Argentina’s central bank extends capital controls to ban the purchase of Bitcoin and cryptocurrency using credit cards.
After recently imposing limits on U.S. dollar purchases, the Central Bank of Argentina (BCA) announced Oct. 31, that citizens are prohibited from using credit cards to buy Bitcoin (BTC) or other cryptocurrencies. The news was initially reported by Cointelegraph Brazil on Nov. 1.
All in the name of preserving forex reserves
The measures were published in a communication covering several industries in which credit card use was limited or prohibited. The section referring to cryptocurrency reads:
“Acquisition of Bitcoin and cryptocurrencies: It is prohibited to purchase BTC with this payment method. The only remaining alternative for this investment is to do so with funds transferred from a bank account.”
It is unclear whether the rules apply only to credit cards or if this includes debit and prepaid cards.
The BCA says that these measures are critical to preserving the country’s foreign exchange reserves.
Bitcoin just part of a wide-ranging crackdown
According to experts, the central bank intends to block the entry of dollars into the country, seeking to have stronger exchange control.
This follows a move by the BCA earlier this week, which limited the amount of U.S. Dollars Argentinian citizens could buy each month. The maximum amount was reduced from $10,000 to just $200.
At the time this caused a spike in Bitcoin trading, which these latest measures would seem to partially address.
A South Korean presidential committee is pushing for the government to establish legal status for cryptocurrency to stay competitive globally. So far, the government’s policies have been risk-focused to curb speculation, which the committee says must change.
Presidential Committee Pushes for Crypto Legalization
The South Korean Presidential Committee on the Fourth Industrial Revolution (PCFIR), directly under the president, has made several recommendations regarding the country’s cryptocurrency regulation. The PCFIR coordinates policies and reviews matters pertaining to the national master plans and strategies related to the “fourth industrial revolution,” which refers to a highly connected economy supported by advances in areas such as blockchain, 5G, artificial intelligence, big data, and the internet of things.
At the committee’s global policy conference in Seoul on Oct. 25, PCFIR Chairman Chang Byung-gyu said “the government needs to establish the legal status of crypto assets,” several local media outlets quoted him as saying.
The Presidential Committee on the Fourth Industrial Revolution at its Oct. 25 global policy conference.
Emphasizing that the country’s regulations and administrative procedures must be improved to foster innovative startups, Chang stressed:
The legal status of crypto assets should be established as soon as possible, and tax and accounting measures should be taken.
Call for Changes Under New FSC Chairman
The committee also urged the government to promote innovation and the institutionalization of crypto assets in order to stay competitive globally. However, so far, the government has opposed the idea due to concerns of possible side effects raised by the Ministry of Finance, the Ministry of Justice, and the Ministry of Information, an industry stakeholder told MSN news outlet.
The PCFIR criticized the government’s current crypto policies of focusing primarily on curbing speculation and reducing the kimchi premium, stating:
The government’s deterrence policy, which is indispensable to the cryptocurrency speculation fever, is reducing our global competitiveness in the blockchain and crypto-asset industries … We need to set policy goals to preempt future opportunities.
Led by former chairman Choi Jong-ku, South Korea’s top financial regulator, the Financial Services Commission (FSC) implemented emergency cryptocurrency measures in December 2017 in order to curb the kimchi premium. Several follow-up measures were introduced over the next few months, including the real-name system in January last year. However, only the country’s top four crypto exchanges have been able to use the system so far.
New FSC Chairman Eun Sung-soo
Choi is no longer the chairman of the FSC. He was succeeded by Eun Sung-soo on Sept. 9. Prior to his appointment, Eun served as the president and chairman of the Export-Import Bank of Korea and led the Korea Investment Corporation, Korea’s sovereign wealth fund, from January 2016 to September 2017.
After the PCFIR announced its crypto recommendations, Lee Kong-joo, Advisor to the President for Science and Technology, thanked the committee for its efforts, the Bchain publication detailed, quoting him as saying, “I will actively consider ways to make these [recommendations] possible.”
Furthermore, the Hankyoreh reported on Oct. 27 that the Korea Financial Intelligence Unit, under the FSC’s supervision, said that it will beef up crypto regulations in compliance with the standards set by the Financial Action Task Force (FATF). The announcement followed a recent FATF plenary meeting. The FATF issued guidance on crypto assets and related service providers in June and is currently evaluating how well its member countries are applying the guidelines.
What do you think of this South Korean presidential committee pushing for the legalization of cryptocurrency? Let us know in the comments section below.
Images courtesy of Shutterstock.
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Nobuaki Kobayashi repeats extends the deadline for the same reasons as before — the number of “fully or partially disapproved” claims.
The trustee in charge of refunding users who lost money in the implosion of Bitcoin (BTC) exchange Mt. Gox has again extended the submission deadline for claims.
New claims deadline March 31, 2020
In a statement released on Oct. 28, Nobuaki Kobayashi said that the high volume of problematic requests for money meant that a five-month extension was inevitable.
