virtual currency Archives - The Industry Spread

CFTC Explains Smart Contracts

November 29, 2018 by Michael Volpe Leave a Comment Filed Under: Feature Articles Tagged: CFTC, Commodities Futures Trading Commission, Daniel Gorfine, digital signatures, LabCFTC, payment transactions, smart contracts, virtual currency

The digital world is getting even more digital and the Commodities Futures Trading Commission (CFTC) is staying up.

The CFTC released a white paper entitled: “Primer Smart Contracts”.

“Smart contracts are being used to drive further automation in our markets and may have an impact across a range of economic activities,” said LabCFTC Director Daniel Gorfine. “This primer is focused on explaining smart contracts, exploring how they may impact our markets and highlighting potentially novel risks and challenges.”

What is a smart contract?

A smart contract is, “a computer protocol intended to digitally facilitate, verify, or enforce the negotiation or performance of a contract.” According to its Wikipedia page.

A smart contract, the paper notes, “Allows self-executing computer code to take actions at specified times and/or based on reference to the occurrence or non-occurrence of an action or event (e.g., delivery of an asset, weather conditions, or change in a reference rate).”

These sorts of contracts are especially popular in virtual currency transactions.

The paper further notes, “Smart contracts use digital signatures – private cryptographic keys held by each party to verify participation and assent to agreed terms.” Continuing, “Smart contracts use oracles – a mutually agreed upon, network authenticated reference data provider (potentially a third-party); this is a source of information to determine actions and/or contractual outcomes, for example, commodity prices, weather data, interest rates, or an event occurrence.”

Smart contracts are executed, including payment transactions, electronically without the need for humans to act through the process.

“A smart contract is a set of promises, specified in digital form, including protocols within which the parties perform on the other promises.” Said computer scientist Nick Szabo in 1996. The basic idea of smart contracts is that many kinds of contractual clauses (such as liens, bonding, delineation of property rights, etc.) can be embedded in the hardware and software we deal with, in such a way as to make breach of contract expensive (if desired, sometimes prohibitively so) for the breacher.”

The potential benefits, the paper noted, include everything from faster speed to security.

CFTC

The CFTC and Smart Contracts

The paper noted that smart contracts can be used in everything from vending machines, crypto, and even credit default swaps, the latter two being regulated by the CFTC.

Smart contracts can “Streamline trading of products subject to oversight by the CFTC (e.g., options, futures, and swaps) and enhance efficiency from pre-trade through post-trade (e.g., price discovery, execution, clearing, and settlement).” The paper noted further.

While smart contracts have the potential of making transactions go faster, they also have the potential of making transactions less transparent and to “Unlawfully circumvent rules and protections.”

It is there where the CFTC plays a role.

For instance, the paper noted, “Smart contracts may be manipulated by insiders who may have ‘backdoors’ or ‘kill switches’ to the code or a deeper understanding of how the smart contract will react to particular events or inputs.”

“As with other areas of innovation, while there are many potential benefits, it is also critical to understand and mitigate risks and challenges; the primer accordingly works through a range of operational, technical, cybersecurity, fraud and manipulation, and governance risks and challenges.” The CFTC said in a statement.

The primer was released by LabCFTC, created in 2017 and CFTC’s fintech initiative.

Crypto Exchange Huobi Obtains DLT License from Gibraltar Regulator

November 28, 2018 by Ricardo Esteves Leave a Comment Filed Under: Industry News Tagged: Crypto Exchange, Cryptocurrency exchange, financial watchdog, GFSC, Gibraltar Blockchain Exchange, Hong Kong exchange, Huobi, Huobi Obtains DLT License, Leon Li, virtual currency

Albert Isola MP

Following the approval of a DLT license for Gibraltar Blockchain Exchange, the Singapore-based digital currency exchange Huobi has been granted the same authorization by the Gibraltar Financial Services Commission (GFSC).

