SEC Tells Telegram Its Crypto Is Worth Less Than Donuts

On Jan. 27., the Securities and Exchange Commission (SEC) fortified its case against Telegram, saying its Gram token is worth less than donuts. 

The SEC’s counter

In the latest in their battle with Telegram and the Telegram Open Network (TON), the SEC argued in a memo to the Southern District Court of New York:

“Telegram offered and sold Grams as securities when it promised to deliver them in exchange for funds pursuant to the Purchase Agreements. That reality will not have changed if the Court permits Telegram to deliver Grams to the Initial Purchasers as part of a broad public distribution, which is in violation of Section 5, and which the Court should enjoin”.

In the memo, the SEC included a few barbs against the instant messenger service. It called out Telegram for doing “a two-step around the registration provisions” and performing “sleight of hand” by fabricating the difference between a purchaser’s investment in Grams and their delivery of the Grams, which would allow them to withhold info normally in regulatory statements. Pavel Durov’s creation, the document contends, gave a “strawman” argument about “existence” since “Grams will never be tangible.” The SEC put the frosting on when it wrote: 

“Telegram’s attempt to avoid this economic truth by labelling Grams ‘commodities’ also fails. Grams are not commodities. Unlike gold, comic books, and Krispy Kreme donuts —  commodities Telegram compares to Grams — Grams have no intrinsic value.”


Cointelegraph reported on the start of Telegram’s legal woes last year, when the SEC filed an emergency action to freeze the company’s sale of Gram tokens.

Per the allegations, Telegram would have sold Grams only to accredited investors in the initial offering. But holders could then have resold them — a violation of Rule 506(c) according to the SEC: 

“Once Telegram delivers the Grams to the Initial Purchasers, they will be able to resell billions of Grams on the open market to the investing public. Telegram and/or its affiliates will facilitate these sales on digital-asset trading platforms. Once these resales occur, Telegram will have completed its unregistered offering with billions of Grams trading on multiple platforms to a dispersed group of investors.”

Source Cointelegraph

Crypto Payments on Darknet Markets Doubled for First Time Since 2015

The volume of cryptocurrency flows coming on darknet markets have doubled for the first time in four years, a new study says.

In part of its 2020 Crypto Crime Report published on Jan. 28, Chainalysis — a New York-based blockchain analytics firm — found that darknet markets have significantly increased their share of total incoming crypto transactions in 2019, doubling from 0.04% in 2018 to 0.08%. 

Crypto on darknets is resilient to scrutiny by law enforcement

According to the study, total market sales in crypto grew 70% in 2019 to account for more than $790 million worth of cryptocurrency after seeing a small decline in 2018. This was the first time when sales surpassed $600 million, Chainalysis says.

Despite the total share of crypto payments on the darknet remaining quite low, the recent growth of volumes indicates the resilience of darknet markets to increased legal scrutiny from global regulators, Chainalysis believes. According to the firm, the total number of active darknet markets remained stable in recent years despite heightened law enforcement.

Specifically, the study suggested that as some markets close, others still manage to fill the gap and satisfy client demand. While eight of the markets active in 2018 were shut down in 2019, eight new ones opened up that same year, keeping the total number of active markets worldwide at a steady 49.

Darknet market share of all crypto payments, 2013-2019

Darknet market share of all crypto payments, 2013-2019. Source: Chainalysis

Possible reasons behind the surge

According to Chainanlysis, the increasing share of cryptocurrencies coming to darknet markets is purportedly caused by the implementation of new technologies, which makes the operating process more decentralized. In order to avoid shutdowns by law enforcement, some darknet markets are adopting new infrastructures that have a fully decentralized structure, which is similar to the Tor web browser or “to the blockchain itself,” Chainalysis noted.

As part of the study, Chainalysis said that it expects to see more darknet markets accepting or even requiring the usage of privacy-oriented cryptocurrencies such as Monero (XMR). In January 2019, the company found that the value of Bitcoin sent to darknet markets had increased by 70% in 2018.

As global regulators and enforcement authorities are doing their best to shut down darknet markets operating with cryptocurrencies, new arrests reports keep coming in. In early January 2020, a citizen of the United States was charged with illegal narcotics distribution in exchange for Bitcoin.