Kobayashi confirmed the plan just one day before the current deadline arrived. That, too, was the result of an extension which the trustee agreed in April.
“A large amount of rehabilitation claims that the Rehabilitation Trustee fully or partially disapproved remains undetermined for being subject to claim assessment procedures and appeals against a decision on a petition for claim assessment,” he explained.
Kobayashi’s statement concluded:
“In light of the foregoing, the Rehabilitation Trustee filed a motion to seek an extension of the submission deadline of a rehabilitation plan at the Tokyo District Court, and, on October 25, 2019, the Tokyo District Court issued an order to extend the deadline for a rehabilitation plan to March 31, 2020.”
Almost six years since collapse
As Cointelegraph reported, a total of around 24,000 people were implicated in the Mt. Gox debacle. The exchange collapsed in early 2014, with a lengthy legal process still to award any refunds. Around 850,000 BTC (at the time worth $460 million) disappeared from its books.
The cryptocurrency industry is also keenly eyeing another exchange’s demise this year. Canada’s QuadrigaCX, the founder of which suddenly died in late 2018, still owes around $145 million to its 115,000 creditors.
The Malta Financial Services Authority has warned of a new Bitcoin scam that shares the same characteristics as a previously identified entity.
The Malta Financial Services Authority (MFSA) has warned of a new Bitcoin (BTC) scam that shares the same characteristics as a previously identified entity.
The MSFA cautions the public that an entity dubbed “Bitcoin Future” appears to display “the same deceitful characteristics” as a separate scam, dubbed “Bitcoin Revolution,” for which it has already issued two public warnings this year.
The statement notes that such scam operations appear to constantly resurface on the web as adverts, switching their names to avoid detection.
Suspicious adverts peddle false slogans such as “A way to build your life better” and a “Unique opportunity for Maltese,” the MSFA notes, pointing readers to specific URLs where these fake ads are currently hosted. The watchdog characterizes the culture and strategies of these exploits, noting that:
“Bitcoin Future is promoting itself by means of fake news articles which misuse images of local personalities and images of local government institutions. The fake articles are advertised on various social media platforms and falsely claim to be linked to these individuals.”
As a corrective, the MSFA clarifies that Bitcoin Future is emphatically not a Maltese-registered company, is not authorized to provide financial services to or from the country and is not an entity operating — as it purports — under the transitory provision in terms of Article 62 of Malta’s Virtual Financial Assets Act.
In summary, the regulator says Bitcoin Future appears to be an international “get-rich-quick” scam and asks the public not to engage in business or transactions with the entity in any of its identified guises.
The notice includes a link to an official list of financial services entities currently licensed by the MFSA, as well as its scam detection guidelines and a point of contact for scam alerts and victims.
Modernizing strategy and blockchain intelligence
As reported, this September the MSFA published a strategic plan to actively monitor and manage business-related risks related to cryptocurrency firms.
A strategic outline for 2019–2021 revealed that the watchdog will modernize its regulatory approach and work closely with the Financial Intelligence Analysis Unit, alongside other national and international authorities, including the newly formed Malta Digital Innovation Authority.
Earlier this year, United States-based blockchain security firm CipherTrace was appointed by the MSFA to monitor crypto businesses’ activity in Malta to help combat money laundering and financing terrorism risks.
The firm has this month expanded its crypto intelligence platform to trace 700 tokens.
A veteran Chinese regulator urges those tasked with steering the strategic development of Sichuan province to tap surplus hydropower for the blockchain industry.
A veteran Chinese regulator has told those tasked with steering the strategic development of Sichuan province to tap surplus hydropower for the blockchain industry.
Jiang Yang — former vice-chairman of the China Securities Regulatory Commission — advised strategists that:
“Sichuan should study further about how the province’s cheap hydropower resources can attract digital currency-related businesses.”
Yang’s remarks were noted in an Oct. 30 report from South China Morning Post.
Use cryptocurrency mining to absorb excess output
Sichuan, located in south-western China, has a protracted rainy season and is thus the country’s biggest producer of hydropower.
In 2018 alone, the province generated 78.2 gigawatts — that’s 78.2 million kilowatts — of power and exported 104 billion kilowatt-hours (kWh), 30% of its total output, to other regions.
With this abundant resource, Sichuan’s electricity tariffs are reportedly as low as 2 US cents per kWh during the rainy season — as compared with the 11 US cent rate reported in Guangzhou and Beijing.
Even outside of the season, costs remain at a modest 4 US cents per kWh — a major draw for cryptocurrency miners, for whom electricity consumption commands the lion’s share of operating costs.
Most crucially, cryptocurrency mining is thought to have the potential to help absorb excess energy output, which reportedly remains a missed export opportunity for hydropower plants lacking in infrastructure. This could significantly boost the local economy, SCMP notes.
Calls for a breakthrough in blockchain finance
Jiang told strategists that China continues to mine 70% of the world’s Bitcoin (BTC), followed by India (4%) and the United States (1%), citing cheap hydropower as a major driving factor.
