In this issue:

New Blockchain Projects Announced in Supply Chain and Digital Identity

Blockchain Legal Frameworks Continue to Evolve in the US and Abroad

Headlines From Bitcoin Payment Processors, Decentralized Exchanges and Tokenized Real Estate

More Guidance on ICO Tokens as Securities, Crypto Fraud and Hacked Bitcoins Returned

Cryptocurrency-Related Crime and Fraud Generates Staggering Statistics

New Blockchain Projects Announced in Supply Chain and Digital Identity

 By: Robert A. Musiala Jr. 

This week, a trio of major global firms in the consulting, financial services and cloud provider sectors announced the launch of a blockchain platform targeted for use by consumer purchasers to verify product origins. The platform seeks to empower consumers with reliable information on how products are made and who makes them, and would include a “tipping” feature allowing consumers to send cryptocurrency gratuities to product producers. In more supply chain news, the Russian Ministry of Transport is reportedly planning a trial of TradeLens, the blockchain-based solution for maritime shipping spearheaded by one of the world’s largest technology firms and the world’s largest container ship and supply vessel operator. Separately, India’s largest e-commerce firm recently announced a partnership with Shipnext, another blockchain-based platform for the maritime shipping industry.

In the digital identity space, this week a Turkish telecommunications provider unveiled a blockchain-based solution for identity management that is reportedly designed to ensure compliance with the European Union’s General Data Protection Regulation. According to reports this week, blockchain self-sovereign identity startup Evernym is working with a major global humanitarian organization to implement a program called the Identity for Good Initiative, which is designed to help humanitarian aid agencies take advantage of new digital identity solutions. This week also brought the launch of two solutions for issuing and storing professional credentials on blockchain. One announcement came from a Big Four accounting firm and involves storing accounting credentials on a blockchain. The other announcement, from two major Japanese technology firms, seeks to store educational records on a blockchain.

Some notable statistics on blockchain adoption were published this week and last week. According to a Big Four accounting firm, in a survey of 740 global technology executives, 48 percent of respondents said blockchain will “likely or very likely” change the way their company does business in the next three years. Another survey of the digital marketing industry found that blockchain industry projects have increased from a count of 88 to 290 over an 18-month period. And statistics released by an employee recruitment company show a 517 percent increase in demand for blockchain engineers over a recent one-year period.

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Blockchain Legal Frameworks Continue to Evolve in the US and Abroad

 By: Alexandra Royal

Earlier this week, Coin Center published its Crypto Bills Tracker, a previously internal resource that tracks the introduction and current status of federal legislation that “mentions, or relates to, cryptocurrencies.” During the first few months of the 116th congressional session, Coin Center identified 11 bills that match this description, and has added each into the Crypto Bills Tracker to monitor the bills as they move through the legislative process. Also headlining on Capitol Hill, the Chamber of Digital Commerce, a blockchain advocacy group, called for the U.S. government to implement a national strategy for blockchain technology. The organization recently released its recommendations for the plan, urging the government to recognize the power of blockchain technology and promote the adoption of such modern technologies through clear and supportive public statements.

Of note in state legislatures this week, the Wyoming House of Representatives has passed three bills aimed at making the state a top destination for cryptocurrency and blockchain businesses. According to Caitlin Long, co-founder of the Wyoming Blockchain Coalition, these bills are “a big step forward for the state, and could prove a boon for crypto startups and users alike.” In other state-based news, the UCLA Law Review recently published an article discussing the theoretical consequences that the California Consumer Privacy Act (CCPA) could have on California-based companies that are researching or deploying AI and blockchain technologies. The article’s author argues that widespread deployment (and possibly existence) of AI and blockchain technologies in the California and national markets may not be possible if CCPA compliance is strictly enforced.

On the international front, digital currency exchange Rain has completed the Central Bank of Bahrain’s (CBB) Regulatory Sandbox, becoming the first exchange to gain the CBB’s approval to work in the country. The exchange reportedly passed a Shariah compliance certification on Feb. 26, which was led by a leading Sharia consultancy and audit firm licensed by the CBB, the Shariyah Review Bureau. Elsewhere in the world, Luxembourg has passed a bill providing financial market participants with a legal framework for securities issued using blockchain technology. Also in the European Union, French President Emmanuel Macron advocated for the use of blockchain technologies to innovate supply chain management in the European agriculture industry. “As blockchain gains increasing traction globally for rehauling agriculture – across management, financing and supply chain integrity – a report issued in fall 2018 forecast that blockchain in the agriculture market would be worth more than $400 million by 2023.” Macron’s remarks called for enhanced innovation across the European countries and increased utilization of vanguard technologies such as blockchain.

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Headlines From Bitcoin Payment Processors, Decentralized Exchanges and Tokenized Real Estate

 By: Simone O. Otenaike

This week, a leading mobile payments firm reported a net profit of roughly $1.69 million in revenue from bitcoin sales in 2018. According to the firm’s Securities and Exchange Commission (SEC) disclosures, the firm made a net profit of $3.3. billion in 2018, with 5 percent of sales coming from its cryptocurrency payment processing service. Meanwhile, a global electronics company recently announced its latest flagship phone will offer a secure storage function specifically for housing private keys for blockchain-enabled mobile services. Also this week, a global technology firm announced a new blockchain web-based platform, Stratis. The platform allows investors to purchase initial coin offering tokens with either bitcoin or Strat tokens in a secure and user-friendly environment. Stratis integrates a popular multicurrency exchange service to facilitate the process of converting fiat money or cryptocurrency into Strat.

