In this issue:
By: Brian P. Bartish
Despite the increase in major companies opening up payment options in bitcoin, research from Chainalysis shows that only 1.3% of bitcoin transactions came from merchants in the first four months of 2019, starkly contrasting with exchange activity that accounted for 89.7 percent of transactions during that same time period. According to data from the Commodity Futures Trading Commission, Bitcoin Futures contracts exchanged on the Chicago Mercantile Exchange hit a record high between May 27 and June 3, with more than 5,190 contracts outstanding, and many people suggesting increased institutional participation as the reason for the uptick. According to a recent report, interest in bitcoin investment among the superwealthy may lead to a new industry of “boutique” cryptocurrency brokerages, such as the Dadiani Syndicate in London, which coordinates peer-to-peer transfers, avoiding traditional exchanges, including one client who was interested in purchasing 25 percent of all currently available bitcoin.
Data published by blockchain news outlet The Block noted a positive correlation between GDP per capita and cryptocurrency traffic per capita and found that the U.S. accounts for 24.5 percent of total traffic on cryptocurrency exchanges, the most of any country by a significant margin. However, when measuring traffic on a per capita basis, other nations, including Singapore, South Korea and Switzerland, outstrip the U.S. Despite reports of widespread cryptocurrency trading manipulation, recent analysis is offering a new perspective, as trends in overall trading volume appear to correlate with on-chain transfers of the stablecoin tether to cryptocurrency exchanges, particularly in the Chinese market, which accounts for 60 percent of all on-chain transaction value for tether so far in 2019.
Cryptocurrency exchange OKCoin announced that it has launched operations in the EU as of this past week, allowing European customers options for trading in euro pairs for bitcoin, ether and bitcoin cash with additional cryptocurrency offerings planned for the future. OKEx, which shares a common owner with OKCoin, reportedly launched its stablecoin, USDK, in collaboration with its sister company OKLink and a major U.S.-based custodian already holding the collateral for a competing stablecoin. Bitfinex and affiliated firm Tether recently announced that they will be launching the leading stablecoin, tether, on a number of new blockchains, including the Lightning Network, a layer 2 protocol designed to increase the speed and lower the costs of transactions. In Finland, peer-to-peer exchange LocalBitcoins is reported to have removed the option for in-person cash transactions of cryptocurrency after the exchange announced in February that it would comply with the EU’s anti-money laundering (AML) directive.
For more information, please refer to the following links:
- Bitcoin’s Rally Masks Uncomfortable Fact: Almost Nobody Uses It
- Open Bets On CME’s Bitcoin Futures Hit Record High
- S. leads the world in crypto interest, but factoring population data shrinks the gap
- China Stablecoin and Trading Appetite Dwarfs Global Demand
- How The Super Rich Are Buying Up Bitcoin
- Cryptocurrency exchange OKCoin has launched in the EU, opening up euro pairs to traders for the first time.
- OKEx Sister Firm OKLink to Launch USD-Pegged Stablecoin USDK
- LocalBitcoins Removes Cash-for-Crypto Trading Option
- Bitfinex is looking to launch Tether on the Lightning Network by the end of the year, and an exec says it’s ‘one of the coolest things’ they’ve ever done
According to reports this week, the world’s largest retailer by sales has joined MediLedger, a pharmaceutical industry consortium that is working to build a blockchain solution for tracking the provenance of pharma products. The company is already well known for its involvement spearheading the blockchain industry consortium known as the IBM Food Trust. In other supply chain news, a recent report provided details on GoDirect Trade, an online marketplace for used aircraft parts that is powered by blockchain and hosted by a major global aerospace firm. According to the report, by leveraging blockchain, GoDirect Trade enables more efficient tracing of the origins and certifications of aircraft parts, which are heavily regulated. Late last week, Hyperledger announced the launch of the Hyperledger Supply Chain Special Interest Group, an organization intended “to facilitate focused technical and business-level conversations related to appropriate use cases for blockchain technology across Supply Chain management.”
In a recent press release, two major U.S. insurance companies announced a “joint subrogation solution” that will leverage blockchain to improve the speed of the auto claims subrogation process. The solution is being billed as “the first of its kind between two major leaders in the insurance industry.” In the banking sector, a blockchain-based identity management system co-developed by Brazil’s central bank and a major global technology firm was reported this week. The solution is reportedly built on Hyperledger Fabric and is intended for eventual integration into payment systems used by all financial institutions in Brazil. Also this week, a major U.S. technology and camera-related products company announced the launch of a blockchain-based document management platform designed to enhance information safety and security.
Late last week, a Big Four accounting and consulting firm released the code for its experimental Ethereum-based “Nightfall” solution on GitHub, the open source software repository. Nightfall reportedly uses “zero-knowledge proofs” to enable ERC20 tokens to be transacted on Ethereum with “complete privacy.” A recent report by Gartner addressed the multitude of blockchain platforms in the market and predicted that 90 percent of current enterprise blockchain implementations will need to be replaced within the next two years, due in part to the lack of industry consensus on product concepts, feature sets, core application requirements and target markets.