He called for China to seek a breakthrough in the application of blockchain to finance, noting that:
“In finance, the application of blockchain technology has been through digital currency, which today is primarily driven by Bitcoin.”
Leon Liu — CEO of retail crypto trading platform Bitkan — told reporters that since President Xi’s high-profile endorsement of blockchain development last week, the volume of Bitcoin traded on the platform has surged by four times.
Increased mining is also expected to trigger a major uptick in Bitcoin trading volumes, as miners cash out their rewards to pay for operating costs.
This could represent a fraught issue for China’s main macroeconomic planning agency, the National Development Reform Commission, which has endeavored to clamp down on Bitcoin mining.
China has, moreover, banned all domestic crypto exchanges since Sept. 2017, meaning that this trading is likely to occur on offshore platforms.
Yesterday, Cointelegraph reported that the People’s Bank of China and the country’s market regulator will jointly implement a new system to certify 11 types of fintech hardware and software products relating to digital payments.
The Association of German Banks released a paper in which it says that the economy needs the digital euro.
German banks have presented a position paper in which they make several arguments for the digital euro.
On Oct. 30, in a paper released by the Association of German Banks (Bankenverband), which represents more than 200 private commercial banks and eleven member associations, banks stated that the “economy needs a programmable digital euro.”
Monetary policy is the state’s responsibility, says Bankenverband
The paper states that the responsibility for the monetary system lies with sovereign nation-states and that any currency provided by banks or private companies must fit into a state-determined system. “Anything else would ultimately lead to chaos and instability,” the paper reads.
The banks make the case for a cryptography-based digital euro which, they state, should be created on the condition that a concurrent, common, pan-European payments platform is also established, further adding:
“The user of a digital euro – whether man or machine – must be clearly identifiable. This requires a European or, better still, a global identity standard. With every form of digital money, customers should be identified using a standard that is just as strict as that which banks and other obligated entities are required to apply under current legal framework pursuing the combat against money laundering and terrorist financing.”
However, according to Bankenverband, a competitive payment system can only be based on a common standard and a common currency. It stated, “In order to maintain Europe’s competitiveness, satisfy customers’ needs and reduce transaction costs, the introduction of euro-based, programmable digital money should be considered.”
Although the private German banks are convinced that, in a digitized economy, this form of digital money will rapidly gain in importance, they state that the existing monetary system must not “be endangered by the provision of crypto-based digital money.”
A private global digital currency, such as Facebook’s Libra, competing with the official key currencies in the world economy would most likely be a source of considerable economic and political conflict, the paper adds.
The banks further call on national and international policymakers to act responsibly and assure that competition with private currencies should not be allowed.
While a digital euro seems appealing, German officials criticize crypto
The German finance minister Olaf Scholz echoed similar sentiments when he recently advocated for the idea of launching a digital euro coin, stating that such a digital payment system would be beneficial for Europe and that they “should not leave the field to China, Russia, the U.S. or any private providers.
Mario Draghi, president of the European Central Bank, recently said that private stablecoins and cryptocurrency in general are of little value, adding:
“Thus far, stablecoins and crypto-assets have had limited implications in these areas and are not designed in ways that make them suitable substitutes for money.”
The president of the European Central Bank is joined in his sentiments by the German federal parliament, which recently released a statement in which they said that cryptocurrencies such as Bitcoin (BTC) are not real money.
Moreover, the statement points out that stablecoins are no alternative to fiat money and explains that the government intends to limit their adoption:
“It will be ensured that stablecoins do not establish themselves as an alternative to state currencies and thus call into question the existing monetary system.”
Government authorities are looking for new ways to track crypto to prevent or solve financial crimes, but this can decrease privacy.
Tracking cryptocurrency transactions is getting easier for law enforcement agencies. On Oct. 16, Cointelegraph reported on how authorities in the United States successfully shut down an international child pornography site. To identify the criminals, the investigators used tools developed by analytic company Chainalysis, which helped to track the Bitcoin (BTC) wallets, used by the criminals to receive payments from customers.
As authorities find more and more ways to track cryptocurrencies, criminals use new techniques, and many sites remain beyond government control. Who will win this battle and can the fight against financial crimes grow into total control over users?
Cryptocurrencies are not anonymous
Before cryptocurrencies gained worldwide popularity, they attracted the attention of criminals who accepted Bitcoin payments in exchnage for drugs and weapons, while others used it to financing terrorism and launder money. As a result, for some time, most had been under the impression that cryptocurrency transactions are anonymous.
In reality, digital currency is far from anonymous. Every transaction carried out in a decentralized network is forever recorded on a public blockchain. Indeed, in order to become the owner of a crypto wallet, users are required to provide personal data.
This is where anonymity ends, though. Any movement of the cryptocurrency — whether it is payment for goods or services, exchange or transfer — becomes visible to all users, and the history of these transactions is tied to each coin, even if it changes its owner later.
According to cybersecurity firm Ciphertrace, its software can track 87% of the global cryptocurrency transaction volume, which may mean that authorities can use monitoring methods not only against criminals but also against ordinary people.
