Blockchain 50 Published, Exchanges Expand Services, Enforcement Actions by SEC, CFTC and International Tax Authorities, Hacks Drive Losses

In this issue:

Forbes Publishes Blockchain 50, Cryptocurrency Exchanges Expand Services

SEC Settles Charges Involving ICO, CFTC Takes Action Against Crypto Investment Firm

Dutch Tax Authorities Make Arrests, IRS Summit to Address Cryptocurrencies

Manipulation, Hacks and System Errors Lead to Losses for Cryptocurrency Users and Exchanges

Forbes Publishes Blockchain 50, Cryptocurrency Exchanges Expand Services

By: Joanna F. Wasick

This week, Forbes published its second annual Blockchain 50 list, recognizing the 50 largest companies with significant blockchain technology initiatives. To qualify, Blockchain 50 members must be generating no less than $1 billion in revenue annually or be valued at $1 billion or more. The world’s major financial and tech firms are well represented, and a number of blockchain startup companies appear as well. Along with the company’s name, description and key executives, the list provides the type of blockchain the company uses. Twenty-six use a Hyperledger solution in some capacity, with 22 using an Ethereum (ETH) offering. More than half of the listed companies use more than one type of blockchain.

Last week, Binance, a major cryptocurrency exchange, announced it was adding 15 new fiat currencies it would support, including the Swiss franc, the Korea won and the Australian dollar, as well as the Polish zloty and the South African rand. Binance also announced it would begin offering business services and lend out its technology and liquidity to help business clients and partners set up exchanges with the Binance infrastructure. This enterprise-oriented side of the Binance business runs through its cloud division, a part of the company that began running late last year and now operates with about 20 people.

This week, a major U.S. exchange announced that it is now a principal member of a major U.S. credit card provider. This will enable the exchange to issue debit cards without relying on third parties. Users of the debit card can reportedly spend their own bitcoin (BTC), ether and XRP anywhere the provider’s credit card is accepted. This is the first time a cryptocurrency-based entity has been granted this type of status.

For more information, please refer to the following links:

SEC Settles Charges Involving ICO, CFTC Takes Action Against Crypto Investment Firm

By: Jordan R. Silversmith

On Wednesday, the Securities and Exchange Commission (SEC) announced that it had settled charges against a blockchain technology startup, Enigma MPC, for violations of federal securities laws. The startup, based in San Francisco and Israel, was accused of conducting an unregistered offering of securities in the form of an initial coin offering. The company has agreed to return funds to harmed investors via a claims process, register its tokens as securities, file periodic reports with the SEC and pay a $500,000 penalty.

The Commodity Futures Trading Commission (CFTC) also announced recently that it had filed a civil enforcement action against a resident of Colorado and a Colorado LLC, Venture Capital Investments Ltd. The complaint charges that the defendants solicited U.S. residents to trade foreign currency contracts along with bitcoin and other digital assets through a commodity pool they operated. Rather than trade funds raised from approximately 72 individual investors, the defendants allegedly used at least $418,000 of the funds for personal expenses and to make Ponzi-type payments to other pool participants.

For more information and related news, please refer to the following links:

Dutch Tax Authorities Make Arrests, IRS Summit to Address Cryptocurrencies

By: Jordan R. Silversmith

Earlier this week, the Joint Chiefs of Global Tax Enforcement – the leaders of tax enforcement authorities from Australia, Canada, France, the Netherlands and the United States, together known as the “J5” – announced that Dutch authorities had arrested two men in connection with two criminal investigations on suspicion of money laundering using cryptocurrencies. The arrests come as the IRS has reportedly invited cryptocurrency companies and advocates to a March 3 summit to discuss how the agency can “balance taxpayer service with regulatory enforcement.” The focus of the summit will be discussing the IRS’ existing approach to taxing cryptocurrencies and new enforcement efforts.

A recently published study by the U.S. Government Accountability Office (GAO) found that additional information reporting and clarified guidance could improve cryptocurrency tax compliance. Among other things, the report found that steps to increase third-party information reporting on virtual currency transactions could help the IRS provide taxpayers with useful information for completing tax returns and give the agency an additional tool to address noncompliance.

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Manipulation, Hacks and System Errors Lead to Losses for Cryptocurrency Users and Exchanges

By: Brian P. Bartish

Since Friday, Feb. 14, 2020, decentralized lending protocol bZx was twice exploited by attackers using a combination of methods involving flash loans and price manipulations to profit on cryptocurrency swaps, resulting in total losses of approximately $954,000. The first attack took place on Feb. 14 and resulted in the attacker pocketing 1,193 ETH (approximately $318,000) after a bug in the bZx’s smart contract code failed to run standard safety checks that should have prevented a highly leveraged position on ETH/BTC trading pairs. The second attack took place days later, resulting in losses of 2,388 ETH (approximately $636,000), perpetrated, in part, via oracle manipulation on the price of synthetic USD Coin stablecoins.

Last week, the IOTA Foundation shut down the entire IOTA cryptocurrency network after hackers exploited a vulnerability in Trinity, the mobile and desktop wallet app developed by the IOTA Foundation, and stole approximately $1.6 million from at least 10 high-value IOTA accounts. IOTA announced this week that it had released a “safe” version of Trinity in response.

Earlier this week, crypto exchange FCoin notified users that it was unable to process withdrawal requests, as it revealed a nearly $130 million shortage of assets, a result of system problems and “decision errors” made by exchange leadership. The exchange’s novel yet controversial model, called “trans-fee mining,” designed to incentivize trading by issuing exchange tokens, made FCoin one of the largest exchanges by volume.

For more information, please refer to the following links:

Navy Awards Blockchain Contract, Crypto Loyalty Programs Advance, Australia Releases Blockchain Strategy, US Warns on Crypto AML and Continues Enforcement

In this issue:

Blockchain Enterprise Applications Continue to Emerge Across Industries

Crypto Loyalty Rewards, Custody and Stablecoin Initiatives; Equity Swap on Blockchain

Anti-Money Laundering a Global Concern; Australia Releases Blockchain Road Map

Enforcement Agencies Prosecute Crypto Fraud Schemes and Dark Market Actors

Blockchain Enterprise Applications Continue to Emerge Across Industries

By: Robert A. Musiala Jr.

A press release late last week announced that blockchain startup SIMBA Chain has been awarded a five-year, $9.5 million contract with the U.S. Navy “to deploy a secure, blockchain-based messaging and transaction platform, a critical need of the U.S. Department of Defense (DoD).” The contract is a Small Business Innovation Research (SBIR) Phase III contract that is a follow-on to an earlier contract for a working prototype. In the Phase III contract, SIMBA Chain “will focus on commercialization and full-scale implementation of the platform.”

In other enterprise news, a major U.S. bank and a leading U.S. blockchain development firm are reportedly engaged in discussions related to a potential merger between the blockchain development firm, which focuses on Ethereum applications, and the bank’s unit focused on the Quorum blockchain. According to another recent report, Hedera Hashgraph, an emerging proof-of-stake public/permissioned network, has selected the cloud service of a major U.S.-based technology firm to deploy its Hedera network testnets. As part of the announcement, Hedera Hashgraph revealed that the cloud service provider has also joined the Hedera Governing Council, which governs the ongoing development of the Hedera network.

Finally, the Food Trust announced that it has onboarded a new member to its blockchain-based food traceability consortium. The new member is described as “the French market leader in the vegetable oil and protein industry.” In recent comments, a vice president at the major global technology company that runs the Food Trust noted that blockchain is “driving additional spend” in other technologies. The VP was quoted as saying, “When you look at the direct attribution of the actual dollars spent on blockchain, we are seeing that for every dollar spent, $15 is spent on other cloud services.”

For more information, please refer to the following links:

Crypto Loyalty Rewards, Custody and Stablecoin Initiatives; Equity Swap on Blockchain

By: Robert A. Musiala Jr.