Huobi, one of the largest virtual currency operators in the world, has obtained a full Distributed Ledger Technology (DLT) license by the financial watchdog in Gibraltar, a British Overseas Territory and headland on Spain’s south coast.

Huobi was founded in China but was forced to spread its wings to more crypto friendly jurisdictions. The company now has offices in Japan, South Korea, Hong Kong, United States, and Gibraltar. The operator is publicly listed in the Hong Kong exchange (HKEX) since August 2018 after a reverse takeover which had Huobi acquiring a 74% stake in electronics manufacturer Pantronics Holdings.

The firm founded by Leon Li processed around $1 billion in trades daily as of March 2018, Huobi reported. The full DLT license awarded to Huobi will help the cryptocurrency exchange expand its business in the European Union and set up operations in such fiscally friendly jurisdiction.

The Hon Albert Isola MP, Gibraltar’s Minister for Commerce, said:

“This announcement is yet another example of the effective road to market Gibraltar is providing for companies seeking continued innovation under the umbrella of sensible and secure regulation. The robust DLT legislation we have introduced gives quality companies like Huobi a supportive framework on which they can further develop and cultivate sustainable legacies.”

The Gibraltar Blockchain Exchange (GBX) has recently obtained the same DLT license from the Gibraltar regulator. The granting of the license means that the Gibraltar Stock Exchange (GSX) has become the first stock exchange to own a regulated blockchain exchange, GBX, which is an institutional-grade token sale platform and Digital Asset Exchange.

Gibraltar’s DLT legislation was introduced in January 2018 and defines the regulatory framework for businesses using blockchain. After completing the application process, Huobi and GBX can now store and transmit value belonging to others using distributed ledger technology. Both cryptocurrency exchanges can now engage with regulators and benefit from the flexible framework that allows room for guidelines to evolve in tandem with the blockchain sector.

Hacking a Trillion Dollar Business

November 26, 2018 by Michael Volpe Leave a Comment Filed Under: Feature Articles Tagged: Andre McGregor, cyber security, Hacking, phishing, TLDR Capital, token economy, virtual currency

Andrew Busch, Chief Market Intelligence Officer for the CFTC

Hacking is a trillion-dollar business.

Andre McGregor is the head of security for TLDR Capital, a global advisory firm specializing in the token economy and he was the latest guest on the podcast of Andrew Busch, the Commodities Futures Trading Commission (CFTC) Chief of Market Intelligence.

Prior to working at TLDR, McGregor spent time working for the Federal Bureau of Investigation (FBI) protecting the US from hackers primarily in China.

Quoting a friend from cyber-security, Busch said, “hacking generates about a trillion and a half dollars per year.”

Busch continued that hacking is another form of research and development, meaning that hackers steal other company’s ideas.

McGregor said that people hack for the same reason why the notorious bank robber, Willie Sutton, robbed banks, “because that’s where the money is.”

“There’s easy money to be stolen until we educate people on this space.” McGregor said.

McGregor further explained that hacking- for criminals- is easier, less costly, and less dangerous, which is why many choose hacking over the sort of robbery Sutton was known for.

Specifically, in virtual currency, hacking is a near every day experience, Busch said.

“In the crypto- these (hacks) are just always in the headlines. That is one of the most consistent things in the space, that someone is being hacked.” Busch said.

“It’s kind of slowed down a lit bit of what’s been in the news which is a good thing; or it’s also possible that people just aren’t reporting it anymore.” McGregor responded.

McGregor was a presenter at the recent CFTC conference on fintech and Busch recounted a startling pronouncement he made there.

“If your password is less than seven characters, you’ve already been hacked,” Busch quoted McGregor from the conference.

McGregor said that hackers favorite place to hack is people’s emails: “I’m sure every businessman that’s listening has been told that spear phishing, phishing, emails with malicious links and attachments end up being compromised is still one hundred percent true,” McGregor said, “Over ninety percent of attacks still come from emails, why, because it’s a system that is open and available.”