Largest illegal cryptocurrency transactions detected
Cryptocurrencies’ anonymity and their use for criminal purposes no longer seems to be a difficult task for law enforcement agencies. The largest operations to dismantle criminal structures and the confiscation of illegally obtained cryptocurrencies are indicative in this regard. One particular report for 2013–2018 shows, for instance, that global authorities have confiscated over 453,000 BTC, with the U.S. alone accounting for 200,000 BTC.
Sale of illegal goods
The leader in facilitating illegal cryptocurrency transactions is the infamous darknet, a shadow marketplace where hundreds of thousands of illegal goods are sold, including drugs, weapons and crypto malware.
The first such marketplace called Silk Road was liquidated in July 2013. The FBI initially managed to seize about 26,000 BTC, but by the end of that October, the figure had reached 144,000 BTC. As of today, this amount is equivalent of about $5 billion. Four years later, in July 2017, the FBI detected and shut down the AlphaBay platform, confiscating 1,605 BTC, 8,309 Ethereum (ETH), 3,692 ZCash and some Monero (XMR).
Shortly after the AlphaBay arrest, the owners of another marketplace — Hansa Market — were apprehended by U.S. authorities and the platform was shut down. During the operation, the police confiscated more than 1,200 BTC and transferred data about the buyers and sellers to authorities throughout Europe.
Theft and money laundering
In February 2019, U.S. law enforcement agencies not only detected and confiscated but also returned 119,756 BTC (about $65 million at the time) to the Bitfinex exchange, which had been hacked in 2016.
Notably, the FBI demonstrated the highest efficiency in terms of the number of cryptocurrency crimes investigations. During one of them, the founder of the Bitcoin Savings and Trust exchange was identified and accused of organizing a Ponzi scheme in 2016. The fraudster earned more than 720,000 BTC by illegally selling securities. Later, in 2017, investigators dismantled the Coin.mx crypto exchange, the owners of which managed to illegally exchange more than $10 million in cryptocurrency.
The biggest crime that has been investigated by tracking cryptocurrency transactions is probably the laundering of 530,000 BTC stolen from the Mt. Gox exchange. For more than three years, U.S. authorities, together with a group of independent Bitcoin security experts called WizSec, carried out an investigation, which resulted in the case against Alexander Vinnik in 2016.
Vinnik allegedly used various exchanges to sell Bitcoins, thus leaving a lot of tracks that supported the case against him. Therefore, as soon as the police discovered where the Bitcoins stolen from Mt. Gox were deposited to, the investigators said that it became much easier to link Vinnik to the case — and over time, experts were able to piece together a timeline of events. However, the question still remains, who were the people behind the attack?
How they track
In most cases, authorities use traditional methods for tracking cryptocurrency transactions that are no different from those used to monitor any other suspicious financial operations. This is the identification of the user through the data obtained during Anti-Money Laundering (AML) and Know Your Customer (KYC) procedures, the mapping of IP servers, withdrawal data comparison, and other methods.
Therefore, crypto exchanges and platforms that have user data of cryptocurrency holders play an important role in the timely detection of suspicious transactions. In fact, it was a cryptocurrency exchanges that helped the Japanese national police agency disclose data on 5,944 suspicious crypto transactions in 2018.
On Aug. 30 this year, the agency announced its plans to introduce a system that can track cryptocurrency transactions in the country. The system is supposed to detect suspicious transactions by comparing them, and then accurately determine the source and destination of illegal money. In China, according to reports released in March, the Public Information Network Security Supervision has been monitoring foreign crypto exchanges that serve Chinese citizens.
Meanwhile in the U.S., authorities have been working with exchanges for several years now. In particular, in November 2016, the police demanded that Coinbase provide the Internal Revenue Service with information about users who have cryptocurrency wallets.
Bitcoin Big Bang
Recently, innovative solutions have appeared that can track suspicious cryptocurrency transactions and identify their initiators using decryption algorithms, software and blockchain.
For example, the company Elliptic Enterprises has created an algorithm for recognizing illegal Bitcoin payments. The software detects suspicious transactions based on patterns previously used by financial criminals. At the same time, according to the developers, the solution is able to correlate digital identities with real-world profiles.
In particular, the company developed the Bitcoin Big Bang visualization map that summarizes all BTC payments over the past six years, which allows for the rapid detection of suspicious transaction chains and organizations involved in them.
Suspicious transactions alert
Chainalysis, a blockchain analytic firm, has developed a real-time alert system called Chainalysis KYT, which informs users about suspicious transactions. According to the developers, the solution is primarily designed for cryptocurrency companies and financial institutions and allows them to reduce regulatory and reputation risks.
Chainalysis KYT analyzes 15 cryptocurrencies and is used by large exchanges. In particular, on Sept. 26, Bittrex announced the introduction of the Chainalysis KYT solution to track suspicious transactions and other activity on the platform. The forensic investigation tools created by the Chainalysis developers also helped to reveal the owners of What to Video, a website that earned about $353,000 in BTC by selling child pornography videos. In total, 1.3 million BTC addresses were involved.
