Blockchain Developments: Cryptocurrencies, Enterprise Solutions, New Regulations, SEC Enforcement, Crypto-Mining Malware and More

In this issue:

Stablecoin Activity Heats Up, Bitcoin’s Speculation Problem and Other Payments News

Advancements in Blockchain Solutions for Pharma Supply Chain, Aircraft Parts, Insurance, Identity and Data Privacy

Crypto-Asset Regulatory Frameworks Develop in Europe, Japan, Australia and Malaysia

Cracking Down on Crypto Around the World

New Crypto-Mining Malware Attacks, Phone SIM Attacks and Disappearing Exchanges

Stablecoin Activity Heats Up, Bitcoin’s Speculation Problem and Other Payments News

By: Brian P. Bartish

Despite the increase in major companies opening up payment options in bitcoin, research from Chainalysis shows that only 1.3% of bitcoin transactions came from merchants in the first four months of 2019, starkly contrasting with exchange activity that accounted for 89.7 percent of transactions during that same time period. According to data from the Commodity Futures Trading Commission, Bitcoin Futures contracts exchanged on the Chicago Mercantile Exchange hit a record high between May 27 and June 3, with more than 5,190 contracts outstanding, and many people suggesting increased institutional participation as the reason for the uptick. According to a recent report, interest in bitcoin investment among the superwealthy may lead to a new industry of “boutique” cryptocurrency brokerages, such as the Dadiani Syndicate in London, which coordinates peer-to-peer transfers, avoiding traditional exchanges, including one client who was interested in purchasing 25 percent of all currently available bitcoin.

Data published by blockchain news outlet The Block noted a positive correlation between GDP per capita and cryptocurrency traffic per capita and found that the U.S. accounts for 24.5 percent of total traffic on cryptocurrency exchanges, the most of any country by a significant margin. However, when measuring traffic on a per capita basis, other nations, including Singapore, South Korea and Switzerland, outstrip the U.S. Despite reports of widespread cryptocurrency trading manipulation, recent analysis is offering a new perspective, as trends in overall trading volume appear to correlate with on-chain transfers of the stablecoin tether to cryptocurrency exchanges, particularly in the Chinese market, which accounts for 60 percent of all on-chain transaction value for tether so far in 2019.

Cryptocurrency exchange OKCoin announced that it has launched operations in the EU as of this past week, allowing European customers options for trading in euro pairs for bitcoin, ether and bitcoin cash with additional cryptocurrency offerings planned for the future. OKEx, which shares a common owner with OKCoin, reportedly launched its stablecoin, USDK, in collaboration with its sister company OKLink and a major U.S.-based custodian already holding the collateral for a competing stablecoin. Bitfinex and affiliated firm Tether recently announced that they will be launching the leading stablecoin, tether, on a number of new blockchains, including the Lightning Network, a layer 2 protocol designed to increase the speed and lower the costs of transactions. In Finland, peer-to-peer exchange LocalBitcoins is reported to have removed the option for in-person cash transactions of cryptocurrency after the exchange announced in February that it would comply with the EU’s anti-money laundering (AML) directive.

For more information, please refer to the following links:

Advancements in Blockchain Solutions for Pharma Supply Chain, Aircraft Parts, Insurance, Identity and Data Privacy

By: Robert A. Musiala Jr.

According to reports this week, the world’s largest retailer by sales has joined MediLedger, a pharmaceutical industry consortium that is working to build a blockchain solution for tracking the provenance of pharma products. The company is already well known for its involvement spearheading the blockchain industry consortium known as the IBM Food Trust. In other supply chain news, a recent report provided details on GoDirect Trade, an online marketplace for used aircraft parts that is powered by blockchain and hosted by a major global aerospace firm. According to the report, by leveraging blockchain, GoDirect Trade enables more efficient tracing of the origins and certifications of aircraft parts, which are heavily regulated. Late last week, Hyperledger announced the launch of the Hyperledger Supply Chain Special Interest Group, an organization intended “to facilitate focused technical and business-level conversations related to appropriate use cases for blockchain technology across Supply Chain management.”

In a recent press release, two major U.S. insurance companies announced a “joint subrogation solution” that will leverage blockchain to improve the speed of the auto claims subrogation process. The solution is being billed as “the first of its kind between two major leaders in the insurance industry.” In the banking sector, a blockchain-based identity management system co-developed by Brazil’s central bank and a major global technology firm was reported this week. The solution is reportedly built on Hyperledger Fabric and is intended for eventual integration into payment systems used by all financial institutions in Brazil. Also this week, a major U.S. technology and camera-related products company announced the launch of a blockchain-based document management platform designed to enhance information safety and security.

Late last week, a Big Four accounting and consulting firm released the code for its experimental Ethereum-based “Nightfall” solution on GitHub, the open source software repository. Nightfall reportedly uses “zero-knowledge proofs” to enable ERC20 tokens to be transacted on Ethereum with “complete privacy.” A recent report by Gartner addressed the multitude of blockchain platforms in the market and predicted that 90 percent of current enterprise blockchain implementations will need to be replaced within the next two years, due in part to the lack of industry consensus on product concepts, feature sets, core application requirements and target markets.

For more news on blockchain payments, please see the following articles:

Where Blockchain Adoption By Governments And The Private Sector Stands: An Overview

Crypto-Asset Regulatory Frameworks Develop in Europe, Japan, Australia and Malaysia

By: Simone O. Otenaike

Last week, a Switzerland-based global financial stability regulator proposed a more global approach to the regulation of crypto-assets. The regulator suggested that national authorities responsible for the regulation of crypto-assets need to work toward international coordination and the development of global standards. According to the regulators’ reports, the crypto-asset market requires continuous evaluation of risks associated with crypto-assets as potential regulatory gaps emerge due to rapid technological change in the industry. In related news, last week, the board of the International Organization of Securities Commissions solicited comments on a proposal that outlines the issues associated with crypto-asset trading platforms. The proposal also aims to aid regulatory authorities in the evaluation of crypto-asset trading platforms within the context of their regulatory frameworks.

The Japanese House of Representatives recently approved a new bill to amend its crypto-asset laws and regulations. The bill, prepared by Japan’s Financial Services Agency, reportedly introduced amendments that promote user protection, tighten regulations on crypto derivatives trading, mitigate trading risks like exchange hacks and establish a more transparent regulatory framework for the new asset class in the Act on Settlement of Funds and the Financial Instruments and Exchange Act. The bill is expected to go into effect in April 2020. In Australia, the Australian Securities & Investments Commission released new guidance for firms involved with initial coin offerings (ICOs) and crypto-assets last week. The new guidance offers information on how the Corporations Act may apply to businesses that raise funds through an ICO or offer services related to crypto-assets. Early this week, the Securities Commission Malaysia announced that three Recognized Market Operators (RMOs) are now authorized to operate digital asset exchanges in Malaysia. While the RMOs may begin operations under such authorization, the RMOs will have nine months to satisfy all regulatory requirements.

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

Cracking Down on Crypto Around the World

By: Jonathan D. Blattmachr

This week, the Securities and Exchange Commission (SEC) announced an action against Kik Interactive, Inc., alleging an illegal $100 million digital securities offering through which more than 10,000 investors worldwide bought one trillion “Kin” tokens. The SEC alleged that Kik sold the Kin tokens without registering them.

The complaint alleges that Kik’s business, a messaging service, was foundering by late 2016, and the company expected to run out of money within a year. Kik allegedly decided, therefore, to pivot to its Kin offering, which could fund its ongoing operations. Kik issued a white paper, and its CEO made a speech about the offering in May 2017; Kin would fund an ecosystem in which Kin could be used to buy goods and services. According to the SEC, “Kik relentlessly pitched Kin and the prospect that Kik’s future efforts to develop the Kin Ecosystem would drive an increase in Kin’s value.”

Kik distributed the Kin through a Simple Agreement for Future Tokens (SAFT), which offered wealthy investors a discount on the price offered to the general public. Kik also conducted a general public offering. Each offering raised about half of the $100 million total, $55 million of which was raised from U.S. investors. The SEC has alleged violations of the Securities Act, seeks to permanently enjoin Kik from further similar offerings, and seeks disgorgement and civil penalties.

The SEC also brought an action against Longfin Corp., its CEO and a consultant, with the Commission alleging they falsified Longfin’s revenue for the purpose of fraudulently securing the company’s listing on Nasdaq. The SEC previously obtained a preliminary injunction against these defendants (and others), which froze $27 million in purportedly illegal trading proceeds and unregistered stock distributions. The Commission alleges the defendants obtained Reg A+ qualification by falsely representing in SEC filings that the company was principally managed and operated in the U.S., when, instead, it was managed and operated in India. The company also allegedly had no actual assets, with only $75 in cash on hand and a few hundred thousand dollars of receivables. The SEC alleged violations of multiple Securities and Exchange Act sections, and it seeks permanent enjoinment, civil penalties, an industry bar for the CEO, disgorgement and civil penalties.

In literal and figurative dark news, the U.S. Attorney’s office for the Northern District of Texas has indicted an alleged darknet drug dealer. The accused has been charged with conspiracy to possess with intent to distribute a controlled substance, specifically fentanyl. The defendant allegedly tried to purchase the deadly drug, an opioid, by sending more than $120,000 in bitcoin to wallet addresses that federal agents controlled as part of the sting.

QuadrigaCX investors lost about $150 million earlier this year when its co-founder and CEO died, and the company reported no one could access the wallets that held their money. The FBI is now getting involved and has launched a website asking those who believe they are victims to provide information.

Outside the U.S., the Italian securities regulator has suspended investment firm Tessline and its cryptocurrency for violations of Italian finance law. Separately, the European Commission recently warned Malta that it needs stronger AML enforcement in the crypto sector, citing concerns that “[g]overnment shortcomings” could negatively impact the business environment and investments. In Australia, tax officials are reportedly investigating a dozen schemes that appear to center on cryptocurrencies, including investigation of a global financial institution that may have helped taxpayers hide assets and avoid taxation and/or aid criminal activities.

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

New Crypto-Mining Malware Attacks, Phone SIM Attacks and Disappearing Exchanges

By: Jordan R. Silversmith

According to recent reports, scores of crypto users were hit last week by SIM-swapping attacks in what appears to have been a coordinated wave of attacks. SIM swapping, also known as SIM jacking, is a form of account takeover (ATO) attack, where hackers use techniques like social engineering to transfer a victim’s phone number to their own SIM card in order to reset passwords or obtain two-factor verification codes to access protected accounts. Victims of the recent attacks were reportedly all members of the crypto community living in the United States, with one victim admitting to losing over $100,000 of cryptocurrency.

