Blockchain Developments in Food Safety, Ethical Sourcing, Financial Services, Social Media and Trading Platforms; DOJ Continues Actions Against Crypto Crimes

Abstract Digital network communication digital conceptIn this issue:

Blockchain Enterprise Solutions Aim to Improve Safety and Address Ethical Sourcing Concerns

Financial Services and Social Media Firms Integrate Blockchain and Cryptocurrencies, US Marshalls to Auction 4,040 Bitcoins

US and Foreign Firms Announce Blockchain Trading Platforms and Tokenized Securities

DOJ Continues Enforcement Actions Targeting Cryptocurrency Crimes

Blockchain Enterprise Solutions Aim to Improve Safety and Address Ethical Sourcing Concerns

By: Brian P. Bartish

According to recent reports, the Food Safety and Inspection Service (FSIS), an agency of the U.S. Department of Agriculture, is working with a major global technology firm to build a proof-of-concept blockchain solution, FSIS’s first, designed to bring increased immutability of documentation and streamline the process for export certifications of America’s meat, poultry and eggs. In another recently announced pilot, as part of its 20-year plan to create a carbon-neutral passenger car fleet, a global automobile manufacturer announced a new blockchain pilot project with Circulator – a startup focused on blockchain technology – and one of its key battery cell manufacturers. The project is targeted at tracking emissions of climate-relevant gases and mapping the use of recycled material through the battery cell manufacturing chain.

Earlier this week, several key partners in the aircraft maintenance, repair and overhaul (MRO) industry announced the creation of the MRO Blockchain Alliance, along with a proof-of-concept blockchain solution to verify the authenticity of aircraft parts and provide visibility into the full chain of custody, with blockchain technologies estimated to generate $3.5 billion in costs savings (approximately 5 percent) and a $40 billion boost in revenue. Also this week, the Perth Mint, in partnership with Security Matters, a technology startup focused on physical asset tracking through digital means, announced the development of an ethical gold supply chain assurance solution as part of its TrueGold project. TrueGold is aimed at reporting on the origin of gold and how the metal moves through the entire production and distribution process.

Last week, Hyperledger marked the fourth anniversary of its enterprise digital ledger, Hyperledger Fabric, by announcing the release of Hyperledger Fabric v2.0, which offers improved decentralized consensus models and heightened data privacy offerings, among other performance improvements. Illustrating the potential benefits to enterprise-blockchain adoption, a leading research and advisory firm recently predicted that organizations participating in blockchain smart contracts could realize a 50 percent increase in data quality by 2023 while noting the downside that the same technology could lead to a 30 percent decrease in data availability.

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Financial Services and Social Media Firms Integrate Blockchain and Cryptocurrencies, US Marshalls to Auction 4,040 Bitcoins

By: Joanna F. Wasick

According to recent reports, a bank located in La Jolla, California, recently applied for the New York trust license, with intentions of providing custody and settlement for cryptocurrency, including settlement services for bitcoin trades. While the bank is already known for providing U.S.-dollar banking services for businesses that deal in cryptocurrency, the new plan will enable it to directly handle digital assets itself. The bank is also reportedly working on increasing the number of fiat currencies it supports for cryptocurrency trading. In related news, this week Ripple announced a new partnership with a major money remittance services company focused on the Latin America and Caribbean corridor. Together they aim to provide faster, more transparent cross-border remittance services between the United States and Mexico.

Late last week, Camfrog (a video chat app) and Listia (a marketplace trading app) announced plans to integrate YouNow’s “Props” token. The token was granted a Reg A+ qualification from the U.S. Securities and Exchange Commission, and is used to reward content creators for driving income on YouNow’s video-streaming platform. Camfrog plans to integrate the token this month; Listia expects it to go live in March. Also last week, the LVC Corporation, a subsidiary of a major Japanese messaging app, announced plans to trade its digital currency, LINK, in Japan as early as April 2020. LINK is issued by an LVC-affiliate and was launched on the BITBOX cryptocurrency exchange in October 2018, but had not been previously available to users in Japan.

The U.S. Marshals Service is auctioning approximately 4,040 bitcoin, worth nearly $40 million at press time, that were forfeited in various federal criminal, civil and administrative cases. The auction will take place during a six-hour window on Feb. 18. Potential bidders must register by Feb. 12. This is the first major U.S. government bitcoin auction since 2018.

According to reports out last month, 49.9 percent of the computing power on the Bitcoin Network operations is controlled by five China-based mining entities. All five entities are available through BitDeer, which allows consumers to rent mining power without buying their own mining hardware. This concentration of power has some worried, because a miner with more than 50 percent of hash power can potentially manipulate the network by, for example, double-counting coins, stopping certain payments and stalling transactions.

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US and Foreign Firms Announce Blockchain Trading Platforms and Tokenized Securities

By: Simone O. Otenaike

According to recent reports, a leading U.S.-based blockchain development firm, has acquired a U.S. broker-dealer. The recently acquired broker-dealer is registered with the United States Securities and Exchange Commission (SEC) and the acquisition will reportedly support the firm’s existing broker-dealer services. The firm hopes to facilitate a cost-efficient and effective blockchain-based solution for direct, local investment in mini-municipal bonds and promote resident engagement in local financial markets through this acquisition. In related news, tZERO recently announced plans to launch its broker dealer service, tZero Markets, in the first half of 2020. The company is reportedly working closely with regulators on tZero Markets, which will reportedly enable investors to trade digital securities and cryptocurrencies on one platform.

A Swiss information technology company based in Italy, OverFuture SA, recently received approval to incorporate for an initial public offering (IPO) of tokenized shares. According to the firm’s IPO prospectus, the offering will consist of 8,399,000 common equity share security tokens on Ethereum with smart contracts provided by the European Digital Assets Exchange. Swiss regulators reportedly approved the firm’s initial articles of incorporation, which explicitly state the digital nature of the shares and the use of blockchain technology to maintain the shareholder registry.

ICHX Tech, a Singapore-based firm, will reportedly obtain the first Singapore capital markets services provider license for its securities token platform. According to the firm, the platform will offer institutional investors more options for capital fundraising and investment in digital securities.

A leading provider of consulting services and system solutions recently announced plans to develop an objective crypto-asset investment appraisal benchmark. The benchmark will reportedly offer investors, crypto exchanges and financial information providers objective criteria to evaluate their investments. The consulting firm plans to launch the benchmark in conjunction with a Japanese asset management company and make it available to domestic and overseas institutional investors, financial information vendors and crypto exchanges in early 2020.

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DOJ Continues Enforcement Actions Targeting Cryptocurrency Crimes

By: Jordan R. Silversmith

Last week, the Southern District of New York announced that a senior adviser to the “Silk Road” website pled guilty in Manhattan Federal Court. Roger Clark pled guilty to conspiring to distribute large quantities of narcotics, a charge that arose from his role as the senior adviser to the owner and operator of the online illicit black market. From 2011 to 2013, Silk Road, a secret online marketplace on the dark web for a host of criminal activity, was used by drug dealers and others to distribute illegal drugs to more than 100,000 buyers, and to launder hundreds of millions of dollars derived from those transactions. Clark, a Canadian citizen, was paid at least hundreds of thousands of dollars for his assistance in operating Silk Road. He pled guilty to one count of conspiracy to distribute narcotics, which carries a maximum sentence of 20 years in prison.

The Eastern District of Virginia announced last week that a Richmond, Virginia, man pled guilty to distribution of drugs similar to fentanyl. Mark Faulkner, 36, advertised Adderall and fentanyl products on multiple dark web markets. He was identified through bitcoin exchange transactions and three purchases of drugs that were advertised as fentanyl. Faulkner pleaded guilty to distribution of a controlled substance analogue. He faces a maximum penalty of 20 years in prison.

Earlier this week the Eastern District of California announced that a California-based dark web drug vendor had pleaded guilty. Eric Friccero, 29, pleaded guilty on Feb. 3 to possessing with intent to distribute a controlled substance. According to court documents, Friccero distributed marijuana to customers throughout the United States through dark web marketplaces. On Jan. 31, 2019, law enforcement officers searched Friccero’s California residence and found marijuana that had been offered for sale on the dark web, along with bitcoin and cash.

On Wednesday, the U.S. Attorney’s Office for the District of Arizona announced two arrests in connection with a cryptocurrency investment fund, Zima Digital Assets. John Michael Caruso and Zachary Salter were both arrested on Jan. 30 and charged with conspiracy to commit wire fraud and money laundering.

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New Blockchain Solutions, Crypto Products, Regulations and Licenses; 51% Attack Hits, Insurer Traces Ransomware Payment, Crypto Crimes Report Published

In this issue:

Solutions Debut for Wine, Farming Data, Media Authenticity and Credentialing

Blockchain Platforms and Crypto Exchanges Launch Products, Announce Developments

Foreign Regulators Issue New Regulations and Licenses, WEF Launches Consortium

Alleged BTC-e Operator Extradited, Insurer Traces Ransomware Payment, 51% Attack Reported, Crypto Crimes Report Published

Solutions Debut for Wine, Farming Data, Media Authenticity and Credentialing

By: Veronica Reynolds

A multinational closures company has announced what it describes as the first European winery that tracks wine products using “connected closures” that leverage near-field communication and blockchain technology. The product reportedly allows customers to verify the authenticity of bottles and obtain detailed information about where the wines are made and in which vineyards the grapes are grown. In related news, a global leader in crop nutrition has partnered with a multinational computing giant to launch a blockchain platform inviting collaboration among food suppliers. The project aims to unify data that is typically dispersed and inaccessible in order to foster trust and provide access to shared data that can increase profits and improve sustainability. However, supply chain blockchain projects are likely to tread water until 2022, according to a Connecticut-based research company, which recently cited the lack of digitization of core aspects of the industry as the primary reason for the delay.

