Invoices Paid on Ethereum, FINRA Application Approved, SEC/ICO Enforcement, Industry Launches Compliance Initiative

In this issue:

Smart Contracts Deployed by Icelandic Retailer, Blockchain for Sneakers and DHS

Cryptocurrency Service Providers Target Mainstream Investors, FINRA Application Approved

SEC, DOJ and State Agency Enforcement Actions for ICOs and Crypto Fraud Schemes

Regulatory Problems and Solutions in the Cryptocurrency and Digital Asset Arena

Smart Contracts Deployed by Icelandic Retailer, Blockchain for Sneakers and DHS

By: Robert A. Musiala Jr.

A press release issued this week announced the successful completion of an automated invoice payment using the Ethereum blockchain. The transaction involved an Icelandic retailer that purchased goods from a major global retailer using an electronic invoice, which was represented as an ERC20 token on Ethereum. Upon receipt of the “e-invoice,” a preauthorized payment was then executed using a smart contract that triggered an Ethereum-based payment of a digital version of the Icelandic Krona that qualifies as “e-money” under Icelandic law.

Another announcement this week provided details on a strategic partnership between a global athletic brand and a blockchain engineering firm to combat counterfeiting by tracking and authenticating sneakers using the Cardano blockchain. According to another report published this week, one of the largest pharmaceutical and life sciences companies in the world has entered into a letter of intent with an affiliate of a major global e-commerce firm to explore the use of blockchain for agricultural product monitoring.

In a final notable development, this week the U.S. Department of Homeland Security (DHS) issued a press release announcing a contract award to an Austrian firm to develop “blockchain security technology.” The award is part of an initiative to explore the use of blockchain “to issue credentials digitally to enhance security, ensure interoperability, and prevent forgery and counterfeiting.”

For more information, please refer to the following links:

Cryptocurrency Service Providers Target Mainstream Investors, FINRA Application Approved

By: Brian P. Bartish

A credit rating agency owned by a global financial services firm recently provided new details on its blockchain initiatives, including efforts to publish its credit ratings on the Ethereum network to ensure that the ratings cannot be altered or corrupted. In a separate development, according to reports, a Los Angeles-based investment and asset management firm is seeking to offer the world’s first cryptocurrency derivatives-based yield fund, with the digital assets division of a leading financial services company providing custody for the fund.

According to reports, a blockchain-focused subsidiary of Switzerland’s primary stock exchange has organized a global consortium of banks, buyside firms and market infrastructure providers to back an initial digital offering for a fully regulated central securities depository (CSD) for digital assets. The launch of the CSD still faces issues related to custody solutions and connectivity to settlement and central money solutions. The same entity is poised to launch a new exchange-traded product with a combination of bitcoin and ether that will enable Swiss investors to add the popular cryptocurrencies to their portfolios.

Last week, Harbor Square Investments, a subsidiary of tokenized securities platform Harbor, was granted a broker dealer license by the Financial Industry Regulatory Authority (FINRA). Harbor’s newly granted license allows it to move forward with its plans to become a “one stop shop” for digital issuers – helping manage the process from fundraising to liquidity.

For more information, please refer to the following links:

SEC, DOJ and State Agency Enforcement Actions for ICOs and Crypto Fraud Schemes

By: Veronica Reynolds

In a settlement announced this week, the Securities and Exchange Commission (SEC) ordered EOS developer Block.one to pay a $24 million penalty for conducting an unregistered securities offering related to the company’s initial coin offering (ICO). The SEC order explains that the company stated it would use the money raised to develop the EOS platform and continued to engage in the ICO well after the SEC’s DAO Report was released. The order notes that the company raised several billion dollars’ worth of assets globally, including from U.S. investors, and did not register its ICO as a securities offering or seek exemption from the registration requirement.

The SEC also announced a second settlement with lesser-known cryptocurrency startup Nebulous Inc. for its 2016 sale of SiaNotes (which the company later began referring to as “SiaFunds”) to the public. The SiaNotes were sold to support the development of the Nebulous decentralized cloud storage network, Sia, with promises made to investors that future revenue generated from transactions on the network would provide returns over time. The company also promised investors the opportunity to convert SiaNotes to SiaStock upon Sia’s network launch. Nebulous consented to a cease and desist order and agreed to pay disgorgement of $120,000, prejudgment interest of $24,601 and an $80,000 civil money penalty.

This week, the U.S. Department of Justice (DOJ) announced an indictment against Jon Barry Thompson, the principal of cryptocurrency escrow company Volantis Escrow Platform LLC. Thomson allegedly received a total of $7 million from two separate victim companies after making false statements in connection with bitcoin transactions. Thompson is being charged with two counts of commodities fraud and two counts of wire fraud and could be sentenced to 10 or more years in prison. The U.S. Commodity Futures Trading Commission (CFTC) also filed civil charges against Thompson in connection with the fraud.

Finally, this week the Securities Division of Missouri’s Secretary of State issued a cease and desist order against unregistered firm Mavixbtc Limited for falsely claiming to be registered with the state authorities and fraudulently using the registration number of a registered investment agent. According to the press release, the company attempts to lure investors by offering up to 55% returns over the span of two months through its brokerage and investment advisory services.

For more information, please refer to the following links:

Regulatory Problems and Solutions in the Cryptocurrency and Digital Asset Arena

By: Jonathan D. Blattmachr

Some of the larger players in the cryptocurrency space have formed a council that will opine on whether a crypto asset would meet the Security and Exchange Commission’s (SEC’s) definition of a security. The Crypto Rating Council has created a points-based system of several dozen yes/no factual questions derived from SEC guidance and case law. The answers to those questions will help the council determine, under its own private framework, whether the at-issue asset should or should not be deemed a security. The council says it hopes this approach will help others reduce costs and get clarity to improve industry growth.

Bad news from Fusion Network (FSN) this week, where its token swap wallet was compromised; approximately one-third of its tokens, valued at about $6.4 million, were stolen. Reports state the attacker stole the private key to affect the tokens’ theft. FSN’s value dropped 66% after the tokens were stolen. In an effort to fight financial crimes involving cryptocurrencies, a blockchain solutions provider this week scored a contract with the U.S. government to deliver software to help detect suspicious cryptocurrency activity. The company says it will help the feds track and trace potential illicit transactions.

Cryptocurrency exchange Binance has helped U.K. authorities investigate a criminal at the center of a $50 million phishing fraud. The exchange noted its help was motivated by “fostering a safe environment in this space.” The police extradited the Bulgarian, who subsequently pleaded guilty to five fraud counts. U.K. police recently conducted their first-ever auction of cryptocurrency stemming from the seizure of fraudulently obtained assets. Bitcoin, ether and other cryptocurrencies valued at about $300,000 were seized from a hacker, with the auction netting 7,500 bids from around the globe.

For more information, please refer to the following links:

Blockchain Announcements in Supply Chain, Genomics, IoT, Trade Finance and Bitcoin Futures; More SEC ICO Enforcement

In this issue:

From Cattle to Coffee to Cannabis: Enterprises Continue to Test Blockchain Supply Chain Solutions

Enterprise Report Published, New Pilots Announced for Copyright, Genomics and IoT

Financial Institutions Continue Blockchain Pilots, Physical Bitcoin Futures Launch

SEC Brings Charges for ICO Fraud, DOJ Indicts Hackers, Regulatory Reports Published

From Cattle to Coffee to Cannabis: Enterprises Continue to Test Blockchain Supply Chain Solutions

By: Diana J. Stern

Late last week, the Irish Cattle Breeding Federation (ICBF) revealed a blockchain proof-of-concept with consulting company Version 1 that helps Irish farmers more efficiently and sustainably breed cattle. The ICBF already manages one of the world’s largest integrated animal databases, and it plans to bring in other stakeholders along the supply chain – such as supermarkets, retailers and consumers – to gather even more data. By combining the results of consumer feedback upon scanning a steak’s QR code all the way back to genetic data about the animal, the ICBF aims to unlock valuable information about beef. In another supply chain endeavor, tech startup Farmer Connect and heavy hitters in the coffee industry are leveraging a major technology firm’s Food Trust Platform to build an app that provides caffeinators with detailed data about coffee beans. In addition, this week one of South America’s leading cannabis production companies, Uruguay Can, teamed up with æternity, the entity behind the open source æternity blockchain, to create a supply chain management platform for the cannabis trade.

According to reports, blockchain startup Everledger, known for its early work using blockchain technology to track diamonds, closed a $20 million Series A round. A Chinese multinational investment holding conglomerate led the round, with a multinational financial services corporation and Japanese e-commerce company also participating.

