Modern research and information technologies in cyberspace

In this issue:

DFS Issues New BitLicenses, Corda Gains Integration Partners, New Stablecoin Launched

New Cryptocurrency Products, Increased Demand for Bitcoin Reported in Africa and Latin America

New Blockchain Pilots Address Worker Well-Being, Healthcare and Conflict Minerals

Startup Challenges SEC Enforcement Action, International Arrests and Exchange Cooperation

New Reports Provide Data on Cryptocurrency Scams and Money Laundering

DFS Issues New BitLicenses, Corda Gains Integration Partners, New Stablecoin Launched

By: Robert A. Musiala Jr.

Late last week, the New York State Department of Financial Services (DFS) granted the DFS BitLicense to Robinhood Crypto LLC and Moon Inc., dba LibertyX. DFS authorized Robinhood Crypto LLC to buy, sell and store seven different virtual currencies, while LibertyX will be the first DFS licensee to allow customers to use debit cards to purchase bitcoins from traditional ATMs. DFS also recently granted a BitLicense to Bitcoin ATM operator Cottonwood Vending LLC. This week also brought two significant announcements from the R3 consortium, with the global payments network SWIFT and a major Japanese financial services firm both announcing plans to integrate with R3’s Corda blockchain payments platform.

A Forbes article this week revealed that a major U.S. stock exchange has sold its transaction surveillance technology to seven major cryptocurrency exchanges that intend to use the tech to detect and prevent fraud and market manipulation. One of those cryptocurrency exchanges, Gemini, announced this week that it successfully passed an SOC 2 Type 1 review performed by a Big Four auditing firm. SOC 2 reviews are used to demonstrate security in protecting customer data and funds.

According to Bloomberg, a major U.S. financial services firm is planning to launch an institutional bitcoin custody service as early as March 2019. Also this week, a first-of-its-kind stablecoin was launched. The Wrapped BTC (WBTC) stablecoin is an ERC-20 token that is backed 1:1 with bitcoin. WBTC is a joint initiative by startups Kyber Network and Republic Protocol, with involvement from a major cryptocurrency custody firm.

For more information, please refer to the following links:

New Cryptocurrency Products, Increased Demand for Bitcoin Reported in Africa and Latin America

By: Jaime B. Petenko

The Saudi Arabian Monetary Authority and the United Arab Emirates Central Bank recently announced the launch of a pilot project to create a digital currency, Aber, for use in financial settlements between the two countries. The two institutions described Aber as a “proof of concept” of the feasibility of the use of the cryptocurrency for remittances, including determining whether the cryptocurrency improves the remittance process and reduces costs, and assessing any related technical risks.

This week, Bitspark, a Hong Kong-based money transfer platform, reportedly launched the first stablecoin, Sparkdex HKD, pegged to the Hong Kong dollar. While U.S. dollar stablecoins have dominated the stablecoin market, Bitspark hopes to lead the way to increased currency diversity in the sector. Also this week, Binance, the world’s largest cryptocurrency exchange adjusted by trading volume, announced that it has partnered with payment processing firm Simplex to enable the purchase of bitcoin, ether, litecoin and XRP with credit cards. These cryptocurrencies can then be traded against up to 151 tokens offered by the exchange.

Paxful, a peer-to-peer marketplace that enables the purchase of bitcoin using hundreds of payment methods, recently reported that Africa, its largest market, experienced a 130 percent increase in the volume of transactions processed, averaging 17,351 trades per day. In Africa, demand for bitcoin may be linked to it being viewed as an alternative to unstable national currencies. Similarly, bitcoin ATM networks report that the ATM market is thriving, particularly as an alternative to banks in emerging markets. According to reports, demand is growing especially in Latin American markets, with the first bitcoin ATM in Venezuela slated to publicly launch in early February and additional ATMs planned for Argentina and Mexico, among other countries.