Hacking, McGregor said, is easy in a frightening way.

“I would say the most poignant moment of me being a cyber special agent was the moment that I took an offensive hacking course. It’s white hat hacking and it was a bunch of agents that took it.”

He described learning how to control other people’s computers, “Once I started doing that, I realized ‘oh way’ this is as easy as turning on the computer and writing an email.”

With hackers everywhere, McGregor’s company helps other companies- especially those which deal with crypto- protect themselves against hacks: “Our team of security experts works with individuals and organizations to establish and develop good physical security practices, in addition to the necessary cyber security protocols required to safeguard their assets. Security is already at the forefront of all TLDR’s efforts, and with the continued growth and development of the blockchain space and increase in crypto activity, TLDR has seen the need to expand its security division’s offering.”

Federal Court Orders Trading Firm and CEO to Pay More than $2.5 Million for Fraudulent Bitcoin Ponzi Scheme

October 22, 2018 by industryspread Leave a Comment Filed Under: Regulatory Annoucements Tagged: Blockchain, Cryptocurrencies, digital asset, Federal Court, Fraudulent Bitcoin, Fraudulent Bitcoin Ponzi Scheme, Ponzi scheme, Trading Firm, virtual currency

Washington, DC – A New York federal court has ordered New York corporation Gelfman Blueprint, Inc. (GBI) and its Chief Executive Officer Nicholas Gelfman of Brooklyn, New York, to pay in total over $2.5 million in civil monetary penalties and restitution in what was the first anti-fraud enforcement action involving Bitcoin filed by the Commodity Futures Trading Commission (CFTC) (see CFTC Complaint and Press Release 7614-17).

CFTC Director of Enforcement Comments
James McDonald, the CFTC’s Director of Enforcement, commented: “This case marks yet another victory for the Commission in the virtual currency enforcement arena. As this string of cases shows, the CFTC is determined to identify bad actors in these virtual currency markets and hold them accountable.I’m grateful to the members of Enforcement’s Virtual Currency Task Force for their tireless work on these matters.”

Together, the Order for Final Judgment by Default (Default Order), and the Consent Order for Final Judgment (Consent Order) (collectively, the Orders), entered respectively on October 2, 2018 and October 16, 2018, by Judge P. Kevin Castel of the U.S. District Court for the Southern District of New York, resolve the charges of the CFTC Complaint against GBI and Gelfman filed on September 21, 2017.

The Orders find that from approximately 2014 through approximately January 2016, Defendants Gelfman and GBI, by and through its officers and agents and employees, operated a Bitcoin Ponzi scheme in which they fraudulently solicited more than $600,000 from at least 80 customers. As stated in the Orders, the customers’ funds supposedly were for placement in a pooled commodity fund that purportedly employed a high-frequency, algorithmic trading strategy executed by Defendants’ computer trading program called “Jigsaw.” In fact, as the Orders indicate, the strategy was fake, the purported performance reports were false, and—as in all Ponzi schemes—payouts of supposed profits to GBI Customers in actuality consisted of other customers’ misappropriated funds. Also, the Consent Order finds that Gelfman was liable as a controlling person for GBI’s violations, and the Default Order finds that GBI was liable as a principal for the violations of Gelfman and its other officers, agents, and employees.

The Orders find that, to conceal Defendants’ trading losses and misappropriation, Defendants made and provided false performance reports to pool participants, including statements that created the appearance of positive Bitcoin trading gains, when in truth Defendants’ Jigsaw trading account records reveal only infrequent and unprofitable trading. The Orders also find that Gelfman, in order to conceal the scheme’s trading losses and misappropriation, staged a fake computer “hack” that supposedly caused the loss of nearly all customer funds.

In addition to requiring GBI and Gelfman, respectively, to pay $554,734.48 and $492,064.53 in restitution to customers and $1,854,000 and $177,501 in civil monetary penalties, the Orders impose permanent trading and registration bans on GBI and Gelfman and permanently enjoin them from further violations of the Commodity Exchange Act and CFTC Regulations, as charged.

