shiny bitcoins with stock market background.In this issue:

Blockchain Pilots for Supply Chain and Land Titles, Improved Analytics, and Decentralization

Blockchain Capital Markets Initiatives Continue Across the Globe

Canadian Exchange Claims Lost ‘Cold Storage’ Funds Amid Fraud Allegations

Scams, Hacks and Illicit Financing: Blockchain Threats Continue to Abound

SIM Swapping Hackers Convicted, Philippines Introduces New Token Offering Regulations

Blockchain Pilots for Supply Chain and Land Titles, Improved Analytics, and Decentralization

By: Nicholas C. Mowbray

Earlier this week IBM announced the completion of a shipment tracking trial that recorded the bill of lading on a blockchain. The trial consisted of a shipment of 28 tons of mandarin oranges that originated in China and were delivered to Singapore. The trial appeared to demonstrate that a blockchain-based shipment tracking system can cut costs by speeding up document processing, improving the handling of information and providing a traceable and tamper-proof record of maritime shipments. In related news, this week the Food and Drug Administration of the Chinese Chongqing Yuzhong District announced that it intends to apply blockchain technology to improve its operations. The proposed blockchain system will be used to strengthen the supervision of food and drug quality assurance, ensure there is better traceability of the product life cycle, and improve anticounterfeiting measures.

In Mexico this week, Medici Land Governance, a subsidiary of a major U.S. online retailer, signed a memorandum of understanding with a municipality to develop a blockchain-based digital land records platform. Also this week, the United States Patent and Trademark Office awarded one of the largest pharmaceutical companies in the world a blockchain patent relating to a system that uses a combination of artificial intelligence and blockchain technology to establish the authenticity of unique physical objects. The technology will seek to use machine learning to link physical objects to a blockchain through their own unique identifiers or fingerprints (e.g., chemical signatures, DNA or image patterns). The goal of the technology will be to increase the security of supply chain systems.

Blockchain ETL, a project of one of the world’s largest technology companies, made the news this week in an article in Forbes. The Blockchain ETL project is seeking to make blockchain more accessible by loading the Bitcoin and Ethereum blockchains into a big-data analytics platform and developing the ability to conduct searches of the data. Finally, a Canadian financial services firm reported its findings this week that Bitcoin is becoming more decentralized. Citing statistics relating to Bitcoin’s hashrate distribution, the company noted that increased competition among mining chip manufacturers has led to no single mining pool controlling more than 20 percent of Bitcoin’s hashrate. According to the report, this is an improvement in decentralization from a time in mid-2014 when a single mining pool controlled approximately 50 percent of the Bitcoin hashrate, creating potential for a 51 percent attack. Reasons cited for the improved decentralization include the increased commoditization of bitcoin mining chips.

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Blockchain Capital Markets Initiatives Continue Across the Globe

By: Diana J. Stern

Despite the bear market, some cryptocurrency exchanges continue efforts to expand their offerings. Last week, a filing to list a bitcoin exchange-traded fund (ETF) was resubmitted to the SEC by SolidX, another financial services firm, and the largest U.S. options exchange. There are a number of competing proposals, but if approved, this would be the first bitcoin ETF in the U.S. Early this week, Kraken announced its nine-figure acquisition of Crypto Facilities, a futures trading startup registered with the U.K. Financial Conduct Authority (FCA). By purchasing an entity with a current license, Kraken does not have to repeat the years-long process of obtaining regulatory approval from the FCA. In addition, Reuters reported that Swiss exchange SIX expects to launch a new digital trading platform that uses blockchain technology. Instead of taking several days, the alternative bourse can complete a trade in fractions of a second. Regulatory issues are still being worked out with Finma. In further news, users can now trade bitcoin, ether, litecoin and XRP on a new mobile application made available by the Boerse Stuttgart Group, operator of Germany’s second-largest stock exchange.

At the end of last year, the Saudi Arabian Monetary Authority and the UAE Central Bank announced that they were developing a cryptocurrency for cross-border payments. This week, six commercial banks from the regions joined the initiative. According to reports, issuance could occur in the next year if the two institutions leading the project determine the cryptocurrency is feasible. In other international developments, Coinbase extended the option to withdraw cash balances into PayPal accounts for its customers in 32 European countries (U.S. customers already had this feature). This week, Huobi.com added three USD-cryptocurrency trading pairs. According to reports, the new pairs require users to open a custodial account with Nevada-registered chartered trust company Prime Trust and complete their KYC verification. Huobi.com is the U.S. partner of Huobi, a cryptocurrency exchange based in Singapore.