While some marketplaces are being shut down, others are making even more ambitious expansion plans to go beyond their primary focus of distributing illicit products. Russia’s largest darknet marketplace announced plans to raise $146 million in a token offering that would allow it to go global in late 2019. Announced by Hydra, an illegal marketplace for illicit substances, the token sale is in no way legal in terms of global securities laws.

Cointelegraph News

OneCoin Crypto Ponzi Scheme Used Fake Reviews to Improve Its Image

Research conducted by the Digital Forensic Research Lab (DFRLab) of the Atlantic Council think tank suggests that the infamous cryptocurrency-themed Ponzi scheme OneCoin used fake reviews on TrustPilot and Quora to lure investors.

According to a report published on Jan. 29, OneCoin received an anomalous number of five-star reviews on TrustPilot after the media started negatively covering OneCoin in October 2019.

OneCoin’s TrustPilot reviews over time

OneCoin’s TrustPilot reviews over time. Source: DFRLab

Per the report, of the 579 TrustPilot reviews of OneCoin,  90% were positive and about 400 of the five-star ratings were published in a single month. DFRLab states that OneCoin also received some one-star ratings, but those were by far outnumbered by positive reviews.

Signs of inauthentic activity

Researchers were unable to guarantee whether the accounts behind the reviews were inauthentic or automated due to TrustPilot’s design, but said that their activity was suspicious:

“October 2019 spike in five-star ratings, however, indicated an abnormal influx of favorable reviews just as OneCoin’s public relations and legal woes mounted. The possibility remains that the influx for both ratings and reviews was organic, though the timing and extreme bias was highly suspicious.”

DFRLab also found profiles praising OneCoin on question-answer platform Quora which showed “inauthentic behaviour, such as no profile pictures, no biographical information, inconsistent posting times, and an exclusive interest in OneCoin-related discussions.”

The researchers show one profile, in which the owner described herself as a “cryptocurrency expert and investor” but only answered questions about OneCoin. The account was active from January to March 2018, and its peak activity was when OneCoin was most active. The report reads:

“As OneCoin’s legal challenges mounted, the company’s pyramid marketing scheme garnered significant attention. Its digital marketing tactics, however, received considerably less scrutiny.”

OneCoin is one of the most well-known scams in the cryptocurrency space. The official OneCoin website only ceased operations in early December 2019. During the same month, the New York Southern District Court granted a continuance in the lawsuit against David Pike — the CFO of a private equity fund — over his alleged link to the scam.

Source Cointelegraph

Montana Crypto Mine Back in Action Despite Owner’s Uncertain Legal Fate

A cryptocurrency mine in Butte Montana fired up its servers today, resuming business without its former owner, an alleged fraudster. 

After a legal appearance on the matter, part-owner Kevin Washington and operator Rick Tabish started up crypto mining business CryptoWatt once again, pulling the operation out of retirement, according to a Jan. 27 press release. 

Authorities closed down CryptoWatt after jailing its owner, Matthew Goettsche, on a separate fraud account totaling $722 million, the Montana Standard reported in December 2019. 

Shady ownership

Although Goettsche owned more than 50% of CryptoWatt, he was not taken into custody for dealings related to that business. Goettsche, along with four individuals, ran a “cryptocurrency investment club” named BitClub Network, through which the group allegedly swindled millions.

Rick Tabish ran CryptoWatt under Goettsche’s ownership of the site, unaware of the owner’s fraudulent endeavors with the unconnected BitClub Network. Goettsche also carried significant debt owed to Tabish.  

Managerial concern

Regarding re-opening, Tabish told the Montana Standard:

“If the facility shuts down we all lose, […] I want to protect the integrity of the facility, and the interests of our employees, the vendors, everybody who works there.

Tabish also noted his willingness to bring the matter to court if need be, pointing out that the operation would die if left shut down for too long, Montana Standard reporting included. 

CryptoWatt started up again on Jan. 26, a separate article from the Montana Standard read, securing a lower power cost in the process. 

