Manipulation Detected on ‘DEXes,’ Regulations Develop, Industry Initiatives Advance, Hacks, Money Laundering and Enforcement Continue

Digital Money TransectionIn this issue:

Academics Detect Manipulation on ‘DEXes’ as Cryptocurrency Trading Expands

New Tokenized Securities Announced; Global Regulatory Regimes Develop

Food Supply Chain Initiatives Grow, Government Spending Expected to Rise, Blockchain Enterprise Tools Released

Crypto-Mining Malware, Dark Market Money Laundering, SIM Swap Hacks and FinCEN Enforcement

Academics Detect Manipulation on ‘DEXes’ as Cryptocurrency Trading Expands

By: Joanna F. Wasick

A recent academic paper by researchers at Cornell Tech and other academic institutions describes rampant trading manipulation on decentralized cryptocurrency exchanges (DEXes). While the vast majority of cryptocurrency trading volume occurs over centralized exchanges (which custody customer assets and settle trades), DEXes allow for more direct trading, and their use is expected to grow. This paper, however, reports on new high-frequency trading firms that deploy autonomous, algorithmic trading programs that anticipate and take advantage of ordinary users’ trading patterns, allowing for front-running (i.e., seeing orders ahead of others and placing their own trades first), aggressive latency optimization and other market manipulation techniques. The paper also found bots engaging in priority “gas” auctions , competitively bidding up transaction fees in order to get priority orders (early block position and execution) for their transactions. A contributor to the paper stated at a blockchain conference last week that these findings should incentivize those in the blockchain and exchange communities to create new exchange designs to combat the problem.

Despite vulnerabilities, cryptocurrency trading continues to expand. Coinbase announced that it will increase crypto-to-crypto conversions and trading services to 11 more countries, which will give the company a presence in 53 countries across four continents. In addition, micro, small and medium-sized companies ill now be able to make bitcoin and bitcoin cash payments to a major U.K. business travel management services company, thanks to its partnership with BitPay, a global cryptocurrency payment processor. And one of Japan’s largest e-commerce companies recently announced that it will accept account registration for its new cryptocurrency exchange, expanding cryptocurrency-based payments in the Asian online retail market.

Volume over exchanges is up too. eToro, a multi-asset trading platform, has unveiled a regulated cryptocurrency exchange geared toward “professional traders.” The platform offers 37 trading pairs, with the ability to convert six cryptocurrencies into fiat, including the dollar, Euro and Swiss franc. According to a popular blockchain news source, estimated profits for Binance, another major cryptocurrency exchange, totaled $78 million in Q1 – up 66% from the previous quarter. Even endowment funds, with a reputation among some as more conservative investors, are entering the space. A 2018 Q4 survey of 150 endowments found that 94% had invested in cryptocurrency-related initiatives in the past 12 months. The endowments, most of which were U.S.-based, reported that the most attractive crypto-assets were those with robust regulation, sufficient capital flow and liquidity, and account security.

For more information, please refer to the following links:

New Tokenized Securities Announced; Global Regulatory Regimes Develop

By: Brian P. Bartish

Blockchain startup 20|30 reportedly raised 3 million pounds ($3.93 million) through the sale of Ethereum-based equity tokens on the London Stock Exchange Group (LSEG) turquoise equity trading platform. Working in collaboration with LSEG and the U.K. Financial Conduct Authority, along with distributed ledger startup Nivaura, 20|30 aims to demonstrate that company equity can be tokenized and issued with a fully compliant custody, clearing and settlement system, and intends to offer secondary transfers of the tokenized equity following the success of the initial pilot. Last Friday, Arca, a Los Angeles-based digital asset manager, filed a prospectus with the SEC seeking approval for a tokenized bond fund envisioned as a quasi-stablecoin with a target net asset value of $1 per share. The fund would help protect investors against high volatility through investments in U.S. Treasury securities. With the proliferation of new use cases, a major multinational technology company is spearheading the development of a “Token Taxonomy Framework” to begin developing common technical standards for tokens across various blockchain protocols.

Recent analysis by the Congressional Research Service noted the high degree of regulatory overlap and confusion likely to result from 2018 Federal court decisions that upheld the Commodities Futures Trading Commission’s broad enforcement authority to act against fraud in the sale of virtual currencies due to their status as commodities. In other U.S. regulatory news, the Congressional Blockchain Caucus, led by Rep. Emmer, has called on the IRS to update its 2014 guidance regarding how virtual currency holders should calculate and track the basis of their holdings. In Japan, according to reports, the Financial Services Agency will soon require cryptocurrency exchanges to exercise greater internal oversight over cold-storage wallets to help protect against insider theft. And in France, after establishing one of the first national laws that allows organizations to apply for certification to issue and trade cryptocurrencies, the French government is calling its European Union partner states to adopt the same framework, which seeks to offer greater protections to investors while generating tax revenues.

For more information, please refer to the following links:

Food Supply Chain Initiatives Grow, Government Spending Expected to Rise, Blockchain Enterprise Tools Released

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

Major grocers continue to “harvest” blockchains for their transparency by participating in networks designed to increase visibility across food supply chains. This week, the U.S.’s second-largest grocer joined a large Food Trust network, which the Blockchain Monitor first covered last summer. According to reports, the grocer will pilot a romaine lettuce track-and-trace use case in order to improve food quality and recalls. Other members of the Food Trust also made headlines this week: A prominent French multinational supermarket and the world’s largest food and beverage company announced they will allow consumers to view information recorded on a blockchain by simply scanning a QR code. Consumers of instant mashed potatoes will be able to see what kinds of potatoes were used, when and where they were stored, and more.

In other supply chain news, researchers at Portland State University reportedly have published a blockchain protocol specifically designed to combat counterfeiting in pharmaceutical supply chains. Another announcement this week described the debut of a blockchain solution for the employee benefits industry, developed by a major global consulting firm and a multinational employee benefits firm, that seeks to streamline the operating model for employee benefits such as life, short- and long-term disability, accident, and healthcare insurance. According to a report released this week by a large market intelligence firm, over the next four years blockchain spending by the U.S. government is expected to grow from $4.4 million in 2017 to $48.2 million in 2022, with early spending focused on “supply chain and asset management solutions” and later spending expanding to include “identity management and complex financial transactions.”

Established technology and consulting firms appear to be preparing for blockchain market growth. This week, a Big Four accounting and consulting firm announced plans to release a free public blockchain protocol that operates on Ethereum and that has been developed specifically for enterprise-grade use cases such as supply chain management, intracompany transactions and public finance. The protocol leverages zero-knowledge proofs to enable private transactions to take place on the public Ethereum blockchain. The same “Big Four” firm recently launched a blockchain analytics tool designed to improve blockchain-based “financial reporting, forensic investigations, transaction monitoring and tax calculations.”

For more information, please check out the following links:

Crypto-Mining Malware, Dark Market Money Laundering, SIM Swap Hacks and FinCEN Enforcement

By: Marc D. Powers

Two Romanian cybercriminals were convicted in Ohio on 21 felony counts related to the infecting of 40,000 computers with malware to steal credit card and other information to sell on the dark web. The schemes included taking control of the victim’s computers, which allowed the defendants to use the processing power of the computers to engage in cryptocurrency mining for the financial benefit of the group. The victims incurred losses of millions of dollars.

The NYC District Attorney reported the indictments of several individuals who operated two dark web storefronts to sell Xanax and other controlled substances in 43 states. The defendants allegedly laundered $2.3 million in cryptocurrency proceeds from their illicit activities to load prepaid debit cards, and withdrew $1 million in cash from ATMs in New York and New Jersey.

This week, the U.S. Financial Crimes Enforcement Network (FinCEN) assessed a civil money penalty against an individual for “willfully violating the Bank Secrecy Act’s (BSA) registration, program, and reporting requirements” in the course of the individual’s operation as a “peer-to-peer exchanger of convertible virtual currency.” According to a FinCEN press release, the individual failed to file required reports related to, among other things, suspicious activity involving darknet marketplaces and purchases of bitcoin for cash. The individual cooperated with FinCEN, paying a fine and agreeing to an industry bar on engaging in “money services business” activity.

Finally, it has been reported that hackers have stolen over $50 million in cryptocurrencies from wallets within the past 15 months using a new technique known as SIM Swapping. This scheme involves a criminal taking a new SIM card to a store, impersonating the victim, and switching the victim’s wireless carrier number to his or her new SIM card. Soon the criminal has access to the victim’s texts and can learn two-factor authentication or other information to gain access to cryptocurrency wallets. According to reports, many of these hackers are relatively young, between the ages of 18 and 26. At least one of the hackers caught has been sentenced to 10 years in prison.

For more information on these developments, please follow these links:

Advancements in Blockchain-Powered Property Sales and Energy Grids; New Stablecoins, Payment Products and Enforcement Actions

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

Blockchain Property Records Trial Completed, Energy Grid Project Continues, New Patents Granted

New Stablecoins Announced, New BitLicense Granted, New Crypto Debit Card Launched

Blockchain Capital Markets Solutions Continue to Advance in US and Abroad

Cryptocurrency Enforcement Actions Continue in US and Asia Markets

Blockchain Property Records Trial Completed, Energy Grid Project Continues, New Patents Granted

By: Robert A. Musiala Jr.

According to a press release issued late last week, U.K.-based firm Instant Property Network recently completed a successful simulated trial of a blockchain solution for property sales transactions, powered by the Corda blockchain. A Bloomberg report stated that 40 companies were involved in testing the new platform, including two major global banks. The press release estimated that if the efficiencies demonstrated by the trial were applied to the global property market, it could result in annual savings of approximately $160 billion.

The U.S. Department of Energy (DOE) has begun Phase II of an electrical grid security project that leverages a patent pending blockchain solution to increase cybersecurity in power plants. DOE is working with Colorado-based firm Taekion on the project. According to another recent report, Bitfury and Longenesis have teamed to launch a “blockchain-based consent management system for the healthcare industry” that seeks to improve compliance with the General Data Protection Regulation (GDPR), the Health Insurance Portability and Accountability Act (HIPAA) and other applicable laws. Also this week, the World Economic Forum published an article advocating blockchain as a potential solution for limiting waste and promoting transparency and efficiency in the construction industry.