The CFTC cautions that orders requiring repayment of funds to victims may not result in the recovery of any money lost because the wrongdoers may not have sufficient funds or assets. The CFTC will continue to fight vigorously for the protection of customers and to ensure the wrongdoers are held accountable.

The CFTC appreciates the cooperation and assistance of the New York County District Attorney’s Office and the Finland Financial Supervision Authority.

This case was brought in connection with the Division of Enforcement’s Virtual Currency Task Force, and the CFTC Division of Enforcement staff members responsible for this case are Gates S. Hurand, Christopher Giglio, K. Brent Tomer, Lenel Hickson, Jr., and Manal M. Sultan.

2nd Judge Rules Virtual Currency a Commodity

October 4, 2018 by Michael Volpe Leave a Comment Filed Under: Feature Articles Tagged: CFTC, Commodity Exchange Act, futures trading, Jack Weinstein, Rya W. Zobel, virtual currency, Virtual Currency a Commodity

A second federal judge has ruled that virtual currencies are commodities.

“On September 26, 2018, Senior Judge Rya W. Zobel of the U.S. District Court for the District of Massachusetts, entered an order holding that the Commodity Futures Trading Commission (CFTC) has the power to prosecute fraud involving virtual currency and denying the defendants’ motion to dismiss the CFTC’s amended complaint.” The Commodities Futures Trading Commission announced in a statement.

James McDonald, CFTC Director of Enforcement, commenting on the ruling, stated: “This is an important ruling that confirms the authority of the CFTC to investigate and combat fraud in the virtual currency markets. This ruling, like the one in McDonnell from Judge Weinstein in the Eastern District of New York, recognizes the broad definition of commodity under the CEA, and also that the CFTC has the power to prosecute fraud with respect to commodities including virtual currencies. We will continue to police these markets in close coordination with our sister agencies.”

This ruling concurs with another ruling but Federal Judge Jack Weinstein, who stated in a decision in March, “The primary issue raised at the outset of this litigation is whether CFTC has standing to sue defendants on the theory that they have violated the CEA (Commodity Exchange Act). Title 7 U.S.C. § 1. Presented are two questions that determine the plaintiff’s standing: (1) whether virtual currency may be regulated by the CFTC as a commodity; and (2) whether the amendments to the CEA under the Dodd-Frank Act permit the CFTC to exercise its jurisdiction over fraud that does not directly involve the sale of futures or derivative contracts.

“Both questions are answered in the affirmative. A ‘commodity’ encompasses virtual currency both in economic function and in the language of the statute. Title 7 U.S.C. § 1(a)(9)

“(The CEA defines ‘commodity’ as agricultural products and ‘all other goods and articles . . . and all services, rights, and interests . . . in which contracts for future delivery are presently or in the future dealt in.’).”

At the time of Judge Weinstein’s ruling, the CFTC had deemed virtual currencies commodities and began regulating them by fiat.

That position was not challenged until that case made it to Judge Weinstein’s court.

Judge Weinstein issued a decision in the case Commodities Futures Trading Commission (CFTC) Vs. PATRICK K. MCDONNELL, and CABBAGETECH, CORP. d/b/a COIN DROP MARKETS.

In this case, it was the COMMODITY FUTURES TRADING COMMISSION v. MY BIG COIN PAY, INC. et al.

Federal Judge Jack Weinstein

A different case, but the ruling is the same with the court in this case stating, “The text of the statute supports plaintiff’s argument. The Act defines ‘commodity’ generally and categorically, ‘not by type, grade, quality, brand, producer, manufacturer, or form.’ Docket # 70 at 11. For example, the Act classifies ‘livestock’ as a commodity without enumerating which particular species are the subject of futures trading. Thus, as plaintiff urges, Congress’ approach to defining “commodity” signals an intent that courts focus on categories—not specific items—when determining whether the “dealt in” requirement is met.”

