Blockchain Patents and Patient Data Pilots, Capital Markets Movements, Mining Malware, and More

In this issue:

Blockchain Enterprise Developments in Food Supply Chain, Patient Data, Patents, Mobile Devices and More

Regulation, Investment and a Bad Week for Bitcoin: Blockchain and Cryptocurrency Capital Markets Developments

Global Regulatory Consensus Beginning to Take Shape; Cryptocurrency Mining Malware Evolves 

Blockchain Enterprise Developments in Food Supply Chain, Patient Data, Patents, Mobile Devices and More

By: Simone O. Otenaike

An international supermarket conglomerate operating in 17 countries worldwide recently announced that it will implement TE-FOOD’s blockchain-based food traceability solution in five countries: France, Italy, Spain, Portugal and Senegal. More than 6,000 companies, including other leading global food retailers, have implemented TE-FOOD’s solution. In related news, a major online retailer’s crypto fund announced plans to purchase $2.5 million of equity stake (roughly 10 percent) in GrainChain, a startup that is developing a blockchain platform to aid farmers and purchasers in the grain industry by providing a more transparent vision of a grain supplier’s source and eliminating the need for middlemen. Roughly 500 farmers are currently piloting the network, and the company expects to go live sometime in the first quarter of next year.

SwissPost, Switzerland’s national postal service, and Swisscom, the state-owned telecom provider, have announced plans to team up and develop a private blockchain platform designed to meet the high security levels required by banks and to assist in securing applications such as maintaining temperature measurement data during the transport of pharmaceuticals. In Barcelona, Spain, last week, Sirin Labs unveiled the final design of its blockchain phone, the Finney. The Finney will start shipping in late December and seeks to make decentralized applications and cryptocurrency platforms easier to use through functions like automated conversion between various cryptocurrencies.

Earlier this week, one of the top five hospitals in the U.S. announced plans to collaborate with Korean blockchain startup MediBloc to develop a secure solution for health information exchange that supports data sharing. Ultimately, MediBloc aims to develop a tool that would convert data held by hospitals, research bodies, and insurance and pharmaceutical companies into a universal format. Eight medical institutions across Asia and 14 tech companies are presently signed up to test MediBloc’s system.

In patent technology news, a U.S.-based global tech giant recently won a patent connected to a chip that reduces by 15 percent the amount of power needed for cryptocurrency mining operations. The patented chip would be smaller than those currently used by cryptocurrency miners and would promote energy-efficient, high-performance mining. Meanwhile, a U.S.-based multinational vehicle manufacturer and distributor published a patent application this week that discusses the use of a distributed ledger to store data and facilitate information sharing between vehicles.

According to a recent report, various Ohio venture funds will invest more than $300 million over the next three years in early-stage startups that focus on using blockchain technology for business or government. And Hyperledger recently launched a cryptographic library, Ursa, as a new tool for developers in the open source space. Ursa aims to avoid duplication of development efforts among blockchain developers by serving as a single repository of cryptographic implementations.

For more information, please check out the following links:

Regulation, Investment and a Bad Week for Bitcoin: Blockchain and Cryptocurrency Capital Markets Developments

By: Jonathan D. Blattmachr

In news that no Blockchain Monitor reader wants to hear, technical analysts are sounding the alarm bell on bitcoin. On Dec. 6, bitcoin slid below its 52-week low to around $3,400, which comes on the heels of November, in which it experienced its worst month in seven years. Chartists forecast that bitcoin could drop another 60 percent, to around $1,500. Fundamental analysts have blamed the drop on regulatory pressure, the recent hard fork and the choppy conditions in global markets generally. Due to the price drop, many bitcoin miners have ceased operations. This appears to have resulted in the second-largest drop in Bitcoin block hashing difficulty in history, with a drop of 15 percent reported on Dec. 3. A cryptocurrency mining pool recently reported that breakeven for mining operations, depending on various factors, is between $3,891 and $11,581, which means at current prices, many large-scale miners will spend more on mining than the price for which they can sell the bitcoin.

The plunge isn’t stopping the capital markets industry from moving forward with new ideas, however. Institutional investors will now be able to trade on the cryptocurrency exchange Poloniex. These investors will have access to different cryptocurrency trading pairs and API interfaces as well as no-fee transactions on all bitcoin/U.S. dollar (USD) coin trades made this month. In Hong Kong, a Chinese investor will be heading up a stablecoin project within a blockchain fund. This “stable digital currency system” will focus on major currencies, beginning with instruments pegged to the yen, Aussie dollar and USD.

