In this issue:

Adoption of Blockchain Solutions Spreads Across Industries

New Cryptocurrency Exchanges Receive Approvals in US and Foreign Jurisdictions

Enforcement and Regulatory Actions by the US, FATF, Mexico, Finland and Switzerland

Hacking the Dragon; Lazarus Returns; and Other Cryptocurrency Threats

Adoption of Blockchain Solutions Spreads Across Industries

By: Alexandra Royal

Last week, a major U.S. international shipping conglomerate announced plans to collaborate with Inxeption, an e-commerce technology company, to build a platform integration called Inxeption Zippy that will utilize blockchain-based technology to “create a seamless, end-to-end experience where merchants can view their entire supply chain from product listing to delivery.” A press release describes the platform as a tool that can help B2B merchants drive online sales by providing them with technology that protects sensitive information and manages the selling and shipping processes. In other corporate news, according to recent reports, the bio-agricultural division of a major global pharmaceutical company is partnering with enterprise blockchain solutions firm BlockApps to develop several pilot projects that “increase … applications of blockchain, both in our operations and in our industry.”

According to a recent report, a major French luxury goods company is preparing to launch a blockchain solution that will provide proof of the authenticity of luxury goods and trace the origins of materials used in their manufacture. In an effort to tackle counterfeiting in the UK spirits market, a premium Scotch whisky brand has partnered with blockchain tech company arc-net to release a range of whiskies that “capture the full distilling and manufacturing process, allowing customers to track their whisky from source to store; ensuring authenticity and traceability.” Also this week, details were revealed about plans by the world’s largest market for metal derivatives to back an industry initiative to build a blockchain-based system to track the trade of physical metals such as copper, zinc and aluminum.

In the digital advertising field, Brave, the privacy-focused internet browser that pays people with cryptocurrency for watching ads, announced last week that it is partnering with TAP network to give its 5.8 million monthly users a new way to trade its Basic Attention Token (BAT) for rewards from 250,000 brands. Tradedoubler, a Swedish digital marketing company, recently launched a blockchain-based digital ad network that seeks to enable automated and transparent interactions between advertisers and publishers looking to host ads.

At an event last week, a U.S. Customs representative commented on the immense safety benefits that could potentially stem from the creation of a blockchain solution that employed facial comparison and biometric data to track individuals who are seeking admission into the United States. In other government-related news, a blockchain accelerator backed by the Singapore government announced partnerships with three major global corporations in the fields of auto manufacturing, technology and market research.

A major U.S. technology firm recently released a report on the state of blockchain for enterprise. The report contains a wide variety of interesting statistics related to the growth of the blockchain industry, including a projection that the industry will be valued at $9.7 billion by 2021. Another recently released report, Blockchain in the United States: Forecast to 2025, analyzes market opportunities and risks inherent in blockchain technology in more than 75 areas across 11 industries. According to the report, blockchain spend in the United States increased by 110.1 percent during 2018 to reach $1,651.2 million. The report projects that between 2019 and 2025, blockchain will record a CAGR of 44.5 percent, increasing from $3,127.3 million in 2019 to reach $41,112.6 million by 2025.

For more information, please refer to the following links:

New Cryptocurrency Exchanges Receive Approvals in US and Foreign Jurisdictions

By: Jordan R. Silversmith

Earlier this week, the New York State Department of Financial Services granted a virtual currency license and money transmitter license for Tagomi Trading LLC. Tagomi is the latest of 18 applicants that DFS has approved since it began regulating the virtual currency market in 2015. Meanwhile, in Japan, regulators have approved several new exchanges. Rakuten Wallet Inc., a subsidiary of the largest e-commerce site in Japan, announced that registration with Tokyo’s Kanto Local Finance Bureau had been completed. Rakuten Wallet replaces an exchange named Everybody’s Bitcoin Inc., which its parent company acquired for $2.4 million in August 2018. A second crypto exchange, DeCurret, was also approved to begin operations this week. Japanese regulators also have approved the application of Taotao, a cryptocurrency exchange that is 40 percent owned by a major international web services provider.

In more news from the Asian market, Chicago-based exchange Seed CX recently announced that it has teamed up with a Singapore-based trading infrastructure technology provider, Hydra X, to build functionality for Seed CX users to view prices and trade and monitor their portfolios on the Hydra X trading platform. In China, crypto mining goliath Bitmain is reportedly planning to set up 200,000 units of new mining equipment in the country. Bitmain is reportedly looking to take advantage of China’s low hydroelectric power costs this summer caused by heavy rains in southwestern China.

In capital markets news, according to a recent report, despite the downturn in initial coin offering (ICO) activity, Binance has continued doing multimillion-dollar ICOs and has launched a new ICO platform, Binance Launchpad. In addition, tribeOS, a blockchain-based digital advertising company, recently received regulatory approval under Bermuda’s 2018 ICO Act to issue what has been reported as a revenue-sharing equity token.

