Blockchain Developments: Government, Wine, Journalism, Asset-Backed Tokens, SEC Enforcement and More

by BakerHostetler


U.S. and International Governments Address Smart Ports, Smart Cities, and Cryptocurrencies

By Taylor Thompson

According to reports, in an Oct. 3 meeting, representatives of U.S. Customs and Border Protection (CBP) claimed that the agency is testing a blockchain-based supply chain management system to evaluate whether blockchain can contribute to CBP’s efforts to track and verify shipments under the newly negotiated United States-Mexico-Canada Agreement, the intended replacement for the North American Free Trade Agreement (NAFTA). In Spain, officials recently announced an initiative to turn the Port of Valencia into a “smart port” using blockchain and big data, joining Aragon and Catalonia as Spanish municipalities attempting to leverage blockchain for government applications.

According to a recently published report, the European Securities and Markets Authority (ESMA), an EU financial watchdog agency, has budgeted over 1 million euros for its efforts to supervise and regulate new fintech, including cryptocurrencies, with the goal of achieving a coordinated approach to regulation. This milestone in the EU’s attempt to monitor cryptocurrencies and related technologies came as the EU Parliament weighed a wide-ranging resolution to examine and promote blockchain technologies on the continent. The resolution passed on Oct. 4 and recommends that member states take steps to incorporate cryptocurrencies into European payment systems, develop educational and legal frameworks for distributed ledger technologies, and evaluate blockchain-based voting, among other recommendations. In debates over the resolution, some EU officials raised concerns over potential conflicts between the adoption of blockchain and compliance with the General Data Protection Regulation (GDPR), a wide-ranging EU digital privacy law.

CoinDesk reported recently that Rain Financial, a cryptocurrency exchange backed by the Central Bank of Bahrain, expects to launch early next year. Rain’s founders claim that the exchange could encourage new flows of Middle Eastern capital into crypto markets without running afoul of know-your-customer and anti-money-laundering standards applied by Western cryptocurrency exchanges. Earlier this week, Reuters reported that the UAE’s securities and commodities regulator plans to roll out regulations allowing companies to raise capital through initial coin offerings (ICOs) in the first half of next year.

Park Won-Soon, the mayor of Seoul, announced in Zurich recently that his five-year plan to integrate blockchain into public services and turn Seoul into a “smart city” will have a budget of 123.3 billion won ($108 million). Park claimed that services covering everything from welfare to motor vehicles to employment insurance to voting will adopt blockchain. The mayor campaigned on the issue of blockchain adoption and incubation, which the South Korean national government has also made a priority.

Meanwhile, in Latin America, Bloomberg reported that Venezuela’s government will soon require its citizens to pay for passports using Petro, a state-issued, oil- and mineral-backed token. Widely seen as an effort to stem the flow of refugees out of Venezuela, the move will make it even harder for Venezuelans to leave that country. Once the new cryptocurrency comes online, a passport will cost approximately eight times the national monthly minimum wage.

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

Blockchain Enterprise Developments in Wine, Journalism, Real Estate and Mining

By Simone O. Otenaike

A major online retailer’s blockchain fund added VinX, a blockchain-based wine venture, to its portfolio last week. VinX plans to develop a token-based digital wine futures platform based on the Bordeaux futures model. Given the importance of grape and barrel provenance, the industry is ripe for a more efficient and transparent way to track ingredients. The platform will seek to use blockchain technology to link wine consumers directly with wineries and develop a validation system that will reduce the rate of fraud in the wine industry – experts estimate that 20 percent of all wine in the world is counterfeit. In a recent report, a technology research company predicts that blockchain enterprise solutions in the global agriculture and food supply chain market will be worth over $400 million in the next five years. According to the report, the sector is currently worth $60.8 million and is predicted to grow at a compound annual growth rate of 47.8 percent to $429.7 million by 2023. The report predicts that to drive implementation, blockchain solutions will need to address difficulties like food fraud, which costs the global food industry roughly $49 billion annually.