Late last week, a major global technology firm, a major U.S. bank, a global news organization and a global consulting firm all had patents granted for blockchain-based business solutions. The patents address data management for self-driving vehicles, identity management and validation, authentication of content provider data, and blockchain interoperability.

For more information, please refer to the following links:

New Stablecoins Announced, New BitLicense Granted, New Crypto Debit Card Launched

By: Robert A. Musiala Jr.

Late last week, Canadian cryptocurrency platform Coinsquare announced its plans to launch eCAD, the first stablecoin pegged 1:1 to the Canadian dollar. Similar to most stablecoins, each unit of eCAD cryptocurrency will be backed by a Canadian dollar held in a traditional bank account. In Japan, the fifth-largest bank in the world announced plans to launch its own stablecoin that would be backed 1:1 by Japanese yen. According to reports, the bank is seeking to design functionality that would allow bank customers to use an app to automatically convert bank deposits into the stablecoin.

Earlier this week, Bitstamp, Europe’s largest cryptocurrency exchange, became the 19th company to receive a BitLicense from the New York State Department of Financial Services (DFS). This week DFS also rejected the BitLicense application of Bittrex, a major U.S. cryptocurrency exchange based in Seattle. According to reports, DFS denied the application based on deficiencies in Bittrex’s capital and anti-money laundering requirements.

This week Coinbase announced the launch of Coinbase Card, a card that looks and is used like a traditional debit card in point-of-sale transactions, but that is funded by customers’ Coinbase account balances. According to a Coinbase blog post, the Coinbase card is available to Coinbase customers in the United Kingdom and will be available soon in the European Union. In a final note related to the cryptocurrency exchange industry, the court-appointed monitor of the defunct Canadian exchange QuadrigaCX recently recommended that the exchange should be transitioned from restructuring to bankruptcy proceedings.

For more information, please refer to the following links:

Blockchain Capital Markets Solutions Continue to Advance in US and Abroad

By: Simone O. Otenaike

Late last week, a leading trading services firm and Templum Inc. announced a strategic partnership that allows Templum to expand into the public markets and move toward developing a fully regulated exchange to list and trade digital securities. Subject to Securities and Exchange Commission (SEC) approval, the new public exchange would be SEC-registered and operated by the trading services firm.

On the international front, the Hong Kong Securities and Futures Commission issued a policy statement summarizing the legal and regulatory requirements applicable to security token offerings (STOs). The new guidance offers companies that plan to market or sell STOs in Hong Kong a regulatory framework to evaluate whether security tokens qualify as “securities” under the guidance. The Gibraltar Stock Exchange (GSX) also made news this week with its announcement that financial firms can now list digital or tokenized corporate and convertible bonds, asset-backed and derivative securities, and open-ended and closed-ended funds on its platform. According to reports, membership in the GSX is also now open to licensed financial services firms outside the European Economic Area.

In Bermuda, the Ministry of Finance reportedly approved Velocity Ledger Holdings Limited (VLHL) to conduct an initial coin offering (ICO). The ICO will fund operations for VLHL’s two subsidiaries, VL Financial and Velocity Ledger Technology Limited (VL Tech). VL Financial operates as a digital asset exchange in Bermuda that supports asset-backed investment and real estate tokens, while VL Tech is a private blockchain-enabled platform that operates as Software-as-a-Service. The ICO is expected to commence this month.

For more information, please check out the following links:

Cryptocurrency Enforcement Actions Continue in US and Asia Markets

By: Jordan R. Silversmith

Earlier this week, a U.S. district court in California sentenced a bitcoin dealer to two years in prison and ordered him to forfeit $823,357 in illicit profits from an unregistered cryptocurrency exchange. Jacob Burrell Campos, a U.S. citizen, pleaded guilty last October, admitting that he operated a bitcoin exchange without registering with the Financial Crimes Enforcement Network (FinCEN) of the Treasury Department and without implementing the required anti-money laundering safeguards. Meanwhile, on April 10, Texas regulators issued an emergency cease and desist order against a cryptocurrency and foreign currency trading platform. According to the regulators’ order, FxBitGlobe, which markets itself as an investment company, published forged government documents, used a fake address and falsely claimed to be a registered broker-dealer.

On Wednesday, Singapore authorities charged two men for promoting cryptocurrency fraud scheme OneCoin. The two men reportedly engaged in, among other things, incorporating a subsidiary to promote OneCoin and signing up new members and taking in investments in exchange for educational courses and OneCoin tokens. Various governments worldwide, including the United States, have issued warnings against OneCoin. In South Korea, officials recently used artificial intelligence to arrest suspects behind a cryptocurrency Ponzi scheme. The scheme reportedly stole 21.2 billion won ($18.3 million) over six months in 2018, but it came to an end when the Seoul Special Judicial Police Bureau for Public Safety trained robots to nab participants in the scheme by using keywords and other clues. And in Japan, a local news outlet reported that G20 member countries will meet on June 8 and 9 in Fukuoka, Japan, to discuss international anti-money laundering regulation with a focus on creating a framework to combat cross-border, international crypto-enabled money laundering and terrorism financing.

A British bank recently issued a study detailing Iranian virtual currency activity and risks posed by Iran to financial institutions. The study noted that, given the current geopolitical environment and the ongoing sanctions against the Iranian government, there has been a movement by both citizens and the state toward use of virtual currency. Finally, a report by a blockchain analytics firm provided details on a recent alleged hack of CoinBene, a large cryptocurrency exchange. According to the report, hackers redirected $105 million in cryptocurrencies from CoinBene to three different addresses using a pattern that indicates an attempt to obfuscate the source of funds and the identity of the alleged hackers.

For more information on these developments, please follow these links:

Bitcoin Spikes, SEC Issues Token Guidance, Exchange is Hacked, and More

In this issue:

Paying with Crypto: Where to Use Your Crypto and the Recent Surge in its Value

SEC Issues Digital Assets Guidance, Blockchain Regulations Evolve in U.S. and Abroad

South Korean Exchange is Hacked, Canadian Law Enforcement Takes Action, Sanctioned States Continue Cryptocurrency Use

Blockchain Developments for Telecoms, Food Supply Chain and Related Standards

Paying with Crypto: Where to Use Your Crypto and the Recent Surge in its Value

By: Panida A. Pollawit

You may be able to use cryptocurrency to pay for your next vacation. Bitrefill, a Sweden-based company, recently began offering gift cards that can be purchased with bitcoin, ether, dash, litecoin and even dogecoin. These gift cards can be exchanged for more than 750 products, including booking a place to stay in the U.S. on a popular alternative-to-hotel website. Once at your destination, you can also buy or renew your favorite streaming subscription using cryptocurrency through Bitrefill. Other businesses that have recently begun to accept bitcoin as payment include a five-star hotel in Switzerland and a state-run transportation system in Argentina. Starting in April, Innisfil, Ontario, will allow its residents to pay property taxes using bitcoin.

A recent report by DataLight highlighted an advantage that the Bitcoin network may have over other electronic payment systems. According to the report, the average bitcoin transaction volume was $41,615 during the period studied. In comparison, major credit card and other online payment providers averaged less than $100 per transaction. The report concludes that the Bitcoin network may be more suitable for larger international payments due to its smaller fees.

This competition has not discouraged payment systems from investing in blockchain technology. A prominent Internet payment company recently announced an investment in Cambridge Blockchain, a company working on digital identity solutions. The purpose of the investment will be to support research into verifying a customer’s identity during a financial transaction while limiting the company’s access to their personal information.

On Tuesday, April 2, 2019, there was a large jump in the value of 1 BTC by more than $1,000. According to Bloomberg, one culprit for this sudden price increase may have been algorithmic cryptocurrency trading software used by one or more hedge funds to automatically execute a $100 million trade in bitcoin across three cryptocurrency exchanges. In other cryptocurrency exchange news, on March 26, 2019, Zero Hash, a subsidiary of Seed CX, launched its over-the-counter trade settlement services, providing for spot settlement of digital assets. Zero Hash’s new service will increase the number of counterparties firms can trade with and promises to streamline the reconciliation, reporting and settlement of trades.

For more information, please refer to the following links:

SEC Issues Digital Assets Guidance, Blockchain Regulations Evolve in U.S. and Abroad

By: Jordan R. Silversmith

Earlier this week, the SEC’s FinHub, a branch that helps facilitate the SEC’s engagement with new and evolving forms of securities, released a much-anticipated framework for analyzing whether a digital asset is a security. FinHub’s stated purpose for releasing the framework is to help individuals and corporations in the digital currencies realm that are looking to comply with federal securities laws. The framework came too late to help the executives of cryptocurrency startup ATBCoin LLC, who were recently ordered by a New York federal judge to face a proposed shareholder class action accusing them of selling unregistered securities at the company’s initial coin offering, or ICO. Judge Vernon Broderick of the Southern District of New York rejected the company’s attempt to dodge the suit, finding that the putative class adequately demonstrated that ATBCoin and its two executives plausibly violated federal securities laws. The evolution of the cryptocurrency world from the Wild West to a highly regulated industry has affected crypto companies in other ways, with the Wall Street Journal reporting that only about $118 million has been raised through ICOs in the first quarter of 2019, more than 58 times less than the $6.9 billion that was raised over the same period in 2018. And with Congress having already proposed 12 virtual currency bills in 2019, the increasing regulation of the cryptocurrency industry looks set to continue.

Regulation also continues to evolve overseas. The Malta Financial Services Authority announced earlier this week that it had issued in-principle approvals for 14 virtual financial assets (VFA) agents that applied for registration in November 2018. The VFA agents will work to protect the integrity of Malta’s markets pursuant to the country’s Virtual Financial Assets Act. According to a new framework from the State Bank of Pakistan, Electronic Money Institutions will have to meet certain requirements to be licensed by the government. The new requirements will reportedly apply to cryptocurrencies. Pakistan decided to introduce these rules to encourage innovations in payments to promote “financial inclusion” the State Bank of Pakistan said in a statement.

