Two AT&T employees have been accused of indulging in illegal SIM swap-related activities. Cointelegraph spoke with Seth Shapiro.
Over the past week, the global crypto community bore witness to a unique case wherein California resident and blockchain entrepreneur Seth Shapiro filed a lawsuit against American telecom giant AT&T — alleging that a couple of the firm’s employees had perpetrated a nefarious SIM-swap scheme that resulted in the former losing $1.8 million in various crypto assets.
Shapiro, who is a two-time Emmy Award-winner, as well as an author and adjunct professor at the University of Southern California School of Cinematic Arts, filed the aforementioned lawsuit against AT&T on Oct. 17, claiming that between May 16, 2018 and May 18, 2019, the telecom provider’s employees perpetrated four hacks in total that lead to his personal and confidential data — including usernames, passwords, event calendar, etc. — being leaked to third-party hackers.
In this regard, the submitted court documents highlight that the aforementioned developments resulted in the miscreants gaining control of Shapiro’s various cryptocurrency exchange accounts on platforms, such as KuCoin, Bittrex, Coinbase, Huobi, Cryptopia, Livecoin, HitBTC, Coss.io, Liqui and Bitfinex. Not only that, but they were also able to seize control of some of his other digital accounts, such as Evernote.
In addition, the plaintiff has also alleged that he is currently in possession of chat logs that clearly show the AT&T employees and hackers discussing their plans to use the stolen funds to acquire their dream cars and other valuable objects. The logs also contain details of how the hackers planned on rerouting the funds to avoid being caught by the police. On the subject, the lawsuit reads as follows:
“AT&T employees obtained unauthorized access to Mr. Shapiro’s AT&T wireless account, viewed his confidential and proprietary personal information, and transferred control […] to a phone controlled by third-party hackers in exchange for money. […] The hackers then utilized their control over Mr. Shapiro’s AT&T wireless number […] to access his personal and digital finance accounts and steal more than $1.8 million.”
Cointelegraph spoke with Shapiro
To gain a better understanding of the situation, Cointelegraph reached out to Shapiro and asked him to share some comments regarding the matter. First, Cointelegraph wanted verified whether Shapiro had indeed made repeated attempts to get AT&T’s service operators to prioritize his calls in order to protect his account.
Additionally, Cointelegraph also asked him why he failed to notify local police authorities immediately after the first hack — after all, it has been alleged that a total of four breaches took place. Shapiro responded to this by saying:
“I did. There’s not much local PDs can do — AT&T has all the information. In my case, I was lucky that the REACT Task force in Santa Clara got a lead and pursued the case. As did the Department of Homeland Security, who have been amazing. I am very grateful to both groups and can give you contacts at each.”
When asked about the crypto assets that were lost as a result of the repeated intrusions, Dwayne Sam — an attorney at Pierce Bainbridge Beck Price & Hecht LLP — and a member of Shapiro’s legal team, provided a legal document that contained the following data:
Approximately 1,200 Ether (ETH) — estimated to be worth around $500,000 — was stolen from the claimant’s Bittrex account.
Another $400,000 was illegally siphoned from an associated Wax cryptocurrency account.
Shapiro claims that he had been able to raise between $700,000 to $1 million in crypto for a project he was undertaking — the proceeds for which commingled with his personal crypto savings.
In all, Shapiro alleged that he has had to face a total loss of around $1.7 million in cryptocurrency — $1 million of which consists solely of his personal funds, which he said was savings for his retirement.
It should be mentioned that AT&T has had a poor track record when it comes to SIM-swapping incidents, with occurrences more than doubling between January 2013 and 2016.
Also, in an earlier case relatively similar to this one — Terpin v. AT&T — a United States court did lay some responsibility on the claimant for failing to secure the account adequately. Thus, when asked if Shapiro’s legal team expected to face similar responsibility from the judge presiding over their case, Sam replied by saying:
“Mr. Shapiro’s case will be judged on its own merits. That said, nothing in the Terepin court’s most recent decision could or should be construed as blaming the victim.”
Lastly, when asked about how the legal team foresees the judgment of his case panning out in court Shapiro pointed out:
“The evidence in this case of AT&T’s culpability and negligence is overwhelming. We fully anticipate that AT&T will be held legally accountable for its actions and those of its employees.”
To better understand if the responsibility in relation to this matter lies with AT&T alone or with the firm’s employees who reportedly stole Shapiro’s data, Cointelegraph got in touch with David Reischer, an attorney and CEO of LegalAdvice. He responded by saying Shapiro’s allegation that AT&T being in violation of the Federal Communications Act is absolutely true — especially in regard to the firm failing to protect the confidentiality of his mobile telephone account and other related data. He then went on to add:
“AT&T is liable for its employees criminal acts via a theory of vicarious liability that holds a company accountable for the acts of its employees. The chat logs introduced into evidence by Mr. Shapiro further detail the scheme to steal Mr. Shapiro’s cryptocurrency and AT&T is equally negligent for not protecting Mr. Shapiro against this scheme and fraud.”
Similarly, another important facet is whether or not the issue of contributory negligence arises — i.e., would Shapiro’s activities qualify as contributing to the damage, as he should have known not to use a SIM card as an authenticating factor. On the subject, Jonathan Klinger, an Israeli cyber law attorney and blogger, told Cointelegraph:
“It is also quite hard to believe that such a material amount of funds were held in an account that merely needed these factors. One should expect the protection of personal data to be proportionate to the amount of funds that he might lose. In this case, these factors weigh in favor of AT&T. Shapiro has a long way ahead before he might get any compensation, in my opinion.”
It is also worth remembering that SIM swapping is a relatively new type of fraud that has been growing at a rapid pace over the past decade or so — especially in the wake of the recent crypto boom.
Thus, investments made through smartphones, laptops and other digital devices are now prone to certain third-party interference, which one needs to be wary of at all times. On the subject, Alina Kiselevich, a communication specialist with a legal background at Enigma Securities, pointed out to Cointelegraph that, “Mr. Shapiro did everything that a responsible client should do” by repeatedly reporting an attack to AT&T and seeking help from the telecoms company:
“As you can see, it was impossible for Shapiro to call the police, because it did not happen between long periods of time, but rather very quickly. Robert Jack and Jarratt White, two people standing behind the theft from AT&T’s side, were confirmed to be employed there, their involvement in the case was also confirmed.”
Other notable cases involving AT&T
Terpin v. AT&T Mobility: Last year, Michael Terpin, a prominent cryptocurrency advocate and the founder of Marketwire, was the victim of SIM swap fraud involving AT&T. He filed a lawsuit against the firm in August 2018, later winning $75.8 million in a civil judgment — even though AT&T filed for a dismissal of the lawsuit, the plea was eventually overruled by the court.
Liu v. AT&T: On Feb. 12, 2018, after Mitch Liu’s smartphone started malfunctioning, he immediately went to an AT&T store and spoke to the customer care representative, revealing his Social Security number as proof of identification.