Cointelegraph also recently reported on a surge of Bitcoin mining licenses in Iran.

Source Cointelegraph

Coinbase and Ripple Execs Unveil Master Plan to Drive US Crypto Adoption

Two executives at Coinbase and Ripple are leading a push for smart regulations and transparency in the crypto-sphere that would arguably drive adoption and take blockchain technology mainstream. 

Market integrity must improve

The Market Integrity Working Group’s co-chairs want regulators to grasp how they can advance the cryptocurrency industry. In an official company statement, Coinbase senior director and associate general counsel Rachel Nelson, in conjunction with Ripple’s head of global institutional markets Breanne Madigan, wrote

“To improve market integrity and provide consumers the confidence they deserve, Congress may need to enact legislation to support the orderly and secure functioning of crypto markets.”

Projecting wider regulations, they added: 

“Such legislation could expand the Commodity Futures Trading Commission’s (CFTC) authority to include the regulation and oversight of digital commodity exchange markets.”

The need for a regulatory framework

The Working Group, which officially launched on Jan. 23 2020, outlined the problems that saddle exchanges. According to this organization, state-specific regulations are to blame: 

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

The co-chairs argue that new exchanges face byzantine burdens while existing exchanges struggle against compliance requirements. But a regulatory framework would bolster market integrity and encourage consumer adoption of cryptocurrencies.

Source Cointelegraph

Telegram Attacks Apple, Musk on Crypto, WEF Debrief: Hodler’s Digest, Jan 20–26

Coming every Sunday, Hodler’s Digest will help you track every single important news story that happened this week. The best (and worst) quotes, adoption and regulation highlights, leading coins, predictions and much more — a week on Cointelegraph in one link.

Top Stories This Week

World Economic Forum debuts framework for central bank digital currency

It was a c-c-c-cold week in Davos, but Cointelegraph’s reporters wrapped up warm to bring you all the news from the World Economic Forum. One particularly big announcement saw the WEF unveil a central bank digital currency policymaker toolkit. The framework, created in tandem with central banks, is designed to help policymakers understand whether deploying a CBDC would be advantageous. In other developments, a global consortium has been formed to focus on developing interoperable, transparent and inclusive policy approaches to regulating digital currencies. At the start of the week, the European Union and five major central banks — the United Kingdom, Japan, Canada, Sweden and Switzerland — announced they were planning to team up on their research for CBDCs.

WEF: Facebook’s Libra pushed world to reconsider USD as global reserve currency

Elsewhere in the snowy hills of Davos, global economists begrudgingly admitted that Libra had played an instrumental role in getting the world to evaluate CBDCs — and to challenge the U.S. dollar’s role as an anchor currency. On a panel exploring the issue, Brazil’s Economy Minister Paulo Guedes said new technologies like blockchain are paving the way for future currencies to be digital. Others, such as the International Monetary Fund’s chief economist, Gita Gopinath, cautioned that the dollar still remains attractive because it “provides the best stability and safety.” David Marcus, the head of Facebook’s Calibra wallet, was speaking at another WEF panel. He questioned whether “wholesale” CBDCs would solve any problems in the global economy, and argued that a retail-focused approach is the best way to tackle an “unacceptable” situation where 1.7 billion people are unbanked and another 1 billion underserved. Whether Libra will be that solution remains to be seen.

WEF: Ripple CEO hints at IPO, says more crypto firms will go public in 2020

And we’ve just got time for one final morsel of gossip from Davos. Ripple CEO Brad Garlinghouse has predicted that initial public offerings will become more prevalent in the cryptocurrency and blockchain space in 2020 — and he hinted his company would be among those seeking a public flotation. “We’re not going to be the first and we’re not going to be the last, but I expect us to be on the leading side,” he said. Such a move could be instrumental in building confidence with mainstream investors and secure a pivot away from controversial initial coin offerings, which have seen young startups suffer often expensive run-ins with regulators such as the U.S. Securities and Exchange Commission.

