China’s financial watchdog determines STOs are illegal

First, there was the initial coin offering (ICO), which has run into more problems than anyone could have imagined. Then, an alternative was created that would reportedly be safer and more legitimate than the ICO, the security token offering (STO). Already, STOs are falling out of favor and China has wasted no time to let everyone know that STOs won’t be allowed. 

Speaking during a recent wealth management forum hosted by the Municipal Bureau of Finance (MBF), the bureau’s chief, Huo Xuewen, stated that STO fundraisers are illegal. He warned, “I will issue a risk warning to those who promote and issue STO tokens in Beijing. My advice is to only engage in such offerings when the government has legalized them.”

In an STO, crypto tokens are offered for sale in order to raise capital. This is similar to the ICO model, but what makes the STO different is that it allows the token purchaser to earn a piece of the profits of the company. 

China was one of the first countries to implement a complete ban on ICOs. The country’s central bank, the People’s Bank of China (PBOC), issued its ban in September of last year, which caused a number of exchanges to halt their operations. As has been shown, 86% of the ICOs launched last year are now trading below their initial value. If it weren’t for controls in place to deal with ICOs, the amount of money misplaced would be astronomical. 

China is also looking to rid the crypto ecosystem of airdrops, free distributions of digital tokens. The country asserted that airdrops were nothing more than an action meant to circumvent ICO restrictions. Regulators have also moved to hold accountable those ICO projects that have moved out of the country, but which still target Chinese investors. The VP of the PBOC, Pan Gongsheng, said at the time, “Any new financial product or phenomenon that is not authorized under the existing legal framework, we will crush them as soon as they dare to surface.”

These actions may be seen by some as nothing more than an attempt on the part of the government to control the crypto ecosystem. They’re correct – to a point. The idea isn’t necessarily to control the entire spectrum but, rather, to allow it to grow in accordance with financial regulations and guidelines. The only way to get rid of the “Wild West” mentality that is keeping cryptocurrencies from reaching greater adoption is through controls. Since some – too many – scammers and even crypto developers have already proven that they don’t have to follow ethical or moral guidelines, the only way to bring them under control is through regulations. 

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To protect investors, Japan plans to regulate ICOs

Japan’s chief financial regulator, the Financial Services Agency (FSA), will reportedly roll out a new set of regulations targeting initial coin offerings (ICOs) in the country. According to Japanese news outlet Jiji Press, the financial authority wants to impose new regulations to protect investors in the crypto space.

Citing the increased fraudulent activities relating to ICOs, FSA believes it is high time they took appropriate actions to provide order and protection for the public. In the proposed regulations, all businesses offering crypto-related services in the country will be required to register with FSA before starting operations.

FSA plans to submit the proposed bill in January 2019, during the ordinary parliamentary session. The proposed bill will seek to revise the financial instruments and exchange law as well as the payment services law, according to the report.

The Japanese FSA is not the only financial authorities to want regulations for the ICO space. In the recent months, the U.S. Securities and Exchange Commission (SEC) has been busy in trying to regulate ICOs. Though it has taken a conservative and traditional approach on ICO, U.S. securities regulator has made a milestone in shaping the ICO industry. Last month, authorities in Thailand also tightened its grip on ICO regulation to create order in the industry.

Different jurisdictions worry that if proper regulations are not set for ICOs, fraudulent activities will cause significant effects on the economy. They have a good reason to worry. According to a recent report by Diar, a cryptocurrency and blockchain research company, ICO fraudulent cases have raised $12 billion, twice more than what was reported in 2017.

In the report, Diar stated that the amount raised by the ICO does not justify their operations.  The report also noted that most of the ICOs either get unlisted or they do not have the funds needed to stay in business. More than 60 percent tokens that completed their ICOs in 2017 and 2018, raising over $2.3 billion in the process, have yet to be listed on any exchange.

The report also noted that a good number of these ICOs have ended up being scams. ICO owners conduct an exit scam after collecting millions of dollars from unsuspecting investors. In the last two years, exit scams caused by ICOs amounted to $100 million.

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South Korea mulls crypto tax, lifting ICO ban

The South Korean government is looking at imposing a tax on cryptocurrencies, and regulation for initial coin offerings (ICOs).

The Korea Times reported that Finance minister nominee Hong Nam-ki, during his confirmation hearing, had issued a prepared statement enumerating the taxation plan, which will take into account practices elsewhere in the world.

