growing over the next few years. Blockchain technology helps solve three key issues in supply chain management, according to the reports: counterfeiting, visibility/traceability and “efficiency play.” Globally, the reports expect blockchain in the supply chain market to grow from $81.4 million in 2017 to $3485.25 million in 2023.

For more information, please refer to the following links:

Crypto Privacy Wallets Spark Debate, Blockstack Says STX Will Shed Security Status

By: Marc D. Powers

According to recent reports, Treasury Secretary Steven Mnuchin is considering new regulations concerning “self-hosted wallets” of cryptocurrency owners. The Financial Action Task Force, a global multigovernmental body that sets anti-money laundering recommendations, has reportedly also suggested that self-hosted wallets be banned. These reports have sparked quick reaction from the cryptocurrency industry, including several U.S. lawmakers who have expressed concern that such overregulation or prohibition would “crush a nascent industry and leave the United States behind the rest of the world when it comes to harnessing the power of blockchain and cryptocurrency.” One commentator has said that self-hosted wallets are no different than the traditional, leather wallets each individual keeps in his or her own pocket or pocketbook.

A recent report by blockchain analytics firm Elliptic has added to the debate by publishing an analysis finding that so-called privacy wallets, such as Wasabi Wallet, appear to be growing in use by threat actors. According to the report, in 2020 at least 13 percent of all bitcoin criminal proceeds were sent through privacy wallets, up from 2 percent in 2019. The debate on cryptocurrency and privacy is also happening in France, where the French Ministry of Finance has reportedly unveiled broad and immediate know-your-customer requirements on all cryptocurrency companies operating in and servicing the country. Among other things, the new requirements reportedly address verifying beneficial owners of and prohibiting anonymous crypto accounts.

In other regulatory developments, this week Blockstack PBC announced that it plans to make its Stacks cryptocurrency (STX) available in the U.S. In a press release, Blockstack published a legal memorandum outlining why STX would “no longer be considered a security under U.S. law after the launch of the Stacks 2.0 blockchain.” A Reuters interview with Blockstack’s co-founder and chief executive, Muneeb Ali, stated: “With the launch of Blockstack’s Stacks Blockchain 2.0 on Jan. 14, 2021, the company’s network will no longer be controlled by any single entity and its Stacks token can no longer be considered a security under SEC regulations.” Blockstack had previously issued STX under an SEC-approved Reg A plus securities offering in 2019.

For more information, please refer to the following links:

U.S. and Foreign Actions Target Crypto Tax Evasion, Securities Fraud and Other Crimes

By: Teresa Goody Guillén

The Department of Justice (DOJ) and the U.S. Securities and Exchange Commission (SEC), with the assistance of the Federal Bureau of Investigation (FBI) and the Internal Revenue Service, Criminal Investigation Division (IRS), have brought parallel criminal and civil actions against the founder of the blockchain protocol Oyster Pearl. The DOJ alleged that the defendant made millions of dollars from the sale of “Pearl tokens” but evaded reporting that income to the IRS, including by filing a false tax return in 2017, failing to file a tax return in 2018, operating the business and owning assets through pseudonyms and shell companies, obtaining income through nominees, and dealing in gold and cash. The DOJ charged the defendant with two counts of tax evasion, each of which carries a maximum sentence of five years in prison. The SEC’s complaint charges the same individual with offering and selling unregistered securities and violating the anti-fraud provisions of the federal securities laws. The SEC complaint alleged that the individual unlawfully raised approximately $1.3 million through the unregistered sale of Pearl tokens, minted approximately 4 million unauthorized Pearl tokens for himself for free and immediately began selling the tokens in the secondary market.

According to a DOJ press release, the creator of Argyle Coin, LLC, who operated a fraudulent diamond investment scheme, was sentenced to serve 84 months in federal prison and pay over $23 million in victim restitution. The defendant and his partners allegedly solicited U.S. and Canadian investors in a fraud scheme involving “diamond contracts.” To further the scheme, the defendant created Argyle Coin, LLC, which was purportedly in the business of developing a cryptocurrency token backed by diamonds.

