Blockchain Initiatives Pursue Solutions for Refugees, Voting, Smart Cities, Defense and Food Safety
The World Food Programme (WFP) and UN Women announced last week that they are collaborating in an initiative to use blockchain to aid Syrian refugee women participating in the UN Women’s cash-for-work program. Building off WFP’s existing Building Blocks project, which utilizes a blockchain-based system to provide cash transfers to more than 106,000 Syrian refugees in Jordan, the new system will allow refugee women to request cash back, or pay for purchases directly, at WFP-contracted supermarkets by undergoing an iris scan that links their identity to their blockchain account. The WFP and UN Women will also partner on an initiative that seeks to educate Syrian women participating in the cash-for-work program on how to manage their personal data and control third-party access to it. WFP also plans to experiment with blockchain technology for tracking food delivery through its operations in East Africa.
In the U.S., West Virginia became the first state to utilize blockchain-enabled voting last Friday, as absentee voters overseas can now use a mobile phone app secured by blockchain encryption to cast votes in the upcoming midterm elections (the app has a number of detractors due to security concerns). And the Naval Air Systems Command (NAVAIR) is looking to blockchain to replace manual systems for tracking aviation parts. Using the SIMBA Chain, a DARPA-led public/private project initially used for tracking secure messages, the project aims to develop a conceptual framework for improving visibility and security while supporting the Naval Air mission through improved safety and reduced costs.
In Dubai, the Dubai Department of Finance and the Smart Dubai Office released a “Payment Reconciliation and Settlement” platform on Sept. 23. The platform aims to enable real-time payments, increase transparency and improve accuracy by and between government entities such as the Dubai transport, police and health authorities. The Smart Dubai Office is part of the Smart City project, a public-private UAE initiative with the goal of leveraging technology to enhance city services. In China, U.S. tech company Ideanomics and the Asia-Pacific Model E-port Network (APMEN) recently formed a joint venture to launch a solution for APMEN ports – starting with the world’s busiest port in Shanghai. The end-to-end platform seeks to leverage both blockchain technology and artificial intelligence to streamline port clearance and shipping handling, as well as provide risk control services for business and regulatory bodies.
This week, Walmart and a major U.S. retail warehouse club issued an open letter with a new business requirement for their suppliers of leafy greens to participate in the Walmart Food Traceability Initiative, a blockchain-enabled solution to advance food safety by improving farm-to-table traceability for produce. Similarly, in a recent press release, the Dairy Farmers of America announced a project with startup ripe.io to track milk products with blockchain. And a major global technology company recently was awarded a patent for a system that increases automation in distributed networks of devices using a blockchain protocol. According to reports, the system could use a peer-to-peer consensus mechanism to diagnose issues so that the devices could be “self-servicing.”
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Cryptocurrency Legal Developments: Tax, Proposed Legislation, AML and CFTC
This week in a letter to IRS acting commissioner David Kautter, Senator Kevin Brady, R-Texas, chairman of the Committee on Ways and Means, and other lawmakers strongly urged the IRS to issue updated, robust guidance regarding the taxation of virtual currency. Brady’s letter expressed concern over increased IRS enforcement actions in the face of inadequate guidance over the past four years since the IRS’s preliminary notice. The lawmakers urgently requested a written response from the IRS outlining where the IRS is in its efforts, what the IRS intends to cover and a timeline for the release of such guidance. The lawmakers also stated they intend to ask the Government Accountability Office to undertake an audit on the matter.
Two days after Brady’s letter to the IRS, Congressman Tom Emmer, R-Minn., announced three bills in support of blockchain technology and digital currencies. Recently named co-chair of the Congressional Blockchain Caucus, Rep. Emmer declared the United States should prioritize accelerating the development of blockchain technology and create an environment that enables the American private sector to lead on innovation and further growth. The proposed legislation includes the following:
- A resolution expressing support for the blockchain technology industry and development of these technologies in the United States.
- A bill that would provide a safe harbor protecting software developers and providers of blockchain services that do not control consumer funds from certain licensing and registration requirements.
- A safe harbor applicable to taxpayers who received forked convertible virtual currency that would protect such taxpayers from certain penalties and additions to tax until Treasury issues regulations or guidance on the tax treatment of hard forks.
On the international stage, the Financial Action Task Force (FATF) is reportedly getting closer to the establishment of a global set of anti-money laundering standards for cryptocurrencies to resolve what some have described as a “patchwork quilt” of current AML standards. And in a case brought by the Commodity Futures Trading Commission, a Massachusetts District Court recently ruled that virtual currency is a commodity subject to the Commodity Exchange Act.