In regulatory developments, the New York Department of Financial Services (DFS) announced approval of a new virtual currency with commercial banking applications. Launched by a regional, New York state-chartered bank, the blockchain platform allows no-fee transfers of virtual currency between client accounts at the bank. DFS announced that to gain approval, the bank had to, among other things, implement, monitor and update effective risk-based controls and other measures to prevent money laundering or terrorist financing. In national news, Rep. Warren Davidson (R-Ohio) announced a forthcoming plan to regulate initial coin offerings and cryptocurrency offerings. The proposed legislation would create a new asset class that would regulate tokens in a way that allows them to avoid being classified as securities.

Overseas, the Swiss market regulatory body, FINMA, published new rules allowing licensed fintech companies to accept public deposits of about $100 million. An applicant seeking licensure must provide details about its business plan, asset storage methods and anti-money laundering policies, and the applicant cannot invest or pay interest on the funds received. In France, 26 companies and five banks have completed a block-based know-your-customer (KYC) test where participants were able to implement KYC checks on a shared network. And a Singapore-based cryptocurrency exchange, Huobi, recently acquired a license to operate in Gibraltar.

Caveat emptor: An MIT study reported that pump-and-dump schemes account for about $7 million in cryptocurrency trading each month. Fraudsters buy a coin at a low price, work to boost its value, then sell holdings before new buyers are able to get out. Investors should be heartened that according to the report, this represents only 0.049 percent of traded volume and new tools are emerging that it is hoped will drop this to zero. Researchers investigating these frauds believe they have developed an algorithmic tool that will be able to spot the coins targeted for pumping and dumping before the scheme begins.

For more information, please check out the following links:

Global Regulatory Consensus Beginning to Take Shape; Cryptocurrency Mining Malware Evolves

By: Brian P. Bartish

Last weekend’s G20 Summit in Buenos Aires, Argentina, saw cryptocurrency regulation take a pivotal place on the global economic agenda, with leaders calling for the integration of crypto-asset regulation into existing Financial Action Task Force standards for anti-money laundering (AML) and countering terrorist financing. In addition, G20 leaders jointly delivered a document outlining a plan for a taxation system for cross-border electronic payment services, with a final version of regulations expected to be put in place by 2020.

In the U.S., the Department of Homeland Security Small Business Innovation Research program published a report looking into the feasibility of conducting forensic analysis on privacy-focused coins, such as zcash and monero, if they are used for illegal activity. In Estonia this past week, a new version of Estonia’s Anti-Money Laundering and Terrorist Financing Prevention Act came into effect, with new amendments specifically targeting the AML risks from cryptocurrencies and companies offering crypto-related services. According to reports, Canada appears to be eyeing similar legislation. Japan is reportedly working on separate initiatives to combat initial coin offering (ICO) fraud and to curb tax evasion on significant profits from cryptocurrency transactions. These new initiatives follow 2017 legislation that brought cryptocurrency exchanges under Japan’s AML and know-your-customer rules, which has already resulted in 5,944 reported suspicious transactions for the first 10 months of 2018 – a 788 percent increase over the period of April to December 2017.

Cybercrime continues to rise, with coin mining malware increasing in both usage and sophistication. The total number of cryptocurrency mining malware infections reportedly increased 500 percent this year after hackers allegedly stole certain code from the NSA. According to reports, infections of MikroTik routers alone have doubled, reaching 415,000, since the summer of 2018. Further, new malware continues to emerge and evolve, as researchers reportedly have identified changes to KingMiner, a monero-mining application that first appeared six months ago, that improve the malware’s ability to avoid detection.