According to statistics published this week by data analytics firm DataLight, U.S. traders account for 60 percent of total traders on Coinbase, and between 24 and 28 percent on Binance, Bittrex and Poloniex. According to another report issued this week, a greater number of ICOs occurred in Q4 2018 than in Q3, but they raised 25 percent less. In the last quarter, Singapore led globally both by number of offerings and amounts invested, followed by Switzerland.

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Canadian Exchange Claims Lost ‘Cold Storage’ Funds Amid Fraud Allegations

By: Robert A. Musiala Jr.

On Jan. 31, 2019, Canadian cryptocurrency exchange QuadrigaCX filed for protection in Nova Scotia under the Companies’ Creditors Arrangement Act, which allows companies to restructure in order to avoid bankruptcy. According to reports, the company claims that it is unable to repay approximately $190 million owed to approximately 92,000 clients due to the recent alleged death of its founder, 30-year-old Gerald Cotten. Cotten allegedly was the only person who had the private keys needed to access approximately $147 million in cryptocurrency assets held on behalf of the company in off-line “cold storage” accounts. According to the company, Cotten died “due to complications with Crohn’s disease on December 9, 2018 while travelling in India, where he was opening an orphanage to provide a home and safe refuge for children in need.” A Cointelegraph article claimed that Cointelegraph had obtained a copy of Cotten’s death certificate issued by the India Government of Rajasthan’s Directorate of Economics and Statistics.

According to Bloomberg, 12 days before his apparent death, Cotten signed a will leaving all of his assets to his wife, Jennifer Robertson, and making her the executor of his estate. Multiple reports have emerged this week questioning whether Cotten’s death may have been part of a fraudulent “exit scheme.” One report claimed to provide blockchain analysis demonstrating that QuadrigaCX didn’t have any cryptocurrency reserves, and suggested that the company was using customer deposits to pay out other customer withdrawals in an apparent Ponzi scheme.

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Scams, Hacks, and Illicit Financing: Blockchain Threats Continue to Abound

By: Brian P. Bartish

British watchdog The Financial Conduct Authority (FCA) issued a warning earlier this week, alerting potential investors to the dangers of cryptocurrency scams. The FCA’s warning noted that cryptocurrency investment scams, together with scams involving stocks and bonds and foreign exchanges, accounted for nearly 85 percent of all scams, totaling £197 million, or $255 million, reported in 2018. Recently, the FCA has been ramping up enforcement in response, revealing in December 2018 that it was investigating 18 firms over cryptocurrency use.  According to CipherTrace, in 2018 $1.7 billion was obtained through illegal means, including thefts from cryptocurrency exchanges and fraudulent ICOs.

Recently, a Romanian hacker group known as Outlaw was pegged for responsibility with an uptick in Monero mining malware. In other recent news, Zcash released a report detailing its remediation of a vulnerability in the Zcash cryptocurrency that would have enabled the creation of counterfeit Zcash. Their analysis indicated that the vulnerability was not successfully exploited.

A recent report from an Israeli blockchain intelligence firm claims to have identified proof that bitcoin donations were being made to Hamas. According to the report, some of those donations were even made from well-known exchanges located in jurisdictions that list Hamas as a terrorist organization.

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SIM Swapping Hackers Convicted, Philippines Introduces New Token Offering Regulations

By: Simone O. Otenaike

Late last week, a 20-year-old college student who stole more than $5 million in cryptocurrency was convicted of “SIM Swapping” or “SIM Hijacking” in Santa Clara County, California. SIM Swapping involves calling a cellphone carrier’s tech support number, pretending to be the hacker’s target, and requesting the target’s phone number be transferred, or ported, to a new SIM card that the hackers own. By hijacking a phone number, the hackers can exploit “two-factor authentication” and intercept text messages with the security codes required to access the target’s bank or cryptocurrency accounts. According to reports, the student will be the first person sentenced for SIM Swapping. Meanwhile, the first prosecution of SIM Swapping in New York also emerged late last week. The 20-year-old defendant was charged with Iidentity theft, grand larceny, computer tampering and scheme to defraud, among other charges, for stealing the identities and funds of more than 50 victims across the United States from his Ohio home. On the civil side, an investor recently filed a lawsuit in New York claiming he was misled into investing $2 million in the cryptocurrency MCash. The filing alleges that the defendants committed federal securities fraud and common law fraud. The plaintiff is demanding the return of his investment in addition to compensatory damages worth $6 million.

The Philippines recently introduced a new regulatory framework for Digital Asset Token Offering (DATO). The new framework was promulgated by the country’s Cagayan Economic Zone Authority and covers the acquisition of crypto assets, including utility and security tokens. Going forward, all DATOs must have the requisite offering documents and accompanying advice and certification of experts. Additionally, tokens must be listed on a licensed Offshore Virtual Currency Exchange, and stakeholders must have confirmed arrangements with accredited wallet providers and custodians.

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