Having found that some users of the site paid for pornographic videos using their crypto exchange accounts, Chainalysis used a tool called Chanalysis Reactor to analyze cryptocurrency transactions. As a result, the investigators identified certain BTC addresses for which it later requested data from the exchanges.
Deanonymization and KYC
The South Korean government has totally banned anonymous trading at the start of 2018. A system of real names has been introduced in the country, with all the traders obliged to have an account with a local bank, and trading platforms prohibited from listing anonymous cryptocurrencies.
Meanwhile, private companies are already declaring that most of the cryptocurrencies are controlled. In particular, on Oct. 15, CipherTrace announced that it can now track more than 87% of the transaction volume. However, anonymous coins such as Monero are not supported at present.
As such, the CipherTrace Financial Investigations is another solution that can deanonymize players in the crypto market and track criminal transactions, including darknet payments, initial coin offering investments, stolen funds and so on.
According to the company’s website, the platform only needs the user to enter a cryptocurrency address or a transaction ID into the search bar, which auto-completes long addresses, for the system to start working. In the case that illegal actions are detected as related to an address, the system will then automatically identify all other relevant transactions.
In the U.S., the IRS, FBI, Drug Enforcement Administration, Immigration and Customs, and other organizations currently use solutions by CipherTrace, Chainalysis and Elliptic.
Well-known mining equipment manufacturer Bitfury has developed a solution called Crystal for blockchain investigations. According to the creators, Crystal not only helps to identify wallet addresses but also connects them with real-world profiles.
Crystal helped the police conduct a thorough investigation of the movement of funds withdrawn from the Zaif exchange during its hack in September 2018. As a result, specialists were able to track that a fourth of the stolen Bitcoins was sent to the Binance exchange in a series of small transactions, and then passed through a mixer to cover the tracks.
Workarounds
Regulators are releasing more and more requirements, obliging banks and operators that carry out cryptocurrency transactions to comply with KYC and AML procedures. Notably, some exchanges ask their users only for a passport, while others request additional documents — for example, a utility bill or a driver’s license. Given that a third-party’s passport and documents are easy to find on the internet, this procedure can be bypassed in some cases.
Another problem that authorities may encounter when trying to track cryptocurrency payments are mixer platforms, which compile crypto transactions of equal value when processing them, thus covering up the tracks. As a result, users receive the same amount of crypto, minus the commission, but in different Bitcoins.
Are cryptocurrencies as dangerous as authorities believe?
Using unregulated websites entails a high risk for criminals, and the liquidity of such services is not always sufficient for laundering large amounts of money. While exchange of $1 million can go unnoticed on Binance, selling the same amount on a small exchange may take days.
No matter how many ways there are to launder money through cryptocurrencies, this is not the most popular tool for a fraudster today. According to Chainalysis, illegal cryptocurrency transactions comprised less than 1% of all Bitcoin activity in 2018, down from 7% in 2012.
Cryptocurrencies have got a long way to go before they become an attractive way to launder money. In particular, the market must grow, and alternative instruments — such as anonymous cryptocurrencies — must reach big trading volumes and liquidity. And yet, according to the analytics platform Diar, $5.7 million was spent on analyzing cryptocurrency transactions in the U.S. alone.
The community is concerned that Bitcoin’s pseudonymity may be used by authorities to tighten control over the personal lives of ordinary citizens. In April 2019, Chainalysis called on the Financial Action Task Force to refrain from excessive tightening of the cryptocurrency industry regulation, as the measures proposed by the organization could lead to the massive closure of exchanges and other infrastructure services, forcing criminals to find new ways to circumvent laws.
Ordinary citizens cannot avoid being affected by the stricter government control, according to Matthew Green, one of the key developers of the Zcash network. It was also reported that the U.S. National Security Agency is developing the “Oakstar” system, which analyzes several cryptocurrencies. The program can allegedly associate particular people with their cryptocurrency wallets, since users download software that sends their internet data.
According to Arnold Spencer, general counsel for Bitcoin ATM producer Coinsource and the former assistant U.S. attorney in Texas, who prosecuted more than 100 federal cases, there is a hypothetical scenario in which compliance becomes such a burden that digital money is no longer convenient. However, in reality, the possible benefits outweigh the negatives. He explained to Cointelegraph:
“Digital currency compliance is convenient for customers. Many BTMs can process Bitcoin transactions for new customers in minutes. […] On exchanges, it may be inconvenient to register and clear compliance when you first sign up, but individuals can buy or sell or transact with digital money from their home computer in a few clicks. Much more convenient (and less expensive) than using dollar bills or credit cards.”
Spencer added that the issue of cryptocurrency transaction tracking is a debate surrounding the balance between personal privacy and public safety:
“That debate is perpetual. But the technology surrounding compliance is getting better every week, and compliance is becoming more and more convenient. My view is that we are heading in the right direction — we need a modicum of compliance to protect ourselves, but getting that level is getting easier and easier.”