For more information, please check out the following links:

Ohio Accepting Bitcoin for Taxes, Multiple SEC and Financial Crime Developments, New Blockchain Capital Markets and Enterprise Initiatives

In this issue:

Satisfying Tax and Other Liabilities With Cryptocurrency

New SEC ICO Enforcement and Developments on Unregistered Securities, Fraud, Promotions and the Howey Test

International Crypto Crime Developments, OFAC Lists Bitcoin Addresses, Cyberattacks and Fraud Schemes Uncovered

Cryptocurrencies Continue to Permeate Capital Markets as Blockchain Permeates Settlement Systems

Blockchain Enterprise Announcements in BaaS, Supply Chain, Voting, Smart Contracts

Satisfying Tax and Other Liabilities With Cryptocurrency

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

Ohio appears to be the first state that will accept bitcoin as payment for tax bills. Other states, such as Arizona, Georgia and Illinois, have considered allowing bitcoin tax payments, but the bills have not passed the relevant legislative bodies. Starting this week, Ohio reportedly will allow businesses to pay corporate taxes in bitcoin by sending the bitcoin to a payment processor called BitPay, which will then convert the bitcoin to dollars for the state treasurer’s office. In its move to rebrand the state as a tech hub, however, Ohio may also be introducing unexpected tax consequences to its taxpayers.

Read more

New SEC ICO Enforcement and Developments on Unregistered Securities, Fraud, Promotions and the Howey Test 

By: John W. Busch and Robert A. Musiala Jr.

On Nov. 16, 2018, the U.S. Securities and Exchange Commission (SEC) announced that it had settled charges against two companies – Carriereq Inc., d/b/a Airfox, and Paragon Coin Inc. – for securities registration violations arising out of previously conducted initial coin offerings (ICOs). The cases are the SEC’s first non-fraud ICO registration cases since the December 2017 case against Munchee Inc. The SEC published the cease-and-desist orders, which both imposed $250,000 penalties, required the companies to register the tokens under the Exchange Act by filing a form 10, and required the companies to implement an online claims process allowing token purchasers to recover amounts paid for the tokens.

On Nov. 27, 2018, a U.S. District Judge, the Honorable Gonzalo Curiel, denied the SEC’s motion for a preliminary injunction to halt a planned ICO and freeze the assets of Blockvest LLC. In reviewing the SEC’s motion, the court cited SEC v. W.J. Howey Co. and found that there were disputed issues of fact as to what the investors relied on prior to purchasing the Blockvest tokens. The court also found there was not a sufficient demonstration of an expectation of profits by the investors to establish that the tokens met the definition of a security. In denying the SEC’s motion, the court did not rule whether or not the tokens were securities, but rather found there were insufficient facts to determine the issue. The opinion also noted the defendant’s agreement not to proceed with the ICO without giving the SEC advance notice as a factor weighing against granting a preliminary injunction.

On Nov. 27, 2018, the Texas Securities commissioner issued an emergency cease-and-desist order to a company called My Crypto Mine for registration violations and fraud and materially misleading and deceptive statements in connection with the offer of investments. And on Nov. 28, 2018, the U.S. attorney’s office for the Northern District of Texas announced that AriseBank’s CEO was arrested by the FBI and charged with securities fraud and wire fraud in connection with an ICO. The defendant is alleged to have made several materially false and fraudulent misrepresentations while converting investor funds for his own personal use. Finally, on Nov. 29, 2018, the SEC announced that it has accepted settlements and entered consent orders against Floyd Mayweather Jr. and Khaled Khaled (also known as “D.J. Khaled”) related to charges of promoting securities issued in ICOs without fully disclosing that they were being compensated by the entities offering the ICO tokens.

For more information, please check out the following links:

International Crypto Crime Developments, OFAC Lists Bitcoin Addresses, Cyberattacks and Fraud Schemes Uncovered

By: Jordan R. Silversmith

On Wednesday, Nov. 28, the Treasury Department’s Office of Foreign Assets Control (OFAC) announced that it was adding two residents of Iran – Ali Khorashadizadeh and Mohammad Ghorbaniyan – to its Specially Designated Nationals List. In addition to the usual identifying information such as physical addresses, email addresses and aliases, for the first time in the list’s history, OFAC included bitcoin addresses associated with the listed individuals. Khorashadizadeh and Ghorbaniyan are being added to the list for their role in facilitating financial transactions related to the SamSam ransomware, which has hit more than 200 victims over the past few years. SamSam held the data of its victims – including corporations, hospitals, ports, universities and government agencies – hostage in exchange for bitcoin, according to the Treasury, and then laundered the money through online exchanges.