For the past few years, a well-known national news conglomerate has worked on a collaboration with an international computing giant to create the News Provenance Project, which seeks to explore solutions that could reduce the proliferation of misinformation online. The project recently published findings from a proof of concept intended to demonstrate how publishers might leverage blockchain technology to allow consumers of media to view how information and photographs have been changed or tampered with over time.

Another blockchain use case announced this week seeks to leverage blockchain to provide academic credentialing services, allowing graduates and employees to authenticate degrees earned while maintaining control over who can access the information. As this is just one of many recently announced blockchain solutions, it is no surprise that the enterprise blockchain developer community appears to be thriving, with a reported 12-fold increase in the number of engineers between the Q3 2016 and Q4 2019 periods, according to the newly released “Enterprise Blockchain Protocols Evolution Index 2020” report.

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Blockchain Platforms and Crypto Exchanges Launch Products, Announce Developments

By: Robert A. Musiala Jr.

This week, VAKT, a blockchain-based platform for processing energy commodity transactions, announced that it had closed a $5 million investment from a major Saudi Arabian venture capital firm. According to the press release, “The VAKT platform manages physical energy transactions from trade entry to final settlement, eliminating reconciliation and paper-based processes.”

Another recent press release announced the launch of Tether Gold (XAU₮), an ERC20 token product where each token reportedly “represents ownership of one troy fine ounce of physical gold on a specific gold bar.” XAU₮ is reportedly now available for trading on the Bitfinex exchange. In other exchange news, Binance.US recently announced that the exchange will soon offer “staking rewards” on two “proof of stake” cryptocurrencies, ALGO and ATOM. Staking allows owners to deposit their cryptocurrencies in addresses that enable the owner to receive cryptocurrency rewards in exchange for assistance verifying transactions on blockchains that utilize proof-of-stake consensus algorithms.

Late last week, major U.S. cryptocurrency exchange Gemini announced that it had completed an independent SOC 2 Type 2 examination. According to a press release, the exchange completed a SOC 2 Type 1 exam in January 2019. In a final notable development, a report this week provided details on a U.S. patent recently awarded to a major global technology firm for a “self-aware token.” The token would reportedly collect and report data on its own transactions and provenance.

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Foreign Regulators Issue New Regulations and Licenses, WEF Launches Consortium

By: Simone O. Otenaike

The Monetary Authority of Singapore recently announced a new regulation that aims to strengthen consumer protection and encourage the use of digital payment token services. The new regulation, the Payment Services Act, reportedly offers a new flexible regulatory framework and will attempt to bring all digital payment token services under the scope of current anti-money-laundering and counterterrorist-financing rules. Crypto businesses and exchanges based in Singapore will reportedly have a month to register with the Monetary Authority of Singapore and a six-month period to apply for the new payment institution license.

BCB Payments, a company that provides financial services for various cryptocurrency companies, was reportedly awarded an Authorized Payment Institution license by the U.K.’s Financial Conduct Authority earlier this week. With the new license, the firm hopes to attract more cryptocurrency clients in the U.K. and Switzerland.

Late last week, the World Economic Forum announced plans to develop a global consortium for digital currency governance. According to reports, the goal of the consortium is to develop inclusive and interoperable policy solutions to address the existing fragmented regulatory system. The consortium will seek to bring together key stakeholders to develop guiding principles for the public and private sectors as they incorporate the use of digital currencies.

For more information, please refer to the following links:

Alleged BTC-e Operator Extradited, Insurer Traces Ransomware Payment, 51% Attack Reported, Crypto Crimes Report Published

By: Joanna F. Wasick

Late last week, Alexander Vinnik, a Russian citizen, was extradited from Greece to France on charges including extortion and aggravated money laundering arising from his operation of BTC-e, a cryptocurrency exchange alleged to have helped criminals launder billions of dollars. Vinnik was arrested in Greece in 2017 and was held there while France, Russia and the U.S. fought over which country should try him first. Vinnick’s lawyers said that after the proceeding concludes in France, he will be extradited back to Greece and then sent to the U.S. to face similar charges. According to reports, Vinnik has been on a hunger strike to protest his detention and maintains that he is innocent and being persecuted for posing a threat to the international banking system.

Earlier this month, the U.K. High Court of Justice froze 96 bitcoins on Bitfinex due to alleged connections to a ransomware scheme. An unnamed company’s computers had been hijacked by ransomware, and the company’s insurer ultimately paid the cybercriminals 96 BTC. That insurer then hired Chainalysis, a blockchain analytics company, to track the bitcoin, which were ultimately traced to an address on the Bitfinex platform. In addition to freezing the cryptocurrency, the court demanded that Bitfinex provide information about the account holder. The case remains ongoing.

Last week, the Bitcoin Gold (BTG) blockchain reportedly fell victim to a 51% attack. During this type of attack, a single entity gains control over half of the network’s mining hashrate (computing power) and can then reverse prior transactions, enabling the attacker to double-spend the coins. More than $70,000 of BTG was double-spent in this particular attack. Other types of cybercrimes are detailed in Chainalysis’ 2020 report, out this month, which provides an overview of crypto crime activity that has occurred over the past year. Focuses of the report include money laundering, ransomware, terrorism financing and darknet markets. The report concludes: “Crypto crime will likely continue to evolve in both scope and technological sophistication, just like cryptocurrency itself.”

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Foreign Regulators Issue Approvals and Guidance, SEC Enforcement Continues, Blockchain Trade Groups File Amicus Briefs, Reports Detail Terrorist Financing Risks

In this issue:

New Approvals From European and Thai Regulators, Canada and WEF Publish Guidance

SEC Targets ICOs, IRS Updates Crypto FAQs, UK Tax Agency Seeks Blockchain Analytics Tool

Chamber of Digital Commerce and Blockchain Association Weigh In on SEC v. Telegram

Reports Address Cryptocurrency Terrorist Financing Risks

New Approvals From European and Thai Regulators, Canada and WEF Publish Guidance

By: Veronica Reynolds

Swiss-based digital fund manager Amun launched 21 Shares Short Bitcoin (SBTC) this week, a first-of-its-kind digital asset-based Exchange Traded Product (ETP) that reportedly allows investors an easy method for capturing falling price movements of bitcoin through a traditional broker or bank. According to reports, the product is compliant with Swiss regulations and launched on the Swiss Stock Exchange. In another development from Europe, officials in Liechtenstein have approved AARGOS Global Real Estate Fund as an alternative investment fund. The company reportedly makes available a fully regulated, tokenized real estate portfolio, with each token representing one share in the fund.

Asian cryptocurrency trading platform Zipmex was granted a digital asset exchange license this week from Thailand’s securities regulator. The company is now classified as a financial institution in the country and must comply with AML reporting obligations. The availability of this license is somewhat new, with its introduction part of the country’s regulatory framework for digital assets that went into effect in 2018.

Canada’s securities administrator issued guidance last week to assist in the determination of whether certain digital assets are securities subject to regulation. The guidance notes that such regulations might apply to digital assets traded on exchange platforms because although the token itself may be correctly categorized as a commodity, the underlying right to the token might­ constitute a security when such a right is not settled in real time.

The World Economic Forum shared insights this week gathered from researchers, policymakers and international organizations and announced its central bank digital currency (CBDC) Policy-Maker Toolkit. The toolkit is designed to help central banks assess whether CBDC is a strategic fit for their economy and help them access methods of evaluation, design and deployment. A key goal of the toolkit is to help provide common groundwork “to support stable, efficient and inclusive global economic systems.”

For more information, please refer to the following links:

SEC Targets ICOs, IRS Updates Crypto FAQs, UK Tax Agency Seeks Blockchain Analytics Tool

By: Joanna F. Wasick

Late last week, the Securities and Exchange Commission (SEC) charged Mr. Boaz Manor, Ms. Edith Pardo and two related entities, CG Blockchain Inc. and BCT Inc. SEZC, for violating federal securities laws when raising more than $30 million from hundreds of investors in a fraudulent initial coin offering (ICO). The SEC alleges that the defendants falsely claimed to have 20 hedge funds testing their technology to record transactions on a blockchain, when, in fact, the defendants only sent a prototype to a dozen funds, none of which used or paid for it. In addition, the complaint describes how Manor, a convicted criminal, hid his identity and criminal past from investors by changing his physical appearance and using an alias. The U.S. Attorney’s Office announced criminal charges against Manor and Pardo in a parallel action.

The SEC filed another ICO-related complaint this week against Opporty International Inc. and its founder and owner, Mr. Sergii Grybniak. The SEC alleges that the defendants’ ICO constituted an unlawful, unregistered securities offering, and that the defendants made false and misleading statements to investors, including that the ICO was “100% SEC compliant.”