A China-based malware campaign dubbed the “Nansh0u campaign” has been in progress since February, reportedly breaching more than 50,000 servers across the world and infecting more than 700 new victims a day with crypto-mining malware. According to reports, most of the firms affected are in the healthcare, telecom, media and IT sectors, and the malware packages were written using sophisticated Chinese language tools and placed on Chinese language servers.

According to recent reports, a new malware called BlackSquid employs at least eight of the most dangerous exploits currently available to hackers to infect servers and install Monero coin mining software on them. The majority of BlackSquid attacks so far apparently have occurred in Thailand and the United States, with the last week of May having been the most active period for the malware yet. Another recently reported crypto-mining malware campaign involves a fraudulent website impersonating the Cryptohopper trading platform. When visited, the malicious website reportedly executes an attack that installs crypto-mining malware and a “clipboard hijacker.”

A popular crypto exchange unexpectedly shut down its services in April and has allegedly disappeared with customer funds. Though the exact amount involved in the alleged fraud by Coinroom, the Polish crypto exchange, is not yet known, customers with deposits ranging from around $79 to $15,660 recently reported the theft. Founded in 2016, Coinroom was one of the most widely used digital asset exchanges in Poland and offered fiat-based crypto trading to its clients.

A recent report by blockchain analytics firm Chainalysis found that upwards of 64% of ransomware attack cash-out strategies use crypto exchanges to launder funds. The report also indicated a shift in how ransomware attacks are carried out. According to the report, while the tendency before had been to conduct wide and shallow attacks, infecting myriads of random victims and demanding small amounts to decrypt the files, criminals are beginning to home in on targets with legally or politically sensitive data and demanding larger payments to ransom the data.

For more information, please refer to the following links:

Cryptocurrency and Blockchain Applications Gain Adoption, Enforcement Actions Continue

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

Established Firms Implement Cryptocurrency Payments, Blockchain Tracking and Data Management Systems

Unlicensed Money Transmitter Sentenced, P2P Exchange Retreats From Iran and a Benevolent 51% Attack

SEC Enforcement Actions Continue as New Cryptocurrency-Based Assets Launch

Established Firms Implement Cryptocurrency Payments, Blockchain Tracking and Data Management Systems

By: Diana J. Stern

Late last week, a major multinational telecommunications conglomerate announced it is the first major mobile carrier to accept online bill payments from customers in cryptocurrency through its deal with BitPay, a cryptocurrency payment processor. Also at the end of last week, a global consulting firm struck a deal to build a blockchain-based platform with Blockchain Wine Pte. Ltd. that will leverage the firm’s OpsChain Solution for tracking the authenticity, quality and provenance of vintage wines. On the high seas, a recent report announced that the world’s second- and fourth-largest container shipping companies are joining TradeLens to digitize maritime shipping. According to reports, paperwork accounts for 20% of the cost of shipping a container from one place to another, and by adding these two players to its platform, TradeLens will now track nearly half of all cargo being shipped by sea.

According to media outlets, three of the largest banks in Ireland are collaborating on a pilot with a major consulting firm to provide bank employees with digital wallets that hold their educational and regulatory credentials, which can be verified and tracked using blockchain technology to facilitate compliance. In other news, a leading cloud-based software provider recently released a blockchain product that enhances its CRM services. The tech giant reportedly has three clients already testing the product in different verticals. Another development of note this week emerged from the University of Surrey, which is using computer vision and a proof-of-authority blockchain to develop a solution for securing national digital video archives worldwide.

For more information, please refer to the following links:

Unlicensed Money Transmitter Sentenced, P2P Exchange Retreats From Iran and a Benevolent 51% Attack

By: Joanna F. Wasick

According to a press release published this week, Morgan Rockcoons of Las Vegas, Nevada, has been sentenced to 21 months in prison for wire fraud and operating a bitcoin exchange without registering with the U.S. Financial Crimes Enforcement Network (FinCEN). The press release states that Rockcoons advertised his exchange services on LocalBitcoins.com and conducted more than 1,000 bitcoin trades with more than 644 people. Late last week, the Financial Action Task Force, an intergovernmental organization, announced plans to finalize new global standards that aim to intensify anti-money laundering regulations of cryptocurrencies. Among other things, these regulations would require cryptocurrency exchanges to comply with the “travel rule” for funds transmittal by identifying and recording parties to virtual asset transactions, just as other financial institutions do with wire transfers.

According to a recent report, LocalBitcoins, a Helsinki-based peer-to-peer exchange, has shut off service for Iran-based users. The exchange did not publicly state a reason for the change, but most agree that U.S. sanctions were at the root of the decision. LocalBitcoins has been one of the most popular bitcoin trading websites among Iranian cryptocurrency users. The exchange did not require international credit card information, and allowed users to pay with their local bank accounts.

In what appears to be a first-of-its-kind event, two Bitcoin Cash mining pools recently carried out a “51% attack” on the blockchain in order to thwart another miner’s attempt to steal coins in the wake of a planned hard fork that occurred May 15. A 51% attack entails one group with a majority of the hash rate executing commands they are normally precluded from carrying out, such as rewriting the network’s transaction history. While the 51% attack is usually considered something done by wrongdoers, here it was apparently undertaken to do something beneficial.

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

SEC Enforcement Actions Continue as New Cryptocurrency-Based Assets Launch

By: Marc D. Powers

The SEC has brought a civil injunctive action in federal court against a California man claiming to be selling instructional packages, which also provided “points” that could be converted into digital assets known as PRO Currency. The agency claims that the multilevel marketing companies offering the packages and digital tokens were involved in a fraudulent pyramid scheme which raised over $25 million between January 2017 and March 2018 in an unregistered securities offering. The SEC further alleges that Daniel Pacheco, the mastermind behind the companies providing the instructional packages and tokens, which traded on several cryptocurrency exchanges, used a portion of the funds raised to purchase a new home for $2.5 million and to buy a Rolls-Royce for himself. The SEC also seeks the return of the proceeds from various relief defendants, apart from Pacheco.

The messaging app Kik, which raised $100 million in 2017 in an ICO of the Kin token, and which was recently told by the SEC that it is likely to be sued by the agency for an unregistered securities offering, appears to be preparing financially for its defense and a long fight. It recently set up a crowdfunding campaign, complete with a podcast explaining its proposed defense, to raise $5 million.

For several years, Grayscale Investments has been offering to accredited investors the opportunity to purchase interests in Bitcoin, Ethereum and several other large-cap cryptocurrencies through its trust structure, with the hope and expectation that after a one-year holding period, the trust interests would be available for sale legally in a secondary market. This has previously been the case for Bitcoin under the symbol GBTC, which has been available for trading in the over-the-counter market since early last year. Within the past two months, that also became true for Ethereum Classic. Late last week, Grayscale announced that FINRA had approved the secondary market trading of its Ethereum Trust shares, each of which is the equivalent of about 1/10th of an ether. Once trading begins, all investors, not just those whom are deemed accredited, will be able to purchase interests in this digital asset in their traditional and IRA brokerage accounts.

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

Race to Build Crypto Payment Systems and Blockchain Solutions Continues As Governments Continue to Fight Crypto Crimes

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

Industry Initiatives Indicate Growing Interest in Cryptocurrency Payments

Pilots Target Energy Grids and Garments, Blockchain Patent Race Continues

Enforcement Actions Against Cryptocurrency Crimes Continue Across the Globe

Industry Initiatives Indicate Growing Interest in Cryptocurrency Payments

By: Robert A. Musiala Jr.

Late last week, Reuters reported that “[s]everal of the world’s largest banks are in the process of investing around $50 million” to create “… a digital cash equivalent of central bank-backed currencies like the dollar or euro that would run on blockchain-based technology.” The institutional cryptocurrency would be “convertible at parity and backed by cash assets held at a central bank.” According to other reports this week, one of the world’s largest social media companies has formed Libra Networks, a Swiss-based financial technology company. The company is reportedly planning to begin testing its own cryptocurrency aimed at making it easier for people without a bank account to send and receive money.

This week, a major U.S.-based cryptocurrency exchange added USD Coin (USDC), a cryptocurrency pegged 1:1 to U.S. dollars held in FDIC-insured banks, to its merchant payment platform, enabling online merchants to accept USDC as payment. The firm behind USDC recently released a report from a major U.S. accounting firm attesting to the U.S. dollar reserves backing the stablecoin.

This week another major U.S.-based exchange disabled trading by U.S. customers of nine assets, stating that “it is not possible to be certain whether U.S. regulators will consider these assets to be securities.” Meanwhile, Bitfinex, a foreign-based exchange, has reportedly launched UNUS SED LEO, “a utility token … to maximize the output and capabilities of the Bitfinex trading platform.” According to a press release, the exchange “conducted and completed a private sale of 100% of outstanding UNUS SED LEO tokens in exchange for one billion USDt worth of Bitcoin, USD, and USDt.” Bitfinex is currently involved in litigation related to an investigation by the New York Attorney General.

According to a recent report, data from three major Japanese trading platforms indicates an increased interest in cryptocurrencies, with new account openings up 200% in the past two months. At the same time, a paper recently published by the European Central Bank found that cryptocurrencies do not currently pose a threat to financial stability in the euro zone. According to the paper, “in the current market, crypto-assets’ risks or potential implications are limited and/or manageable on the basis of the existing regulatory and oversight frameworks.”

For more information, please refer to the following links:

Pilots Target Energy Grids and Garments, Blockchain Patent Race Continues

By: Simone O. Otenaike

A leading Japan-based automaker and an American automaker recently announced plans to join a research project that will evaluate the potential use of electric vehicles’ storage batteries to stabilize the renewable energy power supply in smart grids. The research will be conducted under the framework of the Mobility Open Blockchain Initiative, an international consortium of automotive, IT and other businesses that promote blockchain standards in the mobility industry. Another leading Japan-based automaker, in conjunction with a Japanese university and a Japanese renewable energy retailer, also announced plans to test a project on the efficient usage of electricity. The firms’ research project aims to enable homes, businesses and electrified vehicles to trade electricity using blockchain technology.

Last week, a luxury fashion brand announced plans to implement Iota’s distributed ledger technology for the firm’s supply chain tracking. The brand is known for its strong emphasis on sustainability by use of recycled materials. The firm aims to provide customers with the opportunity to verify any assertions made about the garments in their supply chain and track garments from creation to point of sale. Also last week in textile industry news, a world market leader in textile fibers made from renewable wood announced plans to use Textile Genesis, a Hong Kong-based blockchain platform, to support its business. The textile firm will reportedly offer a QR code on the final garment so that consumers can trace the fibers in the finished product.

