Blockchain Applications Advance for Healthcare and Payments, CFTC Prioritizes Cryptocurrencies, QuadrigaCX Saga Continues

by BakerHostetler

Blockchain Initiatives in Healthcare and Other Industries Target Data Integrity, Speed and Analytics

By: Brian P. Bartish

Last week, a not-for-profit alliance of life sciences industries firms announced an expansion of its blockchain project to improve data sharing, data identity and data integrity in the life sciences industry, with an emphasis on validating the sources identifying the data, ensuring the integrity of the data, and improving data sharing within and between organizations. In another recent announcement, a partnership between one of the world’s leading research-driven pharmaceutical companies and the Canadian subsidiary of a multinational information technology company will use blockchain technology in a clinical setting for the first time in Canada. The partnership aims to tackle issues with quality assurance and erroneous and incomplete records in clinical trials.

A recent Wired article reported on an emerging blockchain solution aimed at combating video manipulation. Amber Authenticate is a software solution that runs in the background as a device, such as a CCTV or police body camera, captures video. The software periodically generates hashes of the video content that can be stored on the Ethereum blockchain in order to detect changes to a video record. The solution is drawing interest from human rights activists, free speech advocates, and law enforcement and government agencies, including the DoD and DHS.

In other enterprise news, a multinational South Korean electronics company recently announced new technology that promises to speed up blockchain transactions and is offering developers tools to help test and expand the technology. And the enterprise data warehouse managed by a leading U.S. technology and cloud-services provider is expanding its blockchain offerings by adding data sets for six new cryptocurrencies: Bitcoin Cash, Dash, Dogecoin, Ethereum Classic, Litecoin and zCash. The service is offering new scripts that allow for comparative analysis and integration with other financial data management systems.

For more information, please refer to the following links:

Blockchain Payment Systems Announced by Major Banks and Online Payment Processors

By: Robert A. Musiala Jr.  

This week it was reported that the largest bank in the U.S. is planning to launch its own blockchain-based cryptocurrency token. According to reports, the token was created by the bank’s in-house engineers and will be used to improve the settlement speed of transactions between the bank’s corporate clients, replacing the need for wire transfers. According to Bloomberg, it appears the proposed cryptocurrency would have a value pegged 1:1 with the U.S. dollar and would be transferred on the bank’s private blockchain. Also this week, the largest bank in Japan announced that it is partnering with a U.S. fintech firm to build its own blockchain-based payments network, with the goal of launching in 2020. In related news, a major Japanese technology firm confirmed this week that it plans to launch a stablecoin backed 1:1 with Japanese yen sometime this year.

Several payment processors also made announcements this week related to integrating blockchain into their business models. A Hong Kong-based online payment processor announced a partnership with a fintech firm, BNC LedgerTech (BNC), to integrate with BNC’s blockchain platform in an effort to cut costs by reducing reliance on banks. Another online payments firm based in the Czech Republic issued a press release this week announcing plans to leverage the blockchain platform of a major U.S. multinational technology company to build a “secure payment system that removes the need for intermediaries, such as correspondent banks and clearing houses.” Meanwhile, in Thailand, two payments firms went live this week with cross-border remittance systems underpinned by the blockchain network of a major U.S.-based blockchain technology firm – similarly seeking to streamline clearing and settlement by reducing reliance on the traditional banking system. Finally, according to recent reports, one of the largest banks in the Philippines is planning to launch a cryptocurrency ATM product that would allow customers to convert physical fiat cash into cryptocurrencies, and vice versa.

For more information, please refer to the following links:

Forthcoming SEC Guidance Confirmed, Initiatives Continue at Banks and Cryptocurrency Exchanges

By: Robert A. Musiala Jr.

Last Friday, the SEC published remarks by Commissioner Hester M. Peirce on the topic of “Protecting the Public While Fostering Innovation and Entrepreneurship.” Among other things, the remarks confirmed that the “[SEC] is working on some supplemental guidance to help people think through whether their crypto-fundraising efforts fall under the securities laws.” The Commissioner’s remarks also highlighted the SEC’s “standing offer for people to come in for so-called no-action relief in connection with a particular token or project.” In a “no action” letter request, an applicant explains what it is seeking to do, and SEC staff can respond by advising on the application of the U.S. securities laws.

In more news related to ICOs, the University of Chicago Law School has published a study analyzing and seeking to reconcile the differences between how ICOs are treated under U.S. versus EU law. And according to recent data from crypto analytics website CoinSchedule, despite a slowdown in ICO activity in the second half of 2018, the current ICO market is still significantly larger than it was around this same time last year.