The Internal Revenue Service (IRS) recently updated its Frequently Asked Questions page on its website to address the responsibilities and reporting obligations for charitable donations made with cryptocurrency. The guidance provides that a charitable organization that receives virtual currency should treat the donation as a noncash contribution. It also describes donor acknowledgment responsibilities for donations of more than $5,000 in cryptocurrency, leading some analysts to conclude that high-value cryptocurrency donations must be appraised.

The U.K.’s tax agency, Her Majesty’s Revenue and Customs, recently requested proposals for a blockchain analytics tool to help combat illegal cryptocurrency trading. According to the agency, the tool would “support intelligence-gathering methods to identify and cluster crypto-asset transactions into linked transactions and identify those linked to crypto-asset service providers.” The agency is willing to spend £100,000 to license the tool. Proposals are invited until Jan. 31 of this year.

For more information, please refer to the following links:

Chamber of Digital Commerce and Blockchain Association Weigh In on SEC v. Telegram

By: Teresa M. Goody

The Chamber of Digital Commerce (Chamber) and The Blockchain Association (Association), two not-for-profit organizations that promote blockchain-based technologies, recently filed amici curiae briefs in SEC v. Telegram Group Inc., 19-9439 (SDNY). The two organizations took starkly different approaches; however, they both request that the court distinguish between the transaction that is the investment contract and the subject of the investment contract. Both amici aver that in the blockchain context, the digital assets are improperly conflated with the investment contract; that is, when digital assets are simply the subject of an investment contract, such as the orange groves in SEC v. W. J. Howey Co., 328 U.S. 293 (1946), those are not the investment contract.

The Chamber’s brief does not take a position on the application of the securities laws to Telegram but instead focuses on the overall regulatory scheme of digital assets and urges the court to undertake a two-part analysis (“whether there is an investment contract, offered in a securities transaction” and “whether the subject of an investment contract is a commodity that can be sold in an ordinary commercial transaction”). In stark contrast, the Association’s brief posits that Telegram did not violate the securities laws. The Association’s brief warns the court of far-reaching repercussions of a broad decision in light of what it characterizes as the SEC’s unclear regulatory guidance, regulation by enforcement, closed-door consultations and no-action letters addressing “tokens [that] were so clearly not securities that it seemed bizarre that the SEC would even undertake the analysis.” While the two briefs are very different, they appear to promote similar substantive securities law arguments as to the proper investment contract analysis application to digital assets.

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Reports Address Cryptocurrency Terrorist Financing Risks

By: Simone O. Otenaike

Blockchain analytics firm Chainalysis recently announced plans to release a report later this month that details the use of cryptocurrency as a terrorism financing tool. According to prior reports, the media wing of a jihadist group, designated as a fForeign Terrorist Organization by the U.S. State Department, launched a cryptocurrency crowdfunding campaign in 2016. Over the two years that the campaign ran, the organization reportedly received tens of thousands’ worth of cryptocurrency from roughly 50 different donations. According to Chainalysis, the median donation was $164.

In related news, the Israeli International Institute for Counter-Terrorism (ICT) recently identified what may be a bitcoin front for an organization with links to Hamas and Iran. The organization reportedly uses a service called “Cash4ps” to send and receive money to its fundraising wallet for operations in and out of the Gaza Strip. According to ICT’s investigations, the wallet’s transactions over the past four years total roughly 3,370 bitcoin (approximately $29 million at current prices). A Chainalysis post analyzed the report findings and noted that not all bitcoin received by Cash4ps during its lifetime represented donations to the organization, since the majority of transactions were internal transfers.

For more information, please refer to the following links:

Blockchain Solutions Announced Across Industries, Crypto Threat Warnings Announced Across Agencies

Modern research and information technologies in cyberspaceIn this issue:

Blockchain Developments in Olive Oil, Shipping, Media and Real Estate

Warnings on SIM Swapping and IEOs, New Research on Crypto Money Laundering

Blockchain Developments in Olive Oil, Shipping, Media and Real Estate

By: Jordan R. Silversmith

On Jan. 14, one of the largest producers of olive oil in the Mediterranean announced it would begin using blockchain to create a provenance record for its oils. The company announced it would use the Food Trust blockchain to provide traceability of its olive oils across eight quality assurance checkpoints, stretching from the retailer through the orchard where the olives were grown to the tree from which the olives were harvested. Starting with the company’s most recent harvest, now being bottled, customers around the world will be able to scan a QR code on each label to view a provenance record. Since harvest began in November, data has been uploaded to the distributed ledger; bottles are expected to reach store shelves by March.

Container shipping lines have been prohibited from working together on certain matters without oversight from the U.S. Federal Maritime Commission (FMC), but that is set to change. Under the TradeLens Agreement, which will come into effect on Feb. 5, those laws will be loosened to authorize companies to cooperate in providing data to the blockchain so that shippers, authorities and other parties can exchange information on supply chain events and documents. Launched in August 2018, TradeLens has grown to include more than 100 participants and has processed more than 10 million shipping events. Since May 2019, it has accounted for more than half of global cargo traffic.

A software provider for the advertising world announced its first partner that will use blockchain technology to provide transparency in the media supply chain. The integration will reportedly make visible programmatic supply path details tied to financial and contractual data. In another media industry development, one of the largest U.S. television providers has filed a patent application for a new “anti-piracy management system” that would leverage blockchain to allow owners to track how their content is being used. According to the filing, one of the chief problems with online streaming has been the difficulty in combating content piracy. Along with enhancing oversight of copyright infringement, the patent pending system, would also seek to help platforms enforce ownership rights and pursue publishers that use content without permission.

In what is reported to be the largest- ever real estate transaction funded exclusively by tokens, a Swiss blockchain-focused investment firm announced on Wednesday that it had agreed to buy a majority stake in a Zurich-based commercial property. The company paid 130 million Swiss francs ($134.9 million) to purchase 80% of Bahnhofstrasse 52, an office and retail building, and will have the option to purchase the remaining 20% of the property within nine months. The company has offices in Berlin, Zurich and Zug, Switzerland, and invests in commercial and residential properties in North America and Europe through capital raised in part through its proprietary token program.

For more information, please refer to the following links:

Warnings on SIM Swapping and IEOs, New Research on Crypto Money Laundering

By: Veronica Reynolds

At least $2.8 billion worth of bitcoin from illicit transactions was laundered through cryptocurrency exchanges in 2019, according to a well-known cryptocurrency analytics firm. According to the report, two of the world’s largest exchanges processed more than 50% of the illicit transactions. The analytics firm notes that such activity is likely facilitated by certain over-the-counter brokers it labels the “Rogue 100,” which have been identified by the firm as having received large amounts of illicit cryptocurrency funds. In the most recent example of money laundering through cryptocurrencies, this week in California, a 28-year-old man pleaded guilty in relation to his use of cryptocurrency to import illicit substances through a now-defunct dark market, the Silk Road.

The Securities and Exchange Commission (SEC) issued an alert this week, suggesting investors exercise caution before investing in Initial Exchange Offerings (IEOs), a so-called innovation on Initial Coin Offerings (ICOs), both of which offer digital assets in exchange for capital. According to the alert, IEOs are usually unregistered offerings that are conducted and promoted by entities improperly characterized as “exchanges” without proper vetting, making them risky consumer investments.

Digital asset startup incubator ICOBox stands accused of violating U.S. securities laws, with the SEC asking a federal judge this week to enter a default judgment against the company after it failed to respond to the allegations in court. Alleged violations include raising $14.6 million during an unlawful ICO and assisting more than 30 companies in raising a total of $650 million in unregistered securities.

Federal lawmakers last week wrote a letter to the Chairman of the Federal Communications Commission (FCC), Ajit Pai, urging the FCC to take swift action to protect consumers against subscriber identification module (SIM) swapping by requiring wireless carriers to implement protocols that protect consumers. SIM swapping occurs when a hacker gains access to a victim’s mobile account, which often allows the hacker to steal account login credentials and steal funds. According to the letter, 728 SIM-swap complaints were filed in 2019, up from just 25 in 2016. Recent reports note that millions of dollars in cryptocurrency funds have been stolen in SIM-swapping attacks.

For more information, please refer to the following links:

New Blockchain Patents, Crypto Mining Expands in US and Russia, French ICO Approved Under New Law, DOJ and INTERPOL Enforcement Actions

In this issue:

Patents Granted to Blockchain Payments Firms, Crypto Mining Expands in Texas and Russia

First ICO Is Approved Under New French Law, New Crypto Bill Is Introduced in US

DOJ Prosecutes Crypto Dark Markets, INTERPOL Fights Crypto Mining Malware

Lawsuit Alleges Legal Malpractice Related to Crypto-Assets Deemed Securities, SEC 2020 Priorities Address Digital Assets

Patents Granted to Blockchain Payments Firms, Crypto Mining Expands in Texas and Russia

By: Simone O. Otenaike

Last month, a U.S. patent was reportedly granted to a major U.S. cryptocurrency exchange for a new system that would allow users to make bitcoin payments with email addresses linked to corresponding wallet addresses. According to the patent, the system does not charge user fees and would take 48 hours to complete a transaction once the receiver accepts the payment. Two other patents were also granted to the exchange last month. Earlier this week, R3 also reportedly received a patent for its blockchain-based record system. The system purportedly manages transaction records in digital documents and provides companies with a shared distributed immutable data record for all stakeholders to access – thus reducing the likelihood of slight disparities that cause miscommunications and legal disputes.