Picture 1

Tether launches gold-backed stablecoin and begins trading on Bitfinex

Of course, plenty of news has been happening away from Davos. Tether has announced it is now supporting a gold-backed stablecoin, where one token represents ownership of a troy ounce of physical gold. The funds are said to be backed by physical gold held in a “Switzerland vault” — and the product is available as an ERC-20 token on the Ethereum blockchain, as well as a TRC-20 token on Tron. Plans for commodity-backed Tethers have been in place for some time, but the company has often been criticized for its opaque approach to reserve management. A high-profile class-action lawsuit recently accused the company of market manipulation in 2017. Tether reserves were also allegedly used to cover a liquidity shortfall.

Elon Musk reveals his true opinion on Bitcoin and crypto

Tesla’s CEO may be constantly cryptic on his attitudes toward crypto, but this week, we got a little insight into Elon Musk’s thinking. On a podcast, the billionaire said he’s “neither here nor there on Bitcoin,” acknowledged Satoshi’s white paper was “pretty clever,” and warned his stance on cryptocurrencies often “gets the crypto people angry.” Musk added: “You must have a legal to illegal bridge. So, where I see crypto is effectively as a replacement for cash. I do not see crypto being the primary database [for transactions].” Musk has been known to write short tweets about crypto that were widely interpreted as jokes. Last year, he unexpectedly declared himself as the new CEO of Dogecoin — a gesture that helped the joke coin clock short-lived gains of 35%.

Winners and Losers

At the end of the week, Bitcoin is at $8,450.74, Ether at $163.88 and XRP at $0.22. The total market cap is at $233,388,704,913.

Among the biggest 1,000 cryptocurrencies, the top three altcoin gainers of the week are Polybius, Prometheus and Eureka Coin. The top three altcoin losers of the week are Q DAO Governance, OVCODE and CannabisCoin.

Picture 2

For more info on crypto prices, make sure to read Cointelegraph’s market analysis.

Most Memorable Quotations

“I think there’s a lot of things that are illegal that shouldn’t be illegal. I think that sometimes governments just have too many laws about the missions that they should have, and shouldn’t have so many things that are illegal.”

Elon Musk, Tesla CEO

“So then there is the new technology, the digital, the blockchain. […] The Libra episode is just evoking a future digital currency.”

Paulo Guedes, Brazil’s economy minister

“When we started this journey almost six months ago, the whole idea was not around a certain way of doing things, but more around ‘let’s come together and try to figure out how we solve a problem that is unacceptable’ — 1.7 billion people who are currently unbanked, another billion underserved.”

David Marcus, Calibra CEO

“Given the critical roles central banks play in the global economy, any central bank digital currency implementation, including potentially with blockchain technology, will have a profound impact domestically and internationally.”

Sheila Warren, World Economic Forum head of blockchain

“In the next 12 months, you’ll see IPOs in the crypto/blockchain space. We’re not going to be the first and we’re not going to be the last, but I expect us to be on the leading side… it’s a natural evolution for our company.”

Brad Garlinghouse, Ripple CEO

“My #Bitcoin mystery is solved. I mistook my pin for my password. When Blockchain updated their app I got logged out. I [tried] logging back in using my pin, which was the only ‘password’ I had ever known or used. I also never had a copy of my seed phrase. Honest but costly mistake!”

Peter Schiff, crypto skeptic and gold bug

“iCloud is now officially a surveillance tool. Apps that are relying on it to store your private messages (such as WhatsApp) are part of the problem.”

Pavel Durov, Telegram founder and CEO

Picture 3

FUD of the Week

Greece extradites alleged launderer of $4 billion in BTC, Alexander Vinnik, to France

A Russian national accused of heading a group that laundered $4 billion in Bitcoin has been extradited from Greece to France. Alexander Vinnik formerly operated the now-shuttered exchange BTC-e and is believed to have a direct relationship to the infamous hack of Mt. Gox. The case has risked triggering a diplomatic row, with Russia filing several requests to bring him under its jurisdiction. Lawyers writing on behalf of Vinnik’s young children had submitted a complaint to a Greek court at the start of the week in an attempt to prevent the extradition. Reports now suggest that Vinnik is being held at a hospital in Paris. His legal representative Zoe Konstantopoulou said: “In every way the government is trying to scare him, terrorize him, in a moment of great agony, while his health has worsened.”