For more information, please refer to the following links:

South Korean Exchange Is Hacked, Canadian Law Enforcement Takes Action, Sanctioned States Continue Cryptocurrency Use

By: Joanna F. Wasick

Bithumb, South Korea’s largest cryptocurrency exchange, recently lost nearly 20.2 million XRP (about $6.2 million at that time) and 3 million EOS (about $12.5 million) in what appears to be a series of illegitimate withdrawals conducted by an insider. The exchange suspended withdrawals and deposits on the platform after the hack was noticed. This would be the exchange’s second major attack in roughly a year. A new report from cybersecurity firm Group-IB described a new generation Trojan horse malware, “Gustuff,” which uses “web fakes” that look like regular apps and phish for sensitive data (usernames, passwords, etc.) through push notifications. Group-IB warned that users of cryptocurrency and banking apps are particularly targeted and that using third-party app stores increases risk of exposure.

Law enforcement in Canada has recently been active in the cryptocurrency space. The Canadian police froze the assets of the founders of Vanbex, a blockchain services company, as part of a fraud investigation into the company’s 2017 ICO, which raised $22 million through the sale of a token called FUEL. According to court papers, Vanbex told investors that FUEL’s value would increase dramatically, but in actuality, the company developed no usable products and conducted the ICO solely for its own financial benefit. No criminal charges have been filed to date. Separately, a Toronto judge ordered the forfeiture of about 280 bitcoin (now worth $1.4 million) from an online drug dealer who allegedly used cryptocurrency to purchase arms and illegal narcotics on the dark web. This may be Canada’s largest-ever forfeiture of bitcoin to date.

Use of bitcoin by Hamas and North Korea was also in the news this week. According to reports, Hamas recently issued a new video that advises how to acquire and send bitcoin to unique, individualized addresses. Previously, donors were told to send all funds to one specific bitcoin address. The new method apparently makes it harder for law enforcement to identify and track donations and their donors. According to another recent report, in addition to cryptocurrency exchange hacks and cryptocurrency ransom malware, North Korea may also be orchestrating fraudulent ICO’s as a means of attempting to steal cryptocurrency to fund military operations.

For more information, please check out the following links:

Blockchain Developments for Telecoms, Food Supply Chain and Related Standards

By: Simone O. Otenaik

Late last week, a leading research company released a report on blockchain in the global telecommunications industry. The report forecast that the telecommunications market will likely grow at a CAGR of 77.9 percent during the forecast period and reach $1.37 billion in revenue by 2024. According to the report, North America will likely dominate the blockchain in the telecommunications market during the forecast period due to the high presence of key players offering solutions for the industry. Rising security concerns, demand for fraud management and 5G implementation are reportedly key factors driving the growth of blockchain in the telecommunications industry. According to a separate digital enterprise report released this week, 61 percent of high-profile digital companies worldwide are investing in blockchain. The report surveyed 1,050 IT, security and engineering purchasing decision-makers from global companies with at least $1 billion in revenue.

On Monday, a multinational Swiss food technology firm revealed two blockchain-based food safety products. The firm currently processes 70 percent of the world’s chocolate, 65 percent of the world’s grain products, and 30 percent of global rice and pulses. According to reports, storing this food safety data on the blockchain allows stakeholders to monitor and verify decontamination status during an outbreak with a high degree of certainty in seconds. In other supply-chain industry news, a nonprofit organization that develops and maintains global data standards for business communication announced that two of its supply-chain pilots are gearing up for full launch in November 2019. The first initiative is a traceability/recall mandate by a leading global retailer with their suppliers of green leafy vegetables; and the second is an initiative within the pharmaceutical industry to support new government regulations surrounding salable returns.

The International Association of Trusted Blockchain Applications (INATBA), which aims to implement data standards for the blockchain industry, officially launched this week. INATBA brings together blockchain and Distributed Ledger Technology (DLT) industry stakeholders (e.g., startups, policymakers, international organizations and regulators) and aims to develop a framework that promotes public and private sector collaboration, regulatory convergence, and legal predictability, and ensures the system’s integrity and transparency. INATBA’s goal is to facilitate the mainstream adoption and scale-up of blockchain and DLT across multiple sectors.

For more information, please refer to the following links:

Blockchain Announcements Across Industries, Cryptocurrency Exchanges Receive Approvals, More Regulatory Actions, More Hacks and Crypto Malware Attacks

In this issue:

Adoption of Blockchain Solutions Spreads Across Industries

New Cryptocurrency Exchanges Receive Approvals in US and Foreign Jurisdictions

Enforcement and Regulatory Actions by the US, FATF, Mexico, Finland and Switzerland

Hacking the Dragon; Lazarus Returns; and Other Cryptocurrency Threats

Adoption of Blockchain Solutions Spreads Across Industries

By: Alexandra Royal

Last week, a major U.S. international shipping conglomerate announced plans to collaborate with Inxeption, an e-commerce technology company, to build a platform integration called Inxeption Zippy that will utilize blockchain-based technology to “create a seamless, end-to-end experience where merchants can view their entire supply chain from product listing to delivery.” A press release describes the platform as a tool that can help B2B merchants drive online sales by providing them with technology that protects sensitive information and manages the selling and shipping processes. In other corporate news, according to recent reports, the bio-agricultural division of a major global pharmaceutical company is partnering with enterprise blockchain solutions firm BlockApps to develop several pilot projects that “increase … applications of blockchain, both in our operations and in our industry.”

According to a recent report, a major French luxury goods company is preparing to launch a blockchain solution that will provide proof of the authenticity of luxury goods and trace the origins of materials used in their manufacture. In an effort to tackle counterfeiting in the UK spirits market, a premium Scotch whisky brand has partnered with blockchain tech company arc-net to release a range of whiskies that “capture the full distilling and manufacturing process, allowing customers to track their whisky from source to store; ensuring authenticity and traceability.” Also this week, details were revealed about plans by the world’s largest market for metal derivatives to back an industry initiative to build a blockchain-based system to track the trade of physical metals such as copper, zinc and aluminum.

In the digital advertising field, Brave, the privacy-focused internet browser that pays people with cryptocurrency for watching ads, announced last week that it is partnering with TAP network to give its 5.8 million monthly users a new way to trade its Basic Attention Token (BAT) for rewards from 250,000 brands. Tradedoubler, a Swedish digital marketing company, recently launched a blockchain-based digital ad network that seeks to enable automated and transparent interactions between advertisers and publishers looking to host ads.

At an event last week, a U.S. Customs representative commented on the immense safety benefits that could potentially stem from the creation of a blockchain solution that employed facial comparison and biometric data to track individuals who are seeking admission into the United States. In other government-related news, a blockchain accelerator backed by the Singapore government announced partnerships with three major global corporations in the fields of auto manufacturing, technology and market research.

A major U.S. technology firm recently released a report on the state of blockchain for enterprise. The report contains a wide variety of interesting statistics related to the growth of the blockchain industry, including a projection that the industry will be valued at $9.7 billion by 2021. Another recently released report, Blockchain in the United States: Forecast to 2025, analyzes market opportunities and risks inherent in blockchain technology in more than 75 areas across 11 industries. According to the report, blockchain spend in the United States increased by 110.1 percent during 2018 to reach $1,651.2 million. The report projects that between 2019 and 2025, blockchain will record a CAGR of 44.5 percent, increasing from $3,127.3 million in 2019 to reach $41,112.6 million by 2025.

For more information, please refer to the following links:

New Cryptocurrency Exchanges Receive Approvals in US and Foreign Jurisdictions

By: Jordan R. Silversmith

Earlier this week, the New York State Department of Financial Services granted a virtual currency license and money transmitter license for Tagomi Trading LLC. Tagomi is the latest of 18 applicants that DFS has approved since it began regulating the virtual currency market in 2015. Meanwhile, in Japan, regulators have approved several new exchanges. Rakuten Wallet Inc., a subsidiary of the largest e-commerce site in Japan, announced that registration with Tokyo’s Kanto Local Finance Bureau had been completed. Rakuten Wallet replaces an exchange named Everybody’s Bitcoin Inc., which its parent company acquired for $2.4 million in August 2018. A second crypto exchange, DeCurret, was also approved to begin operations this week. Japanese regulators also have approved the application of Taotao, a cryptocurrency exchange that is 40 percent owned by a major international web services provider.

In more news from the Asian market, Chicago-based exchange Seed CX recently announced that it has teamed up with a Singapore-based trading infrastructure technology provider, Hydra X, to build functionality for Seed CX users to view prices and trade and monitor their portfolios on the Hydra X trading platform. In China, crypto mining goliath Bitmain is reportedly planning to set up 200,000 units of new mining equipment in the country. Bitmain is reportedly looking to take advantage of China’s low hydroelectric power costs this summer caused by heavy rains in southwestern China.

In capital markets news, according to a recent report, despite the downturn in initial coin offering (ICO) activity, Binance has continued doing multimillion-dollar ICOs and has launched a new ICO platform, Binance Launchpad. In addition, tribeOS, a blockchain-based digital advertising company, recently received regulatory approval under Bermuda’s 2018 ICO Act to issue what has been reported as a revenue-sharing equity token.

For more information, please refer to the following links:

Enforcement and Regulatory Actions by the US, FATF, Mexico, Finland and Switzerland

By: Joanna F. Wasick

The United States Attorney’s Office recently reported one guilty plea and another indictment involving cryptocurrency-related fraud. Last week, Jared Rice Sr., the founder of cryptocurrency bank AriseBank, pleaded guilty in a Texas district court to securities fraud, and admitted to defrauding investors out of $4.2 million by selling AriseCoin tokens and falsely promising customers they would receive Visa credit cards and FDIC accounts – neither of which ever existed. Under the plea agreement (which still needs approval by the presiding judge), Rice would serve five years in prison. This follows a prior settlement with the SEC in which he paid nearly $3 million. Earlier this week in New York, Patrick McDonnell, aka “Jason Flack,” was indicted for defrauding investors who paid his company, CabbageTech, for cryptocurrency advice and strategies that they never received. Instead, McDonnell allegedly sent them false balance statements and stole their money for his personal use. He faces a maximum sentence of 20 years’ imprisonment.

