On Tuesday, the U.S. Customs and Border Protection (CBP) agency announced that it would begin testing a blockchain solution to verify certificates of origin for goods coming into the country under the Central America-Dominican Republic and United States Free Trade Agreement and the North American Free Trade Agreement. The agency not only seeks to become an advocate for market adoption, but it also hopes to utilize blockchain technology to collect better data on the source of goods and import/export compliance. While acknowledging the challenge of standing up a blockchain with 47 partner countries, a CBP spokesperson indicated the agency is pressing forward with integrating blockchain into trade compliance. According to American Shipper, the official said, “Really what the government’s trying to do is twofold: One is to help blockchain along in a healthy manner for increasing market adoption, and the other thing is we’re trying to prepare ourselves in a proactive way to be ready for when private industry begins to really take off with this technology.”
Last Thursday, a major U.S.-based shipping company filed a patent application for its new blockchain-enabled package-tracking concept. Meanwhile, a major global enterprise software provider recently announced a supply chain pilot with 16 farm-to-consumer produce suppliers using its cloud-based blockchain as a service (BaaS) platform. According to a Computerworld article, the pilot will seek to implement IoT sensors developed by one of its customers to gather relevant data regarding the parcels themselves, including temperature, humidity, vibration and light exposure.
The second-largest e-commerce company in China, JD.com, is also throwing its hat in the BaaS ring, with the launch of JD Blockchain Open Platform. As its first customer, China Pacific Insurance intends to use JD’s blockchain infrastructure to trace state-mandated corporate invoices, known as “fapiao.” In paper form, tracking fapiao took time when done correctly, and even more time when errors were made − which was often. China Pacific Insurance hopes that JD’s platform will eliminate the paper chase, save money and open a new line of revenue with existing customers.
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The SEC Rejects Bitcoin ETFs; New Exchanges and Services Announced Abroad
On Aug. 22, 2018, the U.S. Securities and Exchange Commission (SEC) issued three orders rejecting nine bitcoin exchange-traded fund (ETF) proposals and disapproving related rule changes. Each of the proposed ETFs was tied to the bitcoin futures market as provided by the CBOE and CME exchanges, not the spot market, which was proposed for the recently rejected Winklevoss ETF. Despite this difference, the SEC rejected the proposals, noting that the bitcoin futures market was not mature enough and that the proposals failed to protect against fraud and manipulation. Although the rule change was disapproved, the SEC emphasized in all three proposals that “the disapproval does not rest on an evaluation of whether bitcoin, or blockchain more generally, has utility or value as an innovation or investment.” According to The New York Times, the day after the rejection orders were published, the SEC announced that it would review the decisions. In a post on Twitter, SEC Commissioner Hester Pierce made the following comment about the forthcoming review: “In English: the Commission (Chairman and Commissioners) delegates some tasks to its staff. When the staff acts in such cases, it acts on behalf of the Commission. The Commission may review the staff’s action, as will now happen here.”
This week, a token trading platform operating as an SEC- and FINRA-registered broker-dealer and alternative trading system entered into an agreement with CUSIP Global Services to become the first registered broker-dealer to offer nine-digit alphanumeric codes, or CUSIPs, to so-called securitized tokenized offerings (STOs). STOs traded on the platform reportedly will be offered the same CUSIPs that are issued to stocks and bonds, allowing the tokenized securities to be integrated into the existing transactional system.
In foreign markets, several new exchanges and services were announced this week. Singaporean cryptocurrency exchange, Huobi, launched the Huobi Automated Listing platform, a service designed to streamline and increase transparency by requiring cryptocurrency projects to submit documentation and be verified before being listed on the exchange.
Binance LCX, a joint venture between Binance and the Liechtenstein Cryptoassets Exchange, announced the launch of a fiat-to-crypto exchange in Liechtenstein that will offer trading between Swiss francs and euros against major digital currency pairs. And ZB.com, one of the largest cryptocurrency exchanges in the world by traded value, announced that it will set up operations in Malta with the launch of a new exchange.