The U.S. Patent and Trademark Office has granted a patent for various techniques used to build a proof-of-work cryptographic system, comparable to the cryptographic systems that form the basis of various blockchain-based platforms, to an e-commerce giant based in the United States. According to reports, the patent does not directly discuss blockchains or cryptocurrencies ‒ the patent primarily outlines how a Merkle tree structure, a concept that dates to 1979, allows for verification of data sent between computers on peer-to-peer networks. The second-largest banking institution in the United States also recently obtained a patent that deals with cryptographic systems. According to reports, the patent outlines a cryptocurrency risk detection system that calculates the risk associated with a unique cryptocurrency transaction and assigns a score based on transaction history and IP address. A recent industry report estimates that China-based firms and agencies filed 4,435 blockchain patent applications between 2013 and 2018, roughly 48% of global blockchain patent filings. The same report estimates that U.S.-based firms and agencies filed 1,833 blockchain patent applications, which is roughly 21% of global blockchain patent filings.

The Ethereum Foundation recently announced plans to invest $30 million in key projects across the Ethereum ecosystem over the next year. The funds will support the research and development that powers active engineering projects like ETH 2.0 and live applications like Ethereum 1.0. Funds will also promote developer relations, education and on-boarding to increase access to the Ethereum community in other parts of the world and ensure Ethereum’s continued success. The announcement comes on the heels of news that Ethereum clients’ failure to patch known vulnerabilities may pose a security risk to the entire network. A recent report indicates that many nodes using the Parity and Geth clients on the Ethereum network remain exposed after patches for security flaws were released.

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

Enforcement Actions Against Cryptocurrency Crimes Continue Across the Globe

By: Joanna F. Wasick

This week, the SEC obtained a court order shutting down a $30 million Ponzi scheme operating out of Florida through Argyle Coin LLC, a purported cryptocurrency business, and its principals, Jose Angel Aman and Harold and Jonathan Seigel. According to the SEC complaint, hundreds of U.S. and Canadian investors were tricked into investing in Argyle Coin under the false claim that its tokens were backed by diamonds. Instead, new investor money was used to pay fake returns to prior investors, and to pay for the individuals’ own exorbitant personal expenses. In a similar action, authorities in Brazil shut down Indeal, another cryptocurrency Ponzi scheme, that defrauded 55,000 investors out of about $200 million. The company promised investors a 15% payout in the first month of investment. But as with Argyle (and any Ponzi scheme), new investors simply paid out old investors, with some additional funds going straight to the individuals behind the fraud.

Dutch authorities, together with Europol and authorities in Luxembourg, recently seized Bestmixer.io – a major “tumbler” (cryptocurrency mixing company that obscures a token’s original source), after investigators determined that a large number of mixed coins were used for money laundering or illegal financing. The action is widely viewed as the first major case against a cryptocurrency tumbler/mixer. In another matter, Dutch police arrested former cryptocurrency entrepreneur Barry van Mourik for defrauding investors out of $25 million in a fake bitcoin mining operation. In China, two over-the-counter (OTC) cryptocurrency market makers were charged with illegally collecting $56 million worth of bitcoin from over 100 OTC traders as part of a massive loan scheme. The two money makers had spent the past two years building up their credibility through an OTC chat group. And in Australia, a government employee is facing charges that he used his position as an IT contractor to illegally siphon off processing power from the government’s computer network in order to mine cryptocurrency.

The U.S. Commodity Futures Trading Commission (CFTC) has a new tactic to combat the upswing in cryptocurrency-related crime ‒ working with whistleblowers. The CFTC issued a statement telling the public they could receive both financial awards and certain protections if they report information that leads to the halt of fraud and manipulation related to virtual currencies. The U.S. Internal Revenue Service (IRS) also made a cryptocurrency-related statement, indicating in a letter to a U.S. Congressman that it is working on new tax guidance for cryptocurrency that will clarify issues such as calculating cost basis, acceptable methods of cost basis assignment and tax treatment of forks. This would be the first cryptocurrency guidance from the IRS since 2014.

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

New Blockchain Solutions Debut Amid Enforcement Actions, New FinCEN Guidance and Warnings of ‘Blockchain Fatigue’

In this issue:

Blockchain Solutions for Supply Chain and Digital Identity Announced Despite Predictions of ‘Blockchain Fatigue’

Blockchain Capital Markets Diversify Amid ICO Slumps; Regulators Issue New Warnings

FinCEN Issues Guidance, SIM Hackers Charged, Bitcoin Ransomware Traced to Sanctioned Countries

Blockchain Solutions for Supply Chain and Digital Identity Announced Despite Predictions of ‘Blockchain Fatigue’

By: Diana J. Stern

With the help of a major technology firm, the company that supplies jet engines to over half of the global airline industry created a production blockchain pilot, using a custom-built fork of Ethereum, to track and trace the engines – a product for which quality is critical and ownership can change hands over time. The goal is for a consortium of industry partners to use the system, internally known as TRUEngine, to track the provenance of engine parts from the moment of manufacturing. Another enterprise blockchain platform for provenance, AURA, was announced this week by ConsenSys, a major luxury brands holding company, and a large technology company. The Quorum-based platform is the result of a traceability program launched three years ago. At one end, the system provides track-and-trace for raw materials, and at the other, customers can use an app to request an AURA certificate of authenticity.

In government adoption news this week, Switzerland’s national post is working with blockchain and IoT company Modum on a device, ThermoCare, that uses a permissioned blockchain to track the temperature of shipments such as food and pharmaceuticals while they are in transit. The rationale for using a permissioned blockchain is that the data has to stay within Switzerland and meet bank security requirements.

There were a number of developments in digital identity this week. A multinational technology company launched Ion, an infrastructure for decentralized identifiers (DIDs) that uses the Bitcoin blockchain. DIDs are used in a number of emerging identity solutions that aim to place control over user data back in the hands of the users themselves. Also this week, Hyperledger added a new identity project, Aries. It is not a blockchain, nor an application, but rather an infrastructure that aims to enable peer-to-peer messaging, interoperability between different blockchains and distributed ledgers, as well as the exchange of blockchain-based data. The Aries tools include an encrypted messaging system, cryptographic wallet and an implementation of the Decentralized Key Management System being incubated in Hyperledger Indy.

In other news, this week the Enterprise Ethereum Alliance released two new specifications: a set of standard APIs for off-chain trusted computation, and a new version of the EEA client specification. The former received contributions from EEA members including two large technology firms, a major bank and ConsenSys.

While supply chain solutions continue to populate the enterprise blockchain landscape, Gartner warns that 90% of them will suffer “blockchain fatigue” by 2023. According to analysts, many will not pass the pilot phase due to the overall immaturity of the technology, overly ambitious expectations, and misunderstandings about how blockchains can and cannot support supply chain management, as well as a lack of standards.

Finally, a recent Forbes article detailed how enterprises including major coffee, grocery and retail chains are allowing users to pay using an app called Spedn, which accepts cryptocurrency. According to the report, a coffee purchase on Spedn for which the end user provided Gemini Dollars was successful, but none of the app’s clients confirmed their participation in the launch.

For more information, please refer to the following links:

Blockchain Capital Markets Diversify Amid ICO Slumps; Regulators Issue New Warnings

By: Brian A. Bartish

As of this week, the World Bank and Commonwealth Bank have enabled secondary market trading recorded on the blockchain for bond-i (blockchain operated new debt instrument), the first bond to be created and managed through its life cycle using blockchain. According to a press release, this new development marks a significant step for bond-i since its first issuance in August 2018, and helps demonstrate the potential for blockchain to make the process of raising capital and trading securities more efficient and transparent. In related news, a leading multinational professional services firm and an investment firm specializing in digital assets recently released a joint report detailing results of research into 100 of the largest global cryptocurrency hedge funds. The report found that despite the volatility of the cryptocurrency market in 2018, cryptocurrency funds showed surprising success at fundraising, with median assets under management (AuM) growing approximately three-fold as of Q1 2019 from the median AuM at fund launch in January 2018.

The ICO market is seeing a significant slump, according to research by cryptocurrency exchange BitMEX, with Q1 2019 returns at $40 million, down 97% from the same time period in 2018. As returns on ICOs flounder, some projects are opting to rebrand as initial exchange offerings (IEOs). However, an SEC senior advisor recently warned that U.S.-based exchanges that facilitate IEOs may be in violation of the law if they do not comply with applicable licensing requirements for broker-dealers, alternative trading systems or national securities exchanges.

This week, the SEC initiated cease-and-desist proceedings with Canada-based NextBlock Global Ltd. and its owner Alex Tapscott, co-author of the book Blockchain Revolution, for falsely representing that as many as four prominent members of the blockchain community were acting as advisors to NextBlock in order to facilitate fundraising. Noting remediation efforts undertaken by NextBlock and a settlement agreement with the Ontario Securities Commission that required NextBlock to pay $700,000 CAD, the SEC issued a civil penalty of $25,000 against Tapscott.

For more information on this week’s post, please see the links below:

FinCEN Issues Guidance, SIM Hackers Charged, Bitcoin Ransomware Traced to Sanctioned Countries

By: Simone O. Otenaike

Late last week, The Financial Crimes Enforcement Network (FinCEN) published FIN-2019-G001, which contains new guidance discussing how FinCEN regulations related to money services businesses apply to certain business models involving convertible virtual currencies (CVCs). On the same day, FinCEN issued FIN-2019-A003, an advisory that highlights suspicious activity and red flags associated with the exploitation of CVCs for money laundering, sanctions evasion and other illicit financing purposes.

Also last week, nine individuals connected to an “SIM Hijacking” group were charged with conspiracy to commit wire fraud and aggravated identity theft in the Eastern District of Michigan. SIM Hijacking involves hacking a phone number to exploit “two-factor authentication” and intercept text messages with the security codes required to access the target’s bank or cryptocurrency accounts. The defendants allegedly facilitated the SIM Hijacking by bribing an employee of a mobile phone provider or by contacting a mobile phone provider’s customer service posing as the victim. Three of the nine defendants named in the complaint were employees of major mobile phone providers and are reportedly the first telecommunications employees to be indicted in an SIM Hijacking case. In other SIM Hijacking news, late last week a court awarded one of the largest court judgments to an individual in the cryptocurrency space. A cryptocurrency investor won $75.8 million in a civil judgment against a 21-year-old who used SIM Hijacking to steal 3 million crypto tokens, worth roughly $23.8 million at the time, from his cellphone account in early 2018.