With two courts having ruled that virtual currencies are commodities, this helps to clarify that CFTC will be the main regulator of virtual currencies, as commodities are under its purview.

But the issue is not final. As Judge Weinstein noted, Congress can still weigh in and the only court in the US which has the final word is the US Supreme Court.

That court has yet to weigh in and with an issue as popular and controversial as virtual currency it is likely that sooner or later the Supreme Court will look at this as well, but for now, two courts have now deemed virtual currencies commodities and with it they give CFTC power to regulate.

Virtual Currency SRO Takes Another Step Forward

August 21, 2018 by Michael Volpe Leave a Comment Filed Under: Feature Articles Tagged: Bitflyer, Bitstamp, Bittrex, Brian Quintenz, CFTC, Commodities Futures Trading Commission, crypto market, Gemini, regulatory body, self-regulatory organization, trading industry, VCA, virtual commodity, Virtual Commodity Association, virtual currency, Virtual Currency SRO, Winklevoss

A self-regulatory organization to regulate virtual currency took another step forward.

The Virtual Commodity Association (VCA) announced it was forming a working group.

The VCA is the brainchild of the Winklevoss twins, who initially rose to fame as the foils to Mark Zuckerberg in the movie The Social Network.

They have increasingly invested in virtual currency more recently.

In March, they announced their idea for a virtual currency wide self-regulatory organization.

On Monday August 20, 2018, VCA announced the formation of a working group to “work toward the goal of establishing an industry sponsored, self-regulatory organization to oversee virtual commodity marketplaces.”

The VCA has brought industry heavyweights together: Bitflyer, Bitstamp, Bittrex, and Gemini are all part of the working group.

Brian Quintenz

The announcement was quickly met with approval from at least one commissioner on the Commodities Futures Trading Commission (CFTC), Brian Quintenz.

“Given the absence of federal oversight jurisdiction in the crypto market, in February and again in March of this year I called on the crypto platform community to come together and develop a self-regulatory organization-like entity that could develop and enforce rules.” Quintenz stated. “I am pleased that progress has been made on such a concept. Ultimately, an independent and empowered SRO-like entity could have a meaningful impact on the integrity and credibility of this young marketplace. Today’s announcement is a positive step towards that realization.”

A self-regulatory organization (SRO) is created privately and functions as a regulatory body over an industry.

Other examples of SROs including: the American Bar Association, the American Medical Association, and FINRA, in the trading industry.

FINRA provides licenses to broker/dealers; it’s not clear if the VCA will also have a licensure function.

According to the announcement the VCA will work to create sound practices in eight categories: virtual currency custody, customer communication, surveillance, transparency, rules-based markets, cyber-security, information sharing, and cooperation with other regulators.

“The VCA will be governed by a Board of Directors and capitalized by members. The Board structure (including a required number of independent directors) will be established soon. The primary function of the Board will be to facilitate the goals and mission of the VCA, potentially including the issuance of reports regarding the standards set forth by the VCA.” Their site noted.

Narrative Economics and Virtual Currency

August 4, 2018 by Michael Volpe Leave a Comment Filed Under: Feature Articles Tagged: Andrew Busch, Bitcoin, economics, Great Depression, Great Recession, Interest Rates, market events, Narrative Economics, Robert Schiller, virtual currency

Robert Schiller

Narratives drive markets and that had an impact on virtual currencies.

Robert Schiller is a Nobel Peace Prizing winning economist and he was the latest guest on CFTC Talks with CFTC Chief Market Intelligence Officer Andrew Busch.

Busch and Schiller discussed how narratives drove all sorts of economic and market events.

For instance, Schiller noted that many people believe that the real estate boom was created by falling interest rates, but that interest rates had been falling for two decades before the real estate boom.