He was then provided with a new SIM card, which, once installed, allowed hackers to obtain control of his cell phone data. On March 19, 2018, Liu received a message stating that his social media and cryptocurrency exchange accounts had been compromised, and that a total of $10,000 worth of crypto assets had been moved from his wallets.
Sidhu v. AT&T: As per court documents recently obtained by Cointelegrah, early last year, AT&T user Jagdeep Sidhu started experiencing issues with his cell phone. He subsequently acquired a new SIM card and upon restarting his phone, Sidhu immediately realized that his Gmail, Coinbase, Facebook and Instagram accounts had been compromised.
Basu v. AT&T: On Aug. 27, 2018, REACT investigators confirmed that an unknown individual was able to gain control of Saswata Basu’s phone and steal his AT&T cell phone account via a SIM swap. Shortly afterward, his Yahoo and Gmail addresses were accessed without authorization. In all, it is estimated that Basu lost around 9,000 DASH and 1,287 ETH.
Hui v. AT&T: According to legal data acquired by Cointelegraph, on Nov. 20, 2017, Tina Hui tried to log into her Gmail account only to be told that she had changed her password four hours prior. Upon seeing the message, she immediately sent in a request for a password reset and waited for a two-factor authentication text message to arrive. However, when the message did not come, Hui realized that her cell phone might have been compromised. She rushed to an AT&T store to rectify the issue, but by then, a number of her personal accounts, including her Coinbase wallet, had been hacked into.
The CEO of major United States crypto exchange Coinbase, Brian Armstrong, said that the exchange generated nearly $2 billion in trading fees since 2012.
At Vanity Fair’s New Establishment Summit, Coinbase CEO Brian Armstrong said that Coinbase has generated close to $2 billion in trading fees since it launched in 2012.
On Oct. 23, the co-founder and CEO of major United States cryptocurrency exchange and wallet provider Coinbase told Vanity Fair that technology has always been the focus of Coinbase, which, in part, is the reason why the company has remained profitable.
Coinbase has been profitable since 2017 and has generated close to $2 billion in trading commissions since the company launched back in 2012. Armstrong added:
“Most of these profits we’re plowing back into the business to create new products. I sort of think of us as the anti-unicorn unicorn […] I want Coinbase to be a company of repeatable innovation.”
US lawmakers should embrace Libra
Armstrong also said that he does not know why regulators’ reactions to the planned launch of Facebook’s Libra were so negative in the United States. “I’d really like to see the U.S. embrace this area of innovation,” he said, adding:
“There are a lot of people who are unbanked in the world, who are underbanked […] My hope is the U.S. embraces this kind of innovation, even if it comes from a company like Facebook that they’re not necessarily very happy with.”
Coinbase is one of the 21 remaining companies that are part of the Libra Association, which has been under scrutiny by lawmakers across the world for its potential to jeopardize user privacy and flout regulatory rules. Recently, Libra lost seven high-profile participants, including Visa, eBay and Mastercard.
Armstrong criticizes United States lawmakers
Armstrong had previously criticized U.S. senators for asking Stripe, Mastercard and Visa to leave the Libra Association. After the payment giants were apparently pressured into leaving by U.S. Senators Brian Schatz and Sherrod Brown, Armstrong said:
“Something feels very un-American about this. Two senators writing to Visa, Mastercard, and Stripe to ask them to withdraw from Libra.”
TON was hurtling toward public release until the SEC stopped it dead in its tracks. Here is everything known about the project so far.
In just the last few months, the entire landscape of the crypto industry has changed. Innovation once came from within, with a number of early influencers earning god-like status among the crypto community. In 2019, the industry is marching to a very different tune, with tech companies expanding their influence out of their respective sectors and into the realm of finance.
Telegram’s Telegram Open Network (TON), powered by its own in-house cryptocurrency, Gram, hoped to be the first token-backed product for mainstream use launched by an established tech firm. Just days before the launch date, the hammer of the United States Securities and Exchange Commission (SEC) came down in full force.
Momentum for TON has been building over the past few months and the token distribution set for Oct. 16 was drawing ever nearer. In August and September, Telegram released the TON testnet for both explorer and node software, launched a free wallet service for its 300 million users, and announced a controversial $400,000 bug bounty. Just as everything was falling into place for the company — the SEC stepped in.
SEC issues Gram restraining order
Although many companies have recently launched high-profile cryptocurrency initiatives, TON was scheduled as the first of them to go live for the general public. It seemed that with each passing day, anticipation for the Durov brothers’ latest, secretive project grew. Telegram’s trademark secrecy gave the project an added layer of mystery, building upon the firm’s $1.7 billion ICO in February 2018.
With its competitors like the Facebook-backed Libra bogged down with lobbying and harsh regulation, it almost looked as if Telegram knew something everyone else didn’t. But the last of their luck would soon run out. Just as the final week before TON’s initial token distribution drew to an uneventful close, the SEC took emergency action.
In an Oct. 11 press release, the SEC stated that it had filed an emergency action and restraining order against both Telegram and TON with a federal district court in Manhattan. According to the complaint, the SEC alleges that the sale of Gram tokens had not been registered with the regulator.
The crux of the issue is that the SEC announced it will classify Gram as a security. According to the Securities Act of 1933, all securities must be registered with the commission. On this basis, the SEC declared the sale of the tokens unlawful. Several members of the commission were vocal about their disapproval for TON. Stephanie Avakian, co-director of the SEC’s Division of Enforcement maintained that Gram was illegal:
“Our emergency action today is intended to prevent Telegram from flooding the U.S. markets with digital tokens that we allege were unlawfully sold. We allege that the defendants have failed to provide investors with information regarding Grams and Telegram’s business operations, financial condition, risk factors, and management that the securities laws require.”
Steven Peikin, co-director of the SEC’s Division of Enforcement appeared to imply that Telegram had avoided undergoing the necessary regulatory diligence:
“We have repeatedly stated that issuers cannot avoid the federal securities laws just by labeling their product a cryptocurrency or a digital token.Telegram seeks to obtain the benefits of a public offering without complying with the long-established disclosure responsibilities designed to protect the investing public.”
Due to the tiny snippets of information released by the company along with a great deal of rumors making their rounds of the crypto community, Telegram’s TON has created a huge amount of discussion. As more information became public and the token distribution date drew nearer, several exchanges stepped forward and announced their willingness to host TON.
One of the earliest announcements came in early September from Blackmoon, an exchange registered in the Cayman Islands. Just a few days after, California-based Anchor Labs subsidiary, Anchorage Trust Company, threw its hat into the ring, reporting that it would support institutional custody for Gram, despite not being registered with the SEC. The most high-profile show of support came in October, when major U.S.-based crypto exchange and wallet provider Coinbase announced it will provide custodial support for TON once it goes live for the wider public.