Moreover, according to him, a well-developed regulatory framework would play an important role in helping governments detect criminals and protecting ordinary citizens from illegal actions, saying, “In an age in which businesses collect, analyze and sell our private information, it makes enormous sense to have legislation which protects the privacy of our financial transactions.“
China’s foreign exchange regulator has warned that emerging markets need to muscle in on cryptocurrency-enabled illegal cross-border capital flows.
China’s foreign exchange regulator has warned that emerging markets need to muscle in on cryptocurrency-enabled illegal cross-border capital flows.
Sun Tianqi, the chief accountant of China’s State Administration of Foreign Exchange (SAFE), made the remarks at a forum today in Shanghai, according to an Oct. 28 report from Reuters.
China has shuttered over 2,000 forex trading platforms
Tianqi called for global regulators to cooperate on countering illegitimate cross-border transactions, underscoring the risks that fintech innovation poses to foreign exchange control.
He revealed that the Chinese state had closed over 2,000 forex trading platforms, yet reportedly did not elaborate further.
Back in November, Tianqui had called for Facebook’s Libra to be classed as a foreign currency and integrated into the framework of China’s foreign exchange management. Failing this, the asset should be prohibited, he said.
National blockchain adoption
As reported, SAFE has also this week advocated for the application of blockchain and AI in cross border financing, with particular attention to risk and macro-prudential management.
Following President Xi’s official endorsement of blockchain technology earlier this week, A-share stocks for blockchain firms listed on the Shanghai Stock Exchange have skyrocketed.
The People’s Bank of China has also this week called for an acceleration of blockchain applications in digital finance, as the global industry awaits the rollout of its digital renminbi.
Local commentators have pointed to the increased tension between nationalized control and long-standing antagonism toward private-sector use of the technology.
WeChat search data is pointing to a major surge in popular interest in both blockchain and Bitcoin, with blockchain searches up from 770,000 to 9.2 million in just two days.
By press time, Bitcoin is trading above $9,400 — up over 16% on the week, following a 42% intra-day price hike on Oct. 26 — its swiftest spike since 2011.
In a historic appearance before a U.S. House committee, the Facebook CEO didn’t say too much new about Libra.
On Oct. 23, Mark Zuckerberg, founder and CEO of social media platform Facebook, appeared before the U.S. House Financial Services Committee to testify on the prospective global cryptocurrency Libra, which his company is backing. He ended up enduring almost six hours of mostly critical questioning, as some of the legislators used the occasion to raise their concerns about many problematic aspects of Zuckerberg’s social media empire, even those not directly related to the cryptocurrency’s operation.
Those who expected the hearings to shed light on many substantive questions regarding Libra’s design and regulatory status that remain unanswered were likely left disappointed. Some observers noted that Zuckerberg was overall successful in achieving his tactical goal, which was to take the beating with humility while getting his main talking points across and making sure to dodge controversial questions.
The exchange, however, did not result in much clarity with regard to Libra’s standing with regulators and its overall prospects. As Rep. Patrick McHenry summarized at the end of the hearing, “I’m not sure we’ve learned anything new here.”
Indeed, many things that were conspicuous throughout the hearing were already known: that Congress is deeply suspicious of Facebook’s cryptocurrency initiative in the light of the company’s record of high-profile controversies, that some legislators would prefer to break the company up rather than allow it to extend its power into the domain of finance, and that no one fully understands the potential effects of Libra’s launch on the global financial system.
If there was anything new in Zuckerberg’s testimony and responses, it was the selection of persuasive tools and the scope of concessions that he appeared willing to make.
Leveraging the Chinese threat
This was the first Libra hearing for the Facebook boss — previously, it was David Marcus, the head of the forthcoming crypto wallet Calibra, who was dispatched to be grilled on the Hill. As the project seemed to have hit a regulatory wall, Zuckerberg has apparently come to the conclusion that the matter requires his personal attention. The chair of the House Financial Services, Rep. Maxine Waters, welcomed Facebook’s CEO with a rather unequivocal statement in her opening remarks:
“As I have examined Facebook’s various problems, I have come to the conclusion that it would be beneficial for all if Facebook concentrates on addressing its many existing deficiencies and failures before proceeding any further on the Libra project.”
Many of Waters’s Democratic colleagues, who subsequently took the stage, appeared similarly hostile to Libra and Facebook more generally from the outset. They challenged Zuckerberg on a wide array of issues: personal data breaches, discriminatory ad targeting, lack of commitment to diversity, among many others. Rep. Brad Sherman of California invoked the classic “cryptocurrency for criminals” argument, saying: “You’re trying to help those for whom the dollar is not a good currency — drug dealers, terrorists.”
Anticipating that, Facebook’s CEO heavily emphasized the patriotic frame, seeking to win sympathies of those concerned with maintaining America’s global influence. He suggested that Libra is the kind of fintech innovation that the U.S. needs in order to stand up to the emerging threat of China’s digital yuan.
