Blockchain Developments for Energy Grids, Automobiles, Enterprise Protocols
By: Simone O. Otenaike
Earlier this week, TFA Labs, an internet-of-things security startup, announced plans to explore Factom’s protocol as a solution for validating the health and status of devices on the U.S. national power grid. According to reports, TFA Labs will store raw data on the Factom blockchain and assign a digital identity to the permanent software installed on devices. Any change to a file or software installed on a device reportedly will produce a unique cryptographic hash that does not match the digital identity, alerting TFA to potential manipulation. The project is currently backed by a $200,000 grant from the U.S. Department of Energy.
Also this week, PlatOn, a privacy-preserving computing network, announced plans to partner with the Beijing-based division of a global automobile manufacturer to develop a solution for evaluating the value depreciation of its cars. PlatOn’s solution is a blockchain-based used car value management platform that reportedly will store static and dynamic vehicle data over the course of the vehicle’s lifetime, which ultimately allows companies to compute the residual value of vehicles at any given point in time. The solution also reportedly preserves the integrity of such vehicle data by embedding the data into a blockchain-based network that cannot be altered without the explicit approval of all the stakeholders in the value chain.
In another recent announcement, the Customs Department of Thailand will adopt the TradeLens blockchain platform for logistics and shipping container tracking. According to reports, Thailand will be the second member of the Association of Southeast Asian Nations to employ the platform, following Singapore.
Hedera Hashgraph, a distributed ledger network for enterprises, recently added one of the largest commercial aircraft manufacturers to its governing council. Hedera’s distributed ledger technology reportedly enables micropayments and distributed file storage and supports smart contracts. According to reports, the newly added firm will be the 10th member of Hedera’s governing council.
In a final noteworthy development, last week Hyperledger added a new codebase, Besu, to its portfolio. Hyperledger Besu is unique among other Hyperledger codebases because it reportedly links businesses directly to the public Ethereum blockchain and integrates with existing Hyperledger codebases. This will reportedly enable companies using competing blockchain networks to work together more easily.
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International Developments in Blockchain and Cryptocurrency Regulation
By: Jonathan D. Blattmachr
Starting in January 2020, the Dutch central bank will regulate cryptocurrency service providers and, it has declared, at that time they must register with the central bank if they want to keep operating. Those companies that must register include wallet providers and those offering exchange services (e.g., facilitating trading Euros for bitcoin). The providers must show their processes are designed to prevent AML and terrorist financing, and that the companies’ policymakers adequately manage those processes.
The Swiss tax authority has issued a working paper describing new rules regarding crypto assets. The paper sets out tax treatment of crypto held by investors as private assets as well as the tax consequences of ICOs and ITOs for the issuers. For example, the authority has determined that “cryptocurrencies in the form of pure digital means of payment” are subject to wealth taxes, which shall be valued at the market value at the end of the tax period. In another example, if an issuer sells “participation tokens,” the money the issuer raises is generally subject to income tax at the time of issuance. In a contrasting approach, the Portuguese Tax and Customs Authority recently published guidance confirming that cryptocurrency payments and the exchange of cryptocurrencies for fiat money are exempt from value added tax.
In the UK, London’s High Court has taken steps to recognize bitcoin as legal property, though it stopped just short of doing so. The presiding judge issued an asset preservation order to stop the dissipation or transference of bitcoin stolen as part of a phishing attack. This decision marks the first time a court has considered whether cryptocurrencies are property, but it did not go so far as to determine whether cryptocurrency is a “chose in possession” (an actual thing) or a “chose in action” (something that can only be claimed by taking legal action, not by physical possession). If it is determined that cryptocurrency is legal property, that would allow those assets to be used like other property, such as allowing its owner to grant a security interest in it.
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NY DFS Approves Gold-Backed Stablecoin, Financial Institutions Pursue Blockchain Pilots
By: Robert A. Musiala Jr.
This week the New York State Department of Financial Services announced that it has authorized a major U.S. cryptocurrency exchange and custodian to offer two new virtual currency products. The first product, “PAX Gold,” is an Ethereum-based token that is backed by gold ‒ the first product of its kind to be authorized by DFS. The second product, Binance USD (BUSD), is an Ethereum-based “stablecoin” that is pegged 1:1 to the U.S. dollar. BUSD is being launched in partnership with Binance, a foreign-based cryptocurrency exchange, and will be backed by U.S. dollar reserves held by the U.S. cryptocurrency exchange and custodian, which will act as custodian and issuer for BUSD. In other cryptocurrency exchange news, cryptocurrency news outlet Bitcoin.com recently announced the launch of a new cryptocurrency exchange that is intended to compete with other large exchanges.
In capital markets news, one of several firms that has unsuccessfully sought Security and Exchange Commission (SEC) approval for a bitcoin-based exchange traded fund (ETF) has reportedly changed its approach in an effort to bring its product to market. The firm has reportedly altered its proposed product, limiting participants to certain institutional buyers such as hedge funds and banks, in order to avoid certain regulatory requirements.
In the traditional banking sector, one of the world’s largest banks recently announced that it has completed “the first yuan-denominated blockchain based letter of credit transaction.” The transaction reportedly took place on Voltron, a blockchain platform developed by a consortium of major international banks. Also this week, a major U.S. financial services firm announced that it has joined the Marco Polo Network, a trade and working capital finance network powered by the Corda blockchain platform.
In payments news, this week the Luxembourg office of a “Big Four” global accounting and consulting firm announced that it will soon begin accepting bitcoin as payment. Additionally, a U.S.-based online legal technology firm has announced plans to launch its own “stablecoin” that would be used in conjunction with smart contracts deployed though its platform.
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SEC Settles Charges, Treasury Hears Testimony, Cryptojacking Report Released
By: Joanna F. Wasick
Late last week, the SEC announced that it has settled charges with Bitqyck Inc. and its founders, Bruce Bise and Sam Mendez, alleging that they defrauded investors in the securities offerings of two cryptocurrency tokens, and had operated an unregistered exchange. According to the SEC, the defendants lied to investors and fraudulently raised $13 million through unregistered token sales. Without admitting or denying the allegations, Bitqyck consented to an order requiring it pay back investor money, with interest, and a civil penalty of nearly $8.4 million. Bise agreed to pay disgorgement, interest and penalties of $890 thousand; Mendez agreed to $850 thousand.
David Murray, a vice president at the Financial Integrity Network and former U.S. Treasury Department director, recently provided expert testimony to a U.S. Senate subcommittee about how cryptocurrencies are facilitating human trafficking. Murray advocated for regulating cryptocurrency mining under the Bank Secrecy Act, and requiring miners to ascertain who is on the other end of transactions, and to vet any issuers, exchanges or custodians they serve. In response, critics, including Peter Van Valkenburgh of the think tank Coin Center, have argued that such regulation would act as a ban on miners participating on public blockchain networks, and would ultimately prove ineffective in crime prevention.
Finally, last week a major cybersecurity firm reported that in the first quarter of 2019, “cryptojacking” (secretly installing software to use a person’s computing power to mine cryptocurrencies without consent) rose 29% and ransomware attacks increased by 118%. The report identifies new types of malware that can infect major operating systems.
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