The Financial Action Task Force (FATF), a global organization created to prevent international money laundering, proposed a new Interpretive Note that would require cryptocurrency exchanges and other virtual asset service providers (VASPs) not only to conduct more rigorous know-your-customer diligence (KYC) on their immediate customers, but also to conduct KYC on the subsequent transferee of a customer’s funds (i.e., the customer’s beneficiary). The proposed Interpretive Note also would require VASPs to make their KYC information available to relevant authorities. A recent study conducted by Coinfirm lends support to the need for this type of regulation. The study concludes that 69 percent of the 216 cryptocurrency exchanges it reviewed lacked “complete and transparent” KYC procedures. The study singled out Binance as having a “high” regulatory risk based on exposure to anonymous activity. Binance has purportedly since taken steps to strengthen its compliance program ‒ earlier this week, it announced a partnership with IdentityMind, an analytics firm, to improve existing data protection and KYC measures.

Other stringent regulations were recently proposed abroad. Earlier this month, the Mexican central bank proposed regulations that critics assert will effectively ban cryptocurrency exchanges in Mexico. Among other rules, the regulations would deny cryptocurrency exchanges access to the local banking system and reduce transmission and custody capabilities. In Finland, parliament voted for an amendment to the Act on Detecting and Preventing Money Laundering and Terrorist Financing, which will bring all cryptocurrency-related services, such as wallet providers and exchanges, under anti-money laundering laws. And the Swiss Financial Market Supervisory Authority (FINMA) wound up enforcement proceedings against Envion AG, a cryptocurrency mining firm, and concluded that the firm, now in liquidation, unlawfully accepted funds during an ICO conducted without a proper license. FINMA said it will continue to take action against ICO business models that violate or circumvent supervisory law, including businesses that provide unclear provisions about their services or make “overly optimistic promises” related to their ICOs.

For more information, please check out the following links:

Hacking the Dragon; Lazarus Returns; and Other Cryptocurrency Threats

By: Brian P. Bartish

Singapore-based cryptocurrency exchange DragonEx reported that it was targeted by hackers, resulting in the theft of cryptocurrency owned by the exchange and its users. The value of the assets lost in the theft, which took place on March 24, 2019, has not been reported at this time; however, DragonEx reports that it has recovered a portion of the assets. Calling on the assistance of fellow exchanges to help freeze, trace and recover the assets, DragonEx posted 20 wallet addresses to which the funds are believed to have been transferred ‒ each wallet containing a separate cryptocurrency traded on the exchange, including bitcoin, ether, XRP, litecoin, EOS and tether. DragonEx has reported the incident to authorities in Estonia, Thailand, Singapore, Hong Kong and other jurisdictions.

According to research from a leading cybersecurity and anti-virus company, alleged North Korean-sponsored cyber threat group Lazarus, a group purportedly responsible for $571 million in cryptocurrency exchange thefts from 2017 to 2018 (nearly 65 percent of the total sum), has been running a new operation using PowerShell to manage and control malware. Prompting calls for members of the cryptocurrency industry to exercise extra caution when dealing with unknown third parties, Lazarus uses macro-enabled documents targeted to a recipient’s potential interests (including a specific focus on South Korean businesses) to distribute the malware, and then uses disguised processes to hide its activity.

A research team from Spain and England reports that mining malware has generated more than $56 million over the past 10 years, with most of those profits flowing to a relatively small number of actors. Monero, in particular, appears to be a magnet for such activity, with the analysis indicating that more than 4.3 percent of monero in circulation is the result of criminal activity. In other news, digital anonymity advocacy group the Tor Project recently announced that it is now accepting cryptocurrency donations.

For more information, please refer to the following links:

New Blockchain Payments Solutions, Business Applications, Investor Opportunities, Regulations and Malware Attacks

In this issue:

New Blockchain Payments Solutions Announced for Banks, Merchants and the Unbanked

Cryptocurrency Investors Bullish on New Opportunities Despite Risk and Uncertainty

Blockchain Applications Advance in Food Production, Transport, Recordkeeping, Contracting and Voting

Public and Private Sector Entities Address Blockchain Regulatory Environment

Cryptocurrency Threat Actors Attack Cloud Infrastructure, Trading Software and Bitcoin ATMs

New Blockchain Payments Solutions Announced for Banks, Merchants and the Unbanked

By: Simone O. Otenaike

Early this week, a leading global technology firm launched a real-time global payments network for regulated financial institutions. The global payments network is currently in a limited production phase and available in 72 countries, with 48 currencies and 46 banking endpoints where people can send or receive cash. In conjunction with the firm’s announcement, six international banks signed letters of intent to issue stablecoins (tokens backed by fiat currency) on the firm’s global payments network. The network uses the Stellar public blockchain and is free to join; participants only pay according to the value they move through the network. Meanwhile the SEC’s Senior Advisor for Digital Assets recently made a public statement that stablecoins might constitute securities where one central party controls the price fluctuation over time through a pricing mechanism that keeps the price within a specified range. She further explained that the determination is based on the expectations that stablecoin issuers impart on buyers and not the specific label of the asset.

According to recent reports, a leading Swiss online retailer will now accept Bitcoin, Bitcoin Cash, Bitcoin SV, Ethereum, Ripple, Binance Coin, Litecoin, Tron, NEO and OmiseGO for purchases worth over CHF 200 (about $200). The new payment method is part of a pilot project with Swiss payment processor and Danish crypto payments startup Coinify. The system reportedly allows customers to make payments with a fee of 1.5 percent during 15-minute time windows during which the crypto exchange rate doesn’t change. A U.S.-based multinational distributor of electronic components and services will also now accept cryptocurrency payments through a collaboration with cryptocurrency payments processor BitPay.

Coinciding with these payments announcements, the Bitfury Group reportedly plans to partner with a business payments processor to launch lightning network-based bitcoin payment options for merchants in the U.S., Canada and the EU. The processor’s web-based Lightning Network allows businesses to improve the efficiency and lower the costs of fiat and bitcoin payments for products and services. In Australia, cryptocurrency exchange Binance recently unveiled a cash-to-bitcoin brokerage service that allows users to buy bitcoin with cash from high-street stores. The new service, Binance Lite Australia, is accessible through a network of over 1,000 news agents across the country. The platform currently only offers the option to buy bitcoin with Australian dollars, but the exchange plans to support more cryptocurrencies and fiat options in the future. Also in international news, Athena Bitcoin launched a bitcoin ATM in the city of Cúcuta, which lies on the border between Colombia and Venezuela. The new ATM reportedly offers customers the ability to exchange bitcoin, bitcoin cash and litecoin for Colombian pesos. During this time of economic, social and political instability in Venezuela, many Venezuelans have reportedly turned to bitcoin to preserve value and escape corruption.

For more information, please refer to the following links:

Cryptocurrency Investors Bullish on New Opportunities Despite Risk and Uncertainty

By: Brian P. Bartish

In recent SEC filings, a Southern California-based bank known for catering to clients focused on cryptocurrency and related assets, including several leading cryptocurrency exchanges, reported a 122 percent increase in such clients and an 11.4 percent increase in deposits from crypto-focused customers in 2018. Already operating its own proprietary exchange network, the bank is eyeing further growth opportunities in the arena of stablecoins, including working with several stablecoin developers to hold their deposit collateral. This week, cryptocurrency data provider CoinMarketCap’s cryptocurrency benchmark indices launched on several leading financial data feeds in the U.S. and Germany, with the goal of promoting greater accessibility to cryptocurrency data. Last week, the Stock Exchange of Thailand (SET) reiterated its pledge to collaborate with all stakeholders as it works to roll out a new digital asset platform by 2020 – part of a larger three-year strategic plan (2019-2021) aimed at opening new investment opportunities and improving the convenience and speed of the investment experience. Despite cryptocurrency market instability and the lack of FDIC guarantees, customers are reportedly racing to deposit bitcoin and ether into new interest-bearing accounts, offering up to a 6.2 percent annualized return, provided by BlockFi.

With the 74 percent decline in bitcoin value in 2018, the first mainstream exchange to allow people to trade in bitcoin futures announced that it will no longer list bitcoin futures contracts and is reviewing its approach to cryptocurrency derivatives. Seeming to confirm long-standing accusations, a new report released this week by trading analytics platform The Tie estimates that 87 percent of 97 exchanges surveyed reported potentially suspicious trading volume, with 75 percent of those exchanges reporting double their expected trading volume. The Tie estimated expected trading volume of the 100 largest exchanges to equal $2.1 billion, well below the $15.9 billion currently being reported. Japan continues to lead the way in cryptocurrency trading regulations with new rules aimed at the 8.42 trillion-yen ($75.6 billion) margin trading industry.  The rules would cap leverage in virtual currency margin trading at two to four times initial deposits and require new government registration for exchanges that handle margin trading.

For more information, please refer to the following links:

Blockchain Applications Advance in Food Production, Transport, Recordkeeping, Contracting and Voting

By: Diana J. Stern

In enterprise blockchain news this week, the National Pork Board and Ripe Technology announced they are partnering to create a platform for pork producers to monitor and evaluate sustainability, then use that data to improve their practices. Some of the data recorded on chain is expected to be visible to ecosystem partners so they can validate certifications. Ripe Technology is a startup that aims to increase transparency and integrity of information across the food supply chain.

The Blockchain in Transport Alliance (BiTA) announced that it approved its first official data format specification. This year, the alliance plans to continue creating open blockchain standards for and by the transportation industry, so they can move toward tracking shipments in real time. By laying down the standards groundwork, BiTA intends to eventually phase out legacy EDI systems and replace them with blockchain-based solutions.

According to reports, one of the world’s largest technology firms teamed up with the French National Council of Clerks of Commercial Courts and successfully developed a blockchain-based solution that will be used by clerks in commercial courts across France. The technology, built on Hyperledger Fabric, manages legal transactions related to the company life cycle – including regulatory information and corporate name changes – in order to increase transparency and efficiency.

