As Malta Delays Regulatory Clarity, Fewer Firms Remain on ‘Blockchain Island’

Once the go-to place for crypto and blockchain firms, is the “blockchain island” of Malta being hollowed out?

It seems that Malta is becoming both less popular among and less populated with crypto firms. The European Union country attracted dozens of industry players in 2018 on the back of the “blockchain island” agenda championed by the local government, but the relevant framework has not yet proven to be effective. Meanwhile, the official rhetoric apparently started to shift away from the blockchain sector, as the government now aims to consolidate it with “other niche sectors.”

Meanwhile, the Malta Financial Services Authority, continues to pluck out non-registered crypto agents — be it the world’s top crypto exchange or smaller startups. But in reality, no businesses have been licensed under the blockchain framework yet, despite it being released in the summer of 2018. As a result, a number of companies have decided to leave the island over the past months. So, who is currently based in Malta, and why?

Crypto regulation was off to a fast start

In July 2018, the Maltese government approved the Digital Innovation Framework, aiming to establish a strong regulatory climate for blockchain innovation and digital assets. The framework comprises three acts: the Digital Innovation Authority Act, the Innovative Technological Arrangement and Services Act, and the Virtual Financial Asset Act.

The latter, which is the most essential act out of three, required businesses to be licensed by the MFSA if they launch initial coin offerings, trade digital assets, or provide electronic wallets and brokerage activities. The act also introduces VFA Agents — the so-called “gatekeepers,” or entities that advise and support crypto firms.

The agency approved the first VFA Agents in May 2019. Currently, there are 21 authorized VFA Agents, according to the MFSA’s financial register. However, no VFA licenses have been issued under the framework yet, meaning that VFA Agents have few potential clients that are willing to apply for it.

Local politicians actively addressed the crypto bills when they were passed, arguing that the island nation had become a pioneer in the area. For instance, Silvio Schembri, who acted as a junior minister for financial services, digital economy and innovation, said that Malta was “the first world jurisdiction to provide legal certainty to this space,” even though nations like Canada, Japan and Belarus had already enacted cryptocurrency-specific laws.

Then-Prime Minister Joseph Muscat was also among the crypto-friendly officeholders. In September 2018, he went as far as to present his country as a “blockchain island” at the United Nations General Assembly.

Consequently, the Maltese government was especially close with crypto actors throughout 2018. In March, Muscat publically welcomed Binance to the island on his Twitter. The crypto exchange decided to move to Malta after facing regulatory difficulties in Japan, where it was previously headquartered.

A few months later, Binance held a private event at the official residence of the President of Malta. “How many of you have attended a blockchain even at the presidential palace?” CEO Changpeng Zhao, aka CZ, asked while giving a speech there, saying, “Malta came at a time when regulatory clarity was very much needed.”

It wasn’t just Binance that was looking for a friendlier jurisdiction and low corporate tax rates — which is set at 5%, the lowest in the EU. More crypto companies soon began relocating to the island, including fellow exchanges OKEx and BitBay. On Nov. 1, 2018, the cryptocurrency framework finally came into effect — but instead of getting the long-awaited clarity, local players were left dealing with more legal ambiguity and sluggishness.

Local players getting anxious

Most regulatory problems for crypto firms in Malta stem from the fact that no businesses have been licensed under the VFA framework yet, despite the fact that it’s been more than a year since it was enacted.

For instance, reports suggested that local banks were declining crypto and blockchain firms’ applications to open bank accounts, saying that it was beyond their “risk appetite.” As Schembri explained to the Times of Malta at the time, banks were reluctant to engage with crypto and blockchain firms because they were waiting for them to obtain MFSA licenses first, which he said was understandable.

In 2018, major crypto exchange OKEx successfully migrated to Malta from Japan after facing warnings from the local regulator. “Malta is getting crowded,” community commentators noticed at the time, when Binance was in the process of its relocation. Soon, OKEx received permission to operate and provide its services from Malta under the transitory provision granted by MFSA for a period of one year until the license is obtained, but the exchange is still waiting for a VFA license after almost two years.

As the time goes by, fewer firms remain hopeful. Leon Siegmund, a board member of Malta’s Blockchain Association and founder of Bitcoin Club Malta, criticized the VFA license in a comment to crypto publication Decrypt, saying, “It’s too expensive; it doesn’t provide any value.” The MFSA reportedly requires a fee of 10,000 euros to process a pre-application for the VFA license.

Additionally, Malta’s regulatory approach toward crypto businesses seems to be as stringent as that of other EU countries, given that the AMLD5 directive also applies. As Wayne Pisani, a partner at registered VFA Agent Grant Thornton, previously told Cointelegraph, “It was never the intention to create a soft touch regulatory framework.”

Therefore, some actors, such as derivatives exchange Deribit and a noncustodial exchange KyberSwap, have chosen to leave the island. In January 2020, KyberSwap announced it was moving out of Malta to the British Virgin Islands. The decision to relocate was driven by practical considerations, Sunny Jain, the company’s head of product, told Cointelegraph:

“KyberSwap anticipated that Malta will adopt a very strict implementation of new EU regulations for crypto companies. Under these new regulations, KyberSwap would require an extensive amount of information from our current and future customers, and overall costs might increase.”

Other companies that have cut ties with Maltese regulators include Bittrex and even the once-darling Binance. Bittrex announced it was relocating its headquarters to Liechtenstein in October 2019, just one month after the MFSA declared that it would “actively monitor” licensed crypto firms in the country (Bittrex declined to comment on this story nor to clarify the specific reasons for leaving Malta), while Binance was unexpectedly called out by the regulator, which issued a statement saying that the exchange “is not authorized by the MFSA to operate in the crypto currency sphere,” to which CZ said that Binance “is not headquartered or operated in Malta.”

The MFSA has now clarified to Cointelegraph that it issued the press statement to correct an article published by the Times of Malta, “which gave the impression that Binance was licensed to operate as a crypto exchange in and from Malta.” The spokesperson for the MFSA added that the agency is currently processing a number of applications, most of which are for crypto exchanges, adding that the aim is to establish the “highest standards of compliance and governance” for local businesses:

“The MFSA's stance has always been the same and remains unchanged: to operate in the virtual financial assets sphere in Malta, the highest standards of compliance and governance in the conduct of business, including AML/CFT standards, have to be adhered to, both at on-boarding stage and throughout the lifecycle of the licensed activity.”

Either way, it seems that Binance’s relationship with local authorities has apparently worsened, especially since Muscat stepped down due to a political crisis in the country at the end of 2019, which was followed by a cabinet reshuffle. The exchange has yet to respond to a request for comment.

Other companies that have seemingly left Malta include an Indian exchange Zebpay. The company moved to the island in October 2018 after the Reserve Bank of India banned crypto-related transactions in the country. Although things seemed good at the start — with CEO Ajeet Khurana saying in March 2019 that he was pleasantly surprised at how open-minded the Maltese government was — the company ultimately closed down its Maltese subsidiary.

In August 2019, less than a year after it moved to the EU country, the exchange informed its users that Zebpay Malta was shutting down. When asked to comment, however, a representative for the company said it is not “relevant” to this article because “ZebPay still has our Malta entity.” The spokesperson added, “We have just put EU operations on the backburner while we review our overall operations and refocus on core competencies.”

Further, investment trading market Coinvest, which once announced it was joining leading blockchain companies in moving to Malta, has since decided not to move forward with its registration in Malta citing a lack of progress, as confirmed to Cointelegraph by the firm’s representative.

Not everyone has left

The political crisis, which was largely fuelled by allegations of corruption and lead to Muscat’s resignation, might be a crucial factor for the current regulatory stagnation, according to Sidharth Sogani, CEO at crypto-focused research and intelligence firm Crebaco, who told Cointelegraph:

“At this point, Malta doesn't seem to have a proper loophole-free regulatory framework that takes care of illicit activities arising out of the Crypto industry and maybe that is the reason why the new licenses are delayed and the existing businesses are facing regulatory and compliance hurdles.”

“Over the last few months, we have seen an exodus of companies leaving Malta,” Cal Evans, the founder of compliance and strategy firm Gresham International, summarized in a comment for Cointelegraph, elaborating that the local regulation seems to be the main reason:

“The island made great steps toward creating crypto-friendly laws, but made little to no steps in implementing them. To date, it is rumored that only two licenses have been issued. The Maltese authorities seemingly unwilling, or unable, to issue the licenses companies so desperately wanted to prove legitimacy.”

However, some Malta-based actors remain optimistic. Jan Sammut, the founder of ICO Launch Malta, told Cointelegraph:

“Whilst the consensus is that the VFA act is overly onerous and that its implementation leaves much to be desired, the Maltese jurisdiction as a whole remains a very attractive prospect for blockchain companies. Therefore, apart from the few who made the decision to relocate to other jurisdictions very early on, most remain based here operating under their transitional period provisions.”

Similarly, a representative for OKEx reiterated the exchange’s commitment to stay in Malta in a comment to Cointelegraph, saying that there is still room for the crypto sector to grow on the island:

“We believe the Maltese government is very committed to crypto and they do have one of the most comprehensive crypto regulatory frameworks in the EU. Yet, OKEx will always be here to keep our commitment in joining hands with the Maltese government to build the ecosystem.”

Experts warn that further short-term developments are unlikely

As for now, the future of the crypto industry in Malta seems uncertain — the VFA act has yet to be implemented in full after almost two years. As Sogani suggested, this process might take even more time due to the pandemic: “I believe we won’t see any concrete revised regulation coming in the next six months, as a lot of things have been delayed due to the coronavirus lockdown.” The MFSA did not reply to Cointelegraph's request for comment by press time.

Related: New Malta Government Says It Still Wants to Run a ‘Blockchain Island’

When asked for a statement, Malta’s junior minister for financial services and digital economy, Bartolo Clayton, repeated his previous comment given to Cointelegraph, stating that “the Government of Malta is committed to consolidate blockchain together with other niche sectors,” adding that, “the Government of Malta is opting for an overarching and holistic strategy for the Digital, Financial and Innovative services in Malta.”

Additionally, Clayton’s press office mentioned that “the Junior Minister further extends his commitment to attract more investment in these emerging sectors.”

Telegram Is Losing to the US SEC, TON Community Can Launch Network Regardless

The court sided with the SEC and prohibited Telegram from releasing Gram tokens, but the community says it can still launch the network.

As Telegram’s legal battle with the United States Securities and Exchange Commission continues to unfold, the U.S. authorities have convinced the judge to bar the company from issuing Gram tokens — at least in the near future.

On March 24, the U.S. District Court for the Southern District of New York judge said that the SEC “has shown a substantial likelihood of success” in proving that Telegram, the firm behind the eponymous open-source encrypted messenger, distributed unregistered securities.” As a result, the federal judge granted a preliminary injunction against the company, preventing it from delivering Gram tokens to investors.

Telegram has already filed a notice of appeal, meaning that the ruling will be reviewed — but experts are pessimistic about the firm’s chances. Meanwhile, the Telegram Open Network community stresses that it has all the tools to proceed with the launch, regardless of what the authorities decide.

SEC vs. Telegram — How it all started

The SEC took Telegram to court in October last year, announcing that it was suing the firm and its wholly-owned subsidiary, TON Issuer, for holding an unregistered token sale. Telegram made waves after it raised almost $1.7 billion for its blockchain platform called Telegram Open Network, or TON, in two private token sale rounds, held in February and March 2018.

Telegram’s co-founders, Russian entrepreneurial brothers Pavel and Nikolai Durov, began developing the blockchain-based platform in 2017. The project aims to facilitate payments and host decentralized applications at high scalability levels. TON is a proof-of-stake platform, meaning that it relies on validators who run nodes to authenticate new blocks and govern the network. For their services, validators are rewarded with the native currency called Gram. If released, TON will likely be integrated into the Telegram app, which boasts over 200 million users worldwide, leapfrogging the app to mass adoption.

According to reports, at this point, the product has nearly been finished for almost half a year. In early October 2019, Telegram published the entire TON source code on GitHub and announced that the launch of its blockchain project would be scheduled for the end of the month.

However, on Oct. 11, the SEC stepped in to halt the development. The agency had obtained a temporary restraining order against Telegram and TON, seeking “certain emergency relief,” as well as permanent injunctions, disgorgement with prejudgment interest and civil penalties based on the claim that around a quarter of the raised sum, $424.5 million, allegedly belonged to 31 buyers located in the U.S.

Notably, Telegram’s initial coin offering was not public. Only those investing a minimum of $1 million were allowed to partake in the TON offering, per the documents Pavel Durov filed with the SEC. By doing so, Telegram was likely looking to use a legal loophole of sorts — according to public documents from 2018, Telegram had informed the SEC that both of its twin $850 million offerings were allegedly made under Rule 506(c) and/or Regulation S under the Securities Act of 1933.

In Telegram’s view, that meant that because Gram tokens were exclusively sold to accredited investors, the offering was not required to be registered with or qualified by the SEC. Since then, the company has publically emphasized that Grams should not be associated with expectations for profits based on purchase or holding of the token, essentially implying that they do not constitute securities.

Regulators oppose this argument. In contrast, it stresses that once the Gram tokens are released, their purchasers and Telegram “will be able to sell billions of Grams into U.S. markets,” and, therefore, continue the unregistered token sale.

Despite the major legal problems Telegram is facing, TON investors have been staying calm. In October, soon after the SEC took Telegram to court, they voted against the return of their funds and agreed to a postponement of the network launch until April 30. While it is unclear who exactly participated in the TON sale, media reports suggest that Wall Street-affiliated players, such as venture capital firm Kleiner Perkins and Lightspeed Venture Partners, are among those who have invested in the project.

How objective is the 70-year old Howey Test?

The recent development shows that the court is inclined to side with the regulators and agree that Grams are securities. The main pretext for that is the 1934 Howey Test, which says that a security involves the investment of money in a common enterprise, in which the investor expects profits primarily from others' efforts. U.S. District Judge P. Kevin Castel wrote:

“Considering the economic realities under the Howey test, the Court finds that, in the context of that scheme, the resale of Grams into the secondary public market would be an integral part of the sale of securities without a required registration statement.”

The Howey Test, which has largely been used by the SEC when dealing with ICOs, was designed long before cryptocurrencies emerged. As some industry players argue, that might undermine its relevance for the respective cases as Philippe Rodriguez, head of the TON France community, told Cointelegraph:

“This [ruling] opens an important debate on the validity of the Howey Test in the context of the creation of a crypto money and financing by a token that is intended to circulate after its purchase.”

Nevertheless, some legal experts do not believe that the Howey Test needs major alterations at this point. As Carol Goforth, a law professor at the University of Arkansas, argued in an email conversation with Cointelegraph:

“I don’t think we should significantly modify Howey. It is a long-standing precedent that works well to figure out what conventional investment contracts look like. It would be helpful for the Supreme Court to clarify what a ‘common enterprise’ entails, but that has little to do with crypto.”

Goforth then went on to explain what specific regulatory adjustments could make handling crypto-related cases more efficient: “My preference would be to take crypto out of the investment contract test by amending the securities laws to specifically designate digital assets as securities; much like stock and notes are defined as securities in the current law.” She argues that an exception could be made for this type of asset when it is sold exclusively to qualified investors who are not swayed by the desire to speculate on a future price increase, adding:

“This would have the benefit of allowing the SEC to stop wasting time and money arguing about the Howey test and when and how it applies, and would add certainty to the situation. Ideally, at the same time Congress adds these assets to the definition of security, the SEC could also be directed to provide particularized exemptions based on the need of investors for protection, and the nature of information that is relevant to crypto purchasers.”

Lilya Tessler, a partner and the head of Sidley’s fintech and blockchain group, counsel to the Chamber of Digital Commerce, a pro-adoption nonprofit that has participated in the case, explained to Cointelegraph that the Howey Test cannot be substituted since it is the existing legal standard applicable in this case. She highlighted that the judge has looked beyond Gram tokens and their digital nature when granted a preliminary injunction:

“The court took into consideration the brief I filed on behalf of the Chamber of Digital Commerce, which urged the court to ‘distinguish, and not conflate, the subject of an investment contract (the digital asset) with the securities transaction associated with it.’ The judge correctly focused on the contract, transaction, or scheme which is the securities transaction rather than the digital asset itself, which the court notes is ‘little more than alphanumeric cryptographic sequence.’”

Telegram is facing serious penalties if it doesn’t comply

While Telegram sold over $1.7 billion worth of Grams almost two years ago, the assets have yet to be distributed to their buyers because the TON network is still not online. The preliminary injunction prohibits Telegram from delivering the assets.

So, what happens to the company now that it’s been banned from releasing Grams? “Note this is a preliminary injunction, which means it only lasts until a final decision or settlement is reached,” says Goforth, noting, however, that “based on the judge’s determination that the SEC has made a showing that will probably win at trial.” That, in turn, could lead to serious consequences for the company if it chooses not to comply. Goforth called that an unlikely scenario:

“As for what would happen if Telegram just went ahead and sold in the U.S., the answer is that it would be guilty of a crime for willfully violating the securities laws and the court order. That would subject it and those in control of it, as well as those who aid and abet it, to criminal liabilities, including the risk that assets could be frozen, and bank accounts or other assets here seized.”

In any case, Telegram has already submitted a notice of appeal, meaning that the ruling will be reviewed. “Telegram’s counsel has filed a motion for an interlocutory appeal with respect to the court’s decision on the preliminary injunction,” Tessler told Cointelegraph, adding: “The Court of Appeals can rule on this motion while the trial court case is still pending.”

Although it could help the firm to buy some extra time, Telegram’s chances of winning the appeal seem slim, as Philip Moustakis, attorney at Seward & Kissel LLP and former SEC senior counsel, told Cointelegraph:

“The standard of review on appeal is abuse of discretion — it’s a high bar — meaning Telegram will have to show the district court made some clear mistake of fact or an error of law.”

Telegram’s TON is one of the several high-profile ICO cases that have been scrutinized by the SEC — but it seems that the agency could make a show trial out of this case. In September 2019, Block.one, the company behind the most successful ICO in history — which managed to raise over $4 billion during the sale of EOS tokens, more than twice as much as Telegram — reached a civil settlement with the SEC, paying a mere $24-million fine. “The facts and circumstances of each case are different,” Moustakis told Cointelegraph, elaborating:

“In the case of Block.one, in my view, the SEC may have felt that there was significant litigation risk, among other things, in the structure of the offering, which was highlighted in the order, with the ERC-20 token offered in the ICO having become fixed and non-transferrable at the close of the sale.”

According to Moustakis, however, as the Telegram case unravels, it will serve as a precedent for the litigation of other matters involving ICOs or token offerings. “But this is just one district court decision, and we still need to keep our eye on the Kik Interactive case, and others,” the attorney added.

SEC cannot stop the TON launch, says the community

The Telegram community was hit by the Tuesday ruling but remains overall optimistic. Fedor Skuratov, the founder of the TON Community Foundation, a nonprofit association of TON ecosystem participants, and former communications manager at TON Labs, told Cointelegraph that “the community was ready for this scenario,” adding:

“At TCF, we view the judgment as a certainty, which is in any case better than the frozen state of recent months.”

Indeed, TON community members have a major card up their sleeve. “TON could always be launched by anyone since all the network code is available,” Daniel Perez, head of TON Spain, told Cointelegraph. “We have several options, including the launch of TON by TCF,” Skuratov confirmed, revealing that several TON test networks have already gone online:

“No one can prevent the launch of TON by any other entity, person or a community, [be]cause TON is a decentralized open-source solution. Already, there are two different test networks, and within the community, there is at least 1 group planning to launch the third.”

In Perez’s viewpoint, the best option would be if Telegram reaches an agreement similar to the one that Block.one reached with the SEC and then returns back to the network launch. If this doesn’t happen and the community decides to take control, the TON wallet cannot be integrated into the Telegram app, which is a major milestone for the network. “But this does not prohibit the community from creating a custom Telegram client,” said Perez. Moreover, Skuratov told Cointelegraph there is a way to distribute the Gram tokens despite the recent ban:

“We are considering, among other things, the option, in which we will negotiate with TON investors on the topic of converting their rights to GRAMs in the Telegram's originally mentioned TON into rights for other GRAMs (they may be called gums, rums, liters, doesn't matter) in any another established TON network selected by the community.”

“No one can restrict a self-organized community from acts of goodwill,” Skuratov warned. However, Perez added that the TON community “still hope[s] that this situation will be resolved without us having to go to this extreme.”

Hive Continues Independence Push as Steem Stakeholders Migrate to New Chain

The ex-Steem community continues to battle Justin Sun with the Hive hard fork — stakeholders seemingly migrating to the new network.

Over the past few days, the ex-Steem blockchain community has gained an upper hand over Justin Sun and his recently acquired Steemit startup. After blaming Sun for attempting to centralize their network, a substantial part of the original Steem community successfully launched a hard fork called Hive. 

Steem stakeholders are now actively migrating to the new chain. Its in-house token HIVE, which has been distributed among STEEM holders via an airdrop, is trading for a 20% premium over STEEM on some exchanges. Nonetheless, the network split hasn’t been without incident, as some complaints regarding the airdrop distribution were reported.

What is the conflict all about?

The dispute can be traced back to February 2020. At the time, Justin Sun, an eminent Chinese tech entrepreneur with an estimated net worth of $200 million, purchased Steemit, Inc. — a startup founded by Ned Scott and Dan Larimer, the same people who launched the Steem blockchain. The company is known primarily for releasing Steem-based alternatives for key social media outlets like Reddit, YouTube and Instagram.

It is still not clear whether Sun purchased all shares of Steemit, since Scott’s original tweet announcing that he had sold Steemit to Sun has been deleted. Official press kits refer to the merger as a “strategic partnership” between Steemit and Tron, a major cryptocurrency firm launched by the Chinese entrepreneur. 

As Steemit managing director Elizabeth Powell told Cointelegraph soon after the acquisition, the Tron partnership was vital for her company’s financial health. According to reports from November 2018, Steemit had to lay off more than 70% of its staff due to market conditions.

The community appeared less optimistic about the merger. On Feb. 24, a group of Steem stakeholders performed a soft fork and deactivated the so-called “ninja-mined stake,” a stash of approximately 74 million STEEM tokens historically owned by Steemit. As a Steem Witness previously explained to Cointelegraph, the stake has been a long-standing concern for the Steem community, and stakeholders became even more worried about its future once Justin Sun became Steemit’s CEO.

In response, Tron arranged what has since been described as a “hostile takeover.” On March 2, three major cryptocurrency exchanges that have STEEM tokens listed on their platforms, namely Binance, Huobi and Poloniex, unwittingly used customer deposits to stake large amounts of STEEM tokens to vote in support of removing the original witnesses.

As a result, all of the top-20 witnesses were eventually replaced with accounts powered by Steemit, Binance, Huobi and Poloniex. Sun then described the takeover as a successful attempt at defeating the “hackers” who froze assets legally owned by Steemit. 

Soon after Sun’s announcement, both Binance and Huobi declared that they were removing their votes in order to undo the takeover, as they were initially not fully aware of the situation to which they contributed. Additionally, Binance CEO Changpeng Zhao appeared to distance himself from Sun in an interview with Cointelegraph.

Meanwhile, the Steem community was actively trying to reclaim its space back by mobilizing tokens. As of March 6, 10 out of 20 top witnesses were “approved,” while the remaining 10 witnesses appeared to be Steemit-affiliated players. A discussion between a group of Steem community members and Justin Sun was also held around the same time. According to a recording of the conversation, Sun mentioned that they wanted to “withdraw our votes also ASAP to give rights back to the community.”

Some investors claim to be mistakenly excluded from the airdrop

Despite the ostensible promises to “give rights back to the community,” the Tron Foundation CEO reportedly continued to use “sock-puppet witnesses” to consolidate power on the Steem blockchain, as previously told to Cointelegraph by a number of ex-Steem stakeholders. In light of this, the stakeholders decided to proceed with a hard fork called Hive, initially an exact code fork of the Steem blockchain that has been altered based on community feedback.

The hard fork successfully took place on March 20 at around 9:30 a.m. UTC. The network split was accompanied by a 1:1 airdrop, which notably blacklisted the purported owners of Steemit’s “ninja-mined” stake, currently worth around $9.25 million, and the alleged “Tron puppets” who proxied their vote to Steemit-affiliated witnesses during the infamous takeover. 

Not all Steem stakeholders are happy with the exclusion algorithm, as some have allegedly been left out. Scott Cunningham, one of the STEEM holders, told Cointelegraph that he “and a few others” were mistakenly added to the banlist via an algorithm meant to pick up on specific behavior:

“The main behaviour was whether or not you voted for TRON witnesses which I did not. I proxied my vote to the creator of 3Speak @TheyCallMeDan who was actively supporting and helping the original Steem witnesses that now make up Hive.”

Cunningham then contacted the Hive team, which reportedly delegated him with his original power. Additionally, they promised him that over the next week, they “will fix the mistakes made by the algorithmic airdrop blacklist.” Cunningham went on to add that although he does not entirely agree with the way the algorithm works, he still believes that Hive will prove to be a more decentralized platform than Steem:

“I think it’s fair to withhold Steemit’s airdrop to prevent them from having the ninja-mined stake, but I don’t think it’s fair to penalize people based on their voting. It’s not fully decentralized if you're penalized for the way you vote even if you vote for centralization or naively. That being said, I still understand the precautions they have taken and given there are no other ways implemented to penalize people, I think their network will prove to be a much more decentralized one.”

Dan Notestein, the CEO and founder of BlockTrades, a top-three Hive validator who has been working on the hard fork, confirmed to Cointelegraph the airdrop exclusion list is based on one principle: “The Hive community would not airdrop on Steemians that actively supported the centralization of the blockchain by Justin Sun by voting for the sockpuppet witnesses run by Justin Sun.”

The list was created by running a script that analyzed the blockchain data for witness voting, Notestein added, elaborating on how the mechanism was designed: “To avoid as many false positives as possible, we required at least votes for two sockpuppets, and we also excluded accounts of a small size, as they were considered more likely to be users that might not be aware of what they were doing by voting for the sockpuppet witnesses.”

Notestein also admitted that the Hive team was “extremely rushed” and is aware that there might be errors in the script, which is why it plans to reevaluate the distribution scheme in the near future: 

“We decided that we would have stake-based votes after the Hive chain was launched to determine if some accounts were unreasonably excluded from the airdrop of Hive tokens. Such accounts will receive an airdrop in the next planned hardfork. I know of at least one actual coding mistake in the initial script that I believe will probably result in some accounts receiving tokens in the second airdrop.”

Hive has more post-hard fork plans

In its post-fork announcement, Hive reported that an unspecified number of exchanges are working to list HIVE tokens, in addition to six trading platforms who are still working on distributing airdropped assets. 

Since then, Binance has announced that it completed the distribution of HIVE tokens to STEEM holders. In addition, the exchange clarified that to get listed on the platform, HIVE “will go through the same strict listing review process as Binance does for any other coin/token.” A representative for the exchange told Cointelegraph:

“Binance won’t be taking a position on the dispute itself, but we’ll continue to keep tabs on the situation and keep users informed of any changes that might affect them,” a Binance spokesperson told Cointelegraph.

Meanwhile, Steem stakeholders seem to be actively migrating to the Hive network. For instance, PeakD — the Hive-based version of Steempeaked and the second-largest front-end interface on the Steem platform — has already been launched. Additionally, long-time Steem witnesses are reorganizing their operation in favor of Hive by disabling their accounts on the former chain.

“I don’t plan to post more content on Steem,” Luke Stokes, one of original Steem Witnesses, told Cointelegraph, noting that he might update his content there to point to PeakD instead. He also stressed that many Witnesses have kept their nodes running but are purposely not signing blocks, which is why the participation level sometimes drops below 100%.

“There is a general consensus among the former top Steem block producers and DApps to move to Hive,” Notestein argued in a conversation with Cointelegraph: 

“Many have already shutdown their nodes on Steem, and I expect most if not all to shut them down soon, as they find time to do so. [...] For myself, I’ve stopped interacting on Steem and only interact on Hive now, and this includes disabling my Steem witness node.” 

Additionally, the post-fork statement mentioned that Hive.blog wallets will be launched soon, directing people to consider using the PeakD.com wallet in the meantime. Hive team also mentioned that there will be a second hard fork in the near future to upgrade the blockchain and bring additional functionality online, although little detail is available in that regard. 

Hive fallout

The hard fork has not gone unnoticed by third-party actors: Canada-based mining firm Hive Blockchain recently announced a cease and desist request to the Hive community. The firm argues that the new use of the term “Hive” is “intentionally or otherwise, confusing with the Company’s brand”, citing “multiple shareholder inquiries understandably confused by this Blockchain’s announcement.” 

David Jefferys, an ex-director of business development at Steemit who has been involved with the Hive hard fork, previously told Cointelegraph that Hive “isn’t even a company or official organization yet,” since apparently “there’s been no time” to deal with the registration process. According to Jefferys, currently Hive is “a pure, community-driven, truly decentralized social blockchain project.” As for the most recent developments, he said:

“Steem and Hive may turn into revieraliers born of the same blood which will be a fun movie for the crypto industry to watch play out and will likely lift both chains higher together”.

Meanwhile, the market has been reacting positively to the new network, since HIVE has even been traded for a 20–40% premium over STEEM on select platforms. For instance, on Bittrex, HIVE is currently trading for $0.26, while STEEM is being sold for just around $0.17 there. However, the premium does not seem to extend to other platforms — another exchange which has both assets listed, the South Korea-based Probit, trades HIVE and STEEM for $0.23 and $0.17 respectively. 

Cointelegraph has reached out to Steemit and Tron Foundation for a comment and will update this story if more details surface.

Steem Community Resists Takeover, Hard Fork Launches Hive Network

The Steem community continues its fight in one of the biggest crypto dramas of 2020 — rolls out Hive as an alternative.

The Steem (STEEM) blockchain community continues to oppose Steemit in the wake of the recent “takeover” orchestrated by Justin Sun, the startup’s new owner. On March 18, “a large group of Steem community members” announced its intention to hard fork the Steem blockchain and create a new platform called Hive.

The network split that was scheduled for Friday, March 20, successfully took place at around 10.30AM CET, and the market already seems to be reacting to the news, as the price of STEEM token decreased by over 20% to around $0.23 as of press time. Hive is an exact code fork of the Steem blockchain, although the platform will undergo various alterations based on community feedback.

Steem vs. Steemit vs. Tron — what’s the difference?

Steem is a blockchain developed by Ned Scott and Dan Larimer. It was launched in March 2016 with Steemit Inc. emerging a few months later. The company has since released blockchain-based alternatives for major social media outlets like Reddit, YouTube and Instagram.

Steem represents a delegated proof-of-stake protocol governed by a limited number of “witnesses” who are elected by STEEM holders to validate transactions on the network — similarly to miners on the original Bitcoin (BTC) blockchain. Votes are allocated according to the number of tokens they hold.

On Feb. 14, 2020, Scott declared that he had sold Steemit to Justin Sun — a prominent Chinese tech entrepreneur known for establishing the Tron Foundation, buying BitTorrent and spending over $4 million to have lunch with multi-billionaire investor Warren Buffet, among other things. Scott’s original announcement has since been deleted, however, the merger has been marketed as a “strategic partnership” in official press kits.

As Steemit Managing Director Elizabeth Powell explained to Cointelegraph soon after the acquisition, the Tron partnership basically kept her company from going bankrupt, saying: “We’ve been in a holding pattern due to a financial lack of resources.”

“The takeover”

Although Steemit seemed happy with the new partnership, the community did not share its enthusiasm, as on Feb. 24, they grouped together to perform a soft fork to consolidate their power. Technically, the upgrade deactivated the so-called “ninja-mined stake,” a stash of approximately 74 million STEEM tokens, which has historically been owned by Steemit.

The community representatives were worried that Steemit, now controlled by Justin Sun, might use the stake for its own profit, while apparently it is supposed to be used only for the advancement of the Steem blockchain. As Luke Stokes, a long-time Steem Witness, has previously told Cointelegraph, the stake has been a long-running concern for the community.

In response to the soft fork, Tron arranged what has since been described as a “hostile takeover.” Around March 2, three major cryptocurrency exchanges that have STEEM tokens listed on their platforms, namely Binance, Huobi and Poloniex, mobilized customer deposits to stake large amounts of STEEM tokens to vote in support of removing the original witnesses.

Specifically, a total of 42 million Steem Power was reportedly mobilized to push out the top-five witnesses in favor of a single user, @dev365 — an account purportedly owned by Sun himself. As a result, all of the top-20 witnesses were eventually replaced with accounts powered by Steemit, Binance, Huobi and Poloniex, all of which were created in February 2020.

Sun then described the takeover as a successful attempt at defeating the “hackers” who froze 65 million STEEM tokens legally owned by Steemit, most likely referring to the “ninja-mined” stake. Sun went on to add that all reports suggesting that Steemit and Tron collaborated with exchanges on a “hostile takeover” were fake: “We wanted to protect the sanctity of private property and the interests of all from malicious hackers.”

Nevertheless, soon after Sun reported defeating the “hackers,” both Binance and Huobi announced that they were removing their votes to undo the takeover. The exchanges explained that they were asked by Steemit to help with a forthcoming “upgrade/hard fork” and thus contributed unknowingly. Binance CEO Changpeng Zhao went as far as to distance himself from Sun in an interview with Cointelegraph.