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Enforcement Actions Continue, Cryptomining Malware Surges, Token Values Fall
After shutting down PlexCorps in December for alleged securities fraud in relation to the PlexCoin Initial Coin Offering (ICO), the U.S. Securities and Exchange Commission (SEC) submitted a letter to the court this week seeking sanctions and a default judgment against PlexCorps’ founders for ignoring court orders concerning accounting and repatriation of digital assets and evidence discovery. The SEC is currently seeking these actions in order to prevent further dissipation of investors’ assets because it believes a large portion of the funds raised in the ICO are still being held in cryptocurrency wallets controlled by the PlexCorps founders. According to the SEC, the founders have “blatantly and without any justification disregarded the Court’s multiple equivocal orders” and the SEC does not believe that the founders intend to follow court instructions.
In a report this week on cyberthreats for the second quarter of 2018, one of the leading device-to-cloud cybersecurity companies reported a surge in cryptomining malware. The numbers it reports are staggering; after increasing in the fourth quarter of 2017, new cryptomining malware samples increased 629 percent to more than 2.9 million in the first quarter of 2018, and then by another 2.5 million new samples in the second quarter of 2018. The report specifically identifies threats around older malware being retooled with mining capabilities and malware targeting devices other than personal computers.
This week, the Diar, a cryptocurrency research publication, reported that U.S. government agencies have entered into contracts and purchase orders valued at $5.7 million with blockchain analysis companies, triple the amount in 2017. The Internal Revenue Service reportedly accounts for 38 percent of this spending with nine contracts, followed next by U.S. Immigration and Customs Enforcement with nine contracts, and the Federal Bureau of Investigation with 12 contracts. Together, the Diar reports, the three agencies account for 85 percent of the total spending. The Diar also reported this week that ICOs have doubled the amount raised to date in 2018 compared to 2017, but the popularity of ICOs has fallen. Not accounting for the top 100 cryptocurrencies, 70 percent of tokens have seen their value fall below the token value at the time of the ICO. The Diar also reported that of the tokens that completed an ICO in 2017-2018, over one-third of those tokens, having raised more than $2.3 billion, have not yet listed their tokens on any exchange.
Last week, the Australian Securities & Investments Commission (ASIC) announced that it will be increasing its scrutiny of ICOs due to persistent problems associated with the offerings, including the use of “misleading or deceptive” statements in sales and marketing materials and offerors not holding Australian financial services licenses. The ASIC is reportedly concerned that these misleading ICOs could impact investor confidence. Since April, the ASIC reports that it has stopped five ICOs and is currently taking regulatory action against a completed ICO. Of the ICOs that were halted, the ASIC shared that some are being restructured so as to carry out the offering within the confines of the law.
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Blockchain Payments Products Advance, Investments Continue and a Bitcoin Bug Is Fixed
Three major global banks based in the U.S., Canada and Australia recently announced that they are expanding their blockchain-based interbank payments project to include 75 more banks from around the globe. The project, named the Interbank Information Network (IIN), leverages the Quorum blockchain and seeks to compete with other emerging blockchain payment networks. In Japan this week, a major money transmitter announced a partnership with BitPesa to launch a remittance service that will allow customers to send money to Africa using the Bitcoin blockchain. The service intends to bypass banks that would typically convert yen into dollars or euros before finally converting to African currencies. Also this week, a joint venture between a Japanese firm and a U.S.-based blockchain firm announced that it received a key government registration that will allow it to continue its plans to implement a blockchain-based money transfer application.
U.S. firm Circle has announced that it is releasing “USD Coin” (USDC), a cryptocurrency pegged to the U.S. dollar and backed by U.S. dollar reserves. According to reports, dollar reserves backing the so-called “stablecoin” will be verified by a major U.S. audit firm. According to another announcement this week, the recently launched stablecoin, the Paxos Standard Token (PAX), will soon be listed on Binance, the world’s largest cryptocurrency exchange by volume.
In Switzerland, startup SEBA Crypto AG reportedly has raised 100 million Swiss francs to build a bank that will offer traditional bank accounts for cryptocurrency and blockchain firms, while also offering certain cryptocurrency services to businesses and investors. The Zug-based startup is currently seeking a license from FINMA, the Swiss financial regulator. And the China-based company Bitmain, the world’s largest operator and supplier of bitcoin mining equipment, recently announced that it intends to pursue an initial public offering in Hong Kong.
According to reports published this week, the Bitcoin Core developers recently fixed a bug in the Bitcoin code protocol that, if exploited, could have allowed an attacker to create new bitcoin above the 21 million cap programmed into the code. According to reports, once the bug was identified, the core developer team kept it a secret until it was fixed.