Late last week, a major U.S. financial markets firm that operates 12 regulated securities and commodities exchanges announced an agreement to acquire a leading provider of loyalty solutions for merchants and consumers. According to the press release, the acquired firm “powers programs for seven of the top ten financial institutions and 4,500 loyalty, incentive and employee perk programs for companies across a wide spectrum of industries.” The press release notes that the acquired firm is intended to be integrated with Bakkt, the exchange for physically delivered bitcoin futures contracts. According to the press release, “Integrating with Bakkt will allow top retail brands to offer more innovative loyalty programs and help consumers unlock and access value in those programs.” In a related development, a recent report provided details on plans by the Catalan soccer team, FC Barcelona, to launch a blockchain token, termed the Barca Fan Token ($BAR). The token will reportedly be used by fans to influence club decisions and access other digital features and experiences involving the soccer team.

In news from the custody space, one of the largest U.S.-based cryptocurrency custody providers recently announced plans to expand its business to include new custodial entities in Switzerland and Germany. In payments news, a Canadian startup, Canada Stablecorp Inc., has launched its Canadian dollar stablecoin (QCAD), an ERC20 token backed 1:1 by Canadian dollars. And in a notable capital markets development, two major U.S. financial institutions recently completed what has been reported as “the first equity swap on a new blockchain built using tools originally designed for ethereum.” The transaction took place on Axcore, a private permissioned blockchain modeled in part on the Ethereum blockchain.

For more information, please refer to the following links:

Anti-Money Laundering a Global Concern; Australia Releases Blockchain Road Map

Australia rolled out its national blockchain road map this month, citing the technology’s importance in global markets and estimating the sector’s international business value at more than $175 billion by 2025. The 52-page road map outlines strategies that both the public and private sectors can utilize to overcome challenges and capitalize on new growth opportunities.

Social media networks with an eye on developing proprietary cryptocurrency projects are on notice by the U.S. Treasury Department’s Financial Crimes Enforcement Network (FinCEN) to be mindful of anti-money laundering laws. “Social media and messaging platforms and others now focusing on the establishment of cryptocurrencies cannot turn a blind eye to illicit transactions that they may be fostering,” warned Jamal El-Hindi, the deputy director of FinCEN. The agency confirmed that it will create new rules and guidance as needed to ensure that new entrants comply with current anti-money laundering laws, with Treasury Secretary Steven Mnuchin recently warning that “significant new requirements” by FinCEN are on the horizon for the cryptocurrency industry.

Global regulatory agencies too are updating their regulatory frameworks as they relate to cryptocurrencies. Switzerland’s Financial Market Supervisory Authority (FINMA), for example, recently proposed an anti-money laundering provision requiring identification for all cryptocurrency-related transactions in amounts greater than $1,000, acknowledging “the heightened money-laundering risks in this area.”

For more information, please refer to the following links:

Enforcement Agencies Prosecute Crypto Fraud Schemes and Dark Market Actors

By: Jordan R. Silversmith

On Feb. 11, the United States Attorney for the Southern District of New York and officials from field offices of the Department of Homeland Security and the FBI announced the unsealing of an indictment charging Michael Ackerman, of Sheffield Lake, Ohio, with fraud and money laundering related to an alleged plot to defraud more than 100 people of more than $35 million through a false cryptocurrency investment scheme. The Securities and Exchange Commission (SEC) also filed a complaint against Ackerman, as did the Commodity Futures Trading Commission (CFTC). The SEC’s complaint was filed in New York federal court and charges Ackerman with violations of the anti-fraud provisions of federal security laws and seeks a permanent injunction, disgorgement plus prejudgment interest and a civil penalty. The CFTC’s civil enforcement action in the Southern District of New York was brought against Ackerman and his companies, Q3 Holdings, LLC and Q3 I, LP, charging them with fraudulently soliciting more than $33 million, purportedly to trade digital assets, and misappropriating a large portion of that total.

United States federal prosecutors have charged the CEO of a popular bitcoin media site and founder of a crypto wallet provider with conspiracy to launder money and operating an unlicensed money transmitting business. According to an arrest warrant filed earlier this month, Larry Harmon laundered approximately $311 million of bitcoins, which allowed the users of a privacy app named Helix and a darknet search engine named Grams to conduct transactions on AlphaBay, a known dark market shut down in 2017. Helix allowed users to mix their coins before spending them, a tactic that has been associated with money laundering and other illicit activities. Harmon was denied bail. He faces a 30-year prison sentence.

Officials in Sweden this week brought charges against the administrator and four associates involved in running Sweden’s largest darknet marketplace for drugs, Flugsvamp 2.0. The charges are reportedly based on a technically advanced investigation where police were able to monitor the suspects’ encrypted communications. Suspects are kept anonymous in Sweden; however, the Swedish Police Authority announced that the chief suspect is charged with offenses relating to narcotics, money laundering and falsification of a financial instrument, while the associates are charged with money-laundering offenses.

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SEC Commissioner Peirce Unveils ‘Token Safe Harbor Proposal’

On Feb. 6, during a speech at the International Blockchain Congress in Chicago, SEC Commissioner Hester M. Peirce unveiled a proposed “safe harbor” that would seek to provide an exemption from the registration requirements of the federal securities laws for blockchain tokens that meet certain criteria. Before discussing the details of her proposed safe harbor, Commissioner Peirce first emphasized that the views expressed in her speech and her proposal, “are my own and do not necessarily represent those of the Securities and Exchange Commission [SEC] or my fellow Commissioners.” Commissioner Peirce also emphasized that her proposal “remains a work in progress.” The proposal has been posted on the SEC’s website along with the text of the speech.

A Regulatory “Catch 22”

The proposal is referred to as the “Token Safe Harbor Proposal” or “Proposed Securities Act Rule 195 – Time-Limited Exemption for Tokens.” In her speech, Commissioner Peirce explained that her proposal seeks to “address the uncertainty of the application of the securities laws to tokens” and “recognizes the need to achieve the investor protection objectives of the securities laws, as well as the need to provide the regulatory flexibility that allows innovation to flourish.” Commissioner Peirce said that the SEC has “created a regulatory Catch 22” with respect to blockchain tokens:

Would-be networks cannot get their tokens out into people’s hands because their tokens are potentially subject to the securities laws. However, would-be networks cannot mature into a functional or decentralized network that is not dependent upon a single person or group to carry out the essential managerial or entrepreneurial efforts unless the tokens are distributed to and freely transferable among potential users, developers, and participants of the network. The securities laws cannot be ignored, but neither can we as securities regulators ignore the conundrum our laws create. Continue Reading

Blockchain Developments in Food Safety, Ethical Sourcing, Financial Services, Social Media and Trading Platforms; DOJ Continues Actions Against Crypto Crimes

Abstract Digital network communication digital conceptIn this issue:

Blockchain Enterprise Solutions Aim to Improve Safety and Address Ethical Sourcing Concerns

Financial Services and Social Media Firms Integrate Blockchain and Cryptocurrencies, US Marshalls to Auction 4,040 Bitcoins

US and Foreign Firms Announce Blockchain Trading Platforms and Tokenized Securities

DOJ Continues Enforcement Actions Targeting Cryptocurrency Crimes

Blockchain Enterprise Solutions Aim to Improve Safety and Address Ethical Sourcing Concerns

By: Brian P. Bartish

According to recent reports, the Food Safety and Inspection Service (FSIS), an agency of the U.S. Department of Agriculture, is working with a major global technology firm to build a proof-of-concept blockchain solution, FSIS’s first, designed to bring increased immutability of documentation and streamline the process for export certifications of America’s meat, poultry and eggs. In another recently announced pilot, as part of its 20-year plan to create a carbon-neutral passenger car fleet, a global automobile manufacturer announced a new blockchain pilot project with Circulator – a startup focused on blockchain technology – and one of its key battery cell manufacturers. The project is targeted at tracking emissions of climate-relevant gases and mapping the use of recycled material through the battery cell manufacturing chain.

Earlier this week, several key partners in the aircraft maintenance, repair and overhaul (MRO) industry announced the creation of the MRO Blockchain Alliance, along with a proof-of-concept blockchain solution to verify the authenticity of aircraft parts and provide visibility into the full chain of custody, with blockchain technologies estimated to generate $3.5 billion in costs savings (approximately 5 percent) and a $40 billion boost in revenue. Also this week, the Perth Mint, in partnership with Security Matters, a technology startup focused on physical asset tracking through digital means, announced the development of an ethical gold supply chain assurance solution as part of its TrueGold project. TrueGold is aimed at reporting on the origin of gold and how the metal moves through the entire production and distribution process.