Community starts fighting back

Regardless of the Sun-designed takeover, the Steem community proceeded to reclaim its space back, actively mobilizing its tokens. As of March 6, all of the top nine, as well as the 11th, witnesses were “approved”; they had over 10,000 voters and joined the network circa 2016–2017, while the remaining 10 witnesses seemed like Steemit-affiliated players.

Moreover, a discussion between a small group of Steem community members and Tron’s side, represented by Justin Sun himself, finally took place on March 3. According to the alleged recording of the private conversation, which has since been leaked, Sun said that he didn’t see the situation as a conflict between the two parties. The Tron Foundation CEO said in the purported recording:

“The only reason why we voted was because our funds got frozen in the first place. Basically, the bottom line for us is as long as our fund is secure, we don’t have any other demands. We want to withdraw our votes also ASAP to give rights back to the community.”

According to Dan Notestein, the CEO and founder of BlockTrades, a top-three Steem validator who has been working on the Hive project, at some point, the community couldn’t secure an electoral majority because of just one voting block. Notestein told Cointelegraph:

“We reclaimed several of the top 20 spots (including the topmost spots) but not most of the spots. We were unable to obtain the majority because of one minority voting block that was voting for a few of the community witnesses AND all the Tron sockpuppet witnesses. They were doing this to enforce a stalemate in order to obtain concessions on blockchain rule changes from one side or another.”

The Steem community has seriously considered holding a hard fork since the beginning of the chain’s launch and the ninja-mined stake, Stokes recalled, noting that separation discussions date back to 2016. Notestein added that another call for action started around November 2018 when Steemit reportedly laid off about 70% of its staff. Speaking for himself, Stokes said that the community has been pushed too far:

“Last year, it was more about forking out the ninja mined stake on-chain. Now, it's more about moving to a new chain though that was discussed last year also. From my personal perspective, there was not enough support for it then. Given Justin's actions, there is now.”

As Notestein argued in an email sent to Cointelegraph, validators’ communication with Sun has been unproductive, which is another reason why the community decided to carry on with a hard fork:

“It became apparent to many of us early on that we were trying to negotiate with Justin Sun that he was only giving lip-service attention to true negotiation. We were almost always talking with his intermediaries that would promise one thing during the day only to have Justin either tweet or take an on-chain action that night that was in direct opposition to the spirit of the promises made by his intermediaries.”

1:1 airdrop that ignores “ninja-mined” stake

According to the Hive hard fork announcement, Steem users will receive their balances through a 1:1 airdrop taken from a snapshot of the blockchain at 10 a.m. EST on March 20. However, the drop will purpodetly ignore Steemit’s “ninja-mined” stake, currently worth around $9.25 million — which is more than 20% of its $46 million market capitalization.

Since Hive is a new project, “we have the luxury of free association,” James Reidy, also known as Steem/Hive witness Riverhead, told Cointelegraph when asked how exactly those in control of the ninja-mined stake will be picked out:

“The exclusions for the airdrop fall into two categories: Steemit Inc. Ninja-Mined Stake (SINMS), and those that supported the sock puppet witnesses and, by extension, centralization. A lot of the SINMS that has not been sold off still resides with the accounts that mined them or only a transfer or two away. It is, therefore, fairly trivial to identify these accounts. While the exclusion won’t capture all the funds associated with the SINMS it will capture enough to mitigate its ability to centralize the chain. For the second category of exclusions, the Steem blockchain serves as a perfect, immutable record of which accounts have either voted for Justin Sun’s sock puppet witnesses or proxied their vote to accounts that voted for them.”

In both cases, there is no monitoring required, said Reidy, because those events have already taken place, and the airdrop code only needs to reference that history. “It is very important to note that non SINMS accounts that are being excluded in the initial airdrop may be included at a future date if the community desires,” he added.

Exchanges start backing up the community-lead project

A number of exchanges seem supportive of the Hive project, with Binance being one of the first firms to back the upcoming airdrop. David Jefferys, director of business development of V.systems, who has previously worked a similar job at Steemit for two years and now partakes in the Hive hard fork, told Cointelegraph:

“Leveraging the great news from Binance early on in the day myself and a handful of other Hive (formerly Steem) community members worked to coordinate exchange communications with other key industry exchanges.”

Reidy also informed Cointelegraph that so far, eight exchanges have announced their intention to support the Hive airdrop: Binance, Huobi, Bithumb, GOPAX, Ionomy, KuCoin, ProBit and Upbit, with more contacting the Hive team daily.

According to Reidy, at this point, the Hive team already employs around 100 people, among whom there are about 50 developers. The Steem/Hive witness added that “this is a low estimate,” given that more people join every day. Jeffreys went on to say that “things are happening quickly” and “former Steemit, Inc. dev(s) are helping out here and there when necessary.” He also told Cointelegraph that the current Hive team banded together in a Slack group called “Newchain” soon after Sun’s purchase of Steemit was announced, explaining:

“The key motivating factor was not the acquisition itself but Justin Sun's announcement that there would be a token and DApp migration from the Steem blockchain to the Tron blockchain, effectively killing Steem.”

When asked whether Hive is a nonprofit or a business entity, Jefferys replied with: “Hive isn't even a company or official organization yet. There's been no time. It's a pure, community-driven, truly decentralized social blockchain project.”

In conversations with Cointelegraph, many seemed optimistic about the hard fork’s future, with Scott Jarvie, co-founder of SteemPeak, the second largest content posting interface on Steem after steemit.com, telling Cointelegraph: “I would expect about 95%+ of our active users to migrate to the new chain,” adding:

“However, not all of the original userbase will migrate because many users are probably just not active enough to care. I expect at least 50% to dabble on both chains for a little while.

I expect by the end of summer Steem Chain to be almost empty unless Justin Sun decides to hire developers and do something new and interesting with Steem. However, with that said, there will likely be apps that cross-post Hive posts to Steem.”

Jarvie’s platform has rebranded by creating “a Hive-based site with a new URL.” The SteemPeak co-founder told Cointelegraph he is “hard pressed to find anyone who doesn't want to move to Hive” after thoroughly polling his user base and reading through all of the feedback.

A Steemit representative declined to comment on this story, saying that the company is “currently working hard in resolutions with the community yet have no updates at this time.”

Eastern Caribbean Central Bank’s CBDC Could Beat China to the Punch in 2020

The CBDC race has long been on, and some countries might finish sooner rather than later.

The race for central-bank digital currencies has been on for some time now, and since the development of the digital yuan may have been postponed due to the coronavirus pandemic, other countries could beat China to the punch.

Almost exactly one year ago, the Eastern Caribbean Central Bank and Bitt Inc. — a financial-technology company based in Barbados — signed a contract to conduct a blockchain-powered CBDC pilot within the Eastern Caribbean Currency Union, an organization composed of Anguilla, Antigua and Barbuda, Dominica, Grenada, Montserrat, St. Kitts and Nevis, St. Lucia, and St. Vincent and the Grenadines.

Later this year, the project will enter its second phase and transition to a six-month rollout across the Eastern Caribbean region. So, does that mean that the ECCB has outdistanced China and other major contestants in the CBDC race?

“Not an academic exercise”

The original announcement was made on March 6, 2019, about two weeks after the ECCB and Bitt signed the contract. As per the statement, the CBDC pilot involved a securely minted and issued digital version of the Eastern Caribbean dollar, referred to as the DXCD, that would be released in all territories controlled by the ECCB.

The DXCD was intended to be used for financial transactions between consumers and merchants, including peer-to-peer transactions, and would be available to use via smartphone devices. For example, an individual in Anguilla would be able to send DXCD securely from their smartphone to someone in Grenada. The press release stipulated that such transactions would, purportedly, take seconds and entail no fees.

The governor of the ECCB, Timothy N. J. Antoine, emphasized at the time that — in contrast to previous CBDC research and experiments — the ECCB was being especially ambitious with the project:

“This is not an academic exercise. Not only will the digital EC Dollar be the world’s first digital legal tender currency to be issued by a central bank on blockchain but this pilot is also a live CBDC deployment with a view to an eventual phased public rollout.”

After signing the agreement, the ECCB embarked on the DXCD pilot. There were two predetermined phases: development and testing, followed by rollout and implementation in pilot countries for about six months. Although the first phase was initially supposed to last only around 12 months, the ECCB informed Cointelegraph that rollout wouldn’t occur until sometime between June and December.

As for the technical aspect, a Bitt spokesperson explained to Cointelegraph that the ECCB project is based on Hyperledger Fabric, but added that “our architecture allows our solution to be blockchain agnostic.”

DXCD: A financial tool to interconnect ECCU states

As an ECCB representative told Cointelegraph, the rationale for a digital EC dollar is “centered around policy goals of financial inclusion, competitiveness and economic growth.” The ECCB’s 2017–2021 strategic plan aims to “ensure a strong, diversified and resilient financial sector,” reduce cash usage within the ECCU by 50%, and “actively promote the economic development of our member territories.”

The method of issuance and redemption of DXCD will follow the conventional principle of creating central-bank money, the spokesperson added. Financial institutions will “purchase” DXCD, similar to how EC banknotes and coins are purchased, and make it available to their customers.

However, cash is still the most accessible means of payment in the ECCU, the official told Cointelegraph, which is why the ECCU economy is predominantly paper-based. The DXCD pilot project will, in turn, provide a “more secure, cheaper, faster platform for making EC payments and transfers with the ECCU.”

But is a central-bank digital currency indeed the most efficient way to modernize the local economy? Some specialists refrain from such assumptions. John Kiff, a senior financial sector expert at the International Monetary Fund, explained to Cointelegraph that the IMF Article IV Selected Issues Paper on the topic suggests that the jury is still out, and that IMF staff remain skeptical about the effort. He added:

“The SIP notes that the ECCB could instead (or in addition to piloting the DXCD) continue efforts to improve the traditional payment system in order to pursue the goal of modernizing its payment system. In that regard, the paper recognizes that a CBDC may not be as potentially redundant in the Eastern Caribbean Currency Union as it would be in a larger economy where a CBDC could be viewed as redundant to existing private sector e-money or mobile payment services.”

Kiff also added that the paper crucially notes that if the ECCB goes ahead with the DXCD pilot, it should employ a cautious approach, conducting a comprehensive cost–benefit analysis of the proposed ecosystem before launching it.

DXCD looks similar to the Bahamas Sand Dollar, experts say

Contrary to the ECCB governor’s remarks, the digital EC dollar might not be the “world’s first digital legal tender currency to be issued by a central bank on blockchain.” The most well-known competitor in the CBDC race is the People’s Bank of China, which successfully completed the top-layer design and testing of the digital yuan back in January, according to media reports.

However, Kiff noted that the PBoC’s progress with its CBDC might have been overestimated. The last public announcements about the digital yuan from the Chinese central bank occurred in August 2019, when it said that it will “accelerate the research and advancement of China’s central bank digital currency,” and in November 2019, when it denied rumors that the digital currency launch was looming. Moreover, the coronavirus pandemic — which originated in China — might have taken its toll on the CBDC’s production. Kiff added:

“Since then there have been various news reports purporting that a pilot had taken place, or would soon do so, but I’ve seen no direct evidence of that, and I suspect the coronavirus crisis has stalled any such efforts.”

Alex Batlin, the CEO of the cryptocurrency-custody platform Trustology, agreed that “one shouldn’t underestimate the impact of the coronavirus.” He added that “so far, reports suggest that China’s efforts are on hold as policymakers and research staff are required to isolate.”

Sale Lilly, a China policy analyst and professor of blockchain technologies at the Rand Corporation, a nonprofit global policy think tank, confirmed to Cointelegraph that the coronavirus has delayed the PBoC’s development of a digital renminbi, although the CBDC’s digital narrative seems to have extra appeal during the pandemic:

“I think it is possible that there may be a hygiene narrative to the embracing of a digital RMB (like e-pay systems), but for now, like most of China’s financial and technological efforts, the coronavirus has delayed efforts like a CBDC but not stopped them.”

In any case, Batlin believes that China’s CBDC is poised to be far more significant in terms of economic displacement, as it represents a reserve currency with ambitions to supplant the United States dollar’s dominance. Batlin told Cointelegraph:

“China — along with other BRIC nations — has been working steadily to reduce its reliance on the USD and liberalize its currency for international trade and business. We’ve seen this aggressively take shape with its off-shore renminbi centers across Europe and Asia, as well as a digital acceleration to a cashless society within Alipay and WeChat.”

According to Kiff, although the PBoC “appears to be the frontrunner among central banks in major-currency countries,” a number of other smaller countries — namely Uruguay and the Bahamas — seem to be ahead of it:

“Uruguay has already completed its e-Peso pilot which it reported as being very successful (see chapter 7 in this SUERF publication) and they are apparently mulling over whether to go live. The Central Bank of the Bahamas (CBOB) has launched its Sand Dollar pilot in December, and the ECCB plans to launch their pilot shortly.”

Kiff argued that — based on the publicly available information — the ECCB DXCD project looks very similar to the Bahamas Sand Dollar, as it runs on the blockchain-based Hyperledger Fabric platform with transaction and holding limits linked to Know Your Customer, Anti-Money Laundering profiles and Combating the Financing of Terrorism regulations. Batlin believed that the ECCB seems to be in competition with the Sand Dollar in particular, elaborating:

“This could drive off-shore funds to use that currency. It’s also worth noting that the EC Dollar will be retail CBDC by nature, i.e., it will be distributed to the public. As such, intermediaries will be required to provide on-ramp and off-ramp services to retail users.”

According to Piers Ridyard, the CEO of Radix DLT — a provider of a decentralized ledger built without blockchain — Singapore is the main contender to issue a CBDC before China and have it meaningfully impact its economy. He specified that the impact will be seen “in financial markets as a settlement instrument, rather than in the consumer facing markets.” As for the Carribean nations, Ridyard believes that it is meaningless to compare their CBDC endeavors to larger economies, due to internal complexities and the popularity of cash. He added:

“Transferring money into and out of the Caribbean nations is still difficult, and in many cases, subject to currency controls. This will make the on-boarding and off-boarding of any CBDC difficult in the region, and the governments there will be faced with the tricky prospects of relaxing FX and currency flow restrictions on the newly issued currency, or forcing their trading partners and larger businesses to continue to work with the US dollar or euro via off-island bank transfers as they do at the moment.”

For this to have an impact at a grassroots level, large parts of the island economies will need to move from cash to digital payment methods, Ridyard added. It might take longer than the actual time frame for a CBDC release, since it will “require behavioral change, which generally takes longer than the technology change.”

“This is not a race”

Despite the hype around CBDCs and stablecoin generated by Facebook’s Libra project, the ECCB and Bitt don’t seem to be in any rush. “This is not a race,” a Bitt spokesperson explicitly told Cointelegraph via email:

“ECCB was first to announce their CBDC pilot, certainly. Bitt and the ECCB team are focused on getting the DXCD pilot right, not on winning any races.”

Currently, the pilot is still in its testing phase. However, a representative from Bitt went further in providing an estimate for the release date, echoing the statement by ECCB that the project has not been postponed:

“The project is currently on schedule with all DXCD applications currently in testing with select stakeholders ahead of our planned start in June 2020.”

Meanwhile, the region is seeing more crypto-positive changes. Last week, the ECCB-established Eastern Caribbean Securities Exchange announced a partnership with Canada-based firm Blockstation — a provider of digital-asset marketplaces — to pilot the trading of security token offerings, Bitcoin (BTC) and Ether (ETH).

Canaan Sued Over Alleged ‘Fake’ Deal, Stock Sees Historic Low

Chinese mining giant Canaan has to deal with some extra difficulties over its IPO amid bearish markets.

While the current climate seems uneasy for all cryptocurrency businesses, some of them have to deal with extra difficulties.

Earlier this month, investors filed a class-action lawsuit against Canaan, a Nasdaq-listed cryptocurrency mining hardware producer. The case is largely based on a February report submitted by an analysis organization called Marcus Aurelius Value, which argued that the mining firm has made misleading statements regarding its financial health.

The second-largest Bitcoin mining operation is in trouble

Canaan is considered to be the second-largest Bitcoin (BTC) mining machine manufacturer in the world. The firm was established in 2013 by Nangeng Zhang, also known as “Pumpkin Zhang.” Earlier that year, his team allegedly engineered and produced one of the first cryptocurrency mining devices based on ASIC technology.

Being considerably louder and more power-consuming than amateur mining setups based on graphics processing units, ASIC rigs are purpose-built to mine Bitcoin on an industrial scale. In turn, ASIC machines have turned Bitcoin mining into a capital-intensive business run by a limited pool of players.

Canaan was also the first crypto mining company to pierce the mainstream financial market by getting listed on a major stock exchange. After failing to secure an initial public offering in Hong Kong last year — apparently due to the Hong Kong stock exchange’s distrust in cryptocurrency enterprises — Canaan looked toward the United States, with a funding figure of $400 million circulating prior to the listing.

However, the IPO itself, which took place in November 2019 on the Nasdaq, didn’t go exactly as planned. Just one week before the sale, Canaan’s biggest banking partner, Credit Suisse, dropped out. The bank “was concerned whether the offering could secure sufficient orders,” Bloomberg’s sources argued at the time.

As a result, the IPO’s size was dramatically reduced: Documents submitted at the time contained a projected $100 million goal, which is over 75% less than the figure expected originally. Furthermore, Canaan’s IPO launch was accompanied by a 40% price crash in the following weeks.

Analysts claim that Canaan hasn’t been 100% honest with investors

Recent developments suggest that the Canaan IPO was not only unsuccessful but also allegedly misleading for investors. In late February, MAV issued a report on Canaan, in which the analysts largely focused on what they claim to be an undisclosed related party transaction pertaining to Canaan’s Nov. 27 offering on the Nasdaq.

Specifically, one month before the IPO, Canaan announced a “strategic partnership” with Hong Kong exchange-listed company Grandshores, which would have the latter purchase up to $150 million worth of Canaan mining equipment.

This transaction raised several questions, as Marcus Aurelius Value noted. First of all, that one order would represent almost the entirety of Canaan’s trailing revenue, which amounts to $177 million. Furthermore, the analysts argued that Grandshores had no way of following through on the agreement, as it has a $50 million market cap and a $16-million cash balance.

Moreover, they suspected that Grandshores and Canaan might be connected. Hong Kong stock exchange filings list Yao Yongjie as its chairman, while Canaan’s filings with the U.S. Securities and Exchange Commission disclose that he is a partner at a company that owns 9.7% of Canaan shares. Yongjie is also listed as an angel investor in Canaan on a Reuters profile. The analysts concluded their argument:

“We, therefore, wonder if the giant Grandshores letter of intent, which we view as largely bogus, was used by CAN as a device to hype its financial prospects to investors.”

From a legal perspective, if the analysts’ conclusion is true, the failure to include this as a related party transaction in Canaan’s IPO filings could have consequences. SEC regulations require the disclosure of any transactions between the registrant and any 5% shareholder that exceed $120,000.

Canaan representatives have previously told Cointelegraph that Yongjie is not the owner of the stakeholder company mentioned in the filings and that he owns less than 1% of Canaan shares. They also emphasized that the Grandshores contract is not a formal sales contract, which is why they chose to “avoid misleading and to protect our IPO investors” by not disclosing it. The representatives explained:

“It is a framework agreement between two parties, which Canaan granted Grandshores as a distributor and permit him to resale no more than $150 million of miners.”

Interestingly, Grandshores has disclosed this transaction as a related party dealing in its filings at the Hong Kong stock exchange. The company ignored Cointelegraph’s requests for comment.

The MAV report listed even more irregularities surrounding the Canaan IPO. For instance, shortly before its IPO, Canaan deleted eight of the 11 official distributors it had previously listed on its website. Andres Romero, the CEO of one of those distributors called Nova Bit Mining Solutions, is also a Canaan employee, according to his archived LinkedIn page.

When the Financial Times asked Romero to comment on his relations with both companies, he said that he no longer worked for Nova Bit and that he hadn’t had time to update his LinkedIn profile. Romero has since modified his page, stating that he stopped working at Nova Bit back in September 2018.

The MAV report also pointed out that, despite Canaan's financial statement reporting over $36 million in cash, the firm was sued in 2019 by a vendor for allegedly failing to pay an invoice of approximately $1.7 million due to “sales problems and market circumstances” — which suggests that its financial health could have been far worse than presented in the SEC filings.

Finally, the paper doubted the sustainability of Canaan's client base, 87% of whom are allegedly Chinese customers, stating: “In addition to related parties, other major customers identified in the Chinese listing documents filed by [Canaan] include businesses that appear to be in entirely different industries.” One such customer is called Tianjin Garments Import & Export Co Ltd, which specializes in “clothing, fabrics, blankets, carpets and stone carvings.”

Investors are getting angry

Based on the following allegations, on March 4, an investor named Phillippe Lemieux filed a class-action lawsuit against Canaan in an Oregon court. Largely citing the MAV report and arguing that securities laws have been violated, Lemieux’s legal team is demanding unspecified “compensable damages.”

Such a lawsuit was only a matter of time, given the number of investors who lost money on cryptocurrency mining over the last few years, says Mark D’Aria, CEO of Bitpro cryptocurrency mining consultancy firm:

“It strikes me as similar to the class action lawsuit against Ripple, where they are arguing whether or not it was an unregistered security. No one who made money off of XRP cares whether it was an unregistered security or not, but anyone who lost money is looking for any reason to recoup it from Ripple, justified or not.”

“We were not surprised by the report’s findings,” Juan Villaverde, Weiss Ratings's lead cryptocurrency specialist, told Cointelegraph, elaborating that there is a behavioral pattern among such companies: “The fact of the matter is many Chinese crypto companies behave in a similar fashion and have been doing so for some time.”

According to Villaverde, the fact that Canaan’s IPO application was turned down by the Hong Kong and Chinese stock exchanges, forcing the firm to make a “deal of last resort” in the U.S., was enough to cause suspicion that its filings were not entirely correct:

“What analysts have found regarding this chip manufacturer is ugly but not entirely different from what analysts have found in other Chinese firms that chose to list in the U.S. after being rejected in their home country.”

However, Matt D’Souza, co-founder and CEO of crypto mining hardware broker Blockware Solutions, believes that Canaan had to move its sale to the U.S. due to greater customer demand, not more lax regulatory principles:

“I don’t believe they were denied by the exchange but rather investors in that region were uninterested in investing in the IPO. Shanghai, Hang Seng indexes have been in downtrends and peaked in 2018, so China has been in a bear market for 2 years. Only the best stocks get their IPOs filled.”

In a bull market, on the other hand, “even the junk companies get funding,” D’Souza continued, and the Nasdaq was in a better position than the Chinese market at the time due to trading tariffs and the overall sentiment:

“It’s easier to IPO in the U.S. from the perspective of we have far more capital and robust markets. We have higher standards for accounting principles, the fees to list, the scrutiny, audit requirements, the requirement to follow U.S. Gaap accounting, which is more stringent than Chinese regulations.”

In D’Souza’s view, Canaan “may have gone bankrupt” if the company didn’t raise $90 million from the IPO sale, but ultimately, it was “another lemon delivered to investors,” which further stigmatized the crypto IPO sector.

Both the Rosen Law Firm — which is handling Lemieux’s class-action lawsuit — and the Schall Law Firm — a shareholder rights litigation firm that has begun an investigation into purported violations of securities laws by Canaan — have ignored Cointelegraph’s requests for comment. The SEC ombudsman was not available to comment either.

Most recently, another law firm, Robbins Geller Rudman & Dowd LLP, filed a securities class-action lawsuit against the Chinese mining giant. Meanwhile, Canaan strongly denies all allegations raised by the MAV, which it notably called a “short seller” in its statement. The mining giant’s representative told Cointelegraph:

“We are aware of the short seller allegations and the securities class actions that have been filed in the U.S. The allegations are completely baseless. Given the ongoing legal proceedings, we cannot comment in detail at this time, but we strongly deny the allegations and we will vigorously defend ourselves in court.”

The company’s stock (NASDAQ:CAN) is trading at just $3.37 as of press time, which is the lowest price ever — while it could be related to the swirling allegations, the overall current market climate could also be a major factor.

Steem Community Stands Its Ground Amid Tron Takeover

In what seems as one of the biggest crypto dramas of 2020, community seems to have the upper hand.

The scandal surrounding the Steem blockchain continues to unfold. After juggernaut exchanges Binance, Huobi and Poloniex were heavily criticized by community members for allegedly mobilizing customer deposits to take over the network, two of those firms announced they were backing off. 

Meanwhile, Tron CEO Justin Sun, who has recently acquired Steemit — the startup behind the major blockchain-based blogging and social networking platform — has referred to the disgruntled voters who tried to reclaim control as “hackers” who have been “successfully defeated.” However, as the latest developments show, Sun intends to withdraw all of the orchestrated votes “ASAP,” while the community has already started to restore balance. 

Brief introduction into how Steem, Steemit and Tron are interconnected

Steem blockchain went live in March 2016. It was developed by the United States-based entrepreneur Ned Scott and developer Dan Larimer. In July of that year, Scott and Larimer founded Steemit Inc., and launched the homonymous Reddit-like social media platform, the first application built on the Steem blockchain. 

The Steemit company is also known for releasing blockchain-based alternatives for major social media outlets like Youtube and Instagram, replicated by DTube and APPICS respectively. Currently, there are more than 1.3 million registered accounts on Steem, according to data provided by a blockchain explorer. 

According to the project’s white paper, Steem is “a blockchain database that supports community building and social interaction with cryptocurrency rewards.” To support the “reward” option, Steem has integrated two in-house cryptocurrencies — STEEM, a volatile cryptocurrency, and USD-pegged stablecoins dubbed Steem Dollars, or SBD. Users can “power up” their accounts to have more influence on the distribution of rewards by transferring from STEEM to Steem Power, although the powered-up STEEM cannot be withdrawn for 13 weeks.

Steem is a delegated proof-of-stake protocol. Consequently, it is governed by a limited number of “witnesses,” who are elected by STEEM holders to validate transactions and secure the network, akin to miners on the original Bitcoin (BTC) blockchain. Votes are allocated according to the number of tokens they hold.

Although the platform had amassed over 1 million site visitors by 2018, the number of contributors began to drop at some point, as Steemit Managing Director Elizabeth Powell explained to Cointelegraph at the end of February, and the company entered a turbulent period. In November 2018, for instance, Steemit reportedly dismissed more than 70% of staff.

Last month, on Feb.14, Scott announced that he had sold Steemit to Justin Sun, a high-profile Chinese tech entrepreneur who is known primarily for founding the Tron foundation, acquiring Bittorrent and spending $4.5 million to lunch with multi-billionaire investor Warren Buffet. Scott’s tweet has since been deleted; the merge was marketed as a “strategic partnership” in the official press release. 

As Steemit’s Powell previously claimed in an interview with Cointelegraph, the Tron partnership essentially saved her company from failing: “We’ve been in a holding pattern due to a financial lack of resources. We’ve always had roadmaps but we couldn’t execute them.”

The market reacted positively to the news — the STEEM token surged more than 25% over a 24-hour period while TRX gained a hefty 10% — but the original community wasn’t as happy.

The takeover

On Feb. 24, worried that Tron might upend the security of the Steem blockchain, Steem community members (represented by witnesses, developers and stakeholders) banded together to implement a soft fork. The upgrade essentially deactivated the so-called “ninja-mined stake,” which has historically been owned by Steemit and is said to be comprised of approximately 74 million STEEM tokens. 

The community representatives were afraid that Steemit, under the new management, might use the stake to govern the network, while apparently it is supposed to be used solely for the advancement of the Steem blockchain. Luke Stokes, a long-time Steem Witness, told Cointelegraph:

“The Steemit ‘ninja mined’ stake has always been a concern and some in the community wanted witnesses to fork it off the chain last year when the relationship between Steemit Inc and the token holders continued to go sour.”

Stokes further stressed that he is “just one member of a distributed community and no one person can represent the Steem blockchain community” before providing a comment.

In response to the community action, Tron allegedly orchestrated what has been described as a “hostile takeover.” As seen on the blockchain tracker, around March 2, a number of major cryptocurrency exchanges who have STEEM tokens listed on the platforms, namely Binance, Huobi and Poloniex, mobilized customer deposits to stake large amounts of STEEM tokens to vote in support of removing the previous witnesses. 

According to community reports, a total of 42 million Steem Power was leveraged to oust the top-five witnesses in favor of a single user, @dev365 — an account allegedly owned by Justin Sun himself. As a result, all of the top-20 witnesses were eventually replaced with accounts powered by Steemit, Binance, Huobi and Poloniex, all of which were created in February 2020.

That move prompted a community outcry, as decentralization pundits were outraged by the seemingly monopoly-inducing tactics. Ethereum developer Vitalik Buterin tweeted on the situation: 

“Apparently Steem DPOS got taken over by big exchanges voting with depositors’ funds. [...] Seems like the first big instance of a ‘de facto bribe attack’ on coin voting (the bribe being [exchanges] giving [holders] convenience and taking their votes).” 

Moreover, following the largely negative reaction on social media, Steemit’s head of communications, Andrew Levine, resigned from the project, clarifying that it was his own decision. Similarly, another key Steemit employee, a senior blockchain engineer Michael Vandeberg, also announced that he was leaving. 

In addition, some Steem DApp creators allegedly chose to remove their product from the blockchain in the wake of the power struggle. Soon after the takeover, Sun took to his Twitter to report on defeating the “hackers”:

“STEEM has successfully defeated the hackers & all funds are super SAFU. 

[Steem] and [Steemit] community is now stronger than ever since we united & solved the difficulties!”

As Sun explained in the following tweets, on Feb. 22, “some malicious hackers” froze 65 million STEEM tokens legally owned by Steemit, most likely referring to the “ninja-mined” stake. Upon consulting with the lawyers, Sun and his team “were told this was definitely a criminal activity,” which is why they chose to “control the network for a short period of time” in order to prevent the said “hackers” from destroying the assets. Sun further tweeted: 

“We will commit to withdrawing the votes ASAP once we’re sure malicious hackers can’t sabotage STEEM anymore & will give the voting rights back to the community. All exchanges’ votes will be withdrawn soon. Shoutout to all the exchanges & parties who helped us save STEEM!” 

Sun also went on to add that all reports suggesting that Steemit and Tron collaborated with exchanges on a “hostile takeover” are false, claiming that, “Our intention was never to take over the network & all parties’ votes will be withdrawn. We wanted to protect the sanctity of private property & the interests of all from malicious hackers.”

In an official blog post entry posted on March 2, Steemit reiterated the Soft Fork 0.22.2 was “maliciously structured” and even “may be deemed illegal and criminal.” In the same post, the team presented a fix to mitigate one of the major consequences of the recent takeover. Since the powered-up STEEM cannot be withdrawn for at least 13 weeks, the customers of Binance, Huobi and Poloniex are essentially locked out of their assets during this period. 

To prevent that problem, Steemit is now deploying an emergency hard fork to reduce the power-down time to “1 to 3 days.” The post read added that, “After the 4-6 weeks period, the Steemit team will give the governance back to the community when it’s back in order and mutual agreement.” 

Exchanges are backing off

Soon after Sun posted about defeating “hackers,” Binance CEO Changpeng Zhao announced that the exchange had removed its votes that contributed to a sudden shift of control over the Steem blockchain. The Binance head confirmed that he had been made aware of a forthcoming “upgrade/hardfork” that he approved support for, adding: 

“Projects do this all the time, and we are usually just in a supportive position.”

In a separate tweet, Zhao denied that Binance was compensated for assisting Steemit in the power shift. “We didn’t take a penny, thought it was a regular upgraded/hard fork,” he said. Nonetheless, Zhao refrained from clarifying whether Binance used customer deposits to partake in voting. 

Meanwhile, Huobi also announced that it had removed its vote, explaining why it decided to partake in the alleged “takeover” in the first place. The exchange claimed that they were alerted by Tron and Steemit that the Steem network was at risk of an attack that would have impacted their user’s assets: 

“We take all allegations seriously, so we worked with both teams to better understand the situation and carefully assess the risk at hand. Based on the information provided to us and out of an abundance of caution, we decided that helping Steemit and Tron was in the best interest of our users — and the network at large.”

Notably, the Singapore-headquartered exchange also admitted that “from time to time, Huobi stakes user holdings to help block malicious activities and attacks on blockchain networks.” However, it is still not clear if both Huobi and Binance have withdrawn their votes altogether. As noted by Steemit community members, there are still some accounts on the blockchain who might be voting on behalf of Binance or other interested parties. 

Poloniex has yet to publicly comment on the incident, although it is worth noting that the platform is affiliated with Justin Sun. Bittrex, another major exchange that has STEEM listed, reportedly did not partake in the alleged coup.

Community wins back 

Now that centralized exchanges are withdrawing their proxies, original Steemit witnesses are claiming their space back. As of press time, all of the current top-9 as well as the 11th witness are “approved,” have over 10,000 voters and joined the network circa 2016–2017, while the remaining 10 witnesses have just around 80–150 votes each and were created in February 2020, data obtained from Steemian info tracker shows.

“To the community’s credit, you all started withdrawing from exchanges, which is just fantastic. You started powering up your accounts, you started voting, you started proxying for witnesses,” Stokes noted in his recent update on the incident. “It does seem like an ongoing battle though,” he said in a separate comment for Cointelegraph. “This account, for example, continues to power up 500,000 STEEM at a time and vote for these sock puppets”.