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Enforcement and Regulatory Actions by the US, FATF, Mexico, Finland and Switzerland

By: Joanna F. Wasick

The United States Attorney’s Office recently reported one guilty plea and another indictment involving cryptocurrency-related fraud. Last week, Jared Rice Sr., the founder of cryptocurrency bank AriseBank, pleaded guilty in a Texas district court to securities fraud, and admitted to defrauding investors out of $4.2 million by selling AriseCoin tokens and falsely promising customers they would receive Visa credit cards and FDIC accounts – neither of which ever existed. Under the plea agreement (which still needs approval by the presiding judge), Rice would serve five years in prison. This follows a prior settlement with the SEC in which he paid nearly $3 million. Earlier this week in New York, Patrick McDonnell, aka “Jason Flack,” was indicted for defrauding investors who paid his company, CabbageTech, for cryptocurrency advice and strategies that they never received. Instead, McDonnell allegedly sent them false balance statements and stole their money for his personal use. He faces a maximum sentence of 20 years’ imprisonment.

The Financial Action Task Force (FATF), a global organization created to prevent international money laundering, proposed a new Interpretive Note that would require cryptocurrency exchanges and other virtual asset service providers (VASPs) not only to conduct more rigorous know-your-customer diligence (KYC) on their immediate customers, but also to conduct KYC on the subsequent transferee of a customer’s funds (i.e., the customer’s beneficiary). The proposed Interpretive Note also would require VASPs to make their KYC information available to relevant authorities. A recent study conducted by Coinfirm lends support to the need for this type of regulation. The study concludes that 69 percent of the 216 cryptocurrency exchanges it reviewed lacked “complete and transparent” KYC procedures. The study singled out Binance as having a “high” regulatory risk based on exposure to anonymous activity. Binance has purportedly since taken steps to strengthen its compliance program ‒ earlier this week, it announced a partnership with IdentityMind, an analytics firm, to improve existing data protection and KYC measures.

Other stringent regulations were recently proposed abroad. Earlier this month, the Mexican central bank proposed regulations that critics assert will effectively ban cryptocurrency exchanges in Mexico. Among other rules, the regulations would deny cryptocurrency exchanges access to the local banking system and reduce transmission and custody capabilities. In Finland, parliament voted for an amendment to the Act on Detecting and Preventing Money Laundering and Terrorist Financing, which will bring all cryptocurrency-related services, such as wallet providers and exchanges, under anti-money laundering laws. And the Swiss Financial Market Supervisory Authority (FINMA) wound up enforcement proceedings against Envion AG, a cryptocurrency mining firm, and concluded that the firm, now in liquidation, unlawfully accepted funds during an ICO conducted without a proper license. FINMA said it will continue to take action against ICO business models that violate or circumvent supervisory law, including businesses that provide unclear provisions about their services or make “overly optimistic promises” related to their ICOs.

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Hacking the Dragon; Lazarus Returns; and Other Cryptocurrency Threats

By: Brian P. Bartish

Singapore-based cryptocurrency exchange DragonEx reported that it was targeted by hackers, resulting in the theft of cryptocurrency owned by the exchange and its users. The value of the assets lost in the theft, which took place on March 24, 2019, has not been reported at this time; however, DragonEx reports that it has recovered a portion of the assets. Calling on the assistance of fellow exchanges to help freeze, trace and recover the assets, DragonEx posted 20 wallet addresses to which the funds are believed to have been transferred ‒ each wallet containing a separate cryptocurrency traded on the exchange, including bitcoin, ether, XRP, litecoin, EOS and tether. DragonEx has reported the incident to authorities in Estonia, Thailand, Singapore, Hong Kong and other jurisdictions.

According to research from a leading cybersecurity and anti-virus company, alleged North Korean-sponsored cyber threat group Lazarus, a group purportedly responsible for $571 million in cryptocurrency exchange thefts from 2017 to 2018 (nearly 65 percent of the total sum), has been running a new operation using PowerShell to manage and control malware. Prompting calls for members of the cryptocurrency industry to exercise extra caution when dealing with unknown third parties, Lazarus uses macro-enabled documents targeted to a recipient’s potential interests (including a specific focus on South Korean businesses) to distribute the malware, and then uses disguised processes to hide its activity.

A research team from Spain and England reports that mining malware has generated more than $56 million over the past 10 years, with most of those profits flowing to a relatively small number of actors. Monero, in particular, appears to be a magnet for such activity, with the analysis indicating that more than 4.3 percent of monero in circulation is the result of criminal activity. In other news, digital anonymity advocacy group the Tor Project recently announced that it is now accepting cryptocurrency donations.

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