According to recent reports, two American companies that claimed to help victims regain access to their computers after a ransomware attack by using the latest technology regularly made bitcoin ransom payments to hackers and passed off the costs to the victims. Payments by one of the companies were reportedly traced to bitcoin wallets that are now banned by the U.S. Treasury Department due to sanctions against Iran. In some instances, the victims that unknowingly pay the ransom through these companies are public agencies ‒ thus taxpayer money may be providing support to cybercriminals in U.S.-sanctioned countries.

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

New Blockchain Solutions Across Industries, Institutional Cryptocurrency Trading Announced, Major Cryptocurrency Exchange Is Hacked

Modern research and information technologies in cyberspaceSupply Chain Initiatives Announced by Major Private and Public Sector Actors

New Blockchain Enterprise Applications Announced Across Industries

Cryptocurrency Products and Blockchain Systems Announced by Institutions and Startups

Major Exchange Hacked, Security Flaws Reported, Arrests by Department of Justice and Europol

Global Blockchain Survey Released

Supply Chain Initiatives Announced by Major Private and Public Sector Actors

By: Robert A. Musiala Jr.

This week one of the world’s largest technology firms announced an initiative with one of the world’s largest retail coffee stores to develop a mobile app feature, powered by blockchain, that “shows customers information about where their packaged coffee comes from, from where it was grown … to where and when it was roasted, tasting notes and more.” In another press release published this week, a major Latin American producer of premium shrimp announced that it has joined the Food Trust, the largest industry consortium using blockchain for food supply chain solutions. Late last week, a report provided details on a project underway by the Mexican state of Tamaulipas and a blockchain and IoT startup, GrainChain, that will use blockchain to track the supply chain of grain produced in the region from “farm to marketplace” and streamline the process of processing grain deliveries so that farmers can get paid faster.

Also late last week, a press release announced the World Economic Forum’s Redesigning Trust with Blockchain in the Supply Chain project. According to the press release, the project brings together “[l]eaders from the global supply chain and logistics industry, the world’s largest ports, blockchain start-ups, importers/exporters … and over 20 governments to accelerate blockchain deployment across supply chains.” The project’s goals include “to help supply chain decision-makers cut through the blockchain hype and ensure that the technology is deployed in an interoperable, responsible and inclusive way.”

For more information, please refer to the following links:

New Blockchain Enterprise Applications Announced Across Industries

By: Simone O. Otenaike

The Federal Communications Commission (FCC) is reportedly exploring the use of blockchain technology to record and monitor the use of Wi-Fi spectrums in connection with internet of things (IoT) sensors and devices. According to reports, the total number of IoT sensors and devices will increase from 21 billion this year to 50 billion by 2022. The FCC aims to use blockchain technology to offer a secure and standardized method to accelerate data exchange between IoT devices and to track radio wave spectrums in order to help resolve airwave distribution scarcity and improve wireless technology development.

Last week, four multinational life sciences and healthcare companies joined the MediLedger Project’s Contracting and Chargebacks working group. The working group aims to eliminate friction in the chargeback process, wherein wholesale distributors sell medications at a price previously negotiated with the manufacturer, and parties are made whole on the price difference through a chargeback. MediLedger’s protocol aims to resolve information-sharing challenges during the chargeback process by connecting the key parties on a common network and automating contract reconciliation. MediLedger plans to begin testing this protocol in Q2/Q3 2019. According to recent reports, MediLedger has also established a protocol for saleable return drug verification that meets DSCSA regulations.

On Wednesday, Malta’s Registry of Companies announced plans to establish a blockchain-based registration system. The Registry of Companies, formerly part of the Malta Financial Services Authority (MFSA), holds official information and documentation pertaining to new and existing companies. Also this week, a major global technology firm released a preview of its blockchain development kit for Ethereum. The kit offers developers the ability to build blockchain applications using the firm’s blockchain service or the public Ethereum network. The same firm also recently announced a partnership with the largest bank in the U.S. to promote blockchain application development and accelerate the adoption of enterprise blockchain. According to a press release, through this partnership the firms’ customers will be able to build and scale blockchain-based enterprise solutions, with lower costs, simplified distribution and built-in governance enabled through a cloud-based blockchain service platform.

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

Cryptocurrency Products and Blockchain Systems Announced by Institutions and Startups

By: Jonathan D. Blattmachr

There are some exciting developments in the digital capital markets and payments space we can report on this week. First, one of the world’s largest asset managers has announced it will offer cryptocurrency trading to its institutional clients. The asset manager polled its institutional client base, the majority of which wanted to trade directly in digital assets. Many of those investors see the value in cryptocurrencies’ having low correlation with other asset classes.

One step forward, one step back: Bcause LLC, a crypto exchange and mining startup, announced it is preparing to launch its spot market near the end of May, and has also applied to the CFTC to be a registered designated contracts market and clearing organization. While this is good news for the company, it has now filed for bankruptcy protection under Chapter 11 and is seeking to restructure. Bcause hopes to exit its restructuring and take advantage of what it hopes will be a significant rise in bitcoin’s price.

To counter the ongoing fraud threat in crypto, some traders are considering using blacklists to keep out bad actors who renege on trades or engage in fraud. Alternatively, it has been suggested that the industry use “whitelists,” which would consist of those players that have been preapproved: verified customer identities and sources of funds.

In a first, two central banks sent each other digital currencies using blockchain technology. The Canadian and Singaporean entities have been collaborating to get this project off the ground, with a focus on facilitating simpler and more efficient cross-border payments. The Australian Stock Exchange is also looking for efficiency through distributed ledger technology, as it announced a new equities clearing system that uses blockchain as its backbone. The system will be fully in place by mid-2020.

Currency.com will now allow users to trade in tokenized government bonds. Tokens will be U.S. dollar-denominated, and investors will receive interest payments in fiat currency, bitcoin or ethereum. While currently limited to Belarusian bonds, trading of more bonds (both corporate and govvies) is planned. Finally, a legal services company is predicting many parties to smart contracts will soon be making payments in a stablecoin cryptocurrency, with the transfer automatically being affected once a contract is satisfied. The product is in beta testing, with full rollout expected later in May 2019.

For more information, please refer to the following links:

Major Exchange Hacked, Security Flaws Reported, Arrests by Department of Justice and Europol

By: Joanna F. Wasick

On Tuesday, Binance disclosed a severe security breach, in which one or more hackers obtained a “large number” of user API keys and two-factor authentication codes, and used them to withdraw 7,000 bitcoin from a Binance hot wallet. Binance said that the affected wallet held only 2% of the exchange’s holdings and that its other wallets are secure. The exchange will conduct a thorough security review that it expects to last one week; it will suspend all deposits and withdrawals during that time. Movement of the stolen funds on the Bitcoin blockchain is being tracked; but while the hacker’s movements are apparent, as of yet no one has been able to identify who is behind them. The Binance theft will add to the $1.2 billion in cryptocurrency that, according the cybersecurity firm CipherTrace, has already been stolen from exchanges and through other fraud-related activities this year. That number is about 70% of the total amount stolen in all of 2018.

According to reports published earlier this month, a vulnerability in older versions of Confluence workspace productivity software was recently exploited by hackers, enabling them to secretly install and utilize crypto mining malware on affected systems. In another report, the Tron Foundation disclosed a substantial security vulnerability in its wallet that could have crashed the entire Tron blockchain. The vulnerability was found by a researcher who was then paid a $1,500 bounty by Tron. And Cointelegraph recently reported that 60% of bitcoin full nodes are running software that are vulnerable to the “inflation bug,” which allows the potential for illegitimate minting of bitcoin.

Two U.S. prosecutors recently arrested and brought charges against two Israeli citizens (one living in Israel, the other in Brazil) for operating the darknet website “DeepDotWeb” (DDW). Prosecutors allege that the two individuals received kickbacks whenever their users accessed the site to visit various darknet marketplaces, in which vendors sold drugs, firearms, hacking tools and other contraband. The individuals allegedly used bitcoin to conceal more than $15 million in illegal proceeds, which they would transfer from their DDW wallet to other bitcoin and bank accounts that they controlled through shell companies. In Europe, Europol worked together with Spanish authorities to dismantle a money laundering ring that reportedly operated by exchanging fiat currency for crypto assets by using cryptocurrency ATMs and then splitting funds into smaller sums to introduce them into the regular financial system. Eight people have been arrested so far, and wallets containing about 9 million Euros have been frozen.

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

Global Blockchain Survey Released

By: Robert A. Musiala Jr.

This week a Big Four accounting and consulting firm released its 2019 Global Blockchain Survey. The survey polled 1,386 senior executives across Brazil, Canada, China, Germany, Hong Kong, Israel, Luxembourg, Singapore, Switzerland, the United Arab Emirates, the United Kingdom and the United States. Companies selected to participate from the U.S. had $500 million or more in annual revenue. Participants outside the U.S. had $100 million in annual revenue.

Some notable highlights from the survey include the following:

  • Critical Priority for More Than Half. Fifty-three percent of respondents said blockchain has become a critical priority for their organizations in 2019 (a 10-point increase from 2018).
  • Modest Increases. There were modest increases over 2018 in the percentages of respondents that indicated they believed blockchain would achieve mainstream adoption, drive a compelling business case, replace current record-keeping systems and be needed to maintain competitive advantage.
  • Barriers Decrease, Competition Concerns Increase. The perception that organizational barriers would prevent blockchain adoption appeared to decrease, although “concerns over sensitivity of competitive information” increased.
  • No Consensus on Consortia. There appears to be little consensus on the criteria used to evaluate and determine whether to join blockchain industry consortia. Popular criteria included aligned objectives, member quality/stature, evidence of and opportunities for influence, cost of participation, regulatory environment, and membership rules/policies.
  • Consortia Benefits. Cost savings and learning opportunities were the top benefits companies expected to gain from joining blockchain industry consortia.