Stokes also said that he participated in the first discussion between a “small group” of witnesses, stakeholders and community members and Tron’s side, represented by Justin Sun himself, which took place on March 3. According to the alleged recording of the private conversation, which has been leaked, Sun said that he doesn’t view the current situation as a conflict between the two parties. “Our side, we do not want to [pursue] governance. Basically, we want to stay neutral too,” the Tron Foundation CEO said in the purported recording:

“The only reason why we voted was because our funds got frozen in the first place. Basically the bottom line for us is as long as our fund is secure, we don’t have any other demands. We want to withdraw our votes also ASAP to give rights back to the community [...] We do not want to intervene as long as our stake is fine.” 

When asked whether he had been advised that the Steemit-controlled “ninja-mined” stake is intended to help with the advancement of the Steem blockchain and was not intended to be sold for profit, Sun allegedly replied, “We don’t know any of this,” and stipulated that he has all the legal documents to prove that the stake belongs to his firm.

Steemit’s former CEO Ned Scott has since referred to the soft work as “theft,” adding that Justin Sun “is a great addition to Steem,” and Witnesses need “to stop bullying and lying to get others to take responsibility for them.”

According to some experts, the whole drama might end soon with no serious consequences. Lior Yaffe, co-founder and director of blockchain software company Jelurida, told Cointelegraph:

“The existing blockchain industry is still quite forgiving towards mishaps like the Steemit incident, therefore I don’t think it will have a long-lasting effect. Consider that other protocols froze their operations for weeks or reversed malicious transactions and last I checked they were still doing well.”

Meanwhile, a spokesperson for the Tron team told Cointelegraph that the “Tron leadership is currently mediating the situation with Steem Witnesses and will provide further details during the upcoming Town Hall,” a public discussion involving Steem stakeholders which is scheduled for March 6 at 9 p.m. PST.

DDoS Attacks on OKEx and Bitfinex Were Sophisticated, Possibly Related

2020 has already been remarkably eventful for the crypto industry, and security breaches are no exception.

As the cryptocurrency industry continues to mature, security remains a major challenge. Over the last few weeks, a number of cryptocurrency exchanges — namely, OKEx, Bitfinex, Digitex and Coinhako — have experienced security breaches.

Although the attackers apparently did not manage to steal any funds, one of the incidents resulted in a leak of Know Your Customer data. All of the breaches have reportedly been dealt with as of press time, and all of the affected exchanges are back online.

OKEx and Bitfinex targeted in a series of DDoS attacks

Two different major crypto exchanges were reportedly hit with distributed denial-of-service attacks last week. A DDoS attack is a common type of cyberattack that overloads a system with numerous requests from multiple virus-infected servers.

The OKEx crypto exchange platform was the first one hit, as it started to experience problems on Feb. 27 at approximately 11:30 a.m. EST. Notably, as the exchange’s servers were dealing with the increased output, CEO Jay Hao took to his personal Weibo page to blame unspecified competitors for the incident.

The raid lasted two days, as an OKEx spokesperson confirmed in an email to Cointelegraph. Initially, the attack routed 200 gigabytes per second of traffic, and then increased it to 400 GB per second during the second wave.

Such traffic volume makes it safe to deem this a relatively major attack. Telegram CEO Pavel Durov has previously encountered such attacks and told TechCrunch that his messenger was often hit by DDoS attacks of a similar scale (200–400 GB per second) during protests in Hong Kong — which he labeled as “state actor-sized” disruption attempts. Lennix Lai, financial markets director at OKEx, called the attack “very sophisticated.”

Despite being high-grade, the DDoS attack “was properly handled within a short period of time and no client is impacted,” an OKEx representative told Cointelegraph. The second wave of the attack occurred shortly after “temporary system maintenance” on OKEx’s servers was completed, which temporarily disabled options and futures trading. The spokesperson claimed that the two events were completely unrelated.

Related: Crypto Exchange Hacks in Review

On Feb. 28, while OKEx was experiencing the second wave of attacks, fellow cryptocurrency exchange Bitfinex also started to experience problems. Per the Bitfinex status page, the attack lasted one hour, severely hindering the exchange’s activity during that period, with throughput falling close to zero. As a result, all trading activity was suspended during that time frame.

Nonetheless, Bitfinex’s chief technology officer, Paolo Ardoino, told Cointelegraph that it was the company’s decision to go offline, as it allegedly allowed Bitfinex to deal with the attack in a timely fashion:

“The matching engine, websockets and core services were not affected by the DDoS attack. However, it was of paramount importance to speedily react in order to avoid any damage escalation. The decision to enter in maintenance was not due to the inability of the platform to resist, rather, it was a decision taken in order to quickly bring in the countermeasures and patch for all similar attacks.”

Ardoino went on to add that the attack was notably sophisticated, as the attackers attempted to exploit several platform features to increase the load on the infrastructure, adding: “The huge number of different IP addresses used and the sophisticated crafting of the requests toward our API v1 exploited an internal inefficiency in one of our non-core process queues.”

Soon after the attack was dealt with, Ardoino tweeted that he was unaware of the OKEx incident but was “interested to understand similarities.” He added:

“We've seen a level of sophistication that means a deep preparation from the attacker. Good news: This family of attacks won't work again against Bitfinex.”

A Bitfinex representative told Cointelegraph that the company had no further comment, declining to discuss the similarities between the two attacks. A representative for OKEx informed Cointelegraph that they have not been in touch with other exchanges in regard to the attacks.

In a separate tweet, OKEx’s Hao offered a bounty “to any team who got paid to do this” and to Bitfinex in case it is willing to cooperate and “expose the malicious buyer of the DDoS attack.”

Cryptocurrency exchanges have been hit by DDoS attacks in the past. For instance, Bitfinex experienced a DDoS attack in June 2017, when the exchange was forced to suspend transactions for a short period of time.

Coinhako was also hit by a “sophisticated attack” and claims it is not related to other incidents

On Feb. 21, the Tim Draper-backed Singaporean exchange Coinhako was also affected by a “sophisticated attack,” although seemingly of a different nature. During the said incident, “unauthorized cryptocurrency transactions were found from Coinhako accounts and sent out.”

The trading platform decided to deactivate the “send” option as a preventive measure. Eight days later, on Feb. 29, Coinhako announced it was back to “full operational capacity, with tightened security,” and that the “send” function had been made available for all cryptocurrencies available on the platform.

A Coinhako representative has provided a minimal comment to Cointelegraph, saying that the incident “was not related to the recent DDoS attacks on other exchanges.”

Digitex suffered a KYC leak supposedly orchestrated by an ex-employee

Earlier in February, a pseudonymous hacker began leaking KYC data of users who were registered on cryptocurrency derivatives exchange Digitex via a Telegram channel. The stolen data reportedly included scans of passports and drivers’ licenses, as well as other sensitive documentation pertaining to more than 8,000 Digitex customers — although, so far, the hacker has leaked only seven IDs and blurred all photos “out of respect for the users.” The attacker also stated that they “will reach out to all three users in the near future and compensate them accordingly” after leaking the first three IDs.

The leak followed a Feb. 10 announcement from Digitex stating that its Facebook page had been compromised during “an internal issue orchestrated by a scheming and highly manipulative ex-employee whose professional interests are now in conflict with Digitex’s success.” In a Feb. 14 interview on CNBC Africa’s Crypto Trader, Digitex CEO Adam Todd clarified that “no sensitive data” had been taken, only email addresses.

In an interview with Cointelegraph, a hacker under the pseudonym Zincer clarified that the leaked KYC data belonged to the buyers of DGTX, Digitex’s in-house token. When asked about the specific reason for leaking personal information, the hacker replied:

“To get Digitex to admit their incompetence and sort out their blatant lax security practices. [...] This is a startup that is going to launch soon I believe. So, they should sort out their security before going live.”

Zincer denied ever being employed by Digitex or doing any freelance work for the company. The attacker also said that the exchange has been ignoring any attempts to communicate:

“For what it is worth, I have received no messages from them or anyone in affiliation with them.”

On March 2, soon after the interview, Zincer posted on Digileaker that Digitex had apparently addressed the security weakness:

“Finally they seem to have closed off access, it only took a few days. You should be safe doing KYC now.”

Meanwhile, Digitex published another announcement, stating that it initially denied that sensitive information had been stolen because “at that point, we were only aware of the email data that had been taken.” According to the trading platform, there was a second breach, during which sensitive data was indeed compromised. The statement also stipulated that the attack was performed by an ex-employee:

“We have not yet been able to verify the amount of user data taken and if it was, in fact, as many as 8,000 Digitex users. This data is kept in a different system. We do not hold it at Digitex, it is held with a third-party provider to which Adam and one other person had access.”

According to the statement, Digitex is also “investigating the possibility of removing the need for KYC on our exchange entirely.” A representative for Digitex refrained from commenting on the incident and referred to the aforementioned statement.

When speaking with Cointelegraph, Zincer said that other exchanges aren’t currently being targeted, although they have “in the past.” When asked about the DDoS attacks on OKEx and Bitfinex, the hacker said that “the timing would suggest it was related.” Zincer also added:

“I find it unlikely two separate people or organizations would just happen to have their attacks work at the same time.”

Security remains a major concern in the industry

Although apparently no funds were stolen during these attacks, 2020 has already seen a number of crypto-related heists that have resulted in money loss. Among the most high-profile was an attack involving Bitcoin Cash (BCH) and BTC, during which a major investor reportedly lost as much as $30 million worth of cryptocurrency in a wallet hack. According to a recent report issued by Big Four accounting firm KPMG, more than $9.8 billion worth of crypto has been stolen since 2017.

New Malta Government Says It Still Wants to Run a ‘Blockchain Island’

Will Malta continue to be a “blockchain island” or has it lost its way to the top of the ledger?

Last week, the financial watchdog of Malta came forward with an unexpected statement. Apparently, Binance, a leading cryptocurrency exchange that had been enjoying a close relationship with local authorities, is not authorized “to operate in the crypto currency sphere,” as the regulator’s press release stressed. 

While the Malta Financial Services Authority has yet to license any cryptocurrency business — and not just Binance — under the country’s widely marketed cryptocurrency framework, the statement signifies a deterioration in relations between the cryptocurrency sector and Maltese officials, who have claimed to run a “blockchain island.” 

While the change of tone could be attributed to the recent resignation of Maltese Prime Minister Joseph Muscat and the subsequent arrival of his successor, it seems like the local cryptocurrency industry had started to experience difficulties even before that. Nevertheless, in a comment to Cointelegraph, the new government has reiterated its plans to operate as a blockchain island.

Inside Malta’s grand plan 

In September 2018, then-Prime Minister Muscat ambitiously presented his country as a blockchain island during his speech at the United Nations General Assembly. Indeed, about two months prior to the announcement, the Maltese government had approved three crypto-related bills, aiming to establish a strong and transparent regulatory climate: namely, the Digital Innovation Authority Act, the Innovative Technological Arrangement and Services Act, and the Virtual Financial Asset Act.

Although nations like Canada, Japan and Belarus had already enacted cryptocurrency-specific laws by that time, Malta's transition toward becoming a blockchain island was unprecedentedly rapid. The term itself was coined in April 2018 when Silvio Schembri, the current minister of economy, investment and small business, commented to Cointelegraph on the news about Binance, the world’s top exchange, potentially moving to Malta after facing regulatory difficulties in Japan, where it was previously headquartered.

Binance’s relationship with the Maltese government was indeed close at the time. For instance, soon after the article announcing Binance’s interest in Malta aired on Bloomberg, Prime Minister Muscat personally welcomed the exchange via Twitter, writing: “Welcome to Malta, Binance.” Binance CEO Changpeng Zhao, also known as CZ, soon responded to the prime minister’s tweet, adding that he was optimistic about the overall possibilities for crypto in the country.

Further, at some point in the summer of 2018, the company even had a private event in Malta, which was held at the official residence of the President of Malta. “How many of you have attended a blockchain even at the presidential palace?” CZ asked while giving a speech under the ancient walls, adding, “We got very, very lucky with Malta. Malta came at a time when regulatory clarity was very much needed.”

Other foreign crypto companies looking for a friendlier jurisdiction soon followed suit, namely fellow exchanges OKEx and BitBay, which had been based in Japan and Poland respectively. Malta’s lowest corporate tax rate for international companies in the European Union — set at a modest 5%, compared to the EU average of 22% — appeared to be yet another rationale for relocating.

In October 2018, Malta continued its “pro-blockchain” politics, signing a declaration to promote blockchain usage along with seven other EU countries. Then, on Nov. 1, the three aforementioned blockchain laws came into effect — and that’s when local players started to first experience difficulties. 

Slow regulations don’t go well with a fast market

The most important part of the three Maltese blockchain laws — the VFA act — essentially requires businesses to get licensed by the Malta Financial Services Authority if they conduct initial coin offerings, trade digital assets, or provide electronic wallets and brokerage activities. 

The act also introduces so-called VFA Agents — entities that audit and advocate such firms. According to Christopher P. Buttigieg, the chief officer responsible for strategy, policy and innovation at the MFSA, “The role of the VFA Agent under the VFA Act is primarily that of gatekeeper,” or the first line of defense. The agency registered the first VFA agents in May 2019, six months after the act came into force. Currently, there are 20 authorized VFA agents, according to the MFSA’s financial register.

However, no businesses have been licensed under the VFA framework yet, despite the fact that it’s been more than a year since it was enacted. “This is definitely disappointing for the hundreds of companies which were lured to the country on promises of a friendly, understanding regulatory environment,” Jan Sammut, founder of ICO Launch Malta, told Cointelegraph. He went on to add:

“My impression is that the government at the time prioritised primacy to market ahead of operational readiness. Subsequently, what initially started off as an understandable desire to 'get things right' and not put the country's reputation at risk in the event of a scandal, seems to have devolved into the double whammy of an absolute overkill of a regulatory package, along with a total operational complacency in issuing actual licences.” 

“Crypto startups still struggle to obtain financial services due to regulatory sluggishness,” an OKEx spokesperson confirmed to Cointelegraph, adding that the exchange is still dedicated to operating from Malta, having applied for a license after the transition period ended. The OKEx representative elaborated:

“We would like to reiterate that OKEx would continue to commit resources to Malta and embrace relevant regulation. In 2018, OKEx has received permission to operate and provide its services out of Malta under the transitory provision granted by MFSA for a period of one year until the license is obtained. Recently, OKEx has submitted an application for obtaining a VFA license.”

On top of the MFSA’s apparent procrastination with the licenses, there are other issues — namely, their potential cost-efficiency. As Leon Siegmund, a board member of Malta’s Blockchain Association and founder of Bitcoin Club Malta, told crypto news outlet Decrypt of the VFA license, “It’s too expensive; it doesn’t provide any value. As long as it’s not passportable, it’s a small market, so it’s not really useful.” Reportedly, the MFSA requires a fee of 10,000 euros to handle a preliminary VFA application.

Moreover, the local approach to crypto regulation is not that soft. As Cointelegraph previously reported, on top of Anti-Money Laundering and Know Your Customer policies imposed by the VFA framework, there is also the EU’s AMLD5 directive.

Related: Governments Begin to Roll Out FATF’s Travel Rule Around the Globe

At the time, Daniele Bernardi, CEO of Malta-based financial advisory company Diaman Group, told Cointelegraph that the stringent compliance requirements have scared local banks away, making it difficult for local businesses to find a financial partner, “The banks in Malta don’t open any kind of account for crypto companies, due to their fear of breaking the AML policy.” Wayne Pisani, a partner at Grant Thornton, one of the 20 registered VFA agents, confirmed that sentiment to Cointelegraph:

“It was never the intention to create a soft touch regulatory framework as this would have run counter to internationally accepted principles of regulatory certainty and transparency. Indeed, the framework regulating the financial application of DLT is closely modelled on EU regulatory principles and follow ESMA guidelines.”

Pisani further added that simultaneous to the enactment of the laws, a parallel project was started “to launch bespoke guidelines setting clear procedures to guide stakeholders in their AML and CFT obligations which goes beyond the standards set by the EU 5th Anti-Money Laundering Directive.” Similarly, a representative of the VFA Agent Forum, a soon-to-be-launched entity representing most VFA Agents in the country, argued in a letter sent to Cointelegraph:

“In its VFA framework, Malta has shown its commitment towards a high quality regulatory framework that does not create future inconsistencies with other international regulations. This shows that long-term strategy in having Malta establish itself as a high-quality jurisdiction in this space who is more interested in long-term sustainability rather than short-term quick wins.”

This cautious approach makes sense, given that the government of Malta has long been surrounded by corruption allegations. Back in 2016, upon reviewing the Panama Papers, local journalist Daphne Caruana Galizia claimed that a number of Muscat’s close associates, including his wife, had run firms to launder money and illegally sell passports. Eventually, Caruana Galizia’s blog, where she presented that information, became the most-read news source in Malta. In October 2017, Caruana Galizia was assassinated in a car bombing. Numerous mass protests followed, calling for Muscat's resignation, partly for his inability to resolve the bombing, which has attracted the EU’s attention.

On Dec. 1, 2019, Muscat announced he was stepping down due to the political crisis. The prime minister has been replaced with Robert Abela, a fellow Labour Party member and son of former Maltese President George Abela.

MFSA breaks it off with Binance, but the government supposedly remains pro-crypto

On Feb. 21, 2020, amid the uncertainty surrounding the VFA framework, the MFSA released a public statement, declaring that Binance “is not authorized by the MFSA to operate in the crypto currency sphere.” The agency clarified that recent media reports referred to Binance incorrectly as a “Malta-based cryptocurrency firm,” while the exchange “may not fall within the realm of regulatory oversight.”

Soon, CZ took to Twitter to label the statement as “a mix of truth, FUD & misconception.” Addressing news articles stating that Binance is not regulated to operate in Malta, the exchange’s CEO stated that Binance “is not headquartered or operated in Malta.”

According to an investigation conducted by a local anonymous blogger BugM, Binance has registered two companies in Malta, neither of which has reported any activity since their establishment. Notably, CZ has previously reassured that “any country that can attract Binance to open a branch in their location will receive a handsome tax income revenue.” According to Decrypt, Binance has a physical office in Malta but is headquartered in the Cayman Islands and Seychelles.

Sammut told Cointelegraph that this has been brewing for a while, adding that the MFSA was right to issue a clarification on the regulatory status of the exchange, elaborating:

“Bearing in mind that the company is not in fact under their supervision, the MFSA are correct in wanting to distance Malta's reputation from any potential fallout from an incident that they are unable to foresee due to the company not being under their oversight. On the other hand, if the MFSA got around to issuing licences maybe we wouldn't be here now…”

When asked to clarify its relationship with the MFSA, Binance did not reply. The MFSA also declined to comment on this story. 

However, although current-Prime Minister Abela has yet to publicly comment on cryptocurrencies and blockchain, the new government is apparently still interested in carrying on as a blockchain island. Bartolo Clayton — who has been recently appointed by the Abela as the parliamentary secretary responsible for financial services, digital economy and innovation, the position previously held by crypto-friendly Minister Schembri — clarified the official position on Binance in a letter to Cointelegraph:

“Binance has never been in possession of an official license by MFSA. Such statement has been further corroborated by Changpeng Zhao, CEO of Binance, on his personal Twitter account where he also stated that Malta has not changed its position. This, therefore, DOES NOT mean that the Government has in some way or another introduced a harsher or more stringent stance towards cryptos, but merely an authority stating facts.”

Clayton went on to add that the government of Malta is still committed to following the blockchain path and that more information will be revealed soon:

“The Government of Malta is committed to consolidate blockchain together with other niche sectors. It is the Maltese government’s belief that we believe that more synergies between these emerging sectors should be explored and encouraged in order to reap and exploit their benefits. Moreover, the Government of Malta is opting for an overarching and holistic strategy for the Digital, Financial and Innovative services in Malta. More details about the new strategy will be disclosed in the coming months.”

Thereby, the new Maltese government has not officially taken a different course concerning cryptocurrencies. As for now, the regulator continues to consult with industry players on its crypto-related initiatives. Earlier this week, the MFSA published feedback on the definition of security tokens and the challenges such assets face in Maltese markets, and how these “can be tackled in a manner that does not stifle innovation."

Crypto Goes Plastic — Coinbase’s Visa-Approved Solution Suggests Growth

Coinbase is the first crypto company to become a principal partner of the payments giant. Will crypto debit cards soon become commonplace?

On Feb. 19, Coinbase announced that it has become a principal member of Visa. In an apparent first for the cryptocurrency industry, the firm is now able to issue debit cards without having to involve third parties. Prior to that, Coinbase had been releasing its physical cards in collaboration with authorized intermediaries, similarly to dozens of other crypto companies that offer such options to their clients.

While Coinbase didn’t share its strategy, technically, the new status grants it the possibility to issue cards to fellow cryptocurrency firms. In any case, this development marks an important milestone for the crypto payments sector.

Seamless and instant: A brief introduction to crypto cards

Cryptocurrency cards are in many ways similar to conventional bank cards used by millions of people around the globe for day-to-day purchases. The main difference is that the former allows users to deposit and convert cryptocurrencies instead of fiat money.

So, what makes them comparable? Crypto cards also leverage the existing Visa/Mastercard infrastructure widely used across the world, thereby enabling its holders to pay in crypto for any product or service that can be purchased via a cashless payment, either in-store or online. To achieve that, crypto card-issuing companies either convert digital assets seamlessly for each payment (debit cards) or enable the user to transfer them into a dedicated fiat account, which can, in turn, be used for day-to-day purchases (prepaid cards).

That breaks one of the largest barriers to widespread cryptocurrency adoption. Most merchants are still reluctant to accept crypto due to a variety of reasons including the general stigma that is still attached to digital assets, while many cryptocurrencies continue to face scalability issues that drastically hinder their performance capabilities.

Moreover, many exchanges offer only crypto-to-crypto trading possibilities, and converting tokens to fiat is still a complicated and often lengthy process. Crypto debit cards, meanwhile, present a convenient middle ground for both merchants and holders: The former are not required to update their payment infrastructure while the latter don’t have to manually convert their crypto savings each time they buy a cup of coffee.

Although crypto cards convert digital assets in real time, crypto’s infamous volatility is not a concern, Juan Villaverde, Weiss Ratings' lead cryptocurrency specialist, argued in an email to Cointelegraph:

“I definitely would not consider volatility to be a concern — not when the industry is being flooded with stablecoins, which users can seamlessly park their money on with just a few clicks. We’re quickly entering a stage in the crypto industry where, if a user wants to eliminate all volatility from their portfolio, there is a wide array of options to pick from, including fiat money and gold-backed assets.”

As for the actual drawbacks of crypto debit cards, Villaverde says: “There are usually higher fees involved with their use,” however, “that’s likely just a consequence of how difficult it is for a user to get their hands on one.”

One of the first crypto debit cards in the industry was introduced back in April 2014 by cryptocurrency wallet provider Xapo. At the time, the firm announced “a major improvement to cards already on the market,” arguing that they were essentially “prepaid” cards that required the customer to manually convert their crypto assets into their local currency before making a purchase. Xapo’s card, on the other hand, was allegedly the first to allow users to automatically convert cryptocurrencies for each purchase in real time.

Related: 2019: A Berlin Odyssey — 7 Days of Crypto-Living on ETH Debit Card

In the following years, the sector continued to grow, as companies like Bitstamp, Coinbase and CoinCard rolled out their crypto cards solutions. Notably, Coinbase’s card, developed in collaboration with payments platform Shift, was the first physical crypto card to be released on the United States market and is available in 25 states. The card itself was issued by the Metropolitan Commercial Bank and supported both Visa and Mastercard payment networks.

Prior to the latest Coinbase announcement, all crypto cards had been overseen by the so-called BIN sponsors — companies that effectively act as middlemen, charging crypto firms for providing them access to the Visa or Mastercard networks. Unlike most crypto firms, they are licensed as principal partners of the payment giants and are thereby authorized to issue debit cards on their behalf. So far, it has arguably been the most problematic area in the sector.

Real problems: Dependence on BIN sponsors

While the crypto cards market has continued to expand since its inception in 2014, in early 2018, it entered a turbulent period. In January of that year, Visa abruptly ended its relationship with a major BIN sponsor, a Gibraltar-registered company called WaveCrest, citing “continued non-compliance with our operating rules.” As a result, a number of widely marketed European-based crypto cards — including those developed by companies like TenX, Wirex, Xapo, Bitpay (only the non-U.S. cards), Bitwala and Cryptopay — stopped working overnight.

The spokesperson added, however, that Visa has other approved card programs that use fiat funds converted from cryptocurrency in a number of jurisdictions. “The termination of WaveCrest’s Visa membership does not affect these other products,” the company’s representative clarified. In a statement shared with CNBC, the financial services giant stated:

“Our actions were not specific to cryptocurrency but rather reflect the issuer’s failure to comply with Visa’s policies that ensure the safety and integrity of our payment system.”

The incident dealt a lot of damage to the industry. For instance, Dmitry Lazarichev, a co-founder of Wirex, told CNBC that his company had shipped as many as 500,000 cryptocurrency debit cards to people across the world (excluding the U.S.), all of whom were instantly blocked as a result of the incident.

Wirex was one of the first companies to recover from the unforeseen event, as the startup soon partnered with Contis — a United Kingdom-authorized payments solutions company and principal member of Visa Europe — to relaunch their debit card offering. As Pavel Matveev, another Wirex co-founder, told Russian business media outlet Kommersant, Visa had tightened its compliance requirements in the wake of the WaveCrest incident, namely its Know Your Customer and Anti-Money Laundering procedures.

Consequently, many remaining crypto firms that previously issued their cards via WaveCrest had to narrow their scope of operation, crossing out Europe from the list of supported regions or stopping the release of cards altogether. An October 2018 media report suggesting that Mastercard and Visa were going to move cryptocurrency to a new “high risk” category reinforced the fears that crypto cards might cease to exist altogether, although the payment giants have not confirmed any of this information.

Meanwhile, the U.S. crypto card market has also taken a hit. In April 2018, Coinbase’s Shift Bitcoin debit card shut down without giving any reason. A number of social media commentators suggested that the Swift card was discontinued due to low demand, although this information has not been verified.

On the other hand, BitPay continues to operate in the U.S., although the company offers only prepaid cards. The company’s spokesperson told Cointelegraph: “BitPay works closely with Visa and the Metropolitan Commercial Bank to ensure we are meeting applicable regulatory requirements,” adding that the company’s product is subject to standard U.S. financial regulations and identity verification requirements.

When asked why BitPay chose Visa and not Mastercard, the representative said that “at the time, we launched the BitPay card in 2016, Visa was more receptive and more interested in partnering with a leading crypto company like BitPay.”

Meanwhile, some crypto companies picked the third option. Estonia-based startup Crypterium offers crypto debit cards processed by UnionPay, a Chinese financial services corporation. Crypterium’s chief operating officer, Austin Kimm, told Cointelegraph that UnionPay allows for a wider geographical presence:

“Both Visa and Mastercard allow you to develop cards for particular regions like the United States, South America, Europe, etc. UnionPay, on the contrary, divides the world in two regions: China and the rest of the world. This model is aligned with our commitment to serve clients from every corner of the world.”

“It’s been difficult so far for crypto companies in general to issue crypto debit cards,” as Juan Villaverde of Weiss Ratings summarized in an email to Cointelegraph, referring to the fact that the industry has to largely rely on middlemen.

Hugh Kingdon, an advisor at BCB Group, who has previously worked at both Visa and Mastercard, confirmed to Cointelegraph that “most crypto organisations have experienced being let down by their banking partners at some point in time,” clarifying that the process is complex for all parties involved:

“Many of the bin sponsors have a difficult life, needing to keep good relations with a wide range of regulators and, therefore, being a touch conservative.”

Coinbase card’s European comeback

Having abandoned the U.S. crypto card market, a year later, Coinbase debuted a U.K. crypto card, which was released in collaboration with a U.K.-regulated electronic money institution Paysafe Financial Services Limited, a principal Visa partner. In the following months, the firm extended the list of supported countries, making the card available to users in Spain, Germany, France, Italy, Ireland and the Netherlands.

In February 2020, Coinbase revealed that it has itself become a principal member of Visa, meaning that the crypto firm is now its own BIN sponsor and does not need a third-party financial company to issue its Visa cards. According to Forbes, the payments giant partnered with Coinbase back in December, but the development has only recently been made public.

As Villaverde observes, the fact that Coinbase — an entirely crypto-focused company — is now able to issue Visa cards directly and could “transform it into a middleman of sorts”:

“Other crypto companies could potentially go to Coinbase to issue their own cards, rather than having to rely on more traditional financial companies. Typically, the latter are much more reluctant to deal with crypto companies. This would create new opportunities for many other assets.”

While Coinbase has not returned Cointelegraph’s requests for comment, the firm reportedly told Forbes that it is not considering issuing cards to other companies “anytime soon.” Nonetheless, as the Forbes reporter argued, the principal membership status “marks a potentially important new revenue stream for the company,” which, according to the publication’s estimations, experienced a sharp 40% decline in earnings in 2019.

Related: Crypto Hold’Em 2019 – What are cryptocurrency debit cards?

The card-issuing industry is a widely burgeoning sector due to the declining popularity of cash. It generated $107 billion in revenue last year in the U.S. alone, according to an IBISWorld report.

The new Coinbase card, which will be released later this year, will reportedly be available in 29 countries including Denmark, Estonia, Norway, Portugal, Sweden, in addition to the aforementioned European jurisdictions whose residents are already using Coinbase debit cards that were issued last year. Notably, the new Visa card will not be available to U.S. users — which may be due to tax issues — as Andrew Mount, a litigation associate at Bressler, Amery & Ross, P.C., explained to Cointelegraph:

“The tax implications of transacting in Bitcoin in the United States could make using the Coinbase card impractical. The IRS treats Bitcoin as property that is subject to capital gains tax.  Therefore, in the United States, each transaction with a card like this could be a taxable event.”

The event is still likely to cause a chain of positive events within the industry, experts suggest. “Not only is Coinbase the first company to issue a crypto card directly, it’s also the first major exchange to do so,” Villaverde told Cointelegraph. He went on to explain why the news is crucial for the crypto card sector, speculating that Binance — another crypto juggernaut — could soon follow suit:

“The fact that they are a Visa Partner is a big deal because it may pave the way for other companies to do the same. Binance is probably next in line, as they tend to not want to ‘fall behind’ on any new development taking place in the crypto industry.”

Indeed, on Feb. 21, Cuy Sheffield, head of crypto at Visa, called on any digital wallets interested in issuing Visa cards to apply to the company’s Fintech Fast Track program. Although the program avoids mentioning cryptocurrencies directly, it states that Visa-enabled digital wallets are suitable for a “startup in an emerging market seeking to leapfrog a physical card program” — meaning that many cryptocurrency companies might start providing Visa-powered digital cards for their customers in the near future.

Notably, just three crypto firms that work with cards — Crypto.com, Cryptopay and Crypterium — told Cointelegraph that they are considering becoming principal partners of payment giants, while other firms have either avoided the question or replied negatively.

“Becoming a principal member is a long journey, which requires obtaining an EMI license, having PCI-DSS certification and a lot of funding,” George Basiladze, co-founder of Cryptopay, told Cointelegraph, adding that his firm has only just started the process.

As for now, only one crypto company has been licensed as a full participant of Visa’s network, meaning that there is still a long way to go — and the fact that both Visa and Mastercard have ignored numerous emails sent by Cointelegraph requesting additional comment for this story seems to confirm that the industry is still on the sidelines.

FCA Keeps EPayments on Lockdown, Crypto Unlikely at Fault

Payment system ePayments has been halted by the FCA for about a week now, and all accounts remain suspended. Does crypto have anything to do with it?

On Feb. 11, ePayments Systems Ltd, a United Kingdom-regulated electronic money institution, suspended all online payment activity at the request of the Financial Conduct Authority, the local regulator. Upon “agreeing” with the watchdog, ePayments froze all of its customers’ accounts, blocked their prepaid cards, and banned new account openings “until remedial action has been undertaken to the satisfaction of the FCA.”

According to the customer notice published shortly after the incident, the decision to halt business was made after a regulatory review of the company’s Anti-Money Laundering systems. During the inspection, the FCA reportedly identified “a number of weaknesses which require urgent remediation to ensure that customers can enjoy a safe and secure platform.” 

While the company reassures its customers that their funds are safe, it fails to explain when they will get access to their accounts back. Reasons for the intensified scrutiny are also unknown, although experts suggest that recently announced crypto regulations are not the case.

EPayments is closely affiliated with a cryptocurrency exchange

EPayments.com first went live in 2012, while the company itself was founded in 2010 by Mike Rymanov, a London-based entrepreneur of Russian descent. Its target audience comprises “webmasters, freelancers, affiliate programmes and advertising networks,” wishing to carry out instant transfers to one another via bank transfers, prepaid cards and other payment methods.

Since July 2014, ePayments has been certified as an “Authorised Electronic Money Institution” by the FCA, meaning that the watchdog has given it permission to issue electronic money and provide payment services.

The license reportedly allowed ePayments to become a MasterCard partner in late 2016 and to collaborate with a number of Russian e-payment providers, namely Yandex, Qiwi and WebMoney. 