An investment firm made a major announcement this week related to tokenizing roughly $260 million in four private real estate and debt transactions involving an office building in Miami, Florida, valued at $65.5 million; a student housing facility in North Dakota valued at $90 million; a North Dakota water pipeline worth $50 million; and a multifamily housing facility in Southwest Florida worth $75 million. According to reports, these transactions will be the largest pieces of real estate financed by a tokenized security. Once all four deals are finalized, the investment firm plans to auction off the tokenized shares of the buildings/assets, represented by ERC20 tokens on the Ethereum blockchain. The sale will adhere to the SEC’s private placement rules.

Binance, the world’s largest cryptocurrency exchange, has launched a beta version of its decentralized trading service. The cryptocurrency exchange’s core service is centralized – the core service handles roughly $1 billion in daily trading volumes, sets the price of assets, picks the selection of assets on offer, and makes money from managing its customers’ fiat or cryptocurrency balances. The new decentralized platform will allow users to trade directly from their wallets, as opposed to requiring them to transfer tokens into an exchange to trade and then withdraw them afterward. The decentralized platform reportedly offers a near-instant transaction speed.

Finally, a major financial institution and a social media giant made news this week by supporting the Bitcoin Lightning Network through participation in a transaction on what has become known as the Lightning Torch. The Lightning Torch markets the Bitcoin Lightning Network by sending a bitcoin payment to a prominent member of the crypto community and enabling the recipient to pass the payment on after adding a nominal amount of bitcoin to the total. To date, the payment, 3,700,000 Satoshis (a small division of a bitcoin, valued at about $143), has passed through at least 137 countries and 224 different individuals.

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More Guidance on ICO Tokens as Securities, Crypto Fraud and Hacked Bitcoins Returned

By: Joanna F. Wasick

Last week, the SEC announced its settlement with Gladius, a Washington, D.C.-based company that raised approximately $12.7 million in an initial coin offering (ICO) conducted in late 2017. The company did not register its ICO, despite the SEC’s statement in July 2017 cautioning that offers and sales of so-called ICO tokens are subject to federal securities laws. However, in the summer of 2018, Gladius self-reported its unregistered ICO to the SEC. Gladius then cooperated in the ensuing investigation, and ultimately agreed to compensate investors and register its coins as a class of securities. Importantly, the SEC did not impose fines, as it did in earlier actions against CarrierEQ Inc. (Airfox) and Paragon Coin Inc. – two companies that also issued unregistered ICOs after the SEC’s warning but did not self-report. The SEC’s stance that ICOs are subject to federal securities laws was also strengthened by a recent California federal court decision. The SEC sued Blockvest LLC in late 2018, and asked the court to prevent Blockvest’s planned unregistered ICO. The court initially declined the SEC’s request – a move that some commentators interpreted as the court’s reluctance to consider ICO tokens as securities. Amid the controversy, the SEC moved the court to reconsider its decision, and in mid-February the court did so, finding that Blockvest’s contemplated ICO was indeed an offer to sell securities.

Earlier this week, the U.S. Department of Justice announced that Randall Crater, the founder and principal operator of My Big Coin Pay Inc. in Las Vegas, had been charged for wire fraud and illegal monetary transactions in connection with his alleged participation in a scheme to defraud investors by marketing and selling fraudulent virtual currency. Additionally, the FBI has begun asking that investors in BitConnect tokens (BCC) identify themselves as victims and provide information to assist in an ongoing investigation, following the crash of the BCC market last January that occurred after regulators’ warnings of BitConnect’s Ponzi-type nature. And Bitfinex confirmed in recent blog post that, as a result of law enforcement efforts, the U.S. government collected and returned roughly 28 bitcoins stolen off the exchange during a major 2016 hack.

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Cryptocurrency-Related Crime and Fraud Generates Staggering Statistics

By: Brian P. Bartish

Data published from the first full year under Japan’s cryptocurrency exchange reporting regulations has shown a substantial increase in reports of suspected money laundering events –more than tenfold the amount reported between April and December of 2017. In 2018, 7,096 cryptocurrency transactions demonstrating certain suspicious indicia, such as those originating overseas but using accounts registered in Japan, were reported to Japanese police. Other suspicious transactions involved the use of accounts held under different names and birth dates but featuring matching photo IDs. The number of reports from 2018 represents a 960 percent increase over data from the nine-month period in 2017, beginning in April of that year, after Japan’s Payment Services Act took effect, requiring all crypto exchanges to be registered under an FSA license. According to reports, the increase in suspicious transactions in cryptocurrency tracks a wider increase in suspected money laundering events in Japan, increasing 2,296 percent between 2017 and 2018, when the Japanese watchdog heightened its focus on Anti-Money Laundering and Know Your Customer compliance programs.

Cryptopia is now reporting that losses from the January hack represent, in the “worst case,” 9.4 percent of its holdings. One data analytics firm estimated those losses as high as $16 million. Separately, a hacker allegedly made off with $7.7 million in EOS, due in part to the failure of one miner to update its blacklist protocol designed to freeze stolen funds. In South Korea, cryptocurrency exchange Coinbin declared bankruptcy after suffering losses of approximately $26 million (29.3 billion won), citing, in part, claims of embezzlement by an executive. In a final noteworthy item, approximately five years after Mt. Gox, formerly the world’s biggest bitcoin exchange, filed for bankruptcy, new research has emerged indicating that nearly 3 percent of transactions on the platform were tied to price manipulation.

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