The problem with this argument is that it pits a state-backed digital currency against one relying on a network of corporate backers. Even to the most hawkish legislators, it may not sound convincing that in order to compete with the Chinese digital currency for global markets, the U.S. should put its faith in Libra, which some believe is itself a potential competitor to the dollar.
Naturally, this line of reasoning led to the question: Why not just create a digital version of the dollar? Zuckerberg responded that it would be less attractive to global consumers than a currency backed by a diverse basket of assets. Importantly, he also stated that he would be open to regulations mandating Libra to be majority-backed by the U.S. dollar.
Striving for full compliance
Another central theme that Zuckerberg dwelled on was drawing a solid line between Facebook and Libra to convince committee members that the two are distinct entities, and that Facebook will not have any more power over Libra than any other member of the association. He also doubled down on the reassurances that Facebook will not initiate the launch of the cryptocurrency unless it gets all the necessary approvals from U.S. regulators.
In illustrating this point, Zuckerberg went as far as to envision a scenario where other members of the Libra Association decide to proceed without securing U.S. authorities’ permission, in which case Facebook would have to pull from the project – something that sounds as realistic as, say, the United Kingdom leaving the Commonwealth.
At the same time, the testimony added nothing to the overall understanding of Zuckerberg’s views on what specific regulations should apply to Libra. His responses to specific questions regarding regulation and governance of the Libra Association conspicuously lacked detail, which didn’t help in winning representatives’ endorsements.
While some Republican committee members praised Zuckerberg’s entrepreneurial achievements and drive for innovation, not a single one voiced support for Libra during the hearing. Perhaps McHenry, the ranking member on the House Financial Services Committee, came the closest in calling for a measured approach to the initiative. Just ahead of the hearing, he expressed concern over the possibility that lawmakers may be stifling innovation that they do not fully understand:
“My fear is that we now have American innovation on trial by policymakers here in Washington because they don’t understand it. […] Because they’re a big company doing this type of innovation, you have American policymakers trying to pounce on them. This also sends a chilling signal to innovation in the United States.”
This sentiment echoes what some of the crypto industry stakeholders have to say on the matter. Patrick McLain, co-founder of San Francisco-based blockchain accelerator MouseBelt, thinks that the hearings are indicative of the legislators’ stance on cryptocurrencies at large and are not about Facebook or Libra:
“This is the government putting the very concept of cryptocurrency on trial. Today, lawmakers have drawn a line in the sand that says, ‘Cryptocurrency is unwelcome in the United States, and we will do everything in our power to stop it — including villainize some of the world’s best innovators.’ But cryptocurrency is a borderless and immutable movement that can’t be stopped. Libra may not survive, but something else will.”
While some of the issues that members of Congress take with the Libra project are legitimate, others belong to the realm of prejudices that have been refuted by respectable research, suggesting that McHenry might have a point. Tom Robinson, chief scientist and co-founder of blockchain forensics firm Elliptic, told Cointelegraph that the fears of Libra being used by criminals and terrorists are overblown, as it will not prove to be a useful tool for them:
“Libra transactions will be transparent and traceable. Law enforcement around the world have repeatedly demonstrated that cryptocurrencies are not safe havens for criminals, because they’re able to trace transactions and identify the individuals behind darknet markets, ransomware attacks and other bad actors. A shift toward crypto-assets would have the opposite effect that is being suggested by many politicians because AML technology is easier and more effective in tracing crypto transactions than fiat.”
What or who needs to change?
In sum, regulatory pushback against Libra is fueled both by Facebook’s trust problem and regulators’ lack of understanding of the project’s mechanics and potential effects. While Zuckerberg pledged to comply with all regulations that U.S. government deems necessary to give Libra the green light, he offered little in the way of a comprehensive vision of what such framework may look like.
Given the gravity of legislators’ concerns, appealing to the threat of Chinese digital currency competition is unlikely to sway a significant number of lawmakers. After Wednesday’s hearing, the odds of Libra ever seeing the light of day are still unclear, and the project will remain in regulatory limbo until the negotiating parties arrive at a more specific action plan.
Major crypto markets are forced to delist privacy coins as per FATF requirements, is it counterproductive or a step in the right direction?
As Japan and South Korea — two of the largest cryptocurrency exchange markets in Asia — are increasingly pressuring exchanges to delist privacy-focused crypto assets, and concerns are rising that it could lead to more markets, at least in Asia, to follow the trend of the two major countries.
Meanwhile, Blockchain analytics firms like CypherTrace appear to be developing technologies to better understand the structure of privacy-focused coins and to trace transactions initiated by cryptocurrencies. Speaking to Cointelegraph, a spokesperson for CypherTrace said that the company expects to see some progress by 2020 on privacy coins, stating, “We look forward to some results on privacy coins in 2020.”
But as things stand, analytics firms are still not close to finding a solution for tracing transactions processed by some privacy coins like Monero, which may make it more difficult for privacy coins to remain listed on strictly regulated exchanges that support fiat pairs.