A court in France has sentenced Russian national Alexander Vinnik to a five-year prison term for money laundering as an alleged operator of the now-defunct cryptocurrency exchange BTC-e. After the defendant’s arrest, the U.S., Russia and France fought for his extradition, with France prevailing. The U.S. is still seeking to extradite Vinnik.

According to a recent report, a Hong Kong-based crypto exchange founder has been taken into custody by Chinese authorities. Because the founder holds the private keys to most of the platform’s cold wallets, the exchange stated that it cannot process and is therefore suspending all withdrawals. The platform will also reportedly close all of its over-the-counter trading services because of the risks related to uncertainties surrounding China’s regulatory policies.

For more information, please refer to the following links:

US Credit Card Company to Integrate USDC, SEC No-Action Letter Addresses ERC20 Token, Tax Bodies Address Crypto, US and State Enforcement Continues

In this issue:

Credit Card Company to Integrate USDC Payments, 401(k) Advisor Integrates Bitcoin

SEC Issues No-Action Letter on Digital Assets, Second Addresses ERC20 Token

FinHub Role Expands, Foreign IPO and Lending Service Integrates Crypto

Tax Bodies Address Cryptocurrencies, Exchanges React to Evolving Landscape

US and State Enforcement Agencies Take Action Against Crypto Fraud Schemes

Foreign Regulators Scrutinize Privacy Coins, Seize/Sell Criminal Crypto

Credit Card Company To Integrate USDC Payments, 401(k) Advisor Integrates Bitcoin

By: Jordan R. Silversmith

A major U.S. credit card company has announced plans to link its global payments network of over 60 million merchants to a cryptocurrency startup’s Ethereum-based U.S. Dollar Coin (USDC). Although the credit card company itself will not custody the digital asset, the two companies will begin working to help credit card issuers begin integrating software for USDC into their platforms to enable USDC payments. Those businesses will in turn be able to send international USDC payments to any business supported by the credit card company, convert USDC into the local national currency and spend the funds anywhere that accepts the company’s credit card. The companies also plan to release a new credit card in the future that lets businesses send and receive USDC payments directly from any business using the card.

Digital Asset Investment Management (DAiM), a California-based registered investment advisor, recently announced that it has launched the first ERISA-compliant employer-sponsored 401(k) plans that integrate bitcoin into plans’ asset allocation. DAiM will serve as advisor and fiduciary to companies looking to create model portfolios of varying risk profiles comprising traditional assets and allocations of up to 10 percent of bitcoin.

A Japanese banking giant has announced plans to launch a blockchain payment network in 2021. The company expects the network to be fully functional throughout Japan by summer 2022.

For more information, please refer to the following links:

SEC Issues No-Action Letter on Digital Assets, Second Addresses ERC20 Token

By: Teresa Goody Guillén

The Division of Corporation Finance (CorpFin) of the U.S. Securities and Exchange Commission (SEC) issued its third no-action letter addressing digital assets, which is its second no-action letter addressing an ERC20 token. The no-action letter request involves “an online software application that people use to interact in virtual venues, play games … and offer and obtain virtual goods and services.” The “heart” of the platform is a virtual economy using digital credits, which cannot be transferred or used off the platform. The platform requested no-action relief to use an ERC20 token instead of the credits. The ERC20 token would have real value and can be transacted on and off the platform. CorpFin noted significant factors in granting the no-action relief, which include:

  • The company will not use proceeds from the sale of the digital asset to finance the upgrade from credits to the digital asset, which will be fully functional and operational immediately upon its launch and before any digital asset is sold.
  • The digital asset will be immediately usable for its intended purpose at the time it is sold.
  • Digital asset holders will be subject to know your customer/anti-money laundering checks when they establish open wallets and on an ongoing basis.
  • The digital asset will be made continuously available in unlimited quantities and at a fixed price.
  • The company will not promote or support listing or trading of the digital asset on any third-party trading platform.
  • Users who purchase the digital asset from the company will be required to affirm that they are acquiring the digital asset for consumptive use and not for speculative purposes.