Oleksandr Lutskevych, CEO and founder of CEX.IO, a London-based exchange that also announced it would provide custodial support to TON, told Cointelegraph that the SEC has surprised everyone with their move, adding that, “The facts outlined in the complaint do not have a strong foundation, as we’ve encountered previously in other SEC cases.” Lutskevych went on to say that while they do not agree with the SEC decision, they share the commission’s core task of protecting retail investors:
“Probably, their step was the only right action in this situation if we view the case from their perspective. Over the past few weeks, the attention to TON has been incredibly high, and it’s quite easy to understand how many tokens will burst out onto the retail market. On the other hand, such an approach brings lots of questions, and I am looking forward to seeing the results of the court hearing and the argumentation of the TON representatives.”
While stressing the importance of complying with legal procedures both within and outside U.S. borders, Lutskevych explained that CEX.IO will still aim to provide custodial services to TON for institutional customers regardless of SEC’s decision:
“This is a standalone licensed activity that has been approved by the regulator within our business plan. We believe that providing custody services for TON investors does not contradict any rules and laws.”
Why did this happen?
Many projects claim to have what it takes to transform the industry and even more have earned the praise of critics across the board. Almost all of these projects share another, more unwelcome characteristic: failing to impress the SEC. The commission has an infamous reputation for a lack of regulatory clarity, along with a hostile approach to cryptocurrency-based projects.
The speed at which the SEC casts its all-important approval varies too, ranging from listless indecision to the explosive and unexpected decision to deny TON at the last minute. One reason that the SEC decided to clamp down on TON may well be due to the way Telegram planned to sell it.
In February 2019, Telegram filed for a “Form D,” which is an application to sell a security with one crucial difference — applicants are not obliged to register with the SEC. Although, the Form D is not without its drawbacks. Applicants using this route need to be aware of the two possible exemptions for getting around an SEC registration: 506(b), the more prohibitive of the two, bars the applicant from advertising the security and restricts sales to accredited investors as well as 35 non-accredited investors. The SEC details the desired qualities of non-accredited investors:
“Each purchaser who is not an accredited investor either alone or with his purchaser representative(s) has such knowledge and experience in financial and business matters that he is capable of evaluating the merits and risks of the prospective investment.”
Telegram, however, filed for the second option — 506(c). Under the requirements of this exemption, the security is permissible only if sold exclusively to accredited investors, while those applying for this exemption are allowed to advertise.
Although the initial sales of Gram tokens would have been made to accredited investors in the initial token offering, the SEC is concerned that these holders might then resell the tokens. Consequently, the commission viewed this as a violation of 506(c):
“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.”
Chief market analyst at ThinkMarketsFX, Naeem Aslam, told Cointelegraph that he felt the regulations were clear enough, and supported the SEC’s decision:
“I agree that the SEC doesn’t have everything clearly spelled out but there is a strong framework and if companies are breaking it then they should be held accountable.”
Nischal Shetty, founder of the India-based WazirX exchange, said that he believes Gram is a utility token rather than a security, but he remains positive about the SEC and Telegram coming to a workable solution:
“SEC might probably have issues with the way Telegram probably represented these to potential investors. Nevertheless, I’m sure Telegram and the SEC will sort this out. The Crypto world needs scalable blockchain projects to launch soon for the next step of evolution and TON promises that.”
New York Times tech reporter Nathaniel Popper’s Oct. 12 tweet drew attention to the venture capital companies that participated in Telegram’s $1.7 billion ICO:
“The SEC’s move to shut down Telegram’s crypto project raises questions about the big venture capital firms that gave it $1.7 billion and convinced themselves that it would pass regulatory muster. That includes Benchmark, Sequoia and Lightspeed.”
Telegram responds to investors
Although the SEC declaration of the $1.7 billion ICO as illegal may suggest that Telegram simply failed to follow the correct procedures, a TON letter to investors obtained by Cointelegraph states that the firm had been trying to get feedback from the SEC for the past 18 months:
“We were surprised and disappointed that the SEC chose to file the lawsuit under these circumstances, and we disagree with the SEC’s legal position.”
Following the red flag from the SEC, a private Telegram channel for TON investors also took action, citing increased regulatory uncertainty. The TON Board announced a temporary hiatus and deleted all previous posts on its Telegram channel, a space created by and for TON investors as well as for prospective holders of Grams.
What do experts think about TON?
Telegram is a company that polarizes opinions. From its disagreements with governments to the secretive ways in which it carries out business, the company both enrages and inspires its audience in equal measure. Decentral Park Capital Senior Research Analyst Elias Simos told Cointelegraph that when the project does finally launch, the shockwaves will be felt across the industry:
“To put things in context, the Telegram messenger has more than 500x the active end-users of all the apps running currently on Ethereum. The technology architecture is impressive. On the flipside, it is so ambitious that there are many ways in which it could fail — some of which are failure to decentralize the network sufficiently, failing to attract developers etc. Either way, it is like nothing we have seen before — and it matters.”
WazirX’s Nischal Shetty also believes that TON is set to shake up the crypto space upon its launch, since Telegram is one of the most technically competent teams in the world, “They are also one of the most persistent team, they keep building and improving upon the product. TON has the potential to usher in a new and much needed positive push for the entire blockchain industry.” TON has a potential user base of 250 million once it gets the green light from regulators. Simos said this could lead to it becoming the platform of choice for decentralized apps (DApps):
“If interoperability plays out as intended, I think TON has a shot to becoming the de facto discovery platform for DeFi and other crypto native Dapps. The bot interface is ideal in abstracting away the complexity of blockchain back ends. It’s definitely too early to call for a ‘Netscape moment,’ but the potential is there.”
Value of TON
Regarding the potential price of the Gram cryptocurrency, Simos explained to Cointelegraph that TON could help monetize the valuable Telegram platform while also providing both an attractive opportunity to run validators for investors and a resourceful public utility to the world:
“By participating in the Gram private sale, investors effectively purchased the right to run validators on TON and access a stream of ledger fees, at an attractive price. As for the TON Foundation, with 10% of the Gram total supply under their control, at a price of $2 per Gram, this makes for a $1B coffer. The Telegram Messenger reportedly costs $1M a month to run. […] I see TON both as a play to monetise the messenger, but also as an effort to introduce a public utility in the world; an operating system for payments technology and financial applications.”
However, those estimations may be overstated, as Aslam told Cointelegraph regarding the indicative value range of $2.1 to $8.0 per Gram published by ATON Research:
“Once a token starts trading on an exchange that’s when the conversation truly begins. For the time being sub $2 could be something that we’re really looking at. I think that would be something more justifiable. In terms of a range. I’m really looking at $1.5–1.8 rather than $2.1.”
In the last year, stablecoin projects have erupted across the industry, with Facebook’s Libra project also looking to launch soon. Regarding Telegram’s decision not to peg Gram to any particular fiat currency, eToro Senior Market Analyst Mati Greenspan told Cointelegraph that letting the market decide the price could pay off for the company:
“It makes a lot of sense to let the market decide what the price should be. This way they don’t need to waste time and energy managing a reserve and will likely face less scrutiny from both regulators and users.”