Blockchain … and nanotechnology? A leading U.S. nonmaterial and cadmium-free quantum dot producer recently announced it will deploy these two technologies in an anti-counterfeiting initiative. Quantum dots, which are lab-designed atomic crystals that can be tuned to emit unique color signatures, can be incorporated into physical products in a tamper-resistant way and scanned with a device. The scanned information can then be stored on the QDX™ Ledger blockchain to log, track and verify the authenticity of physical goods.

Blockchain is also being used to prove authenticity in the academic sphere. Late last week, the University of St. Gallen in Switzerland launched a blockchain pilot that aims to provide employers with a better way to verify whether diplomas are authentic. According to reports, there are 200,000 fake diplomas in the U.S. alone.

For more information, please refer to the following links:

Enterprise Report Published, New Pilots Announced for Copyright, Genomics and IoT

By: Simone O. Otenaike

Last week, one of South Korea’s largest firms announced plans to develop a blockchain-based music copyright management system. The digital copyright system reportedly employs a major technology firm’s Managed Blockchain Service to maintain a history of the broadcasting of copyrighted songs. The system also aims to improve fairness and transparency in the copyright industry by offering the owners and users of the intellectual property to share the resulting ledger and develop an equitable payment scheme for the use of such property.

Also last week, Nebula Genomics, a privacy-focused personal genomics company, reportedly became the first personal genomics company to offer anonymous purchasing for genetic testing services. According to reports, users can purchase whole-genome sequencing and submit samples without revealing their name, address or credit card number through pseudo-anonymous payments enabled by cryptocurrencies. Nebula Genomics reportedly also offers anonymous sample collection by delivering saliva collection kits to USPS P.O. boxes and a blockchain-based product that facilitates transparent and controllable genomic data sharing with researchers.

According to recent reports, Helium, an Austin-based IoT startup, is now shipping its crypto-mining modems to 263 cities in the United States. Helium is a network that aims to aid IoT devices (e.g., e-scooters, simple sensors and pet trackers) in the transmission of low-volume data to the Internet quickly and at low costs. Helium hotspots that perform tasks useful to the network, such as verifying the location of nodes, the sequence of data and the location of devices sending data over the network, are rewarded with Helium tokens, while companies that want to transmit data using Helium hotspots must pay with a second token, data credits. Through this system, the reward for setting up hotspots and connecting them to the network also functions as an incentive to deploy the network on Helium’s behalf.

Also in recent news, the University of Cambridge released its 2nd Global Enterprise Blockchain Benchmarking Study that focuses on the state of network deployment and evaluates the development of ongoing enterprise blockchain-based projects. The study summarizes survey data from more than 160 startups, established companies, central banks and other public sector institutions from 49 different countries around the world and 67 live enterprise blockchain networks. Some highlights from the study: 1) banking, financial markets and insurance industries are responsible for the largest share of live networks; 2) Hyperledger Fabric appears to be the platform of choice across all industries; 3) 81% of covered networks have a leader entity dominating the governance process; and 4) the median enterprise blockchain project takes 25 months from first proof-of-concept to launch, with some large-scale networks taking more than four and a half years for the full launch.

For more information, please refer to the following links:

Financial Institutions Continue Blockchain Pilots, Physical Bitcoin Futures Launch

By: Panida A. Pollawit

A U.K.-based credit score and reporting company has partnered with Ocyan to launch RomanAgora, a blockchain-based marketplace used for verifying credit applications. By leveraging blockchain to verify identity, RomanAgora seeks to reduce the time, expense and possibility of fraud involved in the online credit application process. It may also help financial institutions comply with regulations such as Know-Your-Customer rules.

More banks are integrating blockchain into their payment systems. The Interbank Information Network (IIN), a blockchain service spearheaded by a major U.S. bank and used by 112 banks, has welcomed the first Singaporean bank to join its ranks. IIN uses Quorum, an Ethereum-based permissioned blockchain that verifies identity for cross-border payments. Another major U.S. bank announced on Sept. 19 that it is joining the Marco Polo Network, R3’s Corda blockchain platform. The Marco Polo Network addresses issues in the trade finance business such as receivables discounting, payment commitment and payables finance programs. An application of Marco Polo is currently being tested by a German automaker. In this example, an order for equipment and prearranged payment was arranged through Marco Polo. Delivery of the equipment triggered payment on the other end. This reportedly reduced the time spent verifying delivery and receiving payment from days to a matter of minutes.

On Monday, the first physically settled bitcoin futures contracts began trading on Bakkt, a bitcoin futures exchange. In other cryptocurrency news, the International Monetary Fund has published an article presenting issues posed by stablecoins and offering potential solutions for policymakers. According to the article, stablecoins may lead some countries to consider new monetary policies to keep out foreign stablecoins that compete with their weaker currencies.

For more information, please refer to the following links:

SEC Brings Charges for ICO Fraud, DOJ Indicts Hackers, Regulatory Reports Published

By: Joanna F. Wasick

On Monday, the U.S. Securities and Exchange Commission issued a press release announcing charges against Jonathan C. Lucas for fraudulently raising approximately $63,000 from more than 100 investors during an initial coin offering (ICO) for Fantasy Market, an online adult entertainment marketplace that Lucas founded and controlled. According to the announcement, Lucas has returned the investors’ money and consented to a final judgment that orders him to pay a civil penalty of $15,000 and prohibits him from participating in certain securities offerings.

In California, the United States attorney’s office indicted Elliot Gunton and Anthony Tyler Nashatka for hacking EtherDelta, a cryptocurrency exchange, in December 2017. According to the indictment, which was filed in August, the defendants changed the settings of EtherDelta’s domain name system, misleading users in order to access their cryptocurrency addresses and private keys, allowing them to steal users’ funds. The federal government is increasingly focused on these types of crimes. In the September 2019 edition of the United States Department of Justice’s Journal of Federal Law and Practice, an entire section is devoted to addressing the challenges inherent in tracing, forfeiting and seizing cryptocurrencies.

The Korea Times recently reported that the International Financial Reporting Interpretations Committee (IFRIC) considers cryptocurrency to be an “intangible asset,” as opposed to cash or another financial asset. The IFRIC’s conclusion is unofficial, and no actual rule has been issued, but its assessment (which was reportedly reached in a meeting in London last June) can be significant, as the IFRIC’s determinations are the bases for many nations’ accounting rules and standards. And Global Legal Insights recently issued a report summarizing the blockchain and cryptocurrency regulatory landscape in Bermuda, British Virgin Islands, Cayman Islands, Guernsey and Jersey. Topics include government receptivity to cryptocurrency-related businesses, and regulatory issues related to licensing, mining and ICOs.

For more information, please refer to the following links:

 

Interbank Settlement Initiative and Crypto Payment Solutions Expand, SEC and International Enforcement Actions Continue

In this issue:

Blockchain Developments in Interbank Settlement, Capital Markets, Cryptocurrency Payments

Multiple SEC Enforcement Actions, New Treasury Sanctions, More Crypto-Mining Malware Detected

International Crypto Developments: Tax, FATF Compliance, Enforcement Actions

Blockchain Developments in Interbank Settlement, Capital Markets, Cryptocurrency Payments

By: Robert A. Musiala Jr.

According to reports this week, a major German bank has joined the emerging payments initiative, built on the Quorum blockchain, of one of the largest U.S. financial services firms. The goal of the Quorum-based platform is to increase speed and decrease costs in settling interbank payments.

Also this week, the blockchain-focused subsidiary of a major online retailer issued a press release announcing a partnership with a “blockchain entertainment financing company” to issue blockchain-based securities that will finance the production of films, television programming and online content. In a related announcement, blockchain startup Harbor has reportedly created Ethereum-based tokens that will represent existing shares of four real estate funds, collectively valued at $100 million.

In payments news, according to reports, major U.S.-based cryptocurrency payment processor BitPay will soon begin supporting ether, the second-largest cryptocurrency by market capitalization. This will allow merchants partnering with BitPay to accept payments for goods and services in ether, without having to take custody of the cryptocurrency. Separately, according to reports, cryptocurrency payments firm Abra will soon expand its network to allow customers to exchange cryptocurrencies for cash “at 6,000 outlets across the Philippines,” including at franchise locations of a major international convenience store.

Finally, two notable reports on the cryptocurrency market were published this week. A U.S.-based cryptocurrency asset management firm published the report “Bitcoin: 2019 Investor Study.” Also, a data analytics firm published a consumer survey of cryptocurrency use around the world. The survey found that consumer use of cryptocurrencies is most common in Turkey, and the “world region where most crypto currency users were located was Latin America.”