Last week, Hyperledger marked the fourth anniversary of its enterprise digital ledger, Hyperledger Fabric, by announcing the release of Hyperledger Fabric v2.0, which offers improved decentralized consensus models and heightened data privacy offerings, among other performance improvements. Illustrating the potential benefits to enterprise-blockchain adoption, a leading research and advisory firm recently predicted that organizations participating in blockchain smart contracts could realize a 50 percent increase in data quality by 2023 while noting the downside that the same technology could lead to a 30 percent decrease in data availability.

For more information, please refer to the following links:

Financial Services and Social Media Firms Integrate Blockchain and Cryptocurrencies, US Marshalls to Auction 4,040 Bitcoins

By: Joanna F. Wasick

According to recent reports, a bank located in La Jolla, California, recently applied for the New York trust license, with intentions of providing custody and settlement for cryptocurrency, including settlement services for bitcoin trades. While the bank is already known for providing U.S.-dollar banking services for businesses that deal in cryptocurrency, the new plan will enable it to directly handle digital assets itself. The bank is also reportedly working on increasing the number of fiat currencies it supports for cryptocurrency trading. In related news, this week Ripple announced a new partnership with a major money remittance services company focused on the Latin America and Caribbean corridor. Together they aim to provide faster, more transparent cross-border remittance services between the United States and Mexico.

Late last week, Camfrog (a video chat app) and Listia (a marketplace trading app) announced plans to integrate YouNow’s “Props” token. The token was granted a Reg A+ qualification from the U.S. Securities and Exchange Commission, and is used to reward content creators for driving income on YouNow’s video-streaming platform. Camfrog plans to integrate the token this month; Listia expects it to go live in March. Also last week, the LVC Corporation, a subsidiary of a major Japanese messaging app, announced plans to trade its digital currency, LINK, in Japan as early as April 2020. LINK is issued by an LVC-affiliate and was launched on the BITBOX cryptocurrency exchange in October 2018, but had not been previously available to users in Japan.

The U.S. Marshals Service is auctioning approximately 4,040 bitcoin, worth nearly $40 million at press time, that were forfeited in various federal criminal, civil and administrative cases. The auction will take place during a six-hour window on Feb. 18. Potential bidders must register by Feb. 12. This is the first major U.S. government bitcoin auction since 2018.

According to reports out last month, 49.9 percent of the computing power on the Bitcoin Network operations is controlled by five China-based mining entities. All five entities are available through BitDeer, which allows consumers to rent mining power without buying their own mining hardware. This concentration of power has some worried, because a miner with more than 50 percent of hash power can potentially manipulate the network by, for example, double-counting coins, stopping certain payments and stalling transactions.

For more information, please refer to the following links:

US and Foreign Firms Announce Blockchain Trading Platforms and Tokenized Securities

By: Simone O. Otenaike

According to recent reports, a leading U.S.-based blockchain development firm, has acquired a U.S. broker-dealer. The recently acquired broker-dealer is registered with the United States Securities and Exchange Commission (SEC) and the acquisition will reportedly support the firm’s existing broker-dealer services. The firm hopes to facilitate a cost-efficient and effective blockchain-based solution for direct, local investment in mini-municipal bonds and promote resident engagement in local financial markets through this acquisition. In related news, tZERO recently announced plans to launch its broker dealer service, tZero Markets, in the first half of 2020. The company is reportedly working closely with regulators on tZero Markets, which will reportedly enable investors to trade digital securities and cryptocurrencies on one platform.

A Swiss information technology company based in Italy, OverFuture SA, recently received approval to incorporate for an initial public offering (IPO) of tokenized shares. According to the firm’s IPO prospectus, the offering will consist of 8,399,000 common equity share security tokens on Ethereum with smart contracts provided by the European Digital Assets Exchange. Swiss regulators reportedly approved the firm’s initial articles of incorporation, which explicitly state the digital nature of the shares and the use of blockchain technology to maintain the shareholder registry.

ICHX Tech, a Singapore-based firm, will reportedly obtain the first Singapore capital markets services provider license for its securities token platform. According to the firm, the platform will offer institutional investors more options for capital fundraising and investment in digital securities.

A leading provider of consulting services and system solutions recently announced plans to develop an objective crypto-asset investment appraisal benchmark. The benchmark will reportedly offer investors, crypto exchanges and financial information providers objective criteria to evaluate their investments. The consulting firm plans to launch the benchmark in conjunction with a Japanese asset management company and make it available to domestic and overseas institutional investors, financial information vendors and crypto exchanges in early 2020.

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

DOJ Continues Enforcement Actions Targeting Cryptocurrency Crimes

By: Jordan R. Silversmith

Last week, the Southern District of New York announced that a senior adviser to the “Silk Road” website pled guilty in Manhattan Federal Court. Roger Clark pled guilty to conspiring to distribute large quantities of narcotics, a charge that arose from his role as the senior adviser to the owner and operator of the online illicit black market. From 2011 to 2013, Silk Road, a secret online marketplace on the dark web for a host of criminal activity, was used by drug dealers and others to distribute illegal drugs to more than 100,000 buyers, and to launder hundreds of millions of dollars derived from those transactions. Clark, a Canadian citizen, was paid at least hundreds of thousands of dollars for his assistance in operating Silk Road. He pled guilty to one count of conspiracy to distribute narcotics, which carries a maximum sentence of 20 years in prison.

The Eastern District of Virginia announced last week that a Richmond, Virginia, man pled guilty to distribution of drugs similar to fentanyl. Mark Faulkner, 36, advertised Adderall and fentanyl products on multiple dark web markets. He was identified through bitcoin exchange transactions and three purchases of drugs that were advertised as fentanyl. Faulkner pleaded guilty to distribution of a controlled substance analogue. He faces a maximum penalty of 20 years in prison.

Earlier this week the Eastern District of California announced that a California-based dark web drug vendor had pleaded guilty. Eric Friccero, 29, pleaded guilty on Feb. 3 to possessing with intent to distribute a controlled substance. According to court documents, Friccero distributed marijuana to customers throughout the United States through dark web marketplaces. On Jan. 31, 2019, law enforcement officers searched Friccero’s California residence and found marijuana that had been offered for sale on the dark web, along with bitcoin and cash.

On Wednesday, the U.S. Attorney’s Office for the District of Arizona announced two arrests in connection with a cryptocurrency investment fund, Zima Digital Assets. John Michael Caruso and Zachary Salter were both arrested on Jan. 30 and charged with conspiracy to commit wire fraud and money laundering.

For more information and related news, please refer to the following links:

New Blockchain Solutions, Crypto Products, Regulations and Licenses; 51% Attack Hits, Insurer Traces Ransomware Payment, Crypto Crimes Report Published

In this issue:

Solutions Debut for Wine, Farming Data, Media Authenticity and Credentialing

Blockchain Platforms and Crypto Exchanges Launch Products, Announce Developments

Foreign Regulators Issue New Regulations and Licenses, WEF Launches Consortium

Alleged BTC-e Operator Extradited, Insurer Traces Ransomware Payment, 51% Attack Reported, Crypto Crimes Report Published

Solutions Debut for Wine, Farming Data, Media Authenticity and Credentialing

By: Veronica Reynolds

A multinational closures company has announced what it describes as the first European winery that tracks wine products using “connected closures” that leverage near-field communication and blockchain technology. The product reportedly allows customers to verify the authenticity of bottles and obtain detailed information about where the wines are made and in which vineyards the grapes are grown. In related news, a global leader in crop nutrition has partnered with a multinational computing giant to launch a blockchain platform inviting collaboration among food suppliers. The project aims to unify data that is typically dispersed and inaccessible in order to foster trust and provide access to shared data that can increase profits and improve sustainability. However, supply chain blockchain projects are likely to tread water until 2022, according to a Connecticut-based research company, which recently cited the lack of digitization of core aspects of the industry as the primary reason for the delay.