ThinkMarketsFX’s Aslam said that although it is indeed a crypto project being launched by a large, reputable tech firm, it’s not possible to compare TON too closely with its competitors:
“It’s very different because Libra backed by different currencies. That is at least what they are trying to do. Libra is a coin which has gathered enormous amounts of attention on the floors of the SEC, from the federal reserve bank, the european central bank. It’s not apple for apple in terms of comparison. It [TON] is still coming from a major firm introducing its own crypto so from that perspective it is a positive development from the market.”
As the crypto industry becomes more structured, major exchanges develop policy frameworks to evaluate the process of listing new tokens and delisting others…
Binance.US, an upcoming subsidiary of one of the world’s leading cryptocurrency exchanges that will be compliant to operate within the United States, has recently gotten investors excited with an announcement that the platform was reviewing 30 new assets for listing. Importantly, the news also shed some light on the Digital Asset Risk Assessment Framework — a novel set of criteria to determine blockchain projects that Binance deems worthy of adding to the platform.
In the realm of digital finance, one of the biggest imaginable accomplishments for a blockchain startup is to get its coin listed on a major cryptocurrency exchange. The combined effects of earning the seal of approval from a reputable platform with millions of users worldwide on the asset’s brand recognition, audience reach, market price and trading volumes cannot be overstated.
While in the early days of the crypto Wild West the procedures whereby exchanges vetted new tokens for their portfolios were often opaque, having a set of well-defined listing criteria is becoming an industry standard today. What are the leading crypto exchanges looking at now?
The criteria set forth in the new Digital Asset Risk Assessment Framework are organized around several core domains. As Binance U.S. operates in one of the world’s most complicated jurisdictions in terms of regulation, the list of standards opens with legal requirements, especially stressing candidate assets’ compliance with Anti-Money Laundering/Combating the Financing of Terrorism and securities laws.
Other qualifications include the core team’s strategic vision to solve some real-world problem, the community’s ability to organize in a way that aides the project’s development, demands on the asset’s supply and demand, as well as technological feasibility and security.
The framework appears to be a set of screening guidelines that assets have to pass in order to proceed to the more advanced stage of thorough internal review. According to Binance CEO Changpeng Zhao (aka CV), there are no hard requirements that are necessary for candidate projects to check: “We want good coins. It’s simple, and every coin is different. In general, we like coins with a proven team, useful product, and large user base.” There are no fixed fees, either: All listing fees are negotiated individually, and proceeds go to the blockchain-tracked Binance Charity Foundation.
Coinbase, a major U.S. digital asset trading platform, relies on a somewhat more specific set of standards. Grouped into six focal areas — i.e., conformity to the platform’s core values, technology, compliance, market supply, market demand and crypto-economics — the framework provides a lot of specific details of the review process, including, for instance, “Assessment of the engineering team and their track record of setting and achieving deadlines,” or making sure that there is a “demonstrable record of responding to and improving the code after a disclosure of vulnerability, and a robust bug bounty program or third party security audit.”
Coinbase does not charge application fees initially, yet the company reserves the right to charge such a fee to cover the costs of services rendered during evaluation and listing processes. The platform, which has ramped up the number of new assets listed this year, both accepts applications from blockchain projects and proactively evaluates existing coins even if they do not seek admission.
Paolo Ardoino, the chief technology officer at the Hong Kong-headquartered exchange Bitfinex, summarized his platform’s listing policy in the following statement to Cointelegraph:
“Bitfinex uses a variety of parameters to decide which blockhains or tokens should be listed. These include the quality of the project, security audits of the smart contract or the blockchain itself, along with the availability and maintenance status of the source code. Above all these parameters, we adhere to all applicable laws.”
Bittrex, a Seattle-based cryptocurrency exchange, considers factors such as innovativeness of blockchain solutions, the range of use cases, experience and reputation of the team behind the project, as well as market indicators. The process that leads to new coins getting listed on Bittrex or Bittrex International entails two stages of review: preliminary and full.
The latter step includes a full compliance review, which requires providing a memo of opinion from a U.S.-qualified external legal counsel for listing on the domestic platform, or a statement attesting that the token qualifies as a Virtual Financial Asset (VFA) under Maltese law from a legal firm licensed in the island nation if the applicant seeks to be featured on Bittrex International. Bittrex does not charge listing fees.
The exchange is also quite open about its delisting policy. One of the key criteria that Bittrex considers a trigger for removing a token or market is a lack of interest from the community, as manifested in low trading volumes and lackluster communication. Other possible reasons include compliance issues, lack of technological robustness, the core team’s unresponsiveness and inability to address arising concerns, among others.
Poloniex, a U.S.-based exchange operated by the fintech company Circle, follows a set of listing standards similar to that of Coinbase. The main criteria on which potential additions are assessed fall into the categories of core tenets of the crypto industry (such as building new infrastructure and solving problems based on decentralization), robustness of underlying technology, experience and credibility of the project’s core team, capacity to create real value, and indicators related to liquidity and other aspects of market health. There is also a requirement that each asset pass a legal review in accordance with regulations of the jurisdictions where it is traded.
Huobi, a major Asia-based digital asset trading platform, employs statistical modelling to aid decision-making on candidate coins. The exchange’s spokesperson from the listing department told Cointelegraph:
“There are three ways a project can get listed on Huobi Global — general listing, Huobi Prime, and FastTrack — all of which are evaluated by Huobi’s SMARTChain. Huobi SMARTChain is a quantitative model which evaluates factors based on the five integrated dimensions of Strategy (strategic positioning), Management (project management), Activity (market activity), Reliability (team credibility), and Technology (advanced technology), as well as investment potential and risk.
“On top of regular listing, Huobi recently announced two listing programs for premium tokens — Huobi Prime and Huobi FastTrack. The upgraded SMART Chain 2.0 quantitative model is applied to evaluate Prime and FastTrack projects based on around 100 factors that also take into consideration a project’s reasonable valuation, long-term value creation, team reputation, sensible token economics, and community support.”
The Huobi representative added that the platform performs regular reviews of assets already listed on the exchange. Based on those reviews, the teams of underperforming projects may receive a delisting risk warning for such issues as wrongful publicity and market conduct, evidence of fraud or manipulation, the core team’s uncooperative behavior, security breaches, low trading volumes, and more.
Guy Hirsch, Managing Director of digital asset trading platform eToro U.S., said in a statement to Cointelegraph:
“There are many factors eToro considers when determining which top ranking cryptoassets to include on our platform. Market capitalization and liquidity are two of the most important factors we look at. Then, we evaluate if it is a utility token or tokenized security and based on that legal analysis determine if and in which jurisdiction to list it and what compliance governance must be applied to it. Going beyond those, in certain cases we’ll also look at the use case, the team, and the product roadmap.”
EToro, Hirsch added, has never delisted a token. In order for that to happen, “there would need to be significant and persistent liquidity issues, or significant changes in rules and regulations.”