For more information, please refer to the following links:

Multiple SEC Enforcement Actions, New Treasury Sanctions, More Crypto-Mining Malware Detected

By: Marc D. Powers

This week, the LA office of the SEC brought an action against a Cayman Islands business, ICOBox, and its founder based in Beverly Hills, California, Nikolay Zvodokimov, for violations of the registration and broker-dealer provisions of the federal securities laws. The defendants allegedly raised $14 million from more than 2,000 investors since August 2017 for the purpose of building a platform for the distribution of initial coin offerings (ICOs) on behalf of other companies. The defendants sold their own blockchain-based token in an ICO, which the SEC alleges was a “security” requiring registration. The SEC further alleged that the defendants facilitated ICOs for dozens of companies, raising more than $650 million without registering as a broker-dealer.

Also this week, the U.S. Attorney’s Office in New York announced the arrest of a Great Neck, Long Island, attorney and a Rhode Island resident for purportedly extorting a cryptocurrency startup. The government alleges that the attorney was assisting the Seattle-based startup in November 2017 with raising monies through an ICO. The attorney is charged with, shortly before the expected closing, threatening to “destroy” the business of the startup if they did not pay him an additional $8.75 million in ether. He thereafter introduced his cohort to the company and made threatening statements which caused the company to make a “loan” to the men that was not repaid.

The U.S. Treasury has imposed sanctions on three North Korean state-sponsored groups that it believes are responsible for multiple cyberattacks on critical infrastructure, including the theft of approximately $571 million from five different cryptocurrency exchanges in Asia. Separately, according to a recent report, North Korea is believed to be developing its own cryptocurrency in an effort to avoid international sanctions.

Finally, a new instance of crypto-mining malware was reported this week that demonstrates increasingly complex techniques to avoid detection. According to the report, the “malware is notable because of the way it loads malicious kernel modules to keep its cryptocurrency mining operations under the radar.”

For more information, please refer to the following links:

International Crypto Developments: Tax, FATF Compliance, Enforcement Actions

By: Joanna F. Wasick

On Sept. 12, French economy minister Bruno Le Maire stated that cryptocurrency-to-cryptocurrency transactions would remain tax exempt, but that France will tax gains when cryptocurrency is converted into traditional fiat currency. Le Maire also stated that value-added tax (VAT) would be assessed on cryptocurrency transactions only when they are used to acquire an asset or service. Implementation of these policies has reportedly begun across the country.

Earlier this week, the South Korean arm of the OKEX exchange announced it will delist five cryptocurrencies that provide heightened privacy features for users. Beginning Oct. 10, the exchange will no longer support trading in Monero, dash, zcash, horizen or super bitcoin. OKEX Korea cited the “travel rule” recommendation by the Financial Action Task Force (FATF), an intergovernmental body that aims to combat money laundering, as the reason for delisting the coins. The exchange explained that under the FATF rule, “it is recommended that exchanges be able to collect relevant information such as the name and address of the sender and recipient of the virtual asset.”

In the Philippines last week, local authorities, reportedly working off of a tip from the Chinese government, arrested 277 Chinese nationals under the suspicion that they were conducting a cryptocurrency fraud that targeted potential investors in China. The alleged scam was run through Grapefruit Services Inc., an authorized service provider for Golden Millennial Quickpay Inc. Ltd., an offshore company providing cryptocurrency services.

Also, this week, Australian law enforcement announced that it uncovered a massive identity theft and money laundering ring. The crime syndicate allegedly purchased stolen personal identification information off the darknet, and used it to open bank accounts and steal funds. The syndicate then purportedly laundered the stolen funds by purchasing untraceable assets that it converted into cryptocurrencies, which were then transferred to Australia.

For more information, please refer to the following links:

 

Blockchain Continues to Disrupt Across Industries, Cryptocurrency Services Expand, Malware Threats Identified

In this issue:

Blockchain Clearing, Settlement, Custody and Capital Markets Developments

Cryptocurrency Exchanges and Payment Applications Continue to Expand Services

Blockchain Pilots for Mortgages, Recycling, Supply Chain and Digital Identity

Cryptomining Malware Found in Study Materials, Other Malware Uses Bitcoin to Proliferate

Blockchain Clearing, Settlement, Custody and Capital Markets Developments

By: Diana J. Stern

This week, R3 and a major multinational financial services company announced a partnership to develop and pilot a cross-border payments solution built on blockchain. According to reports, the financial services outfit will be the network operator for clearing and settlement, and R3’s Corda technology and ecosystem will support blockchain implementation for the use case.

Reports indicate that the bitcoin futures platform, Bakkt, launched its regulated custodian this week in anticipation of opening bitcoin futures trading later this month. The Blockchain Monitor covered Bakkt and its regulatory approvals here. In related news, documents filed by Bitwise on Wednesday show that the cryptocurrency index and beta fund provider has engaged an American worldwide bank to be the administrator and transfer agent for its proposed bitcoin exchange-traded fund.

This week Gemini announced that it is expanding its cryptocurrency custody solution through its Qualified Custodian, Gemini Trust Company, LLC. Among other new features, it will now support 18 different digital assets. In a final notable development, Blockstack announced that its SEC-qualified token offering has closed with a total of $23 million raised from more than 4,500 individuals and entities.

For more information, please refer to the following links:

Cryptocurrency Exchanges and Payment Applications Continue to Expand Services

By: Robert A. Musiala Jr.

According to two recent announcements, Binance, the largest cryptocurrency exchange in the world as measured by trading volume, will launch U.S. operations “in the coming weeks” and “will open account registration … on Wednesday, September 18, 2019.” According to another recent report, BUSD, Binance’s new stablecoin, which will be backed 1:1 by U.S. dollars, will be made available for trading on a major U.S. cryptocurrency exchange beginning next week.

This week the Swiss Financial Market Supervisory Authority (FINMA) published new guidance on stablecoins. According to the press release, “The requirements under supervisory law may differ depending on which assets (e.g. currencies, commodities, real estate or securities) the ‘stable coin’ is backed by and the legal rights of its holders.” FINMA also confirmed that it had received a request from the Libra Association “for an assessment of how the supervisory authority would classify the planned Libra project.” At a conference this week for the Organization for Economic Cooperation and Development, a French official said, “[W]e cannot authorise the development of Libra on European soil.” The French official advocated creation of a “public digital currency” to compete with the proposed Libra project.

In Japan, late last week the country’s financial regulator granted a cryptocurrency exchange license to an affiliate firm of a popular instant messaging app. According to another recent report, the highly anticipated Telegram Open Network blockchain project is due to launch by the end of October. Also, this week the Stellar Development Foundation announced that it will “airdrop” 2 billion XLM tokens into the accounts of users of another popular encrypted messaging app.

For more information, please refer to the following links:

Blockchain Pilots for Mortgages, Recycling, Supply Chain and Digital Identity

By: Simone O. Otenaike

Late last week, one of the nation’s leading mortgage companies successfully originated a loan on Provenance, a blockchain platform that reportedly allows lenders to originate, service and finance loans with lower costs and reduced risks throughout the loan process. The mortgage company will originate home equity line of credit loans through Figure, a SaaS that offers borrowers the ability to complete the lending process digitally and access their funds in days. Also this week, a digital logistics firm, Marine Transport International, launched Traca – a blockchain-based tool that reportedly enables recycling companies to relay essential data to value chain stakeholders (e.g., trash producers, recyclers, regulators and processing centers) in an accelerated time frame. Traca’s first trial reportedly cut administrative processing times from a few hours to minutes during the transport of used paper containers to Thailand from England.

A global professional services firm recently partnered with TruTrace Technologies to deliver a blockchain-based traceability solution for the cannabis industry. TruTrace’s technology reportedly collects and stores plant-testing data and genomic verification using a blockchain-powered database. Also this week, another leading global professional services firm released a report on blockchain technology in the industrial manufacturing sector. Topics addressed in the report include blockchain solutions to address supply chain transparency, track credentials of key personnel, and improve audit and compliance measures. According to the report, the industrial manufacturing sector is ranked second to financial services among industries leading the way on blockchain.

In international news, the government of Catalonia announced plans to develop IdentiCAT, a decentralized identity platform for its citizens. The Catalonian government’s new self-sovereign system reportedly seeks to allow any user to verify the legal age of a citizen with the ID system, without the citizen providing either his or her birth date or place of birth. IdentiCAT ultimately aims to empower citizens to control and manage their own identities with complete privacy.

For more information, please refer to the following links:

Cryptomining Malware Found in Study Materials, Other Malware Uses Bitcoin to Proliferate

By: Veronica Reynolds

A global cybersecurity company recently reported that cryptomining malware hidden in digital textbook downloads was the second most common type of malware spread under the guise of study materials. The malware, Win32.Agent.ifdx, is a program that opens a text file when launched to trick the user into thinking the file is benign. Once installed, the malware can download other pieces of malware, including cryptominers that allow hackers to generate profits through use of the host’s processing power.