India’s central bank says it hasn’t banned crypto

The Reserve Bank of India has said restrictions on regulated entities offering crypto assets do not equate to an overall ban. In a document submitted to the country’s supreme court back in September, which has now been made public, the institution said: “The RBI has not prohibited VCs (virtual currencies) in the country. The RBI has directed the entities regulated by it to not provide services to those persons or entities dealing in or settling VCs.” All of this comes as a landmark case against the RBI concludes its second week. Hearings are set to resume on Jan. 28.

Peter Schiff bungled wallet password, solving “Bitcoin mystery”

Long-running crypto skeptic and gold bug Peter Schiff is likely to be even more skeptical after losing access to his funds. At first, he believed his wallet was corrupted — but he later found out that he mistook his PIN for his password, and he was unable to log in after an app update because he had never taken a copy of his seed phrase. Many in the crypto community have criticized Schiff for making a rookie mistake, with Binance CEO Changpeng Zhao quipping: “I can’t believe I am about to say this, but maybe ‘stay in fiat?’” In recent days, CZ has said that keeping assets on an exchange is often safer than keeping the keys themselves — but those who have fallen victims to hacks on these platforms may not be so quick to agree.

Picture 4

Telegram CEO: Apple’s iCloud is “now officially a surveillance tool”

Pavel Durov, the founder and CEO of Telegram, has claimed that Apple’s cloud service iCloud is “now officially a surveillance tool.” His stinging rebuke followed reports that the tech giant dropped plans for end-to-end encryption on iCloud two years ago — apparently following complaints from the FBI. This ultimately means that backed-up texts from iMessage, WhatsApp and other encrypted services remain available to Apple employees and authorities. Telegram has been positioning itself as a global fighter for privacy — and in 2018, it refused to give Russian authorities the encryption keys to user accounts, prompting as-of-yet unfulfilled threats that the app would be blocked “in the near future.”

Best Cointelegraph Features

SEC goes head-to-head with Telegram, makes a guinea pig of TON

The Chamber of Digital Commerce submitted a legal document to the court overseeing the hearing between Telegram and the U.S. Securities and Exchange Commission. Shiraz Jagati looks at what it says.

Effect of CME futures options on BTC price depends on halving

CME Group has launched new Bitcoin options — further uplifting the institutional infrastructure supporting the asset class. Joseph Young writes that it’s a net positive for the crypto community, and the upcoming “halving” could make things more interesting.

Adam Back on Satoshi emails, privacy concerns and Bitcoin’s early days

Cassio Gusson has caught up with Adam Back to discuss the early years of Bitcoin, his emails with Satoshi Nakamoto and privacy — 11 years after BTC’s release.

Source Cointelegraph

Indian PM Awards Crypto App Creator as Supreme Court Deliberates on Ban

India’s Prime Minister Narendra Modi awarded young entrepreneur Harshita Arora, the developer of a cryptocurrency price tracking application, amid an ongoing battle in her home country over the status of cryptocurrency.

In a tweet on Jan. 24, Modi said that Arora’s “passion towards science, technology and human welfare are clearly visible.” She received the Bal Shakti Puraskar 2020: an award recognizing youth’s contributions in the fields of social service, innovation, bravery, sports, art and culture and scholastics.

Arora was born on Oct. 2, 2001, and “created an app to safeguard investors from scammers,” according to Modi’s tweet. Her app, Crypto Price Tracker, is a portfolio management and price tracking app.

She also worked on the “Food AI” application that identifies food in pictures, and another application that helps biologists count cells in microscope images — the aptly named “CellCount.”

The complicated situation of crypto in India

The fact that the prime minister issued an official award to a crypto-involved person is particularly interesting given the conditions for the cryptocurrency industry in the country.

As Cointelegraph recently reported, the Supreme Court of India this week listened to further hearings in the landmark case against the Reserve Bank of India’s ban on banks’ dealings with crypto-related businesses.

The case was brought to the highest court in the country by the Internet & Mobile Association of India after public and industry-led petitions against the RBI’s imposition of a blanket ban on banks’ services to crypto businesses back in April 2018, which came into effect in July of that year.