A private equity firm and a Japanese internet service provider will reportedly team up to launch a new crypto mine in Rockdale, Texas. The data center will reportedly have an initial capacity of 300 megawatts with the potential to reach 1 gigawatt, which is three times the capacity of existing large crypto mines. According to reports, Texas’ cheap energy and renewable resources make it an attractive location for crypto miners. On the international front, a state-owned nuclear power plant in Russia will soon house a data center where bitcoin miners can rent space and purchase electricity. The new data center will reportedly have 30 containers on-site with room for roughly 400 mining computers in each container.

The Organization for Economic Cooperation and Development (OECD) recently released a new report on consumer attitudes, behaviors and experiences toward crypto assets in Asia. The markets selected for this research were Malaysia, the Philippines and Vietnam. The report provides a few policy considerations to promote and improve consumer protection and financial education.

For more information, please refer to the following links:

First ICO Is Approved Under New French Law, New Crypto Bill Is Introduced in US

By: Joanna F. Wasick

Last month, France’s Financial Markets Authority (AMF) announced its first approval for an initial coin offering (ICO). The approval, known as an “ICO visa,” was granted to French ICO, a company that offers a platform for fundraising in crypto assets, and is reportedly capped at €1 million and in effect until June 1, 2020. In granting the ICO visa, the AMF considered whether a number of criteria had been met, including that the issuer of the tokens was incorporated as a legal entity established or registered in France, and that the issuer had proper systems in place to prevent money laundering and terrorist financing. This approval was made in conjunction with French Law No. 2019-486 of 22 May 2019, also referred to as the Action Plan for Business Growth and Transformation law, a comprehensive legal framework for cryptocurrencies that was adopted last spring.

In the United States, a bill was recently introduced to Congress called the “Crypto-Currency Act of 2020,” which, among other things, purports to clarify which federal agencies are to regulate digital assets. The bill recognizes three separate kinds of assets. The first are “crypto-commodities” (economic goods or services), which the bill proposes should be regulated by the Commodity Futures Trading Commission. The second are “crypto-currencies” (representations of U.S. currency or “synthetic derivatives resting on a blockchain”), which should be regulated by the Financial Crimes Enforcement Network (FinCEN). And the third, “crypto-securities” (debt, equity and derivative instruments that reside on a blockchain), should be regulated by the Securities and Exchange Commission (SEC). The act also provides definitions of “decentralized oracle,” “digital asset,” “federal crypto regulator,” “reserve-backed stablecoin” and “synthetic stablecoin.” It is unclear whether the bill will proceed past any current preliminary stages.

For more information, please refer to the following links:

DOJ Prosecutes Crypto Dark Markets, INTERPOL Fights Crypto Mining Malware

By: Veronica Reynolds

An Illinois man pled guilty this week to using the dark web and cryptocurrencies to pedal at least 4.3 million counterfeit Xanax pills throughout the United States between March 2017 and May 2018. The man was sentenced to 13 years in federal prison and ordered to disgorge more than $2.1 million in profits generated from the scheme. Last week in New York, prosecutors arraigned a woman accused of using dark markets to distribute heroin and methamphetamine to customers who paid her in bitcoin.

According to a press release published this week, the International Criminal Police Organization (INTERPOL), an intergovernmental law enforcement organization, worked with private-sector cybersecurity firms to identify a vulnerability in MikroTik routers that was facilitating massive crypto-jacking campaigns in Southeast Asia. The collaboration, led by INTERPOL, reportedly resulted in a 78 percent decrease in infected devices.

Kraken, one of the world’s largest cryptocurrency exchanges, announced this week that data requests from law enforcement rose by almost 50 percent in 2019. The United States made more requests than any other country – almost 61 percent of all requests – with the United Kingdom taking second place, submitting 12 percent of the total. Kraken’s CEO and co-founder, Jesse Powell, said that the cost associated with responding to the sharp rise in law enforcement requests in 2019 was more than $1 million.

For more information, please refer to the following links:

Lawsuit Alleges Legal Malpractice Related to Crypto-Assets Deemed Securities, SEC 2020 Priorities Address Digital Assets

By: Veronica Reynolds

Two related cryptocurrency investment companies and their founder recently filed a malpractice claim against their former law firm, after the SEC ordered the companies and their founder to pay a $200,000 fine for promoting “the first regulated Crypto Asset Fund in the United States” and raising around $3.6 million from 44 investors without first registering as an investment company with the SEC. The complaint alleges that the law firm “provided inaccurate analysis and advice” when it told the investment companies that their crypto-assets were not securities.

The SEC’s Office of Compliance Inspections and Examinations published its 2020 Examination Priorities. The publication confirmed that the SEC will prioritize the evaluation of digital asset markets in order to protect retail investors. Such oversight will include assessing the safety of client funds, the suitability of investments, trading practices and portfolio management, valuation and pricing, compliance protocols, transfer agents, and outside business activities conducted by employees of digital asset market participants.

For more information, please refer to the following links:

Blockchain Pilots Advance Across Manufacturing, Food, Pharma, Grant Management and Capital Markets Industries, Multiple Crypto Enforcement Actions in US

Abstract Digital network communication digital conceptIn this issue:

Blockchain Solutions Advance in Manufacturing, Food, Pharma and Grant Management

Marco Polo Network Completes Pilot, Banks Make Crypto Moves, Bitcoin Futures Launch

Multiple US Enforcement Actions for ICOs, Dark Web Sales, Fraud and SIM Swapping

Reports Detail Crypto Hacks, Ransomware, Dark Markets and Crypto Fraud Schemes

Blockchain Solutions Advance in Manufacturing, Food, Pharma and Grant Management

By: Simone O. Otenaike

Last week, one of the world’s largest industrial cobalt producers announced plans to join the Responsible Sourcing Blockchain Network (RSBN). RSBN is a network of auto brands, refiners and miners that aim to use blockchain technology to promote responsible sourcing and production practices in the industry. RSBN will reportedly offer a highly secure and immutable record of relevant mine-to-market supply chain information that can be shared with members of a permissioned blockchain platform powered by Hyperledger Fabric. Also last week, a global food and beverage company announced a new project that leverages blockchain technology to facilitate responsible sourcing practices in the coffee bean industry. Participants will reportedly be able to store supply chain transaction records in a transparent, immutable and verifiable format and thus interact in a more trustworthy and efficient manner.

The Food and Drug Administration (FDA), in conjunction with a leading national pharmaceutical manufacturer, a national professional services firm and a global technology firm, completed the Drug Supply Chain Security Act Interoperability Pilot earlier this month. The pilot reportedly demonstrated the visibility into the end-to-end pharmaceutical supply chain offered by blockchain technology. In a related development, the second-largest health insurance company in the U.S. recently announced plans to use blockchain technology to help patients securely store, share and access their medical data. According to reports, the feature is in the pilot phase but will be ready for commercial adoption in the next two to three years. Also this week, a leading professional services firm announced the release of its third-generation zero-knowledge proof blockchain technology for the Ethereum public blockchain. According to a press release, these updates significantly reduce transaction costs by batching up to 20 private transfers together into one transaction, which cuts the cost per transaction to $0.05 and reportedly makes public blockchains scalable for enterprise.

Diginex, a blockchain financial services and technology company, in conjunction with the United Nations Migration Agency, recently announced plans to launch a blockchain-based tool that aims to prevent the exploitation of migrant domestic workers in Hong Kong and to facilitate ethical recruitment. Through the tool, agencies will reportedly be able to assess their current level of adherence to global ethical recruitment principles as set forth by the IRIS Standard.

Earlier this month, the U.S. Treasury Department’s Office of Financial Innovation and Transformation announced plans to explore blockchain technology as a solution for grant management. The solution would reportedly leverage a permissioned version of Ethereum to tokenize the details and payments found in letters of credit sent to grantees. By embedding all the grant information in the token, the solution will seek to reduce reporting burdens, improve transparency and reduce labor costs.

For more information, please refer to the following links:

Marco Polo Network Completes Pilot, Banks Make Crypto Moves, Bitcoin Futures Launch

By: Robert A. Musiala Jr.

In a press release published late last week, the Marco Polo Network announced the completion of a seven-week trial involving more than 70 companies across multiple industries and five continents to test the receivables financing (i.e., “factoring”) solution enabled by the R3 Corda blockchain platform. According to the press release, a survey of project participants found that “100% of respondents believe that Marco Polo will accelerate and improve the receivables discounting process and reduce costs for both banks and corporates, with 75% believing this will happen within 5 years.” Shortly after the press release, a global consulting firm announced that it had invested in TradeIX, a blockchain startup with a central role in the Marco Polo Network.

Institutional financial firms also made moves this week in the cryptocurrency market. One press release announced that a major U.S. financial institution has partnered with the Gemini Trust Company to launch a pilot that would allow customers “to consolidate the reporting of their digital assets serviced by Gemini, an independent digital asset custodian, with their traditional assets” serviced by the U.S. financial institution. Another report provided details on another major U.S. financial institution’s plans to expand its U.S.-based digital asset custody services to European investors.