The crypto exchange market in Asia and privacy coins
Japan and South Korea have essentially imposed a blanket ban on privacy-focused cryptocurrencies like Monero (XMR), Zcash (ZEC) and Dash (DASH), which, officers at the Japanese Financial Services Agency like to describe as the “three anonymous siblings.”
Throughout the past year, the G-7, an organization consisting of the seven largest economies, and the Financial Action Task Force (FATF), which operates under the G-7, have shown efforts to unify basic regulatory frameworks surrounding cryptocurrencies.
With the push of Japan, both the G-7 and the FATF and have pressured major markets to take action against privacy coins, leading large exchanges like UPbit and OKEx to delist Monero, Dash, Zcash and several other cryptocurrencies. On Sept. 10, OKEx Korea said in an official statement translated by Cointelegraph:
“According to the statement corresponding to FATF R.16, […] We have decided to take measures to end trading support for stocks classified as privacy-oriented cryptocurrencies, aka dark coins.”
As reported by Cointelegraph, UPbit, the largest cryptocurrency exchange in South Korea by volume, also delisted privacy coins due to money laundering concerns. UPbit said in a statement, “The decision to end trading support for the crypto-asset was also made to block the possibility of money laundering and inflow from external networks.”
Cryptocurrency exchanges in Japan and South Korea planned to support the stance of their respective governments to prohibit the trading of privacy coins prior to the meetings held by the FATF. However, the FATF released a document following its second plenary meeting entitled, “Outcomes FATF Plenary, 20–22 February 2019,” explicitly stating that entities described as virtual asset service providers will have to comply to the revisioned requirements of the FATF Standards.
Others to follow G-7 and FATF guidelines?
The revised requirements for virtual asset service providers could make it mandatory for all regulated exchanges located in G-7 countries to discard support for privacy coins, creating a more difficult environment to trade the digital assets.
Regulated exchanges in the United States like Coinbase and Gemini have not supported privacy coins since their inception, with the exception of Zcash in the case of Gemini. It remains unclear whether Zcash can be considered a privacy coin, as it provides users the option of processing transactions that are not private.
To process private transactions of Zcash, shielded transactions have to be initiated, and on most exchanges and wallets, shielded Zcash transactions are not processed. Due to the ability of Zcash to comply with local regulations, Gemini has supported Zcash since May 2018, and management at the Electric Coin Company has said on several occasions that ECC is working with OKEx and other South Korean exchanges to list Zcash.
Is there a solution?
For privacy coins that purely focus on being private, like Monero for instance, it may not be possible for blockchain analytics firms to establish an efficient method of tracing transactions. As a CypherTrace spokesperson told Cointelegraph:
“Monero in particular has a very privacy focused technology including ring signatures and mixing. Most coins have a much more transparent blockchain and are not actively trying to prevent analysis.”
Hence, for Monero and a select few other privacy coins, at least in the foreseeable future, regulated cryptocurrency exchanges that either don’t support privacy coins or have already delisted privacy coins are highly unlikely to list them again.
The Federal Ministry of Finance of Germany, which is a member of the G-7, released a report at the end of October entitled, “First National Risk Analysis 2018/2019,” stating that the growing usage of Monero on the darknet makes it more dangerous than Bitcoin. The report says:
“Due to the increasing popularity of Monero on the Darknet, it can be foreseen that this crypto asset, especially, will gain more practical relevance in the future in the area of securing and exploitation.”
It did not single out Monero, adding that other privacy coins like Zcash can also be used to launder money. The growing pressure from G-7 countries for exchanges to deal with privacy coins will further push the FATF to apply guidelines and standards to prevent money laundering, making it harder for exchanges to support privacy coins.
Zcash has the best chance, but does it count?
Given its selective privacy option that allows users or service providers like exchanges to choose whether to implement private transactions or not, combined with the support from a top U.S. cryptocurrency exchange in Gemini, Zcash seemingly has the best chance of being listed by exchanges operating in G-7 countries.
Gemini is able to process Zcash transactions with the approval from the New York Department of Financial Services likely because it only supports withdrawals for non-shielded transactions.
Like how Gemini supports Zcash, the FATF may likely require exchanges to be able to monitor and trace transactions as needed before privacy coins can be listed on major exchanges. Without such solutions, maintaining compliance with the FATF’s requirements could prove too challenging, particularly since they became stricter following the organization’s second plenary meeting in February 2019.
Would the delisting of Monero hurt chances of tracing?
Earlier this year, in February 2019, Kimberly Grauer at the crypto analytics form Chainalysis said that Monero is a top priority for the firm, and tweeted, “We can easily track the funds in and out of a DNM [darknet market]. If you ever want to convert your crypto into fiat, you’ll have to go through an exchange, which will force you to KYC, so there’s still hope.”
However, if Monero is delisted from exchanges and trades begin to be processed in a peer-to-peer manner, it will become almost impossible for blockchain analytics firms to find the identity behind the Monero transactions. Therefore, delisting of Monero from exchanges could hurt the chances of analytics firms tracing funds involved in criminal activities.