Exchanges Going Live, Supply Chain Initiatives Advance, Threats Continue as Arrests Target ‘Shadow Banking’

In this issue:

Cryptocurrency Exchanges Move Closer to Live Trading, New Stablecoins Announced

New Blockchain Initiatives Targeting Enterprise Use Announced

DoJ Arrests Operators of ‘Shadow Banking Services,’ Regulators Warn of Scams

Cyberattacks Target Cryptocurrencies, Threat Actors Employ Crypto Techniques

Tax Analysis: New Crypto Tax Tools Available, New Disclosure Category Added

Cryptocurrency Exchanges Move Closer to Live Trading, New Stablecoins Announced

 By: Joanna F. Wasick

More cryptocurrency exchanges are going live. ErisX announced the launch of its spot market, saying it will immediately support dollar trading pairs with tokens such as bitcoin, bitcoin cash, litecoin and ether. The announcement comes on the heels of a recent $20 million capital raise – the company’s third. It will focus next on derivatives offerings. The Beaxy Exchange says it will be fully operational by mid-May, offering a comprehensive exchange platform that will support traders of every experience level. Beaxy is partnering with OneMarketData, a market data management and analytics company that provides OneTick, a software aimed at accelerating transaction times, facilitating fund management, and increasing security features. Bakkt, the emerging bitcoin futures exchange platform, announced its purchase of the Digital Asset Custody Company and a partnership with a major New York-based bank. Bakkt says these changes will allow it to hold assets in cold storage and ultimately set up geographically distributed private key storage. Some speculate these changes will also enable Bakkt to add other cryptocurrencies besides bitcoin. And reports indicate that a major electronic brokerage firm may soon launch cryptocurrency trading on its platform. If so, it would be one of the largest securities brokerages to allow cryptocurrency trading.

More stablecoins (coins backed by fiat currency) are coming to market. Ontology announced it will launch the Paxos Standard (PAX) stablecoin on the Ontology blockchain. PAX, which is backed 1-to-1 by U.S. dollars, launched last September, but had been available only on the ethereum blockchain. Ontology said PAX ensures open auditing and that all U.S. dollar deposits are kept in individual accounts at FDIC-insured banks. Separately, TrustToken released its latest stablecoin, TrueCAD, which is linked to the Canadian dollar. TrustToken has already issued stablecoins backed by the U.S. dollar (TrueUSD), the British pound (TrueGBP) and the Australian dollar (TrueAUD). Stablecoins backed by the Euro and the Hong Kong dollar are set to release later this year.

A recent report by Datalight, a crypto-research firm, tracks where cryptocurrency trading is happening. The report follows trading on 100 platforms and concludes that most visitors are American – an average of 22.2 million site visits per month were by U.S.-based users. Japan was second, with 6.1 million visits. Perhaps most striking is that nearly every other country in the world had some platform activity as well, with the exception of Greenland and parts of central Africa. Even India placed 11th on the rating – despite its central bank’s almost yearlong ban on exchange financing.

For more information, please refer to the following links:

New Blockchain Initiatives Targeting Enterprise Use Announced

By: Robert A. Musiala Jr.

An article published late last week by the World Economic Forum (WEF) highlighted three key emerging applications for blockchain: (1) product provenance and traceability, (2) streamlining global supply chain operations, and (3) anti-corruption and humanitarian operations. In Wyoming, according to a report published the same day as the WEF article, a blockchain initiative for the food supply chain, BeefChain, became the first blockchain company to receive certification from the U.S. Department of Agriculture (USDA) as a Process Verified Program. BeefChain uses the Ethereum blockchain to track data related to cattle, such as verifying source and age, and that the cattle have not been treated with hormones. According to a press release published this week, Gartner predicts that by 2025, 20% of the top 10 global grocers by revenue will be using blockchain for food safety and traceability.

According to a recent report, a major multinational electronics company recently launched Nexledger Universal, an updated version of its enterprise blockchain platform. Nexledger provides a standard API applicable to multiple blockchain protocols and is available for use through a major global cloud service provider. In another recent announcement, a Big Four accounting and consulting firm launched a “smart contract testing and security service for the public Ethereum blockchain” that will become available to the public later this year. Also this week, a new blockchain-based digital identity network, Verified.Me, has become available in Canada for customers of select financial institutions that are participating in an early adopter program. The service seeks to improve the efficiency and security of the sharing and verification of customer onboarding information.

Initiatives aimed at promoting government support for the blockchain industry continue. In Quebec, Canada, regulators recently released new rules to make additional energy resources available to cryptocurrency miners selected for a new program. In the U.S., newly available data on lobbying activities indicates that more than half of the 80 firms that reported lobbying on fintech issues listed blockchain and cryptocurrencies among their concerns, with total spending on fintech lobbying reaching approximately $42 million in the first quarter of 2019.

For more information, please refer to the following links:

DoJ Arrests Operators of ‘Shadow Banking Services,’ Regulators Warn of Scams

By: Robert A. Musiala Jr.

This week the U.S. Department of Justice issued a press release announcing the arrest of an Arizona man and an Israeli woman who have been charged in connection with providing “shadow banking services” for cryptocurrency exchanges. The indictment alleges the man and woman participated in a conspiracy to facilitate unlicensed money transmission of hundreds of millions of dollars worldwide on behalf of numerous cryptocurrency exchanges. According to the press release, the co-conspirators falsified electronic wire payment instructions and made false and misleading statements to banks to open accounts used to receive deposits for cryptocurrency purchases. According to reports analyzing the indictment, the scheme may have connections to two cryptocurrency exchanges, QuadrigaCX and Bitfinex, that have recently been under scrutiny. Late last week, the New York Attorney General announced a court order enjoining iFinex Inc., operator of Bitfinex and Tether Limited, from further violations of New York law in connection with activities that may have defrauded New York investors.

This week the U.S. Securities and Exchange Commission announced the temporary suspension of trading in the securities of Bitcoin Generation Inc., a cryptocurrency mining and trading firm, due to “concerns about the accuracy and adequacy of information in the marketplace.” Overseas, the Malta Financial Services Authority recently issued new guidance warning the public against scams involving cryptocurrencies, initial coin offerings and cryptocurrency exchange platforms. According to a recent report by the Australian Competition and Consumer Commission, cryptocurrency-related scams increased 190% in 2018, with Australian consumers losing $4.3 million. In other news from Australia, the Australian Tax Office has announced an initiative to collect purchase and sale information from cryptocurrency exchanges to improve tax compliance in the cryptocurrency trading industry.

For more information on these developments, please follow these links:

Cyberattacks Target Cryptocurrencies, Threat Actors Employ Crypto Techniques

By: Jordan R. Silversmith

In an ongoing Distributed Denial-of-Service (DDoS) attack on Electrum cryptocurrency wallets, almost 152,000 Electrum wallets have reportedly been infected. Victims were initially tricked into downloading a fraudulent update to the Electrum software that stole their cryptocurrencies. The hackers later launched DDoS attacks in response to developers of the popular wallet’s efforts to protect users, with the amount of stolen funds increasing to $4.6 million. The infection in Electrum’s infrastructure reportedly grew from just below 100,000 wallets on April 24 to 152,000 the next day.

A major email application was breached earlier last month when a hacker got hold of a customer support worker’s login credentials, gaining access to the accounts of all noncorporate users of the program. Victims of the breach are now discovering what may be the chief motivation behind the attack: accessing and emptying users’ cryptocurrency accounts. The company initially said the breach impacted only email metadata and customer information, but affected users with cryptocurrency wallets have reported that after the breach, their wallets have been emptied and their funds stolen. Another recently reported “cryptojacking” campaign, termed Beapy, appears to be attacking enterprises based in China, South Korea, Japan and Vietnam. According to reports, Beapy infects victims through malicious emails and installs crypto-mining malware.

Following declining funding from Iran and the closing of hundreds of tunnels under the Gaza-Egypt border in 2013, the armed wing of Hamas appears to be turning to bitcoin to raise funds and evade law enforcement. The Gaza-based Izz el-Deen al-Qassam Brigades, designated as a terrorist organization by the EU and the U.S., originally asked donors to send bitcoin to a single wallet. Now, however, the group has changed the mechanism: Instead of a single wallet, its website generates a new wallet with every transaction, making funds harder to track. Financial regulators are also encountering increased difficulty in tracking payments sent through cryptocurrency exchanges, as cross-border payments from the U.S. to offshore exchanges have increased by 46% since early 2017. This increase poses a quandary for U.S. financial regulators: Once the payments reach exchanges and wallets outside the country, they are very difficult for domestic authorities to track. As governments around the world increase scrutiny on blockchain transactions, reports indicate a rise in novel techniques to mask user identities. So-called CoinJoins, where users mix their bitcoins with each other in a single transaction, enable cryptocurrency users to hide the connection between the sender and the recipient of a payment. According to a recent report, so-called mixed cryptocurrency transactions now represent 4.09% of all bitcoin payments.

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

Tax Analysis: New Crypto Tax Tools Available, New Disclosure Category Added

By: Nicholas C. Mowbray

2019 has seen significant developments in the crypto tax reporting tools and guidance available from the IRS on how to address previously undisclosed crypto assets.

A recent interview noted that reports from crypto exchanges likely lacked the requisite data points that a taxpayer needs to meet its U.S. tax filing obligations. The interview noted that certain tools allow taxpayers to aggregate all of a taxpayer’s crypto asset transactions across all wallets and exchanges, effectively summarizing all transactional activity for 2018. Taxpayers can then use the report in filing their U.S. tax returns.

Several recent startups have worked to develop tools such as this but mainly for the use of fund managers and accounting firms. These specific tools are intended to comply with the American Institute of Certified Public Accountants’ Service Organizational Control reporting standards, which will permit the startups to provide certified statements of crypto transactions to its customers. The provision of the certified statements may lead to an increase in market participation by investors that were otherwise concerned about the complexity of U.S. tax reporting obligations.

In addition, certain crypto exchanges have paired with companies specializing in tax software and preparation to upload their exchange activity directly into the tax software. The software company will then assist the customers with determining what events are taxable and in turn help the customers satisfy their U.S. tax obligations.

With respect to enforcement, the IRS recently released a new Form 14457 “Voluntary Disclosure Practice Preclearance Request and Application” that includes a question on disclosing special features. One category listed under this question is virtual currencies. The form is used to make a preclearance request and determine the eligibility of a taxpayer to utilize the IRS’ voluntary disclosure program.

New Blockchain Solutions Announced Across Industries, Multiple Crypto Enforcement Actions Announced Across Jurisdictions

In this issue:

Banks Announce Blockchain Initiatives, Stablecoins Launch, France Passes New Law

Reports Detail Blockchain Solutions Across Industries, Provide New Data on Growth

New Reports Provide Details on Hacks, Ransomware and Criminal Use of Bitcoin

Enforcement Actions Involving Cryptocurrency Continue in US and Abroad

New York Attorney General Announces Action Against Bitfinex and Tether

Banks Announce Blockchain Initiatives, Stablecoins Launch, France Passes New Law

By: Joanna F. Wasick

Last week, a major French-based bank announced it will issue the first covered bond as a security token that is directly registered on the Ethereum blockchain. The issuance is the first pilot project of the bank’s internal startup program, which focuses on creating disruptive business solutions using blockchain technology. One of Japan’s largest banks has announced an initiative incorporating the Marco Polo blockchain platform to streamline trade finance – a traditionally labor-intensive, time-consuming process. The new system is touted as providing paperless, real-time connectivity and easier overall access. In Singapore, CapBridge 1exchange, the country’s first regulated private securities exchange, announced it will use blockchain to register and track the holdings of investors trading private securities on its platform. The exchange said that the initiative will provide more precision in recording and greater accuracy in investor identity verification, and it will enable investors to independently confirm and validate their shareholdings in real time.