Denver, Colorado, is the latest city to plan a trialing a blockchain-based application for voting. In its May municipal election, voters who may not be able to get to the polls, such as active-duty military and overseas voters, will be able to submit their ballot through a blockchain-based mobile app designed by Voatz.

Clause, the smart contract platform built for blockchain, announced that it has extended its integration with a popular legal tech provider, DocuSign. When users sign an agreement in DocuSign, Clause allows for other events to be triggered by the fact that the document has been executed. In the coming months, Clause intends to move toward paid plans for its clients.

For more information, please check out the following links:

Public and Private Sector Entities Address Blockchain Regulatory Environment

By: Robert A. Musiala Jr.

Last Friday, the SEC announced that it will host “a public forum focusing on distributed ledger technology (DLT) and digital assets” at the SEC’s Washington, D.C., headquarters on May 31, 2019. According to the press release, the forum is being organized by the SEC’s Strategic Hub for Innovation and Financial Technology (FinHub), and is “designed to foster greater communication and understanding around issues involving DLT and digital assets.” The event will be open to the public and will be webcast live on the SEC’s website. In another notice published last week, the SEC addressed the challenges associated with “whether and how characteristics particular to digital assets affect compliance with the Custody Rule.” The notice included a list of questions on which the SEC is seeking industry input.

In Canada, the Canadian Securities Administrators recently issued a report addressing regulatory frameworks for platforms that “facilitate the buying and selling of crypto assets and perform functions similar to one or more of exchanges, alternative trading systems (ATSs), clearing agencies, custodians and dealers.” Also this week, the Swiss legislature approved a motion that would allow certain existing legal frameworks to be applied to cryptocurrencies in order to help protect against risks such as money laundering and unsupervised market activity.

Last week, the American Bar Association published a white paper that seeks to provide “a comprehensive explanation of federal and state laws that may apply to the creation, offer, use and trading of digital assets in the United States, along with summaries of key initiatives outside the United States.” Another recent white paper published by the Brookings Economic Studies program addresses perceived gaps in the regulation of “crypto-assets” and makes recommendations for U.S. congressional action.

For more information, please refer to the following links:

Cryptocurrency Threat Actors Attack Cloud Infrastructure, Trading Software and Bitcoin ATMs

By: Robert A. Musiala Jr.

According to a recent report from the cybersecurity team at a major U.S. telecom provider, “[o]ne of the most widely observed objectives of attacking an organization’s cloud infrastructure has been for cryptocurrency mining.” The report outlines some of the most common methods of attack that hackers have used in recent attempts to hack into cloud infrastructure for the purpose of operating cryptocurrency mining malware, and provides tips for detecting such attacks. Another recently published report provides details on more than 40 bugs in blockchain and cryptocurrency platforms that were detected in the 30-day period from Feb. 13 to  March 13, 2019. A third report issued this week describes details of a malware campaign that is “attempting to compromise financial technology and cryptocurrency trading companies in an effort to harvest credentials, passwords and other confidential information.” The attackers are reportedly using an updated version of the Cardinal RAT malware, and evidence suggests they have been targeting companies in Israel that write software for forex and cryptocurrency trading.

An “in person” attack was reported late last week in Canada, where Calgary police published a press release seeking the public’s assistance to identify four individuals alleged to have stolen $195,000 in cash by exploiting a security flaw in bitcoin ATM machines. According to the press release, the suspects succeeded in initiating bitcoin conversion transactions, withdrawing cash from the bitcoin ATMs, and then cancelling the bitcoin transactions before any bitcoin was actually transferred to the ATM provider.

For more information, please refer to the following links:

Blockchain Developments: Supply Chain, IDs, Financial Products, UN Warnings, Regulator Actions

In this issue:

New Blockchain Solutions Seek to Secure Tuna, Ports, Identity and Communications

Institutional Crypto Products and Blockchain Infrastructure Pilots Announced

Crypto Regulators Display Flexibility, Enforcement Agencies Flex Muscle

UN Addresses North Korea Crypto Hacks, Storage and Stablecoin Vulnerabilities Reported

New Blockchain Solutions Seek to Secure Tuna, Ports, Identity and Communications

By: Robert A. Musiala Jr.

According to a press release published last Friday, “North America’s largest branded shelf-stable seafood company” announced that it is using the cloud-based Blockchain as a Service (BaaS) platform of a major international software company “to trace the journey of yellowfin tuna from the Indonesian ocean to the dinner table.” According to the press release, “consumers and customers will be able to easily access the complete origin and history of … yellowfin tuna simply by using their smartphones to scan a QR code on the product package.”

Last week in Singapore, the government announced TradeTrust, a blockchain pilot project for port authorities that will seek to “turn paper-based bills of lading into digital documents that can be shared and accessed when container ships dock and unload in Singapore and consequently cut costs and the risk of fraud…” This week, the European Union Blockchain Observatory and Forum issued a report focusing on blockchain scalability, interoperability and sustainability. Among many other findings, the report highlights that blockchains “will need to interact with the off-chain world as well as with each other.” Another report published from Europe this week focused on the danger of collusion posed by blockchain solutions, and proposed “methods of action for antitrust and competition agencies.”

This week a press release announced that government agencies in Canada are working to build a blockchain-based identity solution that will seek to streamline the process of authenticating company credentials for government and business. The solution would leverage the Hyperledger Indy blockchain. Enhancing data security through blockchain was also the subject of a patent granted this week to a subsidiary of a major U.S. telecom firm. The patent envisions a system that uses blockchain to secure communications and recordings.

This week MyEtherWallet announced EthVM, a new open source Ethereum blockchain explorer tool. Ethereum analytics tools continue to advance and provide more data from the Ethereum blockchain, with one recent analysis finding that over 80 percent of the total existing supply of ether is held by only 7,572 wallet addresses.

For more information, please refer to the following links:

Institutional Crypto Products and Blockchain Infrastructure Pilots Announced

By: Simone O. Otenaike

According to recent reports, the Swiss-based Amun AG recently received approval to list a cryptocurrency exchange-traded fund (ETF) that tracks the price of XRP on SIX, Switzerland’s primary stock exchange. The firm currently has approval to issue cryptocurrency ETFs linked to four other cryptocurrencies, including bitcoin cash, litecoin, stellar lumens and EOS. Meanwhile, a U.S.-based investment management firm also announced plans to launch a blockchain ETF on the London Stock Exchange this week. The ETF initially will target 48 companies, selected through a proprietary scoring system, that are involved with blockchain technology. Coinciding with these ETF announcements, a Boston-based multinational financial services firm’s new digital asset platform went live last week with select clients.

Blockchain consortium and credit union service organization CULedger recently announced its partnership with a global information technology firm to pioneer permissioned blockchain network solutions for credit unions. The new partnership seeks to offer credit union members the ability to instantly authenticate financial transactions between members of any credit union on the global network through a customizable CULedger-issued digital credential, MyCUID. This same global information technology firm also announced plans to host the beta version of a New York investment firm’s custody solution for digital assets. The solution reportedly leverages the global information technology firm’s private cloud and encryption technologies and utilizes a hardware security module that functions like a lockbox to safeguard and manage digital keys. This appears to represent a shift from the current model of cold storage solutions, where private keys are held in a device not connected to a network.

The German Ministry of Finance made news this week with its recommendation that the country recognize securities issued in digital form as a legitimate form of financial instrument. The recommendation also called for legislation that creates a framework to regulate such digital instruments to avoid the possibility of manipulation. Also this week, a major market infrastructure provider for the global financial services industry published a white paper that outlines guiding principles for regulators and market participants for the post-trade processing of tokenized securities. The framework identifies key issues in trading cryptocurrencies that must be addressed to protect market stability. According to another recent report, the emergence of regulated security token offerings (STOs) has led to a decline in the number and volume of initial coin offerings (ICOs) and STOs during the second half of 2018. The report notes that ICOs and STOs still remain attractive to investors as a mechanism for venture capital financing.

For more information, please refer to the following links:

Swiss 4th ICO and STO Report – growing less, but growing up

Crypto Regulators Display Flexibility, Enforcement Agencies Flex Muscle

By: Brian P. Bartish

In a letter recently made public, Securities and Exchange Commission Chairman Jay Clayton endorsed analysis advanced by the SEC’s director of corporate finance, William Hinman, in a 2018 speech stating the view that ether is not a security. Citing to the Howey framework, Chairman Clayton, in response to a letter from U.S. House Representative Ted Budd, indicated that where purchasers no longer reasonably expect a person or group to carry out essential managerial or entrepreneurial efforts, a digital asset may not represent an investment contract. According to a recent announcement on the SEC’s FinHub website, the SEC is also looking to establish stronger working relationships with the cryptocurrency and wider fintech community through local peer-to-peer meetups and a new online portal, hosted by FinHub, where interested attendees can report general areas of interest or a specific inquiry, including “determination of instrument as a ‘security.’”

Last week, Thailand’s SEC approved the first ICO portal, with the first public ICO reported to be conducted under digital asset royal decree to follow in the near future. The Thai SEC is also working to issue criteria that will allow companies to conduct STOs in Thailand. In Malta, the Malta Financial Services Authority (MFSA) recently appointed blockchain forensics firm CipherTrace to oversee regulatory processes and conduct risk management audits of virtual asset businesses, following recommendations from the IMF that MFSA take immediate action to close gaps in AML and CFT oversight.

Cryptocurrency schemes continue to see strong action from law enforcement and regulators, with the Commodity Futures Trading Commission (CFTC) announcing a Consent Order with Marshall Islands-based 1pool Ltd. The company was required to pay $990,000 to resolve claims that 1pool illegally offered retail commodity transactions margined in bitcoin, failed to register as a futures commission merchant (FCM) and failed to meet supervisory duties. Also last week, a joint investigation involving the U.S. Attorney’s Office for the Southern District of New York, the New York District Attorney, the Internal Revenue Service-Criminal Investigation (IRS-CI) unit and the FBI resulted in the arrest of Konstantin Ignatov on wire fraud charges for his role with OneCoin, which authorities are calling a multibillion-dollar pyramid scheme involving cryptocurrency.