Earlier this week, a business media giant announced plans to move its content to a distributed ledger-based platform provided by Civil, a blockchain-based journalism company. Through the partnership, both companies aim to provide audiences with an unprecedented level of transparency in news content and expand their influence to a broader audience. As part of the partnership, Civil will permanently archive the media company’s existing content to Civil’s decentralized platform, where the content can’t be removed or altered. Also this week, Meridio, a blockchain-based real estate company, launched its first real estate leasing product, reLease. The product allows anyone to rent workspace for the day through a reservation platform built on top of blockchain smart contract and payment systems. Typically, residential and commercial leasing transactions involve rental applications, paper legal contracts, security deposits, and wire transfers – reLease seeks to eliminate this onerous and time-consuming process by using blockchain technology to digitize the contract and payment processes.

On the international front, a Chinese energy company announced plans to develop a cryptocurrency mining farm that can produce up to 300 megawatts (MW) of photovoltaic power for mining – for comparison, the Bitcoin network consumes roughly 200 MW of energy per day for mining. A recent report shows that crypto-mining is gradually becoming less profitable as electricity prices are steadily increasing. While miners saw a $1.4 billion increase in profits during the first three quarters of 2018 compared to the profits in all of 2017, mining is only becoming profitable for the larger players that can afford to continue opening new pools. An ex-employee of the mining giant Bitmain has launched a new crypto-mining chip company, MicroBT, claiming better power efficiencies than Bitmain’s. According to estimates by a consulting firm, the crypto-mining market is anticipated to grow to $17 billion by 2022.

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

Blockchain Tokens Backed by Real-World Assets Appear to Grow in Popularity

By Robert A. Musiala Jr.

This week brought more announcements related to stablecoins, with a major Japanese technology firm announcing plans to launch a yen-pegged cryptocurrency in 2019. Additionally, in a recent press release, a Big Four accounting and consulting firm announced a joint business relationship with startup Cred, seeking to “provide valuable perspective on how standards can be enhanced to facilitate a more transparent set of reserve functions, stablecoins and deposit and yield products.” According to Reuters, “Tiberius Technology Ventures has called a temporary halt to sales of its metals-backed digital currency and will refund $1 million to investors.”

Recently, an asset management company successfully closed an $18 million tokenized real estate offering made through Templum Markets, an SEC-registered alternative trading system (ATS). In a similar development, Propellr Securities, a FINRA-registered broker-dealer, recently assisted in a Reg D offering of tokenized securities on Ethereum for a luxury Manhattan condo development. And blockchain firm Circle signed an agreement to acquire an SEC-registered broker-dealer to move forward with intentions to launch a regulated token marketplace. New research was released this week on ICOs, citing a total of $20 billion raised in ICOs since the start of 2017. Among other statistics, the study reported that 20 percent of ICOs involved fraud and more than 50 percent failed to raise funds.

In Switzerland, the Swiss Financial Market Supervisory Authority (FINMA) recently issued Switzerland’s first cryptocurrency asset management license, which allows the recipient firm to offer blockchain-based asset management services to institutional clients, similar to a traditional asset manager. According to a recent Bloomberg report, bitcoin’s price volatility has hit a 17-month low, while a recent report from bitcoin analytics firm Chainalysis found that contrary to some claims, the trading activity of the largest bitcoin holders has contributed to price stability, rather than exacerbating it.

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

SEC Enforcement Actions Announced, New Data on Cryptocurrency Hacks Published

By Marc D. Powers

On Oct. 9, 2018, the Securities and Exchange Commission (SEC) filed a subpoena enforcement action in California against an investment trust that failed to respond to an investigative subpoena issued by the staff. The investigation focused on a claim by a penny stock, Cherubim, that it had allegedly executed a $100 million financing commitment to launch an ICO. In another SEC action reported on Oct. 11, 2018, the SEC obtained a court order preventing an ICO that falsely claimed it was approved by the SEC and that a related cryptocurrency fund was “ licensed and regulated” by the agency. Also, a newly unsealed federal indictment charges seven alleged Russian intelligence agents with using cryptocurrencies as part of a broad “influence and disinformation” scheme. And the CFTC has posted a rise in fines in the past fiscal year ending Sept. 30, of approximately $900 million, buoyed by cryptocurrency cases, spoofing cases and settlements dating back to the financial crisis.

According to a recent Reuters article citing a report from CipherTrace, in the first nine months of 2018, hackers stole $927 million in cryptocurrencies from exchanges and trading platforms. A recently released report from bitcoin analytics firm Elliptic provided details on the hack of a South Korean cryptocurrency exchange and demonstrated how the cryptocurrency funds stolen in the attack may have been laundered.

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

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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JD Supra, LLC
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