Furthermore, some lawmakers in the Indian parliament have drafted a bill that would ban cryptocurrencies in the country outright. In July 2019, a copy of a bill entitled “Banning of Cryptocurrency & Regulation of Official Digital Currencies ” leaked to the press.

The bill aims to ban any non-government digital assets and defines such assets as “any information or code or number or token not being part of any Official Digital Currency, generated through cryptographic means or otherwise, providing a digital representation of value.”

Source Cointelegraph

Crypto and Blockchain Firms Pitch In to Help Coronavirus Victims

Some blockchain and cryptocurrency firms have pledged to help victims of the coronavirus in Wuhan, China. Cryptocurrency exchange Binance pledged to donate 10 million Chinese yuan ($1.44 million) to the effort.

In a tweet on Jan. 25, Binance CEO Changpeng Zhao said that Binance made the pledge but did not make any announcements after a Twitter user tagged him in a news article about cryptocurrency donations being accepted for the cause:

“For #Wuhan, not realistic to do crypto to end beneficiaries. Binance pledged 10m RMB ($1.5m USD) to help #coronavirus victims. We didn’t make any announcements. But [Binance Charity Foundation] BCF/Binance team has been busy for the last few days. Still need help to arrange logistics locally.”

According to a Jan. 25 WeChat post by blockchain marketing service firm Krypital, the firm also launched a charity donation effort to acquire medical supplies for Wuhan coronavirus victims.

Krypital also announced that it will create a blockchain-based donation system that allows for greater transparency and efficiency. The firm accepts Tether (USDT) on the Ethereum blockchain.

The company is also recruiting volunteers for group administration, material purchase, sorting and transportation management, media announcements and graphic designers.

As Cointelegraph reported, yesterday Bitcoin (BTC) slumped 6% on the Chinese New Year as uncertainty surrounding the spread of the coronavirus. On Jan. 26, Fox News reported that the current death toll of the virus is 56.

Cointelegraph News

Tax Agencies Step Up Efforts to Hone in on Crypto Tax Evasion

The year 2019, for a short while, raised expectations that stablecoins would bring about mass adoption of cryptocurrencies. 2020, however, seems to be dousing those hopes with ever-tightening regulation that is putting pressure on investors and companies alike.

The first complication came only 10 days into the year. In early January, the European Union’s landmark Fifth Anti-Money Laundering Directive, or 5AMLD, was signed into law. The law is the latest evolution of the EU’s response to the Panama Papers scandal, in which a leak of over 11 million documents uncovered the opaque financial networks used by the world’s richest and most prominent individuals to divert wealth overseas.

The era-defining financial scandal shone a light on a controversial characteristic of international finance that would soon spell trouble for cryptocurrency investors and businesses the world over: anonymity.

Lawmakers are constantly striving to tighten the legal loopholes that allow the world’s richest companies and individuals to avoid paying their dues. Try as they might, there are still states, often small island nations in the Caribbean, that willingly provide less legally restrictive environments.

Choosing to divert financial flows offshore is often not illegal at all, but the emphasis that companies such as the now-disgraced Mossack Fonseca place on privacy means that it is difficult for law authorities to bring individuals using such networks for criminal activities, such as money laundering, tax evasion or terrorist financing, to justice.

From the 5AMLD to central bank digital currencies, governments and regulators are acting on their belief that the identities of individuals behind anonymous transactions should be made available to authorities upon request.

Additionally, even though the United Kingdom is set to leave the EU in roughly one week’s time, its anti-money laundering regulations closely match the 5AMLD, and recent events indicate that measures are being increased even further to prevent cryptocurrency from being used to flout the law.

The taxman cometh

One of the criticisms of post-Brexit Britain is that it will relax financial regulation in order to form lucrative trade deals in the wake of its departure from the EU single market. Although the U.K. has seen numerous financial scandals, its tax agency is looking to minimize the blind spots in the defenses against crime involving cryptocurrency.