For more information, please check out the following links:

UN Addresses North Korea Crypto Hacks, Storage and Stablecoin Vulnerabilities Reported

By: Joanna F. Wasick

According to a United Nations (UN) Security Council expert panel report, North Korea has been carrying out major cryptocurrency hacks in order to bypass economic sanctions imposed due to its nuclear program. The hacks, including at least five attacks on Asian cryptocurrency exchanges between January 2017 and September 2018, reportedly created losses totaling $571 million. A number of attacks on overseas financial institutions and exchanges were also reported. The UN report urged member states to be vigilant in sharing any information they have about North Korean cyberattacks on other governments and domestic financial institutions.

Early last week, Ledger, a manufacturer of offline, cold/hardware cryptocurrency wallets, issued a report identifying five security “vulnerabilities” in devices manufactured by its direct competitor, Trezor. Ledger claimed that it told Trezor of these purported weaknesses and only went public with them after Trezor failed to take “appropriate measures.” Trezor has since responded, claiming that none of the weaknesses were critical, and any exploitation of them would require physical access to the wallet, specialized equipment, significant time and technical expertise. Trezor also stated that some of the identified vulnerabilities had already been patched.

Tether, a cryptocurrency stablecoin, recently updated the terms of its website in a manner that indicates its USDT stablecoin may not in fact be backed 100 percent by fiat reserves. Since its inception, Tether had asserted that it supported a direct coin-to-dollar ratio. The Tether website now qualifies this, stating that while its reserves include traditional currency, “from time to time” they may also include “other assets and receivables from loans made by Tether to third parties.”

For more information, please refer to the following links:

New Cryptocurrencies and Blockchain Reporting Tools, International Developments, and Crypto Crime Reports

In this Issue:

New Cryptocurrencies Announced, Difficulties Integrating Crypto With Banks Persist

International Market Developments, New Blockchain Reporting Tools Announced

Updates on QuadrigaCX, New Reports on Crypto Crimes From Public and Private Sectors

New Cryptocurrencies Announced, Difficulties Integrating Crypto With Banks Persist

By: Simone O. Otenaike

According to recent reports, a leading social media network and a global messaging firm will each launch their own cryptocurrency over the next year, allowing users to send cryptocurrency across international borders through their respective messaging systems. The social media network’s cryptocurrency reportedly will be pegged to the value of a basket of different foreign currencies, rather than just the U.S. dollar. The global messaging firm’s cryptocurrency will operate like a traditional cryptocurrency, with fluctuating values and a decentralized design. Meanwhile, Tether has announced plans to launch a new cryptocurrency backed one-to-one by U.S. dollars in partnership with the Tron Foundation. Tether currently offers a cryptocurrency for the bitcoin and ether blockchains that is tied to the U.S. dollar.

TrustToken recently announced a new feature available to traders of the firm’s TrueUSD cryptocurrency. TrustToken will partner with an accounting firm to offer traders real-time confirmation that TrueUSD is backed by real-world value. The new service aims to make this information for collateralized cryptocurrencies available quicker and may set a new standard for tokenized assets in the future. Medici Ventures recently announced that its portfolio company Bitt will use blockchain technology to pilot a digital version of the Eastern Caribbean Central Bank’s (ECCB) dollar across the Eastern Caribbean Currency Union. The ECCB is the third-largest monetary union in the world. Bitt’s pilot will offer the digital EC dollars to the public in phases. The company’s ultimate goal is to use blockchain technology to provide banking options to countries in the Eastern Caribbean region and ultimately stimulate economic growth and financial access.

The difficulties faced by cryptocurrency companies in gaining access to banking services was the subject of two news reports this week. One report noted that many large financial institutions refuse to work with cryptocurrency companies due to the banking industry’s rigid know-your-customer and anti-money laundering policies. The report noted that a compliance and monitoring system that meets these standards but also accommodates the distributed network structure will be expensive – and most banks conclude that the risk isn’t worth the reward. Another report noted that despite Malta’s bid to bring more blockchain firms to the country, Maltese financial institutions are reluctant to service these firms and are willing to open accounts only for firms that are able to secure a Malta Financial Services Authority (MFSA) license. The MFSA aims to issue its first licenses for registration as VFA Agents under Malta’s Virtual Financial Assets Act within the first quarter of the year. Access to banking was also at issue in a recently introduced bill in California. The new law would allow cannabis companies to make tax payments in cryptocurrency to facilitate electronic payments without traditional banking services and reduce the vast amounts of cash that end up in state tax offices.

Finally, a major online payments processor and Blockstream’s co-founder and CEO made news this week by supporting the Bitcoin Lightning Network through participation in a transaction on what has become known as the Lightning Torch. Separately, despite U.S. sanction concerns, the Lightning Torch also made it to Iran early this week. The capacity of the Bitcoin Lightning Network reportedly surpassed $2 million in December of last year.

For more information, please refer to the following links:

International Market Developments, New Blockchain Reporting Tools Announced

By: Diana J. Stern

Following our previous reporting on SIX Group, the Swiss stock exchange operator continues to expand its cryptocurrency-related listings. On Tuesday, trading commenced for its third cryptocurrency-based exchange-traded product (ETP) listing, Amun Ethereum ETP. Coindesk reports that the firm backing the ETP issued a prospectus for its cryptocurrency-based ETPs late last year, stating that the products are not subject to the Swiss Federal Act on Collective Investment Schemes or to the Swiss Financial Market Supervisory Authority FINMA. Separately, SIX selected R3’s Corda Enterprise platform to provide the infrastructure for its new digital trading platform, which is set to launch in the second half of the year. Also in Switzerland, blockimmo, Elea Labs and Swiss Crypto Tokens claim to have completed the first set of blockchain-based transactions for a tokenized Swiss property in Zug, also known as “Crypto Valley.” A recent report by the Lucerne University of Applied Sciences found that the Swiss fintech market grew 62 percent in 2018. The number of “distributed ledger companies” increased threefold and accounted for 34 percent of that growth. At the same time, the data revealed a cooling off in the ICO market.

The Thai Securities and Exchange Commission issued a press release regarding its updated list of cryptocurrencies eligible for ICO investment of base pair trades: BTC, ETH, XRP and XLM. The Commission emphasized that the announcement does not certify the cryptocurrencies’ legal status in any way. In other news, SWIFT, the Singapore Exchange, four major banks and a securities software provider have partnered up to trial a blockchain proof-of-concept for proxy voting. Additionally, this week a Big Four accounting firm unveiled its Crypto-Asset Accounting and Tax (CAAT) tool. The software helps institutional and individual clients alike consolidate data and generate reports for tax returns related to crypto-asset transactions. Finally, according to a recent study, worldwide blockchain solution spend is forecast to be almost $2.9 billion in 2019, compared with $1.5 billion in 2018.

For more information, please refer to the following links:

Updates on QuadrigaCX, New Reports on Crypto Crimes From Public and Private Sectors

By: Marc D. Powers

The court-appointed monitor of defunct Canadian cryptocurrency exchange QuadrigaCX has reported that six cold wallets supposedly holding $100 million of customer cryptocurrencies for 115,000 accounts at the exchange held only $400,000 in digital assets. At the time of the sudden death of QuadrigaCX’s founder, the exchange was supposedly holding over almost $200 million in customer funds and cryptocurrencies. There are various theories as to what happened to the customers’ coins. Cryptocurrency exchange Kraken recently offered a $100,000 reward for assisting in the recovery.

The Department of Justice in its February 2019 Journal of Federal Law and Practice focused on cybercrime and cyber threats. Of note was an article on “Attribution in Cryptocurrency Cases” and how best to prove criminal charges, despite the fact that these transactions are generally considered anonymous. Among its many findings, the report noted the challenges in proving attribution because of the way cryptocurrencies function, and stated it was key for prosecutors to understand blockchain and explain it clearly to juries. A Big Four accounting firm recently issued a report linking Iranian nationals behind the bitcoin ransomware scheme SamSam to the crypto exchange WEX. SamSam is ransomware demanding bitcoin that reportedly damaged multiple U.S. companies, government agencies, universities and hospitals. According to the report, within 34 months the hackers managed to extort over $6 million in bitcoin and caused over $30 million in losses. By analyzing the wallet addresses and emails used by the perpetrators, the accounting firm was able to link the Iranians to the WEX exchange and the SamSam scheme. In addition, another recent report from a cybersecurity firm provided details on yet another cryptocurrency mining malware scheme, detected in a program commonly used to run operating systems.

 For more information, please check out the following links:

Blockchain Pilots Announced, Global Laws Evolve, Exchanges and Payment Processors Make News, Enforcement and Threats Continue

In this issue:

New Blockchain Projects Announced in Supply Chain and Digital Identity

Blockchain Legal Frameworks Continue to Evolve in the US and Abroad

Headlines From Bitcoin Payment Processors, Decentralized Exchanges and Tokenized Real Estate

More Guidance on ICO Tokens as Securities, Crypto Fraud and Hacked Bitcoins Returned

Cryptocurrency-Related Crime and Fraud Generates Staggering Statistics

New Blockchain Projects Announced in Supply Chain and Digital Identity

 By: Robert A. Musiala Jr. 

This week, a trio of major global firms in the consulting, financial services and cloud provider sectors announced the launch of a blockchain platform targeted for use by consumer purchasers to verify product origins. The platform seeks to empower consumers with reliable information on how products are made and who makes them, and would include a “tipping” feature allowing consumers to send cryptocurrency gratuities to product producers. In more supply chain news, the Russian Ministry of Transport is reportedly planning a trial of TradeLens, the blockchain-based solution for maritime shipping spearheaded by one of the world’s largest technology firms and the world’s largest container ship and supply vessel operator. Separately, India’s largest e-commerce firm recently announced a partnership with Shipnext, another blockchain-based platform for the maritime shipping industry.