Finally, this week, cryptocurrency exchange ErisX announced the launch of a market for physically settled bitcoin futures contracts. The futures contracts will be traded through Commodity Futures Trading Commission-regulated entities, which will operate alongside Financial Crimes Enforcement Network-regulated entities that trade in the bitcoin spot market.

For more information, please refer to the following links:

Multiple US Enforcement Actions for ICOs, Dark Web Sales, Fraud and SIM Swapping

By: Veronica Reynolds

This week, the Securities and Exchange Commission (SEC) published a consent order related to an initial coin offering (ICO) conducted by Blockchain of Things, Inc., a New York-based startup focused on providing a development platform for digital assets and messaging applications. As part of its settlement agreement with the SEC, the company agreed to return all invested funds (nearly $13 million), pay a $250,000 fine and comply with U.S. securities laws moving forward. The company entered the agreement based on its sales of digital tokens to U.S. consumers in December 2017 through an ICO after the SEC’s publication of the “DAO Report,” in which the SEC warned that ICOs may be considered securities offerings.

In Seattle, law enforcement sentenced a 40-year-old man this week for selling thousands of doses of fentanyl on the dark web. More than $1 million in cryptocurrency and other holdings were seized from the man in December 2018, which the man admitted were proceeds obtained from his crimes. Law enforcement identified the man after his contact information and dark web monikers were found in the possession of other drug traffickers in California and Oklahoma.

Authorities in the U.S. recently indicted two men for subscriber identification module (SIM) swapping. A SIM card is a technology used to identify and authenticate mobile phone users. SIM swapping occurs when fraudsters persuade – usually by force, trickery, bribery or extortion – mobile carrier employees to swap out cell phone numbers from victims’ SIM cards to those in possession of the fraudsters. According to the indictments, both men accused were able to leverage this scheme to access victims’ cryptocurrency accounts. One of the indicted men allegedly used the unlawful proceeds to purchase real property, including royalty rights in 20 songs and a Rolex watch, while the other man walked away with more than $1 million using “little more than an iPhone and computer.”

Two Canadian residents were arrested this week in connection with a scheme to steal bitcoin from a resident in the U.S. The fraudsters executed the scheme by launching a Twitter account designed to trick users of a Hong-Kong based cryptocurrency exchange into believing it was a customer service portal. In doing, so the fraudsters obtained one victim’s email and digital exchange login credentials, allowing them to abscond with approximately $160,000 worth of the victim’s bitcoin.

For more information, please refer to the following links:

Reports Detail Crypto Hacks, Ransomware, Dark Markets and Crypto Fraud Schemes

By: Joanna F. Wasick

VeChain Foundation, the Singapore-based nonprofit behind the VeChain public blockchain platform, recently announced that about $6.7 million worth of its VET tokens were stolen late last week. The company attributed the hack to human error and lack of oversight by its finance and auditing teams rather than any fundamental problems with its hardware wallet or standard procedures. VeChain made a list of addresses associated with the hack and requested all exchanges to flag or freeze funds coming from them. VeChain is working internally and with Singapore law enforcement to ascertain more details about the incident.

Also last week, the New Orleans government fell victim to a cyberattack that apparently involved Ryuk, a type of ransomware used to lock up computer data until a ransom is paid (usually in bitcoin) to unlock it. A state of emergency was declared last Friday, and more than 4,000 government computers and servers were shut down. Although some online services remained affected early this week, the government said it expected the data loss was expected to be minimal. This is the fourth attack against a U.S. city this December; others occurred in Pensacola, Florida; St. Lucie, Florida; and Galt, California.

According to reports, one of the largest Russian illicit marketplaces on the darknet, Hydra, says it will raise funds for international expansion with an ICO. Dec. 16 was identified as the ICO start date, but it is unclear whether the ICO actually occurred. Among other things, the ICO would purportedly fund the development of a new service called Eternos, a worldwide darknet marketplace combined with an encrypted messenger, a cryptocurrency exchange and an anonymized browser akin to Tor.

Also this week, reports are linking the drop in bitcoin price to the PlusToken cryptocurrency scam that occurred earlier this year. PlusToken, a China-based entity posing as a wallet, allegedly obtained $2 billion to $3 billion worth of cryptocurrency in a massive Ponzi scheme. Although individuals were arrested in connection with the fraud, the stolen cryptocurrency has largely been unrecovered. A recent report by blockchain analytics firm Chainalysis hypothesizes that bitcoin obtained through the scheme are being reintroduced in the market, thereby lowering the bitcoin price. The Chainalysis report tracks the bitcoin and its movement with the apparent corresponding drop in price. The report concludes that a little under half of the stolen bitcoin has yet to be laundered.

For more information, please refer to the following links:

Ethereum Fork Successful, Solutions Target Sneakers and Browsers, EU and NY Consider Regulations, Enforcement Actions Continue

In this issue:

Ethereum Fork Implemented, Exchanges Expand Services, New Bitcoin Network Data

Enterprise Developments in Sneakers, Browsers, Copyrights and Private-Public Blockchain Integration

EU and NY Consider New Crypto Regulations, AML Report Published and Tools Debut

Enforcement Actions Target ICO Fraud and Ponzi Schemes, Assets Retrieved From Hacked Exchange

Ethereum Fork Implemented, Exchanges Expand Services, New Bitcoin Network Data

By: Joanna F. Wasick

The Ethereum network’s Istanbul hard fork went forward late last week with the support of node operators, miners and cryptocurrency exchanges. This eighth upgrade of the Ethereum protocol aims to make improvements such as faster network speed and preventing the spamming of blocks. So far, no major negative events have been reported. Also last week, the Bitcoin network transferred $8.9 billion worth of bitcoin within one hour – the highest hourly volume move in Bitcoin history. The spike was reportedly caused by the Bittrex exchange, which conducted a series of 21 equally valued transactions as part of its scheduled maintenance.

Kraken, a U.S.-based cryptocurrency exchange, announced last week that, as part of a collaboration with an independent Lichtenstein-based bank, it will now support Swiss franc trading. This is the sixth fiat currency that Kraken will trade, the others being the United States dollar, Canadian dollar, Euro, British pound sterling and Japanese yen. BitPay, a major blockchain payment service, announced this week the rollout of stablecoin payments for merchants and consumers around the globe. The company will now support payment acceptance and settlement in three U.S. dollar-pegged stablecoins: Circle’s USD Coin, the Gemini Dollar and Paxos Standard Token. BitPay will also continue to accept bitcoin, bitcoin cash and ether.

Announced late last week, cryptocurrency exchange Binance is partnering with peer-to-peer cryptocurrency trading platform Paxful to enable new fiat payment options through Paxful’s Virtual Bitcoin Kiosk. According to the announcement, the kiosk will enable Paxful to facilitate bitcoin purchases with fiat payments in more than 167 currencies. Binance also recently announced a collaboration with Settle Network, a Latin American digital asset network, to launch “Latamex,” a new platform allowing Latin American users to directly purchase cryptocurrency. The new platform will first launch in Argentina and Brazil, with 13 other Latin American countries to follow.

Finally, a recent report indicates that bitcoin miners in China control two thirds of the network’s overall processing power. Chinese miners reportedly now have 66% of the global hashrate – the measure of network power that dictates the ability of computers on the Bitcoin network to mine new bitcoin.

For more information, please refer to the following links:

Enterprise Developments in Sneakers, Browsers, Copyrights and Private-Public Blockchain Integration

By: Marc D. Powers

A leading American sneaker and footwear company has patented a system for tokenizing shoes on the Ethereum blockchain. The patent describes the creation of a non-fungible token on the blockchain, representative of a particular kind of shoe with its own unique characteristics, and of identifiers, which are “unlocked” upon the sale of the physical sneaker to a customer. According to the patent, the digital shoe and the cryptographic token collectively represent a “CryptoKick.”

Bitcoin mining giant Bitfury, out of Amsterdam, recently announced the launch of its latest enterprise blockchain software development, Exonum Enterprise. This continues the expansion of the company’s move away from its core business, which it began in 2011 selling mining hardware in exchange for cryptocurrencies. This product is claimed to be the first private enterprise blockchain that “anchors” data to the Bitcoin blockchain.

Brave announced last week that it had 10 million active monthly users since the release of the Brave 1.0 platform on Nov. 13. This reportedly amounts to an almost 20% increase in less than a month of 1.7 million users for the browser, which combines privacy with a blockchain-based digital advertising platform and is reported to have three to six times faster browsing capability. According to reports, Brave’s monthly active users have doubled in the past year.

The Italian Society of Authors and Publishers (SIAI) has reportedly teamed up with Algorand to develop a new ecosystem for copyright management, based on Algorand’s recently launched blockchain platform. Algorand uses a Proof of Stake protocol that it says guarantees decentralization, scalability and security, which SIAI believes makes it particularly suitable for copyright management of its members’ copyrighted materials.

For more information, please refer to the following links:

EU and NY Consider New Crypto Regulations, AML Report Published and Tools Debut

By: Simone O. Otenaike

Last week the European Council and the Commission adopted a statement regarding stablecoins. According to the statement, the lack of legal clarity regarding stablecoins makes it difficult to determine whether and how the existing EU regulatory framework applies. The Council and the Commission also noted that stablecoin arrangements cannot launch in the European Union until regulatory and oversight frameworks are developed. Meanwhile, the New York State Department of Financial Services (DFS) announced plans to review and update their virtual currency regulations, which were issued back in 2015. DFS is seeking comments from the public regarding two proposed coin adoption or listing options that the agency reportedly plans to make available to current DFS license holders.