The Telegraph reported on Nov. 26 that the U.K.’s Financial Conduct Authority (FCA) has doubled the number of cryptocurrency-associated businesses it is inspecting over unlicensed operations. Responding to a Freedom of Information request by the publication, the FCA said it was looking at 50 entities that it “suspected” were offering financial services without its permission. In Bulgaria, authorities reportedly have arrested three hackers alleged to be involved in stealing $5 million in cryptocurrencies. Bulgarian gendarmerie seized cryptocurrencies worth around $3 million along with computers, flash drives and other hardware, a car allegedly purchased with stolen funds, and paper notebooks containing cryptocurrency account details. In Cyprus, on Tuesday a court granted a motion to withdraw a lawsuit against Alexander Vinnik, the alleged former operator of defunct crypto exchange BTC-e. Greece is currently considering France’s request to extradite Vinnik, a Russian national, who still faces charges of fraud and money laundering in France and the United States.

On Monday, cryptocurrency payment processor BitPay announced that its open-source Bitcoin wallet, Copay, has been compromised by malicious code targeted at stealing users’ private keys. In related news, according to a recent publication by Kaspersky Labs, botnets are increasingly being used to distribute illicit crypto mining software designed to secretly reallocate processing power to mine crypto and send proceeds to the attacker. And on Nov. 19, Trezor, a popular provider of cryptocurrency cold storage devices, warned that it has discovered instances of fraudsters selling counterfeit Trezor devices.

For more information, please check out the following links:

Cryptocurrencies Continue to Permeate Capital Markets as Blockchain Permeates Settlement Systems

By: Robert A. Musiala Jr.

Recent SEC filings reveal that Silvergate Bank, which reportedly provides banking services to almost 500 customers in the cryptocurrency industry, is preparing to go public. The news comes as cryptocurrency exchange Coinbase recently opened an over-the-counter trading desk and, as a major New York stock exchange, confirmed plans to launch bitcoin futures products early next year. Alongside these developments, the long-sought approval of Bitcoin ETFs appears unlikely in the near future, based on recent comments from SEC Chairman Jay Clayton, who cited continued concerns over a lack of adequate investor protections, including difficulties mitigating risks related to cryptocurrencies being stolen or manipulated on exchanges.

As cryptocurrency continues to permeate capital markets, blockchain continues to permeate the backend systems that operate those markets. According to reports, a major global bank-owned currency trading utility recently went live with a blockchain-based payment netting platform designed by one of the world’s largest technology companies. In addition, an Abu Dhabi bank recently announced that it had settled a $500 million bond on a new blockchain-based system, and a consortium founded by global oil giants has announced the launch of a blockchain-based platform to facilitate trading in crude oil between commodity firms. Also this week, blockchain startup Harbor officially launched its security token compliance platform and announced plans to offer tokenized shares in a high-rise building located in South Carolina.

For more information, please check out the following links:

Blockchain Enterprise Announcements in BaaS, Supply Chain, Voting, Smart Contracts

By: Diana J. Stern

This week, one of the world’s largest cloud computing providers announced a new managed service offering to facilitate customer creation and management of blockchain networks. In addition, blockchain-based shipping platform TradeLens added Hong Kong’s second-largest terminal operator to its user base. In other enterprise news, Gustav Gerig, a Swiss food company founded nearly a century ago, plans to release a consumer-facing, Ethereum-based track-and-trace technology for its canned, sustainable tuna. The cans of fish will be marked with QR codes that direct users to a blockchain explorer where they can view data about that tuna, including which captain manned the vessel that caught it.

According to a recent report, the market for blockchain solutions in retail may surpass $2.3 billion, which is 29 times its current value, by 2023. One source points to the following use cases as catalysts: supply chain management, inventory management, authenticity verification, auto-renewal and subscription services, and customer data and loyalty programs. Survey results revealed that while only 6 percent of businesses are prepared to use blockchain for payments today, 78 percent say they will be ready within the next five years.

In the smart contracts space, the CFTC’s hub for engaging with the fintech innovation community, LabCFTC, released a comprehensive primer on the tech. It covers definitions, use cases and legal frameworks applicable to smart contracts and enumerates cybersecurity, manipulation, operational and technical risks, including: “Humans! – make mi$taak3s when K0diNg.” LabCFTC cites good governance practices as a mitigating factor to these risks. In government use cases, voting pilots continue as the South Korean National Election Commission and Ministry of Science and ICT plan to develop a blockchain component for their online voting system by year-end, not far behind West Virginia’s statewide pilot earlier this month.