In 2014, Rymanov founded Digital Securities Exchange (DSX), an exchange “tailored for digital currencies.” It is a “partner business,” meaning that all DSX customers are “required to go through ePayments on-boarding process, in terms of identity verification.” Rymanov remains the CEO of both ePayments and DSX, while the companies also share the same address in London. DSX allows clients to withdraw funds via an ePayment wallet free of charge.

According to Rymanov, DSX was “the first company in the U.K. and Europe to provide a regulated environment to trade digital currencies.” Similarly, DSX’s initial press releases argued that the exchange had “forced Bitcoin into the regulatory environment.”

That claim has since been questioned by a Financial Times reporter who noted that DSX acts as an appointed representative of ePayments Systems Ltd per the FCA register, which, by extension, allows it to issue e-money and provide payment services. “Such business is some way from, say, a regulated broker dealer offering to trade in the Bitcoin market,” the FT correspondent argued. 

According to the DSX official website, 20% of all transactions on ePayments involve crypto, while as many as 1 million ePayments customers allegedly “have a safe, reliable way to handle crypto,” thereby confirming the connection between the two. Notably, ePayments has recently edited out the mention of a total number of users from its website — as of Dec. 24, 2019, the company claimed to have 847,375 customers enrolled with the platform, which suggests that ePayments registered the remaining 150,000 customers in just over a month and a half. 

Some social media commentators have questioned those numbers in the wake of the FCA incident. “It amazes me, two days since ‘one million’ accounts went frozen, and [the internet] is silent,” one of the allegedly affected users wrote, referring to the lack of financial mainstream media coverage and stressing that ePayments has just over 2 thousand subscribers on Twitter:

“They have only few thousand followers on Twitter. Makes me think that [the] majority of those accounts were not real.”

A spokesperson from the Financial Ombudsman, an entity that helps to settle disputes between consumers and U.K.-based businesses providing financial services, told Cointelegraph that they received “less than 10” inquiries cases against ePayments, although none of these cases are related to the suspension of the accounts. The representative added:

“If consumers are unhappy with their provider, they should get in contact with the Financial Ombudsman Service, and we’ll see if we can help.” 

Additionally, ePayments has removed the “Our Team” tab from its website. As of Dec. 24, it stated that “above ePayments, is our team of the best specialists in the financial industry.” However, four photos of Rymanov and three other executives are still up on the website under the “About” tab. The “Our Team” tab, meanwhile, is still missing. According to the page source, it was last modified on Feb. 15 after the FCA incident. 

DSX was also facing issues, apparently now back to normal 

On Feb. 12, the next day after ePayments had frozen all accounts, its partner business DSX announced that all transfers between DSX and ePayments will be temporarily suspended, while the ePayments customers who wish to continue exchanging crypto can still register at DSX through their ePayments accounts. On Feb. 13, DSX clarified that they were “facing some issues” with their banking suppliers due to the ePayments situation:

“We are temporarily unable to accept bank deposits or process bank withdrawals. We are already working hard with the bank to fix the issue and start processing bank transfers again.”

The next day, the exchange declared that bank deposits were back because the platform had allegedly established a new banking partnership. While it is unclear what bank now handles DSX transfers, prior to the FCA incident, both DSX and ePayments collaborated with the same Latvian bank called Rietumu Banka.

According to Twitter commentators and data provided by CoinGecko, most cryptocurrencies on DSX have been trading for a 10–20% premium since the ePayments suspension, supposedly due to the increased amount of customers wishing to withdraw their funds from the ePayments-affiliated platform. Cointelegraph has asked DSX to comment on this but has yet to receive a response.

EPayments claims to have made “good headway,” accounts remain suspended

As of press time, ePayments has ignored several requests to comment sent by Cointelegraph over the past few days. Nonetheless, on Friday, the platform released an FAQ on what it calls a “temporary” account suspension. In it, the company stated that it cannot provide a concrete timeframe on when the customers are expected to get their accounts back but reassured that “all of your funds are safeguarded as normal and are not affected by the work we are currently undertaking.” In addition, ePayments noted that its FCA license is not being revoked. 

The FCA spokesperson told Cointelegraph that the agency doesn’t comment on individual firms. When asked whether ePayments had time to warn their customers before suspending their accounts, the representative said:

“As part of the voluntary requirements, and the notice on the FCA register, the firm ceased its business activities with immediate effect. This includes the suspension of accounts. Consumer funds being safeguarded are normal, and funds can be retrieved once the firm’s improvement process has been completed.”

George Basiladze, co-founder of wallet and payment platform Cryptopay, suggests that ePayments might be facing scrutiny due to insufficient KYC procedures:

“In their statement, they [the FCA] have cited deficiencies in the Anti-Money Laundering systems. That could mean poor Know Your Customer controls and/or monitoring of transactions.”

While the FCA has been appointed to monitor AML and counter-terrorist financing for companies carrying out cryptocurrency-related activities since the start of 2020, Cal Evans, founder of compliance and strategy firm Gresham International, told Cointelegraph that “it is highly doubtful that this has anything to truly do with the new FCA rules.” He added:

“The new FCA rules give companies until 2021 to register and suggest that applications are made by July 2020 in order to meet the deadline. There is nothing in their business model that would currently have to change, let alone anything which would require them to start freezing accounts.”

Similarly, both experts opined that the new AMLD5 regulation was most likely not the case, either. Evans told Cointelegraph: “New AMLD5 laws could have an impact, but nothing some simple company changes/onboarding process would change. Suspending everything is a major overreaction.” Basiladze expanded on that, arguing that the actual impact of AMLD5 won’t be seen until 2021, and, in the meantime, the guides have not been published:

“It’s the early days of regulation, and all the operating businesses have at least one year to get ready. We can only see the effect of AMLD5 in 2021. Also, we shouldn’t forget that AMLD5 is not solely about crypto business, it is about prepaid cards, brokers, e-money, well, lots of stuff besides that. So, we can assume that the current case is not connected to this directive and crypto stuff and is related to some other part of the business that falls under the scope of the licenses that they already have.”

While ePayments continues to keep its customers in the dark by not giving at least an approximate timeline for account reactivation, Basiladze suggests that it could be a lengthy process: 

“The current accounts’ freeze may be reverted after the issues have been addressed and the regulator is satisfied with the outcome. That may take time, though, as development of KYC is time-consuming and may take months. Even when everything’s ready technically, FCA will go through the issues again, so it’s paperwork too.”

Nevertheless, it seems like ePayments has been collaborating with the FCA. On Monday, the company announced that it had made “good headway,” and added more questions to the aforementioned FAQ. Per one of the new points, ePayments asks all customers who are called or emailed by someone claiming to be from ePayments or the FCA to “please end the call / do not reply to the email and contact us directly.”

Bakkt to the Senate: How Loeffler Became One of Crypto’s Most Influential

2019 saw the long-awaited launch of ICE’s digital assets platform, Bakkt. CEO Kelly Loeffler is now pursuing a career in the U.S. Senate.

Since the 2017 mania, every year in the crypto and blockchain space has been increasingly eventful. 2019 was no exception: Along with Facebook’s Libra project and China’s digital yuan endeavors, Intercontinental Exchange’s digital assets platform Bakkt was finally launched. Its CEO, Kelly Loeffler, ensured a smooth start for the exchange, then swiftly left her business to pursue a political career by the end of the year. She now represents the state of Georgia in the United States Senate, and as one of the most influential people affiliated with the crypto industry, she could potentially pave the way for Bitcoin and other cryptocurrencies in Washington.

From an Illinois farm to Atlanta’s highest business circles

Loeffler was born in Bloomington, Illinois on Nov. 27, 1970. She grew up on her family’s farming estate in Stanford, working the soybean fields. “We lived simply,” Loeffler recalled at a recent press conference. “Life revolved around farming, church, school and 4-H.” She allegedly became interested in stock markets as early as the age of 10; her mother kept track of commodity prices on a kitchen napkin every day before lunchtime.

In 1988, Loeffler graduated from Olympia High School, where she partook in various sporting activities — namely cross country, track and basketball (she has since purchased the Atlanta Dream of the Women’s National Basketball Association). Her peers from high school have described her as “very bright and articulate and just kind of a beacon of light in her class.”

In 1992, Loeffler graduated from the University of Illinois with a bachelor’s degree in marketing. She then obtained a master’s in business administration from Chigaco’s DePaul University in 1999.

In 2002, she joined the Intercontinental Exchange, or ICE, after working at Toyota, Citibank, financial firm William Blair, and private equity fund manager The Crossroads Group. Back then, ICE was a two-year-old, Atlanta-based startup with a focus on energy products (crude and refined oil, natural gas, power and emissions), and Loeffler started handling investor relations there. Two years later, she married the firm’s CEO Jeffrey Sprecher, who calls their relationship her biggest risk “because if it didn’t work out, she’d be on the short end of the stick.” Together, they made ICE what it is today: an operator of 13 major international exchanges that include the world’s largest, the New York Stock Exchange. Currently, ICE’s market cap is estimated at $52.5 billion, while Loeffler and Sprecher live in Atlanta’s most expensive piece of real estate — a mansion spanning 15,000 square feet with a $10.5 million price tag.

Loeffler’s quick but eventful career in crypto

Loeffler’s views on crypto are elaborate, as she prefers technological breakthrough over flashy numbers:

“Notably, 2018 was the most active year for crypto in its brief ten-year history. This was evidenced by rising investment in distributed ledger technology and digital assets, as well as by blockchain network metrics such as daily bitcoin transaction value and active addresses. Yet, these milestones tend to be overshadowed by the more narrow focus on bitcoin’s price, which has been seen by some, as a proxy for the potential of the technology.”

Thus, in 2018, Loeffler entered the crypto industry by becoming the CEO of Bakkt, a digital assets platform launched by ICE and backed by Microsoft and Starbucks, among other investors. “We are collaborating to build an open platform that helps unlock the transformative potential of digital assets across global markets and commerce,” she declared in Bakkt’s announcement. Bakkt’s trademark feature is physically delivered BTC futures contracts, while BTC futures traded by the Chicago Mercantile Exchange and the Chicago Board Options Exchange are settled in cash.

The platform’s launch was delayed numerous times, and when it finally took off in September 2019, the initial results were lackluster: Despite analysts’ bullish forecasts, just 71 BTC (worth about $700,000 at the time) were traded in the first 24 hours.

Nevertheless, the numbers soon started to pick up the pace. By Oct. 26, the platform traded as many as 1,183 Bitcoin futures contracts — worth roughly $11 million — in a single day.

Bakkt then decided to capitalize on the positive development. On Dec. 9, the platform unveiled two new Bitcoin investment products: Bakkt Bitcoin (USD) Monthly Options and Bakkt Bitcoin (USD) Cash-Settled Futures. According to Bakkt, the monthly options product is the first Bitcoin futures contract regulated by the U.S. Commodity Futures Trading Commission. Furthermore, Bakkt has teased a consumer app developed in collaboration with Starbucks and aimed at helping consumers “unlock the value of digital assets, as well as ways in which they can transact or track them,” in its quest to integrate crypto into the mainstream.

Still, despite the fruitful start that marked one of the key milestones for crypto last year, Loeffler has left the digital assets platform to pursue a career in Washington, D.C. In December, Georgia Governor Brian Kemp appointed the Bakkt CEO to a seat in the U.S. Senate, replacing Republican Sen. Johnny Isakson, who retired due to health concerns. Loeffler is the second woman in history to represent Georgia in the Senate and now the crypto community’s highest-placed political advocate.

Consequently, Loeffler has stepped down from ICE’s crypto-focused platform. “We are grateful to Kelly for her many contributions to Intercontinental Exchange spanning 17 years and will miss her wisdom and counsel on the executive team and leadership of Bakkt,” an ICE spokesperson said in a press release.

Washington and potential conflict of interest

Despite leaving Bakkt, Loeffler may continue to participate in the crypto industry’s growth as a lawmaker. Indeed, John Todaro, director of digital currency research at New York-based data provider TradeBlock, previously told Cointelegraph: “Kelly Loeffler obviously understands the space and is a proponent of it, and so, where applicable on matters before her in the Senate, I would imagine she would be a proponent of bitcoin and other digital currency platforms.”

Loeffler started her career in the Senate with a bang, supporting six bills in her first week in office. So far, all her moves have been strictly conservative (Loeffler and her husband have donated a total $3.2 million to political committees, most of which were Republican). As Loeffler put it herself, she is “pro-Second Amendment, pro-military, pro-Wall and pro-Trump.” Ironically, some earlier media reports indicate that Trump is not a fan of Loeffler and preferred to see a different candidate in the U.S. congressional seat.

Most recently, Loeffler has joined the Senate Agriculture Committee, which oversees the CFTC, a regulatory agency with significant oversight of cryptocurrency-based commerce. This sets up a potential conflict of interest, as her husband is still the CEO of ICE, an exchange operator that is “subject to extensive regulation by the Commodity Futures Trading Commission,” as per its annual report.

To that, Loeffler has stated that she would recuse herself “if needed on a case by case basis.” She told The Wall Street Journal, “I have worked hard to comply with both the letter and the spirit of the Senate’s ethics rules and will continue to do so every day.” Loeffler will serve in the role until a special election is held in November 2020, when she will have to win the vote to remain in office. To this end, she plans to spend $20 million of her own funds.

Kelly Loeffler is ranked #3 in the first-ever Cointelegraph Top 100 in crypto and blockchain.

Japan Uneased by Chinese CBDC, Plans on Digital Yen in ‘2 to 3’ Years

China continues to get ahead in the CBDC race, but will Japan attempt to counter it with its own digital currency?

China continues to pull ahead in the central bank digital currency race as more details on its secretive digital yuan project intermittently surface. As a result, more countries are beginning to worry about the potential implications.

Over the past few weeks, a number of Japanese lawmakers have publicly expressed their preference for a CBDC controlled by the Bank of Japan. The general idea is to counter the soon-to-be-released digital yuan from neighbouring China and prevent it from disrupting the global economy.

According to a senior ruling party lawmaker, the development of a Japanese CBDC might take “two to three years.” Will it come too late to serve as a challenge for Beijing? What might a BoJ-issued currency look like?

Bank of Japan vs. CBDC: A preference for cash

The Bank of Japan’s relationship with CBDCs can be traced back to April 2018, when the agency’s Deputy Governor Masayoshi Amamiya first addressed the topic publically. Although the tone of his comment was predominantly negative, the official did not rule out the possibility of considering the bank’s own cryptocurrency.

Specifically, Amamiya argued that issuing a CBDC for general use would undermine the existing financial system, as that would allow consumers to open accounts directly at the central bank and hence abandon private banks altogether, putting them at a major disadvantage:

“The issuance of central bank digital currencies for general use could be analogous to allowing households and firms to directly have accounts in the central bank. This may have a large impact on the aforementioned two-tiered currency system and private banks' financial intermediation.”

The central bank’s representative concluded that although his agency was not considering issuing its own virtual currency, it nonetheless realized that the application of emerging technologies was a possibility.

Half a year later, in October 2018, Amamiya reiterated his mostly negative stance toward CBDCs. He claimed that such digital currencies are unlikely to improve the existing monetary systems, adding that the central bank does not plan to issue a CBDC that can be widely used by the public for settlement and payment purposes.

During his speech, Amamiya panned the idea of CBDCs as a tool for central banks to control the economy once interest rates fall to zero. According to this theory, a state-controlled digital currency can empower central banks to charge more interest on deposits from individuals and firms, which would in turn induce them to spend more money, thereby stimulating the economy. Notably, Japan was one of the first countries to introduce negative interest rates back in 2016, along with the European Central Bank.

Thus, the BoJ deputy governor claimed that charging interest on CBDCs would only work if central banks eliminate fiat money from the financial system, which is not an option for Japan, where cash is still a popular method of payment. Otherwise, the public will still continue converting digital currencies into cash in order to avoid paying interest. Amamiya went on to add, “In order for central banks to overcome the zero lower bound on nominal interest rates, they would need to get rid of cash from society.”

In February 2019, the Bankof Japan published an extensive report covering CBDCs. The document, authored by a BoJ official and a University of Tokyo professor, studied different ways to implement a CBDC and the hypothetical consequences of those approaches. Specifically, the report focused on two types of CBDCs that had been previously categorized by the Bank for International Settlements: one type accessible to the general public for daily transactions (like banknotes), and the other used for large-value settlements (central bank deposits) only.

Echoing Amamiya’s concerns, the paper’s authors argued that CBDCs of the latter kind wouldn’t improve the current monetary system, and focused primarily on the first kind in their analysis. The report also noted that blockchain could be used for a token-based CBDC.

Finally, in July 2019, Amamiya once again said that countries issuing CBDCs with a negative interest rate would force the public toward cash, while eliminating physical money is not an option.

Chinese threat: New wave of interest in CBDCs among Japanese politicians

In 2020, a year that has already been remarkably eventful in terms of global crypto adoption, Japanese lawmakers returned to the idea of a CBDC. The wave of renewed interest was started by a parliamentary group comprised of around 70 members of the ruling Liberal Democratic Party who are alarmed about the prompt development of the digital yuan in neighbouring China.

Earlier in January, the People’s Bank of China reportedly accomplished the top-layer design and joint testing of its soon-to-be-released CBDC. The idea that China could compel other countries to digitize their currencies has been widely discussed since Libra’s announcement in Summer 2019 apparently prompted Beijing to speed up the development of its digital yuan. A common theory is that China can jumpstart its CBDC via its “Belt and Road” initiative, using it to maintain trade relations with a number of friendly developing economies.

Norihiro Nakayama, parliamentary vice minister for foreign affairs and a key member of Japan’s Liberal Democratic Party, said on Jan. 24: “China is moving toward issuing digital yuan, so we’d like to propose measures to counter such attempts,”

On Jan. 30, the Bank of Japan’s Amamiya continued the discussion by stating that the central bank must be ready to issue a CBDC if public demand spikes due to rapid technical developments.

Amamiya did not retract his previous claims about such digital currencies, as he stressed that the issuance of CBDCs would not drastically impact the effectiveness of monetary policy and its effect on interest rates, asset prices and bank lending. However, the BoJ official focused on technical innovations within settlement systems that CBDCs might entail: “The transmission mechanism [...] could become more complicated and difficult (to break down) if settlement systems change.”

Amamiya clarified that the institution still has no imminent plans to issue a digital currency, as it continues to assess potentially overlooked implications for monetary policy, as well as security issues. It is “very important” for BoJ to continue studying the possibility of issuing CBDCs, he added.

On Feb. 7, Akira Amari, former economy minister and a member of the ruling Liberal Democratic Party — led a group of lawmakers calling on their government to push for digital currencies to be placed on the G-7’s agenda this year. The 2020 G-7 summit will be held on June 10 through June 12 in Camp David, Washington. Notably, Amari and his allies specified the source of their concern — the Chinese CBDC:

“We live in a stable world led by dollar settlement. How should we respond if such a foundation collapses and if (China’s move) gives rise to a struggle for currency supremacy?”

Three days later, on Feb. 10, yet another Japanese lawmaker stepped forward to support the idea of a BoJ-issued digital currency. The head of the banking and finance system’s research commission at the Liberal Democratic Party, Kozo Yamamoto, said that Japan should create a digital yen currency, hopefully “within two to three years.”

Is Japan too late to the party? Experts think not

Jeff Wentworth, co-founder of Tokyo-based blockchain tooling startup Curvegrid, believes that issuing a digital yen would be a logical step for the local central bank. He told Cointelegraph that, “Every economy needs a CBDC, much as almost every economy made the move from paper money to electronic banking in the 1980s.” However, in Wentworth’s view, Amari might overestimate the influence of a China-issued CBDC, as its performance will likely depend on the currency’s design: 

“CBDCs in general will upset the current status quo, but it’s hard to say what impact the digital yuan in particular will have on the global currency balance. A key consideration is how decentralized the yuan and other CBDCs will aim to be. If kept mostly centralized, they will be CBDCs in name only and not much different from the current state of electronic money. Greater change is likely to be driven by CBDCs which adopt a more decentralized approach.”

Maurizio Raffone, chief financial officer of blockchain firm Credify, who is also based in Tokyo, shared a similar sentiment, arguing that the digital yuan might fail to dethrone the American dollar in the near future: 

“At least in the next few years I don’t see a digital Yuan replacing the USD. China would need to remove currency controls on the Yuan (as it would be pegged to the digital Yuan), implying some degree of loss of control over monetary policy, which is something the Chinese government simply won’t do.”

Nonetheless, Raffone added that the BoJ is overdue for a CBDC since its loose monetary policy has run out of room, and that, “a CBDC could be a great way to improve monetary velocity in the Japanese economy and provide a boost to GDP growth.” He added that Japan should take in the technical and financial consideration into account, elaborating: 

“Technically, Japan’s CBDC would be a great tentpole for digital transformation and innovation for all Japanese financial services firms and a way for them to piggyback on the Bank of Japan’s digital currency to push their own product development. Financially, a CBDC could be a huge money saver for banks as well as an effective tool to protect against tax evasion and money laundering.”

Both experts agree that albeit the People’s Bank of China is considered the frontrunner in the CBDC race, it is not too late for the Japanese central bank to start its own digital currency project, as two to three years in global financial market terms is still quite fast. 

As for the United States, its officials recognize that the prospect of the digital yuan could be a threat to the USD’s dominance, but prefer to stay on the sidelines for the time being. Earlier this week, Congressman Bill Foster questioned a Federal Reserve official on the matter, and was told that the institution is not yet sure whether deploying such a digital currency would benefit the U.S. economy.

Meanwhile, China continues to finalize its CBDC project, leaving other countries behind. On Feb. 12, the Financial Times reported that the Chinese central bank has filed more than 80 patents related to its undisclosed plans to launch the digital yuan and the way it integrates with the banking system.

Australia’s Blockchain Roadmap Isn’t Music to Everyone’s Ears, Draws Criticism

So far, 2020 has been a year of cryptocurrency regulation… Now, Australia has unveiled its five-year blockchain strategy.

So far, 2020 has been a year of cryptocurrency regulation: The European Union, the United Kingdom and Singapore have officially introduced their approaches to the burgeoning industry. Now, Australia has published its national roadmap, hoping to become a global blockchain leader. 

Last Friday, Australia's Department of Industry, Science, Energy and Resources launched the national blockchain roadmap — a 50-page document that defines how blockchain technology could benefit the local economy over the next five years. 

The paper, developed in conjunction with industry participants, oversees a number of specific fields where the technology might prove useful, namely Know Your Customer-related procedures and wine export. What does this mean for the local cryptocurrency and blockchain industry, and how has the Australian government been regulating it so far?

“Sensible, watchful stance”: What crypto regulations has Australia introduced so far?

Prior to the roadmap’s launch, the Australian government had already taken measures to regulate cryptocurrencies, namely in the context of digital asset trading. In April 2018, the Australian Transaction Reports and Analysis Centre, an agency that primarily deals with tax evasion, money laundering and other forms of financial crime, implemented new regulations for digital currency exchange operators in the country. 

The document required them to register with the authority and maintain a compliant AML/KYC policy. That event is mentioned in the newly issued roadmap. “Australia was among the first countries in the world to introduce AML/CTF regulation for DCEs,” it reads. “The regulations have been welcomed by DCE providers and are helping to improve trust in cryptocurrencies.”

Adrian Przelozny, CEO of Sydney-based crypto exchange Independent Reserve, confirms that market participants were generally satisfied with that provision. He told Cointelegraph: 

“The regulations imposed by AUSTRAC were implemented after a robust industry consultation period and have generally been welcomed by the Australian crypto industry.”

However, Przelozny specified that running a cryptocurrency business is not easy “in a broader sense,” referring to hidden challenges related to stable banking solutions, regulation and compliance.

“From a regulatory perspective, Australia is a relatively permissive jurisdiction,” Asher Tan, CEO of Australian crypto exchange CoinJar, summed up in a conversation with Cointelegraph, thereby echoing Przelozny’s sentiment. 

As for other crypto regulatory initiatives that have been undertaken in Australia, in July 2017, the Department of the Treasury removed the double taxation of good and services tax on digital currencies, hence treating them “just like money” in that regard. Prior to that, cryptocurrency users had to pay GST twice: once they bought a digital currency, and once again when purchasing goods and services subject to the GST. “The Government will make it easier for new innovative digital currency businesses to operate in Australia,” the summary published on the government’s website read.

More recently, throughout 2019, the Treasury researched the opportunities and risks associated with initial coin offerings in Australia, and how such offerings should be taxed, although no concrete reforms have been introduced by the agency in that field so far. Instead, ICOs in Australia are regulated by the Australian Securities and Investments Commission, which oversees them under the Corporations Act 2001 and the Australian Securities and Investments Commissions Act 2001.

Moreover, in 2019 the Australian Taxation Office published a guidance framework on the taxation on cryptocurrencies. Essentially, it defines Bitcoin (BTC) and other cryptocurrencies as forms of property that are taxable. The agency’s deputy commissioner Will Day has also explicitly stated that tax evasion via cryptocurrencies is "not a victimless crime."

The newly issued roadmap also recognizes cryptocurrencies, as they are directly mentioned numerous times. Moreover, the report does not draw a clear line between digital assets and blockchain technology, although the technology itself is clearly prioritized in the document.

According to Alex Sims, an associate professor at the University of Auckland Business School and research fellow at the UCL Centre for Blockchain Technologies, the Australian government has taken “a sensible, watchful stance” toward cryptocurrencies. 

In an email exchange with Cointelegraph, Sims stressed that the Australian Senate referred an inquiry about digital currencies to the Senate Economics as early as 2014, suggesting that the country had started researching the topic long before the 2017 mania. She also argued that some of the government’s reforms seem relatively crypto-friendly: 

“The Australian Government actually encouraged the use of cryptocurrency by removing GST when cryptocurrency was purchased. As the Roadmap shows, it isn’t unduly concerned that Australian businesses are accepting cryptocurrency as a form of payment.”

Australian politicians seemed even more enthusiastic about blockchain. As the local prime minister, Scott Morrison, said back in 2017, his country was “strongly pursuing” the technology. The new roadmap largely confirms that aspiration. 

National Blockchain Roadmap: a five-year plan — wine export is a priority

The recent release of the national blockchain roadmap followed a near year-long preparation. In March 2019, the minister for Trade, Tourism and Investment, Simon Birmingham, and the minister for Industry, Science and Technology, Karen Andrews, jointly announced the development of a national blockchain roadmap with a boost of around $71,200 (100,000 Australian dollars) in funding from the federal government to make Australia a global leader in blockchain. 

On Feb. 7, 2020, the document was published, aiming to promote Australia’s nascent blockchain industry. The country’s wine, banking and finance industries have been selected as the key priority sectors. According to Minister Andrews, the roadmap will pave the way for researchers, startups and policymakers in the blockchain sector, which is set to be worth around $175 billion.

Per the roadmap’s highlights, the blockchain has the capability to strengthen export opportunities, enabling domestic manufacturers to trace their goods in supply chains and agriculture, specifically when it comes to the wine industry. Australian wine is one of the most profitable export products in the country. In 2019, Australia’s wine export volume reportedly grew by 3% to $1.9 billion.

“As blockchain is an incorruptible digital ledger, it can be beneficial for many industries that require ‘record-keeping’ due to its immutability and transparency,” Leigh Travers, executive director at Australia-based DigitalX Limited, one of the first cryptocurrency firms to be traded on a major stock exchange, told Cointelegraph, adding: 

“Blockchain will, and in a way already is, transforming the agricultural industry by tracking produce from farm to plate.”

The value of KYC

There is also a strong focus on the sharing of KYC information that allows transmitting results of KYC checks “securely, at speed and with the highest level of confidence.” The roadmap’s authors cite a report written by Big Four firm KPMG that suggests 80% of KYC/AML resources are spent on information gathering and processing rather than on estimating actual risk — and argues that blockchain technology will significantly cut costs and ease communication in that regard.

In addition, the document seeks to set up the National Blockchain Roadmap Steering Committee and “establish a collaborative model comprising working groups of industry, the research sector and government to progress analysis on the next use cases.”

Essentially, the roadmap is Australia’s entry into the global blockchain adoption race, Dr. Jemma Green, co-founder and executive chairman at Power Ledger, an Australian blockchain-enabled energy trading platform, told Cointelegraph: 

“To date, more than $26 billion has been raised in capital markets for blockchain companies, and Australia has received less than 1% of this. Australia’s startup capital markets are already challenged and addressing regulations to make Australia a destination to base blockchain companies — essential to getting a bigger piece of the capital raising pie [...] If decisive action isn’t taken, then the blockchain Googles and Apples of tomorrow will be based outside of Australia.”

Some experts are not impressed with the new roadmap’s content, however. In an email sent to Cointelegraph, Cal Evans, founder of compliance and strategy firm Gresham International, argued that Australia’s blockchain strategy isn’t extensive enough:

“Australia could benefit with the deployment of blockchain in so many industries. There are numerous industries that can be government-lead including medical, transport and defense. Focusing on the wine industry feels more like the government of Australia is honestly unsure of blockchain and does not want to testbed it in a key area (such as transport or defense).”

Similarly, FinTech Australia chairman and member of the federal government’s fintech advisory group Alan Tsen told the Australian Financial Review that the roadmap "lacked vision," while the "use cases read like they had been written by a consulting firm," adding:

"The most disappointing element was the regulatory analysis. It hinted at a few areas that could be further developed but didn't suggest how this could be done or what should be put on the road map of regulatory change."

Nonetheless, most Australian blockchain industry representatives, Green included, are satisfied with the new document — after all, it has been developed collaboratively with industry, university and government representatives. As Katrina Donaghy, co-founder of a local blockchain startup Civic Ledger, told the Sydney Morning Herald, over 150 startup members showed up in person to consultation meetings, which apparently “shocked” the government. Travers told Cointelegraph:

“We were fortunate to have the CEO Nicholas Giurietto of Blockchain Australia contribute heavily to the roadmap. He said to me this morning ‘It’s everything we wanted,’ so I am so pleased that the industry contribution was acknowledged and delivered to by the National Government.”

Despite Andrews’s previous claims that the roadmap will entail a boost of around $71,200 in funding from the federal government, no such figures are mentioned in the document. It does state, however, that the Australian Government “has invested in a wide range of blockchain-related activities to date.” 

“There was a Labor Party pledge for AU$3 million to invest in blockchain, but their election pitch ultimately wasn’t successful,” Travers of DigitalX told Cointelegraph when reminded that the government has ostensibly not yet allocated any funds to blockchain roadmap implementation. He went on to add:

“With the Blockchain APAC conference coming up in April, there will be a strong focus on establishing a financial link to the blockchain academy, and it’s clear there is a commitment to the technology in Australia.”

Blockchain roadmap without a framework to lean on — how efficient will that be? 

Essentially, the roadmap is a consultation document, or a guide to action, but is not as obligatory as a regulatory framework would be, Konstantinos Stylianou, assistant professor of competition law and regulation at the University of Leeds, explained to Cointelegraph: 

“The national blockchain roadmap is an aspirational document that lays out the government’s vision on how to maximize blockchain’s promise for the country. It is not binding, and it does not contain specific actionable points, just general steps and priorities.”

In Stylianou’s view, Australia’s blockchain strategy “is more or less” aligned with those of other countries, like Germany or the Netherlands, and it lists targets that are “hard to disagree with,” like an increase of investments, maintenance of competition, respect for privacy and so on. However, he is not certain that it will make a drastic difference without proper legal backup:

“Things like blockchain-friendly finance regulations, legal certainty on smart contracts and whether cryptos are property, public-private partnerships etc. can be catalytic in accelerating blockchain adoption, and we’re not seeing much of that yet.” 

Some local industry participants would agree with that statement. Tan, CEO of CoinJar, argues that the roadmap is a great step forward for the industry, adding: “However, immediate action is still needed in order to push through meaningful legislation that can provide certainty and allow for Australian blockchain innovation to flourish.”

Nonetheless, other Australian industry participants seem confident about the roadmap as is. “With the rapid changes to the industry with DeFi, security tokens and international policy amendments, it is impossible to have a clear regulatory framework for this industry today,”  DigitalX’s Travers said when asked whether he would prefer to see a definitive framework instead of a roadmap. 

“The roadmap is a positive development,” agrees Green from Power Ledger. “It focuses on areas key to building a strong foundation for blockchain adoption — regulation, skills capability, innovation and collaboration.”

Given that the Australian government had already introduced some basic regulatory measures for crypto by the time the national blockchain strategy was unveiled, it seems that it could indeed help the country to assert itself in the global blockchain race — but the limited number of use cases suggests that the plan might be ultimately insufficient or incomplete. 

Meanwhile, the fact that cryptocurrencies are mentioned in the roadmap seems to confirm that it is not an extreme “blockchain-before-Bitcoin” kind of case where the government completely shuts down all digital assets, which is advantageous for Australia’s many crypto businesses.

Coinbase and Ripple Push for Regulatory Framework, US Congress Stalls

The Blockchain Association has launched a working group to push for a U.S.-wide regulatory framework… Will the legislators listen?

A new working group, spearheaded by senior employees of Ripple and Coinbase, is going to advise United States regulators on crypto-friendly policies. But congresspeople are too busy preparing for the upcoming elections, which means that U.S. crypto firms will have to continue hula-hooping through state-by-state regulations in the near future. 