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Governments Worldwide Continue to Invest in Blockchain Projects
The Bank of Thailand (BoT) announced on Tuesday it was creating a central bank digital currency (CBDC) on Corda, a distributed ledger technology platform developed by the R3 consortium. The project, “Project Inthanon,” is a collaborative effort by BoT and eight major private banking institutions, and seeks to create a prototype that enables domestic funds transfers within the country’s interbanking system using CBDC tokens. The first phase of the project is set for completion by the beginning of 2019, after which the BoT will seek to expand the project to include third-party funds transfers and cross-border funds transfers.
Canada is proceeding on the trajectory it set in June 2017, when the Canadian government-funded research program Industrial Research Assistance Program (IRAP) hosted a blockchain kickoff session and revealed plans to implement the technology in administering funding for innovative projects to Canada’s small and medium-sized businesses. Earlier this year, IRAP, through its National Research Council of Canada (NRC), launched Canada’s first trial of a public blockchain technology to facilitate the transparent administration of government contracts. On Monday, NRC announced that it has built an Ethereum blockchain explorer hosted on the InterPlanetary File System (IPFS) through services provided by Bitaccess, a blockchain startup. The explorer allows users to search the Ethereum blockchain for published grants and contribution data.
In the United States, researchers at the University of California-San Diego won more than $800,000 from the National Science Foundation (NSF) to develop the Open Science Chain, a distributed ledger that will serve as a living digital catalog to help researchers access and verify data from various scientific experiments. The web-based platform allows for an auditable means for researchers to provide metadata and verification information about their data sets, and update such data sets as they change and evolve.
At the local level, a prominent Ohio businessman is striving to make Cleveland the Silicon Valley of the blockchain era. Bernie Moreno, owner of numerous luxury car dealerships, is garnering support for “Blockland Cleveland,” a $150 million blockchain technology initiative that has attracted the interest of other Ohio business and civic leaders. The plan intends to feature a physical campus that, over the next four years, would grow into a 300,000-square-foot Cleveland-based incubator with 2,000 startup desks for developers, 15 spaces for young businesses, an auditorium suitable for 300 people, fiber connections to support the building and a K-8 school.
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Enforcement Actions Continue in U.S. and Abroad as Industry Begins to Self-Regulate
A Seattle-based e-sport betting startup is facing a class action lawsuit for alleged violations of U.S. securities laws. The company’s ICO occurred in late 2017 and raised an amount worth $31 million at the time. Since then, the price of the company’s blockchain-based tokens has declined from about $2 to $0.05. The lead plaintiff alleges that the company intentionally mischaracterized the securities as tokens to avoid the reach of U.S. securities laws. In related news, last week a federal court entered a default judgement against a blockchain startup after finding that the plaintiffs were defrauded out of approximately $1 million in cryptocurrencies. The judge plans to hold a hearing this week to confirm the calculation of damages.
On Thursday, a Chinese regulator announced plans to step up efforts to block internet access to cryptocurrency trading platforms. The agency has identified and seeks to shut down more than 100 trading platforms with overseas IP addresses that are still available domestically. Chinese police are also increasing efforts to prosecute individuals for cryptocurrency cybercrimes. Last week, the police tracked down three suspects responsible for stealing about $87 million in crypto assets. In related international news, one of the promoters behind a cryptocurrency platform was arrested earlier this week in India. When the cryptocurrency platform suddenly shut down earlier this year, many investors lost their money because they were no longer able to trade their tokens or coins. The platform promoters are facing charges for extorting cryptocurrency and defrauding investors.
An international fiat and cryptocurrency exchange platform that recently initiated new Know Your Customer (KYC) checks in an effort to improve anti-money laundering practices has locked many of its users’ accounts without notice. According to reports, the platform is currently dealing with backlash from many customers who use it as a main payment option while traveling abroad, and who lack access to key identification documents required by the new KYC procedures.
Earlier this week, several global cryptocurrency exchanges announced plans to join a self-regulatory organization that will police virtual commodity marketplaces. The self-regulatory organization, The Virtual Commodity Association Working Group, plans to establish industry standards and work with regulators to prevent fraud and manipulation in the virtual commodity markets. The goal of the working group is to protect consumers while increasing the adoption of cryptocurrency trading platforms by improving transparency, accountability and security across the various platforms.