According to another recent report, the Bitcoin blockchain is being used by the Glupteba malware dropper to improve the malware’s connection to command-and-control servers (C2 servers), which hackers use to control compromised systems. When a compromised system disconnects from a C2 server, hackers can use the Bitcoin network to replace C2 servers, allowing the compromised system to reconnect. The report noted that the Glupteba malware is also capable of implementing cryptomining and can steal browser data and passwords.

For more information, please refer to the following links:

Blockchain Developments: Energy Grids, Automobiles, Stablecoins, International Regulations, SEC Enforcement

A side view on a digital panel merging binary numbers with an integrated circuitIn this issue:

Blockchain Developments for Energy Grids, Automobiles, Enterprise Protocols

International Developments in Blockchain and Cryptocurrency Regulation

NY DFS Approves Gold-Backed Stablecoin, Financial Institutions Pursue Blockchain Pilots

SEC Settles Charges, Treasury Hears Testimony, Cryptojacking Report Released

Blockchain Developments for Energy Grids, Automobiles, Enterprise Protocols

By: Simone O. Otenaike

Earlier this week, TFA Labs, an internet-of-things security startup, announced plans to explore Factom’s protocol as a solution for validating the health and status of devices on the U.S. national power grid. According to reports, TFA Labs will store raw data on the Factom blockchain and assign a digital identity to the permanent software installed on devices. Any change to a file or software installed on a device reportedly will produce a unique cryptographic hash that does not match the digital identity, alerting TFA to potential manipulation. The project is currently backed by a $200,000 grant from the U.S. Department of Energy.

Also this week, PlatOn, a privacy-preserving computing network, announced plans to partner with the Beijing-based division of a global automobile manufacturer to develop a solution for evaluating the value depreciation of its cars. PlatOn’s solution is a blockchain-based used car value management platform that reportedly will store static and dynamic vehicle data over the course of the vehicle’s lifetime, which ultimately allows companies to compute the residual value of vehicles at any given point in time. The solution also reportedly preserves the integrity of such vehicle data by embedding the data into a blockchain-based network that cannot be altered without the explicit approval of all the stakeholders in the value chain.

In another recent announcement, the Customs Department of Thailand will adopt the TradeLens blockchain platform for logistics and shipping container tracking. According to reports, Thailand will be the second member of the Association of Southeast Asian Nations to employ the platform, following Singapore.

Hedera Hashgraph, a distributed ledger network for enterprises, recently added one of the largest commercial aircraft manufacturers to its governing council. Hedera’s distributed ledger technology reportedly enables micropayments and distributed file storage and supports smart contracts. According to reports, the newly added firm will be the 10th member of Hedera’s governing council.

In a final noteworthy development, last week Hyperledger added a new codebase, Besu, to its portfolio. Hyperledger Besu is unique among other Hyperledger codebases because it reportedly links businesses directly to the public Ethereum blockchain and integrates with existing Hyperledger codebases. This will reportedly enable companies using competing blockchain networks to work together more easily.

To read more about the topics covered in this week’s post, see the following:

International Developments in Blockchain and Cryptocurrency Regulation

By: Jonathan D. Blattmachr

Starting in January 2020, the Dutch central bank will regulate cryptocurrency service providers and, it has declared, at that time they must register with the central bank if they want to keep operating. Those companies that must register include wallet providers and those offering exchange services (e.g., facilitating trading Euros for bitcoin). The providers must show their processes are designed to prevent AML and terrorist financing, and that the companies’ policymakers adequately manage those processes.

The Swiss tax authority has issued a working paper describing new rules regarding crypto assets. The paper sets out tax treatment of crypto held by investors as private assets as well as the tax consequences of ICOs and ITOs for the issuers. For example, the authority has determined that “cryptocurrencies in the form of pure digital means of payment” are subject to wealth taxes, which shall be valued at the market value at the end of the tax period. In another example, if an issuer sells “participation tokens,” the money the issuer raises is generally subject to income tax at the time of issuance. In a contrasting approach, the Portuguese Tax and Customs Authority recently published guidance confirming that cryptocurrency payments and the exchange of cryptocurrencies for fiat money are exempt from value added tax.

In the UK, London’s High Court has taken steps to recognize bitcoin as legal property, though it stopped just short of doing so. The presiding judge issued an asset preservation order to stop the dissipation or transference of bitcoin stolen as part of a phishing attack. This decision marks the first time a court has considered whether cryptocurrencies are property, but it did not go so far as to determine whether cryptocurrency is a “chose in possession” (an actual thing) or a “chose in action” (something that can only be claimed by taking legal action, not by physical possession). If it is determined that cryptocurrency is legal property, that would allow those assets to be used like other property, such as allowing its owner to grant a security interest in it.

For more information, please refer to the following links:

NY DFS Approves Gold-Backed Stablecoin, Financial Institutions Pursue Blockchain Pilots

By: Robert A. Musiala Jr.

This week the New York State Department of Financial Services announced that it has authorized a major U.S. cryptocurrency exchange and custodian to offer two new virtual currency products. The first product, “PAX Gold,” is an Ethereum-based token that is backed by gold ‒ the first product of its kind to be authorized by DFS. The second product, Binance USD (BUSD), is an Ethereum-based “stablecoin” that is pegged 1:1 to the U.S. dollar. BUSD is being launched in partnership with Binance, a foreign-based cryptocurrency exchange, and will be backed by U.S. dollar reserves held by the U.S. cryptocurrency exchange and custodian, which will act as custodian and issuer for BUSD. In other cryptocurrency exchange news, cryptocurrency news outlet Bitcoin.com recently announced the launch of a new cryptocurrency exchange that is intended to compete with other large exchanges.

In capital markets news, one of several firms that has unsuccessfully sought Security and Exchange Commission (SEC) approval for a bitcoin-based exchange traded fund (ETF) has reportedly changed its approach in an effort to bring its product to market. The firm has reportedly altered its proposed product, limiting participants to certain institutional buyers such as hedge funds and banks, in order to avoid certain regulatory requirements.

In the traditional banking sector, one of the world’s largest banks recently announced that it has completed “the first yuan-denominated blockchain based letter of credit transaction.” The transaction reportedly took place on Voltron, a blockchain platform developed by a consortium of major international banks. Also this week, a major U.S. financial services firm announced that it has joined the Marco Polo Network, a trade and working capital finance network powered by the Corda blockchain platform.

In payments news, this week the Luxembourg office of a “Big Four” global accounting and consulting firm announced that it will soon begin accepting bitcoin as payment. Additionally, a U.S.-based online legal technology firm has announced plans to launch its own “stablecoin” that would be used in conjunction with smart contracts deployed though its platform.

For more information, please refer to the following links:

SEC Settles Charges, Treasury Hears Testimony, Cryptojacking Report Released

By: Joanna F. Wasick

Late last week, the SEC announced that it has settled charges with Bitqyck Inc. and its founders, Bruce Bise and Sam Mendez, alleging that they defrauded investors in the securities offerings of two cryptocurrency tokens, and had operated an unregistered exchange. According to the SEC, the defendants lied to investors and fraudulently raised $13 million through unregistered token sales. Without admitting or denying the allegations, Bitqyck consented to an order requiring it pay back investor money, with interest, and a civil penalty of nearly $8.4 million. Bise agreed to pay disgorgement, interest and penalties of $890 thousand; Mendez agreed to $850 thousand.

David Murray, a vice president at the Financial Integrity Network and former U.S. Treasury Department director, recently provided expert testimony to a U.S. Senate subcommittee about how cryptocurrencies are facilitating human trafficking. Murray advocated for regulating cryptocurrency mining under the Bank Secrecy Act, and requiring miners to ascertain who is on the other end of transactions, and to vet any issuers, exchanges or custodians they serve. In response, critics, including Peter Van Valkenburgh of the think tank Coin Center, have argued that such regulation would act as a ban on miners participating on public blockchain networks, and would ultimately prove ineffective in crime prevention.

Finally, last week a major cybersecurity firm reported that in the first quarter of 2019, “cryptojacking” (secretly installing software to use a person’s computing power to mine cryptocurrencies without consent) rose 29% and ransomware attacks increased by 118%. The report identifies new types of malware that can infect major operating systems.