CipherTrace recently published its 2019 Q3 cryptocurrency anti-money laundering report. According to the report, roughly 60% of the top 120 cryptocurrency exchanges have insufficient know-your-customer practices. The report also noted that Q3 of 2019 saw a significant reduction in total cryptocurrency crimes from previous quarters, but the total dollar amount attributed to theft and fraud in 2019 is still relatively high at $4 billion.

Elliptic, a global leader in crypto-asset risk management solutions for businesses and financial institutions, recently launched Elliptic Discovery. Elliptic Discovery offers a broad range of risk indicators for financial institutions to identify and evaluate the risk posed by the flow of funds into and out of crypto-assets on exchanges. Elliptic Discovery seeks to allow banks to work more closely with certain cryptocurrency businesses based on an evidence-based risk assessment.

More than 80 Japanese banks have shown recent interest in a leading U.S.-based financial institution’s Interbank Information Network, which leverages blockchain to help combat money laundering. If these banks join, Japan will reportedly have the largest number of banks in the worldwide network.

For more information, please refer to the following links:

Enforcement Actions Target ICO Fraud and Ponzi Schemes, Assets Retrieved From Hacked Exchange

By: Veronica Reynolds

Last week, operators of a Romanian criminal enterprise named the “Bayrob Group” were convicted of cybertheft crimes resulting in $4 million in losses to victims. The unlawful operation began in 2007 and involved viral distribution of malicious software via phishing emails. The malware harvested personal data and diverted processing power for cryptocurrency mining.

This week, U.S. law enforcement arrested four men for wire fraud and conspiracy to offer and sell unregistered securities in a purported cryptocurrency mining pool operation. Victims were lured into the investment scheme through promises of high returns from participation and investment in the scheme. No returns materialized, and the fraudsters swindled would-be investors out of more than $722 million.

Also this week, the Securities and Exchange Commission (SEC) charged a digital-asset entrepreneur and his company with defrauding investors through an initial coin offering (ICO) that solicited more than $42 million from investors in violation of the securities laws. The company, Shopin, allegedly failed to create the retail blockchain platform it hocked to investors. According to the SEC’s complaint, Shopin fraudulently claimed partnerships with major retailers and a prominent cryptocurrency entrepreneur to make its business model more attractive to the public while the company’s founder misappropriated at least $500,000 for his own use.

Overseas, Ugandan Police cracked down on cryptocurrency-related Ponzi schemes this week, with the arrest of one of the directors of a sham cryptocurrency company. The Ugandan government believes the company has defrauded victims out of at least $2.7 million. Meanwhile, Denmark’s tax agency has reportedly begun sending letters to cryptocurrency investors requiring them to reply to a detailed questionnaire that seeks to understand profits and losses from cryptocurrency investments for fiscal years 2016 to 2018. This follows authorization by the country’s Tax Council earlier this year to investigate trades across the nation’s domestic cryptocurrency exchanges.

And finally, some good news for victims of the Cryptopia hack – the New Zealand exchange that in January 2019 was “hacked to death” – who received a breakdown of retrieved assets from the accounting firm in charge of liquidating the assets of the bankrupt exchange. However, distribution of assets to victim investors may be a long time coming, because the exchange pooled all investments on the platform into general wallets, making it difficult to find out how much of which assets customers held on Cryptopia.

For more information, please refer to the following links:

Institutional Blockchain and Crypto Adoption Continues, New Supply Chain and Patent Applications, Foreign Cryptocurrency Exchange Is Hacked

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

New Capital Market Offerings and Solutions Launch, Courting Institutional Investors

NY DFS Grants New License, Stablecoin Debate Continues, Crypto Mining Reports Issued

New Blockchain Supply Chain Solutions and Patent Applications Announced

Cryptocurrency Exchange Hacked, Crypto-Mining Malware Detected, Ethereum Developer Arrested

New Capital Market Offerings and Solutions Launch, Courting Institutional Investors

By: Brian P. Bartish

Last week, the Marco Polo network, a blockchain trade finance platform with a strong presence in Europe, Asia and the Middle East, announced the addition of the second U.S. bank – one of the world’s largest custody banks, with $326.9 billion in assets – to join the platform. The Marco Polo network is seeking to leverage blockchain to replace less efficient paper-based processes in trade finance.

In custody news, Konainu, a joint venture for cryptocurrency custody and depositary services, was recently granted regulatory approval from the Jersey Financial Services Commission. According to a press release, Konainu is designed to provide institutional investors entering the cryptocurrency space with the security and infrastructure they are familiar with when trading traditional assets.

According to recent reports, one of the largest banking and financial services organizations in the world is planning to move $20 billion in assets – 40 percent of its total assets under management – to the blockchain-based custody platform Digital Vault by March 2020. The new platform will reportedly give investors real-time access to records and securities bought on private markets and reduce the time it takes to make checks or queries on holdings.

Earlier this week, one of the largest exchange-traded fund (ETF) providers in the U.S. launched a bitcoin exchange-traded product (ETP) on Switzerland’s SIX stock exchange. The ETP is physically backed by the underlying bitcoin and is designed to give investors exposure to bitcoin without the need to directly hold the cryptocurrency or interact with the blockchain infrastructure, while offering transparency and institutional-grade digital currency custodians.

For more information, please refer to the following links:

NY DFS Grants New License, Stablecoin Debate Continues, Crypto Mining Reports Issued

By: Simone O. Otenaike

Earlier this week, the New York State Department of Financial Services (DFS) reportedly approved the virtual currency and money transmitter license applications of a leading online personal finance company that offers student loan refinancing, mortgages and personal loans. According to reports, the two licenses allow the firm to offer its New York customers the ability to buy and sell cryptocurrency – the company is currently authorized to support bitcoin, bitcoin cash, ether, ether classic, litecoin and Stellar lumens. Late last week, reports surfaced regarding a new bipartisan bill called the Managed Stablecoins Are Securities Act of 2019. While the bill is still in its primary stages, reports note that it may eventually provide regulatory clarity for stablecoins.

In other recent news, the British Virgin Islands, in partnership with LIFELabs.io, reportedly presented details of its new national digital currency rollout. According to reports, the British Virgin Islands aims to implement a national digital currency, BVI~LIFE, powered by LIFEtoken and pegged 1:1 against the U.S. dollar. LIFELabs.io will also reportedly offer LIFElabs – a platform-as-a-service (PaaS) model that provides blockchain solutions (e.g., merchant services, peer-to-peer transactions and cross-border payments) to businesses in the British Virgin Islands as a turnkey solution. According to the governor of Ghana, Ghana’s central bank is also considering the launch of a national digital currency due to the recent increase in volume of mobile money transactions. In related news, Paxful, a peer-to-peer bitcoin marketplace, has also seen a recent surge in weekly traded volume according to a new report. Paxful is a decentralized and noncustodial service that connects users offering to buy and sell bitcoin using gift cards, Internet payment providers, domestic bank transfers and other payment methods.

In mining news, a recent report provided details on Bitriver, the largest data center in Russia. The data center’s proximity to one of the largest hydropower plants in Russia, En+, allows it to receive cheap and stable power. En+ reportedly supplies up to 100 megawatts of power to the facility, enough energy to sustain 100,000 homes. A report noted that Bitriver currently hosts more than 20,000 bitcoin mining devices but has the capacity to host up to 67,000 units. According to reports, Bitriver does not directly engage in mining but rather provides equipment and technical services for cryptocurrency mining. Low temperatures in the Siberian city of Bratsk are ideal for the data center equipment—mining hardware can work at higher efficiency rates while cutting cooling costs. Meanwhile, Great North Data, a data center in Labrador, Canada, reportedly filed for bankruptcy last week. Great North Data hosted bitcoin mining operations and processed artificial intelligence algorithms at facilities in Labrador City and Happy Valley-Goose Bay.

For more information, please refer to the following links:

New Blockchain Supply Chain Solutions and Patent Applications Announced

By: Diana J. Stern

A multinational retail giant and DLT Labs recently launched a blockchain-based freight and payment network that is the largest of its kind in the world, according to reports. The permissioned system, a variant of Hyperleger Fabric, tracks deliveries, verifies transactions, and automates payments, invoicing and reconciliation among the retailer’s Canadian division and its carriers. The solution incorporates IoT sensors and integrates with legacy systems. According to reports, the system could be used by more than 70 trucking companies that transport goods and deliver them to more than 400 stores.

The Blockchain in Transport Alliance (BiTA) recently announced that it is engaging in two proofs of concept. Both will involve the consortium’s Standards Review Working Group to ensure alignment with other emerging, global blockchain standards. One of the projects will center on ports, with the Port of Miami, Florida Blockchain Foundation, U.S. Department of Agriculture, and other participants involved.

A major financial services firm has filed a patent application for a blockchain solution that improves auditing of automobile inventory used to finance car dealership loans. This revolving line of credit, known as floorplan lending, currently involves physical inspection and reconciliation across multiple parties’ systems in order to track the cars that will serve as collateral for the loans. The firm said that it is piloting the application with dealership partners. While Bitcoin solved the crucial “double spend” problem for internet money, this system is reported to solve what is known as the “double flooring” problem, in which a dealership accidently pledges the same vehicle as collateral for floorplan contracts at two different banks.

