BakerHostetler

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.

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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.

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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.

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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.

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