For the past few years, a well-known national news conglomerate has worked on a collaboration with an international computing giant to create the News Provenance Project, which seeks to explore solutions that could reduce the proliferation of misinformation online. The project recently published findings from a proof of concept intended to demonstrate how publishers might leverage blockchain technology to allow consumers of media to view how information and photographs have been changed or tampered with over time.

Another blockchain use case announced this week seeks to leverage blockchain to provide academic credentialing services, allowing graduates and employees to authenticate degrees earned while maintaining control over who can access the information. As this is just one of many recently announced blockchain solutions, it is no surprise that the enterprise blockchain developer community appears to be thriving, with a reported 12-fold increase in the number of engineers between the Q3 2016 and Q4 2019 periods, according to the newly released “Enterprise Blockchain Protocols Evolution Index 2020” report.

For more information, please refer to the following links:

Blockchain Platforms and Crypto Exchanges Launch Products, Announce Developments

By: Robert A. Musiala Jr.

This week, VAKT, a blockchain-based platform for processing energy commodity transactions, announced that it had closed a $5 million investment from a major Saudi Arabian venture capital firm. According to the press release, “The VAKT platform manages physical energy transactions from trade entry to final settlement, eliminating reconciliation and paper-based processes.”

Another recent press release announced the launch of Tether Gold (XAU₮), an ERC20 token product where each token reportedly “represents ownership of one troy fine ounce of physical gold on a specific gold bar.” XAU₮ is reportedly now available for trading on the Bitfinex exchange. In other exchange news, Binance.US recently announced that the exchange will soon offer “staking rewards” on two “proof of stake” cryptocurrencies, ALGO and ATOM. Staking allows owners to deposit their cryptocurrencies in addresses that enable the owner to receive cryptocurrency rewards in exchange for assistance verifying transactions on blockchains that utilize proof-of-stake consensus algorithms.

Late last week, major U.S. cryptocurrency exchange Gemini announced that it had completed an independent SOC 2 Type 2 examination. According to a press release, the exchange completed a SOC 2 Type 1 exam in January 2019. In a final notable development, a report this week provided details on a U.S. patent recently awarded to a major global technology firm for a “self-aware token.” The token would reportedly collect and report data on its own transactions and provenance.

For more information, please refer to the following links:

Foreign Regulators Issue New Regulations and Licenses, WEF Launches Consortium

By: Simone O. Otenaike

The Monetary Authority of Singapore recently announced a new regulation that aims to strengthen consumer protection and encourage the use of digital payment token services. The new regulation, the Payment Services Act, reportedly offers a new flexible regulatory framework and will attempt to bring all digital payment token services under the scope of current anti-money-laundering and counterterrorist-financing rules. Crypto businesses and exchanges based in Singapore will reportedly have a month to register with the Monetary Authority of Singapore and a six-month period to apply for the new payment institution license.

BCB Payments, a company that provides financial services for various cryptocurrency companies, was reportedly awarded an Authorized Payment Institution license by the U.K.’s Financial Conduct Authority earlier this week. With the new license, the firm hopes to attract more cryptocurrency clients in the U.K. and Switzerland.

Late last week, the World Economic Forum announced plans to develop a global consortium for digital currency governance. According to reports, the goal of the consortium is to develop inclusive and interoperable policy solutions to address the existing fragmented regulatory system. The consortium will seek to bring together key stakeholders to develop guiding principles for the public and private sectors as they incorporate the use of digital currencies.

For more information, please refer to the following links:

Alleged BTC-e Operator Extradited, Insurer Traces Ransomware Payment, 51% Attack Reported, Crypto Crimes Report Published

By: Joanna F. Wasick

Late last week, Alexander Vinnik, a Russian citizen, was extradited from Greece to France on charges including extortion and aggravated money laundering arising from his operation of BTC-e, a cryptocurrency exchange alleged to have helped criminals launder billions of dollars. Vinnik was arrested in Greece in 2017 and was held there while France, Russia and the U.S. fought over which country should try him first. Vinnick’s lawyers said that after the proceeding concludes in France, he will be extradited back to Greece and then sent to the U.S. to face similar charges. According to reports, Vinnik has been on a hunger strike to protest his detention and maintains that he is innocent and being persecuted for posing a threat to the international banking system.

Earlier this month, the U.K. High Court of Justice froze 96 bitcoins on Bitfinex due to alleged connections to a ransomware scheme. An unnamed company’s computers had been hijacked by ransomware, and the company’s insurer ultimately paid the cybercriminals 96 BTC. That insurer then hired Chainalysis, a blockchain analytics company, to track the bitcoin, which were ultimately traced to an address on the Bitfinex platform. In addition to freezing the cryptocurrency, the court demanded that Bitfinex provide information about the account holder. The case remains ongoing.

Last week, the Bitcoin Gold (BTG) blockchain reportedly fell victim to a 51% attack. During this type of attack, a single entity gains control over half of the network’s mining hashrate (computing power) and can then reverse prior transactions, enabling the attacker to double-spend the coins. More than $70,000 of BTG was double-spent in this particular attack. Other types of cybercrimes are detailed in Chainalysis’ 2020 report, out this month, which provides an overview of crypto crime activity that has occurred over the past year. Focuses of the report include money laundering, ransomware, terrorism financing and darknet markets. The report concludes: “Crypto crime will likely continue to evolve in both scope and technological sophistication, just like cryptocurrency itself.”

For more information, please refer to the following links:

Foreign Regulators Issue Approvals and Guidance, SEC Enforcement Continues, Blockchain Trade Groups File Amicus Briefs, Reports Detail Terrorist Financing Risks

In this issue:

New Approvals From European and Thai Regulators, Canada and WEF Publish Guidance

SEC Targets ICOs, IRS Updates Crypto FAQs, UK Tax Agency Seeks Blockchain Analytics Tool

Chamber of Digital Commerce and Blockchain Association Weigh In on SEC v. Telegram

Reports Address Cryptocurrency Terrorist Financing Risks

New Approvals From European and Thai Regulators, Canada and WEF Publish Guidance

By: Veronica Reynolds

Swiss-based digital fund manager Amun launched 21 Shares Short Bitcoin (SBTC) this week, a first-of-its-kind digital asset-based Exchange Traded Product (ETP) that reportedly allows investors an easy method for capturing falling price movements of bitcoin through a traditional broker or bank. According to reports, the product is compliant with Swiss regulations and launched on the Swiss Stock Exchange. In another development from Europe, officials in Liechtenstein have approved AARGOS Global Real Estate Fund as an alternative investment fund. The company reportedly makes available a fully regulated, tokenized real estate portfolio, with each token representing one share in the fund.

Asian cryptocurrency trading platform Zipmex was granted a digital asset exchange license this week from Thailand’s securities regulator. The company is now classified as a financial institution in the country and must comply with AML reporting obligations. The availability of this license is somewhat new, with its introduction part of the country’s regulatory framework for digital assets that went into effect in 2018.

Canada’s securities administrator issued guidance last week to assist in the determination of whether certain digital assets are securities subject to regulation. The guidance notes that such regulations might apply to digital assets traded on exchange platforms because although the token itself may be correctly categorized as a commodity, the underlying right to the token might­ constitute a security when such a right is not settled in real time.

The World Economic Forum shared insights this week gathered from researchers, policymakers and international organizations and announced its central bank digital currency (CBDC) Policy-Maker Toolkit. The toolkit is designed to help central banks assess whether CBDC is a strategic fit for their economy and help them access methods of evaluation, design and deployment. A key goal of the toolkit is to help provide common groundwork “to support stable, efficient and inclusive global economic systems.”