Hong said, “A task force consisting of experts from relevant government agencies including the National Tax Service and the private sector will be formed to examine overseas examples and hammer out the taxation plan.” Currently, according to him, there was “no internationally agreed regulatory framework” for cryptocurrencies, which he called “a new phenomenon.”

He also expressed concerns of “such lingering problems as the market overheating and investor protection. Therefore, we need to be careful in building the regulatory framework.”

Hong said that ICOs, which were prohibited in the country in September 2017, will be considered for regulation instead, with other markets to be monitored before a decision is made.

“We will determine our policy orientations on ICOs with relevant agencies after reviewing the results of the financial regulator’s market survey and getting feedback from experts,” Hong said. The survey had local blockchain companies providing their input on the matter.

Hong had made similar statements in support of allowing ICOs, as chief of the Office for Government Policy Coordination. The country’s National Assembly is also recommending the lifting of the ban, after which regulations could be legislated.

Cryptocurrency exchanges in the country have enjoyed preferential tax rates, being classified like venture companies, but the government indicated last October that higher rates were coming for such firms.

Hong said, “We will do our utmost to nurture blockchain technology as nine out of the 10 business types classified as blockchain-related businesses by Statistics Korea excluding the crypto exchanges can be still acknowledged as venture companies.”

The exchanges, however, have recently benefited from the government’s clarification that banks need not worry of legal issues when dealing with cryptocurrency-related businesses, as long as the usual anti-money laundering/know-your customer (AML/KYC) requirements were met.

South Korea is a member of the G20 forum, that recently issued a joint declaration calling for regulation of cryptocurrencies in line with standards of the Financial Action Task Force (FATF), of which the country is also a member.

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Thailand tests blockchain-tracked VAT payments

Thailand’s Revenue Department has begun tests for tracking value-added tax (VAT) payments through blockchain.

The Bangkok Post said that the test VAT payments are being done in the department’s innovation laboratory. If successfully implemented for actual government operations, the country would become the first to be able to probe tax cases via distributed ledger technology.

Department Director-General Ekniti Nitithanprapas had first announced the initiative last month, which he said would make the agency’s investigations more efficient and accurate, with immutable data on the blockchain having to reconcile with each other. Specifically, the department wants to avoid issuing VAT refunds based on erroneously submitted or fabricated data.

Aside from blockchain, the department is exploring the use of machine learning and artificial intelligence (AI) so as to better detect fraudulent practices, which Ekniti said would encourage more people to properly declare taxes.

Among other blockchain-related initiatives of the Thai government is the creation of a wholesale Central Bank Digital Currency (CBDC), running on the R3 Corda platform, and overseen by the Bank of Thailand (BoT), the country’s central bank. Issuance of the digital government currency would be to “enhance efficiency of the Thai financial market infrastructure.”

Another BoT project is the use of blockchain for selling scripless government savings bonds.

As part of the Thai government’s growing awareness of blockchain in the economy, it has moved for better oversight to prevent fraud, with the issuance of a royal decree last May requiring cryptocurrency-related companies to register with local authorities.

In connection with this, the Thai Securities and Exchange Commission recently advised investors to not trade with the Q cryptocurrency exchange, due to its lack of a license as a “digital business operator.”

Blockchain has been used elsewhere for other government processes, specifically, elections. It was announced last week that South Korea’s National Election Commission was collaborating with the country’s Ministry of Science and ICT in testing out a blockchain-powered surveying system that could eventually be used to count votes nationwide.

Similar systems have been implemented in the South Korean province of Gyeonggi-do and the Japanese city of Tsukuba, which have been able to hold referendums on local community programs. The U.S. states Maine and West Virginia have also seen proposals for blockchain-powered elections.

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Crypto exchanges becoming too challenging for North Korean hackers

Cryptocurrency exchanges are getting better at protecting their assets. Security has improved greatly this year, making it more difficult for thieves to break in and steal crypto. Those efforts have resulted in the mindless cyber thugs out of North Korea to give up on attacking the exchanges, going after individuals, instead.

As reported by the South China Morning Post, the number of crypto attacks on individuals has risen substantially in the past several months. The news outlet talked to the CEO of South Korea-based Cuvepia, a cybersecurity firm, who indicated that the company had recently uncovered more than 30 attacks. He added that it’s possible that a number of attacks have not been caught, which could put the actual number of heists or attempted heists at more than 100.

The founder of cyber warfare research company IssueMakersLab, Simon Choi, adds that the transition to individual attacks is a direct response to heightened security on the exchanges. He adds, “Direct attacks on exchanges have become harder, so hackers are thinking about alternatively going after individual users with weak security.”