With bitcoin prices hitting a 14-month low earlier this week, the overall cryptocurrency downturn has reigned in token and virtual currency-related activity. For example, blockchain-based social media platform Steemit reduced its headcount by 70 percent, U.S.-based bitcoin mining company Giga Watt petitioned for bankruptcy with a rushed filing, and between 600,000 and 800,000 bitcoin miners have gone dark since mid-November, as estimated by the founder of the third-largest bitcoin mining pool.

For more information, please check out the following links:

NY BitLicense Approval, Blockchain for Energy Commodities, CFTC Enforcement, Advertising Use Cases and More

In this issue:

New BitLicense Approval, Stablecoin Developments and BAT on Coinbase

Blockchain Platform for Energy Commodities Announced in U.S., Restrictions Ease in Foreign Markets

CFTC and State Securities Enforcement, Litigation Developments and Fraud Schemes

More Blockchain Uses for Digital Advertisers, Software Licensees and Marine Insurers

New BitLicense Approval, Stablecoin Developments and BAT on Coinbase

By: Panida A. Pollawit

The New York Department of Financial Services (DFS) has granted New York Digital Investment Group (NYDIG) Execution LLC the 14th BitLicense in the state. A BitLicense permits businesses to perform custodial services and transmit cryptocurrencies. In the press release announcing the BitLicense approval, CEO Robert Gutmann of NYDIG, thanked DFS “for providing a clear and comprehensive regulatory framework for investors, providers, and users alike.” In more U.S. news, as of last Friday Coinbase customers – except those in New York – will be able to buy Basic Attention Token (BAT) on Coinbase. BAT is an Ethereum-based token that is intended to be used as a utility token on the Brave browser, which is seeking to change the relationship between advertisers, publishers and users in the digital advertising world.

Stablecoins – cryptocurrencies that are designed to remain at the same price – continued to make news this week. Binance, the second-largest crypto exchange in the world by 24-hour trade volume, recently announced that it was listing Circle’s USD-pegged stablecoin, USD Coin (USDC), starting on Nov. 15, 2018. Carbon announced last Friday that its USD-pegged stablecoin, which has been on Ethereum for two months, is the first to operate on the EOS platform. In South Korea, the popular messaging app KakaoTalk has partnered with Terra, a stablecoin project funded by four major crypto exchanges, to create a blockchain-based payment system using Kakao’s blockchain platform Klaytn.

In Australia, the National Disability Insurance Scheme (NDIS), Australia’s equivalent of the U.S.’s Supplemental Security Income for people with disabilities, is testing a blockchain-based programmable money that “knows what it can be spent on, who it can be spent by, and when it can be spent.” NDIS intends to use this “smart money” to manage insurance payouts, among other activities. In Japan, Mitsubishi UFJ Financial Group Inc. (MUFJ) announced that it will partner with Brazil’s Banco Bradesco to create a new cross-border payment system between Brazil and Japan using Ripple (XRP). And Malaysian banking group CIMB announced that it has joined RippleNet, Ripple’s blockchain-based payment network, to make faster, less costly cross-border payments within the Association of Southeast Nations (ASEAN).

For more information, please check out the following links:

Blockchain Platform for Energy Commodities Announced in U.S., Restrictions Ease in Foreign Markets

By: Marc D. Powers

Major oil companies in the North Sea and other industry participants recently announced the formation of a blockchain-based energy commodity trading platform called VAKT. They expect the platform to be operational by the end of this year and ultimately to bring about a 40 percent cost savings for trading and settlement, utilizing smart contracts.

A major U.S. financial services company issued an updated report on its review of bitcoin and cryptocurrencies, which was more optimistic than its past report. The firm is reportedly planning to offer bitcoin swap trading and has described cryptocurrencies as a “new institutional investment class.” Another bank announced it had beta-tested a digital safety deposit box, which seeks to provide cryptocurrency storage and multi-signature services for cryptocurrency exchanges and investment funds. A third bank recently was awarded a U.S. patent for a cryptocurrency storage facility targeted at enabling enterprise-level institutions to store cryptocurrencies on behalf of their customers, including private key storage.

