Blockchain continues to disrupt the financial services industry by enabling new products that promise to transform banking and payments. The Hong Kong Monetary Authority recently announced plans to launch a blockchain-based trade finance solution in partnership with a Chinese fintech firm and a group of 21 banks, tips for Minimizing Tax on Gains from Bitcoin and other Cryptocurrencies. the goal of improving access to banking services for new businesses.
Stronghold, and a state-chartered trust company, to build a new cryptocurrency that would be backed by U. In the payments space, two major U. DFS GRANTS VIRTUAL CURRENCY LICENSE TO BITPAY, INC. 1 million to a blockchain startup in connection with efforts to advance the development of a decentralized energy grid. Earlier this week, a global consulting firm revealed a project that leverages blockchain to track, trace and authenticate aircraft parts and materials for suppliers, manufacturers and operators. The PoC leverages a smart contract and creates a single and immutable version of the reinsurance contract that is accessible to all the key parties: insurer, broker and reinsurer. More blockchain solutions for supply chain also debuted this week, including an announcement from a data technology company of plans to launch a blockchain platform that will verify data, like packaging claims, and address compliance concerns with data regulations.
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The platform is currently backed by a major consumer packaged goods company. Finally, this week the R3 consortium launched Corda Enterprise, a commercial blockchain platform that hosts trade-specific blockchain applications. For example, one application processes mineral interest royalty contracts, and another tracks the trade of precious metals. The platform uses a proprietary firewall to improve data security and is currently available on a licensed basis. STOs, that would seek to launch blockchain-based digital assets that are registered as securities under applicable laws. Coinbase announced that it had received approval from the U.
Coinbase closer to being able to operate as a broker-dealer. 5 million worth of cryptocurrencies, including bitcoin, ether and litecoin, as part of a raid against an illegal online gambling platform that utilized the currencies to hide the proceeds of its activities. In Greece late last week, a Greek court ruled to extradite Alexander Vinnik to France, where he stands accused of defrauding French citizens through the cryptocurrency exchange BTC-e. Domestically, the IRS has announced a new campaign to improve reporting compliance for cryptocurrency-related gains and losses. The two-pronged campaign consists of heightened review of previous filings coupled with public outreach to increase awareness of filing rules for cryptocurrency gains.
10 million worth of ether has been stolen this past year via social engineering tactics, with investors interested in ICOs becoming the most popular targets. According to the report, scammers use phishing emails, fake websites and even Twitter to trick investors into sending funds to wallets that the scammers control. On July 3, 2018, a U. 5 billion in cryptocurrencies predicted to be lost to cyber-hacks by the end of 2018.
According to the report, this increase in theft tripled the amount of cryptocurrency money laundering. Financial institutions are working with regulators to develop AML compliance tools to combat cryptocurrency-related crimes. For example, enterprise blockchain software firm R3 recently launched a KYC application on its Corda blockchain platform. Thirty-nine banks, financial service providers and central banking institutions participated in the test, completing 300 transactions over the four-day trial at the end of June. Concerns over the use of cryptocurrency in sanctions evasion also continue to plague regulators. March 2018 prohibited the circumvention of U. Venezuela by using cryptocurrency, in part as a reaction targeted at Venezuela’s Petro token.
Issues involving cryptocurrency taxation continue to gain press as regulation evolves inconsistently across global jurisdictions and market actors express a desire for clarity. A recent Cointelegraph article discussed the differences in tax policy across 10 jurisdictions: U. Japan, South Korea, Russia, South Africa, Canada, Brazil, Germany and Switzerland. A more comprehensive analysis of the tax treatment of cryptocurrencies across the globe can be found in a report issued in late June by the Law Library of Congress. Meanwhile, a recent news article reported that the IRS has licensed software used to trace and identify the owners behind public keys on the Bitcoin blockchain. Germany Reaffirms Crypto Tax Stance—But at Market’s Expense?