New fiat-backed stablecoins continue to enter the market. U.K.-based payments platform Wirex is launching 26 stablecoins on the Stellar blockchain network. The stablecoins can be spent using Wirex’s own multicurrency debit card, which allows users to convert and spend cryptocurrencies in traditional credit and debit card point of sale systems. TrustToken also launched a new stablecoin, TrueAUD, which is now live and backed 1:1 by the Australian dollar. As with its other stablecoins, TrustToken allows traders a real-time view of the reserves backing the token. The company says three more coins will issue soon.

In France, a wide-ranging bill was adopted earlier this month that creates a more favorable environment for blockchain-related small and medium-size enterprises (SMEs). Among other things, the new law creates a legal framework for ICO issuers and guarantees that blockchain-related companies and projects can open French bank accounts, provided they opt in to being regulated.

For more information, please refer to the following links:

Reports Detail Blockchain Solutions Across Industries, Provide New Data on Growth

By: Diana J. Stern

Forbes’ first-ever Blockchain 50 list identified which billion-dollar companies are leading the way in applying blockchain technology to their lines of business – from commodities trade finance to proxy voting and tuna tracking. The media outlet’s lineup of cutting-edge corporates continues to generate buzz after it was released last week. In other news, International Data Corp forecasts that spending on blockchain solutions in the Asia-Pacific region, excluding Japan (APEJ), will ramp up to $2.4 billion by 2022. According to the report, blockchain spend in the APEJ leveled off at $284.8 million in 2018, which puts the CAGR at 77.5 percent over the five-year forecast period. The financial sector accounts for roughly half of that spend. Reports released on Monday indicate that the city of Guangzhou issued the first blockchain and AI-powered business license in China. The new blockchain-based system aims to make corporation formation more convenient by allowing entrepreneurs to scan a QR code and “start the company in one click.”

For more information, please refer to the following links:

New Reports Provide Details on Hacks, Ransomware and Criminal Use of Bitcoin

By: Jordan R. Silversmith

Earlier this week, the SEC’s Office of Investor Education and Advocacy and the Commodity Futures Trading Commission’s office of Customer Education and Outreach released an investor alert warning investors to be on the lookout for fraudulent digital asset and crypto trading websites. The alert outlines how fraudsters engage in advance fee fraud scams, where investors are asked to pay a bogus fee in advance on the promise of high guaranteed returns with little or no risk. The alert urged investors to look for warning signs such as complicated jargon, guaranteed high investment returns, pressure to buy and unlicensed sellers. Another report published this week provided details on white paper fraud in the blockchain industry. According to the report, freelance white paper writers have accused some crypto startups of misleading investors by requiring writers to fabricate and exaggerate facts and numbers.

A recent report described how a “blockchain bandit” stole 45,000 ether – once worth more than $50 million – using a tactic described as “ethercombing,” where the attacker scans billions of Ethereum accounts to identify accounts with “weak” private keys that can be guessed by the attacker. The report recommends that wallet developers carefully audit their code to find any bug that might truncate keys and leave them vulnerable, and users should use discretion in choosing what wallet to use in order to minimize risk of theft. Another recent report indicates that the average ransom amount demanded by ransomware attacks rose by 89 percent in Q1 of 2019 to $12,672, a staggering increase from $6,733 in Q4 of 2018. According to the report, this reflects mounting infections of more expensive types of ransomware like Ryuk, Bitpaymer and Iencrypt, mostly used in bespoke targeted attacks on larger enterprise targets. And a final report published this week found that bitcoin accounts for 95 percent of crypto cases investigated by law enforcement. The report notes that bitcoin is the cryptocurrency of choice for criminals due to its high value and high transaction volume, which make it easier to trade and spend compared to other cryptocurrencies.

For more information on these developments, please follow these links:

Enforcement Actions Involving Cryptocurrency Continue in US and Abroad

By: Simone O. Otenaike

Earlier this week, the 20-year-old college student who stole more than $5 million in cryptocurrency from a Cupertino cryptocurrency entrepreneur by “SIM Swapping” or “SIM Hijacking” was sentenced to 10 years in prison in Santa Clara County, California. By hacking a phone number, the student was able to exploit “two-factor authentication” and intercept text messages with the security codes required to access the target’s bank or cryptocurrency accounts. The student is one of the first people in the country to be convicted of stealing cryptocurrency by hacking a victim’s cellphone. Meanwhile, this week, New York state prosecutors achieved their first conviction for money laundering involving cryptocurrency. The defendants in the case sold prescription-free counterfeit steroids and other controlled substances to customers for cryptocurrency and cash through their website, generating more than $2.8 million in revenue from 2013 to 2018. According to a press release, the defendants laundered cryptocurrency payments through one or more intermediary cryptocurrency “wallets” to obscure the source of the funds, and then converted the cryptocurrency into U.S. dollars using a cryptocurrency exchange.

According to a press release, two Nigerian nationals were recently indicted in the U.S. for conspiracy to commit wire fraud and money laundering and 11 counts of wire fraud involving bitcoin. The defendants encouraged victims to transfer bitcoin to private virtual currency wallets and promised investors 20-50 percent returns on investments with zero risk and instant withdrawals. After receiving bitcoin transfers from their victims, the defendants transferred the bitcoin to other accounts and then exchanged the bitcoin for Nigerian Naira. Over the course of six months, the defendants stole approximately $59,000 worth of bitcoin from three victims.

In Israel, a man was indicted for the alleged theft of $9 million worth of Dash, which, according to reports, is equivalent to over 0.85 percent of the total circulating supply of the cryptocurrency. The victim was reportedly an early cryptocurrency investor. In Brazil, The State Department of Drug Trafficking reportedly discovered a bitcoin mining laboratory while pursuing a suspected drug trafficker. Officials found mining equipment with an estimated value of more than $63,000. The owner of the mining equipment reportedly was fined for illegal use of electric power in the house.

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

New York Attorney General Announces Action Against Bitfinex and Tether 

By: Joanna F. Wasick

Yesterday, the New York Attorney General’s office (NYAG) announced an action against iFinex Inc. and related entities tied to the cover-up of an $850 million loss they allegedly hid and facilitated. iFinex is both the operator of the major cryptocurrency exchange Bitfinex and the owner of Tether Limited, the issuer of Tether, a popular stablecoin (fiat/U.S. dollar-backed token). In its press release, the NYAG explained how Bitfinex lost control over the
$850 million when it provided the funds to a Panamanian entity without any written contract or assurances. According to the press release, rather than disclose the loss to investors, executives at Bitfinex and Tether arranged for Bitfinex to have open access to $900 million of Tether’s cash reserves. The NYAG’s court filings allege that Bitfinex treated those reserves as its slush fund, taking what it needed to hide both its extensive losses and its inability to handle customer withdrawals. A court order is now in place barring the iFinex defendants from any further violations of state law and ordering them to retain all documents tied to the case.

For more information, please refer to the following links:

Manipulation Detected on ‘DEXes,’ Regulations Develop, Industry Initiatives Advance, Hacks, Money Laundering and Enforcement Continue

Digital Money TransectionIn this issue:

Academics Detect Manipulation on ‘DEXes’ as Cryptocurrency Trading Expands

New Tokenized Securities Announced; Global Regulatory Regimes Develop

Food Supply Chain Initiatives Grow, Government Spending Expected to Rise, Blockchain Enterprise Tools Released

Crypto-Mining Malware, Dark Market Money Laundering, SIM Swap Hacks and FinCEN Enforcement

Academics Detect Manipulation on ‘DEXes’ as Cryptocurrency Trading Expands

By: Joanna F. Wasick

A recent academic paper by researchers at Cornell Tech and other academic institutions describes rampant trading manipulation on decentralized cryptocurrency exchanges (DEXes). While the vast majority of cryptocurrency trading volume occurs over centralized exchanges (which custody customer assets and settle trades), DEXes allow for more direct trading, and their use is expected to grow. This paper, however, reports on new high-frequency trading firms that deploy autonomous, algorithmic trading programs that anticipate and take advantage of ordinary users’ trading patterns, allowing for front-running (i.e., seeing orders ahead of others and placing their own trades first), aggressive latency optimization and other market manipulation techniques. The paper also found bots engaging in priority “gas” auctions , competitively bidding up transaction fees in order to get priority orders (early block position and execution) for their transactions. A contributor to the paper stated at a blockchain conference last week that these findings should incentivize those in the blockchain and exchange communities to create new exchange designs to combat the problem.

Despite vulnerabilities, cryptocurrency trading continues to expand. Coinbase announced that it will increase crypto-to-crypto conversions and trading services to 11 more countries, which will give the company a presence in 53 countries across four continents. In addition, micro, small and medium-sized companies ill now be able to make bitcoin and bitcoin cash payments to a major U.K. business travel management services company, thanks to its partnership with BitPay, a global cryptocurrency payment processor. And one of Japan’s largest e-commerce companies recently announced that it will accept account registration for its new cryptocurrency exchange, expanding cryptocurrency-based payments in the Asian online retail market.

Volume over exchanges is up too. eToro, a multi-asset trading platform, has unveiled a regulated cryptocurrency exchange geared toward “professional traders.” The platform offers 37 trading pairs, with the ability to convert six cryptocurrencies into fiat, including the dollar, Euro and Swiss franc. According to a popular blockchain news source, estimated profits for Binance, another major cryptocurrency exchange, totaled $78 million in Q1 – up 66% from the previous quarter. Even endowment funds, with a reputation among some as more conservative investors, are entering the space. A 2018 Q4 survey of 150 endowments found that 94% had invested in cryptocurrency-related initiatives in the past 12 months. The endowments, most of which were U.S.-based, reported that the most attractive crypto-assets were those with robust regulation, sufficient capital flow and liquidity, and account security.

