In this issue:
By: Jaime B. Petenko
Recently, it was reported that a popular Colorado resort planned to sell “Aspen Coins” in a Reg D 506(c) offering on a token trading platform operating as an SEC- and FINRA-registered broker-dealer and alternative trading system (ATS). On Aug. 24, 2018, this offering launched through an international crowdfunding firm, with the hotel offering to sell $18 million in Aspen Coins. Aspen Coins represent, indirectly, one share of common stock in the resort.
Now other similar announcements have been made. Last week, U.S.-based registered broker-dealer Rialto Trading announced a partnership with Bittrex, a U.S.-based digital asset trading platform, to develop a new security token trading platform. Rialto Trading also intends to expand its services to include issuance advisory services, placement, trading and custody for security tokens. On Aug. 28, 2018, OpenFinance launched a regulated ATS for security tokens, reportedly enabling accredited investors to trade tokens issued under Reg D, S, A+ and CF exemptions. Retail investors reportedly also are permitted to trade certain digital securities, subject to a 12-month holding period. In other platform news, a public trust company regulated by the South Dakota Division of Banking has announced that it secured insurance for blockchain-based assets held on its qualified custody platform through the world’s leading insurance market.
In a press release this week, the World Bank announced the results of its offering of a blockchain-operated new debt instrument or bond-i. The bond-i is reportedly the world’s first bond to be created, allocated, transferred and managed over blockchain. The World Bank raised A$110 million in the offering and will pay 2.20% interest on the bonds.
Last week, the Monetary Authority of Singapore and Singapore Exchange announced a collaboration to develop Delivery versus Payment (DvP) capabilities for the settlement of tokenized digital currencies and securities across various blockchain platforms. DvP is a settlement procedure whereby cash payment and delivery of securities occur simultaneously. In another recent report, a British multinational bank and the financial arm of a German multinational manufacturing company partnered to conduct an “industry-first client pilot” for blockchain-based guarantees in trade finance, with an aim to fully digitize bank guarantee issuance from end to end using smart contracts.
For more about blockchain developments in capital markets, please read the following:
- Aspen St. Regis Owner Ditches REIT Plan, Says the Hotel Will Be Sold on Blockchain
- Crowdfunding Firm Indiegogo to Sell Real Estate-Backed Security Tokens
- Rialto Trading and Bittrex Team Up on Digital Securities Trading Platform
- OpenFinance Launches Regulated Trading Platform for Security Tokens
- World Bank Prices First Global Blockchain Bond, Raising A$100 Million
- Monetary Authority of Singapore Settlement of Tokenised Assets
- Kingdom Trust Launches Lloyd’s of London-Insured Qualified Custody Platform for Digital Currency
- Standard Chartered, Siemens Partner to Put Bank Guarantees on a Blockchain
This week, two “Big Four” accounting and consulting firms each published the results of blockchain market surveys collectively taken by thousands of executives from around the globe. Highlights from these two surveys include the following:
- 84% are actively involved with blockchain;
- 45% believe trust in blockchain technology could delay adoption;
- 30% see China as a rising blockchain leader;
- 28% say interoperability of systems is a key for success;
- 84% believe blockchain is scalable and will achieve mainstream adoption;
- 74% see a compelling business case for blockchain;
- 69% anticipate replacing current recordkeeping systems with blockchain;
- 68% perceive a competitive disadvantage if they do not adopt blockchain.
Meanwhile, more blockchain-based investments and pilots have been announced. The U.K. government recently launched a program to support blockchain startups seeking to launch in the country and is investigating leveraging blockchain to secure digital evidence used in court proceedings. In Japan, the government recently announced that it is developing a blockchain-based solution to streamline logistics data sharing between trade entities like shipping companies, ports, banks and insurance companies.
In the U.S., a major news cooperative announced that it is partnering with blockchain startup Civil to build a blockchain-based digital content licensing and distribution platform that aims to track news to ensure the content is being licensed correctly. And a major global beer producer and distributor recently announced a partnership with startup Klip to leverage the Ethereum blockchain in a solution that intends to increase transparency in ad buying.