In the digital identity space, this week a Turkish telecommunications provider unveiled a blockchain-based solution for identity management that is reportedly designed to ensure compliance with the European Union’s General Data Protection Regulation. According to reports this week, blockchain self-sovereign identity startup Evernym is working with a major global humanitarian organization to implement a program called the Identity for Good Initiative, which is designed to help humanitarian aid agencies take advantage of new digital identity solutions. This week also brought the launch of two solutions for issuing and storing professional credentials on blockchain. One announcement came from a Big Four accounting firm and involves storing accounting credentials on a blockchain. The other announcement, from two major Japanese technology firms, seeks to store educational records on a blockchain.

Some notable statistics on blockchain adoption were published this week and last week. According to a Big Four accounting firm, in a survey of 740 global technology executives, 48 percent of respondents said blockchain will “likely or very likely” change the way their company does business in the next three years. Another survey of the digital marketing industry found that blockchain industry projects have increased from a count of 88 to 290 over an 18-month period. And statistics released by an employee recruitment company show a 517 percent increase in demand for blockchain engineers over a recent one-year period.

For more information, please refer to the following links:

Blockchain Legal Frameworks Continue to Evolve in the US and Abroad

 By: Alexandra Royal

Earlier this week, Coin Center published its Crypto Bills Tracker, a previously internal resource that tracks the introduction and current status of federal legislation that “mentions, or relates to, cryptocurrencies.” During the first few months of the 116th congressional session, Coin Center identified 11 bills that match this description, and has added each into the Crypto Bills Tracker to monitor the bills as they move through the legislative process. Also headlining on Capitol Hill, the Chamber of Digital Commerce, a blockchain advocacy group, called for the U.S. government to implement a national strategy for blockchain technology. The organization recently released its recommendations for the plan, urging the government to recognize the power of blockchain technology and promote the adoption of such modern technologies through clear and supportive public statements.

Of note in state legislatures this week, the Wyoming House of Representatives has passed three bills aimed at making the state a top destination for cryptocurrency and blockchain businesses. According to Caitlin Long, co-founder of the Wyoming Blockchain Coalition, these bills are “a big step forward for the state, and could prove a boon for crypto startups and users alike.” In other state-based news, the UCLA Law Review recently published an article discussing the theoretical consequences that the California Consumer Privacy Act (CCPA) could have on California-based companies that are researching or deploying AI and blockchain technologies. The article’s author argues that widespread deployment (and possibly existence) of AI and blockchain technologies in the California and national markets may not be possible if CCPA compliance is strictly enforced.

On the international front, digital currency exchange Rain has completed the Central Bank of Bahrain’s (CBB) Regulatory Sandbox, becoming the first exchange to gain the CBB’s approval to work in the country. The exchange reportedly passed a Shariah compliance certification on Feb. 26, which was led by a leading Sharia consultancy and audit firm licensed by the CBB, the Shariyah Review Bureau. Elsewhere in the world, Luxembourg has passed a bill providing financial market participants with a legal framework for securities issued using blockchain technology. Also in the European Union, French President Emmanuel Macron advocated for the use of blockchain technologies to innovate supply chain management in the European agriculture industry. “As blockchain gains increasing traction globally for rehauling agriculture – across management, financing and supply chain integrity – a report issued in fall 2018 forecast that blockchain in the agriculture market would be worth more than $400 million by 2023.” Macron’s remarks called for enhanced innovation across the European countries and increased utilization of vanguard technologies such as blockchain.

For more information, please refer to the following links:

Headlines From Bitcoin Payment Processors, Decentralized Exchanges and Tokenized Real Estate

 By: Simone O. Otenaike

This week, a leading mobile payments firm reported a net profit of roughly $1.69 million in revenue from bitcoin sales in 2018. According to the firm’s Securities and Exchange Commission (SEC) disclosures, the firm made a net profit of $3.3. billion in 2018, with 5 percent of sales coming from its cryptocurrency payment processing service. Meanwhile, a global electronics company recently announced its latest flagship phone will offer a secure storage function specifically for housing private keys for blockchain-enabled mobile services. Also this week, a global technology firm announced a new blockchain web-based platform, Stratis. The platform allows investors to purchase initial coin offering tokens with either bitcoin or Strat tokens in a secure and user-friendly environment. Stratis integrates a popular multicurrency exchange service to facilitate the process of converting fiat money or cryptocurrency into Strat.

An investment firm made a major announcement this week related to tokenizing roughly $260 million in four private real estate and debt transactions involving an office building in Miami, Florida, valued at $65.5 million; a student housing facility in North Dakota valued at $90 million; a North Dakota water pipeline worth $50 million; and a multifamily housing facility in Southwest Florida worth $75 million. According to reports, these transactions will be the largest pieces of real estate financed by a tokenized security. Once all four deals are finalized, the investment firm plans to auction off the tokenized shares of the buildings/assets, represented by ERC20 tokens on the Ethereum blockchain. The sale will adhere to the SEC’s private placement rules.

Binance, the world’s largest cryptocurrency exchange, has launched a beta version of its decentralized trading service. The cryptocurrency exchange’s core service is centralized – the core service handles roughly $1 billion in daily trading volumes, sets the price of assets, picks the selection of assets on offer, and makes money from managing its customers’ fiat or cryptocurrency balances. The new decentralized platform will allow users to trade directly from their wallets, as opposed to requiring them to transfer tokens into an exchange to trade and then withdraw them afterward. The decentralized platform reportedly offers a near-instant transaction speed.

Finally, a major financial institution and a social media giant made news this week by supporting the Bitcoin Lightning Network through participation in a transaction on what has become known as the Lightning Torch. The Lightning Torch markets the Bitcoin Lightning Network by sending a bitcoin payment to a prominent member of the crypto community and enabling the recipient to pass the payment on after adding a nominal amount of bitcoin to the total. To date, the payment, 3,700,000 Satoshis (a small division of a bitcoin, valued at about $143), has passed through at least 137 countries and 224 different individuals.

For more information, please check out the following links:

More Guidance on ICO Tokens as Securities, Crypto Fraud and Hacked Bitcoins Returned

By: Joanna F. Wasick

Last week, the SEC announced its settlement with Gladius, a Washington, D.C.-based company that raised approximately $12.7 million in an initial coin offering (ICO) conducted in late 2017. The company did not register its ICO, despite the SEC’s statement in July 2017 cautioning that offers and sales of so-called ICO tokens are subject to federal securities laws. However, in the summer of 2018, Gladius self-reported its unregistered ICO to the SEC. Gladius then cooperated in the ensuing investigation, and ultimately agreed to compensate investors and register its coins as a class of securities. Importantly, the SEC did not impose fines, as it did in earlier actions against CarrierEQ Inc. (Airfox) and Paragon Coin Inc. – two companies that also issued unregistered ICOs after the SEC’s warning but did not self-report. The SEC’s stance that ICOs are subject to federal securities laws was also strengthened by a recent California federal court decision. The SEC sued Blockvest LLC in late 2018, and asked the court to prevent Blockvest’s planned unregistered ICO. The court initially declined the SEC’s request – a move that some commentators interpreted as the court’s reluctance to consider ICO tokens as securities. Amid the controversy, the SEC moved the court to reconsider its decision, and in mid-February the court did so, finding that Blockvest’s contemplated ICO was indeed an offer to sell securities.

Earlier this week, the U.S. Department of Justice announced that Randall Crater, the founder and principal operator of My Big Coin Pay Inc. in Las Vegas, had been charged for wire fraud and illegal monetary transactions in connection with his alleged participation in a scheme to defraud investors by marketing and selling fraudulent virtual currency. Additionally, the FBI has begun asking that investors in BitConnect tokens (BCC) identify themselves as victims and provide information to assist in an ongoing investigation, following the crash of the BCC market last January that occurred after regulators’ warnings of BitConnect’s Ponzi-type nature. And Bitfinex confirmed in recent blog post that, as a result of law enforcement efforts, the U.S. government collected and returned roughly 28 bitcoins stolen off the exchange during a major 2016 hack.

For more information, please refer to the following links:

Cryptocurrency-Related Crime and Fraud Generates Staggering Statistics

By: Brian P. Bartish

Data published from the first full year under Japan’s cryptocurrency exchange reporting regulations has shown a substantial increase in reports of suspected money laundering events –more than tenfold the amount reported between April and December of 2017. In 2018, 7,096 cryptocurrency transactions demonstrating certain suspicious indicia, such as those originating overseas but using accounts registered in Japan, were reported to Japanese police. Other suspicious transactions involved the use of accounts held under different names and birth dates but featuring matching photo IDs. The number of reports from 2018 represents a 960 percent increase over data from the nine-month period in 2017, beginning in April of that year, after Japan’s Payment Services Act took effect, requiring all crypto exchanges to be registered under an FSA license. According to reports, the increase in suspicious transactions in cryptocurrency tracks a wider increase in suspected money laundering events in Japan, increasing 2,296 percent between 2017 and 2018, when the Japanese watchdog heightened its focus on Anti-Money Laundering and Know Your Customer compliance programs.

Cryptopia is now reporting that losses from the January hack represent, in the “worst case,” 9.4 percent of its holdings. One data analytics firm estimated those losses as high as $16 million. Separately, a hacker allegedly made off with $7.7 million in EOS, due in part to the failure of one miner to update its blacklist protocol designed to freeze stolen funds. In South Korea, cryptocurrency exchange Coinbin declared bankruptcy after suffering losses of approximately $26 million (29.3 billion won), citing, in part, claims of embezzlement by an executive. In a final noteworthy item, approximately five years after Mt. Gox, formerly the world’s biggest bitcoin exchange, filed for bankruptcy, new research has emerged indicating that nearly 3 percent of transactions on the platform were tied to price manipulation.

For more information, please refer to the following links:

FDA Launches DSCSA Pilot Project Program, Supports Use of Blockchain Technology

Medical concept of futuristic health care technology and augmented reality. A female doctor hand is touching a virtual control panel. Communicate about innovative use of future health care technologyOn Feb. 7, 2019, the U.S. Food and Drug Administration (FDA) published a press release and on the following day published an accompanying notice in the Federal Register announcing a Pilot Project Program Under the Drug Supply Chain Security Act (DSCSA Pilot Project Program). According to the press release, the FDA “is invested in exploring new ways to improve traceability, in some cases using the same technologies that can enhance drug supply chain security, like the use of blockchain.” As stated by the FDA’s notice in the Federal Register:

The DSCSA Pilot Project Program is intended to assist FDA and members of the pharmaceutical distribution supply chain in the development of the electronic, interoperable system that will identify and trace certain prescription drugs as they are distributed within the United States. Under this program, FDA will work with stakeholders to establish one or more pilot projects to explore and evaluate methods to enhance the safety and security of the pharmaceutical distribution supply chain.