Paul Puey, CEO at Edge, a noncustodial cryptocurrency exchange and wallet platform, has some specific tips for blockchain projects seeking admission to its trading platform:
“Edge takes into account several factors when determining whether to include a new coin for integration into our exchange application. We weigh market demand, the engineering cost, customer support cost, possible ROI in exchange volume, whether the coin is introducing creative new ideas for cryptocurrency, and whether the coin is staying true to its white paper promises.
“Many of these factors can be greatly assisted by the protocol founders. Having an easy to use, readily available software toolkit and APIs for accessing the blockchain helps reduce engineering cost. Having a dedicated developer to assist in integration or even better, contribute the necessary code greatly speeds up the process. Frequently undervalued protocol developers should consider how difficult it is to support users with any new user experience requirements and corner cases that their coin creates.”
From pay-to-play to better assets
As the maturing crypto industry develops its standards and best practices, predatory exchanges and once-ubiquitous scam coins are gradually withering away. The biggest crypto exchanges are embracing their role as the space’s new gatekeepers, which is evident in increasingly well-structured processes for vetting new digital assets.
The review of these policies and standards suggests that there is a degree of uniformity in admission requirements that various exchange platforms impose. Rowan Stone, the business development director of the Horizen (aka ZEN) cryptocurrency ecosystem, observed to Cointelegraph:
“When it comes to listing cryptoassets, exchanges typically want to know that the asset is secure, is being actively developed by a team of competent professionals and has real world utility along with an active and passionate community to ensure suitable market demand.
“ZEN has agreed to integration deals with more than 30 exchanges over the past two years, and although it was a wild west in the early days, most exchanges are maturing at a rapid pace, both in terms of security and business prowess. Many exchanges have realized that bringing strong, popular assets to their users is a much better business model than attempting to force the pay-to-play game with often ludicrous integration fees.”
As in any field of financial activity, trust and reputation are key assets for successful players. Enforcing stringent requirements for candidate assets is the natural mechanism for maintaining exchanges’ reputations, which ultimately lowers risks for end users. Perhaps this is the best way to protect traders and investors in an ecosystem built on irreversible transactions and minimal room for redress in case something goes wrong.
Barclays halts business with Coinbase as exchange needs an innovative bank to tailor to its AML and KYC needs, but will U.K. customers be better off now?
It is being reported that Barclays, the London-based global bank, recently stopped banking for Coinbase, the United States-based crypto exchange. Coinbase reportedly found a quick replacement in the form of another United Kingdom-based establishment, ClearBank.
While Barclays connected San Francisco-based Coinbase to the U.K. Faster Payments Scheme (FPS), enabling instant withdrawals and deposits of British pounds at the exchange, ClearBank won’t offer the exchange the same service until at least the end of Q3 2019. Deposits and withdrawals in pounds for Coinbase’s U.K. customers, which once took seconds, will for now take days to process.
In the wake of Barclay’s decision regarding Coinbase, reports contended that major Spanish bank Santander had blocked U.K. customers from depositing fiat funds to the exchange. Santander spokesperson told Cointelegraph that the reports are untrue:
“We do not block payments to any legitimate company, however, in certain circumstances we will refer payments for additional security checks, where we believe there may be a higher risk of fraud.”
Business as usual? Not quite…
Before it had access to FPS, the exchange, which has offices in Dublin and London, transferred pounds into euros through the Estonia-based LHV Pank, which still banks Coinbase. Having experimented with colored coins for Bitcoin-based certificates of deposit, LHV — the largest locally owned bank and asset management in Estonia — seems to take a more open approach toward blockchain than Barclays.
“The Bitcoin blockchain is the oldest, most tested and secure [public-key cryptography], and hence suitable for our current applications,” Rain Lõhmus, chairman of the supervisory board of LHV, told Cointelegraph in 2015. But LHV couldn’t offer Coinbase the same luxuries as Barclays.
“Having domestic GBP payments with Barclays reduces the cost, improves the customer experience… and makes the transaction faster,” Zeeshan Feroz, CEO of Coinbase U.K., said shortly after Barclays first banked Coinbase.
Feroz told Reuters that it took a lot of effort and time to get Barclays to bank Coinbase, as the former sought to ensure the exchange had implemented appropriate Anti-Money Laundering (AML) procedures. The exchange was one of the first blockchain firms to have access to FPS with Barclays decision.
“There’s a lot of understanding and risk management that’s needed,” Feroz said, noting at the time that the European Union grew “twice as fast as any of our other markets in 2017,” and that the U.K. was its largest market in the bloc.
Joshua Scigala, CEO of Bitcoin and allocated gold order book exchange Vaultoro, cites “huge” banking regulations that may have forced Barclays to close Coinbase’s account:
“The old guard banking industry helped write the massive banking regulations to make it too hard for startups to compete with the regulatory burden. The problem is that this might have come back to bite them because now banks have built such a large regulatory moat around themselves that they cannot innovate.”
Barclays wanted to bring Bitcoin “into play”
Barclays U.K. CEO Ashok Vaswani once told CNBC that the bank and U.K. regulators were discussing cryptocurrencies, though he did not reveal exactly what the talks with Britain’s Financial Conduct Authority (FCA) revolved around. He did say the discussions centered on how to bring Bitcoin “into play” and how to make it safe in an interview to CNBC at the 2017 edition of the Money 20/20 fintech conference in Copenhagen, Denmark.
In 2015, the British multinational ran a pilot with Safello Bitcoin exchange on a “proof-of-concept.” The bank confirmed in 2016 that it banked Circle Internet Financial, whose main app at the time was Circle Pay, an FCA-regulated app that uses Bitcoin to help facilitate no-fee currency transfers.
Barclays held Circle customer deposits. In 2019, the bank sponsored a blockchain hackathon, as reported by Cointelegraph. While he acknowledges big banks talk the talk, Scigala isn’t so sure they walk the walk when it comes to blockchain:
“Barclay’s just like some other large players are all talking no real action when it comes to cryptocurrency. A lot of these large players will drum the word blockchain around in the media to sound modern and like they are innovative but when it comes to the actual crunch they block or even internally boycott all serious businesses working in the space. Barclays is not alone in this attitude.”
Barclay analysts viewed Bitcoin as a viral infection
Despite discussing with regulators ways to make Bitcoin safe, Barclay analysts once compared it to the flu. “Like infection, transmission — especially to those with ‘fear of missing out’ — is by word-of-month, via blogs, news reports and personal anecdotes,” Barclays analyst Joseph Abate allegedly wrote in a note to clients. “However, once full adoption is approached, the price decline is sustained and rapid.”
Barclay’s model divided the global population into three sectors, including those who are susceptible, those who are vulnerable but not infected, and those who are immune. The “infected” are the 0.1% who first bought cryptocurrencies. Another segment, comprised of 25% of the population, is susceptible to the Bitcoin bug due to “fear of missing out.” Some are immune and will never purchase bitcoin.
Barclays noted that Bitcoin could see demand from weak economies. “Cryptocurrencies may have a home in low-trust corners of the global economy,” Abate said. “Broader adoption of crypto technologies faces critical challenges and strong incumbents.”