For more information, please refer to the following links:

New Tokenized Securities Announced; Global Regulatory Regimes Develop

By: Brian P. Bartish

Blockchain startup 20|30 reportedly raised 3 million pounds ($3.93 million) through the sale of Ethereum-based equity tokens on the London Stock Exchange Group (LSEG) turquoise equity trading platform. Working in collaboration with LSEG and the U.K. Financial Conduct Authority, along with distributed ledger startup Nivaura, 20|30 aims to demonstrate that company equity can be tokenized and issued with a fully compliant custody, clearing and settlement system, and intends to offer secondary transfers of the tokenized equity following the success of the initial pilot. Last Friday, Arca, a Los Angeles-based digital asset manager, filed a prospectus with the SEC seeking approval for a tokenized bond fund envisioned as a quasi-stablecoin with a target net asset value of $1 per share. The fund would help protect investors against high volatility through investments in U.S. Treasury securities. With the proliferation of new use cases, a major multinational technology company is spearheading the development of a “Token Taxonomy Framework” to begin developing common technical standards for tokens across various blockchain protocols.

Recent analysis by the Congressional Research Service noted the high degree of regulatory overlap and confusion likely to result from 2018 Federal court decisions that upheld the Commodities Futures Trading Commission’s broad enforcement authority to act against fraud in the sale of virtual currencies due to their status as commodities. In other U.S. regulatory news, the Congressional Blockchain Caucus, led by Rep. Emmer, has called on the IRS to update its 2014 guidance regarding how virtual currency holders should calculate and track the basis of their holdings. In Japan, according to reports, the Financial Services Agency will soon require cryptocurrency exchanges to exercise greater internal oversight over cold-storage wallets to help protect against insider theft. And in France, after establishing one of the first national laws that allows organizations to apply for certification to issue and trade cryptocurrencies, the French government is calling its European Union partner states to adopt the same framework, which seeks to offer greater protections to investors while generating tax revenues.

For more information, please refer to the following links:

Food Supply Chain Initiatives Grow, Government Spending Expected to Rise, Blockchain Enterprise Tools Released

By: Diana J. Stern and Robert A. Musiala Jr.

Major grocers continue to “harvest” blockchains for their transparency by participating in networks designed to increase visibility across food supply chains. This week, the U.S.’s second-largest grocer joined a large Food Trust network, which the Blockchain Monitor first covered last summer. According to reports, the grocer will pilot a romaine lettuce track-and-trace use case in order to improve food quality and recalls. Other members of the Food Trust also made headlines this week: A prominent French multinational supermarket and the world’s largest food and beverage company announced they will allow consumers to view information recorded on a blockchain by simply scanning a QR code. Consumers of instant mashed potatoes will be able to see what kinds of potatoes were used, when and where they were stored, and more.

In other supply chain news, researchers at Portland State University reportedly have published a blockchain protocol specifically designed to combat counterfeiting in pharmaceutical supply chains. Another announcement this week described the debut of a blockchain solution for the employee benefits industry, developed by a major global consulting firm and a multinational employee benefits firm, that seeks to streamline the operating model for employee benefits such as life, short- and long-term disability, accident, and healthcare insurance. According to a report released this week by a large market intelligence firm, over the next four years blockchain spending by the U.S. government is expected to grow from $4.4 million in 2017 to $48.2 million in 2022, with early spending focused on “supply chain and asset management solutions” and later spending expanding to include “identity management and complex financial transactions.”

Established technology and consulting firms appear to be preparing for blockchain market growth. This week, a Big Four accounting and consulting firm announced plans to release a free public blockchain protocol that operates on Ethereum and that has been developed specifically for enterprise-grade use cases such as supply chain management, intracompany transactions and public finance. The protocol leverages zero-knowledge proofs to enable private transactions to take place on the public Ethereum blockchain. The same “Big Four” firm recently launched a blockchain analytics tool designed to improve blockchain-based “financial reporting, forensic investigations, transaction monitoring and tax calculations.”

For more information, please check out the following links:

Crypto-Mining Malware, Dark Market Money Laundering, SIM Swap Hacks and FinCEN Enforcement

By: Marc D. Powers

Two Romanian cybercriminals were convicted in Ohio on 21 felony counts related to the infecting of 40,000 computers with malware to steal credit card and other information to sell on the dark web. The schemes included taking control of the victim’s computers, which allowed the defendants to use the processing power of the computers to engage in cryptocurrency mining for the financial benefit of the group. The victims incurred losses of millions of dollars.

The NYC District Attorney reported the indictments of several individuals who operated two dark web storefronts to sell Xanax and other controlled substances in 43 states. The defendants allegedly laundered $2.3 million in cryptocurrency proceeds from their illicit activities to load prepaid debit cards, and withdrew $1 million in cash from ATMs in New York and New Jersey.

This week, the U.S. Financial Crimes Enforcement Network (FinCEN) assessed a civil money penalty against an individual for “willfully violating the Bank Secrecy Act’s (BSA) registration, program, and reporting requirements” in the course of the individual’s operation as a “peer-to-peer exchanger of convertible virtual currency.” According to a FinCEN press release, the individual failed to file required reports related to, among other things, suspicious activity involving darknet marketplaces and purchases of bitcoin for cash. The individual cooperated with FinCEN, paying a fine and agreeing to an industry bar on engaging in “money services business” activity.

Finally, it has been reported that hackers have stolen over $50 million in cryptocurrencies from wallets within the past 15 months using a new technique known as SIM Swapping. This scheme involves a criminal taking a new SIM card to a store, impersonating the victim, and switching the victim’s wireless carrier number to his or her new SIM card. Soon the criminal has access to the victim’s texts and can learn two-factor authentication or other information to gain access to cryptocurrency wallets. According to reports, many of these hackers are relatively young, between the ages of 18 and 26. At least one of the hackers caught has been sentenced to 10 years in prison.

For more information on these developments, please follow these links:

Advancements in Blockchain-Powered Property Sales and Energy Grids; New Stablecoins, Payment Products and Enforcement Actions

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

Blockchain Property Records Trial Completed, Energy Grid Project Continues, New Patents Granted

New Stablecoins Announced, New BitLicense Granted, New Crypto Debit Card Launched

Blockchain Capital Markets Solutions Continue to Advance in US and Abroad

Cryptocurrency Enforcement Actions Continue in US and Asia Markets

Blockchain Property Records Trial Completed, Energy Grid Project Continues, New Patents Granted

By: Robert A. Musiala Jr.

According to a press release issued late last week, U.K.-based firm Instant Property Network recently completed a successful simulated trial of a blockchain solution for property sales transactions, powered by the Corda blockchain. A Bloomberg report stated that 40 companies were involved in testing the new platform, including two major global banks. The press release estimated that if the efficiencies demonstrated by the trial were applied to the global property market, it could result in annual savings of approximately $160 billion.

The U.S. Department of Energy (DOE) has begun Phase II of an electrical grid security project that leverages a patent pending blockchain solution to increase cybersecurity in power plants. DOE is working with Colorado-based firm Taekion on the project. According to another recent report, Bitfury and Longenesis have teamed to launch a “blockchain-based consent management system for the healthcare industry” that seeks to improve compliance with the General Data Protection Regulation (GDPR), the Health Insurance Portability and Accountability Act (HIPAA) and other applicable laws. Also this week, the World Economic Forum published an article advocating blockchain as a potential solution for limiting waste and promoting transparency and efficiency in the construction industry.

Late last week, a major global technology firm, a major U.S. bank, a global news organization and a global consulting firm all had patents granted for blockchain-based business solutions. The patents address data management for self-driving vehicles, identity management and validation, authentication of content provider data, and blockchain interoperability.

For more information, please refer to the following links:

New Stablecoins Announced, New BitLicense Granted, New Crypto Debit Card Launched

By: Robert A. Musiala Jr.

Late last week, Canadian cryptocurrency platform Coinsquare announced its plans to launch eCAD, the first stablecoin pegged 1:1 to the Canadian dollar. Similar to most stablecoins, each unit of eCAD cryptocurrency will be backed by a Canadian dollar held in a traditional bank account. In Japan, the fifth-largest bank in the world announced plans to launch its own stablecoin that would be backed 1:1 by Japanese yen. According to reports, the bank is seeking to design functionality that would allow bank customers to use an app to automatically convert bank deposits into the stablecoin.

Earlier this week, Bitstamp, Europe’s largest cryptocurrency exchange, became the 19th company to receive a BitLicense from the New York State Department of Financial Services (DFS). This week DFS also rejected the BitLicense application of Bittrex, a major U.S. cryptocurrency exchange based in Seattle. According to reports, DFS denied the application based on deficiencies in Bittrex’s capital and anti-money laundering requirements.

This week Coinbase announced the launch of Coinbase Card, a card that looks and is used like a traditional debit card in point-of-sale transactions, but that is funded by customers’ Coinbase account balances. According to a Coinbase blog post, the Coinbase card is available to Coinbase customers in the United Kingdom and will be available soon in the European Union. In a final note related to the cryptocurrency exchange industry, the court-appointed monitor of the defunct Canadian exchange QuadrigaCX recently recommended that the exchange should be transitioned from restructuring to bankruptcy proceedings.

For more information, please refer to the following links:

Blockchain Capital Markets Solutions Continue to Advance in US and Abroad

By: Simone O. Otenaike

Late last week, a leading trading services firm and Templum Inc. announced a strategic partnership that allows Templum to expand into the public markets and move toward developing a fully regulated exchange to list and trade digital securities. Subject to Securities and Exchange Commission (SEC) approval, the new public exchange would be SEC-registered and operated by the trading services firm.

On the international front, the Hong Kong Securities and Futures Commission issued a policy statement summarizing the legal and regulatory requirements applicable to security token offerings (STOs). The new guidance offers companies that plan to market or sell STOs in Hong Kong a regulatory framework to evaluate whether security tokens qualify as “securities” under the guidance. The Gibraltar Stock Exchange (GSX) also made news this week with its announcement that financial firms can now list digital or tokenized corporate and convertible bonds, asset-backed and derivative securities, and open-ended and closed-ended funds on its platform. According to reports, membership in the GSX is also now open to licensed financial services firms outside the European Economic Area.

In Bermuda, the Ministry of Finance reportedly approved Velocity Ledger Holdings Limited (VLHL) to conduct an initial coin offering (ICO). The ICO will fund operations for VLHL’s two subsidiaries, VL Financial and Velocity Ledger Technology Limited (VL Tech). VL Financial operates as a digital asset exchange in Bermuda that supports asset-backed investment and real estate tokens, while VL Tech is a private blockchain-enabled platform that operates as Software-as-a-Service. The ICO is expected to commence this month.