For more information, please refer to the following links:

SEC Targets ICOs, IRS Updates Crypto FAQs, UK Tax Agency Seeks Blockchain Analytics Tool

By: Joanna F. Wasick

Late last week, the Securities and Exchange Commission (SEC) charged Mr. Boaz Manor, Ms. Edith Pardo and two related entities, CG Blockchain Inc. and BCT Inc. SEZC, for violating federal securities laws when raising more than $30 million from hundreds of investors in a fraudulent initial coin offering (ICO). The SEC alleges that the defendants falsely claimed to have 20 hedge funds testing their technology to record transactions on a blockchain, when, in fact, the defendants only sent a prototype to a dozen funds, none of which used or paid for it. In addition, the complaint describes how Manor, a convicted criminal, hid his identity and criminal past from investors by changing his physical appearance and using an alias. The U.S. Attorney’s Office announced criminal charges against Manor and Pardo in a parallel action.

The SEC filed another ICO-related complaint this week against Opporty International Inc. and its founder and owner, Mr. Sergii Grybniak. The SEC alleges that the defendants’ ICO constituted an unlawful, unregistered securities offering, and that the defendants made false and misleading statements to investors, including that the ICO was “100% SEC compliant.”

The Internal Revenue Service (IRS) recently updated its Frequently Asked Questions page on its website to address the responsibilities and reporting obligations for charitable donations made with cryptocurrency. The guidance provides that a charitable organization that receives virtual currency should treat the donation as a noncash contribution. It also describes donor acknowledgment responsibilities for donations of more than $5,000 in cryptocurrency, leading some analysts to conclude that high-value cryptocurrency donations must be appraised.

The U.K.’s tax agency, Her Majesty’s Revenue and Customs, recently requested proposals for a blockchain analytics tool to help combat illegal cryptocurrency trading. According to the agency, the tool would “support intelligence-gathering methods to identify and cluster crypto-asset transactions into linked transactions and identify those linked to crypto-asset service providers.” The agency is willing to spend £100,000 to license the tool. Proposals are invited until Jan. 31 of this year.

For more information, please refer to the following links:

Chamber of Digital Commerce and Blockchain Association Weigh In on SEC v. Telegram

By: Teresa M. Goody

The Chamber of Digital Commerce (Chamber) and The Blockchain Association (Association), two not-for-profit organizations that promote blockchain-based technologies, recently filed amici curiae briefs in SEC v. Telegram Group Inc., 19-9439 (SDNY). The two organizations took starkly different approaches; however, they both request that the court distinguish between the transaction that is the investment contract and the subject of the investment contract. Both amici aver that in the blockchain context, the digital assets are improperly conflated with the investment contract; that is, when digital assets are simply the subject of an investment contract, such as the orange groves in SEC v. W. J. Howey Co., 328 U.S. 293 (1946), those are not the investment contract.

The Chamber’s brief does not take a position on the application of the securities laws to Telegram but instead focuses on the overall regulatory scheme of digital assets and urges the court to undertake a two-part analysis (“whether there is an investment contract, offered in a securities transaction” and “whether the subject of an investment contract is a commodity that can be sold in an ordinary commercial transaction”). In stark contrast, the Association’s brief posits that Telegram did not violate the securities laws. The Association’s brief warns the court of far-reaching repercussions of a broad decision in light of what it characterizes as the SEC’s unclear regulatory guidance, regulation by enforcement, closed-door consultations and no-action letters addressing “tokens [that] were so clearly not securities that it seemed bizarre that the SEC would even undertake the analysis.” While the two briefs are very different, they appear to promote similar substantive securities law arguments as to the proper investment contract analysis application to digital assets.

For more information, please refer to the following links:

Reports Address Cryptocurrency Terrorist Financing Risks

By: Simone O. Otenaike

Blockchain analytics firm Chainalysis recently announced plans to release a report later this month that details the use of cryptocurrency as a terrorism financing tool. According to prior reports, the media wing of a jihadist group, designated as a fForeign Terrorist Organization by the U.S. State Department, launched a cryptocurrency crowdfunding campaign in 2016. Over the two years that the campaign ran, the organization reportedly received tens of thousands’ worth of cryptocurrency from roughly 50 different donations. According to Chainalysis, the median donation was $164.

In related news, the Israeli International Institute for Counter-Terrorism (ICT) recently identified what may be a bitcoin front for an organization with links to Hamas and Iran. The organization reportedly uses a service called “Cash4ps” to send and receive money to its fundraising wallet for operations in and out of the Gaza Strip. According to ICT’s investigations, the wallet’s transactions over the past four years total roughly 3,370 bitcoin (approximately $29 million at current prices). A Chainalysis post analyzed the report findings and noted that not all bitcoin received by Cash4ps during its lifetime represented donations to the organization, since the majority of transactions were internal transfers.

For more information, please refer to the following links:

Blockchain Solutions Announced Across Industries, Crypto Threat Warnings Announced Across Agencies

Modern research and information technologies in cyberspaceIn this issue:

Blockchain Developments in Olive Oil, Shipping, Media and Real Estate

Warnings on SIM Swapping and IEOs, New Research on Crypto Money Laundering

Blockchain Developments in Olive Oil, Shipping, Media and Real Estate

By: Jordan R. Silversmith

On Jan. 14, one of the largest producers of olive oil in the Mediterranean announced it would begin using blockchain to create a provenance record for its oils. The company announced it would use the Food Trust blockchain to provide traceability of its olive oils across eight quality assurance checkpoints, stretching from the retailer through the orchard where the olives were grown to the tree from which the olives were harvested. Starting with the company’s most recent harvest, now being bottled, customers around the world will be able to scan a QR code on each label to view a provenance record. Since harvest began in November, data has been uploaded to the distributed ledger; bottles are expected to reach store shelves by March.

Container shipping lines have been prohibited from working together on certain matters without oversight from the U.S. Federal Maritime Commission (FMC), but that is set to change. Under the TradeLens Agreement, which will come into effect on Feb. 5, those laws will be loosened to authorize companies to cooperate in providing data to the blockchain so that shippers, authorities and other parties can exchange information on supply chain events and documents. Launched in August 2018, TradeLens has grown to include more than 100 participants and has processed more than 10 million shipping events. Since May 2019, it has accounted for more than half of global cargo traffic.

A software provider for the advertising world announced its first partner that will use blockchain technology to provide transparency in the media supply chain. The integration will reportedly make visible programmatic supply path details tied to financial and contractual data. In another media industry development, one of the largest U.S. television providers has filed a patent application for a new “anti-piracy management system” that would leverage blockchain to allow owners to track how their content is being used. According to the filing, one of the chief problems with online streaming has been the difficulty in combating content piracy. Along with enhancing oversight of copyright infringement, the patent pending system, would also seek to help platforms enforce ownership rights and pursue publishers that use content without permission.

In what is reported to be the largest- ever real estate transaction funded exclusively by tokens, a Swiss blockchain-focused investment firm announced on Wednesday that it had agreed to buy a majority stake in a Zurich-based commercial property. The company paid 130 million Swiss francs ($134.9 million) to purchase 80% of Bahnhofstrasse 52, an office and retail building, and will have the option to purchase the remaining 20% of the property within nine months. The company has offices in Berlin, Zurich and Zug, Switzerland, and invests in commercial and residential properties in North America and Europe through capital raised in part through its proprietary token program.

For more information, please refer to the following links:

Warnings on SIM Swapping and IEOs, New Research on Crypto Money Laundering

By: Veronica Reynolds

At least $2.8 billion worth of bitcoin from illicit transactions was laundered through cryptocurrency exchanges in 2019, according to a well-known cryptocurrency analytics firm. According to the report, two of the world’s largest exchanges processed more than 50% of the illicit transactions. The analytics firm notes that such activity is likely facilitated by certain over-the-counter brokers it labels the “Rogue 100,” which have been identified by the firm as having received large amounts of illicit cryptocurrency funds. In the most recent example of money laundering through cryptocurrencies, this week in California, a 28-year-old man pleaded guilty in relation to his use of cryptocurrency to import illicit substances through a now-defunct dark market, the Silk Road.

The Securities and Exchange Commission (SEC) issued an alert this week, suggesting investors exercise caution before investing in Initial Exchange Offerings (IEOs), a so-called innovation on Initial Coin Offerings (ICOs), both of which offer digital assets in exchange for capital. According to the alert, IEOs are usually unregistered offerings that are conducted and promoted by entities improperly characterized as “exchanges” without proper vetting, making them risky consumer investments.

