Japan’s Financial Services Agency Grants Third Party to Self-Regulate Cryptocurrencies – Is a Similar Move Likely in the US?

Colleagues, the Financial Services Agency of Japan has granted approval for the Japanese Virtual Currency Exchange Association (JVCEA) to self-regulate the exchange of cryptocurrencies. Officially referred to as a "certified fund settlement business association” (aka the Association of Certified Fund Settlement Business Operators). The scope of the JVCEA appears to encompass the definition of crypto exchanges policies, enforcement and impose unspecified penalties on violators. This surely comes as music to the ears of Coincheck, Bitbank, GMO and other exchanges based in the island nation. Bottom line: Would Japan’s self-regulation model be acceptable to the US SEC or CFTC? Answer: Not a chance. Both US regulatory bodies – while seeing the potential value of cryptocurrencies – have major reservations regarding the security of crypto exchanges, illicit activity performed on crypto exchanges (such as money laundering, contraband and the undermining of economic trade sanctions) as well as the legal categorization of digital assets as bona fide “securities” or “commodities”. Post a comment today! Lawrence – Cryptocurrency Academy (https://cryptocurrencyacademy.blogspot.com/) 

Tether and Bitcoin: David vs. Goliath – A Match Made in Hades?

Colleagues, Bitcoin without doubt is the poster children for cryptocurrencies. Despite its flaws and dramatic price decrease, since December 2017 it commands some 51% market share of the $209B global cryptocurrency value based data from CoinMarketCap. By all accounts Tether is a third-tier Stablecoin pegged to the US dollar … currently trading at 0.985 cents to the greenback. Tether does rank as the eighth largest cryptocurrency by weighted market cap with a little over 2B tokens in circulation. The central issue is whether Tether has been used to manipulate the value of Bitcoin – a $2B fiat-back Stablecoin influencing the industry leading BTC weighing in at $112B market cap. In a paper released by a University of Texas professor entitled Is Bitcoin Really Un-Tethered? The report makes a compelling case that “Less than 1% of hours with such heavy Tether transactions are associated with 50% of the meteoric rise in Bitcoin.” A bevy of articles by respected publications including the New York Times, CCN, Coin Telegraph, Coin Desk and CryptoSlate appear to validate the U of T statistical thesis of Dr. John Griffin. The unanswered question concerns motive. We will explore this issue further and report our conclusions. Post a comment today! Lawrence – Cryptocurrency Academy (https://cryptocurrencyacademy.blogspot.com/) 

What can the US SEC and PBoC learn from the EU ESMA regarding the regulation of cryptocurrencies?

Colleagues, while the US SEC has an ongoing debate whether crypto assets are securities or commodities, the European Securities and Markets Authority’s (ESMA) central focus is on the “transferability” of the asset. Transferable assets may fall under the jurisdiction of the ESMA’s existing Markets in Financial Instruments Directive II.  Herein we have two of the world’s three geo-economic regions with different approaches to the potential regulation of digital assets. Which leads us to East Asia – Japan, South Korea and China – which have be the vanguard of cryptocurrency adoption (ICOs, exchanges and mining). The PBoC definitely anticipates a sovereign bank-sponsored cryptocurrency in its future, however, has major reservations about the impact of digital assets in general on the price of the yuan. The Cryptocurrency Academy predicts that the world’s three geo-economic regions will resolve the regulatory ambiguity over the next 24-26 months. The fundamental question remains: Will the EU, US and East Asia arrive at similar or conflicting regulation frameworks? We will continue to scrutinize and report on regulatory developments affecting crypocurrency adoption. Post a comment today! Lawrence – Cryptocurrency Academy (https://cryptocurrencyacademy.blogspot.com/) 

How does North Korea’s cyber warfare unit Lazarus Group use gains from crypto exchange attacks to its military?