For more information, please refer to the following links:

FinHub Role Expands, Foreign IPO and Lending Service Integrates Crypto

By: Teresa Goody Guillén

This week, the U.S. Securities and Exchange Commission (SEC) announced that its Strategic Hub for Innovation and Financial Technology (FinHub) will become a stand-alone office. Valerie Szczepanik will continue to lead FinHub as its first director and will report directly to the SEC chairman. FinHub was created in 2018 and housed within the Division of Corporation Finance. FinHub has been the SEC’s contact for market and technology innovators and domestic and international regulators to engage the SEC on emerging financial innovations and technologies in compliance with the federal securities laws.

An Australia-based company recently completed the nation’s first initial public offering (IPO) to use cryptocurrency for its capital raise, raising more than AU$5 million (US$3.65 million). It is reported that just over 89 percent, or approximately AU$4.4 million (US$3.2 million), of the total raise was made using the Stablecoin tether (USDT). The remaining funds were raised in Australian dollars. The company used a capital-raising platform that is reportedly Australia’s first such platform to accept both cryptocurrency and Australian dollars.

A subsidiary of a major Japanese financial services firm has launched a crypto lending service that will allow users to deposit bitcoin (BTC) and earn interest. The reported minimum and maximum amounts of BTC users can deposit is 0.1 BTC and 5.0 BTC, respectively. The firm said it plans on expanding the service to other cryptocurrencies, including XRP and Ethereum.

For more information, please refer to the following links:

Tax Bodies Address Cryptocurrencies, Exchanges React to Evolving Landscape

By: Robert A. Musiala Jr.

New tax reporting rules for cryptocurrencies may be on the horizon, according to reports covering the recent 2020 Global Blockchain Policy Forum hosted by the Organization for Economic Cooperation and Development (OECD). An OECD official reportedly said the OECD expects to release standards for the tax treatment of “cryptoassets” sometime in 2021. A U.S. tax official reportedly commented that the U.S. is concurrently developing domestic reporting rules for the tax treatment of cryptocurrencies. And in other regulatory news, the Bank for International Settlements, an international financial institution owned by central banks, recently published a working paper addressing risks and regulation of Stablecoins.

Cryptocurrency exchanges have recently announced actions that appear to be in response to the evolving regulatory landscape. A major U.S. exchange recently announced that for the 2020 U.S. tax season it will depart from its prior practice of issuing IRS Form 1099-K to certain users and will instead issue Form 1099-MISC. The same exchange also recently announced that it has disabled margin trading based on new guidance from the Commodity Futures Trading Commission.

Meanwhile, a major foreign-based exchange has reportedly escalated its efforts to remove U.S. persons from access to its platform.

For more information, please refer to the following links:

US and State Enforcement Agencies Take Action Against Crypto Fraud Schemes

By: Robert A. Musiala Jr.

Early this week, the U.S. Department of Justice announced that a Brazilian citizen has been extradited from Panama in connection with an indictment involving an international fraud and money laundering ring allegedly perpetrated “through investments in AirBit Club, a purported cryptocurrency mining and trading company.” According to a press release, the defendants “falsely promised victims that AirBit Club earned returns on cryptocurrency mining and trading and that victims would earn passive, guaranteed daily returns on any membership purchased.” Instead, according to the press release, no bitcoin mining or investment took place and the defendants enriched themselves.

In a series of recent actions by the Texas State Securities Board (TSSB), the TSSB issued cease-and-desist orders to 15 firms related to alleged fraudulent schemes involving cryptocurrencies. The schemes all appear to have used social media platforms to perpetrate fraud involving various illegal activities, including illegal referral programs, false claims of licensure, registration violations, material misstatements and omissions, false claims, and other deceptive activities.