For more information, please refer to the following links:

Blockchain for Beer Advertising and the Air Force, DOJ Tackles Crypto Crimes, More Payment Initiatives Announced

In this issue:

Blockchain Applications for Beer Advertising, Hotel Booking and the U.S. Air Force

Traditional and Emerging Blockchain Payments Firms Receive Licenses, Complete Pilots

Multiple Enforcement Actions Against Crypto Crimes, Order Issued in Billion-Dollar Bitcoin Lawsuit

Hackers Wreaking Havoc in the Crypto Space

Blockchain Applications for Beer Advertising, Hotel Booking and the U.S. Air Force

By: Simone O. Otenaike

Late last week, a major U.S.-based beer brewing company launched a blockchain-based trivia game in conjunction with Vatom Labs as part of the firm’s “Know Your Beer” campaign. The mobile game, known as Great Taste Trivia, challenges players to answer 12 trivia questions correctly to win one of 10,000 cash prizes of $5 each. The brewing company relies on blockchain technology to secure and authenticate the $5 rewards. Also last week, a business and consumer travel services firm announced plans to use Hyperledger Fabric to build a system that tracks, manages and accounts for commissions owed to booking agents on behalf of hotel chains. The system will reportedly guarantee that agents’ commissions are paid, which will ultimately reduce the number of payment disputes.

In other news, the U.S. Air Force announced plans to employ the SIMBA blockchain to protect Additive Manufacturing in the field. Currently, long value chains present major security issues in manufacturing military applications, since hostile entities constantly seek to obtain or modify critical data. The Air Force’s Blockchain Approach for Supply Chain Additive Manufacturing Parts project will use the SIMBA Chain platform to decentralize Additive Manufacturing in the field and maintain data integrity. The U.S. Air Force also recently announced plans for another blockchain project with Constellation Network Inc. (Constellation). According to reports, the U.S. Air Force has multiple data sources such as drones, planes and satellites that need to be secured and consolidated so that data can be queried instantly. Constellation will reportedly provide the U.S. Air Force with a scalable and secure blockchain-based solution for big data processing, audit trails and live overview for both Air Force data pipelines and external data sources.

Last month, the World Economic Forum released a white paper that analyzes the question of public versus private blockchain solutions for global supply chains. The paper aims to outline important criteria to understand when dealing with public versus private blockchains and evaluates how each type of blockchain affects the eventual supply chain solution, depending on the context of the use case and its unique requirements. This paper is the third in a series related to responsible blockchain deployment in supply chains. The UCL Centre for Blockchain Technologies also recently released a report that reviews blockchain adoption trends in the global supply chain industry. Among other things, the report highlights that more than half of the projects reviewed employ private blockchains, the grocery sector has the most active projects and roughly 15% of projects have moved beyond concept into production.

For more information, please refer to the following links:

Traditional and Emerging Blockchain Payments Firms Receive Licenses, Complete Pilots

By: Robert A. Musiala Jr.

Traditional and emerging financial institutions around the world made progress on blockchain initiatives this week. In Estonia, German bank WEG Bank reportedly obtained a cryptocurrency trading and custody license. In Switzerland, the Swiss Financial Market Supervisory Authority, FINMA, issued two new banking and securities dealers’ licenses to two “blockchain based service providers,” SEBA Crypto AG and Sygnum AG. Elsewhere in Europe, one of the largest financial institutions in the world financed its first transaction on we.trade, a consortium-based blockchain platform that leverages Hyperledger Fabric to manage, track and protect transactions between small and midsize enterprises. And in the United States, a major bank became the first U.S. bank to process cross-border payments using the RippleNet blockchain platform.

Also this week, the Libra Association launched a public bug bounty program that allows developers to submit bugs and alert the association to security and privacy issues. According to the announcement, the program “is designed to encourage members of the security community to dig deep and help find even the most subtle bugs.” The announcement noted that bounties under the program “will scale up to $10,000 for critical issues on the testnet.” The news comes amid reports that European regulators have launched an investigation into the proposed Libra cryptocurrency related to concerns over anti-competitive behavior and the use of consumer data.

Finally, this week FINMA published new anti-money laundering guidance for cryptocurrency exchangers. According to the guidance, FINMA-regulated entities are prohibited from engaging in cryptocurrency transactions if information about the sender and recipient cannot be transmitted reliably. The new guidance is consistent with recently issued guidance from the Financial Action Task Force.

For more information, please refer to the following links:

Multiple Enforcement Actions Against Crypto Crimes, Order Issued in Billion-Dollar Bitcoin Lawsuit

By: Robert A. Musiala Jr.

Over the past 10 days, the U.S. Department of Justice (DOJ) has published six separate press releases providing details on enforcement actions involving cryptocurrencies. One press release announced that several Arizona residents had pleaded guilty and received prison sentences for their involvement in a conspiracy to distribute controlled substances and launder the proceeds. According to the press release, the defendants sold narcotics on the dark web and attempted to launder the proceeds by selling cryptocurrency through peer-to-peer exchangers. Another press release provided details on the sentencing of a dark market vendor who forfeited “millions of dollars in digital or crypto currency including Bitcoins, Stratis, Ethereum [and] 2350 Monero.” The press release noted that the forfeited assets included cryptocurrencies held in accounts at U.S.-based exchanges.

A third DOJ press release provided details on what is “believed to be the first federal criminal case charging an unlicensed money remitting business that used a Bitcoin kiosk.” The defendant “agreed to plead guilty to federal criminal charges for owning and operating an unlicensed money transmitting business where he exchanged up to $25 million in cash and virtual currency for individuals, including Darknet drug dealers and other criminals, some of whom used his Bitcoin ATM kiosk.” Another press release described charges against two Canadian nationals who allegedly “used a Twitter account with the name @HitBTCAssist to trick victims into thinking they were communicating with a customer service representative from HitBTC,” a Hong Kong-based cryptocurrency exchange.

A fifth press release described the sentencing of an Australian national “for money laundering with Bitcoin.” The investigation involved undercover agents who conducted money exchanges with the defendant, who agreed to exchange bitcoin for cash from narcotics proceeds. Finally, a sixth DOJ press release announced the indictment of a former software engineer at a major U.S. bank for unauthorized intrusion into stored data of the defendant’s former employer and more than 30 other companies. According to the press release, the defendant gained unlawful access to data on cloud servers and “used this access not only to steal data, but also used stolen computer power to ‘mine’ cryptocurrency for her own benefit, a practice known as ‘cryptojacking.’”

In addition to the DOJ actions, a Federal Trade Commission (FTC) press release published late last week described an FTC settlement with the “promoters of recruitment-based cryptocurrency schemes.” The chain referral schemes (a type of pyramid scheme) involved the defendants using websites, YouTube videos, social media and conference calls to claim that they “could turn a payment of the equivalent of just over $100 into $80,000 in monthly income.” The defendants forfeited more than $500,000 and will be permanently barred from operating any other multilevel marketing or pyramid scheme.

In a final notable development, this week a federal court ordered self-proclaimed Bitcoin inventor Craig Wright to transfer half of his bitcoin holdings, which are believed to be worth billions of dollars, to the estate of David Kleiman. According to the order, Wright’s bitcoin holdings were produced in a 50-50 partnership with Kleiman to mine bitcoin and develop related Bitcoin technology.

For more information, please refer to the following links:

Hackers Wreaking Havoc in the Crypto Space

By: Jonathan D. Blattmachr

Gamers found themselves under threat this week, not from virtual baddies but from ransomware targeting players of Fortnite, a wildly popular online game. Some players downloaded what they thought was a helpful in-game add-on, but it turned out to be malware. Once it infects the targeted computer, the “Syrk” ransomware locks out its owner and promises to delete the computer’s files unless a bounty is paid. Fortnite players appear to be favorite targets of bad actors. Other malware infects gamers’ high-powered computers and uses them to mine cryptocurrencies.

French cops have broken up a botnet ring, which some estimate has made millions from fraud. The virus had infected thousands of computers in more than 100 countries, primarily in the Americas. As part of their plot, the fraudsters used ransomware, stole data from Israeli hospitals and patients, and even “mined” the cryptocurrency Monero. Investigators are still looking for those behind the scheme.

Cryptocurrency users are being warned about a new type of online attack, called “dusting.” Fraudsters send limited coins to users’ personal wallets and then track down their transactional activity. The attackers then perform a combined analysis of the pertinent IP addresses to identify the person or company controlling the wallet; phishing or blackmail follows. Experts advise using a VPN to vary IP addresses or using other methods that prevent monitoring by criminals.