Choi explains that the majority of the attacks have been conducted against wealthy South Korean citizens because “[the hackers] believe that if they target CEOs of wealthy firms and heads of organisations” then “they can take advantage of billions of won in virtual currencies.”

Another cybersecurity analyst, FireEye’s Luke McNamara, also pointed out that “it’s possible from previous intrusions they’ve been able to collect information” about “people using these [cryptocurrency] exchanges. He states that “when [the hackers] understand and know the targets” then “they are able to craft lures specific to those organisations or entities.”

There have been indications that the hacks aren’t just being led by crooks simply looking for an easy payday. Reports started circulating a couple of weeks ago that the North Korean regime could be behind the attacks. As sanctions create a weaker government, North Korea government officials could be turning to thievery, crypto money laundering and initial coin offerings (ICOs) in order to attract funds to continue keeping the citizens under control and to line their own pockets.

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G20 nations agree to regulate crypto in line with FATF rules

Members of the G20 international forum have signed a joint declaration that establishes, among other things, the adoption of regulations for cryptocurrencies, in line with standards set forth by the Financial Action Task Force (FATF).

Various media outlets reported that the statement was signed at the conclusion of G20 talks during the weekend, in which concerns such as climate change, sustainable development, gender equality, and movement of refugees were also addressed.

Part of the document read, “An open and resilient financial system, grounded in agreed international standards, is crucial to support sustainable growth… We will regulate crypto-assets for anti-money laundering and countering the financing of terrorism in line with FATF standards and we will consider other responses as needed.”

Related to this, the G20 nations also committed to “continue to work together to seek a consensus based solution to address the impacts of the digitalization of the economy on the international tax system with an update in 2019 and a final report by 2020.”

The FATF consists of 37 member nations. Last October it had set the requiring of its standards to be applied in jurisdictions by June of next year. Under these regulations, cryptocurrency-related entities such as wallet providers, cryptocurrency exchanges, and those holding initial coin offerings (ICOs) will be required to conduct customer due diligence, which includes monitoring and reporting of transactions deemed suspicious.

Countries that fail to meet such standards, as determined by the task force’s periodic reviews, risk being placed in its blacklist.

The G20 includes the European Union (EU) and 19 countries, most of which are represented in the FATF as well, including Argentina, Australia, Japan, the UK, and the U.S.

Reacting to G20’s latest declaration, Bobby Lee, co-founder of the BTCC exchange, tweeted that “national governments are slowly but surely losing their monopoly and ability to issue fiat money.”

In connection with pronouncements and actions by the FATF and G20, individual countries such as Japan and Thailand, as well as individual U.S. states, are already pursuing their own financial reforms taking into account cryptocurrency markets and blockchain technology.

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Squire forms world’s largest publicly-owned crypto mining operation with CoinGeek acquisition

Squire Mining Ltd., a listed issuer on the Canadian Stock Exchange, announced on Friday that is has entered an agreement to acquire crypto mining assets owned by CoinGeek and its affiliates, paving the way for the formation of the largest publicly-owned crypto mining operation in the world—henceforth known as CoinGeek Technologies Ltd.

Under the deal, Squire will take under its wing CoinGeek assets consisting of 62,440 ASIC mining rigs, representing an estimated 960,000 terahash/s or about 90MW of power consumption. These assets are operated by host providers across the United States, with 35,940 rigs, as well as Canada (6,000 rigs), and Kazakhstan (20,500 rigs). The crypto mining assets have an all-in weighted operational cost of US$0.073 per kilowatt hour.

The deal is valued at CAD$60.3 million (US$45.33 million), consisting of 114.8 million Squire common shares worth CAD$34.4 million (US$25.86 million) based on the Nov. 29 closing price of CAD$0.30 (US$0.23) per share. CoinGeek will also receive an unsecured vendor-take-back note worth CAD$25.8 million (US$19.4 million), which it can convert into additional Squire common shares. CoinGeek, for its part, has agreed to enter into a voluntary one-year lock up on the common shares it received.

As part of the agreement, Squire will be taking on CoinGeek’s employees and consultants who are involved with the management and operation of the assets, as well as the CoinGeek.com website and domain, along with all the marketing and advertising assets related to the CoinGeek name.

The Canadian company is also acquiring CoinGeek’s outstanding global distribution agreement for Squire’s ASIC chips and rigs. Earlier this year, Squire granted associates of CoinGeek the exclusive right to market, promote, solicit, sell and distribute Squire’s new ASIC chips and mining rigs to Bitcoin SV and other alt coin miners throughout the world.