Earlier this month, a D.C.-based advocacy group called the Blockchain Association, representing a number of high-profile cryptocurrency firms, launched a working group tasked with pushing for a U.S.-wide regulatory framework. Called the Market Integrity Working Group, the new entity is co-chaired by Breanne Madigan, head of global institutional markets at Ripple; and Rachel Nelson, Coinbase’s senior director and associate general counsel. So what is it, exactly? 

Ex-Wall Street execs will advise lawmakers on crypto regulation

The Blockchain Association’s Market Integrity Working Group was launched on Jan. 23. Both of its co-chairs are Wall Street veterans — Madigan worked at Goldman Sachs for 15 years, while Nelson spent five years at J.P. Morgan. 

When asked about the structure of Market Integrity Working Group, Blockchain Association’s communications advisor Graham Newhall clarified to Cointelegraph, “It is just that, a working group, under the umbrella of the Blockchain Association.” He added: 

“It is one of several such groups we’ve commissioned to work on specific issues relevant to the crypto economy.”

The advocacy group has launched various working groups on proof-of-stake networks (also co-chaired by Rachel Nelson), stablecoins, security laws, custody, and other industry-related topics in the past. Working groups “are simply a vehicle to maximize the expertise of Association member companies,” Newhall said, adding:

“They do not represent a separate entity, lobbying on its own behalf, rather we task expert members to study particular problems facing the crypto industry and potential regulations. The findings of these groups inform our conversations with regulators and lawmakers.”

As Newhall further explained to Cointelegraph, the Market Integrity Working Group co-heads were “chosen in discussion with Association members, pertaining to those individuals and companies that have a particular interest or expertise on a chosen subject.” The Blockchain Association has 22 member organizations, including Circle, Kraken, Ripple, Coinbase and 0x, among other U.S. cryptocurrency firms.

U.S.-wide crypto regulation: A distant, but largely unavoidable scenario

As leaders of the newly assembled Market Integrity Working Group, Nelson and Madigan are planning to advise regulators on how public policies can stimulate the cryptocurrency industry, specifically improving market integrity and providing consumers “the confidence they deserve.”

Notably, the organization highlights the “labyrinthine patchwork of state-by-state” regulations in the U.S. as one of the main obstacles for crypto businesses that ultimately results in “significant barriers to entry for new exchanges” and “a complicated compliance burden for existing exchange.” Market Integrity Working Group concludes: 

“Consumers and cryptocurrency exchanges deserve a clear regulatory framework, the establishment of which would ultimately enhance market integrity and drive consumer adoption of cryptocurrencies.”

However, the working group is aware that U.S.-wide regulation is not likely to be adopted in the near future. “We don’t think something like that is likely in the near term, especially in an election year,” Newhall told Cointelegraph. 

Experts confirm that federal crypto regulation is not exactly a pressing issue for Congress. “In the short term, this is an unlikely scenario,” Carol Goforth, law professor at the University of Arkansas, argued in an email conversation with Cointelegraph. According to her, in the near term, the legislators were first of all focused on the impeachment hearing and will now switch their focus to the upcoming 2020 presidential elections: 

“One way or another, the looming 2020 election cycle is likely to take precedence.  However, in the long run, it may as a practical matter be necessary for legislative intervention.”

However, Goforth notes, appropriate legislation would stop “a colossal waste of resources” that is happening due to U.S. regulators dealing with crypto on a case-by-case basis:

“Currently, the SEC is spending significant sums of money litigating the question of whether cryptotokens with a functioning purpose other than serving as a currency-substitute are securities at all. This is playing out in both the Kik litigation and Telegram ICO dispute. Even if the courts agree with the agency’s analysis (a battle that may have to be fought in multiple circuits unless and until the Supreme Court is willing to weigh in), that still leaves a set of regulatory requirements that were never designed with interests like cryptoassets in mind.”

Andrew Mount, litigation associate at Bressler, Amery & Ross, P.C., suggests that “we are headed towards federal crypto regulation” as the number of major cases involving crypto keeps piling up, although he also stresses that “it is anyone’s guess when it will happen.” He went on to elaborate:

“High profile cases like Facebook’s Libra and Telegram’s Gram push crypto into the national spotlight. With the crypto space rapidly expanding (and more “name brand” companies getting involved), Congress will face increased public pressure to enact legislation.”

Furthermore, Market Integrity Working Group’s proposed legislation “could expand the Commodity Futures Trading Commission’s (CFTC) authority to include the regulation and oversight of digital commodity exchange markets,” as per the blog post written by Madigan and Nelson. 

When asked why the working group would pick the CFTC over other major U.S. financial regulators like the Securities and Exchange Commission, Graham said that “the CFTC has a long history and expertise in monitoring the health and integrity of markets, so we think they are a good point of focus.” He added that for them, the SEC is also quite an important entity, but that the primary focus will be on the CFTC. As Goforth argues, expanding the SEC’s purview instead would make more sense:

“They have not had to develop standards for disclosure, or exemptions, and seem less well positioned to protect potential crypto entrepreneurs, markets, or purchasers. Amending the securities laws to specifically cover cryptoassets, and directing the SEC to adopt exemptions that protect persons engaged in the creation and distribution of such assets in the absence of fraud, would seem to me to be a more efficient approach.”

The establishment of a crypto-focused working group that aims to collaborate with congresspeople is still a healthy development for the industry, both experts agree. Goforth believes that lobbying is very effective in educating legislators, adding that the crypto market is still being stigmatized: “The real challenge will be to convince them that appropriate regulation of cryptoassets is in the best interests of their constituents.” Similarly, Mount told Cointelegraph that regulators are still cautious about the crypto markets:

“The primary issue holding back progress at the federal level is regulators’ lack of trust in the crypto markets. The SEC made this evident in their denial of Bitwise’s bitcoin ETF application in October 2019. The denial reflected the SEC’s uncertainty in the integrity of the bitcoin market.  Because the Market Integrity Working Group’s mission addresses this core concern, it should serve as an effective guide for future Congressional action.”

So, what’s the plan?

As for now, the Market Integrity Working Group has yet to produce a specific roadmap. “The group is new and will work on a detailed strategy in the weeks and months to come,” Newhall said. “We will be adding members to the group to respond to the sustained interest the launch has garnered thus far.”

According to Newhall, there are several lawmakers advocating positive crypto regulation, namely the co-sponsors of the Token Taxonomy Act, as well as representatives DelBene and Schweikert, who recently introduced a bill to exempt personal cryptocurrency transactions from taxation for capital gains — so, convincing the Congress might not be so difficult after all.

While the new working group headed by Ripple and Coinbase execs seems determined to convince U.S. lawmakers that a clear regulatory framework for cryptocurrencies is long due — and the legal wrangling of Telegram’s Gram clearly illustrates that point — the Congress won’t get to the case until the elections are over, experts predict. 

It means that the U.S. will most likely continue to fall behind in terms of federal crypto regulation throughout 2020. In the last month alone, the European Union and Singapore started overseeing crypto assets under new directives, joining the ranks of Japan, Switzerland, Malta and other countries that have made up their minds about cryptocurrencies and blockchain. On the positive side, the working group will have more time to research and prepare their arguments for the lawmakers, some of whom are already championing crypto-friendly regulatory measures.

Singapore AML Framework Can Attract Crypto Businesses, Not Chase It Away

The MAS’ Payment Services Act has gone into effect, setting up a framework for cryptocurrency regulation in the country.

As crypto continues its foray into the mainstream financial world, more countries are recognizing digital assets legally. Singapore is the latest to join the party. On Jan. 28, the Monetary Authority of Singapore’s (MAS) Payment Services Act went into effect, setting up a framework for the regulation of payment-related activities in the country. 

Given that the bill requires that all crypto businesses get registered and licensed (and partly resembles the nature of 5AMDL measures recently enacted in Europe), now seems like the time to have a closer look at Singapore’s regulatory model for crypto and to see what it might mean for the industry.

"Electronic Payments Society" — how the bill was conceived

MAS has been planning to change the regulations since at least 2016. In August of that year, the financial regulator published a paper suggesting to modernize the regulatory framework, making it flexible enough to cater to disruptive technologies emerging in the payments and remittance fields. The move followed MAS Managing Director Ravi Menon’s announcement of the agency's plans to push for "an Electronic Payments Society."

Just one year later in November 2017, MAS released another paper on the proposed Payment Services Act. It specifically outlined that it was working toward regulating cross-border money transfers, e-money issuance and digital currency services, among other things. The agency stressed that it aimed to improve user and merchant protection, create space for the growth of the fintech-friendly ecosystem, and bolster cybersecurity.

MAS explicitly stated in the document that digital currency intermediaries pose money laundering and terrorist financing risks, giving a glimpse into what kind of cryptocurrency regulation the upcoming bill might entail.

Another year went by, and, in November 2018, MAS published the finalized edition of the Payments Services Act (PSA) and submitted it before parliament weeks after Menon had said he intends to “bring together” banks and crypto businesses. The document was signed in January 2019, putting Singapore in line with Japan, Malta, Switzerland and a few other countries that have enacted real, practical regulations on cryptocurrency.

How the PSA works

Essentially, the PSA enables Singapore's central bank to control any payment systems it considers “crucial to financial stability.” It also introduces a mandatory licensing regime for payment service providers that will be required to apply for one of three licenses depending on the nature and scope of their operation.

The first license is for “money-changers,” and it regulates providers primarily against money laundering and terror financing risks. A more comprehensive “standard payment institution license” is designed for entities that transact over $3 million per month, provided they have access to less than $5 million of float each day. A “major payment institution,” the most strictly regulated tier of licensing, is intended for larger service providers.

But most importantly, the act provides concrete regulations for the crypto industry.  David Carlisle, head of community for London-based blockchain analysis provider Elliptic, told Cointelegraph: 

“The PSA makes a number of changes to Singapore’s regulation of payment services beyond crypto, but bringing crypto services providers within the scope of AML regulation is a key aim of the act.”

More specifically, the document states that MAS is going to regulate the so-called “digital payment tokens.” DPTs are tokens that have a digital representation of value that is not pegged to any currency, are stored and traded electronically, and represent “a medium of exchange accepted by the public.” 

Most conventional cryptocurrencies like Bitcoin (BTC) and Ether (ETH) do fall into that category. Notably, MAS’s definition of digital payment tokens ignores subspecies like “security tokens,” “payment tokens” or “utility tokens,” which are used by financial regulators in the United States. This means that the companies behind cryptocurrencies will have fewer opportunities to dodge certain regulatory requirements.

Starting on Jan. 28, Singapore-based DPT businesses will have one month to register with MAS. After that, they will be given a six-month period, during which they will have to apply for a payment institution license via an extensive online form that enlists three types of DPT businesses: exchanges, brokers and custody. 

"We’ll have to wait and see how the licensing process works in practice,” said Carlisle, adding that it is not yet clear how difficult it will prove for businesses to apply for a MAS license: 

“Hopefully, MAS will make the process one that doesn’t place an unnecessary additional burden on smaller businesses that can demonstrate compliance. Singapore has always expressed a desire to be a home for new financial innovations, so if it’s carried out in the right way, the licensing process should work to keep non-compliant actors out without hindering the ability of new products and services to come to market.”

In the long run, the act could strengthen local crypto firms and essentially make them more legitimate in the mainstream financial world. Carlisle also told Cointelegraph that some problems could be expected at the beginning:

“Crypto exchanges and other service providers in Singapore will now have to ensure they have appropriate compliance arrangements, including technology systems, in place to adhere to the requirements. However, companies that are proactive in preparing for these changes position themselves for success over the long term by ensuring they can meet regulatory expectations. What’s more, companies are proactive in adjusting to the new requirements can protect their platforms from money laundering and other financial crimes — something that is essential to ensuring a strong reputation and long-term business growth."

As Dave Jevans, CEO of blockchain security firm CipherTrace, pointed out in an email exchange with Cointelegraph, the regulations that MAS is proposing “will favor more established companies that have more resources than their smaller competitors.”

“The licensing application process will not be an easy one,” admits Ethan Ng, CEO of BiKi Exchange Southeast, which is based in Singapore and is planning to apply for a license via MAS. He explained to Cointelegraph:

“This will take time, and the expected drawbacks during this period of regulatory transition may include a gradual consistent sell and change of loyalties for users to a regulated exchange. This will lead to lower liquidity for unregulated entities and their eventual closure or to seek regulatory licensing in a different jurisdiction. We should expect a period of correction in the Singapore digital tokens market as companies get adjusted to something as new as this.”

Nevertheless, Ethan Ng remains overall positive about the PSA, saying that the benefits outweigh the drawbacks and that it will stimulate the local ecosystem, “It will also attract more credible blockchain companies to be based and licensed in Singapore. This is a critical move towards a new era for the industry.”

Similar to AMLD5 but more gentle  

Crypto regulation has unfortunately proven lately to be a particularly pressing issue in Europe, where 5AMLD came into effect earlier on Jan. 10 — for some crypto companies, the new compliance regulations had a devastating effect, forcing businesses to either close up shop or move their operation out of Europe.

Cal Evans, founder of compliance and strategy firm Gresham International, told Cointelegraph that “the major difference” between the PSA and 5AMLD is that Singapore's law is focused on “payment providers” while the European laws are focused on any company dealing with crypto:

“This is very much in line with Singapore's view that payment services can involve cryptocurrencies. Singapore was also dealing with a wave of exchanges being based in the jurisdiction, this created a massive workload for the Money Authority. Unlike the European law, which is (mostly) brand new, the Singapore law takes existing financial laws and makes them easier.”

In Carlisle’s view, the PSA is “broadly aligned” with 5AMLD, and like the European regulatory measures, it follows guidance proposed by the Financial Action Task Force, the global anti-money laundering agency. 

In June 2019, MAS stated that all DPT-related transactions will be considered “to carry higher inherent money laundering and terrorism financing risks due to the anonymity, speed and cross-border nature of the transactions.” Furthermore, in December 2019, the financial regulator confirmed that it “intends to amend the PS Act to fully align with the most recent enhancements to the FATF Standards.”

However, experts predict the situation is likely to be less dramatic for crypto businesses in Singapore. Evans told Cointelegraph that Singapore is unlikely to give up the leadership position in regards to positive crypto regulation:

“Many of us will remember that Singapore used to be THE location to conduct an ICO after that, Singapore became THE location to run an exchange. Essentially, Singapore became inundated with cryptocurrency companies which were allowing millions of dollars to flow through Singapore banks with limited KYC. Singapore intends to maintain its status as one of the best financial service centers in the globe. This act goes a long way to ensuring that Crypto does not become the anomaly which stands out.”

Carlisle, in turn, stressed that the MAS has considered the needs of the private sector while preparing the act:

“The new requirements are aimed at making Singapore’s crypto sector less vulnerable to financial crimes such as money laundering and terrorist financing, but in a way that allows business to continue to provide new innovative services. [...] Regulators in Singapore have also undertaken an extensive public consultation process that is helping to ensure that the concerns and views of the private sector are taken into account."

Indeed, MAS itself has been reassuring actors that it will do its best not to hinder innovation. As Loo Siew Yee, assistant managing director at MAS, declared in a statement:

“The Payment Services Act provides a forward-looking and flexible regulatory framework for the payments industry. The activity-based and risk-focused regulatory structure allows rules to be applied proportionately and to be robust to changing business models. The PS Act will facilitate growth and innovation while mitigating risk and fostering confidence in our payments landscape.”

Positive migration and future prospects

A number of crypto businesses based outside of Singapore, like Japanese crypto exchange operator Liquid Group Inc. and London-based trading platform Luno, have already expressed their plans to apply for a MAS license, which could also be seen as a positive sign for the industry. “We welcome the Act with open arms,” Liquid’s CEO Mike Kayamori told Bloomberg. 

While both Liquid and Luno already operate in Singapore, Australian crypto exchange Independent Reserve is now planning to expand to the South-Asian country, citing “a number of positive moves by Singaporean regulators, including the introduction of the Payments Services Act.” 

Independent Reserve CEO Adrian Przelozny told Cointelegraph that: “Applying for our license is more onerous than ordering a coffee, however, the Payment Services Act provides a good standard for crypto exchanges to follow in order to ensure a good level of consumer protection and high integrity of operators.” 

He clarified that his exchange already has “the majority of the controls and procedures” required by MAS in place. “When we had our meetings with MAS, they clearly demonstrated that they understood crypto and the blockchain space well,” Przelozny added.

Finally, a closer look at the PSA reveals some interesting details — specifically, the document mentions a central bank digital token. “This is possibly the most exciting element in the whole text,” Evans said in a conversation with Cointelegraph, elaborating: 

“The government of Singapore just dropped us a massive teaser of what's to come. The language is fairly unambiguous, it seems that a central bank digital token could be very much on the way for Singapore.”

Guide to WEF Davos 2020: Sustainability, Stablecoins and CBDCs

The annual World Economic Forum in Davos, Switzerland is about to start — here’s what you should know ahead of the meeting.

The annual World Economic Forum in Davos, Switzerland is about to start. As usual, the forum will gather the world’s political and business elite, and will last from Jan. 21 to 24. Here’s everything there is to know ahead of time on how this meeting will be vital for the crypto and blockchain industry.

WEF is modernizing its agenda 

This year’s theme is “Stakeholders for a Cohesive and Sustainable World,” which could be seen as the WEF’s response to criticism surrounding the annual gatherings in the Alps. Over the past few years, Davos has become a symbol of the widening gap between rich and poor: It is generally attended by extremely wealthy people whose GDP might overshadow entire countries (this year, the forum will feature at least 119 billionaires, Bloomberg noted), while the $43 hot dogs sold at a conference hotspot have become somewhat of a meme

Now, it has come to the point where some players don’t even want to be associated with the forum: For instance, when Starbucks’ CEO, Howard Schultz, announced he was running for United States president (he has since decided against the idea), some people were shouting “Go back to Davos” at his rallies — even though he has allegedly never attended the forum.

Still, the WEF’s annual gatherings have historically served as a platform for international conversation and negotiation — focused on preventing conflicts, among other things. The forum was originally launched in 1971 by German economist Klaus Schwab as the European Management Forum, and its initial goal was to help European businesses develop by placing them in the same room with influential actors from the government. It was reorganized as an international event in 2015.

Thus, the WEF’s Davos 2020 meeting is set to discuss sustainable development: namely, how to ensure a healthy future (and tackle mental health issues in particular); how to deal with climate change and rising pollution rates; how to achieve global collaboration among all 193 nations; and how to ensure that the technological revolution doesn’t create unfair conditions on the market and escalate international conflicts. 

High-profile guests will include Gretha Thunberg and Donald Trump, with the crypto world also in attendance

Among the expected guests is climate change activist Gretha Thunberg, who has been named Time Magazine’s Person of the Year for 2019. She will be present at the “Averting a Climate Apocalypsis” panel, discussing how businesses and governments can collaborate to tackle global emissions of carbon dioxide.

The forum will also be visited by U.S. President Donald Trump, who has previously mocked Thunberg on Twitter. Trump was also scheduled to attend the 2019 Davos gathering but skipped due to the government shutdown. Federal Chancellor of Germany Angela Merkel and European Central Bank President Christine Lagarde are also among listed speakers.

As for those from the crypto industry, the CEO of crypto payments firm Circle, Jeremy Allaire, will participate in the session titled “Shaping the Future of Financial and Monetary Systems.” Explaining his WEF mission to Coindesk, Allaire mentioned that he will promote the concept of stablecoins.

Related: Who Is David Marcus: Bitcoin Believer Turned Facebook Libra Co-Creator

Further, Calibra CEO David Marcus, who was one of the key players for the industry in 2019, will be one of the public speakers at a panel devoted to “Creating a Credible and Trusted Digital Currency.” The session will cover how a digital currency might entail financial inclusion (one of the Libra’s key stated aims) and what role central banks might play in this process. 

Marcus will be joined by Sheila Warren, head of blockchain at the WEF, and Bitcoin (BTC) critic and general manager at the Bank for International Settlements Agustin Carstens, who has previously advised against the issuance of central bank digital currencies. Finally, Neha Narula, director of the Digital Currency Initiative at the MIT Media Lab, who has argued for increased regulations within the crypto space, will also attend the session.

Other expected guests (albeit not speakers) from the crypto space include the Winklevoss brothers of the Gemini exchange and J. Christopher Giancarlo, former chairman and “crypto dad” of the Commodity Futures Trading Commission, who is now advocating the idea of a blockchain-based U.S. dollar with a new think tank called the Digital Dollar Foundation.

WEF Davos 2020 vs. 2019: Digital currencies vs. blockchain

In 2019, there was a sizable amount of crypto bashing at the Davos WEF. For instance, PayPal CEO Dan Schulman criticized Bitcoin for its limited retail appeal while Huw van Steenis, who is the senior adviser to Bank of England Governor Mark Carney, went as far as to say that he is not worried about cryptocurrencies because they are “slower” than their mainstream counterparts. 

At the same time, blockchain was largely praised. Even JPMorgan Chase CEO Jamie Dimon — who famously said that he doesn’t “really give a s---” about Bitcoin in the past — admitted that the technology is “real.” It makes sense, given that he unveiled the controversial JPM Coin a few months later. 

Currently, the validity of blockchain is obvious enough to the public — the technology even applies to the WEF’s current theme of climate change. According to the accounting giant KPMG, blockchain (combined with the Internet of Things) will be used to manage climate change in 2020. This notion will be discussed at the upcoming WEF Davos event, according to KMPG’s U.S. blockchain lead, Arun Ghosh.

Considering that digital currencies akin to stablecoins — either issued by private firms like with Libra or government-backed CBDCs — will likely be the most discussed crypto-related topics at the upcoming forum. It seems fair to assume that they might become the next hot topic among mainstream actors — and a CBDC-focused alternative to an industry association like the Global Blockchain Business Council could be assembled as a result, ultimately helping central banks around the world to reach a consensus on digital currencies.

China Prepares for CBDC With Cryptography Law on Encryption Standards

On Jan. 1, China’s law governing cryptographic password management came into power. What does it mean?

On Jan. 1, China’s law governing cryptographic password management came into power. Essentially, the act aims to set standards for the application of cryptography and the management of passwords, and, therefore, ultimately reduces China’s cyber vulnerabilities on a nationwide scale. 

Some local media outlets rumor that the law is paving the way for the long-awaited release of China’s central bank digital currency, although it does not make any explicit references in that regard. Meanwhile, the private sector is worried about the anonymity of its data.

The law outlines three separate kinds of encryption but provides little information beyond that

The initial draft of China’s Cryptography Law was released in April 2017, months before the local government rolled out the blanket ban on cryptocurrencies. Nevertheless, the law has nothing to do with digital assets, and it never even mentioned Bitcoin (BTC) or any other cryptocurrencies. Instead, it focuses on cryptography: items and technologies that are used to encrypt or certify data. 

More specifically, the act divides passwords into three separate categories — core passwords, common passwords and commercial passwords. Under the new law, core and common encryption are required for systems that transmit and store state secrets, while the commercial encryption is intended for business and private use. 

Furthermore, it stipulates that the development, sale and use of cryptographic systems “must not harm the state security and public interests.” Moreover, all such systems must be examined and authenticated by the government before they’re used. The bill was passed by the Standing Committee of the 13th National People's Congress in China on Oct. 26.

There is little information on the Cryptography Law beyond the above-mentioned encryption classifications and general conditions, says Sale Lilly, China Policy Analyst and Professor of Blockchain Technologies at the Rand Corporation, a nonprofit global policy think tank. As Lilly explained to Cointelegraph, the ambiguity comes from the fact that the act defines core and common encryption techniques as a state secret:

“The passwords are to adhere to a particular cryptographic standard, for example the U.S.’s NSA intelligence organization commonly cites SHA 256 as strong hash function, the PRC might adopt something similar based on the State Cryptographic Administration advice. Because the Cryptographic Law is ambiguous on the crypto standard (we don’t know if it's simply hash standards or something more comprehensive) I’d say that at a minimum it’s a reasonable guess that the terms ‘Core’ and ‘Common’ crypto refer to an undisclosed hash standard plus cyber hygiene requirements like periodicity of crypto rollover (monthly, weekly etc…).”

As for commercial encryption, private entities will continue to be allowed to operate under separate standards subject to audit by the State Cryptographic Administration, says Lilly. “As written, the law does not state that the Chinese government would hold private keys to commercial encryption tools,” he stresses, adding:

“There is a lot of language included in the latter third of the bill aimed at reassuring commercial vendors that these audits (even of foreign registered firms) will not require the firm to turn over source code, which seems a savvy move by the National People's Congress law authors.”

Nevertheless, some lawyers are worried that it could not be the case. For instance, Steve Dickinson of China Law Blog, a regional outlet curated by international law firm Harris Bricken, writes that “inviting foreign providers and users of cryptography is just a trap for the unwary,” as the new law allegedly allows foreign encryption systems to be sold in China, “provided that the systems have been approved and certified through a certification system that has not yet been described.” Thus, the blog’s author argues:

“Once data crosses the Chinese border on a network, 100% of that data will be 100% available to the Chinese government and the CCP. Cryptography may work well to prevent access by the public, but all this data will be an open book to the PRC government.”

Moreover, Dickinson argues that most firms encrypt their data with open-source software, like GNU Privacy Guard (GPG), whose essential purpose is to allow companies and individuals to keep their information away from state actors. The issue, therefore, is whether the government will allow the use of GPGs:

“If the answer is no, then the entire set of provisions for foreign encryption systems are completely meaningless. If the answer is yes, then the designation ‘commercial’ has no meaning.”

Similarly, other researchers opine that if firms start using a Chinese-owned software service, all of their data stored and managed by that service can be seized by the government under the new act.

Will the new law pave the way for CBDC?

China seems to be firm on its way to become the first country to issue a CBDC. The project has been in development for five years, but it reportedly accelerated last year when Facebook’s Libra was officially unveiled. 

The potential release of the digital yuan would fall in line with the general “blockchain-before-Bitcoin” attitude championed by the Chinese government — unlike a private, decentralized cryptocurrency, the CBDC will be controlled by the People's Bank of China and backed one-to-one by the country’s fiat reserves.

In December 2019, Chinese media reported that the central bank was planning to conduct the first real-world test of its CBDC, while earlier this week, the PBoC issued an official statement confirming that it is “progressing smoothly” with the government-backed currency.

Related: Five Countries Where Crypto Regulation Changed the Most in 2019

Lilly told Cointelegraph that the law “is highly complementary to many of the efforts and tasks required to roll out a CBDC,” and that it covers key Chinese players who participate in implementing the digital yuan, namely the PBoC, the State Administration for Foreign Exchange and the Ministry of Finance, all of which will be required to unify their encryption standards along with the rest of the Chinese government.

However, Lilly notes that the CBDC-related progress will depend on the stringency of the “Core” and “Common” encryption levels, which he compares to the United States military’s “Top Secret” and “Secret” concealment levels, respectively — and, hence, how CBDC private keys will be encrypted: 

“If China’s experience in trying to unify government cryptographic standards is anything like the U.S. Military’s experience, higher standards of encryption and trust scale users at a slower rate, so onboarding oracles and trusted agents for a private or permissioned access CBDC blockchain implies a natural trade-off between key security and speed of onboarding digital economy participants; banks, vendors, and a slew of Chinese government entities in tax and finance roles.”

Overall, China is continuing its blockchain-positive, anti-anonymity course with its new Cryptography Law. The country continues to use encryption technologies not only to hide its sensitive data but also to supervise what information private entities might be holding. This is similar to how its CBDC is expected to function — and is exactly what Zuckerberg was warning U.S. senators about back in October.

‘Cryptocurrency Will Not Die’: Mainstream Media on Bitcoin in 2019

As the year comes to a close, it is time to look back at mainstream media’s coverage of cryptocurrencies in 2019.

In late 2017, Bitcoin piqued the interest of millions of people hoping to capitalize on the ongoing frenzy and, as a result, drew the attention of various traditional media outlets. The press seemed largely skeptical about the concept of decentralization but proceeded to report on Bitcoin’s erratic price movement.

This year, as the space has become more regulated, cryptocurrencies saw a notably different kind of coverage. The industry’s Wild West days are over, and media outlets — most of whom were quick to bury Bitcoin at least once over that period — are now focusing on how cryptocurrencies are entering the agenda of Big Tech and, for instance, the People’s Bank of China.

Still, many spectators remain unconvinced — as illustrated by United States President Donald Trump’s tweet earlier this year that summarized the most popular concerns about cryptocurrencies in under 280 characters and was covered by most mainstream media outlets (with diametrically opposed views regarding the critique’s potential impact on Bitcoin’s value). The president’s tweet read:

“I am not a fan of Bitcoin and other Cryptocurrencies, which are not money, and whose value is highly volatile and based on thin air. Unregulated Crypto Assets can facilitate unlawful behavior, including drug trade and other illegal activity....”

Here are the main highlights of 2019’s Bitcoin and blockchain coverage gathered from mainstream media.

Television reports

CNN

Title: Crypto Crazy

Airing date: Sept. 9–Sept. 13

Back in August, Julia Chatterley — the anchor for CNN’s daily global business program First Move — announced she would host a week-long series called “Crypto Crazy” the following month, signaling that her audience was interested in hearing more on digital money. The show’s main objective was to “debunk some of the most popular misconceptions” about cryptocurrencies. Notably, in the first episode, Chatterley asked the guest expert to explain some not-so-basic concepts, especially for a TV audience — such as fake volume reports, whales and cold wallets. In the following episodes, the anchor focused on this year’s most mainstream crypto events, including Libra and the Winklevoss twins’ attempts to take digital assets to Wall Street.

CBS

Title: Bitcoin’s Wild Ride

Airing date: May 19

Earlier this year, CBS devoted so much as “60 Minutes” to cover Bitcoin’s many swings that happened over 10 years. To get a first-person perspective, the channel’s correspondent, Anderson Cooper, interviewed a handful of industry participants — including, among others, the guy who infamously bought two pizzas for 10,000 Bitcoin, marking the first time the preeminent crypto was used as a currency. “Sorry, let me just get this straight,” Cooper asked, as would any person hearing this story for the first time. “You spent about $80 million on pizza?”

Newspaper reports

The New York Times

Title: Bitcoin Has Saved My Family

Date of publication: Feb. 23

In this op-ed, the Times’ audience was presented with a curious case of how Bitcoin — often depicted as a tax cheating tool for radical libertarians or even terrorists — can actually help those living in poverty-stricken countries. Penned by Carlos Hernández, a Venezuelan economist, the essay explains how keeping money in bolívars — the local soverign currency — is seen as “financial suicide” due to the overwhelmingly high inflation rates. The annual inflation rate in Venezuela was almost 1.7 million percent last year.

The author, who had gone grocery shopping after changing his Bitcoin into bolívars, could not find any milk in about 20 shops nearby due to extreme food shortages. Still, he had to buy something that day — otherwise, his bolívars would lose value — so he opted for cheese, the closest thing to milk he could find.

Hernández, who keeps all his money in Bitcoin, says that he is not the only Venezuelian relying on digital assets — in fact, as much as $1 million worth of bolívars was traded for Bitcoin in a single day in April via LocalBitcoins.com, a peer-to-peer exchange.

On page 9 of the Times, Hernández wrote:

“You could say that cryptocurrencies have saved our family. I now cover our household’s expenses on my own. My father is a government employee — in a printing department with no paper — and earns about $6 a month. My mother is a stay-at-home mom with no income. And cryptocurrencies helped my brother Juan, 28, escape Venezuela last summer.”

The Guardian

Title: A Chinese Digital Currency Is the Real Threat, Not Facebook’s Libra

Date of publication: Nov. 11

Earlier this year, the Guardian selected Kenneth Rogoff — a professor of economics and public policy at Harvard University, who worked as a chief economist at the International Monetary Fund in the early 2000s — to write a piece on cryptocurrencies.

Rogoff focused on an important trend: digital, state-run currencies that employ blockchain. China has advanced more than others in that regard, the economist argued, comparing the country’s efforts to Facebook’s Libra, which is by far a much more well-known project. Indeed, Zuckerberg himself made this analogy during a hearing before Congress. “China is moving quickly to launch a similar idea in the coming months,” the Facebook CEO said at the time. “We can’t sit here and assume that because America is today the leader that it will always get to be the leader if we don't innovate.”

“A widely used, state-backed Chinese digital currency could certainly have an impact, especially in areas where China’s interests do not coincide with those of the west,” Rogoff wrote, stressing that China’s currency will most likely be “permissioned” and hence have strict control over all transactions that it entails. Ironically, that would entirely contradict the anonymous, pro-decentralization agenda that Bitcoin is famous for — and average readers are starting to realize that cryptocurrencies are not just some internet coins, but a global technology that can change financial systems forever.

Government reports

Department of Justice

Title: The Mueller Report

Date of publication: April 19

In April, the Department of Justice released special counsel Robert Mueller’s report detailing his investigation into Russian interference in the 2016 U.S. election. One of its major points was that Russian agents allegedly used cryptocurrency at numerous stages in their online efforts to disrupt the election, hoping to “capitalize on the perceived anonymity of cryptocurrencies.” Specifically, Mueller’s report revealed that the “systems used in the hacking of the Democratic Party” were paid for with Bitcoin, as were online hosting services used by websites that published the hacked materials and participated in “the targeting of disinformation at American voters.”

Indeed, while cryptocurrencies are known for the anonymity they provide, there is another side to the coin: All Bitcoin transactions are posted to the publicly accessible blockchain, therefore making it possible to identify the sender’s wallet address and track their entire transaction history.