On the international front, France recently introduced an amendment that would lower the capital gains tax on bitcoin transactions from 36.2 percent to 30 percent. In Thailand, the Thai Securities and Exchange Commission (SEC) this month is reported to be close to approving the first SEC-certified initial coin offering (ICO) portal, which will offer ICO due diligence services, including reviewing smart contracts code and know-your-customer procedures. According to reports, the first ICO authorized by the Thai SEC may follow as early as December. In China, a recent decision from the Shenzhen Court of International Arbitration is being interpreted as allowing citizens to legally own cryptocurrencies and use them in commerce, which appears to reverse a government ban on bitcoin and cryptocurrency trading. In Singapore, an institutional stock exchange and the Monetary Authority of Singapore are reported to have successfully trialed a blockchain tokenized asset settlement system that seeks to promote efficiency and reduce settlement risk. Finally, a recently released report on cryptocurrencies and ICOs found that despite the price declines in 2018 and the continual decline in monies raised by ICOs in recent months, investors are still net positive on cryptocurrencies as investments despite.

For more information, please check out the following links:

CFTC and State Securities Enforcement, Litigation Developments and Fraud Schemes

By: Simone O. Otenaike

Late last week, the Commodity Futures Trading Commission (CFTC) ordered an individual to pay more than $1.1 million in restitution to his former employer, a Chicago-based proprietary trading firm, and its individual customers. The CFTC order found that between September and November 2017, the individual orchestrated a fraudulent Bitcoin and Litecoin scheme and misappropriated more than $600,000 from his former employer. After the trading firm terminated the individual for the misappropriation of funds, the man continued to fraudulently solicit funds from the firm’s customers, obtaining approximately $545,000 from at least five customers to trade virtual currency. The U.S. Attorney for the Northern District of Illinois also filed criminal charges against the man, who pleaded guilty to wire fraud and fraudulent solicitation of funds from investors and was sentenced to 15 months. Also last week, the Colorado Securities Commissioner issued orders to stop 12 unregistered initial coin offerings that are accessible to Colorado residents.

According to court documents published Wednesday, Ripple Labs filed to move the consolidated class action by XRP investors from state court to federal court, arguing federal court is the proper venue based on the U.S. Class Action Fairness Act. The plaintiffs are seeking $167.7 million from Ripple Labs in damages. In other litigation news, China-based Bitmain filed a lawsuit against an anonymous hacker for the alleged theft of $5.5 million worth of Bitcoin and other digital assets. Although Bitmain is a China-based company, the lawsuit was filed in the U.S. District Court for the Western District of Washington.

In Japan, Tokyo police arrested eight men suspected of raising $68.4 million in cash and cryptocurrency. The suspects reportedly raised the cash and cryptocurrency funds through a U.S.-based pyramid scheme. The victims of the scheme recently filed a lawsuit in Tokyo District Court and are seeking approximately $3.2 million in damages. Last Thursday, in Nova Scotia,  St. Francis Xavier University was forced to shut down its entire network after discovering that an unknown party was using the network to mine cryptocurrency. According to reports, the university is still working diligently to restore the network and find the individual(s) responsible for the attack.

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

More Blockchain Uses for Digital Advertisers, Software Licensees and Marine Insurers

By: John C. McIlwee

Adledger, a consortium of ad companies in the digital media space, recently issued a free Blockchain and Advertising Special Report. The report identifies several major challenges confronting ad agencies in digital media, educates readers on blockchain technology and proposes use cases for early adopters. According to the report, consortium members see big brands moving millions of ad dollars away from digital media because of widespread fraud. Bots spoof legitimate websites to proliferate inauthentic ad clicks across the entire industry. These bots sap ad purchase value by increasing costs without ever getting the ad in front of the intended consumer. Adledger predicts that blockchain technology will trace the IP addresses of legitimate users, frustrate bot developers and restore advertiser confidence in the digital media space.

The Adledger report touts the recent work of two consortium members that use blockchain technology to enhance programmatic ad buys for digitally delivered television. Using this application, advertisers and networks get immediate feedback on where ads run, whether the viewer watches the entire ad and, if the ad is interactive, whether the viewer engages – all while stripping personally identifiable information to ensure data privacy. Meanwhile, outside the ad consortium, a U.S.- based software firm, Blockchain4Media, recently collaborated with R3 on a pilot to combat false ad engagement. Blockchain4Media believes that its combination of artificial intelligence, machine learning and blockchain controls will provide advertisers greater access to authentic consumer engagement.