For more information, please check out the following links:

Cryptocurrency Enforcement Actions Continue in US and Asia Markets

By: Jordan R. Silversmith

Earlier this week, a U.S. district court in California sentenced a bitcoin dealer to two years in prison and ordered him to forfeit $823,357 in illicit profits from an unregistered cryptocurrency exchange. Jacob Burrell Campos, a U.S. citizen, pleaded guilty last October, admitting that he operated a bitcoin exchange without registering with the Financial Crimes Enforcement Network (FinCEN) of the Treasury Department and without implementing the required anti-money laundering safeguards. Meanwhile, on April 10, Texas regulators issued an emergency cease and desist order against a cryptocurrency and foreign currency trading platform. According to the regulators’ order, FxBitGlobe, which markets itself as an investment company, published forged government documents, used a fake address and falsely claimed to be a registered broker-dealer.

On Wednesday, Singapore authorities charged two men for promoting cryptocurrency fraud scheme OneCoin. The two men reportedly engaged in, among other things, incorporating a subsidiary to promote OneCoin and signing up new members and taking in investments in exchange for educational courses and OneCoin tokens. Various governments worldwide, including the United States, have issued warnings against OneCoin. In South Korea, officials recently used artificial intelligence to arrest suspects behind a cryptocurrency Ponzi scheme. The scheme reportedly stole 21.2 billion won ($18.3 million) over six months in 2018, but it came to an end when the Seoul Special Judicial Police Bureau for Public Safety trained robots to nab participants in the scheme by using keywords and other clues. And in Japan, a local news outlet reported that G20 member countries will meet on June 8 and 9 in Fukuoka, Japan, to discuss international anti-money laundering regulation with a focus on creating a framework to combat cross-border, international crypto-enabled money laundering and terrorism financing.

A British bank recently issued a study detailing Iranian virtual currency activity and risks posed by Iran to financial institutions. The study noted that, given the current geopolitical environment and the ongoing sanctions against the Iranian government, there has been a movement by both citizens and the state toward use of virtual currency. Finally, a report by a blockchain analytics firm provided details on a recent alleged hack of CoinBene, a large cryptocurrency exchange. According to the report, hackers redirected $105 million in cryptocurrencies from CoinBene to three different addresses using a pattern that indicates an attempt to obfuscate the source of funds and the identity of the alleged hackers.

For more information on these developments, please follow these links:

Bitcoin Spikes, SEC Issues Token Guidance, Exchange is Hacked, and More

In this issue:

Paying with Crypto: Where to Use Your Crypto and the Recent Surge in its Value

SEC Issues Digital Assets Guidance, Blockchain Regulations Evolve in U.S. and Abroad

South Korean Exchange is Hacked, Canadian Law Enforcement Takes Action, Sanctioned States Continue Cryptocurrency Use

Blockchain Developments for Telecoms, Food Supply Chain and Related Standards

Paying with Crypto: Where to Use Your Crypto and the Recent Surge in its Value

By: Panida A. Pollawit

You may be able to use cryptocurrency to pay for your next vacation. Bitrefill, a Sweden-based company, recently began offering gift cards that can be purchased with bitcoin, ether, dash, litecoin and even dogecoin. These gift cards can be exchanged for more than 750 products, including booking a place to stay in the U.S. on a popular alternative-to-hotel website. Once at your destination, you can also buy or renew your favorite streaming subscription using cryptocurrency through Bitrefill. Other businesses that have recently begun to accept bitcoin as payment include a five-star hotel in Switzerland and a state-run transportation system in Argentina. Starting in April, Innisfil, Ontario, will allow its residents to pay property taxes using bitcoin.

A recent report by DataLight highlighted an advantage that the Bitcoin network may have over other electronic payment systems. According to the report, the average bitcoin transaction volume was $41,615 during the period studied. In comparison, major credit card and other online payment providers averaged less than $100 per transaction. The report concludes that the Bitcoin network may be more suitable for larger international payments due to its smaller fees.

This competition has not discouraged payment systems from investing in blockchain technology. A prominent Internet payment company recently announced an investment in Cambridge Blockchain, a company working on digital identity solutions. The purpose of the investment will be to support research into verifying a customer’s identity during a financial transaction while limiting the company’s access to their personal information.

On Tuesday, April 2, 2019, there was a large jump in the value of 1 BTC by more than $1,000. According to Bloomberg, one culprit for this sudden price increase may have been algorithmic cryptocurrency trading software used by one or more hedge funds to automatically execute a $100 million trade in bitcoin across three cryptocurrency exchanges. In other cryptocurrency exchange news, on March 26, 2019, Zero Hash, a subsidiary of Seed CX, launched its over-the-counter trade settlement services, providing for spot settlement of digital assets. Zero Hash’s new service will increase the number of counterparties firms can trade with and promises to streamline the reconciliation, reporting and settlement of trades.

For more information, please refer to the following links:

SEC Issues Digital Assets Guidance, Blockchain Regulations Evolve in U.S. and Abroad

By: Jordan R. Silversmith

Earlier this week, the SEC’s FinHub, a branch that helps facilitate the SEC’s engagement with new and evolving forms of securities, released a much-anticipated framework for analyzing whether a digital asset is a security. FinHub’s stated purpose for releasing the framework is to help individuals and corporations in the digital currencies realm that are looking to comply with federal securities laws. The framework came too late to help the executives of cryptocurrency startup ATBCoin LLC, who were recently ordered by a New York federal judge to face a proposed shareholder class action accusing them of selling unregistered securities at the company’s initial coin offering, or ICO. Judge Vernon Broderick of the Southern District of New York rejected the company’s attempt to dodge the suit, finding that the putative class adequately demonstrated that ATBCoin and its two executives plausibly violated federal securities laws. The evolution of the cryptocurrency world from the Wild West to a highly regulated industry has affected crypto companies in other ways, with the Wall Street Journal reporting that only about $118 million has been raised through ICOs in the first quarter of 2019, more than 58 times less than the $6.9 billion that was raised over the same period in 2018. And with Congress having already proposed 12 virtual currency bills in 2019, the increasing regulation of the cryptocurrency industry looks set to continue.

Regulation also continues to evolve overseas. The Malta Financial Services Authority announced earlier this week that it had issued in-principle approvals for 14 virtual financial assets (VFA) agents that applied for registration in November 2018. The VFA agents will work to protect the integrity of Malta’s markets pursuant to the country’s Virtual Financial Assets Act. According to a new framework from the State Bank of Pakistan, Electronic Money Institutions will have to meet certain requirements to be licensed by the government. The new requirements will reportedly apply to cryptocurrencies. Pakistan decided to introduce these rules to encourage innovations in payments to promote “financial inclusion” the State Bank of Pakistan said in a statement.

For more information, please refer to the following links:

South Korean Exchange Is Hacked, Canadian Law Enforcement Takes Action, Sanctioned States Continue Cryptocurrency Use

By: Joanna F. Wasick

Bithumb, South Korea’s largest cryptocurrency exchange, recently lost nearly 20.2 million XRP (about $6.2 million at that time) and 3 million EOS (about $12.5 million) in what appears to be a series of illegitimate withdrawals conducted by an insider. The exchange suspended withdrawals and deposits on the platform after the hack was noticed. This would be the exchange’s second major attack in roughly a year. A new report from cybersecurity firm Group-IB described a new generation Trojan horse malware, “Gustuff,” which uses “web fakes” that look like regular apps and phish for sensitive data (usernames, passwords, etc.) through push notifications. Group-IB warned that users of cryptocurrency and banking apps are particularly targeted and that using third-party app stores increases risk of exposure.

Law enforcement in Canada has recently been active in the cryptocurrency space. The Canadian police froze the assets of the founders of Vanbex, a blockchain services company, as part of a fraud investigation into the company’s 2017 ICO, which raised $22 million through the sale of a token called FUEL. According to court papers, Vanbex told investors that FUEL’s value would increase dramatically, but in actuality, the company developed no usable products and conducted the ICO solely for its own financial benefit. No criminal charges have been filed to date. Separately, a Toronto judge ordered the forfeiture of about 280 bitcoin (now worth $1.4 million) from an online drug dealer who allegedly used cryptocurrency to purchase arms and illegal narcotics on the dark web. This may be Canada’s largest-ever forfeiture of bitcoin to date.

Use of bitcoin by Hamas and North Korea was also in the news this week. According to reports, Hamas recently issued a new video that advises how to acquire and send bitcoin to unique, individualized addresses. Previously, donors were told to send all funds to one specific bitcoin address. The new method apparently makes it harder for law enforcement to identify and track donations and their donors. According to another recent report, in addition to cryptocurrency exchange hacks and cryptocurrency ransom malware, North Korea may also be orchestrating fraudulent ICO’s as a means of attempting to steal cryptocurrency to fund military operations.

For more information, please check out the following links:

Blockchain Developments for Telecoms, Food Supply Chain and Related Standards

By: Simone O. Otenaik

Late last week, a leading research company released a report on blockchain in the global telecommunications industry. The report forecast that the telecommunications market will likely grow at a CAGR of 77.9 percent during the forecast period and reach $1.37 billion in revenue by 2024. According to the report, North America will likely dominate the blockchain in the telecommunications market during the forecast period due to the high presence of key players offering solutions for the industry. Rising security concerns, demand for fraud management and 5G implementation are reportedly key factors driving the growth of blockchain in the telecommunications industry. According to a separate digital enterprise report released this week, 61 percent of high-profile digital companies worldwide are investing in blockchain. The report surveyed 1,050 IT, security and engineering purchasing decision-makers from global companies with at least $1 billion in revenue.

On Monday, a multinational Swiss food technology firm revealed two blockchain-based food safety products. The firm currently processes 70 percent of the world’s chocolate, 65 percent of the world’s grain products, and 30 percent of global rice and pulses. According to reports, storing this food safety data on the blockchain allows stakeholders to monitor and verify decontamination status during an outbreak with a high degree of certainty in seconds. In other supply-chain industry news, a nonprofit organization that develops and maintains global data standards for business communication announced that two of its supply-chain pilots are gearing up for full launch in November 2019. The first initiative is a traceability/recall mandate by a leading global retailer with their suppliers of green leafy vegetables; and the second is an initiative within the pharmaceutical industry to support new government regulations surrounding salable returns.

The International Association of Trusted Blockchain Applications (INATBA), which aims to implement data standards for the blockchain industry, officially launched this week. INATBA brings together blockchain and Distributed Ledger Technology (DLT) industry stakeholders (e.g., startups, policymakers, international organizations and regulators) and aims to develop a framework that promotes public and private sector collaboration, regulatory convergence, and legal predictability, and ensures the system’s integrity and transparency. INATBA’s goal is to facilitate the mainstream adoption and scale-up of blockchain and DLT across multiple sectors.

For more information, please refer to the following links:

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