In this issue:

• CBDC Paper Released, NY DFS Grants License, Study Cites Crypto Adoption

• Traditional Financial Firms Launch Crypto Products, Data Shows DeFi Growth

• Auction House Embraces Cryptocurrencies, NFT Sales Continue

• Federal Court Authorizes IRS John Doe Summons on Cryptocurrency Exchange

• Ransomware Task Force Issues Report to Reduce Ransomware Attacks

CBDC Paper Released, NY DFS Grants License, Study Cites Crypto Adoption

By: Jordan R. Silversmith

The Digital Dollar Project, a partnership created by the Digital Dollar Foundation, released a white paper this week highlighting use cases for a U.S. central bank digital currency (CBDC, or a digital dollar) and proposing several pilot programs for the technology. The pilot programs highlight applications of a digital dollar for various types of consumers, ranging from underbanked consumers to large financial market infrastructure payers.

This week, New York’s Department of Financial Services (NY DFS) announced the granting of a trust charter to a major custody and trust company to engage in the state’s growing virtual currency market. NY DFS approval ensures that the trust company can provide digital asset custody and other related services to New York customers. Including this charter, NY DFS has to date approved 30 charters and licenses for companies working in virtual currency business activity going back to 2015.

A major American financial conglomerate’s recently released payments index, conducted across 18 markets around the world, has shown that 93 percent of people will consider using at least one new emerging payment method —such as cryptocurrencies, biometrics, contactless payment methods and QR codes — in the next year. The report also showed that 40 percent of people intend to use cryptocurrency payments in the next year, while 63 percent of respondents agreed they have tried a new payment method during the pandemic. The report states that digital currencies, biometrics, contactless payments and QR codes are trending as emerging payment technologies as consumer comfort with them grows, with 71 percent of respondents saying they expect to use cashless payments going forward.

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Traditional Financial Firms Launch Crypto Products, Data Shows DeFi Growth

By: Veronica Reynolds

This week, one of the world’s leading derivatives marketplaces announced Micro Bitcoin futures, allowing investors the ability to avoid the high costs often associated with cryptocurrency investments and to “fine-tune” their cryptocurrency exposure. The offering adds to the company’s existing cryptocurrency derivatives offerings.

A multinational financial services corporation recently released a digital assets data and analytics product that centralizes data and analytics tools in one place to help institutional investors navigate the digital asset landscape. Data aggregated by the tool is reportedly sourced from network, trading, social media activity, news and other digital asset research, and is combined with analytics capabilities to provide asset analysis. According to a press release, the new product will allow investors to make informed investment decisions and discover insights by monitoring market developments in a more sophisticated manner.

The first security token offering registered with the Securities and Exchange Commission closed this week. The Ethereum-based initial public offering was launched by INX, a trading platform for digital assets, and generated an estimated $85 million from over 7,200 investors. According to reports, “the exchange plans to offer cryptocurrency and digital securities trading.”

Meanwhile, Decentralized Finance (DeFi), comprised primarily of lending, trading and betting activities executed on the blockchain, continues to grow, with recent reports tallying its market cap at approximately $128 billion. Originating on the Ethereum blockchain, DeFi has also blossomed on other networks, with reports estimating the total locked value of deposited cryptocurrency assets on Binance Chain at $38 billion.

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Auction House Embraces Cryptocurrencies, NFT Sales Continue

By: Keith R. Murphy

Recent reports indicate that the art and entertainment industries continue to embrace blockchain and cryptocurrencies. A major auction house has announced that it will begin accepting bitcoin and ether as a means of payment for an upcoming auction involving a painting by the artist Banksy, according to a recent report. The auction house is partnering with a major U.S. cryptocurrency exchange to enable the new payment method.

In one of the latest non-fungible token (NFT) events, based on several reports, from May 6 to May 20 an NFT studio plans to auction three rare NBA Top Shot NFTs as a set featuring a renowned basketball player. One of the NFTs reportedly holds the record for the most expensive Top Shot moment sold to date.

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Federal Court Authorizes IRS John Doe Summons on Cryptocurrency Exchange

By: Robert A. Musiala Jr.

According to a press release this week from the U.S. Department of Justice (DOJ), a federal court in the Northern District of California has entered an order authorizing the IRS to serve a John Doe summons on a major U.S. cryptocurrency exchange. The John Doe summons reportedly seeks information about U.S. taxpayers who conducted at least the equivalent of $20,000 in transactions in cryptocurrency during the years 2016 to 2020. The summons seeks information related to the IRS’ “investigation of an ascertainable group or class of persons” that the IRS has reasonable basis to believe “may have failed to comply with internal revenue laws.” The summons directs the cryptocurrency exchange to produce records related to these U.S. taxpayers and their cryptocurrency transactions.

According to recent reports, the U.S. Marshals Service (USMS) has signed a $4.5 million contract with BitGo, a major U.S. cryptocurrency custody provider, to assist USMS in storing and selling cryptocurrencies seized in criminal investigations. According to a website that tracks the amount of bitcoin auctioned off by U.S. authorities, the total value of seized bitcoin that has been sold in U.S. government auctions is approximately 185,230 BTC.

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Ransomware Task Force Issues Report to Reduce Ransomware Attacks

By: Teresa Goody Guillén

The Ransomware Task Force (RTF), which is comprised of a team of more than 60 experts from software companies, cybersecurity vendors, government agencies, nonprofits and academic institutions, recently issued a major report focused on strategies to resist, disrupt and develop resilience to the ransomware threat.

The report includes a framework with recommendations organized around four goals: (1) deter ransomware attacks through a comprehensive, nationally and internationally coordinated strategy; (2) disrupt the ransomware business model and reduce criminal profits; (3) help organizations prepare for ransomware attacks; and (4) respond to ransomware attacks more effectively.

The report recommends that the cryptocurrency sector, which enables ransomware crime, should be more closely regulated. The report notes that governments should require cryptocurrency exchanges, crypto kiosks and over-the-counter trading “desks” to comply with existing laws, including Know Your Customer (KYC), Anti-Money Laundering (AML) and Combatting Financing of Terrorism laws. The report’s other recommendations include the following:

  • Coordinated, international diplomatic and law enforcement efforts must proactively prioritize ransomware through a comprehensive, resourced strategy, including using a carrot-and-stick approach to direct nation-states away from providing safe havens to ransomware criminals.
  • The United States should lead by example and execute a sustained, aggressive, whole-of-government, intelligence-driven anti-ransomware campaign, coordinated by the White House and including (1) an Interagency Working Group led by the National Security Council in coordination with the nascent National Cyber Director, (2) an internal U.S. Government Joint Ransomware Task Force and (3) a collaborative, private industry-led informal Ransomware Threat Focus Hub.
  • Governments should establish Cyber Response and Recovery Funds to support ransomware response and other cybersecurity activities, mandate that organizations report ransomware payments, and require organizations to consider alternatives before making payments.
  • An internationally coordinated effort should develop a clear, accessible and broadly adopted framework to help organizations prepare for, and respond to, ransomware attacks, including incentives or regulations to drive adoption.

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