Nevertheless, Bitcoin allowed Russians to “avoid direct relationships with traditional financial institutions, allowing them to evade greater scrutiny of their identities and sources of funds,” Mueller’s investigation concluded.

Business media reports

Bloomberg

Title: The World’s Most-Used Cryptocurrency Isn’t Bitcoin

Date of publication: Oct. 1

Bloomberg is by no means an apprentice in the crypto world, as the publication has been closely following digital assets for the past few years. Despite being regularly criticized by biased community members for spreading FUD, Bloomberg often offers quality insights into the space.

In October, the magazine moved focus from Bitcoin to Tether (USDT) — the popular but controversial stablecoin that is designed to maintain a one-to-one ratio with the U.S. dollar in terms of value. Tether’s trading volume surpassed that of Bitcoin’s for the first time in April and had been consistently exceeding it since early August at about $21 billion per day, Bloomberg noted.

But why Tether of all stablecoins? people familiar with the company’s scandalous lawsuit might ask. The answer is simple, yet not so obvious: According to Bloomberg’s source, some traders don’t even realize they are holding Tether.

“I don’t think people actually trust Tether — I think people use Tether without realizing that they are using it, and instead think they have actual dollars in a bank account somewhere,” Thaddeus Dryja, a research scientist at the Massachusetts Institute of Technology, told the magazine. Some exchanges even mislabel their pages to convey the impression that customers are holding actual dollars instead of Tethers, he argued.

CNBC

Title: There’s Another Reason Behind Bitcoin’s 200% Rise This Year — It’s Got Nothing to Do With Facebook

Date of publication: June 25

Back in June, when Bitcoin was in the midst of a long-awaited bull rally (which would soon end), CNBC tried to pinpoint the reason behind the positive price movement. The publication suggested that it wasn’t Facebook’s arrival into the space, as many believed, but something more niche — an event called the Bitcoin halving, when the rewards to miners are cut in half every four years. The next one is scheduled for May 2020, and the tightening of supply had forced the price upward, the article opined.

Perhaps CNBC was too early to take the Bitcoin halving into consideration, but the fact that a major news source is covering the technology’s complexities for a mainstream audience is a sign that Bitcoin is not as underground as we used to think.

The Wall Street Journal

Title: If Bitcoin Looks Like It Isn’t Trading, It’s Because It Isn’t

Date of publication: Dec. 6

The Wall Street Journal has kept its overall conversvative stance toward cryptocurrencies.

“The energy that drove bitcoin and the cryptocurrency industry through much of the early years has been replaced by the sobering reality that creating new global monetary standards requires more than computer code,” the publication wrote, citing data from research firm Flipside Crypto. Apparently, in the last week of November, only about 14% of the 18 million outstanding Bitcoin was actively traded.

Now, with the number of daily Bitcoin transactions falling, the journal continued, “hopes rest with institutional investors, and there have been signs of progress on this front,” citing Bakkt as an example.

Financial Times

Title: A US Recession Could Fuel a New Cryptocurrency Boom and Bust

Date of publication: Nov. 14

According to the Financial Times, if global economic decline and uncertainty about the future of U.S.–China trade lead the U.S. into recession, cryptocurrencies could serve as a financial safe haven and even experience another bull run. However, that would be followed by another price bust, the publication argued:

“The last bust made clear that gains not linked to adoption by ‘real world’ users do not last. While the underlying digital technology continues to hold promise, it has yet to find a significant user base beyond enthusiastic techies.”

Lifestyle media

The New Yorker

Title: Cryptocurrency 101 in the South Bronx

Date of publication: Dec. 2

The New Yorker published a story of Carlos Acevado — a public school teacher in Morrisania, the poorest congressional district in the U.S. — who shares his cryptocurrency knowledge as someone who got into Bitcoin back in 2014 with a group of his former students.

“When we first talked about Bitcoin in your class, I thought, Criminals,” one of Acevado’s students said. “I’m not talking about machine guns on the street,” the teacher replied. “It’s not ‘Mad Max’ out there.”

To Acevado, cryptocurrencies are more about helping “the unbanked” — which is why he created the Crypto Community Project, with the goal of building a cryptocurrency economy in the South Bronx.

“After these two days, you’re going to be the one per cent,” he told the 25 young people who had attended his class. “You’re going to know more about cryptocurrency and blockchain than ninety-nine per cent of people out there. You have the opportunity to get in on the industry right now.”

GQ

Title: Cryptocurrency Will Not Die

Date of publication: Nov. 26

GQ’s Rosecrans Baldwin interviews some of the people who were lucky enough to get in early (and some who, in their own words, “were late to the party of crypto” but still enjoyed nice gains during the crazy days of late 2017) — most of them got burned, but their morale remained unshaken. “You know, honestly, if I had a better car, I’d sell it and get back in,” said one of the interviewees. The other one admitted to selling his old car to pay some bills and get back in the game. Needless to say, that kind of devotion surprised Baldwin.

He too tried to get a hang of crypto trading, investing $100 that he borrowed from his magazine. “I spent about $10 worth of Bitcoin on 20 coins of IOTA — because I didn’t have one ‘iota’ of knowledge about trading crypto,” he writes, describing a shameless, unenlightened attempt at getting rich that might recall some early memories for most cryptocurrency holders out there.

“What is crypto?” the author ponders in his column. “A couple years ago, crypto was the future, according to your cousin at Thanksgiving.” Closer to the end of the article, he develops this idea further:

“Only crypto didn’t disappear, it just went quiet. And this Thanksgiving, the evangelists will tell you it’s bigger, more relevant than ever, only they’re not just your cousin anymore. They’re the People’s Bank of China. They’re Mark Zuckerberg. Talking about crypto today is more like talking about the climate crisis. Forget real or unreal. It’s ‘how soon,’ and ‘oh crap.’”

Blockchain Pilot Makes Waves in Russia’s Energy Sector

Russian tech startup Waves announced it has been testing a blockchain solution for payments in the retail electricity sector.

Earlier this week, Russian tech startup Waves announced it has been testing a blockchain solution for payments in the retail electricity sector. The pilot program was initiated by Rosseti, Russia’s national energy grid operator, which is looking to automate and make transactions between energy producers, suppliers and consumers more transparent.

Now that the first stage has been successfully completed, the partners will proceed to scale up their efforts. Ultimately, they envision rolling the blockchain-powered solution out nationwide.

Blockchain and energy: What makes them work together?

According to Wood Mackenzie, a global natural resources research and consultancy group, the first documented use case of distributed ledger technology in the energy sector can be traced back to April 2016, when residents of Brooklyn, New York, started trading solar power via a blockchain peer-to-peer system. From that point onward, the technology has been gaining traction with the energy industry. The report goes on to say that investments in the blockchain-in-energy industry reached over $300 million between the second quarter of 2017 and the first quarter of 2018.

Indeed, these days, the energy sector is widely considered to be one of the most attractive fields for DLT. A 2019 academic study titled “Blockchain Technology in the Energy Sector: A Systematic Review of Challenges and Opportunities” reviews as many as 140 blockchain commercial and research initiatives within the field.

Related: Green Policy and Crypto Energy Consumption in the EU

The most notable examples include Grid+, a blockchain energy company focusing on wholesale energy distribution, as well as Brooklyn Microgrid, the aforementioned blockchain-based peer-to-peer energy trading platform run by Transactive Grid, which is a collaborative startup initiated by LO3 Energy and Ethereum-centered company Consensys.

But what exactly makes blockchain a good fit for the energy sector? As per a 2018 Deloitte report, adopting blockchain in energy and resources “could improve visibility, increase operating efficiencies, and streamline regulatory reporting.”

More specifically, the paper’s authors argue that blockchain could provide a reliable and efficient platform for executing and recording energy trading; store vast amounts of clean, tamper-proof data accessible to regulators; and track efforts of numerous parties involved in the end-to-end process of creating and delivering electricity to consumers.

Russia’s energy industry problems — and how blockchain can solve them

In the blog post announcing its blockchain solution, Waves explained that the main drivers for the project are the inefficiency, opacity and mounting debt that currently plague the Russian energy industry. The post cites data from the Russian government, which revealed that total debt for electricity as of Sept. 1, 2019, had reached 1.3 trillion rubles ($15.7 billion‬), with households accounting for 800 billion rubles ($12.6 billion).

The reported underlying causes for this debt include customers who do not pay their electricity bills, the failure of some payments to reach manufacturers, siloed or inaccessible data, and inaccurate metering calculations by intermediaries. If implemented correctly, blockchain can indeed help to overcome these hurdles, Eyal Shani, a senior researcher at blockchain-focused research firm Aa​ykesubir, told Cointelegraph. He elaborated:

“By its nature the sector consists of consumers and producers which are widespread across the entirety of a country. I can only imagine that in Russia, the largest country in the world, the magnitude of the problems can be much bigger than we see in other regions. In today’s modern electricity almost everyone can create voltage and hence the management problems of such a wide supply chain is inevitable. Particularly, it’s hard to introduce trust relation and proper monitoring when dealing with such systems.”

In response to Rosseti's request for solutions, Waves' project — which has been in development for nearly 9 months — aims to "entirely remove opportunities for manipulating data in the electricity market, including when measuring electricity use and making payments," according to the company's representative.

Waves’ solution: A blockchain-assisted app that could go nationwide

Waves’ solution, which is “directly integrated into electricity meters,” includes a blockchain platform, mobile and web applications, and a gateway for data transmission. To establish the end-to-end payment chain between consumers and electricity suppliers, Waves struck a partnership with Alfa Bank, Russia’s largest privately owned bank.

Earlier this month, the company presented the initial results of its blockchain solution — involving 400 households in the regions of Kaliningrad and Sverdlovsk — at the Electric Networks Forum in Moscow, hereby finishing the first of three stages.

The two remaining phases entail “scaling up all houses in these two regions” and “scaling to other regions of Russia” respectively, the startup’s spokesperson told Cointelegrah. The second stage will be implemented in 2020–2021, the representative added.

But skeptics would ask: Are blockchain and smart contracts really necessary here?

“It turns out that the bureaucracy and internal fraud involved with the intent to manage everything in one place is larger than the added costs of running a blockchain system,” Shani from Aa​ykesubir said. It would be possible to refrain from using the technology, he added, but centralizing the solution “could create a strong incentive for internal fraud” — which is exactly the problem Rosseti is hoping to tackle.

Nevertheless, as Shani noted, “since the project didn’t provide with the exact way they structured their network we don’t know if they benefit from trust sharing in their system or just from standardization and consolidation of processes into one network.” He continued to say that creating a private blockchain network would be a step in the right direction, adding:

“Generally this seems like a classic case where a closed or even open network could cut governance costs and introduce all the benefits of modern payment solutions like real-time tailored pricing, custom packages and added transparency and privacy.”

In regard to this, Waves’ spokesperson told Cointelegraph that there are many players involved in the retail electricity market, such as generating companies, distribution companies, grid companies, consumers and banks. Additionally, the process of transferring is accompanied by technical losses of electricity, with the representative adding that:

“The blockchain captures data at each stage, makes the process completely transparent and allows to permanently resolve the dispute between the participants on the issue of ‘who made the loss and who to pay for them?’, while smart contracts make it possible to ensure that all participants fulfill their financial obligations.”

Wall St. to Washington: Bakkt Launches New Products, CEO Joins Senate

Bakkt launches first U.S.-regulated BTC options and cash-settled futures, while CEO is set to become a senator. What does it mean for crypto?

Earlier this week, institutional Bitcoin (BTC) futures platform Bakkt launched two new financial products: the first United States-regulated BTC options and cash-settled futures. The announcement came just three months after the project went live with its physically delivered futures, following a series of delays.

Meanwhile, the platform’s CEO, Kelly Loeffler, is reportedly going to replace Georgia Senator Johnny Isakson in the U.S. Senate by the end of the year. So what do these new developments mean for Bakkt and the crypto market in general? 

What is Bakkt? 

Bakkt (pronounced “backed,” referring to “asset-backed securities”) is a digital assets platform created by the Intercontinental Exchange, or ICE, an Atlanta-based operator of 23 major international exchanges that include the New York Stock Exchange, the world’s largest exchange.

It was first announced on Aug. 3, 2018, when ICE revealed its plans to create a platform “that enables consumers and institutions to buy, sell, store and spend digital assets on a seamless global network.” The concept was formulated over five years, as both of Bakkt’s co-founders, Loeffler and her husband Jeff Sprecher — who is also the founder, chairman and CEO of ICE — said in a Fortune profile.

The list of Bakkt’s allies includes Microsoft, Boston Consulting Group and Starbucks, all of which have invested in the project. The platform’s backers also include an array of Wall Street players such as Fortress Investment Group, Eagle Seven, Susquehanna International Group, Galaxy Digital, Horizons Ventures and Pantera Capital.

Related: Are Trading Vehicles Dragging Crypto Into Maturity?

Bakkt’s main feature is physically delivered BTC futures contracts, which the platform actively marketed ahead of launch. Futures represent an agreement to buy or sell an asset on a specific future date at a specific price — an important risk management tool for volatile markets such as crypto. 

Although, it is not an entirely new concept for the crypto market, as BTC futures have been traded since December 2017 on two major U.S.-regulated exchanges — the Chicago Mercantile Exchange and the Chicago Board Options Exchange. However, the offers of both Chicago exchanges are settled in cash, while the ICE-backed platform debuted physical one-day BTC futures contracts.

Bakkt’s launch — underwhelming at first, eventually picked up pace 

Nine months out from its scheduled launch date, Bakkt finally commenced services on Sep. 23, 2019 after a number of delays. However, despite the prolonged anticipation and analysts’ bullish predictions, the project saw just 71 BTC (about $700,000 at the time) traded in the first 24 hours. 

Nevertheless, the situation soon began to change, as the trading volume of Bitcoin futures soared to 224 contracts on Oct. 9 — 796% higher than the previous day. In two weeks, the all-time high rose to 452 BTC futures contracts per day. By the end of the month, Bakkt experienced yet another boost in volume that drastically dwarfed previous developments: On Oct. 26, the platform traded 1,183 Bitcoin futures contracts, or roughly $11 million, in a single day. 

Around the same time, Bakkt decided to capitalize on the good news, with the firm announcing its plans to launch the first regulated options contracts for Bitcoin on Dec. 9. In the accompanying press release, the company’s Chief Operating Officer Adam White argued that the physical Bakkt Bitcoin (USD) Monthly Futures that were launched back in September produce a benchmark contract that “provides the foundation for us to develop complementary products based on the needs of our customers.” He added that the options contracts will comprise of capital efficiency, cash or physical settlement, low fees and European-style options. 

New options: What’s on offer to investors?

Indeed, on Dec. 9, Bakkt unveiled two new Bitcoin investment products: Bakkt Bitcoin (USD) Monthly Options and Bakkt Bitcoin (USD) Cash-Settled Futures. According to the platform, the monthly options product is the first Bitcoin futures contract regulated by the U.S. Commodity Futures Trading Commission. As per the announcement, price discovery occurs within a federally regulated market and has no exposure to unregulated Bitcoin spot markets.

“Cash settled futures products simply net the difference at expiry with one party receiving that cash difference,” as John Todaro, director of digital currency research at TradeBlock — a New York-based data provider — told Cointelegraph, elaborating:

“In this way, cash settled futures are often seen as simpler instruments, mostly for speculative purposes, have less delivery costs/warehousing costs associated with them, but in some cases may not be seen as the best instrument for parties that actually need the physical asset for hedging or other (like a bitcoin miner for instance may need to deliver the physical bitcoin). In both cases, futures contracts require the two parties to transact at a certain price at a future date.”

The cash-settled futures product, in turn, is a new contract that will be initially available on ICE Futures Singapore, an approved exchange located in the island city-state. The contract is based on the settlement price of the benchmark Bakkt Bitcoin monthly future contract and provides an “alternative for participants who are unable to trade our physically delivered contract,” the blog post reads. Todaro explained to Cointelegraph:

“Options are similar to futures in that they are derivative contracts, but they have more nuance to them (a whole host of strategies can be built on calls and puts) and do not require the two parties to transact. A buyer has the right (the option) to transact but not the obligation to do so. The reason the buyer may not want to exercise the contract is if the price is no longer in his/her favor — however this person is paying a premium for this right.”

When asked whether the new financial products are likely to attract more institutional investments, experts warn that there are more factors to take into account, namely liquidity. Juan M. Villaverde, chief crypto analyst at Weiss Ratings, told Cointelegraph:

“Over time it’s likely to be institutions like the CME and Bakkt that are needed to create the necessary infrastructure to attract institutional investors to Bitcoin and cryptocurrencies. But they are not, by themselves, enough. Reason: The biggest struggle for Bitcoin futures has been lack of liquidity. Without liquidity, demand for crypto assets from institutions will continue constrained, at least in the near term.”

Todaro told Cointelegraph that while the cash-settled futures product is “similar to their physically settled offering in terms of attracting institutional interest”, a regulated platform for trading Bitcoin options contracts “would likely attract greater institutional interest.” So is that good for Bitcoin’s price? Not necessarily, experts say. “The primary benefit of options and futures markets is to help balance and dampen volatility,” Villaverde explains:

“That’s good for long-term individual investors and commercial players. But it may not get a resounding cheer from crypto traders who are attracted to crypto assets precisely because of their high volatility.”

Todaro is also skeptical in this regard, as he thinks that the new financial products might create more space for bear action instead of a flood of investments into the top cryptocurrency. He told Cointelegraph:

“While an increase in bitcoin product offerings would bring about greater institutional involvement in the space, it is not exactly clear that these institutions would be buyers of the asset class.”

Notably, more mainstream-oriented trading platforms are looking into cryptocurrency financial products. By introducing Bitcoin options in December, Bakkt has outpaced the Chicago Mercantile Exchange, who are planning to launch options on Bitcoin futures on Jan. 13, 2020. However, the CME’s offering is still likely to be more popular once it goes live, as Todaro suggests:

“While Bakkt would have an initial advantage, the CME maintains a stronger presence in the derivatives market and so institutional traders and investors are already very comfortable with their platform. Currently, Bakkt’s bitcoin futures product does around 10% of the daily notional trading volume that the CME’s bitcoin futures product does. As such, the CME remains the higher volume platform and I would expect this to continue as similar bitcoin products launch.”

Such competition suggests that “this risk management problem is well on its way to being solved,” as Travis Kling, chief investment officer at crypto asset management firm Ikigai, told Cointelegraph, “Just one more sign that Bitcoin is growing up.”

Bakkt’s CEO off to the U.S. Senate — healthy for crypto?

Bakkt might make more official announcements before the year’s end. On Dec. 4, the Washington Post reported that Georgia Governor Brian Kemp appointed Kelly Loeffler to a seat in the U.S. Senate. Thus, the Bakkt CEO will replace Sen. Johnny Isakson (R-GA), who plans to retire at the end of the year. 

Consequently, Loeffler will step down from the digital assets platform. The Intercontinental Exchange has thanked Loeffler for her work with Bakkt, according to a statement by Josh King, a spokesman for ICE. Loeffler’s upcoming entry to the political scene is a positive sign for the crypto industry at large, Todaro shared in a conversation with Cointelegraph:

“Kelly Loeffler obviously understands the space and is a proponent of it, and so, where applicable on matters before her in the Senate, I would imagine she would be a proponent of bitcoin and other digital currency platforms.”

Additionally, Bakkt has some concrete plans to facilitate its crypto expansion into the mainstream in 2020 — a consumer app developed in conjunction with the “flagship retailer” Starbucks. According to the company, the app will help consumers “unlock the value of digital assets, as well as ways in which they can transact or track them.”

Cointelegraph reached out to ICE for comments, but the company has not replied as of press time.

Bitcoin Halving, Explained

A guide to Bitcoin halving — a pre-scheduled event that will reduce the asset’s supply, potentially driving the price upward.

Will the Bitcoin price change?

Historically, the price has gone up following a halving, but it ultimately depends on the supply/demand ratio.

Essentially, Bitcoin halving cuts down the supply of BTC, making the asset more scarce. If the demand is there, the price is likely to increase. There are also some historical precedents. On Nov. 28, 2012, the day of Bitcoin’s first halving, the cpryptocurrency’s price rose from $11 to $12, and continued to climb up throughout the next year, reaching $1038 on Nov. 28, 2013.

Roughly four years later, a month before the second halving, Bitcoin’s price started to follow a similar, bullish pattern. It surged from $576 on June 9 to $650 on July 9, 2016 — the day the block’s reward was reduced by half for the second time in the asset’s history. Again, BTC continued to accelerate through the next year, albeit with occasional turbulence, and traded at $2526 on 9 July 2017.

Will it be the same next time? Skeptics believe that the halving has already been priced in (remember this year’s epic, but short-lived systematic price increase?). Although, there is no scientific way to verify this. 

Moreover, the industry has drastically changed over the last four years, as cryptocurrencies — and Bitcoin in particular — became an essential part of mainstream news coverage. Still, some people might be tempted to take the chance, especially given the previous patterns exhibited around Bitcoin halvings. 

Consequently, if history repeats itself and the Bitcoin price starts going up in April 2020, even more traders might start buying the asset out of a fear of missing out, thus stimulating the demand, and, ultimately, the price.

Will Bitcoin miners still be interested?

Some smaller players might be forced to leave (or at the very least, upgrade their hardware).

At this point, the majority of Bitcoin mining is performed by giants like Bitmain, the China-based company that was worth $12 billion at some point in 2018. Bitmain validates blocks with thousands of loud, extremely powerful and high-energy-consuming machines called application-specific integrated circuit miners, which are much more efficient compared to the basic setups used by students or other individuals.

Related: Hydro Mining, Explained

As the block reward becomes less significant, mining rigs that are barely covering production costs will be forced to quit the market. There will still be firms willing to mine Bitcoin at the reduced rate, but the market might become less decentralized as a result (i.e., the pie will be cut into fewer pieces). Still, new and more efficient ways to mine BTC could emerge, potentially enabling smaller businesses to partake.

When will the next Bitcoin halving take place?

The week commencing 18 May, 2020, based on current performance, but it might be 14 May.

The date is not 100% certain at this point because the time taken to generate new blocks may speed up or slow down. On average, the network produces one block every ten minutes. 

The very last halving is expected to occur some time in the year 2140 as the 21-millionth BTC is mined. Once that happens, miners will stop receiving block rewards, but will keep the remaining source of revenue — fees paid by the transactions, which they also collect.

How much Bitcoin will miners receive after the next halving?

Every new block will produce 6.25 BTC. At inception, the reward was eight times as much.

When Bitcoin was launched in 2009, miners were receiving 50 BTC per block. Thus, a total of 10,500,000 BTC was generated before the next halving took place in November 2012, when miners began to receive 25 BTC for each block.

It may seem like an overly generous bonus (more than $365,000 per block, based on current value), but the network was only just starting to develop at the time, and no one knew for certain whether people would continue to find the concept worthy of investing their computer processing power into the Bitcoin blockchain to keep it alive.

Related: What Powers China’s Crypto Mining Industry, and Is It Sustainable?

Another fact to take into account is that the all-time high market price for that period was $31 per BTC in June 2011, but that “bubble” later burst and Bitcoin was back to $2 before the year’s end. Nevertheless, mining has ultimately turned out to be much more profitable for those who got in early, which is a big part of the reason Bitcoin critics call it a Ponzi scheme. 

The second Bitcoin halving occurred on July 6, 2016, as block number 420,000 was produced and miners began collecting 12.5 BTC for every new block, which is the current rate. The third halving will reduce that rate in half yet again, which will lower the block reward to just 6.25 BTC, or around $45,000 given the current market price.

Ok, but what’s a “block reward”?

In short: the amount of BTC a miner receives for every new block they add to the blockchain.

To explain this concept in more depth, let’s briefly go back to the roots of Bitcoin — the blockchain. In the most basic sense, a blockchain is a digital ledger that stores information about its transactions in blocks that are each around 1 MB in size. For instance, when person A sends Bitcoin to person B, this transaction will be stored on a block, along with around 500 other transactions that happened at around the same time.

A block reward is the amount of cryptocurrency that miners receive when they successfully validate/mine a new block by solving highly complex mathematical problems with their mining hardware. It is a reward for their hard work.

What is Bitcoin halving?

An event that halves the rate at which new Bitcoins are created. It occurs once every four years.

As many know, Bitcoin’s (BTC) supply is finite. Once 21 million coins are generated, the network will stop producing more. That is one of the main reasons Bitcoin is often referred to as “digital gold” — just like with the yellow metal, there is only a limited amount in the world, and someday, all of it will have been extracted.

Right now, there are around 18 million BTC in circulation, which is roughly 85% of the total cap — but it doesn’t mean that the cryptocurrency is about to reach its limit any time soon. The reason is the protocol, which has been coded into the blockchain from the very start: Every 210,000 blocks, it performs the so-called Bitcoin “halving” or “halvening,” and producing new coins becomes more difficult — just like in gold mining where finding new deposits becomes more challenging over time.

More specifically, the protocol cuts the block reward in half. So, every time a Bitcoin halving occurs, miners begin receiving 50% fewer BTC for verifying transactions.

CryptoBridge Closes Down and Waves Relaunches, DEXs Face Tough Times

CryptoBridge DEX went out with a bang, citing market conditions and increased regulations. Should others be worried?

Earlier this week, decentralized cryptocurrency exchange CryptoBridge abruptly announced that it was shutting shop, leaving just two weeks for its customers to retrieve their funds. Around the same time, the Waves DEX also shut down to resume operations as a hybrid exchange.

While Waves ostensibly decided to “merge all the infrastructure teams” together and focus on one product, CryptoBridge went out of business completely. The decentralized platform cited market conditions and increased regulations as driving factors for its closure. So, should other crypto trading platforms, decentralized or not, be worried?  

DEXs and the regulatory uncertainty surrounding them

DEXs are cryptocurrency exchanges that allow users to retain ownership of their funds and private keys. Specifically, they provide peer-to-peer services that allow transactions between two interested parties directly on the blockchain. 

This feature distinguishes DEXs from centralized exchanges — which see significantly more use, accounting for more than 99% of the global cryptocurrency trade volume. Unlike decentralized platforms, centralized exchanges (such as Coinbase, Kraken, Binance, Bittrex, etc.) act as middle men, connecting people willing to trade cryptocurrencies while holding their assets and private keys on company-owned wallets.

Related: Can Crypto Exchanges Ever Be Truly Decentralized?

While the majority of cryptocurrency traders still have an easier time trusting a third party with their private keys, DEXs offer some unique benefits over centralized exchanges, namely security, since they rely on smart contracts instead of servers. Another important advantage is anonymity and lighter Know Your Customer requirements — at least, that was the case until recently, as CryptoBridge mentioned strict regulations as part of the reason for its closure.

Nevertheless, compliance is not an entirely new term for DEXs. As the phenomenon rose in popularity last year, many well-known cryptocurrency exchanges like Binance and Huobi decided to use their brand to launch their own decentralized marketplaces while applying the same compliance principles, which are increasingly important for keeping crypto trading juggernauts afloat against the backdrop of regulatory scrutiny. 

Zachary Kelman, managing partner at law firm Kelman PLLC, told Cointelegraph that there is a lot of confusion around DEXs because “most people tend to think of complex organizational structures simply as publicly identifiable brands, and in turn overlook the underlying legal reality.” He went on to add:

“For example, people may say ‘Did you hear what happened to Bittrex?’ but it is not clear whether they are talking about a US-based corporation, a Maltese entity, or the Liechtensteinian company currently operating its international exchange. This situation becomes more confounding when applied to DEXs.”

A properly organized DEX, Kelman continued, “is not a corporate entity, a foundation, or even a group of people,” but a “computer code.” He elaborated:

“There are secondarily liable parties, like the web hosts, and perhaps more directly liable parties, like the creators of the DEX or the inventors and profiteers of some kind of DEX-underlying asset, but at some point, a DEX can enter into a sort-of ‘regulatory twilight zone’ where it is not clear whom to hold responsible for regulatory non-compliance. Non-lawyers typically think of companies as pure brands and can have a difficult time grappling with this reality.”

A cautious DEX that expected regulatory scrutiny from the get-go

CryptoBridge was founded in July 2017 as “a gateway which provides access to BitShares: a high performance, scalable blockchain” that, in turn, allows users to trade established cryptocurrencies as well as “up-and-coming tokens and altcoins.” To fund the development of the software platform, CryptoBridge launched a native token called BridgeCoin, allegedly distributing 50% of all trade revenue to its stakeholders.

The company said it intentionally avoided holding an initial coin offering due to the regulatory difficulties it would have posed in the United States. “Though we are not from the US we would still like to stay legal under most jurisdictions and a public mineable cryptocurrency is exempt from such regulation,” the CryptoBridge team wrote

In October 2019, the exchange announced that all its new and existing and customers were required to submit user verification before continuing to deposit and withdraw funds in order to protect both themselves and CryptoBridge from “being held responsible for any illegal intentions or money laundering activities.” The statement read: 

“We are facing the 5th EU Anti-Money Laundering Directive (AMLD5) and will adjust our gateway services to pave the way for CryptoBridge moving forward.”

That month, CryptoBridge’s website was visited about 320,000 times, with the majority of clicks coming from Russia and Bulgaria, data provided by Similar Web shows. Then, on Dec. 2, the DEX announced that all of the firm’s services and servers will be terminated within two weeks. Users will be able to withdraw funds from the exchange until Dec. 15 — the last day of operation. The statement reads:

“Please note that user verification is required by EU law for all withdrawals. We highly recommend that you start the process as early as possible as verification can take a few days.”

The company cited market conditions, increasingly strict regulations and lack of funds as reasons for its decision to close and not pursue further development. As a CryptoBridge spokesperson confirmed to Cointelegraph, the exchange is headquartered in Copenhagen, so once AMLD5 began including wallet custodians into its scope of regulation, it was forced to terminate operations. Additionally, there were other reasons according to the spokesperson: 

“As our gateway decentralization efforts and resources were insufficient to materialize a solution before January 1 2020 on account of greatly reduced trading volume and listings, and with much stricter AML regulation to take place which we explicitly didn't like, our decision was to stop operations.”

‘Hard closure’: Users are left angered as CryptoBridge erases social media 

After the announcement was made, CryptoBridge immediately shut down all of its social media channels. As the CryptoBridge spokesman explained to Cointelegraph, the move was advised by the exchange’s legal team:

“Suggestion from the legal team was to minimize negative publicity and efforts required to contain it on social media which was primarily being used as one-way method of informing the public, but in situations like this it’s hard to filter out the FUD as opposed to real issues requiring assistance. We’ve therefore decided to focus our efforts on the most appropriate way of handling support which is through our wallet. Lack of resources due to downscaling further supported this decision.”

The decision to precipitously delete all social media channels resulted in noticeable distress among users while also spawning a number of impersonators on Twitter. For instance, an account named CryptoBridgeEU began posting messages that conflicted with the platform’s original announcement, claiming that CryptoBridge’s closure was only temporary. As CryptoBridge’s representative told Cointelegraph, the team has already reported the account, adding that “Email and support tickets through the official wallet are the remaining methods of communication.” However, Kelman told Cointelegraph that, to him as a lawyer, CryptoBridge’s decision making seems indicative of other underlying factors: 

“When I see this I am immediately concerned that the project might have deliberately exposed itself to regulation with which it cannot or does not wish to comply, and its promoters see themselves as liable for it and are either panicking or attempting to do the best they can to wind up the operations.”

Moreover, users report having problems with withdrawing procedures. CrpytoBridge trader and Reddit user u/Apollohasgas told Cointelegraph that they cannot transfer their funds out of the platform:

“About 6 months ago I logged on to Cryptobridge and deposited about $800.00 via BTC (In addition, I had maybe $500.00 left in the account from prior trades). After accepting my deposit, I purchased some cryptocurrencies. Subsequently, when I tried to transfer my funds out of CB, I was only then informed that I must comply with their new KYC before any funds would be relinquished.”

According to the trader, enacting Know Your Customer and Anti-Money Laundering procedures “was not an oversight but clearly intentional on Cryptobridge’s part.” After u/Apollohasgas provided CryptoBridge with their personal information including full name and residential address as well as scans of their driver’s license and passport, the platform’s administration requested a copy of u/Apollohasgas’ latest tax return. “I did not comply with that request,” the trader told Cointelegraph, adding: 

“I then contacted CB support asking for help and expressing my frustration that so much of my personal information was being requested. I never heard back from them. Cryptobridge is a scam. I have come to learn that many in the crypto community are aware of this.”

u/Apollohasgas also suggested that some users will just accept that their funds are being confiscated “rather than supply the requested personal information.” Indeed, another Redditor, u/KeepitRaul, told Cointelegraph that he chose not to withdraw his funds. u/KeepitRaul then went on to say that the manner in which CryptoBridge has “left everyone in the lurch” made him think the entity is “something close to an exit scam,” but clarified:

“Maybe a ‘hard closure’ would be a better term. There is still enough time to get your funds off but I have read that verification is a long process that takes time (they even mention 2 days in their notice) and they’ve probably chosen this route so that many people, like myself, don’t bother.”