Taras Kulyk, chief executive officer at Squire, said: “This transaction would provide Squire with a leading, recognized brand via the acquisition of the CoinGeek.com and CoinGeek name, but it would also make us the largest, publicly traded Bitcoin miner globally. It is expected to deliver significant shareholder value by enabling Squire to become vertically integrated with our growing chip design and manufacturing business, which we would seek to have commercial within 2019.”

“I believe the next phase of growth for this industry is upon us and that means massive scaling of the Bitcoin blockchain to accommodate the throughput needed for enterprises to make use of this technology. By vending my mining and CoinGeek branded assets into Squire, I would be doubling-down on my commitment to Bitcoin’s success. These assets would enable Squire Mining Ltd to compete at a global level to pave a path for enterprise usage of blockchain technology to flourish,” said Calvin Ayre, owner of the CoinGeek brand.

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Illegally plugging fraud ICO leads to $750K penalty for Mayweather, DJ Khaled

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US court rejects unregistered securities case against Blockvest

A court in the United States has rejected a claim brought by the Securities and Exchange Commission (SEC) against blockchain assets exchange Blockvest, in a case that could help shape precedent on unregistered securities.

SEC, the regulator tasked with upholding securities law in the U.S., accused Blockvest of promoting an unregistered security, contrary to the law. The firm’s BLV token has come in for scrutiny by the regulator, initially leading to a temporary asset freeze against the company after a preliminary order by the U.S. District Court for the Southern District of California.

However, in the latest twist in the case, a court has found that the SEC failed to demonstrate BLV tokens were unregistered securities, citing the Howey Test model for determining whether an asset falls within the remit of securities law.

According to court documents, a copy of which was secured by CCN, the court is unable to consider the BLV token a security, a material element for any asset being subject to the remit of the SEC.

“At this stage, without full discovery and disputed issues of material facts, the Court cannot make a determination whether the BLV token offered to the 32 test investors was a ‘security,’” the documents noted. “Thus, Plaintiff [the SEC] has not demonstrated that the BLV tokens purchased by the 32 test investors were ‘securities’ as defined under the securities laws.”

Judge Gonzalo P. Curiel went on to decline an application for an injunction against Blockvest, as well as several other related claims against the firm.

The development is a setback for the securities regulator, which has been increasingly active in enforcement action against fraudulent ICOs in recent months. Other cases have been more successful the regulator, with several notable examples of successful enforcement action against ICO promoters.

Just this month, Airfox and Paragon, which both raised millions through their ICOs, were ordered to repay investors, as well as a $250,000 fine each for failing to appropriately register securities, and for selling securities without being a registered dealer or agent.

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Steemit restructures with 70% job losses, citing crypto slowdown

Decentralised publishing and content distribution platform Steemit has become the latest blockchain company to feel the heat, as the slowdown in legacy cryptocurrency markets continues to bite.

According to a statement from the firm, as much as 70% of its workforce will now lose their jobs, suggesting “the weakness of the cryptocurrency market, the fiat returns on our automated selling of STEEM diminishing, and the growing costs of running full Steem nodes” were behind the decision.

Steemit was launched to significant fanfare back in 2016, as a way of rewarding content creators for their work through cryptocurrency payments. Powered by its on-platform currency STEEM, Steemit was at one point regarded as one of the leading examples of a decentralised app for blockchain.

Staff members who survive the cull will be tasked with focusing on finding other ways of reducing costs and rolling back the size of the Steemit blockchain, with a view to decreasing the firm’s reliance on Amazon AWS.

CEO and founder Ned Scott said that while the platform still had potential, there was little option but to get costs under control.

According to Scott, “We still believe that Steem can be by far the best, and lowest cost, blockchain protocol for applications and that the improvements that will result from this new direction will make it far better for application sustainability. However, to ensure that we can continue to improve Steem, we need to first get costs under control to remain economically sustainable.”

One of the first dApps of its kind, Steemit was set up to allow users to submit content and get paid for their work. In the recent crypto market slide, the platform’s STEEM coin has been badly hit, losing as much as 96% of its value. As of today, STEEM was trading at $0.37.

The ongoing crypto bear market, dominated by the ongoing crypto sell-off, has put significant pressure on decentralised apps like Steem. The Civil platform is another which has struggled in recent weeks, after being forced to refund early investors in its CVL tokens.

It remains to be seen whether apps like Steem and Civil now have the staying power to cling on under such persistently difficult market conditions.

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