For more information, please refer to the following links:

Blockchain Financial and Capital Markets Initiatives, U.S. Enforcement Across Agencies, Ethereum Vulnerability Paper Published

In this issue:

Blockchain Capital Markets Platforms Achieve and File for Regulatory Approvals

New Initiatives by Cryptocurrency Exchanges, Payment Platforms and Financial Institutions

U.S. Enforcement Actions Continue from OFAC, SEC, DoJ and IRS

Study of Ethereum Vulnerabilities and Defenses Released, While Dusting and Mining Malware Attacks and Cryptojacking Continue

Blockchain Capital Markets Platforms Achieve and File for Regulatory Approvals

By: Simone O. Otenaike

The Intercontinental Exchange recently received approval from the New York State Department of Financial Services for its emerging bitcoin futures exchange platform, Bakkt. According to reports, Bakkt previously received approval for its bitcoin futures product from the U.S. Commodity Futures Trading Commission through the self-certification process. The recent approval allows Bakkt to hold custody of customers’ bitcoins through its Bakkt Warehouse, which utilizes the same physical and digital protections of the New York Stock Exchange. Additionally, Bakkt may soon allow investors to buy derivatives that pay out with bitcoin. Bakkt recently reported that it aims to promote institutional investment in bitcoin by addressing concerns related to a lack of liquidity, market reliability, regulation, fees and operational risks, with a transparent offering. The first contracts will reportedly be offered Sept. 23, 2019.

Earlier this month, the Financial Industry Regulatory Authority (FINRA) approved the application of Houston-based IOI Capital and Markets, LLC (IOICM). This approval allows IOICM to be a placement agent for digital private securities issued on the blockchain-based platform developed and operated by its parent company. According to reports, the firm’s Iownit platform will seek to digitize the securities issuance, asset life cycle management and secondary trading processes to create an efficient private market for institutional and accredited investors. The firm reportedly plans to act as a placement agent for privately placed digital securities on a permissioned Hyperledger Fabric blockchain.

According to reports this week, Securitize is now the first SEC-registered transfer agent with a working blockchain protocol, active issuers and integrations that allow trading of digital securities on SEC-registered alternative trading systems. Securitize also reportedly offers a transfer verification tool that allows investors to pre-check the transfer of any digital security token powered by its DS protocol.

This week Gibraltar-based cryptocurrency trading platform INX indicated plans to launch a security token initial public offering (IPO). According to the draft prospectus filed with the SEC on Monday, INX plans to raise $130 million through the sale of 130 million INX tokens, which are based on Ethereum’s ERC-20 standard. The prospectus further outlines the firm’s plans for the IPO proceeds – up to $8 million for research and development, up to $2.93 million for sales and marketing, up to $3.2 million for regulatory and legal, and up to $1.6 million for product development. According to reports, INX token holders will not be equity holders but will be entitled to 40 percent of the company’s net cash flow from operating activities.

For more information, please refer to the following links:

New Initiatives by Cryptocurrency Exchanges, Payment Platforms and Financial Institutions

By: Robert A. Musiala Jr.

This week, major U.S.-based cryptocurrency exchange Gemini announced that it has officially launched operations in Australia. According to a press release, Gemini is now available in “49 U.S. states, Washington D.C., Puerto Rico, Canada, Hong Kong, Singapore, South Korea, the United Kingdom, and Australia.” Also this week, Binance, the world’s largest cryptocurrency exchange by volume, announced plans to launch “Venus, an initiative to develop localized stablecoins and digital assets pegged to fiat currencies across the globe.” Binance is reportedly seeking to launch the initiative in partnership with national governments. Some reports have described the initiative as a potential competitor or alternative to the recently proposed Libra project. According to a report published early this week, the Libra project is on the agenda of a delegation of U.S. lawmakers that will visit Switzerland, where the foundation governing Libra is based, to meet with the Swiss Federal Data Protection and Information Commissioner.

This week Lolli, a bitcoin rewards platform, announced a new partnership with a U.S. online food delivery service that will allow users to earn bitcoin when making online purchases. According to another report this week, a luxury condominium complex in Florida has partnered with bitcoin payment processor BitPay to allow purchases of real estate with bitcoin. And new data cited this week indicates that the philanthropic arm of a major U.S.-based multinational financial services firm has received more than $100 million in cryptocurrency donations since 2015.

Blockchain initiatives at two other major financial institutions were reported this week. One involves a major Spanish bank that has expanded its use of a blockchain-based remittance platform. Another relates to a recently published patent application by a U.S. bank that describes a “Multi-Tiered Digital Wallet Security” system that appears aimed at providing increased security and control over cryptocurrency funds.

For more information, please refer to the following links:

U.S. Enforcement Actions Continue from OFAC, SEC, DoJ and IRS

By: Joanna F. Wasick

On Wednesday, the U.S. Office of Foreign Assets Control (OFAC) identified three Chinese nationals and a related entity for allegedly manufacturing fentanyl and other drugs and distributing them to numerous countries, including the United States. As part of the action, the government identified and blocked bitcoin public key addresses associated with the purported drug ring. This marks the second time OFAC has blacklisted cryptocurrency accounts, leading some to remark that the practice will likely become commonplace. Earlier in the week, an individual in California was sentenced to 70 months in prison by a federal judge for crimes related to his purchase and sale of fentanyl and other drugs. As part of his guilty plea, the defendant forfeited millions of dollars in cryptocurrencies, and admitted that these funds were proceeds from drug trafficking and were used in money laundering over the Dark Web.

The Securities and Exchange Commission (SEC) announced this week that ICO Rating, a Russia-based analytics firm, agreed to pay $268,998 to settle charges that the company failed to disclose payments received from issuers for publicizing their digital asset securities offerings. An SEC associate director remarked, “The securities laws require promoters, including both people and entities, to disclose compensation they receive for touting investments …. This requirement applies regardless of whether the securities … are issued using traditional certificates or on the blockchain.” Last week, the Maryland attorney general announced the Maryland Securities Division’s participation in “Operation Cryptosweep,” an initiative of the North American Securities Administrators Association, which, since the beginning of this year, has been involved in 35 enforcement actions against initial coin offerings and related cryptocurrency investment products. In conjunction with that initiative, the Maryland Securities Division began its own enforcement action against a bitcoin trading platform, and a Maryland resident operating on it, for falsely informing investors that they could earn as much as 150% in passive cryptocurrency investments.

According to reports, the Internal Revenue Service (IRS) recently issued a second round of tax warnings to cryptocurrency investors. The letters reportedly informed recipients that their federal tax returns did not match the information received from cryptocurrency exchanges (although the IRS acknowledged that the exchanges may have made errors in reporting). In July, the IRS sent similar letters to more than 10,000 investors, warning that they may owe taxes on cryptocurrency transactions.

For more information, please refer to the following links:

Study of Ethereum Vulnerabilities and Defenses Released, While Dusting and Mining Malware Attacks and Cryptojacking Continue

By: Diana J. Stern

According to reports, late last week a large-scale dusting attack affected almost 300,000 litecoin wallets. By leveraging the divisibility of cryptocurrency, dusting attackers can target certain networks by sending tiny amounts of litecoin, bitcoin and other cryptocurrencies (“dust”) to many different wallets. There can be a number of motives for this kind of attack.

Also this week, it was reported that crypto-mining malware was recently found hidden in popular Ruby code libraries. According to reports, half of the malicious libraries were blockchain-related, and they were downloaded hundreds of times.

An academic paper published last week surveyed Ethereum vulnerabilities, attacks and defenses. Aimed at an audience of researchers, practitioners and students, the paper highlights the need for more secure programming languages. The paper also discussed how Ethereum smart contracts introduce new kinds of vulnerabilities that do not have traditional counterparts. The authors systematize 26 attacks according to layers of the Ethereum architecture, as well as 47 proactive and reactive defenses.

For more information, please refer to the following links:

ICO Enforcement Actions, Applications for Wine and Web Browsers, AML Analyses

Blockchain network concept , Distributed ledger technology , Block chain text and computer connection with blue matrix coded backgroundIn this issue:

Multiple ICO Enforcement Actions by SEC and State Regulators

Blockchain Applications for Enterprise Networks, Wine, Web Browsers and Drones

Blockchain Analytics Firms Publish Reports, Details Emerge on North Korea Investigation

Multiple ICO Enforcement Actions by SEC and State Regulators

 By: Robert A. Musiala Jr.

This week the U.S. Securities and Exchange Commission (SEC) announced that it has settled charges against SimplyVital Health Inc. related to an initial coin offering (ICO) presale, in which the company allegedly raised $6.3 million in an unregistered sale of securities that took place between September 2017 and April 2018. After being contacted by the SEC, SimplyVital canceled its scheduled ICO and voluntarily returned to investors substantially all the funds raised in the unregistered offering.