DEXs are still attractive, but implementation is tricky

According to experts, CryptoBridge’s departure marks a scenario in which other trading platforms are left in danger of facing similar symptoms. Cal Evans, founder of compliance and strategy firm Gresham International, surmised: 

“The closure of CryptoBridge is a sign that the new EU regulations are having an impact. If the new collection of data is married with the storage of data (GDPR) this becomes a massive undertaking for a smaller firm. It also removed the anonymity from DEX exchanges which, in essence, kills their business model.”

Similarly, Kelman told Cointelegraph that he “wouldn’t be surprised if we see similar news given the difficulty of successfully going all the way from the idea of a DEX into the DEX ‘regulatory twilight zone’ without getting caught in the headlights of anxious regulators.” He did, however, say that a “properly implemented DEX” still has a lot of potential to dominate crypto markets.

Indeed, DEXs continue to gain popularity in the crypto space. Last week, major U.S. cryptocurrency exchange Poloniex purchased the largest decentralized exchange on blockchain network Tron (TRX), which will now operate under the new name “Poloni DEX.” A month prior, controversial British-American entrepreneur John McAfee launched his own DEX.

Meanwhile, Waves has relaunched by shutting down Waves.DEX and moving all activities to Waves.exchange, which is marketed as a “hybrid” platform. The new exchange is allegedly non-custodial, meaning that user funds are not held on company-owned wallets — just like with most DEXs. Notably, the company claims that it “has no plans to introduce KYC for trading or cryptocurrency transactions.” 

CryptoBridge’s team, on the other hand, does not have any plans for the future. “Current team is planning to disband after the termination process is over,” the exchange’s representative told Cointelegraph.

Upbit Promises Swift Reimbursement, Theories Over Missing Funds Swell

Major South Korean cryptocurrency exchange Upbit has lost 342,000 ETH. All users will soon be reimbursed with corporate funds.

On Nov. 27, major South Korean cryptocurrency exchange Upbit announced that 342,000 Ether (ETH), accounting for roughly $50 million, were stolen from its hot wallet earlier that day. Details remain vague, and some users are suggesting an inside job, although experts are skeptical of the theory after analyzing the incident.

The platform’s operator has promised to compensate all stolen funds shortly. UpBit is the second “Big Four” exchange in the country to experience a major security breach this year.

Upbit brief

Upbit is one of the largest cryptocurrency exchanges in South Korea (alongside Korbit, Bithumb and Coinone) and the only major domestic platform to post a profit in 2018. It was launched in October 2017 by Dunamu Inc. — a fintech firm backed by local internet giant Kakao — after it signed “an exclusive partnership agreement” with United States cryptocurrency exchange Bittrex. 

As part of the collaboration, Upbit had a shared order book arrangement, with Bittrex orders visible in its bid windows. However, in September, the South Korean trading platform ostensibly broke off its partnership with Bittrex to reorganize its ETH, Bitcoin (BTC) and Tether (USDT) markets.

Upbit has been widely considered a safe and compliant exchange overall. Recently, it was put on par with industry juggernauts like Kraken and Coinbase as one of the space’s cleanest platforms in the Blockchain Transparency Institute’s latest market surveillance report, which verifies cryptocurrency exchange volumes. 

Indeed, Upbit has seemingly put a lot of effort into security measures. Last year, it reportedly became the first crypto exchange to obtain an information security management system license from the Korea Internet and Security Agency.

Further, Upbit has been following guidelines set out by the intergovernmental Anti-Money Laundering-focused body, the Financial Action Task Force. Specifically, in September this year, Upbit ceased trading support for six cryptocurrencies, including some privacy coins.

Upbit is a member of the Korean Blockchain Association — a domestic alliance comprised of 14 crypto trading platforms — which published a self-regulatory framework for its members to boost trading transparency in April 2018. It contained five key requirements, including managing clients’ coins separately from their own, holding a minimum equity of 2 billion won ($1.8 million), and publishing regular audit and financial reports.

Finally, in January 2018, Upbit partook in creating a special hotline for domestic exchanges that aims to ensure suspicious transactions being detected and frozen immediately after disclosure.

The attack and Upbit’s initial response

Upbit was relatively quick to confirm the loss. Around 3 p.m. local time, the first media reports surfaced, stating that the platform had halted all trading after a large amount of cryptocurrencies was withdrawn to an anonymous wallet. 

On social media, users were already discussing a number of large-scale transactions from Upbit’s wallet that had been spotted by WhaleAlert, a service dedicated to tracking sizable cryptocurrency transactions. 

There was a 342,000 ETH transaction to an unknown wallet, followed by 10 identical transactions totaling 100,000,000 TRX incoming from the exchange’s vault. At around 6 p.m. local time, Lee Sirgoo, the CEO of Upbit, published an official statement on the matter: 

“At 1:06 PM on November 27, 2019, 342,000 ETH (approximately 58 billion won) were transferred from the Upbeat Ethereum Hot Wallet to an unknown wallet. Unknown wallet address is 0xa09871AEadF4994Ca12f5c0b6056BBd1d343c029.”

Apologizing to users for any inconvenience caused, Lee Sirgoo outlined the measures taken by the exchange after it detected the incident. The exchange has pledged to protect user assets, stating that the 342,000 ETH (or roughly $50 million) will be covered using corporate assets. 

It had already moved all crypto assets held in its hot wallet to cold storage by the time the announcement was published, the CEO stated. Some of the funds may have been moved to Bittrex’s wallets, as data provided by WhaleAlert suggests.

Deposits and withdrawals will take at least two weeks to resume, Sirgoo added, promising to inform users as soon as they reopen. The CEO also clarified that all other recent, large-scale transfers were not abnormal, but were related to the exchange moving assets between hot and cold storage facilities.

Inside job? Some experts are skeptical

Notably, Lee Sirgoo avoided using the word “hack” in his statement, which prompted some commentators on social media to suggest that the incident was actually an inside job. As Cointelegraph contributor Joseph Young tweeted:

“The ‘hacker’ timed when UPbit was making crypto transfers to its cold wallet (other alts like TRON, etc.). Hence, I think the probability of it being an inside job is higher than external breach.”

However, Taylor Monahan, the founder and CEO of noncustodial wallet MyCrypto, analyzed the incident in detail by studying the nature of transactions and is hesitant to confirm the theory. “Anything is possible, of course,” she told Cointelegraph. “But a lot of people are jumping to conclusions without real supporting evidence.” Monahan then elaborated: 

“The biggest thing that points to it not being an inside job is how the transactions were generated and signed. UPbit seems to follow a certain method with their programmatic transactions, and the ‘hack’ transaction in question used a different method. In addition, UPbit manually signed a transaction to secure their remaining ETH, after discovering the hack, and this too was generated differently than the ‘hack’ transaction.”

If it were an inside job or a breach of Upbit’s backend systems, it would align with the exchange’s typical behavior, she added, while the way that the ETH transaction was generated “points to someone who knows very little about the Ethereum network.” 

Monahan also commended Upbit on how they have been handling the aftermath, but criticized the exchange’s languid use of cold storage, “If Upbit utilized cold storage more regularly and limited the value held by their hot wallet, the loss could have been minimized.”

Upbit is collaborating with KISA and police

Upbit’s CEO Lee Sirgoo told Cointelegraph that they are currently cooperating with KISA and the National Police Agency Cyber Bureau on the matter: 

“We will be able to provide you with more information once the investigation is complete.” 

Nevertheless, Sirgoo was able to answer some specific questions through email upon request by Cointelegraph. For instance, he confirmed that the exchange has contacted all major trading platforms and asked to blacklist the attacker’s wallet address, and that the cryptocurrency community “has been extremely cooperative.” 

In addition, he confirmed that Dunamu and Upbit have enough funds to reimburse the lost amount. “It should be completed shortly,” Sirgoo told Cointelegraph. 

Exchanges continue to get hacked in 2019

2019 has witnessed a number of high-profile crypto exchange hacks, including the $42 million Binance security breach, $19 million Bithumb heist and $28 Million Bitpoint break-in, which confirms that security is still an industry-wide problem. So what could finally stop centralized exchanges from getting hacked? 

Hartej Sawhney, co-founder and CEO at Zokyo cybersecurity agency, suggests that compliance standards could improve the situation. “Centralized crypto exchanges are web services, not that different from an online banking applications,” Sawhney told Cointelegraph, continuing: 

“Most companies respect security either because of regulation or they already faced a security breach. The cryptocurrency industry could benefit from compliance standards such as PCI-DSS or HIPAA.” 

Further, Sawhney listed a number of concrete measures that exchanges should follow to achieve higher security, including establishment of adequate infrastructure, processes, tools, security testing and education on how to avoid cyber attacks, adding that, “Regular third-party offensive security testing needs to become standard and transparent.”

Upbit has promised to keep Cointelegraph updated once it have more information. KISA has not returned Cointelegraph’s request for comment.

Tunisia Denies CBDC Reports: Here Is How the False News Spread

Earlier this month, media reported that Tunisia had become the first country to issue a CBDC. Now that the central bank has denied the news, it’s time to take a closer look…

Earlier this month, many blockchain media outlets, including Cointelegraph itself as well as Decrypt, Beincrypto and LedgerInsight, reported that Tunisia had become the first country to digitize its national currency on a blockchain platform. But that news was incorrect. The story was originally was broken on Nov. 7 by two Russian state-owned news agencies, Tass and Iz.ru, which also highlighted that the Russian blockchain platform Universa was assisting the Central Bank of Tunisia, or BCT, in the task. 

By Nov. 11, the BCT denied all claims regarding the development of a central bank digital currency. Specifically, the bank declared that although it is “working on finance digitalisation,” it does not have any kind of relationship with any domestic or foreign firm.

Alexander Borodich, the CEO of Universa, who was quoted in both original reports, claimed on Nov. 11 that the media misinterpreted the situation. However, Borodich had posted a link on Nov. 8 to one of the news stories on his Facebook page, and even said in an interview released on Nov. 10, saying that: 

“So, we were able to launch — Tunisia launched, using our technology, the national digital currency.” 

Overall, the startup actively participated in the news cycle, distributing the information through interviews and social media up to a day before the BCT's statement.

Original (false) report: Tunisia launches a CBDC with Russian startup’s assistance

On Nov. 7, Tass and Iz.ru ran news articles with headlines that translate as “Russian developers will ensure the turnover of the electronic currency of Tunisia” and “Digital dinar: Tunisia launches electronic currency,” respectively.

The Tass report reads, “Tunisia has become the first country to announce the transfer of part of the country's money supply to electronic form,” while Iz.ru alleges that Borodich said, “Tunisia’s digital money is not cryptocurrency, but a CBDC.” Both of them highlighted that Universa was handling the technical side of the project.

The CBDC — dubbed the “uDinar” by Universa Hub Africa, though similar projects have used the term "eDinar" — was set to be state-owned and backed by paper money, the reports claimed. Blockchain, in turn, would protect it against counterfeiting and make issuance cheaper and more transparent. The Tass article quoted Borodich as saying:

“Electronic banknotes cannot be faked — each such banknote, like the paper version, is protected by cryptography, it, like the paper counterpart, has its own digital watermarks. And the production of such a banknote is 100 times cheaper than spending ink, paper, electricity for the printing press.”

Additionally, the news pieces noted that Universa was set to receive a percentage of all transactions carried out with the uDinar, and the ledger would be visible to the country’s central bank. 

On Nov. 12, Tunisia’s central bank issued its official announcement that refuted all claims regarding the development of the uDinar. The central bank clarified that it is currently exploring various methods of digital payment alternatives, including a possible CBDC, but has yet to proceed with its implementation. The bank further stated:

"The BCT is presently working on finance digitalisation, in its digital currency dimension and not the one involving crypto-currency. Its departments are considering the opportunities and risks inherent to these new technologies, notably as regards cyber security and financial stability."

Notably, the BCT pointed to a possible cause of the misleading reports. The bank noted that the Forex Club of Tunisia featured talks regarding CBDCs. On Nov. 7, the club held an event that was hosted by an “an independent association from the BCT” — most likely the event’s tech partner, Universa Hub Africa. Cointelegraph did not receive a response from the Forex Club regarding the event.

According to the BTC’s statement, participants at this event attended a “technical feasibility demonstration of a digital currency theoretical solution,” initiated by an unnamed private startup that has “no moral or contractual relationship whatsover with the BCT,” the announcement elaborated, concluding: 

“This Proof of concept was taken out of context, becoming thereby a marketing operation where the BCT’s name has been unduly used.”

The BCT didn't respond to a request for comment for this story to confirm, among other topics, which startup participated in the said proof of concept.

Did Universa play along with fake news?

Once the news cycle started, when media reports alleging that Tunisia had become the first country to issue a CBDC surfaced, Universa itself began to circulate since-debunked reports, sharing links on its social media channels, including Twitter and Telegram

Further, on Nov. 7, Cointelegraph received an email sent from a private Gmail address and signed by Mikhail Dremidov. Titled “URGENT: Tunisia issues state e-currency CBDC on Universa,” the letter contained a link to the above mentioned Iz.ru news piece. 

As per LinkedIn, someone with the same name, Mikhail Dremidov, is listed as a PR manager at Universa. When Cointelegraph asked what company Dremidov was speaking for and why he would promote a news story that was later refuted by an official source, the email sender replied that “I represent myself.” He also referred to the press release written by Universa CEO Borodich that described the recent events in detail.

Borodich argued in the press release that on Nov. 7, Universa Hub Africa launched uDinar, backed by the Tunisian dinar, as a proof of concept and that “no question of CBDC émission related to uDinar was discussed at the Forex Club Tunisie Congress.” 

He also confirmed that the BCT “has no contractual aspect on CBDC with Universa Hub Africa.” Finally, he claimed that “the misinterpretation in the articles that followed was not based on claims of Universa’s or BCT official representatives.”

When pressed about why he would refer Cointelegraph to a story that was proven false, Dremidov — who also admitted that he provides “part-time consulting services in PR” and referred to Borodich as “our CEO” as the discussion continued — said that he “was not in Tunisia and thought that the information in TASS was true.” 

The articles were written wholly by Russian journalists who were present at the Forex Club Tunisie Congress, he added, while Universa’s official position could only be represented by their CEO — i.e., Borodich, who was speaking at the event. When asked to confirm the authenticity of Borodich’s quotes featured in both the Tass and Iz.ru stories, Dremidov replied:

“I can’t confirm the quotes because I was not in Tunisia and don’t understand French for my pity. I provide a part-time consulting services in PR, but I can confirm that the titles of articles (TASS and IZ.ru) are incorrect and that's what made readers confused.”

Notably, while the conference was held mostly in French, Borodich delivered his presentation in English, as seen in the video recorded at the Forex Club Tunisie Congress.

Dremidov also said that Universa was trying to reach out to Tass and Iz.ru to update the pieces. “That’s hard because they are huge media giants,” he explained. Cointelegraph has also contacted Tass and Iz.ru to confirm the authenticity of their reports but has not received any responses. 

Borodich provided similar answers upon a request from Cointelegraph. When asked how exactly he was contacted by Tass and Iz.ru's reporters, and whether they explained to him that they were going to break news on Tunisia launching a CBDC based on Universa’s blockchain, the CEO replied:

“There was a press-conference, just after uDinar demo on stage. All articles have been written by reporters on their own and based on their editorial policy. They did not explain anything to me.”

He added: “We asked TASS and Iz.ru to update their articles via e-mail. As you know, TASS is the major state-owned media agency with lots of departments. It took time.”

Borodich evaded answering why Universa posted links to the original reports on its social media channels, contacted Cointelegraph via email implying that it was newsworthy material, posted one of those links on his private Facebook feed, and told an interviewer that “Tunisia launched, using our technology, the national digital currency." 

He did answer the following question, however: If you knew that IZ.ru and Tass had exaggerated the scope of Universa's partnership with Tunisian officials, why would you continue to channel those statements? To that, the Universa CEO stated: 

“It took time to clarify our points of view about definitions ‘u-dinar, e-dinar’ etc because of the weekend. It took time to translate everything either. The Congress was in french language. We have 10 years partnership with Tunisia and the last thing we wanted is something which my harm our previous achievements with digitalisation there. We do respect all our partners and behave accordingly.”

Further, according to a press release issued by the Forex Club Tunisie Congress, the event featured “a simple theoretical demonstration of a digital currency developed by a Tunisian fintech labelled Start-up Act.” It continued: 

“Therefore, what has been reported by some press regarding the issuance by the Central Bank of Tunisia of a digital currency at this congress is unfounded.”

The press release then went on to outline that there was indeed a debate held regarding the possible issuance of CBDCs, where an expert from the International Monetary Fund outlined the possible risks of issuing such an asset.

Interestingly, the statement mentioned neither Universa Hub Africa nor the uDinar project, although they were indeed part of the conference, as seen on the video broadcast. The aforementioned IMF expert is Herve Tourpe clarified that the BCT has not yet launched a digital currency and later called the reports of a CBDC “fake news.”

An IMF representative speaking on behalf of Tourpe told Cointelegraph that he had no comment. The Tunisian Forex Club has not responded to Cointelegraph’s requests for comment, while Start-up Act told Cointelegraph that it is “not involved in this topic with BCT.” 

Market reaction: “No dump”?

Universa’s token, UTNP, experienced a pump that lasted throughout the first news cycle and traded at almost $0.007 during its peak, according to data from Coin360. Once the BCT refuted the story, however, Universa’s price shed more than 50%. According to Dremidov, however, “there was no dump” but “two sales of $12k approximately.”

In Universa’s official Telegram group, some investors felt misinformed. “It wasn’t only the media that reported the news wrong, it was also Universa’s team that reported the news wrong,” a user nicknamed Uly55 wrote at the time. “It was posted here and on twitter that it’s a CBDC. But nothing, no explanation, no apology.” Another user nicknamed @BitJox argued: “The worst thing in this story is the reactions of the admins yesterday when people were congratulating them of the ‘Launch of the CBDC.’ Admins were not denying anything.”

Upon being contacted by Cointelegraph, Uly55 explained that he no longer felt like he was misled. “That post was done in the heat of the moment, before everything was cleared up,” the user said of his initial concern. “From my understanding it was the news who grabbed the wrong news and then it spread fast, too fast for Universa to handle it.”

BitJox, on the other hand, told Cointelegraph that this story made him stop buying more Universa tokens. When asked whether he felt like Universa mislead him, he replied: “They obviously did.” He then clarified that he didn’t know if it was intentional, although he’s inclined to say that it was:

“On the [Universa] telegram group, all users who haven't been banned by the admins are talking about ‘deep state practices’ from the IMF.”

BiJox believes that this could be true, but thinks the head of Universa HUB Africa, Omar Bouattay, was speaking at the conference about Universa issuing the uDinar, not the government, which he believes would make it an ordinary coin and not a CBDC. He went on to add: 

“So yeah, I think they totally lied by playing with words. They made us think CBDC is backed and managed by a central bank. But it's actually issued by a private company.”

“The worst thing in this story,” according to Bitjox, is that while a private company unveiled its plans to issue the uDinar, there is no information about which company is going to audit that process:

“We don't know if U-Dinar is really backed by actual paper money or by thin air.”

Tunisia and CBDCs: Previous reports and possible developments 

The first reports on Tunisia experimenting with digital currencies date back to 2015, when Swiss software startup Monetas (whose CEO has since gained notoriety due to the Tezos scandal) announced the pilot launch of eDinar, a digital currency developed in partnership with Tunisia’s post office (La Poste Tunisienne) and local startup DigitUs. There have been no updates on the project since, and its website is currently offline.

Further, in April, media reports suggesting that Tunisia’s central bank was looking to issue a Bitcoin bond surfaced. Marouane el-Abassi, the governor of the country’s central bank, had reportedly announced in April this year that Tunisia had created a working group for this purpose. 

He also added that Tunisia had launched the eDinar and had already been processing transactions through a native Poste Tunisienne system developed by DigitUs.

Meanwhile, the latest announcement from the BCT suggests that the central bank is open to ideas involving blockchain but prefers to go slow with the technology’s implementation and even more so with a digital currency.

IRS Vs. Bitcoin ATMs: Industry Says There Is Already Enough Regulation

The number of Bitcoin ATMs installed worldwide has reached a new milestone. Coincidentally, regulators start looking to apply more scrutiny.

Earlier this week, the number of Bitcoin (BTC) ATMs installed worldwide reached a new milestone, surpassing 6,000. Coincidentally, another major development just a day before occurred within the same area: The United States Internal Revenue Service said it was looking into potential tax issues caused by such ATMs and kiosks.

This development might allow the IRS to succeed in mitigating the use cryptocurrency for large-scale federal tax non-compliance, experts suggest. However, Bitcoin ATMs remain a low-transaction-size business which is already regulated enough to detect high-scale fraud. 

Bitcoin ATMs, from a single kiosk to a multimillion dollar industry in six years

The world’s first-ever Bitcoin ATM opened in October 2013 at Waves Coffee House in Vancouver’s downtown area, while the first machine in the United States went online in February 2014 in Albuquerque, New Mexico (although, it was removed 30 days later). 

Since then, Bitcoin ATMs have grown into a multi-million-dollar industry, as the companies who operate the machines collect sizeable fees (reportedly around 8.93%). For instance, Cottonwood, a firm that controlled 91 machines in New York as of December 2018, had a gross annual revenue ostensibly exceeding $35 million —  about $385,000 in cash per machine — and just 13 employees, as per a Bloomberg investigation.

According to data from online resource CoinATMRadar, the U.S. currently has the most Bitcoin ATMs in the world. More specifically, there are 3924 machines installed across the country, accounting for over 65% of the world’s total Bitcoin ATMs. Moreover, the industry continues to develop at a rapid pace: Over 130 machines have been deployed this month alone, while the average daily number of Bitcoin ATMs installed is fluctuating at around seven.

Regulation: “totally legal” but still a gray area

As it tends to happen within most booming industries, sooner or later, regulators start to apply more scrutiny. On Nov. 15, the IRS Criminal Investigation Chief, John Fort, said that his agency is collaborating with law enforcement to investigate illicit uses of cryptocurrency through kiosks, stating:

“If you can walk in, put cash in and get bitcoin out, obviously we’re interested potentially in the person using the kiosk and what the source of the funds is, but also in the operators of the kiosks.”

Fort explained that such services are required to conform to Know Your Customer and Anti-Money Laundering rules: “They’re required to abide by the same know-your-customer, anti-money laundering regulations, and we believe some have varying levels of adherence to those regulations.” The IRS executive added that although the regulators haven’t had any public cases filed, they “do have open cases in inventory” related to cryptocurrency tax issues.

So how exactly is the industry regulated in the U.S.? It seems to fall into a grey area of the law. Cal Evans, founder of compliance and strategy firm Gresham International, told Cointelegraph:

“Most Bitcoin ATM owners that are trying to follow the rules, as much as possible, are relying on Money Transmitter laws. We see this strategy deployed with the bigger firms such as Coinbase. These laws differ from state to state with the USA, with the most notable exception being the state of New York where parties are required to own one of the notorious ‘Bitcoin’ Licenses to conduct this business.” 

Thus, there are two levels of regulation: federal and state. As CEO of CoinATMRadar Matthew Hayes told Cointelegraph, the former is “similar in all the states and quite straightforward,” and aims to prevent illicit activities such as money laundering and tax evasion. State-level regulation, however, differs: 

“Some states have relaxed rules and allow quite easy access to start such a business. In other states, there might be high requirements to operate incl. large size surety bonds and costly licenses.”

Thus, unlike traditional ATM operators, Bitcoin ATM operators are typically treated as Money Services Businesses that have to operate under Money Transmitter Licenses, the requirements for which vary by state, as Zachary Kelman, managing partner at Kelman.law, summed up in a conversation with Cointelegraph. However, there are some exceptions among more crypto-friendly states that differ from New York and Florida regulations:

“On the other end of the spectrum are states that are far more Bitcoin ATM-friendly — for example, the Pennsylvania Department of Banking and Securities has determined that cryptocurrency transactions are exempt from money transmitter rules, and the Wyoming legislature enacted a law exempting cryptocurrency businesses from MSB licensing requirements.”

Andrew Barnard, co-founder of Bitcoin ATM firm Bitstop, added that many states, including California, have still not made up their minds in regard to Bitcoin ATMs or do not require a Money Transmitter License as long as the crypto sold through the ATMs is a two-party transaction. He elaborated to Cointelegraph: 

“States like Texas and others do not require a money transmitter license if you are selling your own Bitcoin to the person in front of the machine as opposed to just sending the Bitcoin directly from an exchange to the customer which would make it a three party transaction.”

Some other hindrances come with the lack of more clear-cut regulations, albeit less major. For instance, companies have difficulties with obtaining local city permits for Bitcoin ATMs, which is why they are usually installed in private establishments, Evans observed.

Indeed, as the Bloomberg investigation argued, most crypto kiosks in the U.S. tend to be located in corner shops, cigar bars and casinos. Nevertheless, there are some noticeable exceptions: Earlier this month, Bitstop installed one of its machines at the Miami International Airport, one of the largest airline hubs in the country.

Related: US Crypto Review: Top-5 States With Welcoming Regulations

As for the regulations, it seems that industry players do have concrete guidance to follow despite the juridical uncertainty that experts highlight. “FinCEN has been clear since 2013 about the KYC/BSA/AML requirements for cryptocurrency exchangers,” said Max Lopez, marketing director at Coin Cloud — a company that operates as a licensed Money Service Business and hosts over 350 cryptocurrency kiosks across the U.S. 

“We only know the regulations we are following and can not speak for others in the cryptocurrency kiosk industry,” Lopez added, drawing a line between large businesses and smaller players. “It’s important to separate individual companies and not place them all under one umbrella as you have regional, hobbyist and ‘mom and pop’ operators with one machine.”

Barnard of Bitstop confirms that larger companies follow the same rules within the Bitcoin ATM industry. “The top legitimate operators in the space are registered with FinCEN on a federal level and maintain a AML/BSA compliance program which should be tested and updated regularly (once a year),” he told Cointelegraph, adding:

“It’s not that difficult to be registered on a federal level.”

What does the IRS development mean for the industry?

The IRS should have a “probable cause” or “reasonable belief” to delve into the Bitcoin ATM industry, according to Evans. As of now, “simply using the Bitcoin ATMs itself is in no way a crime,” the expert stressed, especially if the vendor is following MTLs and users are declaring their transactions to the IRS:

“Let’s paint a scenario, if you are a Bitcoin ATM user in the US (which is totally legal), and you declare those transactions on your tax return (as now required), the IRS could be in breach of constitutional rights by investigating the individual. Essentially, the IRS should not be able to tax activity it then deems as ‘illegal’ activity after the fact. Otherwise, where do we draw the line? Do we begin taxing drug dealers?”

Nevertheless, the IRS has been historically slow to act, which also suggests that the industry is far from being radically changed by the tax regulator, Evans adds. Kelman, however, envisions certain changes that might come with the IRS statement. He told Cointelegraph that some of their Bitcoin ATM operator clients had already engaged with the IRS:  

“The IRS has been amenable to these clients and their businesses, asking for and accepting without issue the Bitcoin ATM users’ Know Your Customer (KYC) information, which is collected to the extent possible by Bitcoin ATM operators per compliance with MSB rules.”

Kelman explained that while his firm does not expect Bitcoin kiosk owners to close down in light of this development, they do expect changes to which the kiosk operators must respond, such as collecting KYC data from any user whose transactions require Currency Transaction Reports or Suspicious Activity Reports filings:

“The Financial Crimes Enforcement Network (FinCEN) already requires MSBs to file Currency Transaction Reports (CTRs) on all transactions in excess of $10,000 and Suspicious Activity Reports (SARs) for any and all suspicious transactions — or sequences of transactions — over $2,000.”

Kelman believes that the statement from the IRS will prompt users to conduct smaller transactions beneath the KYC limit. In his opinion, the IRS “will be able to greatly mitigate efforts to use cryptocurrency for large-scale federal tax non-compliance,” while small-scale tax cheats will likely stay under the radar. 

Indeed, larger operators seem unfazed by the news. Both Coin Cloud and Bitstop representatives told Cointelegraph that while smaller Bitcoin ATM owners might not be forced to either become fully compliant or shut down, it remains business as usual for them. 

Even if smaller players choose to play by the rules, they might still have to shut shop over time due to the costs associated with maintaining a thorough compliance program, Bitstop’s Barnard added. He also told Cointelegraph:

“Mr Fort is reasonable when he says there is most likely a high variance of compliance and adherence to regulations from operator to operator. This is true because there are different Bitcoin ATM hardware models that have different software stacks and perform compliance differently. Not all operators are created equal. There’s a lot of good guys, but our industry does have its own share of bad apples.”

As Evans of Gresham International told Cointelegraph, physical ATM machines harness a large amount of data about their users, such as card used, PIN number attempts, speed of PIN entry, date, time, transaction sizes, and pictures of their face. “The main concern the IRS has with the Bitcoin ATMs, is that some of these machines do not collect ANY data,” he said: 

“If we compare this, for example, to online exchanges (those which allow US citizens and residents to use them), they are required to keep accurate data on the users, which the IRS and other law enforcement bodies can then use to track the movement of funds.”

Enough is being done already

Nevertheless, Bitcoin ATMs controlled by large operators claim that they collect a considerable amount of data about their clients as per current regulations concerning Anti-Money Laundering and the Bank Secrecy Act. “As a registered MSB with FinCEN, Coin Cloud is required to keep customer KYC and transactional data for at least 5 years,” Lopez told Cointelegraph. “All cryptocurrency kiosk companies can be subpoenaed at any time for the records they keep.”

Barnard said that although KYC collection can vary depending on how much the customer wants to buy or sell. “For lower amounts under $150, a phone number, name and address may be reasonable,” the Bitstop representative told Cointelegraph, adding that they limit all of their customers to purchase no more than $3,000 per person per day. 

“Even then, less than 5% of our customer base will use that limit,” he continued. “The average purchase from our Bitstop Bitcoin ATMs is $180 per person. Bitcoin ATMs are a high-volume, low transaction amount business.”

Venezuela President Maduro Is Not Pro-Crypto, He Just Likes Petro

Last week, the president of Venezuela appeared on national television holding a Trezor wallet. Was it just a stunt?

Last week, the president of Venezuela, Nicolás Maduro, appeared on national television approaching a Trezor-branded stall at a local technological fair. He seemed perplexed as to what exactly a hardware cryptocurrency wallet is supposed to do.

Still, Maduro, device in hand, turned to the camera and proclaimed that cryptocurrencies — his country’s own digital currency, Petro, in particular — are important for Venezuela’s economic future. Trezor officials soon clarified that they had nothing to do with the stunt, and that the company had no official resellers in the country.

The event seemed to accurately portray the precarious situation of cryptocurrencies in Venezuela. They are widely popular, given the hyperinflation and overall failing state of the local economy, but are mostly traded underground via peer-to-peer services. 

Meanwhile, Maduro’s government is mostly focused on Petro — the controversial, state-controlled cryptocurrency tasked with saving the Venezuelan economy. So, what has Maduro’s apparent obsession with cryptocurrencies resulted in so far besides an underdeveloped pet project? 

Maduro was not pro-crypto before announcing Petro

Maduro was elected president in April 2013, following Hugo Chávez’s death, in a narrow win over opposition candidate Henrique Capriles. Maduro’s administration instantly faced a number of major economic problems left over from Chávez’s policies, namely high inflation rates and large shortages of basic necessities. 

The new president continued the policial course of his predecessor, who largely relied on oil-fueled welfare policies to maintain economic stability. However, the price of oil — which reportedly account for 99% of Venezuela’s export earnings — started to tumble under Maduro’s administration, bringing the country to the verge of a major humanitarian catastrophe. 

Thus, the inflation rate has been on the rise ever since Maduro was elected president. In 2018, it was at 1,698,488%. According to the International Monetary Fund, Venezuela’s hyperinflation rate increased to as much as 10,000,000% at some point this year.

Needless to say, these numbers have real implications: In 2017, 87% of people in Venezuela were living in poverty, rising from 82% in 2016 and 48% in 2014, according to an academic study. Hunger is also a major problem, with Venezuelans losing about 24 lbs on average in 2017 due to nationwide food shortages.

The president has blamed capitalism for the ongoing problems. For instance, Maduro argued that an imperialist “electromagnetic attack” caused the largest power outage in the country’s history, which occurred in March 2019. According to opposition leader Juan Guaidó, it was actually “the product of the inefficiency, the incapability, the corruption of a regime that doesn’t care about the lives of Venezuelans.”

Related: Venezuelan Petro Against US Sanctions: History and Use of the Crypto

In December 2017, Maduro took to national TV to present a potential fix for the many economic difficulties — a state-run digital currency called Petro. The cryptocurrency would be backed by the country’s oil, gold and mineral reserves, the president said. 

Ironically, Maduro’s administration had been anti-crypto up until that point. Earlier in 2017, reports emerged that the government had begun cracking down on mining operations. Indeed, cryptocurrency mining was and still remains a popular activity in Venezuela, as it allows locals to capitalize on cheap electricity prices.

“In Venezuela, the most popular currency is Bitcoin,” according to Venezuela-based cryptocurrency consultant and Cointelegraph en Español contributor Jhonnatan Morales, who added that, “Many people are mining and trading Bitcoin not to acquire products, but to protect themselves from hyperinflation.”