In another recent patent filing, an American multinational technology conglomerate described how blockchain technology can be integrated with 5G telecommunication networks. According to reports, the invention uses a blockchain platform to manage data sessions between devices and a virtual network, creating a kind of blockchain interface between the network and equipment such as phones or laptops.

For more information, please refer to the following links:

Cryptocurrency Exchange Hacked, Crypto-Mining Malware Detected, Ethereum Developer Arrested

By: Joanna F. Wasick

Last week Upbit, a South Korean cryptocurrency exchange, confirmed that 342,000 ether (presently worth about $51 million) was stolen off the exchange. Upbit suspended withdrawals and deposits and stated that it would take at least two weeks for services to return to normal. The exchange also said, however, that the loss would be covered by the company’s own assets. Some who have reviewed the transfer details from that Wednesday suggest the hack was an inside job.

Lazarus, a state-sponsored North Korean computer hacking team, is believed to be behind new macOS malware that can pull a payload (malicious coding) from a remote location and run it in memory, making it harder to conduct forensic analysis. The “fileless” malware was uncovered earlier this week by Dinesh Devadoss, a threats analyst, and was found on a website “unioncrypto.vip” that claimed to offer a “smart cryptocurrency arbitrage trading platform.” Last week, security analysts from a major U.S. technology firm revealed that the malware – called Dexphot – had infected nearly 80,000 devices since October 2018. The malicious code allows criminals to deploy CPU miners onto the victim’s device, stealing processing power and generating money from mining cryptocurrency – a process sometimes referred to as “cryptojacking.”

Late last week, the Department of Justice issued a press release announcing the arrest of Virgil Griffith, a U.S. citizen living in Singapore, for violating the International Emergency Economic Power Act by traveling to North Korea to deliver a presentation called “Blockchain and Peace” at the Pyongyang Blockchain and Cryptocurrency Conference. The U.S. government had previously denied Griffith’s request to travel to the country. A U.S. assistant attorney general said, “Despite receiving warnings not to go, Griffith allegedly traveled to one of the United States’ foremost adversaries, North Korea, where he taught his audience how to use blockchain technology to evade sanctions. By this complaint, we begin the process of seeking justice for such conduct.” Griffith’s arrest occurred on Thanksgiving Day in Los Angeles International Airport. He was later released from jail after bond was posted.

For more information, please refer to the following links:

Blockchain Developments: Crypto Custody and Payments, Supply Chain Pilots, Regulation and Enforcement

shiny bitcoins with stock market background.In this issue:

Cryptocurrency Custody, Payments and Mining Initiatives Announced

Blockchain Provenance and Authentication Solutions Emerging in Food and Manufacturing Markets

Recent Global Regulatory Developments in Digital Assets

U.S. and International Enforcement Agencies Take Action Against Crypto Crimes

Crypto Tax Update: Foreign Accounts, Like-Kind Exchanges, Software Uptick

Cryptocurrency Custody, Payments and Mining Initiatives Announced

By: Diana J. Stern

According to recent reports, the digital asset arm of a multinational financial services corporation was issued a trust company charter by the New York Department of Financial Services. As a designated New York Trust Company, the firm can now custody bitcoin for institutional investors in the United States.

Another recent report explained that holders of a major U.S. cryptocurrency exchange debit card can now use their BAT, REP, ZRX, XLM, and XRP to make purchases, and the exchange will instantly convert the tokens to fiat currency to pay out merchants. This development more than doubles the number of cryptocurrencies cardholders can spend.

This week, cryptocurrency exchange Binance made a play to enter the Indian market with its acquisition of WazirX, a local peer-to-peer exchange, for an undisclosed amount. According to reports, in April 2018, India’s central bank banned banking services for cryptocurrency companies, which forced many to shut down or to rely heavily on peer-to-peer or crypto-to-crypto trading.

Swiss startup and digital payments processor Utrust announced late last week that it signed up its first merchant in the travel industry. The online travel agency serves more than 650 airlines, and the deal with Utrust will allow its customers to book flights with cryptocurrency.

This month, distributed ledger startup Hashgraph and streaming music service Tune.fm announced a partnership to create a token that is specialized for the music industry. The token, Jam, can be used to make micropayments to artists for every second of music fans stream, reward listeners for trying music they have not heard before and promote artists through verifiable first-time streams.

Rockdale, Texas, is becoming a hotbed for massive cryptocurrency mining operations. When Bitmain announced its mining farm in Rockdale last month, it was the world’s largest at an expected potential capacity of 300 megawatts. But this week, a data center developer owned by Northern Bitcoin broke ground on a project that plans to start with 300 megawatts and scale up to 1 gigawatt by the end of 2020. Both projects are on a more than 33,000-acre plot of land that has been owned by a large American industrial corporation since the 1950s.

For more information, please refer to the following links:

Blockchain Provenance and Authentication Solutions Emerging in Food and Manufacturing Markets

By: Brian P. Bartish

Last week, the world’s largest food and beverage company and a French supermarket chain announced a blockchain pilot aimed at providing transparency to consumers on the supply chain of a leading brand of infant formula. Leveraging the Hyperledger-based Food Trust platform, consumers can scan a QR code with a smartphone to access information on the formula’s path from dairy to shelf. In related news, this week, one of the world’s leading fish farming operations announced a similar solution, also built on the Food Trust Platform, which allows consumers to pull up the CV of salmon, including information regarding the fish’s origin and health history, by scanning a QR code. And last week, an American logistics giant announced the successful delivery of a blockchain-verified beef shipment from Kansas to Tokyo, for a meal that was served to U.S. Embassy and Japanese officials.

The aerospace division of a U.S.-based conglomerate recently partnered with Hyperledger to develop an online marketplace for the highly regulated used airline parts industry that seeks to provide certainty to buyers that critical parts such as engines and landing gears meet FAA requirements. An Italian luxury sports car manufacturer is also turning to a blockchain solution for quickly and securely authenticating sales of its “heritage” vehicles, which require more than 800 certification checks conducted at company headquarters before they can be resold through a network of trusted partners.

In a final notable development, this week, HashCash announced its partnership with a consortium of global automobile manufacturers, a mining company and battery manufacturers to build a blockchain supply chain network to meet demands for authenticating the ethical sourcing of minerals such as cobalt, tungsten and lithium, which are often surrounded by allegations of child labor.

For more information, please refer to the following links:

Recent Global Regulatory Developments in Digital Assets

By: Jonathan D. Blattmachr

There were several interesting developments across the world this week in the digital asset arena. First, the UK Jurisdiction Taskforce (UKJT) published its Legal Statement on the Status of Cryptocurrencies and Smart Contracts. The UKJT hopes this statement will give the market “legal certainty and predictability” in this emerging space. In sum, the UKJT has determined that digital assets are “property” under UK law. It reasoned that such assets have the indicia of property, and simply because they have distinctive or innovative features does not disqualify them from being property. While digital assets cannot be physically possessed, therefore meaning they cannot be used as bailment, they can be used to grant security through other means.

As to smart contracts, the UKJT found they are capable of being a contract in the broader sense. This is because in a smart contract, the parties to it have intended to create a legal relationship and have each given something of value as consideration. Therefore, “a smart contract can be identified, interpreted, and enforced using ordinary and well-established legal principles.”

The Monetary Authority of Singapore (MAS) issued a consultation paper that proposes allowing payment token derivatives to be traded on approved exchanges and to regulate their activity. MAS states there is significant interest in payment tokens such as bitcoin and ether, and the interested institutional investors need a regulated product to be able to hedge their exposure to them. It warned, however, that such tokens are not suitable for most retail investors, who should use “extreme caution” when trading in them or their related derivatives.

Back in the United States, CFTC Chair Heath Tarbert penned an op-ed piece in which he advocated for principles-based regulation in the fintech space. Tarbert stated that the regulators should avoid “detailed prescriptive rules” and focus on “high-level, broadly stated principles” for the industry. The piece points out that the U.S. code covering banking, securities and derivatives regulation totals more than 13,000 pages, which he finds to be inefficient and inflexible. While he acknowledged certain rules must be in place, especially those covering customer protection, he indicated that because of the rapidly evolving nature of the space, a principles-based system is more appropriate.

For more information, please refer to the following links:

U.S. and International Enforcement Agencies Take Action Against Crypto Crimes

By: Joanna F. Wasick

Earlier this week, the U.S. Department of Justice (DOJ) issued a press release about the extradition of a Swedish citizen, Roger Nils-Jonas Karlsson, from Thailand to the United States for alleged securities fraud, wire fraud and money laundering. The complaint alleges that he and his company, Eastern Metal Securities, defrauded victims of more than $11 million through an investment scheme in which Karlsson convinced individuals to invest cryptocurrencies into a product called a “Pre Funded Reversed Pension Plan.” Instead of making any investments, Karlsson directed the funds into his personal bank account, and the funds are apparently now tied up in Thai real estate.

A DOJ press release issued last week detailed the arrest of two men in Massachusetts for crimes including aggravated identity theft and computer fraud. According to the DOJ, the men targeted people who likely had significant amounts of cryptocurrency, such as executives of cryptocurrency companies, and conspired to take over their social media accounts and steal their cryptocurrency using techniques including “SIM swapping,” whereby a victim’s cellphone carrier is convinced to reassign the victim’s cellphone SIM card to the criminal, who then uses it to hack into the victim’s various accounts.