Also this week, the SEC filed an emergency action in federal court and an application for a temporary restraining order (TRO) against Reginald Middleton, Veritaseum Inc. and Veritaseum LLC, seeking to freeze approximately $8 million of proceeds raised in what the SEC has alleged was a fraudulent ICO scheme and unregistered securities offering that took place in 2017 and 2018. According to the complaint, after being contacted by the SEC, “Defendants moved more than $2 million in remaining Offering proceeds from a blockchain address they controlled into other addresses, and used a portion of those funds to purchase more precious metals.” The TRO application seeks to freeze U.S. dollars held in multiple bank accounts and ether held in multiple Ethereum public key addresses.

In a third ICO-related action this week, the SEC filed a proposed settlement agreement with PlexCorps, the defendant in an SEC enforcement action involving an alleged fraudulent ICO scheme that took place in 2017. Penalties under the settlement agreement include forfeiture of ill-gotten gains, civil penalties of $1 million per individual defendant, injunctions against “engaging in any offering of digital securities,” and barring one individual defendant from serving as a director or officer in a public company.

Late last week, the Texas State Securities Board issued an emergency cease-and-desist order against Forex and Bitcoin Trader. The order alleges Forex and Bitcoin Trader, which advertises on Craigslist Dallas, is misleading investors and falsely claiming to be a licensed broker.

In foreign enforcement news, according to reports, the British tax authority recently contacted several cryptocurrency exchanges to request user information related to tax enforcement actions. Additionally, the U.K. Advertising Standards Authority recently issued a decision in favor of complaints alleging misleading advertising by a foreign-based cryptocurrency exchange.

For more information, please refer to the following links:

Blockchain Applications for Enterprise Networks, Wine, Web Browsers and Drones

By: Simone O. Otenaike

Early this week, a multinational technology firm and an Indian telecommunications firm joined the governance council of Hedera Hashgraph, a public, permissioned blockchain for enterprises. Hedera’s public network reportedly facilitates micropayments and distributed file storage and supports smart contracts for private networks. Governance council members reportedly receive compensation for running nodes.

According to recent reports, a multinational professional services firm will provide the technology support for WiV Technology, a fine wine investment trading platform. WiV’s platform seeks to enable investment trades of bottles and cases of wine and direct shipment from producers to a bonded warehouse with full traceability. The professional services firm has reportedly developed a non-fungible ERC-721 token structure for the platform that will be deployed on the Ethereum blockchain. Each wine case will be allocated a token that has a unique identifier and that stores the wine’s properties, such as origin, quality and value, as metadata on Ethereum. A smart contract will then track the token ownership, provenance and transaction history.

In other recent enterprise news, Brave, a web browser that blocks advertisements by default, is estimated to have more than 226,700 verified publishers that use the platform. According to reports, this is a 1,200% increase in verified publishers over the past year. In related news, a new patent application for a blockchain-based web browser emerged late last week. The application comes from the same multinational technology firm that recently joined Hedera’s governance council. The browser reportedly would collect prespecified information from web browsing sessions, such as websites visited, bookmarks, task performance, geolocation, plug-in installation and security patches, and then transfer the information to a network of peer-to-peer nodes for collection and storage.

Two blockchain patent applications from a multinational retail firm were recently published by the United States Patent and Trademark Office. The first patent application deals with an unmanned aerial vehicle (UAV) blockchain-based coordination system, while the second patent application deals with a digital currency application. According to reports, the blockchain-based coordination system will be used to transmit key UAV information, such as identification numbers, flight heights, flight speeds, flight routes, battery information and loading capacity, to other UAVs. The firm reportedly sought a patent for a blockchain-based drone package delivery system in 2017.

To read more about the topics covered in this week’s post, see the following:

Blockchain Analytics Firms Publish Reports, Details Emerge on North Korea Investigation

By: Robert A. Musiala Jr.

This week CipherTrace published its Q2 2019 Cryptocurrency Anti-Money Laundering Report. According to the report, approximately $4.26 billion in cryptocurrency funds have been lost in the first half of 2019 to various criminal activities including cyberthefts, scams, misappropriation and insider fraud. The report notes that hacks alone have resulted in $227 million in cryptocurrencies stolen from exchanges in the first half of 2019, and “exchange and infrastructure thefts” totaled more than $480 million. The report provides details on multiple 2019 trends related to global criminal activity, enforcement actions, regulatory developments and industry initiatives.

Late last week, Elliptic published the Elliptic Data Set, which is a “sub-graph” of the Bitcoin transaction graph. The dataset comprises “203,769 nodes and 234,355 edges,” while the full Bitcoin transaction graph “is made of more than 438 million nodes and 1.1 billion edges.” According to a press release, “[t]he task on the dataset is to classify the illicit and licit nodes, given a set of features and the graph topology.” The press release notes that “[t]wo percent (4,545) of the nodes are labelled class1 (illicit); twenty-one percent (42,019) are labelled class2 (licit)” and the remaining nodes “are classified as ‘unknown.’” According to the press release, Elliptic published the dataset “with the hope that it will inspire the academic and crypto community to help build a safer financial system based on crypto currencies.”

According to cryptocurrency analytics firm Clain, approximately 4,836 bitcoins (valued at over $50 million) that were stolen from the cryptocurrency exchange Binance were recently sent to Chipmixer, a bitcoin “tumbler” that obfuscates the origin of funds on the Bitcoin blockchain. According to the report, “[b]ecause of this huge volume, it is correct to assume that any outflow coming from Chipmixer these days is likely related to the same owner.”

This week more details emerged on an ongoing United Nations investigation into North Korean cyberattacks. According to reports, the primary operations of the hackers include stealing cryptocurrency “through attacks on both exchanges and users” and “mining of cryptocurrency as a source of funds for a professional branch of the military.” Another report published this week provided details on a new type of crypto-mining malware attack that “employs evasion techniques to hide from analysis and avoid discovery.”

For more information, please refer to the following links:

Blockchain Solutions Announced for Financial Services and Supply Chain, ICO Enforcement Actions Continue at State and Federal Levels

In this issue:

Blockchain Payment Solutions, Patents and Market Data Announced

Blockchain Supply Chain Pilots Announced Across Industries, New Studies Published

ICO Enforcement Actions Continue Amid Tax Bill, Senate Hearing and UN Report

Blockchain Payment Solutions, Patents and Market Data Announced

By: Diana J. Stern

Late last week, a major U.S. financial services firm made headlines with several blockchain-related developments. The first relates to a credit card that will be offered by cryptocurrency lending startup Nexo that would provide a revolving line of credit backed by the card holder’s cryptocurrency assets. In addition, the same financial services firm announced a partnership with an iconic clothing retailer to showcase its blockchain-based provenance solution at the retailer’s flagship store in California. The solution seeks to tackle the multibillion-dollar online counter-fitting problem by allowing customers to scan a QR code and view the product journey of limited-edition fashion items.

A major U.K.-based financial services firm announced two blockchain developments this week: one for supply chain finance and another for cross-border letters of credit for the oil industry. The firm and its strategic partner Linklogis provided the supply chain solution to digital government services provider Digital Guangdong, a joint venture among several Chinese firms. The letter of credit was executed as a pilot transaction for an oil shipment from Thailand to Singapore using the Voltron blockchain platform.

Two notable blockchain patents targeted at financial services and capital markets were announced this week. A multinational retail corporation and one of the world’s largest companies filed for a patent related to a fiat-backed stablecoin. Also, a different retail giant’s subsidiary, tZERO, was awarded a patent for the Time Ordered Merkle Epoch methodology. According to a press release, the solution can link the settlement of tokenized blockchain-based securities on a public blockchain to legacy trading systems.

According to earnings reports published this week, the Cash App of a major U.S. financial services and mobile payments company brought in $125 million in bitcoin sales in the second quarter of 2019 – almost doubling its record-breaking first quarter. Another report published this week found that 318 addresses hold approximately 80% of the stablecoin Tether. The report explained that this concentration of ownership increases risk for all cryptocurrency users because many exchanges are dependent on Tether for liquidity.

For more information, please refer to the following links:

Blockchain Supply Chain Pilots Announced Across Industries, New Studies Published

By: Simone O. Otenaike

Early this week, a multinational technology firm launched Trust Your Supplier, a new blockchain network designed to improve supplier qualification, validation, onboarding and life cycle information management in the supply chain industry. Leading technology, telecommunications, pharmaceutical, beverage and manufacturing firms have already joined the network as founding participants. The same multinational technology firm also recently partnered with a California-based technology firm to pilot a blockchain project that will track hard drives through the supply chain. The multinational technology firm is both the customer of these drives and the provider of the underlying blockchain platform. According to reports, the supply chain solution will track products sold to the customer and products returned to the supplier to ensure that only genuine devices, rather than counterfeit ones, are returned.