Money laundering fears to blame?
Multiple sources told Cointelegraph that they believe Barclays closed Coinbase’s account due to AML concerns. Governments have levied $17 billion in AML-related penalties since 2009, and the EU and U.S. AML protocols continue to get tougher. Danske Bank is currently facing between $6 billion to $8 billion in fines for what some analysts have dubbed the largest money laundering scandal ever.
Regulators have also either investigated or fined Commonwealth Bank of Australia, the U.K. division of India’s canara bank, Standard Chartered Bank, Deutsche Bank, Mitsubishi UFJ Financial Group and Goldman Sachs.
Jason Blick, CEO of EQIBank, a global digital banking for business and high-net-worth individuals, evoked AML and Know Your Customer (KYC) regulations as potential reasons for Barclays to close Coinbase’s account:
“Internal siloed systems of traditional banks are not designed to deal with disruptive or innovative industries. Many banks are facing record fines for AML and KYC breaches. Most traditional banks simply don’t understand how to manage perceived risks with digital assets and cryptocurrencies.”
In addition to AML and KYC challenges with new consumer demands and technology, Blick noted how some incumbent banks have had problems keeping their services online. Global banking giant HSBC is just one of several major banks that have faced tech outages that left customers unable to access online bank accounts and other services. Customers at Bank of America, Commonwealth Bank of Australia, ANZ Bank, Royal Bank of Scotland and NatWest have all endured similar issues.
“They can’t cope with the demand for ‘instant on-demand banking’ expected by crypto clients and industries,” Blick said, citing the slow, albeit reliable legacy technology upon which big banks depend. He also went on to add:
“But the world has changed. We’ve gone mobile and online. We expect real-time transactions and access to financial services around the clock. Big banks, like Barclays, can’t keep up.”
Blick noted that challenger banks like ClearBank “have innovation in their DNA” and can use behavioral analytics for KYC and AML. “Challengers are at the forefront of leveraging digital technology to shape the future of banking,” he said. Scigala added: “Large institutions like Barclays will make themselves obsolete if they don’t embrace rare digital assets and programmable money as a whole.”
Hong Kong and Argentina pay through the nose for Bitcoin, Binance could be back in the U.S. within months and Barclays cuts ties with Coinbase in the U.K.
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.
Bitcoin (BTC) briefly veered back into four figures this week — reversing recent gains. It comes amid cooling tensions between the United States and China in their long-running trade war, with Washington deciding to delay the introduction of new tariffs that would have affected laptops and smartphones. Interestingly, crypto consumers in some parts of the world have ended up paying a premium for their Bitcoins in recent days. A report on Wednesday revealed that investors in Hong Kong were paying about $300 extra for BTC at the time — with pro-democracy protests and violent clashes with police creating political uncertainty. Over in Argentina, where the peso collapsed following the sitting president’s shocking defeat in primary elections, consumers on local exchanges were at one point paying out $420 more for their crypto than they would on major platforms.
More than 20 trading pairs vanished from Poloniex this week, with the California-based crypto exchange blaming their removal on low trading volumes. LTC/XMR, DASH/XMR, STEEM/ETH, GAS/ETH, LOOM/USDT and FOAM/USDC were among the pairings affected. Poloniex has stressed that each of these assets will remain independently tradable. This isn’t the first time that the American platform has streamlined its offering in recent months. Back in May, nine coins were delisted for its U.S. customers — Bytecoin (BCN), GameCredits (GAME) and Gas (GAS) among them — due to uncertain regulations.
Changpeng Zhao — or good ol’ CZ, for short — has predicted that Binance will be back in the business of operating crypto-to-fiat operations in the U.S. within two months. In an interview, the exchange’s CEO said: “I don’t want to promise any fixed dates, but there’s a lot of work being done and there’s a lot of things going on in flux, but I would say in a month or two.” June saw Binance temporarily restrict services in the U.S. as it worked to open a new division that would have the approval of the Financial Crimes Enforcement Network. CZ added that he is upbeat about the future of U.S. regulation — saying that the clear legal framework for traditional financial services shows that the environment for crypto will improve in time.
In news that could hit the crypto community hard, British banking giant Barclays has reportedly severed ties with the Coinbase exchange. For users in the United Kingdom, this could slow down the exchange of crypto for British pounds substantially. Until recently, Coinbase users were able to access the U.K.’s Faster Payments Scheme, but restrictions brought in last month meant they had to use SWIFT instead — an inferior system that takes days to complete a transfer. Spain’s Santander was also accused of joining the bank blockade against Coinbase this week, with British users complaining that they were struggling to deposit fiat funds. A U.K. spokesman denied this was the case, telling Cointelegraph: “We do not block payments to any legitimate company, however in certain circumstances we will refer payments for additional security checks, where we believe there may be a higher risk of fraud.”
The Intercontinental Exchange’s Bakkt, the much-anticipated U.S. platform for daily and monthly Bitcoin futures, has a launch date: Sept. 23. The company says it is full steam ahead on the service, and testing is now under way after it secured approval from regulators. Bakkt had initially announced plans to offer such a platform back in August 2018, but it suffered repeated delays because of compliance issues. The futures contracts are going to be provided through a partnership with Intercontinental Exchange Futures U.S. and International Exchange Clear U.S.
Winners and Losers
At the end of the week, Bitcoin is at $10,134.51, Ether at $184.93 and XRP at $0.27. The total market cap is at $263,812,932,637.
The top three altcoin gainers of the week are BitBall, CyberFM and Tellurion. The top three altcoin losers of the week are Boltt Coin, Skeincoin and Block-chain.com.
For more info on crypto prices, make sure to read Cointelegraph’s market analysis.
Most Memorable Quotations
“Opinion: Many #cryptocurrency in the top market cap would be absolutely #Rekt by #EthereumClassic if we removed #Ethereum from the brand. I know we are original Ethereum project, but maybe this can be water cooler chatter at summit eh?”
“Cryptocurrency investments are risky. Investors should be extra cautious when dealing with promoters who claim their offering does not have to be registered with securities regulators. Quick returns of 150% are as rare as Bigfoot.”
“So far crypto has focused mostly on retail investors […] or institutional investors. […] Half the money in the U.S. is managed by financial advisors, and right now it’s very difficult for them to access that market.”
The start of the week saw Goldman Sachs give a bullish forecast for BTC prices — suggesting a short-term target of $13,971 for the dominant cryptocurrency. Its target has been based on Elliott Wave Theory, which forecasts market trends by identifying extremes in investor psychology, along with price highs and lows. The financial institution has been taking an increasing interest in the crypto market of late — exploring the potential of creating a digital currency and ramping up the development of a secret project last month by opening a job vacancy for a digital asset project manager.