To read more about the topics covered in this week’s post, see the following:
- PwC’s Global Blockchain Survey 2018
- Deloitte’s 2018 global blockchain survey
- UK Government-Backed Accelerator Will Sponsor Blockchain Startups
- UK Government Pilots Blockchain in Bid to Secure Digital Evidence
- Japan: IT Giant NTT Data, Ministry of Economy Announce Blockchain-Based Platform for Trade
- Civil and The Associated Press to Collaborate on Blockchain-Based Content Licensing
- Civil, the blockchain journalism startup, has partnered with one of the oldest names in media
- Anheuser-Busch bringing beer to blockchain advertising with Kiip
The North American Securities Administrators Association (NASAA) continues its ongoing initiative to protect investors from financial harm involving fraudulent initial coin offerings (ICOs) and cryptocurrency-related investment products. NASAA recently announced that more than 200 ICOs and cryptocurrency-related investment products are currently under active investigation. Also this week, the Colorado Securities Commissioner issued orders to investigate three cryptocurrency companies promoting unregistered ICOs in Colorado. The “ICO Task Force,” convened by the Commissioner in May, is responsible for the investigations into the three companies.
In international developments, finance ministers from the European Union plan to discuss regulation of cryptocurrency markets and digital assets during a Sept. 7 meeting in Vienna. The meeting will address the lack of transparency in the cryptocurrency markets and the potential to misuse digital assets for money laundering, tax evasion and terrorist financing. In China, five regulatory agencies – the People’s Bank of China, the Banking Regulatory Commission, the Ministry of Public Security, the Central Cyberspace Affairs Commission and the State Administration for Market Regulation – jointly issued a warning against trading activities involving cryptocurrencies. While these regulators are mostly focused on overseas projects that solicit investments from Chinese residents through mobile and internet platforms, the regulators also warn against new domestic fundraising methods like initial exchange offerings, initial fork offerings and initial miner offerings.
In the area of cybercrimes, a recent report from an IT security firm indicates that the first half of 2018 saw an increase in malicious crypto-mining attacks. The report notes that malicious crypto-mining attacks over the first six months of 2018 are up 956 percent from the attacks across a similar period in 2017.
To read more about the topics covered in this week’s post, see the following:
- NASAA Updates Coordinated Crypto Crackdown: More than 200 Active Investigations by State and Provincial Securities Regulators
- Colorado Securities Commissioner issues orders to three companies as part of cryptocurrency investigation
- The EU Is Taking Another Look at Regulating Crypto
- Nvidia Reports ‘Substantial Decline’ in GPU Sales to Crypto Miners
By: Brian P. Bartish
Cryptocurrency wallet manufacturer BitFi has become the latest challenger to fail in its bid to disprove the well-established cybersecurity axiom that nothing is unhackable. A team of researchers recently published evidence that they successfully sent signed transactions with the wallet by modifying the device, connecting to the wallet’s server and transmitting sensitive data with it, conditions that would entitle the team to a $10,000 bug bounty issued by BitFi. BitFi has yet to acknowledge whether it will pay the bounty.
While this may be the first effort to successfully meet the terms of one of BitFi’s bounties, it follows a number of successful efforts to compromise the device, including one instance where a 15-year-old hacker modified the firmware to play the video game Doom, after BitFi executive chairman and one-time anti-virus pioneer John McAfee personally backed a bounty challenge of $100,000 on July 24. McAfee and BitFi balked at these earlier hacks and refused to pay the bounty, claiming that they did not match the terms of the bounty to the letter, and even sent threatening tweets aimed at the hackers – responses that earned BitFi an award for worst vendor response at DEF CON earlier this month.
Despite BitFi’s dubious claims of “fortress-like security” – McAfee later conceded that calling the wallet unhackable may have been “unwise” – the bounty program seems to have been a success at least from a marketing perspective. BitFi touts its ability to support an unlimited number of cryptocurrencies and allow users to generate a secret phrase to control the device, as opposed to a 24-word mnemonic seed. Further, BitFi touts itself as completely open source, so the user stays in control of the funds even if the manufacturer of the wallet ceases to exist.
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