For more information, please refer to the following links:

Foreign Regulators Scrutinize Privacy Coins, Seize/Sell Criminal Crypto

By: Joanna F. Wasick

The South Korean government, in an effort to reduce money laundering, recently enacted a law banning privacy coins (cryptocurrencies with additional anonymity features) on South Korean exchanges. The law will also require exchanges to implement a variety of “know your customer” measures.

Earlier this week, the Financial Transactions and Reports Analysis Centre of Canada issued guidance to financial institutions for detecting and reporting suspicious cryptocurrency transactions that may reflect money laundering and terrorist financing. Twenty-six types of suspicious activity are listed, including a number related to privacy coins, e.g., portfolios consisting primarily of privacy coins, transactions in which large quantities of bitcoin are exchanged for privacy coins, or clients unwilling or unable to identify the source of their privacy coins. Other listed activities focus on abnormalities in cryptocurrency addresses, how and when transactions take place, and other details that suggest criminal activity.

Last week, a report was released detailing the seizure of $4.2 billion in cryptocurrency by the Chinese government in a raid that occurred earlier in November. The raid was part of a case against PlusToken, a massive Ponzi scheme that pretended to offer high-yield returns after people deposited funds into the system.

In Lithuania, a local news source reported last week that the country’s tax department sold off confiscated cryptocurrencies for the first time, bringing in $7.5 million. The department reportedly gained possession of the cryptocurrency in February but no details were provided as to why the cryptocurrency was initially seized.

Pickle Finance, a popular decentralized finance (DeFi) protocol, recently announced that it was hacked last week, draining $19.7 million in DAI, a decentralized Stablecoin pegged to the U.S. dollar, from a Pickle wallet. The vulnerability that may have led to the attack has reportedly been fixed. The company stated that the hack, which did not appear to affect any other funds, was “very complicated”; however, the company said it would not disclose any specific details at this time.

For more information, please refer to the following links:

New Crypto Payment Services Launch; Blockchain Pilots Announced for Agriculture, Textile, Seafood Supply Chains; DeFi Project Hacked for $7 Million

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

New Crypto Payment Services Launch, Bitcoin ATM Firm Asserts Patent Rights

Blockchain Pilots Announced in the Agricultural, Textile and Seafood Industries

Spanish Police Target Crypto Front Company, DeFi Project Hacked for $7 Million

New Crypto Payment Services Launch, Bitcoin ATM Firm Asserts Patent Rights

By: Joanna F. Wasick

Late last week, BitPay, a major cryptocurrency payment provider, announced the introduction of BitPay Send, a new mass payout service that enables organizations to pay employees, affiliates, customers, vendors, contractors and others with cryptocurrency. According to a press release, for a 1 percent fee, payments can be made 24/7, anywhere around the world. Recipients can participate without a bank account, and only need a BitPay ID and cryptocurrency wallet. The press release notes that companies do not need to own or manage cryptocurrency, and that no foreign exchange fees apply.

Also last week, Peninsula Visa, a U.S. passport and visa expeditor, announced it will accept bitcoin payments, using the payment services arm of a U.S. major cryptocurrency exchange as its processor. Bitcoin payments will only be accepted for select passport services, including renewals and name change. However, additional passport and visa services for which Peninsula will accept bitcoin payment will be rolled out over the next 12 months.

Belarusbank, the largest financial institution in Belarus, recently announced plans to launch a service allowing users to exchange cryptocurrency using a major credit card company’s payment card. The service is available to citizens of Belarus and Russia, and also enables trading cryptocurrency with fiat currencies, including the Belarusian ruble, the U.S. dollar and the euro.

Earlier this month, Bots Inc., a software company that develops artificial intelligence-based chatbots, announced that it was taking steps to enforce its Bitcoin ATM patent, which it acquired late last month. The patent relates to protocols underpinning the operation of “Bitcoin ATMs,” which enable purchase and sale of cryptocurrencies through web-linked kiosks that accept cash or debit or credit cards. In a statement, Bots said it was meeting with a major law firm to discuss enforcement of the patent to make Bitcoin ATM operators pay royalties to Bots. Bots also said it was contacting individual ATM operators to reach an amicable arrangement without litigation, while inviting those operators to join a consortium of Bitcoin ATMs.