For more information, please refer to the following links:

New Blockchain Pilots Address Worker Well-Being, Healthcare and Conflict Minerals

By: Simone O. Otenaike

Late last week, the Blockchain Trust Accelerator at New America, along with a global blockchain consulting firm and the Harvard T.H. Chan School of Public Health, launched a two-year collaborative blockchain-based initiative to anonymously and securely track and measure factory worker well-being with an immutable and digitally authenticated blockchain solution. The collaboration is based on Harvard T.H. Chan School of Public Health’s Sustainability and Health Initiative for NetPositive Enterprise Health and Well-being Index. The blockchain-based solution will be piloted in three factories in Mexico producing goods for a major international retailer and employing 5,000 workers. New America also released a blueprint for blockchain and social innovation last week. The blueprint outlines blockchain-use cases for how governments can leverage blockchain to reduce inefficiencies.

Also last week, a global technology company, three major national healthcare insurance providers and a national banking institution announced plans to design a blockchain-based network that will address key healthcare industry challenges, including efficient claims and payment processing, current and accurate provider directories, and secure and frictionless healthcare information exchanges. In other enterprise developments, Hyperledger recently announced Grid – a new project that seeks to facilitate supply chain solutions. Additionally, Hyperledger Fabric was recently implemented in a blockchain solution for tantalum mined in Rwanda, where questionable mining practices threaten to classify tantalum as a “conflict mineral.” This new blockchain solution seeks to provide critical traceability to tantalum, protect against conflict concerns, and ensure investment and stability in Rwanda-sourced tantalum, which is frequently used to manufacture electronics and medical devices.

For more information, please check out the following links:

Startup Challenges SEC Enforcement Action, International Arrests and Exchange Cooperation

By: Robert A. Musiala Jr.

This week, following a report from the Wall Street Journal, the CEO and founder of social media startup Kik published a blog post providing details on Kik’s interactions with the SEC following the company’s 2017 ICO, which reportedly raised approximately $100 million. The blog post provided a link to the SEC’s Wells Notice explaining the SEC’s position that the Kik ICO was a sale of unregistered securities, and Kik’s Wells Response arguing that it did not violate the securities laws. In its Wells Response, among other things, Kik argues that its Kin token is a currency, not a security. Kik’s Wells Response also indicates that the company is willing to litigate the issue in court.

In South Korea this week, four major cryptocurrency exchanges – Bithumb, Coinone, Korbit and Upbit – announced a partnership to share information related to suspected money laundering, including establishing a shared database of suspicious wallet addresses. This comes on the heels of a report issued late last week by the International Monetary Fund (IMF) that cited the growth of the blockchain industry in Malta as having created “significant risks” related to money laundering and terrorist financing.

Late last week Europol, UK and German law enforcement arrested a suspect in the theft of cryptocurrency valued at approximately 10 million euros that allegedly was stolen from 85 victims since January 2018. In other news from Europe, the owner of the hacked cryptocurrency exchange BitGrail was declared bankrupt by an Italian bankruptcy court, with the court reportedly authorizing seizures of many of the owner’s personal assets to compensate victims of the hack.

For more information, please refer to the following links:

New Reports Provide Data on Cryptocurrency Scams and Money Laundering

By: Joanna F. Wasick

Major reports were issued this month on cyber-criminal activity. A report from Chainalysis, a blockchain analytics software provider, found that sophisticated hacks were on the rise and that most could be traced to two professional criminal groups. Together, these two groups reportedly stole $1 billion, with an average of $90 million stolen per hack. The Chainalysis report also describes a significant increase in darknet market activity (with transaction volume surpassing $600 million despite falling cryptocurrency prices), and a surge in Ethereum scams related to phishing, Ponzi schemes and ICO exit scams.

According to a recent report by CipherTrace, criminals stole or scammed $1.7 billion in cryptocurrency in 2018 – 3.6 times the amount in 2017. The CipherTrace report breaks down the process through which these funds are laundered and identifies services and tools that the cryptocurrency launderers use. The report also lists what CipherTrace believes to be the top cryptocurrency threats – the highest being SIM swapping, a type of identity theft whereby the victim’s phone number is stolen and used to obtain access to two-factor authentication codes.

Terrorist financing was also featured in recent cryptocurrency news, with a message sent by a spokesman for the armed wing of Hamas urging supporters to make donations in bitcoin in order to circumvent international restrictions on funding the organization. And the Cryptopia saga continues. About two weeks after the widely reported hack of the New Zealand-based exchange, the same hacker has reportedly resumed its attack. Elementus, a blockchain data analytics firm, reported that an additional 1,675 ether from 17,000 wallets had been stolen in this recent attack.

For more information, please check out the following links: