Industry Initiatives Indicate Growing Interest in Cryptocurrency Payments
By: Robert A. Musiala Jr.
Late last week, Reuters reported that “[s]everal of the world’s largest banks are in the process of investing around $50 million” to create “… a digital cash equivalent of central bank-backed currencies like the dollar or euro that would run on blockchain-based technology.” The institutional cryptocurrency would be “convertible at parity and backed by cash assets held at a central bank.” According to other reports this week, one of the world’s largest social media companies has formed Libra Networks, a Swiss-based financial technology company. The company is reportedly planning to begin testing its own cryptocurrency aimed at making it easier for people without a bank account to send and receive money.
This week, a major U.S.-based cryptocurrency exchange added USD Coin (USDC), a cryptocurrency pegged 1:1 to U.S. dollars held in FDIC-insured banks, to its merchant payment platform, enabling online merchants to accept USDC as payment. The firm behind USDC recently released a report from a major U.S. accounting firm attesting to the U.S. dollar reserves backing the stablecoin.
This week another major U.S.-based exchange disabled trading by U.S. customers of nine assets, stating that “it is not possible to be certain whether U.S. regulators will consider these assets to be securities.” Meanwhile, Bitfinex, a foreign-based exchange, has reportedly launched UNUS SED LEO, “a utility token … to maximize the output and capabilities of the Bitfinex trading platform.” According to a press release, the exchange “conducted and completed a private sale of 100% of outstanding UNUS SED LEO tokens in exchange for one billion USDt worth of Bitcoin, USD, and USDt.” Bitfinex is currently involved in litigation related to an investigation by the New York Attorney General.
According to a recent report, data from three major Japanese trading platforms indicates an increased interest in cryptocurrencies, with new account openings up 200% in the past two months. At the same time, a paper recently published by the European Central Bank found that cryptocurrencies do not currently pose a threat to financial stability in the euro zone. According to the paper, “in the current market, crypto-assets’ risks or potential implications are limited and/or manageable on the basis of the existing regulatory and oversight frameworks.”
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Pilots Target Energy Grids and Garments, Blockchain Patent Race Continues
By: Simone O. Otenaike
A leading Japan-based automaker and an American automaker recently announced plans to join a research project that will evaluate the potential use of electric vehicles’ storage batteries to stabilize the renewable energy power supply in smart grids. The research will be conducted under the framework of the Mobility Open Blockchain Initiative, an international consortium of automotive, IT and other businesses that promote blockchain standards in the mobility industry. Another leading Japan-based automaker, in conjunction with a Japanese university and a Japanese renewable energy retailer, also announced plans to test a project on the efficient usage of electricity. The firms’ research project aims to enable homes, businesses and electrified vehicles to trade electricity using blockchain technology.
Last week, a luxury fashion brand announced plans to implement Iota’s distributed ledger technology for the firm’s supply chain tracking. The brand is known for its strong emphasis on sustainability by use of recycled materials. The firm aims to provide customers with the opportunity to verify any assertions made about the garments in their supply chain and track garments from creation to point of sale. Also last week in textile industry news, a world market leader in textile fibers made from renewable wood announced plans to use Textile Genesis, a Hong Kong-based blockchain platform, to support its business. The textile firm will reportedly offer a QR code on the final garment so that consumers can trace the fibers in the finished product.
The U.S. Patent and Trademark Office has granted a patent for various techniques used to build a proof-of-work cryptographic system, comparable to the cryptographic systems that form the basis of various blockchain-based platforms, to an e-commerce giant based in the United States. According to reports, the patent does not directly discuss blockchains or cryptocurrencies ‒ the patent primarily outlines how a Merkle tree structure, a concept that dates to 1979, allows for verification of data sent between computers on peer-to-peer networks. The second-largest banking institution in the United States also recently obtained a patent that deals with cryptographic systems. According to reports, the patent outlines a cryptocurrency risk detection system that calculates the risk associated with a unique cryptocurrency transaction and assigns a score based on transaction history and IP address. A recent industry report estimates that China-based firms and agencies filed 4,435 blockchain patent applications between 2013 and 2018, roughly 48% of global blockchain patent filings. The same report estimates that U.S.-based firms and agencies filed 1,833 blockchain patent applications, which is roughly 21% of global blockchain patent filings.
The Ethereum Foundation recently announced plans to invest $30 million in key projects across the Ethereum ecosystem over the next year. The funds will support the research and development that powers active engineering projects like ETH 2.0 and live applications like Ethereum 1.0. Funds will also promote developer relations, education and on-boarding to increase access to the Ethereum community in other parts of the world and ensure Ethereum’s continued success. The announcement comes on the heels of news that Ethereum clients’ failure to patch known vulnerabilities may pose a security risk to the entire network. A recent report indicates that many nodes using the Parity and Geth clients on the Ethereum network remain exposed after patches for security flaws were released.
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Enforcement Actions Against Cryptocurrency Crimes Continue Across the Globe
By: Joanna F. Wasick
This week, the SEC obtained a court order shutting down a $30 million Ponzi scheme operating out of Florida through Argyle Coin LLC, a purported cryptocurrency business, and its principals, Jose Angel Aman and Harold and Jonathan Seigel. According to the SEC complaint, hundreds of U.S. and Canadian investors were tricked into investing in Argyle Coin under the false claim that its tokens were backed by diamonds. Instead, new investor money was used to pay fake returns to prior investors, and to pay for the individuals’ own exorbitant personal expenses. In a similar action, authorities in Brazil shut down Indeal, another cryptocurrency Ponzi scheme, that defrauded 55,000 investors out of about $200 million. The company promised investors a 15% payout in the first month of investment. But as with Argyle (and any Ponzi scheme), new investors simply paid out old investors, with some additional funds going straight to the individuals behind the fraud.
Dutch authorities, together with Europol and authorities in Luxembourg, recently seized Bestmixer.io – a major “tumbler” (cryptocurrency mixing company that obscures a token’s original source), after investigators determined that a large number of mixed coins were used for money laundering or illegal financing. The action is widely viewed as the first major case against a cryptocurrency tumbler/mixer. In another matter, Dutch police arrested former cryptocurrency entrepreneur Barry van Mourik for defrauding investors out of $25 million in a fake bitcoin mining operation. In China, two over-the-counter (OTC) cryptocurrency market makers were charged with illegally collecting $56 million worth of bitcoin from over 100 OTC traders as part of a massive loan scheme. The two money makers had spent the past two years building up their credibility through an OTC chat group. And in Australia, a government employee is facing charges that he used his position as an IT contractor to illegally siphon off processing power from the government’s computer network in order to mine cryptocurrency.
The U.S. Commodity Futures Trading Commission (CFTC) has a new tactic to combat the upswing in cryptocurrency-related crime ‒ working with whistleblowers. The CFTC issued a statement telling the public they could receive both financial awards and certain protections if they report information that leads to the halt of fraud and manipulation related to virtual currencies. The U.S. Internal Revenue Service (IRS) also made a cryptocurrency-related statement, indicating in a letter to a U.S. Congressman that it is working on new tax guidance for cryptocurrency that will clarify issues such as calculating cost basis, acceptable methods of cost basis assignment and tax treatment of forks. This would be the first cryptocurrency guidance from the IRS since 2014.
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