Approximately 56 percent of crypto startups were no longer in business after just four months, according to a study from Boston College. The study tracked over 4,000 ICOs in the first half of 2018 by monitoring their Twitter accounts, and found that over half of these accounts were inactive within 120 days from the time their ICO was announced. 50 million in market cap found that over 80 percent of these tokens are scams, and over 10 percent more were abandoned and never made it onto an exchange. Thus, only 8 percent of tokens actually get traded on an exchange. These numbers are consistent with reporting by websites such as Dead Coins and Coinopsy, which list over 800 inactive crypto companies. Despite these risks, some investors have not shied away from the opportunity.
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Aware of the high volume of crypto scams, governments are continuing to regulate ICOs. China, having already banned ICOs in 2017, is now working with instant messaging platforms to spot crypto trades by companies that have moved overseas but are still accessing the Chinese market through these apps. From gut to glut, supply chain uses for blockchain technology continue to expand. All involved believe that blockchain technology will restore credibility to the art supply chain and strengthen artwork as an asset class. 300 million fund that will invest exclusively in crypto startups and buy and hold unaffiliated crypto assets. The dedicated crypto fund will be co-led by former federal prosecutor Kathryn Haun, the firm’s first-ever female general partner.
D companies plan to integrate blockchain into their business models by 2021. The government of South Korea recently announced plans to pilot blockchain technology in the areas of livestock supply chain management, customs clearance, online voting, real estate transactions, cross-border e-document distribution and shipping logistics. 9 million in the development and application of blockchain technology to the government systems that regulate these six areas. Last week, two university systems announced their respective blockchain educational initiatives. Stanford University will serve as the headquarters for a new blockchain research center that will develop a curriculum and best practices for blockchain technology. And for the first time ever, UC Berkeley will open its blockchain education program to the public. The financial services industry continues to explore ways to harness the power of blockchain.
A new remittance service recently launched by AlipayHK and GCash uses blockchain technology to allow customers to transfer funds between Hong Kong and the Philippines within seconds without having to use intermediaries. According to Coindesk, an open source community named Cordite is building on the R3 Corda blockchain to design digital tokens that would allow the digital representation of numerous assets traditionally held and traded by highly regulated financial institutions. These digital assets would be similar to Ethereum-based ERC-20 tokens, but they would be specifically designed for the banking industry. Notably, the main contributor to the project is the Royal Bank of Scotland. As the financial sector continues to integrate blockchain solutions, blockchain businesses around the globe are having difficulty obtaining bank accounts. 20 million worth of bitcoin and other cryptocurrencies used to launder proceeds of illegal transactions over the darknet.
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In a first-of-its-kind sting, personnel from various government agencies posed online as money launderers and vendors of illicit products on darknet market sites. The government’s increasing capacity for law enforcement in the digital space goes hand in hand with increased regulatory efforts to stem misuse of cryptocurrencies at the onset. Japan’s Financial Services Agency recently ordered six licensed cryptocurrency exchanges to enhance their internal-auditing and user-protection systems in an effort to stem money laundering and to protect the public from fraud. At a June 25 event, Andrew Smith, director of the U.
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Cryptocurrencies with enhanced privacy and anonymity features are receiving specific scrutiny. On June 20, the deputy assistant director of the U. Secret Service’s Office of Investigations called for regulation of such coins, which, the director said, serve primarily to subvert legitimate law enforcement. According to a June 15 press release, the U.
This week also saw the release of new guidance for reporting virtual currency on financial disclosure reports. Ethics in Government Act, and consequently is subject to the public disclosures required by law. Outside of the United States, Brazil and the South Indian state of Kerala recently announced plans to implement blockchain solutions for their respective government systems. Brazil’s central bank developed a blockchain platform to manage the authorization and discipline of financial institutions regulated by the central bank. News Release: DHS Awards Austin-Based Factom, Inc. 9 million annually on security measures. The exchange has promised to cover customers’ losses.