Continue Reading

Blockchain Applications Advance for Healthcare and Payments, CFTC Prioritizes Cryptocurrencies, QuadrigaCX Saga Continues

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

Blockchain Initiatives in Healthcare and Other Industries Target Data Integrity, Speed and Analytics

Blockchain Payment Systems Announced by Major Banks and Online Payment Processors

Forthcoming SEC Guidance Confirmed, Initiatives Continue at Banks and Cryptocurrency Exchanges

CFTC Makes Cryptocurrency a Priority, Foreign Agencies Take Enforcement Action

QuadrigaCX Saga Continues as Do Cryptocurrency Malware and Other Hacks

Blockchain Initiatives in Healthcare and Other Industries Target Data Integrity, Speed and Analytics

By: Brian P. Bartish

Last week, a not-for-profit alliance of life sciences industries firms announced an expansion of its blockchain project to improve data sharing, data identity and data integrity in the life sciences industry, with an emphasis on validating the sources identifying the data, ensuring the integrity of the data, and improving data sharing within and between organizations. In another recent announcement, a partnership between one of the world’s leading research-driven pharmaceutical companies and the Canadian subsidiary of a multinational information technology company will use blockchain technology in a clinical setting for the first time in Canada. The partnership aims to tackle issues with quality assurance and erroneous and incomplete records in clinical trials.

A recent Wired article reported on an emerging blockchain solution aimed at combating video manipulation. Amber Authenticate is a software solution that runs in the background as a device, such as a CCTV or police body camera, captures video. The software periodically generates hashes of the video content that can be stored on the Ethereum blockchain in order to detect changes to a video record. The solution is drawing interest from human rights activists, free speech advocates, and law enforcement and government agencies, including the DoD and DHS.

In other enterprise news, a multinational South Korean electronics company recently announced new technology that promises to speed up blockchain transactions and is offering developers tools to help test and expand the technology. And the enterprise data warehouse managed by a leading U.S. technology and cloud-services provider is expanding its blockchain offerings by adding data sets for six new cryptocurrencies: Bitcoin Cash, Dash, Dogecoin, Ethereum Classic, Litecoin and zCash. The service is offering new scripts that allow for comparative analysis and integration with other financial data management systems.

For more information, please refer to the following links:

Blockchain Payment Systems Announced by Major Banks and Online Payment Processors

By: Robert A. Musiala Jr.  

This week it was reported that the largest bank in the U.S. is planning to launch its own blockchain-based cryptocurrency token. According to reports, the token was created by the bank’s in-house engineers and will be used to improve the settlement speed of transactions between the bank’s corporate clients, replacing the need for wire transfers. According to Bloomberg, it appears the proposed cryptocurrency would have a value pegged 1:1 with the U.S. dollar and would be transferred on the bank’s private blockchain. Also this week, the largest bank in Japan announced that it is partnering with a U.S. fintech firm to build its own blockchain-based payments network, with the goal of launching in 2020. In related news, a major Japanese technology firm confirmed this week that it plans to launch a stablecoin backed 1:1 with Japanese yen sometime this year.

Several payment processors also made announcements this week related to integrating blockchain into their business models. A Hong Kong-based online payment processor announced a partnership with a fintech firm, BNC LedgerTech (BNC), to integrate with BNC’s blockchain platform in an effort to cut costs by reducing reliance on banks. Another online payments firm based in the Czech Republic issued a press release this week announcing plans to leverage the blockchain platform of a major U.S. multinational technology company to build a “secure payment system that removes the need for intermediaries, such as correspondent banks and clearing houses.” Meanwhile, in Thailand, two payments firms went live this week with cross-border remittance systems underpinned by the blockchain network of a major U.S.-based blockchain technology firm – similarly seeking to streamline clearing and settlement by reducing reliance on the traditional banking system. Finally, according to recent reports, one of the largest banks in the Philippines is planning to launch a cryptocurrency ATM product that would allow customers to convert physical fiat cash into cryptocurrencies, and vice versa.

For more information, please refer to the following links:

Forthcoming SEC Guidance Confirmed, Initiatives Continue at Banks and Cryptocurrency Exchanges

By: Robert A. Musiala Jr.

Last Friday, the SEC published remarks by Commissioner Hester M. Peirce on the topic of “Protecting the Public While Fostering Innovation and Entrepreneurship.” Among other things, the remarks confirmed that the “[SEC] is working on some supplemental guidance to help people think through whether their crypto-fundraising efforts fall under the securities laws.” The Commissioner’s remarks also highlighted the SEC’s “standing offer for people to come in for so-called no-action relief in connection with a particular token or project.” In a “no action” letter request, an applicant explains what it is seeking to do, and SEC staff can respond by advising on the application of the U.S. securities laws.

In more news related to ICOs, the University of Chicago Law School has published a study analyzing and seeking to reconcile the differences between how ICOs are treated under U.S. versus EU law. And according to recent data from crypto analytics website CoinSchedule, despite a slowdown in ICO activity in the second half of 2018, the current ICO market is still significantly larger than it was around this same time last year.

Financial institutions continue to look to blockchain for settling traditional securities products. According to reports published late last week, a major international financial services firm based in Switzerland recently completed a successful test of a blockchain platform to process and manage investment fund trades. In a similar announcement, an executive at one of the largest banks in the world said the bank’s blockchain-based system could reduce the cost of settling foreign exchange trades by 25 percent. Also this week, a global financial services firm based in Spain announced a $700 million business transformation initiative in partnership with a U.S.-based global technology firm. The initiative seeks to further incorporate and take advantage of benefits offered by artificial intelligence, blockchain and big data.

In the cryptocurrency market, Bithumb recently became the next in an increasing number of cryptocurrency exchanges to launch an over-the-counter trading desk for cryptocurrencies. And Binance, the world’s largest cryptocurrency exchange by volume, announced plans to release Binance DEX, a decentralized cryptocurrency exchange. Meanwhile, according to a recent report by Diar, Bitcoin network transaction fees have dropped to a four-year low and are currently “at levels not seen since 2015.”

For more information, please check out the following links:

CFTC Makes Cryptocurrency a Priority, Foreign Agencies Take Enforcement Action

By: Simone O. Otenaike

Earlier this week, the U.S. Commodity Futures Trading Commission (CFTC) published its examination priorities for 2019, which include notable references to cryptocurrency market and trading surveillance. The CFTC monitors regulatory compliance for registrants of the Division of Market Oversight (DMO), Division of Swap Dealer & Intermediary Oversight (DSIO) and Division of Clearing & Risk (DCR). The DMO’s 2019 Examination Priorities include “cryptocurrency surveillance practices” as the first item in its list of “topics for in-depth examination.” On the state front, the Texas State Securities Board (SSB) issued its 2018 Enforcement Report, which reported a total of 16 orders against various entities and persons suspected of orchestrating cryptocurrency scam investments in 2018. According to the report, the SSB continues to partner with local law enforcement to crack down on illegitimate cryptocurrency schemes.

In international news, late last week the Mauritian Financial Services Commission (FSC) announced plans to establish a regulatory framework for digital asset custodian services. Through the new framework, the country aims to enhance the safety of custodian services for digital assets. The new regulation requires custodian services to adhere to AML/CFT international best practices. Meanwhile, Turkish police arrested 24 suspects in connection with the theft of 13 million liras’ worth of cryptocurrency held in bitcoin, ether and XRP. The suspects reportedly communicated via a popular online multiplayer game: PlayerUnknown’s Battlegrounds. After conducting raids of the suspects’ homes, Turkish authorities recovered 4,000 liras in cash and 1.3 million liras’ worth of cryptocurrency.

For more information, please refer to the following links:

QuadrigaCX Saga Continues as Do Cryptocurrency Malware and Other Hacks

By: Joanna F. Wasick

More details emerge in the QuadrigaCX saga. As reported here last week, the founder and CEO of the Canadian cryptocurrency exchange, Gerald Cotton, allegedly died in December, taking with him the only known keys and passwords needed to access “cold wallets” (wallets not connected to the internet) holding roughly $250 million in client funds. The exchange subsequently filed for creditor protection and a Canadian court appointed a Big Four auditing firm to oversee the case. That auditor recently issued a report describing how it has taken control of Cotton’s laptops, encrypted USB keys and cellphones in order to recover client funds. The auditor further stated that while it had located more than $900,000 in cryptocurrency held by Quadriga, $500,000 in bitcoin was later “inadvertently” transferred by Quadriga to its inaccessible cold wallets. Blockchain analytics companies and internet sleuths later used this news of the transfer, along with other information, to track down the addresses for the wallets. A number of these addresses have now been published and appear to comport with some of the details in the auditor report.

In an update to another major hack, Elementus, a blockchain analytics firm, tweeted earlier this month that, of the roughly $16 million in tokens reportedly stolen in January from New Zealand-based exchange Cryptopia, $3.2 million were recently liquidated on other major exchanges, with a large portion of the funds going through Etherdelta, Binance and Bitbox. On the app front, a major digital distribution service and store was found unwittingly hosting a malicious “clipper” app, which looked like a legitimate cryptocurrency app but operates to steal funds by transferring them to the attackers instead of to valid wallets. The app has since been removed from the platform. In its attempt to defend against potential hacks, Coinbase recently issued a $30,000 bug bounty for a critical vulnerability in its system. Currently, Coinbase has a four-tier reward system, ranging from $200 to $50,000, depending on the impact of the bug. Coinbase also announced this week a means for safely backing up encrypted private wallet keys on widely used personal cloud-based storage accounts.

For more information, please refer to the following links:

LexBlog