A theory has been circulating that this week’s downturn in BTC prices could be because of sell-offs from a Chinese Ponzi scheme worth $3 billion. An estimated 10 million investors were scammed when PlusToken was created in the middle of 2018 — and in a nod to a classic Ponzi scheme structure, it promised high investment returns at different rebate percentages for its four tiers of members. Dovey Wan, the founding partner of Primitive Ventures, has claimed that mass sell-offs from wallet addresses known to be associated with PlusToken are now taking place. She has urged exchanges and over-the-counter platforms to blacklist them as a matter of urgency. However, researchers from TokenAnalyst have countered Wan’s claims, citing a lack of evidence of addresses associated with PlusToken moving large amounts of Bitcoin to known exchanges.
In other Coinbase news, its U.K. customers have reportedly been told that the exchange is dropping support for Zcash after Aug. 26. The fact that customers in the U.S. and the European Union remain unaffected has prompted speculation that Brexit could be to blame. Affected users can either convert their Zcash to another cryptocurrency on the exchange or transfer their assets to another wallet. If no action is taken by the deadline date, the remaining crypto will be liquidated into British pounds. British Bitcoin entrepreneur Alistair Milne has suggested that Coinbase may have been told to delist Zcash in order to regain access to the U.K.’s Faster Payments System. For its part, Zcash has stressed that it is “100% compatible” with British regulations — and says its presence on other U.K. exchanges remains unaffected.
Some of Craig Wright’s documents in a recent trial were faked, Bitmessage developer Jonathan Warren has alleged. The man behind the peer-to-peer messaging service claimed there were chronological inconsistencies in the paperwork the Australian computer scientist provided to court in the long-running lawsuit filed by late cyber-security expert David Kleiman’s estate. Warren accused Wright of faking some contracts, emails and Bitmessages that were reportedly set to move Kleiman’s assets under his control. Kleiman’s estate is suing Wright for $5 billion amid allegations he stole hundreds of thousands of BTC. Wright — who has claimed he is the inventor of Bitcoin — denies the allegations.
Reports suggest 300,000 LTC addresses may have been affected by a dusting attack, in which users received a fractional amount of Litecoin that could then allow malicious actors to track those addresses. Here, Joshua Mapperson explains what a dusting attack means, why it has happened and what crypto consumers can do to stay safe.
Statistics by an international recruiting company suggest that global demand for blockchain engineers has increased by 517% over the past year. Cointelegraph’s Julia Magas takes a look at how the jobs market in the crypto industry has evolved since 2018 — and where vacancies are being advertised.
Have you received a letter from the Internal Revenue Service? If so, time is running out to reply — and those who don’t respond with details of all crypto transactions between 2013 and 2017 run the risk of having their tax accounts audited. Our Lokay Cohen takes a look at what you need to do…
On August 15, the San Francisco-based digital currency exchange Coinbase announced that it had acquired the cryptocurrency custody service Xapo’s institutional branch. The business move puts Coinbase in the limelight, making it the largest custodial service for digital assets worldwide, with more than $7 billion under custody.
Coinbase Acquires Xapo’s Institutional Arm and Now Commands $7 Billion Worth of Digital Assets
As early as 2010, Bitcoin supporters such as Hal Finney predicted that someday most BTC transactions would occur between massive bitcoin-backed banks. Finney believed that if a digital currency like bitcoin was to gain mass adoption, the network would not be able to include every single financial transaction in the world. The renowned cryptographer said that large bitcoin-backed banks would fill the void and “work like banks did before the nationalization of currency.” Fast forward to today, where firms like Coinbase are holding massive amounts of digital assets in custody. On Thursday, the California exchange announced that it had acquired Xapo’s institutional crypto operation and established itself as one of the largest crypto custodians worldwide. Coinbase published a blog post in regard to the acquisition and stated:
In just over one year since launch, Coinbase Custody has grown to over $7 billion in Assets Under Custody (AUC) stored on behalf of more than 120 clients in 14 different countries, making it the largest, most globally recognized and most trusted institutional custodian in the world.
Coinbase Growth Since 2012: $8 Billion Valuation, $600 Million in Annual Revenue
Coinbase has come a long way since Brian Armstrong and Fred Ehrsam started the company back in 2012. That year Coinbase allowed users to buy and sell BTC using a bank transfer and quickly became one of the biggest BTC providers next to Mt. Gox. Throughout 2012 and 2013, investors and venture capitalists started seeing potential in Armstrong and Ehrsam’s company and began to invest. The founders participated in a Y Combinator startup incubator, received $5 million from Fred Wilson in May 2013, and $25 million from Andreessen Horowitz, Union Square Ventures (USV), and Ribbit Capital in December 2013. By 2014, Coinbase users grew to more than one million accounts and the assets under the company’s control continued to grow exponentially from there. The cryptocurrency community really took notice of how large Coinbase had grown two years later, when in February 2016, Brian Armstrong told the public that “[Coinbase is] now storing about 10% of all bitcoin in circulation.”
Coinbase is now valued at over $8 billion, after closing a funding round in 2018 for $300 million to “accelerate the adoption of cryptocurrencies and digital assets.” In 2019, despite stiff competition, the San Francisco tech company has estimated revenue between $569-650 million. Binance comes close to Coinbase, with The Block reporting in February that the exchange pulled in $446 million in profits. Kraken captures $150 million annually, Bitstamp $17M, Bitfinex $10M, and Itbit $4M in revenue. Coinbase has around 800 employees and the firm has made roughly 10 acquisitions since 2012. The company acquired startups like Blockr, Earn.com, Cipher, Digital Wealth, Keystone Capital, Blockspring, and now Xapo’s institutional arm. Coinbase has also made various equity investments like the recent cryptocurrency derivatives exchange Blade as well as acquiring Horizon Games, Textile, Near, and Dharma.
In 2017 Speculators Estimated Xapo Held $10 Billion Worth of Bitcoin With Keys Spread Across 5 Continents and a Swiss Military Bunker
Xapo started its business similarly to Coinbase, but did not offer its bitcoin wallet and cold storage vault services until March 2014. The Hong Kong-based company was founded by Wences Casares and Federico Murrone and quickly became a well-known crypto brand. In 2015, the company moved its headquarters to Zug and two years later the firm was granted a European e-money license in Gibraltar. That year, during the all-time highs of 2017, it was estimated that Xapo’s Swiss bitcoin vaults held billions of dollars’ worth of digital assets. Quartz columnist Joon Ian Wong reported on Xapo’s vault in Attinghausen, Switzerland when he visited the facility. The security was extreme and resembled a James Bond movie, Wong noted during his visit.
“[Xapo] won’t tell me how much bitcoin is stored in the vault, but he says he sometimes takes customers with “millions” of dollars worth of the cryptocurrency stored with Xapo to tour the vault,” the reporter wrote in October 2017.
Despite the company not disclosing how many coins are held in the Swiss vault, estimates from Bloomberg in the spring of 2018 said Xapo held more than $10 billion. By the summer of 2018, Xapo Inc. received the sixth Bitlicense and was approved to operate in the state of New York as a regulated Bitcoin business.