Her Majesty’s Revenue & Customs announced that it had posted a $130,000 open contract call to develop a tool to help the tax agency gather intelligence through cluster analysis. The announcement is the latest step on behalf of European lawmakers to break through the anonymous qualities of cryptocurrencies, taking aim at both the biggest coins and privacy tokens, such as Monero (XMR), Zcash (ZEC) and Dash (DASH).

As previously reported by Cointelegraph, although most users of such coins use them for entirely honest purposes, both law authorities and regulators are concerned by the potential for privacy coins to be used for nefarious activities, such as the sale of illicit drugs on the darknet, as well as terrorist financing and money laundering.

The regulatory changes and mounting compliance demands did not surprise Dash Core Group Chief Marketing Officer Fernando Guitierrez. In an email conversation with Cointelegraph, Gutierrez put forward his view that the changes will not only be a hindrance to companies but also to the average consumer. He believes that: “This was all bound to happen.” He added that there was little chance that a growing industry would escape unnoticed:

“All these changes will make anonymity more difficult for the average consumer, as more exchanges comply and implement KYC. Those exchanges who don’t will be forced to jump from jurisdiction to jurisdiction, which will impose extra costs that only those committed to anonymity will be willing to pay. For criminals, this will change nothing because they are in that group, among many others who are not criminals, who are willing to pay more.”

The offering of the open contract from the HMRC is a signal that it is committed to effectively ramping up its blockchain forensics capabilities. Rich Sanders, principal and lead investigator at the Cipherblade Ltd blockchain analytics firm, told Cointelegraph that such a small contract is unlikely to shake up the system to any great extent:

“As for this particular initiative, a £100,000 software contract for a year says something but not very much in the grand scheme of things.”

How effective are blockchain forensics tools?

While data about transactions using cryptocurrency is stored on the blockchain, it is not possible to identify individuals from this information alone. Prior to the recent changes in legislation, blockchain analytics companies cooperated with intelligence agencies to link suspicious account activity to the individuals behind them.

Although the powers given to law authorities and compliance organizations under the 5AMLD are likely to radically change the way in which such procedures are carried out, Sanders believes that analytics tools are not a one-time fix for all anonymous crypto activity since: “Blockchain analytics tools do not inherently and directly crack the anonymity,” or, more accurately, the pseudonymity, which is an attribute of blockchains. Therefore, forensic tools are only one element of a comprehensive investigative toolkit. He went on to add:

“The way, in which a blockchain analytics tool can help in linking the pseudonymous blockchain identity to an individual is by tracing cryptocurrency from/to initial/terminal destinations such as exchanges and other services, from which data can then be requested — which will often require a subpoena to be served or, at a minimum, another legally constrained form of data request.”

Sanders explained that, when examining the powers of blockchain analytics tools in bringing tax evaders to justice, it is important to note that there must first be pre-existing suspicion of wrongdoing:

“Blockchain analytics tools are likely to be brought to bear only in cases of existing and substantiated suspicion and are not themselves suited to finding potential tax evaders in the sea of cryptocurrency users. If that’s what you want to do, you’ll have a better time — as I once semi-seriously advised IRS employees — browsing through Reddit and looking at the chest-beating about tax evasion there (by accounts with poor OPSEC).”

Many in the sector welcome the regulatory changes. This chummy approach to cooperation with state organizations is not, however, shared by all. Dash Core Group’s Gutierrez told Cointelegraph that, in spite of their duty to protect, not all governments and intelligence agencies honor this:

“This has happened even in democratic countries, so we can’t assume that everything they do is fair or well-intentioned. Only where there is a real separation of powers, and the judicial one has consented, on a case by case basis, they should have such a right, if technically possible. If that can’t be guaranteed — and it can’t — it is better if they stay away.”

How will regulation affect crypto?

Cryptocurrency is still a young industry and faces many challenges on the road to becoming a mature sector that can compete with wider mainstream finance, should that ever happen. The steady increase in regulatory and compliance demands are only to be expected as the nascent crypto industry inches closer to being used by a greater customer base.

Regardless of the titans of the tech industry toying with the idea of starting cryptocurrencies of their own, even some of the larger financial companies simply cannot take on the high level of risk associated with crypto at its current stage.