Digital asset startup incubator ICOBox stands accused of violating U.S. securities laws, with the SEC asking a federal judge this week to enter a default judgment against the company after it failed to respond to the allegations in court. Alleged violations include raising $14.6 million during an unlawful ICO and assisting more than 30 companies in raising a total of $650 million in unregistered securities.

Federal lawmakers last week wrote a letter to the Chairman of the Federal Communications Commission (FCC), Ajit Pai, urging the FCC to take swift action to protect consumers against subscriber identification module (SIM) swapping by requiring wireless carriers to implement protocols that protect consumers. SIM swapping occurs when a hacker gains access to a victim’s mobile account, which often allows the hacker to steal account login credentials and steal funds. According to the letter, 728 SIM-swap complaints were filed in 2019, up from just 25 in 2016. Recent reports note that millions of dollars in cryptocurrency funds have been stolen in SIM-swapping attacks.

For more information, please refer to the following links:

New Blockchain Patents, Crypto Mining Expands in US and Russia, French ICO Approved Under New Law, DOJ and INTERPOL Enforcement Actions

In this issue:

Patents Granted to Blockchain Payments Firms, Crypto Mining Expands in Texas and Russia

First ICO Is Approved Under New French Law, New Crypto Bill Is Introduced in US

DOJ Prosecutes Crypto Dark Markets, INTERPOL Fights Crypto Mining Malware

Lawsuit Alleges Legal Malpractice Related to Crypto-Assets Deemed Securities, SEC 2020 Priorities Address Digital Assets

Patents Granted to Blockchain Payments Firms, Crypto Mining Expands in Texas and Russia

By: Simone O. Otenaike

Last month, a U.S. patent was reportedly granted to a major U.S. cryptocurrency exchange for a new system that would allow users to make bitcoin payments with email addresses linked to corresponding wallet addresses. According to the patent, the system does not charge user fees and would take 48 hours to complete a transaction once the receiver accepts the payment. Two other patents were also granted to the exchange last month. Earlier this week, R3 also reportedly received a patent for its blockchain-based record system. The system purportedly manages transaction records in digital documents and provides companies with a shared distributed immutable data record for all stakeholders to access – thus reducing the likelihood of slight disparities that cause miscommunications and legal disputes.

A private equity firm and a Japanese internet service provider will reportedly team up to launch a new crypto mine in Rockdale, Texas. The data center will reportedly have an initial capacity of 300 megawatts with the potential to reach 1 gigawatt, which is three times the capacity of existing large crypto mines. According to reports, Texas’ cheap energy and renewable resources make it an attractive location for crypto miners. On the international front, a state-owned nuclear power plant in Russia will soon house a data center where bitcoin miners can rent space and purchase electricity. The new data center will reportedly have 30 containers on-site with room for roughly 400 mining computers in each container.

The Organization for Economic Cooperation and Development (OECD) recently released a new report on consumer attitudes, behaviors and experiences toward crypto assets in Asia. The markets selected for this research were Malaysia, the Philippines and Vietnam. The report provides a few policy considerations to promote and improve consumer protection and financial education.

For more information, please refer to the following links:

First ICO Is Approved Under New French Law, New Crypto Bill Is Introduced in US

By: Joanna F. Wasick

Last month, France’s Financial Markets Authority (AMF) announced its first approval for an initial coin offering (ICO). The approval, known as an “ICO visa,” was granted to French ICO, a company that offers a platform for fundraising in crypto assets, and is reportedly capped at €1 million and in effect until June 1, 2020. In granting the ICO visa, the AMF considered whether a number of criteria had been met, including that the issuer of the tokens was incorporated as a legal entity established or registered in France, and that the issuer had proper systems in place to prevent money laundering and terrorist financing. This approval was made in conjunction with French Law No. 2019-486 of 22 May 2019, also referred to as the Action Plan for Business Growth and Transformation law, a comprehensive legal framework for cryptocurrencies that was adopted last spring.

In the United States, a bill was recently introduced to Congress called the “Crypto-Currency Act of 2020,” which, among other things, purports to clarify which federal agencies are to regulate digital assets. The bill recognizes three separate kinds of assets. The first are “crypto-commodities” (economic goods or services), which the bill proposes should be regulated by the Commodity Futures Trading Commission. The second are “crypto-currencies” (representations of U.S. currency or “synthetic derivatives resting on a blockchain”), which should be regulated by the Financial Crimes Enforcement Network (FinCEN). And the third, “crypto-securities” (debt, equity and derivative instruments that reside on a blockchain), should be regulated by the Securities and Exchange Commission (SEC). The act also provides definitions of “decentralized oracle,” “digital asset,” “federal crypto regulator,” “reserve-backed stablecoin” and “synthetic stablecoin.” It is unclear whether the bill will proceed past any current preliminary stages.

For more information, please refer to the following links:

DOJ Prosecutes Crypto Dark Markets, INTERPOL Fights Crypto Mining Malware

By: Veronica Reynolds

An Illinois man pled guilty this week to using the dark web and cryptocurrencies to pedal at least 4.3 million counterfeit Xanax pills throughout the United States between March 2017 and May 2018. The man was sentenced to 13 years in federal prison and ordered to disgorge more than $2.1 million in profits generated from the scheme. Last week in New York, prosecutors arraigned a woman accused of using dark markets to distribute heroin and methamphetamine to customers who paid her in bitcoin.

According to a press release published this week, the International Criminal Police Organization (INTERPOL), an intergovernmental law enforcement organization, worked with private-sector cybersecurity firms to identify a vulnerability in MikroTik routers that was facilitating massive crypto-jacking campaigns in Southeast Asia. The collaboration, led by INTERPOL, reportedly resulted in a 78 percent decrease in infected devices.

Kraken, one of the world’s largest cryptocurrency exchanges, announced this week that data requests from law enforcement rose by almost 50 percent in 2019. The United States made more requests than any other country – almost 61 percent of all requests – with the United Kingdom taking second place, submitting 12 percent of the total. Kraken’s CEO and co-founder, Jesse Powell, said that the cost associated with responding to the sharp rise in law enforcement requests in 2019 was more than $1 million.

For more information, please refer to the following links:

Lawsuit Alleges Legal Malpractice Related to Crypto-Assets Deemed Securities, SEC 2020 Priorities Address Digital Assets

By: Veronica Reynolds

Two related cryptocurrency investment companies and their founder recently filed a malpractice claim against their former law firm, after the SEC ordered the companies and their founder to pay a $200,000 fine for promoting “the first regulated Crypto Asset Fund in the United States” and raising around $3.6 million from 44 investors without first registering as an investment company with the SEC. The complaint alleges that the law firm “provided inaccurate analysis and advice” when it told the investment companies that their crypto-assets were not securities.

The SEC’s Office of Compliance Inspections and Examinations published its 2020 Examination Priorities. The publication confirmed that the SEC will prioritize the evaluation of digital asset markets in order to protect retail investors. Such oversight will include assessing the safety of client funds, the suitability of investments, trading practices and portfolio management, valuation and pricing, compliance protocols, transfer agents, and outside business activities conducted by employees of digital asset market participants.

For more information, please refer to the following links:

Blockchain Pilots Advance Across Manufacturing, Food, Pharma, Grant Management and Capital Markets Industries, Multiple Crypto Enforcement Actions in US

Abstract Digital network communication digital conceptIn this issue:

Blockchain Solutions Advance in Manufacturing, Food, Pharma and Grant Management

Marco Polo Network Completes Pilot, Banks Make Crypto Moves, Bitcoin Futures Launch

Multiple US Enforcement Actions for ICOs, Dark Web Sales, Fraud and SIM Swapping

Reports Detail Crypto Hacks, Ransomware, Dark Markets and Crypto Fraud Schemes

Blockchain Solutions Advance in Manufacturing, Food, Pharma and Grant Management

By: Simone O. Otenaike

Last week, one of the world’s largest industrial cobalt producers announced plans to join the Responsible Sourcing Blockchain Network (RSBN). RSBN is a network of auto brands, refiners and miners that aim to use blockchain technology to promote responsible sourcing and production practices in the industry. RSBN will reportedly offer a highly secure and immutable record of relevant mine-to-market supply chain information that can be shared with members of a permissioned blockchain platform powered by Hyperledger Fabric. Also last week, a global food and beverage company announced a new project that leverages blockchain technology to facilitate responsible sourcing practices in the coffee bean industry. Participants will reportedly be able to store supply chain transaction records in a transparent, immutable and verifiable format and thus interact in a more trustworthy and efficient manner.