Over the last two years, Xapo has made around $4.2 million in revenue annually. Additionally, Xapo employs around 52 people and the company has raised a total of $40 million since its inception in 2014. Reports stemming from Xapo’s vault in Switzerland have made speculators believe the company’s institutional vault still has a massive amount of digital wealth under its wing. Moreover, during Wong’s visit to the vault three years ago, Xapo told him the vault operators can never unwind. “This is not a race. It is a chess game. You have to think about the opponent’s next movement. You can never relax,” the Xapo executive detailed.
Sure. Consumers won’t mind bitcoin banks, but that is a huge systemic risk. Say goodbye to all of the core benefits of Bitcoin. Inflation resistance, censorship resistance, Gone.
Members of the Crypto Community Discuss the Current Custodial Trend
Coinbase and Xapo have scared some cryptocurrency advocates who think that storing a vast array of coins in custodial services might not be a good idea. Digital currency pundit Jill Carlson tweeted: “The Xapo [and] Coinbase collaboration has me asking: ‘What happens if someday one entity just custodies all 21 million bitcoins? Aren’t we just recreating the same, broken financial system?’” Edge Wallet founder Paul Puey responded by saying: “You need more than just the option too. You need a majority of crypto held in noncustodial solutions. Otherwise, we run the risk of losing the ability to transfer funds without a third-party.” Puey continued:
Bitcoin then just becomes an overleveraged asset class like a gold ETF.
Using a cringe-face emoji, Monero developer Riccardo Spagni jokingly wrote: “A few months back a VC told me that ‘custody is the most exciting space in the ecosystem right now.’” The Block writer Frank Chaparro (Fintech Frank) said that no smart asset manager would custody all of their coins with one provider. “There is a need for multiple custodians – we see this even in the so-called broker financial system,” Chaparro insisted. However, Coinshares executive Meltem Demirors revealed that she believes “everyone custodies their coins with one provider.” “Did you know that everyone in the U.S. custodies their share certificates with one entity – the DTCC?” Demirors wrote.
Mega Bitcoin Banks Issuing Their Own Digital Bucks and Verifiable Proof-of-Reserves
The mega crypto bank discussion has many crypto enthusiasts wondering if the massive amount of digital currency custodianship is good for the environment. Coinmetrics executive Nic Carter sarcastically explained that he’s “waiting for a major custodian/exchange to implement proof of reserves” with a picture of a rotting skeleton next to a computer. It’s a stark cry from Hal Finney’s 2010 prediction, when he said that megabanks would be “the ultimate fate of Bitcoin.” “Most Bitcoin transactions will occur between banks, to settle net transfers,” Finney detailed. He also said that these banks would use the BTC to be “high-powered money,” which would serve as a reserve. Then these Bitcoin-backed banks could “issue their own digital cash,” Finney emphasized.
We have seen Hal’s prediction already start to occur within the cryptocurrency industry as large exchanges, which have silently become the largest crypto banks in the world, are starting to mint their own digital assets. Binance has created binancecoin (BNB), which holds the sixth largest crypto valuation out of more than 2,000 digital asset markets. Coinbase and Circle Financial have the Centre foundation, which controls the regulated stablecoin USDC. With a transparent blockchain system, a true “proof-of-reserves” type of scheme could transpire, unless people decide to trust these companies like the financial institutions today. If the community simply trusts these mega crypto banks then unsustainable banking techniques like fractional reserves could proliferate unchecked.
The way things are moving, with the recent Coinbase acquisition of Xapo and digital currency exchange providers becoming far bigger than traditional institutions, it begs the question: are mega bitcoin banks the shape of cryptocurrency custody to come? It may not be the future we chose, but it’s the one that’s fast becoming a reality.
What do you think about the Coinbase acquisition of Xapo? Do you think that custodial services will dominate the crypto industry? Let us know what you think about this subject in the comments section below.
Image credits: Shutterstock, Coinbase, Xapo, Pixabay, Twitter, Centre, Circle, Jamie Redman, and Wiki Commons.
On the back of its part acquisition of Xapo’s clients, the U.S. exchange identified the beginning of an adoption curve.
Bitcoin (BTC) adoption by institutions has gone from a myth to fact in the past year, the CEO of major cryptocurrency exchange Coinbase has said.
‘We know the answer’ about adoption: Armstrong
Speaking on Twitter Aug. 16, Brian Armstrong said that 2019 had formed the year of reckoning for institutional Bitcoin uptake, with the trend now obvious. He wrote:
“Whether institutions were going to adopt crypto or not was an open question about 12 months ago. I think it’s safe to say we now know the answer. We’re seeing $200-400M a week in new crypto deposits come in from institutional customers.”
Coinbase becomes world’s largest crypto custodian
Armstrong made the comments hours after Coinbase confirmed its acquisition of the international operations of storage giant Xapo.
The move, as Cointelegraph reported, put Coinbase top of the institutional manager list for crypto with $7 billion of assets under custody.
Despite Bitcoin’s 2019 bull run fizzling in recent weeks, Armstrong remained highly buoyant about the future, as multiple new institutional investment products hit the market.
These mainly include Bitcoin futures offerings, which will come from players such as Bakkt and fellow exchange Binance. A decision on whether to allow a Bitcoin exchange-traded fund is meanwhile due from the United States in October.
“In addition to custody, we’re excited to explore new ways to monetize and leverage crypto assets such as staking, borrowing against crypto portfolios and lending crypto to trusted counterparties,” Coinbase hinted about its future plans in a blog post about the Xapo deal.
Cryptocurrency mining company CoinMine has completed a $2.5 million round of seed funding, earmarked for developing the all-in-one mining machine, Coinmine One.
Cryptocurrency mining company CoinMine has received a fresh injection of funds from a $2.5 million seed round led by the investment company M13.
Coinmine announced the successful fundraiser in an official blog post on Aug. 15. As part of the announcement, Coinmine said it will continue to support more cryptocurrencies and ship out “over-the-air” updates.
The company offers a product called Coinmine One, which is an all-purpose cryptocurrency mining computer that costs $700.
The announcement also included a shoutout to previous investors, who include familiar names such as Coinbase Ventures and Anthony Pompliano. As previously reported by Cointelegraph, Robot Ventures also invested in Coinmine in Q1 2019. Robot Ventures, for its part, is a blockchain-focused Venture Capital firm which has in turn received funding from Ripple’s Xpring, which funds Ripple-related development initiatives.
Additionally, Coinmine says its mission is to support Bitcoin and other decentralized information protocols. As per the announcement, Coinmine believes that decentralizing computation will lead to a corresponding decentralization of information and value, as related to the ideology behind Bitcoin.
Promoting decentralized computing
As reported by Cointelegraph yesterday, the Icon Foundation launched an incentives initiative to encourage users to participate in voting and staking for its blockchain network. Icon’s idea here was to distribute control of their network via election, as well as to give users more influence over how this network computation gets distributed via voting. As its rewards incentive, the foundation is purportedly dedicating 3 million of its native ICX tokens, worth approximately $570,000, to hand out to users who vote on the network controllers.