Colleagues, under mounting political and economic pressure from the US – and to lesser extent China and Russia – North Korea’s infamous Lazarus Group appears to have cryptocurrency exchanges in the center of its radar screen. The highly respected Group-IB cyber intelligence firm reports that the DPRK was the source of some 14 cyber attacks targeting cryptocurrencies exchanges during the past one and a half years yielding $571m in illicit digital assets. Allow us to make two rather obvious assumptions: One, the cash-starved North Korean government has no viable exports other than the sale of rogue military hardware. Two, despite its economic deprivation, the DPRK funnels as disproportionate level of the financial resources it does have to the Lazarus Group’s cyber warfare ventures. These assumptions lead us to a fundamental question: How does North Korea use the crypto assets acquired by Lazarus? We believe the answer is two-fold. First, to build and acquire the country’s military arsenal. Second, the widespread and ongoing disinformation campaign needed to prop-up the ill-fated Kim political dynasty. Post a comment today! Lawrence – Cryptocurrency Academy (https://cryptocurrencyacademy.blogspot.com/) 

How effective will Coinbase’s Salus open source security software be in protecting crypto exchanges?

Colleagues, we return once again to the Achilles heel of cryptocurrency mass-market adoption – security. The Coinbase exchanges’ new open source software Salus purportedly will eliminate the need having to configure a scanner for each different project. Instead, crypto exchanges IT staff should be able to centrally managed security scans across a large number of software repositories. The US-based Coinbase exchanges shares highest quality ranking among Bitcoin trading platforms along with ChangeBelly and Binance according to Bitcoin Exchange Guide, which boosts its credibility in the global cryptosphere. Two key questions emerge. First, how widely will Salus be used by other exchanges? Second, what level of incremental security will Salus deliver? Our assumption is that other exchanges will closely monitor the Salus rollout before deploying it on their platforms. Separately, we are not likely to know true value of Salus in preventing – or at least mitigating – security threats for 4-6 months. Nevertheless, given the plight of security in the cryptocurrency ecosystem we believe that more security can only help strengthen investor confidence in crypto exchanges. Review and download the Salus code at GitHub. Post a comment today! Lawrence – Cryptocurrency Academy (https://cryptocurrencyacademy.blogspot.com/) 

Does Crypto Smart Contract Predictive Code Violate US CFTC Policies?

Colleagues, as the debate continues regarding whether cryptocurrencies are securities or commodities, a parallel debate is emerging which concerns the legality of including predictive code in smart contracts. The Commodities Futures Trading Commission governs the use of binary options, derivatives and event contracts for US-based traders and investors. The centerpiece of CFTC enforcement is protecting the “public interest”. Crypto smart contract security issues, which may lead to financial losses, are under particular scrutiny by the CFTC. Best practices concerning smart contracts vary by the Blockchain used by each cryptocurrency.  If your prediction is right, the contract automatically sends you the remittance as long as it is in the public interest. The issue of nefarious uses of cryptocurrencies let alone betting on illicit financial transactions (e.g. money-laundering, evading economic sanctions and payment for drug trafficking). Smart contract security audits are key to uncovering vulnerabilities in the underlying Blockchain. The CFTC’s chief concern is the prohibition of so-called “prediction markets”. Bottom line: When it comes to US-based cryptos and developers including predictive code in smart contracts raises a red flag by the CFTC. Until the CFTC issues formal guidelines, our recommendation is to avoid predictive code in crypto Blockchain. Post a comment today! Lawrence – Cryptocurrency Academy (https://cryptocurrencyacademy.blogspot.com/) 

Fiat to Digital Deposits and Withdrawals for Cryptocurrency Exchanges – Can Binance’s third party method work for smaller exchanges?

Colleagues, unlike Bitfinex the market cap leading Binance exchanges requires investors to convert their fiat currencies using third party portals localbitcoins.com, otcbtc.com or Bitfinex. By contrast Bitfinex does allow direct fiat currency deposits which are then converted to cryptocurrencies … which if desired can then be transferred to other crypto exchanges. Here is the issue: What happens to Binance market cap and trading volume if one or more of their fiat currency “on-ramps” fails? Case in point is the bug in the Bitfinex deposits processing system last week which rendered their deposits on ramp unavailable. Fortunately, they have resolved this problem with the implementation of a new “distributed banking solution”. Ease of use – for both fiat to crypto deposits and crypto to fiat withdrawals – is yet another critical success factor (primarily for individual investors) which needs resolution if cryptocurrencies are to penetrate the mass market. The development of user friendly processes will greatly benefit the global crypto ecosystem. Post a comment today! Lawrence – Cryptocurrency Academy (https://cryptocurrencyacademy.blogspot.com/)