The Food and Drug Administration (FDA), in conjunction with a leading national pharmaceutical manufacturer, a national professional services firm and a global technology firm, completed the Drug Supply Chain Security Act Interoperability Pilot earlier this month. The pilot reportedly demonstrated the visibility into the end-to-end pharmaceutical supply chain offered by blockchain technology. In a related development, the second-largest health insurance company in the U.S. recently announced plans to use blockchain technology to help patients securely store, share and access their medical data. According to reports, the feature is in the pilot phase but will be ready for commercial adoption in the next two to three years. Also this week, a leading professional services firm announced the release of its third-generation zero-knowledge proof blockchain technology for the Ethereum public blockchain. According to a press release, these updates significantly reduce transaction costs by batching up to 20 private transfers together into one transaction, which cuts the cost per transaction to $0.05 and reportedly makes public blockchains scalable for enterprise.

Diginex, a blockchain financial services and technology company, in conjunction with the United Nations Migration Agency, recently announced plans to launch a blockchain-based tool that aims to prevent the exploitation of migrant domestic workers in Hong Kong and to facilitate ethical recruitment. Through the tool, agencies will reportedly be able to assess their current level of adherence to global ethical recruitment principles as set forth by the IRIS Standard.

Earlier this month, the U.S. Treasury Department’s Office of Financial Innovation and Transformation announced plans to explore blockchain technology as a solution for grant management. The solution would reportedly leverage a permissioned version of Ethereum to tokenize the details and payments found in letters of credit sent to grantees. By embedding all the grant information in the token, the solution will seek to reduce reporting burdens, improve transparency and reduce labor costs.

For more information, please refer to the following links:

Marco Polo Network Completes Pilot, Banks Make Crypto Moves, Bitcoin Futures Launch

By: Robert A. Musiala Jr.

In a press release published late last week, the Marco Polo Network announced the completion of a seven-week trial involving more than 70 companies across multiple industries and five continents to test the receivables financing (i.e., “factoring”) solution enabled by the R3 Corda blockchain platform. According to the press release, a survey of project participants found that “100% of respondents believe that Marco Polo will accelerate and improve the receivables discounting process and reduce costs for both banks and corporates, with 75% believing this will happen within 5 years.” Shortly after the press release, a global consulting firm announced that it had invested in TradeIX, a blockchain startup with a central role in the Marco Polo Network.

Institutional financial firms also made moves this week in the cryptocurrency market. One press release announced that a major U.S. financial institution has partnered with the Gemini Trust Company to launch a pilot that would allow customers “to consolidate the reporting of their digital assets serviced by Gemini, an independent digital asset custodian, with their traditional assets” serviced by the U.S. financial institution. Another report provided details on another major U.S. financial institution’s plans to expand its U.S.-based digital asset custody services to European investors.

Finally, this week, cryptocurrency exchange ErisX announced the launch of a market for physically settled bitcoin futures contracts. The futures contracts will be traded through Commodity Futures Trading Commission-regulated entities, which will operate alongside Financial Crimes Enforcement Network-regulated entities that trade in the bitcoin spot market.

For more information, please refer to the following links:

Multiple US Enforcement Actions for ICOs, Dark Web Sales, Fraud and SIM Swapping

By: Veronica Reynolds

This week, the Securities and Exchange Commission (SEC) published a consent order related to an initial coin offering (ICO) conducted by Blockchain of Things, Inc., a New York-based startup focused on providing a development platform for digital assets and messaging applications. As part of its settlement agreement with the SEC, the company agreed to return all invested funds (nearly $13 million), pay a $250,000 fine and comply with U.S. securities laws moving forward. The company entered the agreement based on its sales of digital tokens to U.S. consumers in December 2017 through an ICO after the SEC’s publication of the “DAO Report,” in which the SEC warned that ICOs may be considered securities offerings.

In Seattle, law enforcement sentenced a 40-year-old man this week for selling thousands of doses of fentanyl on the dark web. More than $1 million in cryptocurrency and other holdings were seized from the man in December 2018, which the man admitted were proceeds obtained from his crimes. Law enforcement identified the man after his contact information and dark web monikers were found in the possession of other drug traffickers in California and Oklahoma.

Authorities in the U.S. recently indicted two men for subscriber identification module (SIM) swapping. A SIM card is a technology used to identify and authenticate mobile phone users. SIM swapping occurs when fraudsters persuade – usually by force, trickery, bribery or extortion – mobile carrier employees to swap out cell phone numbers from victims’ SIM cards to those in possession of the fraudsters. According to the indictments, both men accused were able to leverage this scheme to access victims’ cryptocurrency accounts. One of the indicted men allegedly used the unlawful proceeds to purchase real property, including royalty rights in 20 songs and a Rolex watch, while the other man walked away with more than $1 million using “little more than an iPhone and computer.”

Two Canadian residents were arrested this week in connection with a scheme to steal bitcoin from a resident in the U.S. The fraudsters executed the scheme by launching a Twitter account designed to trick users of a Hong-Kong based cryptocurrency exchange into believing it was a customer service portal. In doing, so the fraudsters obtained one victim’s email and digital exchange login credentials, allowing them to abscond with approximately $160,000 worth of the victim’s bitcoin.

For more information, please refer to the following links:

Reports Detail Crypto Hacks, Ransomware, Dark Markets and Crypto Fraud Schemes

By: Joanna F. Wasick

VeChain Foundation, the Singapore-based nonprofit behind the VeChain public blockchain platform, recently announced that about $6.7 million worth of its VET tokens were stolen late last week. The company attributed the hack to human error and lack of oversight by its finance and auditing teams rather than any fundamental problems with its hardware wallet or standard procedures. VeChain made a list of addresses associated with the hack and requested all exchanges to flag or freeze funds coming from them. VeChain is working internally and with Singapore law enforcement to ascertain more details about the incident.

Also last week, the New Orleans government fell victim to a cyberattack that apparently involved Ryuk, a type of ransomware used to lock up computer data until a ransom is paid (usually in bitcoin) to unlock it. A state of emergency was declared last Friday, and more than 4,000 government computers and servers were shut down. Although some online services remained affected early this week, the government said it expected the data loss was expected to be minimal. This is the fourth attack against a U.S. city this December; others occurred in Pensacola, Florida; St. Lucie, Florida; and Galt, California.

According to reports, one of the largest Russian illicit marketplaces on the darknet, Hydra, says it will raise funds for international expansion with an ICO. Dec. 16 was identified as the ICO start date, but it is unclear whether the ICO actually occurred. Among other things, the ICO would purportedly fund the development of a new service called Eternos, a worldwide darknet marketplace combined with an encrypted messenger, a cryptocurrency exchange and an anonymized browser akin to Tor.

Also this week, reports are linking the drop in bitcoin price to the PlusToken cryptocurrency scam that occurred earlier this year. PlusToken, a China-based entity posing as a wallet, allegedly obtained $2 billion to $3 billion worth of cryptocurrency in a massive Ponzi scheme. Although individuals were arrested in connection with the fraud, the stolen cryptocurrency has largely been unrecovered. A recent report by blockchain analytics firm Chainalysis hypothesizes that bitcoin obtained through the scheme are being reintroduced in the market, thereby lowering the bitcoin price. The Chainalysis report tracks the bitcoin and its movement with the apparent corresponding drop in price. The report concludes that a little under half of the stolen bitcoin has yet to be laundered.