Dream Market, pleaded guilty to conspiracy to possess with the intent to distribute controlled substances, and conspiracy to launder money. Dream Market was a dark website that only accepted bitcoin and other cryptocurrencies as payment. In Japan, prosecutors recently arrested 16 suspects in an ongoing criminal case of cryptojacking. Cryptojacking is an attack in which hackers deploy malicious code onto computers so that they mine cryptocurrency for the hackers’ benefit. Ukrainian authorities also made arrests this week, apprehending four suspects for operating up to six fake cryptocurrency exchanges.
KYC compliance appears to be gaining renewed attention. Data such as impression, engagement, time stamps, and price will be written to the Ethereum blockchain for the brand to download and review. Along similar lines, Mediaocean, a New York-based advertising services and software company, and IBM iX, one of the world’s largest digital agencies, recently unveiled a pilot program that uses a custom blockchain built by IBM to record how digital dollars are being spent. The network will first focus on authorizing transactions between marketers and agencies, but will expand to include transactions by publishers and measurement companies. These pilot programs seek to clarify how blockchain fits into the advertising space. The results of the programs will likely aid in determining whether the impact of blockchain technology on advertising sales is significant enough to compel others to follow suit.
While the SEC continues to take a cautious approach to cryptocurrencies and ETFs related to cryptocurrencies, the financial industry continues to pursue cryptocurrency initiatives. Goldman Sachs has also announced that it is considering additional cryptocurrency trading beyond assisting clients with bitcoin futures. Nasdaq CEO Adena Friedman recently denounced the insufficient public information, as well as a lack of transparency, regulation and accountability in the ICO market. Friedman is reportedly supportive of the SEC’s claims that ICOs are securities offerings.
Recent events have increased suspicion of cryptocurrency valuations and the reliability of cryptocurrency exchanges. This week also saw the release of new research into bitcoin price manipulation. On June 13, University of Texas professor John Griffin and graduate student Amin Shams published a detailed assessment of Bitfinex’s use of its Tether currency and its effect on bitcoin’s price. Continued cyber hacks are also contributing to price volatility. The potential tax consequences of an ICO should not be underestimated and can be very surprising.
To add to the confusion, a token’s characterization for tax purposes at times may differ from its characterization under the rules of a separate regulating body, such as the SEC or CFTC. And in the international context, the regulation, legislation and guidance often differ greatly from one country to another. The ICO space is ripe for guidance by the IRS, but any guidance may be a long time coming. President Trump signed a new tax bill into law at the end of 2017, and Treasury’s Priority Guidance Plan, released May 9, 2018, was full of projects implementing the new tax laws but makes no mention of any project related to blockchain technology or cryptocurrency. INSIGHT: Is Income Taxable to a Company Running an Initial Coin Offering? Which European Countries Are Best for Cryptocurrency Startups?
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Companies of all sizes continue to roll out blockchain enterprise solutions. In the financial services sector, recent reports indicate that Fidelity Investments is seeking to deploy its own digital asset exchange and cryptocurrency custody service. A recently published patent application reveals that Mastercard is researching a solution that could move its payment verification and processing functions to a public blockchain. Blockchain technologies also continue to gain traction in use cases involving an array of global trade applications across various industries. In foreign jurisdictions, regulators and market actors continue to take a wide range of actions in the blockchain space.
Thailand’s securities regulator recently approved a new set of regulations governing ICOs that are set to take effect in late June. According to the Bangkok Post, the Thailand regulator is evaluating 50 ICOs under its new set of rules and has granted approval to five of these. Binance, the world’s largest bitcoin exchange by trade volume, has made recent headlines in multiple jurisdictions. The company historically offered only crypto-to-crypto exchanges but has reportedly been granted a bank account in Malta, through which it intends to begin offering crypto-to-fiat exchanges. Binance also recently signed a memorandum of understanding with an industry organization in Jersey to develop a cryptocurrency exchange in that country. In other foreign jurisdictions, concerns are being raised about the risks of cryptocurrencies and money laundering.
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These two forces share similar fundamental principles, such as individual control over personal information and data minimization, and blockchain may very well offer simple and powerful solutions to implement some of the GDPR’s mandates. Governments around the world are seeking to harness blockchain to improve the delivery of public services. In May, a few dozen deployed military service members and their families used blockchain to cast their votes in West Virginia’s primary election. Voters verified their identities using biometric tools and then voted using their mobile devices on a blockchain application.