In Schiller’s research, he found that a narrative had formed that flipping homes- buying a home fixing it up and selling it quickly- had formed as an intriguing way to make money.

Schiller said that during the Great Depression many news articles blamed the proliferation of technology as taking jobs, a narrative, Busch noted, which is still used today to explain periods of high unemployment.

Schiller is working on a book based on his 2017 paper entitled “Narrative Economics.”

“The human brain has always been highly tuned towards narratives, whether factual or not, to justify ongoing actions, even such basic actions as spending and investing. Stories motivate and connect activities to deeply felt values and needs. Narratives “go viral” and spread far, even worldwide, with economic impact. The 1920-21 Depression, the Great Depression of the 1930s, the so-called “Great Recession” of 2007-9 and the contentious political economic situation of today, are considered as the results of the popular narratives of their respective times.” Schiller said in his paper.

Schiller said he intends to include a virtual currency chapter in this book.

“Bitcoin was an invention of computer scientists that was kind of hard to understand.” Schiller said. “It got so far with it that the total value of Bitcoin reached $300 billion.”

He said that much of this growth was driven by the narrative that Bitcoin was an intriguing or even exotic idea.

Bitcoin was initially dreamed up by the pseudonym Satoshi Nakamoto. This led to the website bitcoin.org and Nakamoto, whose true identity Schiller remains skeptical of, then began emailing his idea out “Satoshi Nakamoto was emailing people this out,” Schiller said, “The people there (who received the email) they never met Satoshi Nakamoto. Where is he. There are people claiming to be Satoshi Nakamoto. That’s a great story.”

Schiller compared this to how the Mona Lisa became the phenomenon it is today. Schiller said the reputation of the Mona Lisa increased exponentially after it was stolen from the L’Oeuvre in 1910.

Once the painting became stolen that made the story behind the painting far more intriguing and its reputation was formed.

Despite the great story behind it, Schiller is skeptical of virtual currency playing a major role in economics: “whether it’s our future, I’m very doubtful.”

Coinbase Acquires Decentralized Exchange Paradex, Shuts Down GDAX

May 25, 2018 by Ricardo Esteves Leave a Comment Filed Under: Industry News Tagged: Coinbase, Coinbase Pro, crypto trader, Cryptocurrency exchange, digital wallets, Ethereum, GDAX, Graylock Partners, Paradex, peer-to-peer, tokens, traders, virtual currency, wallet-to-wallet

Coinbase, the largest cryptocurrency exchange in the U.S., has announced the acquisition of Paradex, a decentralized platform for virtual currency trading based in San Francisco.

This is the sixth acquisition for Coinbase till today and will be the third after the appointment of LinkedIn’s merger’s and acquisition head, Emilie Choi.

Coinbase is acquiring Paradex, a startup that is based on Ethereum, after having raised over $225 million from Graylock Partners and other investors. Paradex is developed by a Malta-based startup and has launched its beta version in January 2018, a so-called relayer built on top of 0x platform. Users of Paradex platform maintains full control of their tokens during the trading process until the trades are validated and finalized. Paradex’s CEO is Ron Bernstein, a financial industry veteran and has over two decades of experience in commodity futures market.

The financial terms of the deal were not disclosed. The move is part of the Coinbase rebrand from GDAX to Coinbase Pro. The buyer company, which connects more than 20 million traders, will launch Paradex’s new batch of services to customers outside of the United States. The service will be offered in the U.S. as soon as it implements changes for compliance purposes.

According to Coinbase CEO, Asiff Hirji who spoke to CNBC said:

“The company sees Paradex as a “bulletin board” and not an exchange, which should make it an acceptable addition to Coinbase’s portfolio in the eyes of the regulators.”

“But make no mistake, Paradex will effectively allow Coinbase users to trade in hundreds of new cryptocurrencies, which is a huge step for the company. We’ll have to wait until launch to see how exactly Coinbase will integrate Paradex’s current product into its service. “

He added: “Paradex will be integrated into Coinbase Pro, which is a rebrand of GDAX, the company’s trading platform aimed at advanced users. But there’s a caveat: It will initially only be available to international accounts and not U.S. users. The company plans to start offering the product to U.S. users “as soon as we can.”