Some industry leaders recognize this turn as a welcome sign that digital currencies are being taken more seriously by regulators and lawmakers around the world. For others of a more anarchistic philosophical standing, the loss of anonymity is a loss of one of the core precepts behind the entire reason for cryptocurrency’s being.

Gutierrez says that, while regulation is bound to happen to any growing financial industry, the costs associated with being regulated to an extreme level could well choke out smaller players and lead to an eventual stagnation:

“The constant introduction of new regulations is already changing the industry. Compliance costs have grown so much that only big players can afford them. This is only going to get worse. We will have fewer new projects and that will hinder innovation. I foresee a future, in which the blockchain industry resembles more and more the financial industry it proclaimed it would replace: well-funded players, slow change and lawyers everywhere.”

While Gutierrez foresees a slowdown in the near future, Andrew Adcock, CEO of the London-based crowdfunding platform Crowd for Angels, told Cointelegraph that the firm has not picked up on any discernible change in investor behavior in the wake of the regulatory changes:

“We haven’t seen a large change in investor and consumer attitudes, however, there has been a notable increase from companies seeking to implement changes and abide by the new regulation. I believe this is positive and will provide great protection for investors.”

Although any kind of attempt to hinder the supposedly essential core characteristics of cryptocurrency will create intense debate among investors, industry leaders and regulatory bodies, not all people are so fussed about the changes.

Adcock said that many of the clients at Crowd for Angels are not overly interested in the topic. Despite the doomsayers of the crypto industry, Adcock maintained his view that regulation is something to be encouraged and does not believe that this will alienate investors: “There will always be those who seek anonymity, and this might be challenged by regulation, but harmony between both positions can co-exist.”

Source Cointelegraph

Ukraine to Block Crypto Wallets for Illicit Funds, Finance Minister Says

Ukrainian authorities will be able to “block crypto wallets” in order to seize illegally obtained assets, a notice on the country’s Ministry of Finance says.

Oksana Markarova, Ukraine’s Finance Minister, reportedly said that the State Financial Monitoring Service of Ukraine (SFMS) will be the responsible authority for tracking the sources of origin of the funds on citizens’ crypto wallets.

Authorities use an analytical product scanning for the crypto funds’ origins and uses

As part of the regulatory policy, the SFMS will be able to not only find out the origin of crypto, but also detect how those funds have been spent, Markarova said in a Jan. 23 report placed on the official website of Ukraine’s Finance Ministry.

Markarova, who has been serving as Ukraine’s Finance Minister since late 2018, initially told the news in an interview with local business publication The text of the report on Ukraine’s Finance Ministry website is basically a copy of the original report on

Specifically, the SCFM claims to have access to an “analytical product” that purportedly allows investigators to look at the origins of crypto assets as well as their uses. According to Markarova, there have been a number of “successful cases” of investigations via the service.

Blocking crypto wallets is possible as a “result of complex investigations”

Markarova elaborated that halting crypto transactions is impossible, while blocking wallets is possible through private keys:

“It is impossible to stop operations now, but it is possible to block crypto wallets and remove illegally obtained crypto assets. This can be done by gaining access to the crypto’s private keys as a result of complex investigations.”

Cointelegraph asked the SCFM about their capabilities in blocking crypto wallets of Ukrainians but did not receive an immediate response. This story will be updated should they respond.

Action is part of the AML regulation approved by the Ukrainian government in late 2019

According to the statement, the new responsibility of the SCFM will be part of a new crypto-related law that was approved by the Ukranian government in December 2019.

On Dec. 6, the Verkhovna Rada, the parliament of Ukraine, published a final version of a money laundering law that will handle virtual assets and virtual asset service providers per guidelines of the Financial Action Task Force (FATF). The document says that cryptocurrency transactions are among operations that have to be monitored by relevant authorities.

As part of the new law, all crypto transactions up to 30,000 Ukrainian hryvnia ($1,300), will reportedly have to be accompanied with Know Your Customer identification and information on the nature of the business relationship between the payer and payee. Additionally, the new law will reportedly come into force on April 24, 2020.

Source Cointelegraph