For more information, please refer to the following links:

Blockchain Pilots Announced in the Agricultural, Textile and Seafood Industries

By: Robert A. Musiala Jr.

Two recent partnerships have been announced for blockchain solutions in the agricultural sector. Late last month, a major U.S. financial services firm announced a collaboration with GrainChain to develop and implement a blockchain platform “to forensically track commodities, from the initial inputs and raw materials to harvesting and processing to logistics and delivery to the consumer’s hands.” And this week, a major German pharmaceutical firm and BlockApps, an enterprise blockchain platform provider, announced the launch of TraceHarvest, an Ethereum-based network designed to “enhance food quality, safety and sustainability by bringing supply chain efficiencies, transparency, compliance and stewardship to agricultural products.”

Also this week, a major U.S. technology firm announced a collaboration with KAYA&KATO, “a textile company that manufactures uniforms and work wear,” to develop “a blockchain network for the fashion industry … designed to create transparency about the origin of garments, from the fiber used to the completion of the final product, and to provide consumers with the knowledge that their clothes are sustainably produced.” In another recent development, Australian tech firm Two Hands announced that it had successfully completed a pilot of its GoTrace blockchain platform to track a shipment of southern rock lobsters from Melbourne, Australia, to Shanghai, China, where the lobsters were served at a hotel wedding banquet.

A recent paper published by academics at MIT addresses “voting over the Internet” or “voting on the blockchain” and finds that “Internet and blockchain-based voting would greatly increase the risk of undetectable, nation-scale election failures.” The paper “analyzes … the security risks of online and electronic voting, and show[s] that not only do these risks persist in blockchain-based voting systems, but blockchains may introduce additional problems for voting systems.”

For more information, please refer to the following links:

Spanish Police Target Crypto Front Company, DeFi Project Hacked for $7 Million

By: Jordan R. Silversmith

Last week, Spanish police arrested a man alleged to be a former member of the Colombian Cali Cartel in relation to a cryptocurrency money laundering operation. The police claim that after the arrests of the Cali Cartel’s heads in 1995 and the subsequent decline of the gang’s drug empire, the man founded a cryptocurrency company that was a front for his money laundering activities. The Spanish police believe that the man has laundered over $7.1 million in drug and crime proceeds through cryptocurrencies.

A Chinese crypto blogger reported on Monday that cryptocurrency miners in China have been struggling to pay for electricity as a result of a recent crackdown by Chinese authorities on the country’s over-the-counter (OTC) brokers, which the cryptocurrency miners use to convert newly mined bitcoin to yuan. Chinese regulators have been increasing efforts to block bank accounts potentially related to money laundering via cryptocurrency and have recently investigated the two largest cryptocurrency OTC brokers in China.

Stablecoin project Origin Dollar (OUSD) recently experienced a DeFi attack that resulted in a loss of $7 million, including over $1 million deposited by Origin and its founders and employees. The attack used a flash loan and flaws in OUSD smart contracts to initiate a “rebase” that artificially inflated the supply of OUSD tokens in the protocol before swapping out the newly printed tokens for USDT. The team subsequently disabled deposits as the project’s native token has dropped 85% since the attack. The attack comes as the U.S. dollar value of cryptocurrency liquidity stored in DeFi projects reportedly hit $13.6 billion.

For more information, please refer to the following links:

Podcast: BakerHostetler Blockchain University: What You Need to Know About the Most Common Blockchain Networks

The third episode in the series focuses on the differences and similarities between the Ethereum Network, HyperLedger, and other key blockchain networks. Topics discussed include smart contracts, public versus private blockchains, distributed autonomous organizations (DAOs), blockchain “forks” and more.

Questions & Comments: rmusiala@bakerlaw.com, jsilversmith@bakerlaw.com

Listen to the episode.
Download Episode Transcript

Subscribe to BakerHosts
Apple Podcast | Google Podcast | iHeartRadio | Spotify | Stitcher | TuneIn
LexBlog