Late last week, a global automobile manufacturer announced production of the first cars containing recycled cobalt verified through blockchain technology. The manufacturer also announced plans to join a separate project to track cobalt from the Democratic Republic of Congo. In more supply chain news, a major wine importer in China, in conjunction with VeChain, launched the second phase of the Wine Traceability Platform to combat wine counterfeiting. In the new phase, each wine bottle has an encrypted tag that allows customers to access immutable product information stored on the blockchain. According to reports, since the platform’s launch, 20-plus imported wine products have been made available on the platform and the importer has seen a 10% increase in wine sales.

The UCL Center for Blockchain, in conjunction with the Retail Blockchain Consortium, recently released a market report surveying the adoption of blockchain in the supply chain industry. The report reviewed over 100 projects and notes that 15% of projects analyzed have moved into the production stage. Another recently released report comes from a multinational professional services firm and evaluates blockchain use cases in the insurance industry.

For more information, please refer to the following links:

ICO Enforcement Actions Continue Amid Tax Bill, Senate Hearing and UN Report

By: Joanna F. Wasick

Earlier this week, cease and desist orders were issued against two online investment entities, Zoptax LLC and Unocall, as part of an ongoing effort coordinated by the North American Securities Administrators Association (NASAA), a task force comprised of North American state and country officials working together to stop fraudulent initial coin offerings (ICOs) and cryptocurrency-related investment schemes. NASAA was organized in April 2018. Since January, its members have initiated over 130 investigations into ICOs and similar products, and completed 35 enforcement actions.

Also this week, Kik Interactive Inc. (Kik), a defendant in an ICO-related enforcement action initiated by the U.S. Securities and Exchange Commission (SEC), denied conducting an unregistered securities offering. Kik stated in its filed response that the SEC “twisted the facts” in its complaint. The SEC began the action in June, asserting that Kik’s sale of Kin, Kik’s digital token, constituted the sale of unregistered securities. Kik sold $100 million worth of Kin in 2017; $55 million was purchased by U.S. investors.

In late July, a bill aimed at alleviating cryptocurrency investors’ tax burden was introduced by U.S. Congressman Ted Budd. The bill would ensure that the exchange of one cryptocurrency for another would be treated the same way as like-kind exchanges of real property. On July 30, the U.S. Senate Committee on Banking, Housing and Urban Affairs held a hearing on regulatory frameworks for cryptocurrencies and blockchain. The Congressional Research Service published its prepared testimony for the hearing, which stressed the need for harmonization of global cryptocurrency regulations. Also this week, the United Nations issued a report finding that North Korea has generated $2 billion through cyberattacks targeting banks and cryptocurrency exchanges. The proceeds are reportedly being used to fund the country’s weapons program.

For more information, please refer to the following links:

Crypto Exchange and Payment Solutions Expand, New UK Guidance Issued, US Enforcement Actions Continue

In this issue:

Cryptocurrency Exchange and Payment Solutions Continue to Expand

New UK Guidance Published, Licenses Received by Cryptocurrency Firms Across Globe

Cryptocurrency Enforcement Actions Continue From IRS and DOJ

Cryptocurrency Exchange and Payment Solutions Continue to Expand

By: Nicholas C. Mowbray

This week, Blockchain.com, a London-based supplier of digital wallets, announced that it is moving into the trading side of cryptocurrencies with a London-based exchange. The exchange will offer Bitcoin, Ether, Bitcoin Cash, Tether Litecoin and Paxos Standard (PAX), with customers being able to deposit funds immediately and trading to begin shortly thereafter. This week Bittrex announced that it is partnering with a Bahrain-based cryptocurrency exchange and custodian to launch a digital asset trading platform for customers in the Middle East and North Africa. The platform will offer all tokens that are currently available on Bittrex, including four bitcoin trading pairs with local fiat currencies.

This week Prime Trust, a crypto custodian and trust company, issued a press release announcing new features that reportedly allow its account holders to “instantly transfer any crypto asset with other account holders in real time.” Another announcement this week provided details on a partnership between bitcoin rewards company Lolli and a major U.S. grocery store chain. The partnership will allow users of the rewards company to receive fractional amounts of bitcoin for all online purchases the users make with the grocery chain. It marks the first major collaboration between a major grocery chain and a bitcoin rewards company in the United States. A final development on cryptocurrency payments comes from Brazil, where the city of Fortaleza is reportedly exploring an option to allow bitcoin payments on its public transportation network.

In the traditional financial services sector, this week one of the world’s largest money transfer platforms announced a two-year partnership with a well-known blockchain technology payments and remittance firm. The partnership will reportedly include cross-border payments and foreign exchange settlements via digital assets, with the goal of providing increased liquidity and settlement. In related news, an international bank this week announced the launch of a payment-focused stablecoin pegged to the Philippine peso. The stablecoin is intended to provide transparency and automate payment executions by resolving reconciliation issues and easing audit and compliance issues.

For more information, please refer to the following links:

New UK Guidance Published, Licenses Received by Cryptocurrency Firms Across Globe

By: Robert A. Musiala Jr.

This week the UK Financial Conduct Authority published its Guidance on Cryptoassets Feedback and Final Guidance to CP 19/3, which “aims to give market participants and interested stakeholders clarity on the types of cryptoassets that fall within the FCA’s regulatory remit and the resulting obligations.” This “Final Guidance” defines three key categories of cryptoassets: “exchange tokens” for buying and selling goods and services; “utility tokens” for accessing a product or service; and “security tokens,” which provide rights and obligations akin to specified investments. Elsewhere in Europe, beginning Jan. 1, 2020, German cryptocurrency-related businesses such as exchanges and wallet providers will be required to be licensed by the German Federal Financial Supervisory Authority (BaFin) and comply with AML regulations.

In Switzerland this week, Aximetria, which offers a personal finance app for cryptocurrencies, was reportedly awarded a license from the Swiss Financial Services Standards Association (VQF), which allows the firm to start operations as a crypto financial intermediary under the Swiss Anti-Money Laundering Act. In another report from Switzerland, Zug-based startup Smart Valor has announced a new exchange operating from both Switzerland and Liechtenstein that will provide custody, trading and brokerage services.

In Gibraltar this week, Quedex announced that it was granted a Distributed Ledger Technology (DLT) Providers license for trading of cryptocurrency derivatives and for custody of cryptocurrencies by the Gibraltar Financial Services Commission. According to reports, this makes Quedex “the first regulated entity of its kind globally.” In Bermuda this week, XBTO International (XBTOI) became the third firm to receive a Bermuda Monetary Authority License under Bermuda’s 2018 Digital Asset Business Act.

Finally, in the U.S., a press release this week announced that startup ALTA has been accepted into the Arizona Attorney General’s Office FinTech program. According to the press release, ALTA is seeking to launch a service that would allow cash-intensive businesses “to pay each other for goods and services using a proprietary blockchain-based, U.S. dollar-backed stablecoin digital asset instead of cash.”

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Cryptocurrency Enforcement Actions Continue From IRS and DOJ

By: Joanna F. Wasick

The IRS is prioritizing tax compliance for cryptocurrency investors. According to reports, last week the agency began sending letters to thousands of U.S. taxpayers warning of potential civil and criminal enforcement action if they do not amend their returns to accurately report any cryptocurrency-related income. “Taxpayers should take these letters very seriously by reviewing their tax filings and when appropriate, amend past returns and pay back taxes, interest and penalties,” IRS Commissioner Chuck Rettig said in a statement. He further emphasized that the IRS is increasing its use of data analytics to expand its efforts involving this space.

Late last month in California, BTC-e, a now-defunct cryptocurrency exchange, and Alexander Vinnick, a Russian national and BTC-e senior executive, were indicted for money laundering, operating an unlicensed exchange and unlawful money services business, and other related charges. BTC-e reportedly touted itself as an anonymous way to trade cryptocurrency and, over its six years in operation, reportedly served 7,000,000 users who traded over $296 million worth of assets. The government charges that a significant amount of those assets were proceeds from illegal activity. The defendants face penalties of over $100 million. Vinnick is currently detained in Greece, with both the U.S. and Russia seeking his extradition.

The U.S. Attorney’s Office of the Southern District of New York recently announced charges against Jon Barry Thompson, the principal of the cryptocurrency escrow company Volantis Escrow Platform LLC (Volantis). According to the government, Thompson induced investors to transfer millions of dollars to Volantis for further investment into cryptocurrencies. However, Thompson allegedly stole the funds instead of investing them. He faces up to 60 years in prison. Also in New York, Lawrence Ross was arrested for charges related to the importation, manufacture and distribution of over 10 kilograms of ecstasy and over 45 grams of methamphetamine. According to the government, Ross sold the drugs through the Dark Web and Wickr (an instant messenger application), distributed them through the U.S. mail, and accepted bitcoin as payment.

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