The court-appointed receiver of Einstein Exchange, a Canadian cryptocurrency exchange, recently stated that the exchange has only $45,000 remaining of the reported $16 million in customer funds. The exchange was seized by Canadian officials earlier this month after receiving complaints from Einstein customers that they could not access their accounts.

Karatbars, a German company, was recently ordered by German officials to wind up its blockchain-based business in Germany after allegations it was luring investors into a pyramid scheme. Around the same time, South African officials issued their own warning, telling consumers to avoid investments offered by the company. Karatbars issues KaratGold Coin, a supposedly gold-backed cryptocurrency that runs on the Ethereum network and is listed on approximately 30 exchanges. And reports out earlier this week describe a hack into the Monero website, with currency-stealing malware allegedly delivered to users who were downloading Monero wallet software. Representatives from the company issued a statement strongly recommending anyone who downloaded the wallet during certain times on Monday, Nov. 18, to check whether they might have contaminated files.

For more information, please refer to the following links:

Crypto Tax Update: Foreign Accounts, Like-Kind Exchanges, Software Uptick

By: Nicholas C. Mowbray

An official from the U.S. Treasury Department’s Financial Crimes Enforcement Network (FinCEN) that specializes in cybersecurity policies stated last week at the American Institute of CPAs National Tax Conference in Washington, D.C., that a U.S. holder of cryptocurrency on a foreign exchange is not required to disclose the information on a foreign bank account report. At the same conference, however, officials for the IRS Office of Associate Chief Counsel indicated that the IRS has still not decided whether cryptocurrency held in a foreign exchange must be reported on IRS Form 8938, which is a disclosure statement that is separate and apart from a foreign bank account report. The news is not a surprise to taxpayers given that FinCEN responded to a previous request over the summer that virtual currency held in an offshore account was not a reportable account on a foreign bank account report.

At the same conference, a different official from the IRS Office of the Associate Chief Counsel confirmed that certain like-kind exchange rules that allow taxpayers to postpone paying tax on gain where property is exchanged for like-kind property do not apply to cryptocurrencies. The rules with respect to like-kind exchanges were changed in 2018 as part of tax reform. Accordingly, the comment addresses any like-kind exchanges occurring prior to 2018 and taxpayers who took the position that the exchange of a token for another qualified as a tax-free exchange.

In other news, according to a recent report, startups providing crypto tax software have seen a significant increase in users. The report indicates this may be related to the IRS’s guidance issued this fall addressing airdrops and hard forks, and the IRS enforcement letters that were sent during the summer to thousands of virtual currency traders warning them about the failure to properly report crypto transactions.

For more information, please refer to the following links:

Shipping Firms Pilot Blockchain, New Crypto Payment Gateways and Products, Wyoming Announces Crypto Custody Rules

In this issue:

Shipping Firms, DHS and Wine Merchants Participate in Blockchain Pilots

Crypto Payment Gateways Announced, Multimillion-Dollar Property Sold for Bitcoin

Developments in Cryptocurrency Custody Providers, Banks and New Product Offerings

Enforcement Updates From US and Dutch Agencies

Shipping Firms, DHS and Wine Merchants Participate in Blockchain Pilots

By: Simone O. Otenaike

Earlier this week, one of the United States’ largest multinational package delivery and supply chain management firms reportedly made the first blockchain-verified shipment of beef from the U.S. to Japan with the help of a leading agri-tech solutions firm. The two firms will reportedly continue to work together to deliver tracking and traceability technology that improves quality assurance for beef products being shipped internationally. The package delivery firm created a customized, integrated visibility tool that plugs into the agri-tech firm’s blockchain technology to offer live updates throughout the journey. The package delivery firm’s customs brokers also coordinated with health, food and safety regulators in both the U.S. and Japan to obtain all required certifications that promoted accurate customs compliance, timely clearance of goods, and reduced risk of delays or penalties. Late last week, another leading global package delivery firm announced plans to pilot a blockchain-based invoice system for one-off, noncontractual shipments. The pilot will be developed in conjunction with a leading global information technology firm.

According to recent reports, the U.S. Department of Homeland Security (DHS) is working with a Canadian blockchain firm, Mavennet, to build a cross-border, blockchain-based platform for tracking and tracing oil. To build this platform, Mavennet will retrofit its existing oil tracking platforms and build a proof-of-concept demo for use by the Customs and Border Protection branch of DHS at the Canadian border. In other recent international news, a Singaporean firm reportedly launched its blockchain-based wine marketplace for consumers across the Asia-Pacific region. The marketplace allows customers to purchase premium wines using a secure, blockchain-based platform with digital tokens that trace the provenance, quality and authenticity of new and vintage wines, ultimately eliminating layers of intermediaries and improving efficiency. The firm’s wine marketplace is supported by a leading professional services firm’s blockchain platform.

For more information, please refer to the following links:

Crypto Payment Gateways Announced, Multimillion-Dollar Property Sold for Bitcoin

By: Joanna F. Wasick

Lolli, a company that lets online shoppers earn bitcoin in lieu of regular cash-back points, recently announced a new partnership with a major Chinese online commerce entity. Lolli users can now earn up to 5 percent bitcoin when shopping on the site. The announcement was made on Nov. 11 – Singles’ Day, a shopping holiday popular among young Chinese consumers.

According to a press release, a major European payments firm has signed a letter of intent with “Bitcoin Suisse, the oldest and largest crypto financial-services company in Switzerland … to offer cryptocurrency payment services to Swiss merchants and consumers both in-store and in web-shops.” In more news from Switzerland, Utrust, a Swiss-based cryptocurrency payment and services platform, announced this week that it was partnering with a United Kingdom-based online travel agency to enable its customers to purchase flights on several major airlines using cryptocurrency.

Earlier this week, Paxos Trust Company introduced Fiat Gateway, a product that allows its users to swap between dollars and stablecoins. Binance, the world’s largest cryptocurrency exchange (by trading volume), will be the first to integrate the product. Also this week, Blockchain Venture Capital Inc. (BVCI) launched CUSD, a U.S. dollar-backed stablecoin. The launch comes about four months after BVCI issued a Canadian dollar-backed stablecoin. In a final item of note, the Magnum Real Estate Group recently sold an 11,400-square-foot Manhattan condominium for $15.3 million in bitcoin. The buyer was reportedly a Taiwanese entity, and the transaction was described as a “seamless process.” Magnum reportedly sold two units in the same building last year for bitcoin, one worth $875,000 and the other worth $1.48 million.

For more information, please refer to the following links:

Developments in Cryptocurrency Custody Providers, Banks and New Product Offerings

By: Robert A. Musiala Jr.

This week Bakkt, which recently launched a platform for physically settled bitcoin futures contracts, announced the launch of Bakkt Warehouse, a qualified bitcoin custodian that is authorized to offer institutional bitcoin custody by the New York Department of Financial Services. In a related development, according to reports this week, the state of Wyoming has released new custody rules for state-chartered special purpose depository institutions (SPDIs) that will allow banks that qualify as SPDIs to act as custodians of “digital assets” under Wyoming law. And late last week, Silvergate Bank, one of the first U.S. banks to begin servicing the cryptocurrency industry, officially began selling shares on the New York Stock Exchange in an initial public offering.

More new cryptocurrency-related products were announced this week. A Chicago-based global derivatives marketplace announced that it intends to launch options on its bitcoin futures contracts in January 2020, subject to regulatory approval. According to reports, U.S.-based cryptocurrency wallet Abra is adding support for 60 new cryptocurrencies. In Europe, Switzerland’s largest stock exchange has reportedly listed an exchange-traded product that is based on the tezos cryptocurrency. Finally, according to reports this week, cryptocurrency exchange Bitfinex has announced plans to launch cryptocurrency options products and a gold-backed stablecoin, Tether Gold.

For more information, please refer to the following links:

Enforcement Updates From US and Dutch Agencies

By: Joanna F. Wasick

Earlier this month, the Joint Chiefs of Global Tax Enforcement (J5), hosted The Challenge, an event bringing together investigators, cryptocurrency experts and data scientists, in order to find the world’s most egregious tax offenders. It was the second time the event was held, and this year’s focus was on cryptocurrency-facilitated crime. The J5 was established in mid-2018 by tax enforcement leaders from Australia, Canada, the Netherlands, the United Kingdom and the United States, to combat cross-border money-laundering, tax crime and cybercrime. After the recent event, the criminal division of the U.S. Internal Revenue Service (IRS) reportedly stated that it identified “dozens” of potential cryptocurrency tax evaders.

Last week in New York, Hugh Brian Haney pleaded guilty to money laundering charges based on his attempt to launder about $19 million in bitcoin obtained from a drug trafficking operation that he ran on Silk Road, the infamous Dark Web marketplace. Haney is scheduled for sentencing in February; he faces a possible maximum sentence of 30 years in prison. This week in the Netherlands, Dutch police arrested the founder of Komodore64, a now-bankrupt blockchain game development company. The founder, whose name has not been confirmed, allegedly lied to investors in order to procure about $86 million in startup funds, and refused to make promised payments to vendors who were helping with the company’s launch.

For more information, please refer to the following links:

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