Brian Armstrong, Chief Executive Officer and Founder of Coinbase

Paradex, which has 10 employees, allows traders to exchange virtual currency directly with each other through digital wallets in a peer-to-peer dynamic instead of depending on a centralized platform that holds custody of the tokens on behalf of its customers.

Brian Armstrong, Chief Executive Officer and Founder of Coinbase, commented:

“The move not only reinforces Coinbase’s commitment to investing in decentralized infrastructure and participating in the nascent world of wallet-to-wallet trading, but also our focus on the international crypto trader. After making some product enhancements, we’ll initially offer this experience to customers outside the U.S., and eventually to U.S.-customers.”

Ron Bernstein, Chief Executive Officer of Paradex.

“One year ago this month, we set out to build the best decentralized relayer that empowers users with self-custodianship. A year later, we’re not only extremely proud of what we’ve achieved, but intensely optimistic about where our space is headed and the explosion of opportunity growing each and every day”, said Ron Bernstein, Chief Executive Officer of Paradex.

“In our next steps together, we’ll continue to build out the existing Paradex roadmap and continue to explore the world of decentralization and the amazing opportunities at hand”, he continued.

“Our team couldn’t be more proud of the work we’ve accomplished over the past year, and we couldn’t be more excited about this new chapter under the Coinbase umbrella”, Bernstein added.

Coinbase in temporarily halting services of the Paradex app in order to integrate the whole system with its system. Coinbase has over 20 million customers’ accounts and $20 billion worth of cryptoasset. For Coinbase, the acquisition makes sense because of increased regulatory pressure from SEC which they will able to circumvent to an extent.

Coinbase has launched Coinbase Pro and will have GDAX, its original trading platform for professional investors, operating in tandem until June 29, after which “all customers will be seamlessly rolled over” to the new platform.

Paradex issued a statement on its acquisition:

“It was clear from our first conversations with Coinbase that the excitement and optimism was mutual. Like Coinbase, we believe wholeheartedly in the power of an open financial system; it’s paramount to what we’re working towards at Paradex. In our next steps together, we’ll continue to build out the existing Paradex roadmap and continue to explore the world of decentralization and the amazing opportunities at hand.”

New York Approves Trading of Anonymous Cryptocurrency Zcash

May 17, 2018 by Ricardo Esteves Leave a Comment Filed Under: Industry News Tagged: Bitcoin, Blockchain, Cryptocurrencies, cryptocurrency, Gemini Trust Company, Litecoin, regulated, trading, virtual currency, Winklevoss twins, Zcash

Department of Financial Services Superintendent Maria T. Vullo

Gemini Trust Company, the first virtual currency exchange to be regulated in the New York State, was authorized by the NY State Department of Financial Services to offer the custody services and trading of Zcash, Litecoin and Bitcoin Cash.

Financial Services Superintendent Maria T. Vullo made the official announcement that gives the Winklevoss twins’ exchange permission to deal emerging cryptocurrencies on its trading platform based in New York City.

Department of Financial Services Superintendent Maria T. Vullo, commented:

“This action continues New York’s longstanding commitment to innovation and leadership in the global marketplace. With smart and thorough regulatory oversight, the development and long-term growth of the industry will remain thriving.”

Tyler Winklevoss, Chief Executive Officer, Gemini Trust Company, LCC said,

“We are proud be the first licensed exchange in the world to offer Zcash trading and custody services and look forward to providing customers with a safe, secure, and regulated place to buy, sell, and store Zcash, an incredible new form of digital cash.”

The Zcash network is known for its anonymity features, making it a favorite for tax avoidance and criminal ventures such as drug and weapons trading, alongside Monero.