Petro’s main use case? Evading U.S. sanctions

Maduro’s Petro was designed to dodge United States sanctions that supposedly hinder the local economy. As the Venezuelian leader himself put it, the cryptocurrency aims to fight the financial “blockade” erected by the U.S. President Donald Trump’s administration. In response, Trump restricted American investors from participating in the initial coin offering for Petro, which launched on Feb. 20, 2018. Morales told Cointelegraph:

“Although the government has the help of Russia for many of its international operations, the use of cryptocurrency to liquidate or transfer capital is important for the government since cash is usually impractical for international contracts.”

In March 2018, a month into the ICO, Maduro claimed that a total of $5 billion was raised during Petro’s presale — which would make it one of the largest ICOs to date, eclipsing the $2 billion TON token private offering led by Telegram and the $4.2 billion token sale of EOS. 

However, as Steve Hanke, an applied economist at Johns Hopkins University, has pointed out, those claims “aren’t believable” because they have yet to be verified by an independent audit.

Petro was officially launched in November 2018, following a series of delays. The release was not problem-free, either. Soon after the white paper was published, crypto enthusiasts found out that Petro largely plagiarized its documentation from Dash (DASH), one of the most popular cryptocurrencies in the country. 

As Jorge Farias, CEO of Cryptobuyer — a Panama-headquartered exchange platform run by a team of Venezuleans — told Cointelegraph, Petro is technically a Dash fork, albeit a permissioned one: 

“Petro has gone through different stages, from a totally failed one, to one where there is a blockchain that although it is private and not auditable at least it has a block explorer. It is an X11 fork that is the same one used by DASH.”

Maduro seems determined to integrate Petro into the local economy, even though its utility seems questionable. For instance, he has announced the launch of a Petro-funded crypto bank to support youth and student initiatives, and Venezuelan Minister of Habitat and Housing Ildemaro Villarroel declared that Petro will be used to fund the construction of houses for the homeless. Maduro has also publicly called on workers to save in gold and Petro during a salary shake-up.

In December 2018, the government went as far as to automatically convert pensioners’ monthly bonus into Petro, despite the fact that the cryptocurrency was not widely accepted in the country, according to reports. Around the same time, Maduro claimed that his government will use Petro to sell oil and hence minimize U.S. dominance on the global market. 

Country-wide adoption could be nearing for Petro at last, although under compulsion. In August this year, Maduro ordered the country’s leading bank, Banco de Venezuela, to accept the nation’s cryptocurrency at all of its branches. In September, when the bank provided its clients with online wallets catering to Petro, the people of Venezuela set a new record for trading cryptocurrencies — only they weren’t trading Petro. 

From Sept. 1 to Sept. 7, Venezuelans traded more than 120 billion bolivars (about $12 billion) for Bitcoin on P2P exchange LocalBitcoins, showing that demand for decentralized cryptocurrencies has not diminished with the state-run asset’s arrival. A representative for the charity-focused organization Bitcoin Venezuela told Cointelegraph that indeed, most cryptocurrency trading is done via P2P services:

“Bitcoin is popular as it used to be used as a way to send remittances from outside the country through LocalBitcoins, Hodl Hodl, Paxful, because it is very liquid and there are thousands of people willing to buy your BTC right away for Bolivars (VES) in a bank account, the local currency, or Dollars in a US bank or USD cash.”

The spokesperson also confirmed that there are no large exchanges based in the country, only a “BTC/VES brokerage service” and seven exchanges that have been approved by officials to operate in the country. 

These platforms seem to be mostly focused on Petro, as they have BTC/PTR and PTR/VES trading pairs listed on their websites. Cointelegraph reached out to most of the approved exchanges — Cryptolago, Coincave, Bancar, Ambers Coin and Cryptia — but none have replied. 

Nevertheless, Petro might still become widely accepted in Venezuela at some point in the future. According to Farias of Cryptobuyer, “They talk about more than 900 businesses already accepting it as a form of payment and the obligation to keep double accounting for private and public companies.” This may suggest that the bolivar may soon be eliminated and thus set a precedent for the rest of the world. Farias added: 

“Many businessmen and companies have shown some interest as long as it can be converted into some other crypto or FIAT, but it is necessary to wait for the mechanisms and regulations that will govern these processes to draw some conclusion.”

Maduro remains pro-Petro, anti-crypto — although not in an obvious way

It seems that Maduro has appropriated cryptocurrencies for his own means — and Petro allows the Venezuelian leader to weed decentralized cryptocurrencies out from that agenda. Indeed, the state needs a currency that it can control. Morales told Cointelegraph:

“Almost 30% of all retail operations in Venezuela are made through the dollar. This does not allow the Venezuelan government to collect taxes since they have no way to access the account in dollars where Venezuelans deposit their taxes.”

According to Javier Bastardo, a local cryptocurrency enthusiast and Cointelegraph en Español journalist, Maduro’s knowledge of the technology behind cryptocurrencies seems limited, although that doesn’t stop him from aggressively promoting Petro:

“He talks about the ‘technological revolution,’ ‘new relations,’ but this is just rhetoric. Obviously he only shills his own project and tends to not mention Bitcoin.”

In August, Trump’s administration froze all Venezuelan government assets, further escalating the tense U.S.–Venezuelan relations and prompting Maduro to work on alternative financial options like Petro. Perhaps that — along with other developments like the study suggesting that Venezuela is now more than 50% dollarized — was what caused Maduro to attend the technological fair last week. 

As Farias explained to Cointelegraph, the fair was a private event launched by Banco de Venezuela, where various companies showcased solutions “based in one way or another on cryptocurrencies.”

Trezor or not Trezor?

One of the attending firms was Trezorvenezuela, a local company that is not directly affiliated with Trezor but sells its products locally. Maduro approached the company’s stall on live television, which resulted in the president of Venezuela de facto endorsing a cryptocurrency wallet developed by a nonlocal company without its consent. 

“Trezor and Satoshilabs do not have any official representatives in Venezuela, nor do we have any active authorized resellers in this region,” the official statement that soon followed from the hardware wallet firm read. It continued:

“We’re in no way associated with those people claiming to be official representatives of Trezor, and do not endorse or permit their use of our brand. We are carefully investigating this copyright infringement.”

The statement then added that the individuals were at one time Trezor resellers from the third quarter of 2018 but were removed from the list in June 2019 due to inactivity. In an additional comment to Cointelegraph, the Trezor representative added that they are “in contact with Trezorvenezuela and are continuing our investigations to decide what steps to take next.”

A spokesperson for Trezorvenezuela, in turn, explained to Cointelegraph that they “saw nothing wrong with participating,” elaborating:

“Our company was at the event, as in the others, as it supports the cryptocurrency ecosystem in general, without politicizing them, our vision and commitment is with the ecosystem and demonstrate that cryptocurrencies are real solutions to multiple problems. Even for the people of Venezuela, which gives them freedom to manage their funds and protect themselves from the hyperinflation that our country is home to.” 

The Trezorvenezuela representative added that Maduro’s team did not contact them after the fair.

Venezuela President Maduro Is Not Pro-Crypto, He Just Likes Petro

Last week, the president of Venezuela appeared on national television holding a Trezor wallet. Was it just a stunt?

Last week, the president of Venezuela, Nicolás Maduro, appeared on national television approaching a Trezor-branded stall at a local technological fair. He seemed perplexed as to what exactly a hardware cryptocurrency wallet is supposed to do.

Still, Maduro, device in hand, turned to the camera and proclaimed that cryptocurrencies — his country’s own digital currency, Petro, in particular — are important for Venezuela’s economic future. Trezor officials soon clarified that they had nothing to do with the stunt, and that the company had no official resellers in the country.

The event seemed to accurately portray the precarious situation of cryptocurrencies in Venezuela. They are widely popular, given the hyperinflation and overall failing state of the local economy, but are mostly traded underground via peer-to-peer services. 

Meanwhile, Maduro’s government is mostly focused on Petro — the controversial, state-controlled cryptocurrency tasked with saving the Venezuelan economy. So, what has Maduro’s apparent obsession with cryptocurrencies resulted in so far besides an underdeveloped pet project? 

Maduro was not pro-crypto before announcing Petro

Maduro was elected president in April 2013, following Hugo Chávez’s death, in a narrow win over opposition candidate Henrique Capriles. Maduro’s administration instantly faced a number of major economic problems left over from Chávez’s policies, namely high inflation rates and large shortages of basic necessities. 

The new president continued the policial course of his predecessor, who largely relied on oil-fueled welfare policies to maintain economic stability. However, the price of oil — which reportedly account for 99% of Venezuela’s export earnings — started to tumble under Maduro’s administration, bringing the country to the verge of a major humanitarian catastrophe. 

Thus, the inflation rate has been on the rise ever since Maduro was elected president. In 2018, it was at 1,698,488%. According to the International Monetary Fund, Venezuela’s hyperinflation rate increased to as much as 10,000,000% at some point this year.

Needless to say, these numbers have real implications: In 2017, 87% of people in Venezuela were living in poverty, rising from 82% in 2016 and 48% in 2014, according to an academic study. Hunger is also a major problem, with Venezuelans losing about 24 lbs on average in 2017 due to nationwide food shortages.

The president has blamed capitalism for the ongoing problems. For instance, Maduro argued that an imperialist “electromagnetic attack” caused the largest power outage in the country’s history, which occurred in March 2019. According to opposition leader Juan Guaidó, it was actually “the product of the inefficiency, the incapability, the corruption of a regime that doesn’t care about the lives of Venezuelans.”

Related: Venezuelan Petro Against US Sanctions: History and Use of the Crypto

In December 2017, Maduro took to national TV to present a potential fix for the many economic difficulties — a state-run digital currency called Petro. The cryptocurrency would be backed by the country’s oil, gold and mineral reserves, the president said. 

Ironically, Maduro’s administration had been anti-crypto up until that point. Earlier in 2017, reports emerged that the government had begun cracking down on mining operations. Indeed, cryptocurrency mining was and still remains a popular activity in Venezuela, as it allows locals to capitalize on cheap electricity prices.

“In Venezuela, the most popular currency is Bitcoin,” according to Venezuela-based cryptocurrency consultant and Cointelegraph en Español contributor Jhonnatan Morales, who added that, “Many people are mining and trading Bitcoin not to acquire products, but to protect themselves from hyperinflation.”

Petro’s main use case? Evading U.S. sanctions

Maduro’s Petro was designed to dodge United States sanctions that supposedly hinder the local economy. As the Venezuelian leader himself put it, the cryptocurrency aims to fight the financial “blockade” erected by the U.S. President Donald Trump’s administration. In response, Trump restricted American investors from participating in the initial coin offering for Petro, which launched on Feb. 20, 2018. Morales told Cointelegraph:

“Although the government has the help of Russia for many of its international operations, the use of cryptocurrency to liquidate or transfer capital is important for the government since cash is usually impractical for international contracts.”

In March 2018, a month into the ICO, Maduro claimed that a total of $5 billion was raised during Petro’s presale — which would make it one of the largest ICOs to date, eclipsing the $2 billion TON token private offering led by Telegram and the $4.2 billion token sale of EOS. 

However, as Steve Hanke, an applied economist at Johns Hopkins University, has pointed out, those claims “aren’t believable” because they have yet to be verified by an independent audit.

Petro was officially launched in November 2018, following a series of delays. The release was not problem-free, either. Soon after the white paper was published, crypto enthusiasts found out that Petro largely plagiarized its documentation from Dash (DASH), one of the most popular cryptocurrencies in the country. 

As Jorge Farias, CEO of Cryptobuyer — a Panama-headquartered exchange platform run by a team of Venezuleans — told Cointelegraph, Petro is technically a Dash fork, albeit a permissioned one: 

“Petro has gone through different stages, from a totally failed one, to one where there is a blockchain that although it is private and not auditable at least it has a block explorer. It is an X11 fork that is the same one used by DASH.”

Maduro seems determined to integrate Petro into the local economy, even though its utility seems questionable. For instance, he has announced the launch of a Petro-funded crypto bank to support youth and student initiatives, and Venezuelan Minister of Habitat and Housing Ildemaro Villarroel declared that Petro will be used to fund the construction of houses for the homeless. Maduro has also publicly called on workers to save in gold and Petro during a salary shake-up.

In December 2018, the government went as far as to automatically convert pensioners’ monthly bonus into Petro, despite the fact that the cryptocurrency was not widely accepted in the country, according to reports. Around the same time, Maduro claimed that his government will use Petro to sell oil and hence minimize U.S. dominance on the global market. 

Country-wide adoption could be nearing for Petro at last, although under compulsion. In August this year, Maduro ordered the country’s leading bank, Banco de Venezuela, to accept the nation’s cryptocurrency at all of its branches. In September, when the bank provided its clients with online wallets catering to Petro, the people of Venezuela set a new record for trading cryptocurrencies — only they weren’t trading Petro. 

From Sept. 1 to Sept. 7, Venezuelans traded more than 120 billion bolivars (about $12 billion) for Bitcoin on P2P exchange LocalBitcoins, showing that demand for decentralized cryptocurrencies has not diminished with the state-run asset’s arrival. A representative for the charity-focused organization Bitcoin Venezuela told Cointelegraph that indeed, most cryptocurrency trading is done via P2P services:

“Bitcoin is popular as it used to be used as a way to send remittances from outside the country through LocalBitcoins, Hodl Hodl, Paxful, because it is very liquid and there are thousands of people willing to buy your BTC right away for Bolivars (VES) in a bank account, the local currency, or Dollars in a US bank or USD cash.”

The spokesperson also confirmed that there are no large exchanges based in the country, only a “BTC/VES brokerage service” and seven exchanges that have been approved by officials to operate in the country. 

These platforms seem to be mostly focused on Petro, as they have BTC/PTR and PTR/VES trading pairs listed on their websites. Cointelegraph reached out to most of the approved exchanges — Cryptolago, Coincave, Bancar, Ambers Coin and Cryptia — but none have replied. 

Nevertheless, Petro might still become widely accepted in Venezuela at some point in the future. According to Farias of Cryptobuyer, “They talk about more than 900 businesses already accepting it as a form of payment and the obligation to keep double accounting for private and public companies.” This may suggest that the bolivar may soon be eliminated and thus set a precedent for the rest of the world. Farias added: 

“Many businessmen and companies have shown some interest as long as it can be converted into some other crypto or FIAT, but it is necessary to wait for the mechanisms and regulations that will govern these processes to draw some conclusion.”

Maduro remains pro-Petro, anti-crypto — although not in an obvious way

It seems that Maduro has appropriated cryptocurrencies for his own means — and Petro allows the Venezuelian leader to weed decentralized cryptocurrencies out from that agenda. Indeed, the state needs a currency that it can control. Morales told Cointelegraph:

“Almost 30% of all retail operations in Venezuela are made through the dollar. This does not allow the Venezuelan government to collect taxes since they have no way to access the account in dollars where Venezuelans deposit their taxes.”

According to Javier Bastardo, a local cryptocurrency enthusiast and Cointelegraph en Español journalist, Maduro’s knowledge of the technology behind cryptocurrencies seems limited, although that doesn’t stop him from aggressively promoting Petro:

“He talks about the ‘technological revolution,’ ‘new relations,’ but this is just rhetoric. Obviously he only shills his own project and tends to not mention Bitcoin.”

In August, Trump’s administration froze all Venezuelan government assets, further escalating the tense U.S.–Venezuelan relations and prompting Maduro to work on alternative financial options like Petro. Perhaps that — along with other developments like the study suggesting that Venezuela is now more than 50% dollarized — was what caused Maduro to attend the technological fair last week. 

As Farias explained to Cointelegraph, the fair was a private event launched by Banco de Venezuela, where various companies showcased solutions “based in one way or another on cryptocurrencies.”

Trezor or not Trezor?

One of the attending firms was Trezorvenezuela, a local company that is not directly affiliated with Trezor but sells its products locally. Maduro approached the company’s stall on live television, which resulted in the president of Venezuela de facto endorsing a cryptocurrency wallet developed by a nonlocal company without its consent. 

“Trezor and Satoshilabs do not have any official representatives in Venezuela, nor do we have any active authorized resellers in this region,” the official statement that soon followed from the hardware wallet firm read. It continued:

“We’re in no way associated with those people claiming to be official representatives of Trezor, and do not endorse or permit their use of our brand. We are carefully investigating this copyright infringement.”

The statement then added that the individuals were at one time Trezor resellers from the third quarter of 2018 but were removed from the list in June 2019 due to inactivity. In an additional comment to Cointelegraph, the Trezor representative added that they are “in contact with Trezorvenezuela and are continuing our investigations to decide what steps to take next.”

A spokesperson for Trezorvenezuela, in turn, explained to Cointelegraph that they “saw nothing wrong with participating,” elaborating:

“Our company was at the event, as in the others, as it supports the cryptocurrency ecosystem in general, without politicizing them, our vision and commitment is with the ecosystem and demonstrate that cryptocurrencies are real solutions to multiple problems. Even for the people of Venezuela, which gives them freedom to manage their funds and protect themselves from the hyperinflation that our country is home to.” 

The Trezorvenezuela representative added that Maduro’s team did not contact them after the fair.

Analysts Laugh Off Recent ‘One-Whale Theory’ of BTC’s 2017 Bull Run

Just a single player or entity was allegedly responsible for Bitcoin’s historic price surge, according to academics… Experts call bluff.

Just a single player or entity was allegedly responsible for Bitcoin’s historic price surge, as suggested by a recently updated academic paper titled “Is Bitcoin Really Un-Tethered?” Originally released in the summer of last year, the study claimed that major Bitcoin (BTC) price manipulation occurred in winter 2017, prompting top cryptocurrencies to reach their all-time highs. The Tether (USDT) stablecoin and its issuer Bitfinex played a key role in the alleged hoax, the researchers also argued.

The newer version of the paper maintains the same assumption, but additionally asserts that a single whale controlled the price movement. Bitfinex denies all allegations, calling the publication “a transparent attempt to use the semblance of academia for a mercenary money grab.” Analysts are not convinced either — in their view, while the crypto market is not immune to manipulation, saying that someone could single-handedly drive the prices up to such an extent is quite a stretch.

Tether untethered: Bitfinex’s legal troubles

Originally launched in 2014 as Realcoin, Tether was one of the first stablecoins to claim that it is backed by the United States dollar at a 1:1 ratio. Bitfinex is a major Hong Kong-based crypto exchange. Both are operated by the same company, iFinex Inc., which is registered in the British Virgin Islands.

The “Is Bitcoin Really Un-Tethered?” study was first published in June 2018. Its authors — John M. Griffin and Amin Shams of the University of Texas and University of Ohio respectively — came to the conclusion that Tether was “used to provide price support and manipulate cryptocurrency prices” after studying transaction patterns of the stablecoin.

According to the researchers, Tether and Bitfinex were responsible for as much as half of the Bitcoin price rise in December 2017, when the cryptocurrency reached its all-time high at around $20,000 per token. “Using algorithms to analyze the blockchain data, we find that purchases with Tether are timed following market downturns and result in sizable increases in Bitcoin prices,” the paper read, elaborating:

“Less than 1% of hours with such heavy Tether transactions are associated with 50% of the meteoric rise in Bitcoin and 64% of other top cryptocurrencies.”

Griffin and Shams’ study was widely discussed in mainstream media, while select industry participants — namely fellow research firm Chainalysis — said the results “seem credible.” At the time, however, Tether and Bitfinex had already become subject to controversy.

In 2017, Bitfinex failed to have its accounts audited by a third party to prove that “every tether is always backed 1-to-1, by traditional currency held in our reserves,” as the company’s website stated at the time.

After the community urged Bitfinex to release the documents, the firm threatened legal action against critics. Then, United States regulators took notice of the situation. By the end of the year, Bitfinex had received government subpoenas from the Commodity Futures Trading Commission (CFTC).

In June 2018, the company finally produced a document supposedly confirming that all Tethers were backed by a corresponding amount of U.S. dollars. However, the alleged piece of evidence turned out to be a memorandum completed by a law firm instead of a comprehensive audit. As Tether’s general counsel Stuart Hoegner explained at the time, mainstream accounting firms would not conduct official audits on cryptocurrency companies.

This year, the firm continued to face legal problems. In April 2019, it was revealed that the New York Attorney General’s office had alleged that the crypto exchange lost $850 million and subsequently used funds from affiliated stablecoin operator Tether to secretly cover the shortfall. The funds were allegedly lost to a Panamanian payment processor known as Crypto Capital Corp.

Related: Bitfinex Cries Fraud as Crypto Capital Executive Indicted by US

Notably, the legal documents released by Tether during the CFTC probe showed that the company only had 74% of cash reserves in its bank accounts to back circulating Tether tokens. Prior to that, Tether had altered its website to state the full breakdown of how the coin is backed. Currently, the stablecoin’s website simply states that “all tethers are backed 100% by Tether's reserves,” therefore avoiding any direct mentions of U.S. dollars.

Finally, in October this year, New York-headquartered legal firm Roche Freedman filed a class-action lawsuit against Tether and Bitfinex, accusing them of defrauding investors, manipulating markets and concealing illicit proceeds. According to the firm’s founding partner Kyle Roche, Tether and Bitfinex are responsible for creating the “largest bubble in history.”

Tether has been refuting all allegations. Last month, the company released a statement in anticipation of the lawsuit:

“All Tether tokens are fully backed by reserves and are issued pursuant to market demand, and not for the purpose of controlling the pricing of crypto assets. It is irresponsible to suggest that Tether enables illicit activity due to its efficiency, liquidity and wide-scale applicability within the cryptocurrency ecosystem.”

One whale manipulated the whole market? Experts are skeptical

Now, Griffin and Shams have updated their study to claim that a single whale was responsible for Bitcoin’s historic price surge. Specifically, they argue that an analysis of Tether and Bitcoin transactions on Bitfinex from March 1, 2017 through March 31, 2018 consolidates their view that a single entity is behind the manipulation: “This pattern is only present in periods following printing of Tether, driven by a single large account holder, and not observed by other exchanges.” The academics continue to claim that:

“Simulations show that these patterns are highly unlikely to be due to chance. This one large player or entity either exhibited clairvoyant market timing or exerted an extremely large price impact on Bitcoin that is not observed in aggregate flows from other smaller traders.”

According to Griffin and Shams, the patterns “are consistent either with one large player purchasing Tether with cash at Bitfinex and then exchanging it for Bitcoin, or Tether being printed without cash backup and pushed out through Bitfinex in exchange

for Bitcoin.” Nevertheless, when contacted by Cointelegraph, the scholars could not specify who exactly was behind the price movement. “We don’t know the country of origin,” Griffin wrote in an email, “just that it’s a large percentage of the volume on Bitfinex.”

Meanwhile, market analysts seem perplexed by the new development. Juan Villaverde and Martin Weiss of Weiss Ratings agency called it “preposterous” when speaking with Cointelegraph. “For one, it shows that multiple altcoins surged in different patterns at different times, often leading Bitcoin,” they wrote, adding:

“Furthermore, there is abundant anecdotal evidence that throws great doubt on the one-large-player theory. For example, exchanges were swamped and not able to onboard new customers. Google searches for “Bitcoin” and “cryptocurrency” were off the charts. New crypto businesses and ICOs were popping up every day. All of this — and more — suggests that the crypto surge of 2017 was very much a mass phenomenon, with heavy public participation.”

Similarly, eToro senior analyst Mati Greenspan told Cointelegraph that “this isn’t something that could have possibly been caused by one whale”:

“Diligent readers will no doubt realize that this report is actually just a repost of an already debunked research paper, albeit with added details and peer review. The simple matter is though that there’s no amount of peer review that will make us forget what we’ve clearly witnessed.”

A representative for WhaleAlert, a service dedicated to tracking large cryptocurrency transactions, is also skeptical about the academics’ one-whale theory. He told Cointelegraph: 

“2017 was a crazy time and in our opinion it would be unlikely that one single entity was responsible for the price surges/drops, but in the near future we will have more historical transfer data that can possibly give a more clear answer on the matter.”

Many community members share similar views. For instance, Jeremy Allaire, the CEO of payment company Circle, tweeted that the Bitcoin price highs in 2017 were not the result of a single trader on an exchange: “Exchanges use omni-bus wallets that pool all customer balances and transactions on and off the exchange.”

Additionally, as reported by Cointelegraph, Tether’s market cap has risen fourfold from $1 billion to $4.1 billion since December 2017, while Bitcoin’s price is now 50% lower. Thus, the issuance of new USDT stablecoin tokens does not seem to directly correlate with the BTC/USD trading pair.

Bitfinex also disavows the new paper

The company strongly denies all allegations, arguing that the paper’s sole purpose was to launch “a parasitic lawsuit.” A section of a statement sent to Cointelegraph by the company’s representative — and authored by general counsel Stuart Hoegner — reads:

“It’s important for the public to understand that the paper was likely authored for the very purpose of launching a parasitic lawsuit. In any event, this is a transparent attempt to use the semblance of academia for a mercenary money grab. Updates or not, the paper lacks academic rigor and is foundationally flawed because it employs a grossly incomplete data set, erroneous statistical methodology and offers no proof of market manipulation to support its conclusions.”

Parts of this comment were published by Bloomberg on Nov. 4, which confuses Griffin. “When he made that statement the paper wasn’t public so not sure how he would know what’s in the paper,” the academic told Cointelegraph, adding:

“They also said each tether was always backed with one US dollar. Our original paper as well as this one presents evidence that Tethers are not always backed with US dollars. You can check for yourself but i believe in Court statements that Bitfinex/tether has admitted that Tethers were not always backed with US dollars. Our study is quite robust. If they want to publish their own study and give internal data to prove their claims they certainly can but have yet to do so.”

So, who was it? 

Still, that does not seem to fully explain the new one-whale theory. “The correlation the authors find is there,” Villaverde and Weiss told Cointelegraph after looking through the updated research. “But correlation does not mean causation, and we would caution against drawing too many conclusions from such a one-dimensional look at crypto markets in the 2017 period.”

The analysts added that while it is possible for large players to manipulate prices to some extent and to exaggerate certain price movements at any given time, no single individual is capable of creating such broad-based moves, “Nor was it possible for any player or group, no matter how large, to prevent the subsequent crash,” Villaverde and Weiss concluded.

WEF’s Mining Blockchain Initiative Aims for ‘Industry-Wide Trust’

The WEF has teamed up with seven major metals and mining firms to develop responsible sourcing and sustainability practices using blockchain.

Last week, the World Economic Forum teamed up with seven major mining and metals firms to develop responsible sourcing and sustainability practices using blockchain.

Specifically, the “Mining and Metals Blockchain Initiative” will include building an inclusive blockchain platform, which will ostensibly help to increase “transparency, efficiency or improve reporting of carbon emissions” across the industry. So, is blockchain a truly good fit for mined resources?

Blockchain in the mining industry: from theory to practice

The WEF’s blockchain initiative announcement seems well-calculated, given that the organization has focused on the technology in its reports over the past few years. First, in April 2018, the WEF published the “Blockchain Beyond the Hype” paper, stressing that blockchain deployment should not be a goal in and of itself.

A few months after, the organization highlighted blockchain’s significance to the mining and metals industry in particular, citing less paperwork, faster transactions, compliance and sustainability among primary reasons. 

In July this year, the WEF issued The Blockchain Value Framework guide, which was a more concrete framework for “those business leaders that have figured out blockchain is the right solution for a specific problem, but don’t know what to do next,” as explained at the time by Sheila Warren, Head of Blockchain at the World Economic Forum. Namely, the document listed six recommendations for companies, prompting them to take time to understand the technology, set realistic expectations, and align to strategic priorities.

So what exactly makes blockchain the right fit for mining? The industry largely revolves around extracting objects and transporting them from point A to point B, so providing accurate supply chain data could be an option. Nathan Williams, CEO at Minespider, a blockchain protocol for responsible mineral sourcing, told Cointelegraph:

“Supply chain data is very sensitive, and before blockchain there was no solution that could enable traceability without companies sacrificing their sensitive supply chain data. The only real alternative to using blockchain right now is to be content with not knowing the origins of our products.”

For tracking products, the industry currently relies mostly on automated databases and physical paperwork, adds Richard Verkley, CEO at Karuschain, the company behind a blockchain tracing and tracking solution for the precious metals industry. The distributed ledger technology allows for much better data management, Verkley explained to Cointelegraph:

“Where current alternatives fail is they have an inability to reject data manipulation as quickly or totally like a blockchain consensus mechanism. Blockchain systems can ensure that the source of the precious metal can be traced without manipulation.”

In other words, an immutable ledger provides access to the full account of the history of a particular mineral and eliminates the possibility of document forgery by all possible stakeholders, including financial institutions, ship operators, surveying laboratories and warehouses.

Ultimately, blockchain helps to solve two major issues for the metals and mining industry: traceability and consistent verification throughout the entire supply chain, as explains Dr. Nicholas Garrett, CEO of advisory firm RCS Global Group. Responsible sourcing could be achieved when both factors are taken into consideration, he explained to Cointelegraph:

“Blockchain alone only helps to solve the first challenge and there is little value in traceability alone outside of supplier management efficiencies. Only when combining blockchain technology with assurance mechanisms solving the second challenge becomes the use of blockchain really interesting from a responsible sourcing perspective.”

Tracking the origins of mined resources can also be important for ethical reasons. Everledger, a global digital registry for diamonds powered by the IBM Blockchain Platform, was created specifically to tackle the “blood diamonds” issue — i.e., preventing the circulation of diamonds mined in war zones and sold to oppressive regimes. 

The demand is there, too: Hong Kong-based jewelry retailer Chow Tai Fook, one of the world’s largest jewelry companies, with total assets at around $8 billion, and one of the companies who have joined Everledger. 

The WEF initiative: “industry-wide trust”

The WEF-backed initiative takes the idea of using blockchain for the above mentioned purposes and puts it on a larger, industry-wide scale. As per the press release, the organization, along with seven partners — Antofagasta Minerals, the Eurasian Resources Group, Glencore International AG, Klöckner & Co., Tata Steel Ltd. and Tracr (AngloAmerican and De Beers) — plan to pool their resources to jointly experiment with, design, and deploy shared proof-of-concept (PoC) as part of an inclusive blockchain platform.

Three of these firms are among the top-10 largest metals and mining companies in the world, which means that a substantial proportion of the market will work on using blockchain solutions.

Specifically, the initiative aims to help the industry by increasing transparency and efficiency of its day-to-day operations and improve the reporting of carbon emissions. Members will look to examine governance-related issues, develop case studies, and establish a working group. The press release reads:

“In many cases, blockchain projects to support responsible sourcing have been bilateral. The result has been a fractured system that leaves behind parts of the ecosystem and lacks interoperability.” 

One of the most evident examples of such bilateral collaborations is Tracr, a blockchain platform initially created by industry giant De Beers. In October 2018, Russia’s Alrosa — the world’s largest diamond mining firm — joined the pilot in a bid to improve operational transparency and consumer trust across the diamond value chain from mine to retail. As Alrosa CEO Sergey Ivanov said at the time, the company’s move was motivated by a belief that industry collaboration is essential for the sake of “a common goal.”

Likewise, the new WEF-backed system will ostensibly work to “improve industry-wide trust that cannot be achieved by acting individually.” Nevertheless, similar consortiums already exist in the metals and mining industry. For instance, IBM has partnered with MineHub Technologies to develop a blockchain solution that will improve supply chain management. 

At this point, it boasts a number of high-profile clients like Volkswagen, who joined the blockchain-powered scheme to ensure the cobalt used in lithium-ion batteries for its electric vehicles is responsibly sourced. 

There is also “Forcefield,” a blockchain-powered metal traders consortium backed by the London Metal Exchange (LME), financial services giant ING, and “Open Mineral” — another consortium of mining companies and financial organizations who are developing a blockchain-based mineral trading system.

The initiative’s future: no concrete details yet, members are optimistic

So what are the chances of success for the Mining and Metals Blockchain Initiative? Notably, unlike the above mentioned examples, the program mentions that international regulators and NGOs are also expected to provide input, suggesting an overall wider scope of operation. 

When asked whether the new responsible sourcing program could actually help to increase transparency and efficiency across the industry, Dr. Paul Sin, a consulting partner with Deloitte’s Asia Pacific Blockchain Lab, replied positively in a statement to Cointelegraph:

“DLT is a B2B data synchronization platform, and it allows all ecosystem participants such as miner, logistics, distributers, regulators, etc. to exchange information near real-time, on a trusted data platform with an immutable audit trail.”

However, other experts warn that the initiative will not necessarily become the universal model for industry participants, no matter how efficient it might look on paper — at least not in the near future. 

“This largely depends on the governance structure and the ultimate ends of the blockchain initiative.” 

Dr. Garrett replied in an email to Cointelegraph when asked whether the initiative is likely to achieve the set goals. “It will take time for industry to embrace total transparency which can be quite disruptive,” Verkley added.

The program’s members, in turn, seem much more positive about the future. “By working together, our goal is to develop solutions that can be adopted across the industry and value chain,” said Benedikt Sobotka, CEO of Eurasian Resources Group.

“We need more collaboration in our industry to address supply chain transparency and inefficiencies,” stated Gisbert Rühl, CEO of Klöckner & Co, adding: 

“This blockchain consortium — with collaboration between forwarding thinking companies, and regulators, NGOs and technology providers — with blockchain and distributed ledger technology has a great potential for industry adoption and value creation.”

Meanwhile, no roadmap has been released so far, which makes it difficult to evaluate the initiative’s future. The WEF has yet to provide an additional comment for Cointelegraph.