Also this week, a major global consulting firm announced a new blockchain-based product for large organizations to track and manage their software license portfolio. The program relies on blockchain technology to increase the visibility of software license data while reducing the risks associated with unlicensed software use and failure to comply with use terms. The consultancy believes that its new application will provide a clearer view of software license distribution and utilization, potentially saving millions in operational costs.

Earlier in the month, another proof of concept for blockchain technology in the marine cargo insurance industry was announced. A partnership between a Japanese insurance company and a global data analytics firm verified that claim settlement drastically improved when using blockchain technology to promptly distribute, share and utilize marine insurance claim data across eight sites in Europe, the Americas and Asia.

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

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

In this issue:

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

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

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

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

Tax Compliance Stakes Raised for Cryptocurrency Issues

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

By: Joanna F. Wasick

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

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

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

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

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

By: Jonathan D. Blattmachr

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

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

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

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

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

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

By: Diana J. Stern

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

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

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

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

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

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

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

 By: Simone O. Otenaike

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

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

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

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

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

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

Tax Compliance Stakes Raised for Cryptocurrency Issues

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

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

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

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

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

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

In this issue:

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

Cryptocurrency Exchange Announcements, Malta Blockchain Laws Take Effect

Global Developments in Enforcement, Regulatory Frameworks and Court Rulings

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

By: Jaime B. Petenko

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

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

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

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

Cryptocurrency Exchange Announcements, Malta Blockchain Laws Take Effect

By: Simone O. Otenaike

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

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

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

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

Global Developments in Enforcement, Regulatory Frameworks and Court Rulings

By: Taylor Thompson

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

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

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

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

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

In this issue:

SEC Launches FinHub, FATF Revises Cryptocurrency Guidance

Capital Markets Developments in Futures, Stablecoins, Custody, ICOs

Blockchain Enterprise Developments for Gold, Ports, BaaS and Developers

SEC Launches FinHub, FATF Revises Cryptocurrency Guidance

By: Taylor Thompson

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

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

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

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

Capital Markets Developments in Futures, Stablecoins, Custody, ICOs

By: Jonathan D. Blattmachr

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

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

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

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

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

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

Blockchain Enterprise Developments for Gold, Ports, BaaS and Developers

By: Joanna F. Wasick

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

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

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

In this issue:

Cryptocurrency Capital Markets Announcements by Institutional and Startup Firms

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

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

Cryptocurrency Capital Markets Announcements by Institutional and Startup Firms

By: Jordan R. Silversmith

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

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

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

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

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

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

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

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

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

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

By: Taylor Thompson

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

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

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

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

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

In this issue:

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

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

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

SEC Enforcement Actions Announced, New Data on Cryptocurrency Hacks Published

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

By: Taylor Thompson

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

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

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

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

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

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

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

By: Simone O. Otenaike

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

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

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

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

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

By: Robert A. Musiala Jr.

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

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

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

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

SEC Enforcement Actions Announced, New Data on Cryptocurrency Hacks Published

By: Marc D. Powers

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

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

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

Global Blockchain Developments in Enforcement, Payments, ICOs and Enterprise

In this issue:

Cryptocurrency Enforcement Actions Continue Across the Globe

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

Lawmakers Seek Clarity on ICOs as New Research Is Published

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

Cryptocurrency Enforcement Actions Continue Across the Globe

By: Panida A. Pollawit 

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

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

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

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

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

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

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

By: Robert A. Musiala Jr.

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

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

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

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

Lawmakers Seek Clarity on ICOs as New Research Is Published

By: Njeri S. Chasseau

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

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

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

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

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

By: Simone O. Otenaike

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

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

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

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

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

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

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

In this issue:

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

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

Enforcement Actions Continue, Cryptomining Malware Surges, Token Values Fall

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

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

By: Brian P. Bartish and Diana Stern

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

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

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

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

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

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

By: Heather K. P. Fincher

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

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

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

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

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

Enforcement Actions Continue, Cryptomining Malware Surges, Token Values Fall

By: Jaime B. Petenko

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

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

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

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

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

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

By: Robert A. Musiala Jr.

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

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

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

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

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

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