Financial institutions continue to look to blockchain for settling traditional securities products. According to reports published late last week, a major international financial services firm based in Switzerland recently completed a successful test of a blockchain platform to process and manage investment fund trades. In a similar announcement, an executive at one of the largest banks in the world said the bank’s blockchain-based system could reduce the cost of settling foreign exchange trades by 25 percent. Also this week, a global financial services firm based in Spain announced a $700 million business transformation initiative in partnership with a U.S.-based global technology firm. The initiative seeks to further incorporate and take advantage of benefits offered by artificial intelligence, blockchain and big data.

In the cryptocurrency market, Bithumb recently became the next in an increasing number of cryptocurrency exchanges to launch an over-the-counter trading desk for cryptocurrencies. And Binance, the world’s largest cryptocurrency exchange by volume, announced plans to release Binance DEX, a decentralized cryptocurrency exchange. Meanwhile, according to a recent report by Diar, Bitcoin network transaction fees have dropped to a four-year low and are currently “at levels not seen since 2015.”

For more information, please check out the following links:

CFTC Makes Cryptocurrency a Priority, Foreign Agencies Take Enforcement Action

By: Simone O. Otenaike

Earlier this week, the U.S. Commodity Futures Trading Commission (CFTC) published its examination priorities for 2019, which include notable references to cryptocurrency market and trading surveillance. The CFTC monitors regulatory compliance for registrants of the Division of Market Oversight (DMO), Division of Swap Dealer & Intermediary Oversight (DSIO) and Division of Clearing & Risk (DCR). The DMO’s 2019 Examination Priorities include “cryptocurrency surveillance practices” as the first item in its list of “topics for in-depth examination.” On the state front, the Texas State Securities Board (SSB) issued its 2018 Enforcement Report, which reported a total of 16 orders against various entities and persons suspected of orchestrating cryptocurrency scam investments in 2018. According to the report, the SSB continues to partner with local law enforcement to crack down on illegitimate cryptocurrency schemes.

In international news, late last week the Mauritian Financial Services Commission (FSC) announced plans to establish a regulatory framework for digital asset custodian services. Through the new framework, the country aims to enhance the safety of custodian services for digital assets. The new regulation requires custodian services to adhere to AML/CFT international best practices. Meanwhile, Turkish police arrested 24 suspects in connection with the theft of 13 million liras’ worth of cryptocurrency held in bitcoin, ether and XRP. The suspects reportedly communicated via a popular online multiplayer game: PlayerUnknown’s Battlegrounds. After conducting raids of the suspects’ homes, Turkish authorities recovered 4,000 liras in cash and 1.3 million liras’ worth of cryptocurrency.

For more information, please refer to the following links:

QuadrigaCX Saga Continues as Do Cryptocurrency Malware and Other Hacks

By: Joanna F. Wasick

More details emerge in the QuadrigaCX saga. As reported here last week, the founder and CEO of the Canadian cryptocurrency exchange, Gerald Cotton, allegedly died in December, taking with him the only known keys and passwords needed to access “cold wallets” (wallets not connected to the internet) holding roughly $250 million in client funds. The exchange subsequently filed for creditor protection and a Canadian court appointed a Big Four auditing firm to oversee the case. That auditor recently issued a report describing how it has taken control of Cotton’s laptops, encrypted USB keys and cellphones in order to recover client funds. The auditor further stated that while it had located more than $900,000 in cryptocurrency held by Quadriga, $500,000 in bitcoin was later “inadvertently” transferred by Quadriga to its inaccessible cold wallets. Blockchain analytics companies and internet sleuths later used this news of the transfer, along with other information, to track down the addresses for the wallets. A number of these addresses have now been published and appear to comport with some of the details in the auditor report.

In an update to another major hack, Elementus, a blockchain analytics firm, tweeted earlier this month that, of the roughly $16 million in tokens reportedly stolen in January from New Zealand-based exchange Cryptopia, $3.2 million were recently liquidated on other major exchanges, with a large portion of the funds going through Etherdelta, Binance and Bitbox. On the app front, a major digital distribution service and store was found unwittingly hosting a malicious “clipper” app, which looked like a legitimate cryptocurrency app but operates to steal funds by transferring them to the attackers instead of to valid wallets. The app has since been removed from the platform. In its attempt to defend against potential hacks, Coinbase recently issued a $30,000 bug bounty for a critical vulnerability in its system. Currently, Coinbase has a four-tier reward system, ranging from $200 to $50,000, depending on the impact of the bug. Coinbase also announced this week a means for safely backing up encrypted private wallet keys on widely used personal cloud-based storage accounts.

For more information, please refer to the following links:

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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