Outside the United States, examples of countries that are seeking to implement blockchain solutions for government systems include Switzerland, Sweden, Georgia, Estonia, Malta, Bermuda, Chile and Singapore. One of the more ambitious initiatives is taking place in Dubai, which has announced plans to move Dubai’s visa applications, bill payments and license renewals to the blockchain by 2020. On May 21, 2018, mayors from around the world convened in Italy to discuss how technologies like blockchain can improve civic functions. Method and System for Authentication of Coupons via Blockchain.
With this patent, Mastercard hopes to store its customers’ coupon data on a blockchain, thereby limiting those who can access the coupons and reducing the risks associated with data manipulation. Several players in the advertising, media and entertainment industries are exploring blockchain’s potential to combat fraud and improve transparency. Smart contracts, programs that can exist on a blockchain and facilitate transactions and other agreements, may be promising in this regard. For example, a new company, Atayan Inc. The ETF Providers say the fund will hold bitcoin in cold storage and, importantly, the bitcoin will be insured against loss or theft.
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Foreign crypto trading platforms have had more success in this space, where Chinese trading venue Huobi Pro launched a crypto-based ETF targeted at retail investors on June 1, and rival OKEx rolled out its own product just this week. OKEx’s platform was launched by OKCoin, previously one of the top exchanges in China. Both Huobi and OKEx’s platforms are available to Chinese investors but have put in place restrictions to exclude users from the United States and Hong Kong. Other firms are taking an alternative route, instead seeking bank licensing or registering as broker-dealers. In a strategic move, startup firm Circle, a Goldman Sachs-backed venture, is looking to register as a federally licensed U. Supreme Court decision in SEC v. SEC or subject to a valid exemption from registration.
New Enforcement Actions in the U. In a first-of-its-kind blockchain-enabled solution for the marine hull insurance industry, Insurwave promises to automate manual processes and alleviate inefficiencies for the world’s largest shipping company, A. The platform was created as a joint venture between consultant EY and blockchain developer Guardtime. Insurwave is the latest example of how blockchain establishes trust and reliability in high-volume transactions among multiple parties with a shared interest in the same data set. The benefits of blockchain technology and industry collaboration are now evident for insureds and insurers alike, and anticipated uses in commercial and specialty lines of business will only further expand the opportunities. The tech is not without risks, however.
To read more about the A. Insurwave, a new near-real-time, blockchain-enabled platform to secure and streamline the marine insurance process is now live. Cyberhacking continues to plague companies worldwide, and hackers continue to use, demand and trade in cryptocurrency. 2 billion in cryptocurrencies since the beginning of 2017, including reported and unreported theft. APWG estimated that only 20 percent of this amount has been recovered.
This week it was also reported that hackers breached two Canadian banks, the Bank of Montreal and Simplii Financial of CIBC, accessing personal information from 90,000 accounts. 1 million in XRP by May 28. 667,000 worth of bitcoin from another hacker, Grant West, 26, who had attacked companies worldwide. West obtained personal financial data, including usernames and passwords, through phishing schemes, and sold this information on the dark web. West was sentenced to 10 years and eight months in prison.
As fast as the blockchain industry is moving, regulators in the U. The DoJ is collaborating with the Commodity Futures and Trading Commission, which has dealt with these types of schemes in the futures markets, including spoofing and wash trading. In South Africa, authorities opened an investigation into an alleged fraud scheme involving a company named BTC Global. 120,000 to be paid in bitcoin for the release of a teenage boy. 14 million in bitcoin in connection with two Bavarian cybercrime agency investigations.
CFTC has dealt with in the past. At the same time, the Advisory’s pronouncement that these players will have to take on more responsibility may leave them vulnerable to second-guessing later on. Read the full text of the CFTC guidance. 3 billion in the first quarter of 2018, representing 118 percent of total funds raised via ICOs for all of 2017. At the same time, the U. ICOs are illegal sales of unregistered securities.