For more news on blockchain payments, please see the following articles:
- Walmart Adds Another Blockchain String To Its Bow, Joins Pharmaceutical-Tracking Consortium
- Honeywell Brings Blockchain to Used Aircraft Parts Market
- LiteLink and Deloitte Canada Collaborating on Blockchain Supply Tracking Database for Unnamed Government Agency
- Hyperledger Launches New Supply Chain Special Interest Group
- State Farm® and USAA Working Together to Test a Blockchain Solution
- Brazilian Banks to Implement New HyperLedger-Powered Digital ID Platform
- KODAK Services for Business Presents Expanded Solutions Portfolio at Innovation Conference 2019
- EY Releases Research on Nightfall, Experimental Tools to Enable Privacy Transactions on Ethereum
- Gartner predicts 90% of current enterprise blockchain implementations will need replacing by 2021
Last week, a Switzerland-based global financial stability regulator proposed a more global approach to the regulation of crypto-assets. The regulator suggested that national authorities responsible for the regulation of crypto-assets need to work toward international coordination and the development of global standards. According to the regulators’ reports, the crypto-asset market requires continuous evaluation of risks associated with crypto-assets as potential regulatory gaps emerge due to rapid technological change in the industry. In related news, last week, the board of the International Organization of Securities Commissions solicited comments on a proposal that outlines the issues associated with crypto-asset trading platforms. The proposal also aims to aid regulatory authorities in the evaluation of crypto-asset trading platforms within the context of their regulatory frameworks.
The Japanese House of Representatives recently approved a new bill to amend its crypto-asset laws and regulations. The bill, prepared by Japan’s Financial Services Agency, reportedly introduced amendments that promote user protection, tighten regulations on crypto derivatives trading, mitigate trading risks like exchange hacks and establish a more transparent regulatory framework for the new asset class in the Act on Settlement of Funds and the Financial Instruments and Exchange Act. The bill is expected to go into effect in April 2020. In Australia, the Australian Securities & Investments Commission released new guidance for firms involved with initial coin offerings (ICOs) and crypto-assets last week. The new guidance offers information on how the Corporations Act may apply to businesses that raise funds through an ICO or offer services related to crypto-assets. Early this week, the Securities Commission Malaysia announced that three Recognized Market Operators (RMOs) are now authorized to operate digital asset exchanges in Malaysia. While the RMOs may begin operations under such authorization, the RMOs will have nine months to satisfy all regulatory requirements.
To read more about the topics covered in this week’s post, see the following:
- Proactive checks on crypto risks needed, global watchdog FSB says
- BOARD OF THE INTERNATIONAL ORGANIZATION OF SECURITIES COMMISSIONS: IOSCO requests feedback on key considerations for regulating crypto-asset trading platforms
- Japan Officially Approves Bill to Amend National Legislation Governing Crypto Regulation
- Australia: 19-121MR ASIC updates information for businesses on ICOs and crypto-assets
- Malaysia: SC REGISTERS THREE DIGITAL ASSET EXCHANGES
This week, the Securities and Exchange Commission (SEC) announced an action against Kik Interactive, Inc., alleging an illegal $100 million digital securities offering through which more than 10,000 investors worldwide bought one trillion “Kin” tokens. The SEC alleged that Kik sold the Kin tokens without registering them.
The complaint alleges that Kik’s business, a messaging service, was foundering by late 2016, and the company expected to run out of money within a year. Kik allegedly decided, therefore, to pivot to its Kin offering, which could fund its ongoing operations. Kik issued a white paper, and its CEO made a speech about the offering in May 2017; Kin would fund an ecosystem in which Kin could be used to buy goods and services. According to the SEC, “Kik relentlessly pitched Kin and the prospect that Kik’s future efforts to develop the Kin Ecosystem would drive an increase in Kin’s value.”
Kik distributed the Kin through a Simple Agreement for Future Tokens (SAFT), which offered wealthy investors a discount on the price offered to the general public. Kik also conducted a general public offering. Each offering raised about half of the $100 million total, $55 million of which was raised from U.S. investors. The SEC has alleged violations of the Securities Act, seeks to permanently enjoin Kik from further similar offerings, and seeks disgorgement and civil penalties.
The SEC also brought an action against Longfin Corp., its CEO and a consultant, with the Commission alleging they falsified Longfin’s revenue for the purpose of fraudulently securing the company’s listing on Nasdaq. The SEC previously obtained a preliminary injunction against these defendants (and others), which froze $27 million in purportedly illegal trading proceeds and unregistered stock distributions. The Commission alleges the defendants obtained Reg A+ qualification by falsely representing in SEC filings that the company was principally managed and operated in the U.S., when, instead, it was managed and operated in India. The company also allegedly had no actual assets, with only $75 in cash on hand and a few hundred thousand dollars of receivables. The SEC alleged violations of multiple Securities and Exchange Act sections, and it seeks permanent enjoinment, civil penalties, an industry bar for the CEO, disgorgement and civil penalties.