For more information, please refer to the following links:

Ethereum Fork Successful, Solutions Target Sneakers and Browsers, EU and NY Consider Regulations, Enforcement Actions Continue

In this issue:

Ethereum Fork Implemented, Exchanges Expand Services, New Bitcoin Network Data

Enterprise Developments in Sneakers, Browsers, Copyrights and Private-Public Blockchain Integration

EU and NY Consider New Crypto Regulations, AML Report Published and Tools Debut

Enforcement Actions Target ICO Fraud and Ponzi Schemes, Assets Retrieved From Hacked Exchange

Ethereum Fork Implemented, Exchanges Expand Services, New Bitcoin Network Data

By: Joanna F. Wasick

The Ethereum network’s Istanbul hard fork went forward late last week with the support of node operators, miners and cryptocurrency exchanges. This eighth upgrade of the Ethereum protocol aims to make improvements such as faster network speed and preventing the spamming of blocks. So far, no major negative events have been reported. Also last week, the Bitcoin network transferred $8.9 billion worth of bitcoin within one hour – the highest hourly volume move in Bitcoin history. The spike was reportedly caused by the Bittrex exchange, which conducted a series of 21 equally valued transactions as part of its scheduled maintenance.

Kraken, a U.S.-based cryptocurrency exchange, announced last week that, as part of a collaboration with an independent Lichtenstein-based bank, it will now support Swiss franc trading. This is the sixth fiat currency that Kraken will trade, the others being the United States dollar, Canadian dollar, Euro, British pound sterling and Japanese yen. BitPay, a major blockchain payment service, announced this week the rollout of stablecoin payments for merchants and consumers around the globe. The company will now support payment acceptance and settlement in three U.S. dollar-pegged stablecoins: Circle’s USD Coin, the Gemini Dollar and Paxos Standard Token. BitPay will also continue to accept bitcoin, bitcoin cash and ether.

Announced late last week, cryptocurrency exchange Binance is partnering with peer-to-peer cryptocurrency trading platform Paxful to enable new fiat payment options through Paxful’s Virtual Bitcoin Kiosk. According to the announcement, the kiosk will enable Paxful to facilitate bitcoin purchases with fiat payments in more than 167 currencies. Binance also recently announced a collaboration with Settle Network, a Latin American digital asset network, to launch “Latamex,” a new platform allowing Latin American users to directly purchase cryptocurrency. The new platform will first launch in Argentina and Brazil, with 13 other Latin American countries to follow.

Finally, a recent report indicates that bitcoin miners in China control two thirds of the network’s overall processing power. Chinese miners reportedly now have 66% of the global hashrate – the measure of network power that dictates the ability of computers on the Bitcoin network to mine new bitcoin.

For more information, please refer to the following links:

Enterprise Developments in Sneakers, Browsers, Copyrights and Private-Public Blockchain Integration

By: Marc D. Powers

A leading American sneaker and footwear company has patented a system for tokenizing shoes on the Ethereum blockchain. The patent describes the creation of a non-fungible token on the blockchain, representative of a particular kind of shoe with its own unique characteristics, and of identifiers, which are “unlocked” upon the sale of the physical sneaker to a customer. According to the patent, the digital shoe and the cryptographic token collectively represent a “CryptoKick.”

Bitcoin mining giant Bitfury, out of Amsterdam, recently announced the launch of its latest enterprise blockchain software development, Exonum Enterprise. This continues the expansion of the company’s move away from its core business, which it began in 2011 selling mining hardware in exchange for cryptocurrencies. This product is claimed to be the first private enterprise blockchain that “anchors” data to the Bitcoin blockchain.

Brave announced last week that it had 10 million active monthly users since the release of the Brave 1.0 platform on Nov. 13. This reportedly amounts to an almost 20% increase in less than a month of 1.7 million users for the browser, which combines privacy with a blockchain-based digital advertising platform and is reported to have three to six times faster browsing capability. According to reports, Brave’s monthly active users have doubled in the past year.

The Italian Society of Authors and Publishers (SIAI) has reportedly teamed up with Algorand to develop a new ecosystem for copyright management, based on Algorand’s recently launched blockchain platform. Algorand uses a Proof of Stake protocol that it says guarantees decentralization, scalability and security, which SIAI believes makes it particularly suitable for copyright management of its members’ copyrighted materials.

For more information, please refer to the following links:

EU and NY Consider New Crypto Regulations, AML Report Published and Tools Debut

By: Simone O. Otenaike

Last week the European Council and the Commission adopted a statement regarding stablecoins. According to the statement, the lack of legal clarity regarding stablecoins makes it difficult to determine whether and how the existing EU regulatory framework applies. The Council and the Commission also noted that stablecoin arrangements cannot launch in the European Union until regulatory and oversight frameworks are developed. Meanwhile, the New York State Department of Financial Services (DFS) announced plans to review and update their virtual currency regulations, which were issued back in 2015. DFS is seeking comments from the public regarding two proposed coin adoption or listing options that the agency reportedly plans to make available to current DFS license holders.

CipherTrace recently published its 2019 Q3 cryptocurrency anti-money laundering report. According to the report, roughly 60% of the top 120 cryptocurrency exchanges have insufficient know-your-customer practices. The report also noted that Q3 of 2019 saw a significant reduction in total cryptocurrency crimes from previous quarters, but the total dollar amount attributed to theft and fraud in 2019 is still relatively high at $4 billion.

Elliptic, a global leader in crypto-asset risk management solutions for businesses and financial institutions, recently launched Elliptic Discovery. Elliptic Discovery offers a broad range of risk indicators for financial institutions to identify and evaluate the risk posed by the flow of funds into and out of crypto-assets on exchanges. Elliptic Discovery seeks to allow banks to work more closely with certain cryptocurrency businesses based on an evidence-based risk assessment.

More than 80 Japanese banks have shown recent interest in a leading U.S.-based financial institution’s Interbank Information Network, which leverages blockchain to help combat money laundering. If these banks join, Japan will reportedly have the largest number of banks in the worldwide network.

For more information, please refer to the following links:

Enforcement Actions Target ICO Fraud and Ponzi Schemes, Assets Retrieved From Hacked Exchange

By: Veronica Reynolds

Last week, operators of a Romanian criminal enterprise named the “Bayrob Group” were convicted of cybertheft crimes resulting in $4 million in losses to victims. The unlawful operation began in 2007 and involved viral distribution of malicious software via phishing emails. The malware harvested personal data and diverted processing power for cryptocurrency mining.

This week, U.S. law enforcement arrested four men for wire fraud and conspiracy to offer and sell unregistered securities in a purported cryptocurrency mining pool operation. Victims were lured into the investment scheme through promises of high returns from participation and investment in the scheme. No returns materialized, and the fraudsters swindled would-be investors out of more than $722 million.

Also this week, the Securities and Exchange Commission (SEC) charged a digital-asset entrepreneur and his company with defrauding investors through an initial coin offering (ICO) that solicited more than $42 million from investors in violation of the securities laws. The company, Shopin, allegedly failed to create the retail blockchain platform it hocked to investors. According to the SEC’s complaint, Shopin fraudulently claimed partnerships with major retailers and a prominent cryptocurrency entrepreneur to make its business model more attractive to the public while the company’s founder misappropriated at least $500,000 for his own use.

Overseas, Ugandan Police cracked down on cryptocurrency-related Ponzi schemes this week, with the arrest of one of the directors of a sham cryptocurrency company. The Ugandan government believes the company has defrauded victims out of at least $2.7 million. Meanwhile, Denmark’s tax agency has reportedly begun sending letters to cryptocurrency investors requiring them to reply to a detailed questionnaire that seeks to understand profits and losses from cryptocurrency investments for fiscal years 2016 to 2018. This follows authorization by the country’s Tax Council earlier this year to investigate trades across the nation’s domestic cryptocurrency exchanges.

And finally, some good news for victims of the Cryptopia hack – the New Zealand exchange that in January 2019 was “hacked to death” – who received a breakdown of retrieved assets from the accounting firm in charge of liquidating the assets of the bankrupt exchange. However, distribution of assets to victim investors may be a long time coming, because the exchange pooled all investments on the platform into general wallets, making it difficult to find out how much of which assets customers held on Cryptopia.

For more information, please refer to the following links:

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