In literal and figurative dark news, the U.S. Attorney’s office for the Northern District of Texas has indicted an alleged darknet drug dealer. The accused has been charged with conspiracy to possess with intent to distribute a controlled substance, specifically fentanyl. The defendant allegedly tried to purchase the deadly drug, an opioid, by sending more than $120,000 in bitcoin to wallet addresses that federal agents controlled as part of the sting.
QuadrigaCX investors lost about $150 million earlier this year when its co-founder and CEO died, and the company reported no one could access the wallets that held their money. The FBI is now getting involved and has launched a website asking those who believe they are victims to provide information.
Outside the U.S., the Italian securities regulator has suspended investment firm Tessline and its cryptocurrency for violations of Italian finance law. Separately, the European Commission recently warned Malta that it needs stronger AML enforcement in the crypto sector, citing concerns that “[g]overnment shortcomings” could negatively impact the business environment and investments. In Australia, tax officials are reportedly investigating a dozen schemes that appear to center on cryptocurrencies, including investigation of a global financial institution that may have helped taxpayers hide assets and avoid taxation and/or aid criminal activities.
To read more about the topics covered in this week’s post, see the following:
- SEC Charges Issuer With Conducting $100 Million Unregistered ICO
- SEC Adds Fraud Charges Against Purported Cryptocurrency Company Longfin, CEO, and Consultant
- Darknet Fentanyl Dealer Indicted for Selling Deadly Drug for Bitcoin
- Seeking Victims in the QuadrigaCX Investigation
- Italy: Securities Regulator Issues Suspension to Crypto Investment Firm, Associated Crypto
- Malta told to beef up police units with rise in gaming and crypto fraud
- Australia targets cryptocurrencies in international tax crackdown
By: Jordan R. Silversmith
According to recent reports, scores of crypto users were hit last week by SIM-swapping attacks in what appears to have been a coordinated wave of attacks. SIM swapping, also known as SIM jacking, is a form of account takeover (ATO) attack, where hackers use techniques like social engineering to transfer a victim’s phone number to their own SIM card in order to reset passwords or obtain two-factor verification codes to access protected accounts. Victims of the recent attacks were reportedly all members of the crypto community living in the United States, with one victim admitting to losing over $100,000 of cryptocurrency.
A China-based malware campaign dubbed the “Nansh0u campaign” has been in progress since February, reportedly breaching more than 50,000 servers across the world and infecting more than 700 new victims a day with crypto-mining malware. According to reports, most of the firms affected are in the healthcare, telecom, media and IT sectors, and the malware packages were written using sophisticated Chinese language tools and placed on Chinese language servers.
According to recent reports, a new malware called BlackSquid employs at least eight of the most dangerous exploits currently available to hackers to infect servers and install Monero coin mining software on them. The majority of BlackSquid attacks so far apparently have occurred in Thailand and the United States, with the last week of May having been the most active period for the malware yet. Another recently reported crypto-mining malware campaign involves a fraudulent website impersonating the Cryptohopper trading platform. When visited, the malicious website reportedly executes an attack that installs crypto-mining malware and a “clipboard hijacker.”
A popular crypto exchange unexpectedly shut down its services in April and has allegedly disappeared with customer funds. Though the exact amount involved in the alleged fraud by Coinroom, the Polish crypto exchange, is not yet known, customers with deposits ranging from around $79 to $15,660 recently reported the theft. Founded in 2016, Coinroom was one of the most widely used digital asset exchanges in Poland and offered fiat-based crypto trading to its clients.
A recent report by blockchain analytics firm Chainalysis found that upwards of 64% of ransomware attack cash-out strategies use crypto exchanges to launder funds. The report also indicated a shift in how ransomware attacks are carried out. According to the report, while the tendency before had been to conduct wide and shallow attacks, infecting myriads of random victims and demanding small amounts to decrypt the files, criminals are beginning to home in on targets with legally or politically sensitive data and demanding larger payments to ransom the data.
For more information, please refer to the following links:
- Wave of SIM swapping attacks hit US cryptocurrency users
- THE NANSH0U CAMPAIGN – HACKERS ARSENAL GROWS STRONGER
- Hackers Infect 50,000 Servers With Sophisticated Crypto Mining Malware
- BlackSquid malware uses bag of exploits to drop cryptocurrency miners
- BlackSquid Slithers Into Servers and Drives With 8 Notorious Exploits to Drop XMRig Miner
- Trend Micro: BlackSquid Malware Infects Servers to Install Monero Cryptojacking Software
- Fake Cryptocurrency Trading Site Pushes Crypto Stealing Malware
- Coinroom Exchange Disappeared Overnight with Customers’ Funds
- Chainalysis: 64% of Ransomware Attackers Launder Proceeds via Crypto Exchanges