The Zcash network supports two kinds of transactions, transparent and shielded.

Similarly to Bitcoin, the transparent transactions supported by the Zcash network provide a publicly visible balance on the blockchain as well as the amounts of the transaction. These transactions are no concern for the financial watchdogs and law enforcement.

Shielded transactions, however, utilize z-addresses and are entirely private. These transfers do not appear on the public blockchain. Shielded transaction have become a headache for the authorities worldwide.

Tyler Winklevoss, Chief Executive Officer, Gemini Trust Company

Gemini, as a limited purpose trust company chartered under New York State Banking Law, can launch Zcash trading immediately, subject to ongoing supervision by the state. Gemini has also been approved for potential future offerings of Litecoin and Bitcoin Cash.

The trust charted issued in October 2015 to Gemini by the Department of Financial Services allows the exchange to operate a virtual currency exchange through which Gemini customers may purchase and sell virtual currency for U.S. Dollars and U.S. Dollars for virtual currency.

After a nearly two-year inquiry into the appropriate regulatory guidelines, the Department published its final virtual currency rules in June 2015. Cryptocurrency license applicants face rigorous scrutiny over its anti-money laundering, capitalization, consumer protection and cybersecurity standards.

CFTC Chair Downplays Virtual Currency Significance

March 8, 2018 by Michael Volpe Leave a Comment Filed Under: Feature Articles Tagged: Bitcoin, bitcoin futures, CFTC, Christopher Giancarlo, Cryptocurrencies, financial enforcement, regulation for virtual currency, regulatory agency, virtual currency

CFTC chairman Christopher Giancarlo

The hype behind virtual currency far outweighs its impact.

That was the surprising and blunt message from Christopher Giancarlo, the Chairman of the Commodities Futures Trading Commission.

“The amount of press coverage on this whole issue of virtual currency far outweigh the impact of the entire marketplace on the US and the global economy.”

It’s the latest in a series of provocative statements made by Giancarlo about virtual currency. At a previous hearing, he suggested that he considered most- there are now over one thousand different virtual currencies- virtual currencies a scam.

He’d also previously noted that there is a gender gap in virtual currencies- pointing out that his three college age children were all excited about virtual currencies in ways they weren’t excited about other investments, hinting that his generation may be missing something younger people are seeing.

Giancarlo on the Hill

Giancarlo made this statement downplaying the significance of virtual currency in an appearance in front of a committee the CFTC rarely visits, the House Appropriations Committee.

That’s because Giancarlo was testifying as part of the budget process and in support of a budget request for the CFTC of $281.5 million for fiscal year 2019, which starts in October 2018.

Giancarlo testified in front of the Agriculture, Rural Development, Food and Drug Administration, and Related Agencies sub-committee of the House Appropriations Committee in a hearing on March 7, 2018.

As has been previously noted in The Industry Spread, the power of the purse strings in the US lies solely with Congress, but the President submits a budget which is then debated by Congress and then often augmented.

Giancarlo was testifying as part of that process, noting of the budget request: “Working with our leadership team, we built this budget up from zero; every dollar we seek properly serves the agency’s mission to foster open, transparent and competitive and financially sound markets, free from fraud and manipulation, while respecting the American taxpayer through careful management of our resources.”

The CFTC and Virtual Currency

While the hearing was ostensibly about the CFTC’s budget, it was not surprising given the media attention its received, that the first question related to virtual currency.

Republican Congressman Robert Aderholt from the State of Alabama is the chairman of this sub-committee and he asked: “The advent of new futures approved just last year for bitcoin and other crypto-currencies seemed to have taken up the headlines recently. We read stories of people mortgaging their homes to invest in the market and those that have thrown away their bitcoin keys wanting to go through the city dumps and try to recover them in some way. Millionaires were made and lost overnight. You briefly mentioned the steps you’re taking to regulate the market in your written statement. Can you go about further in detail as to what role your agency plays in the regulation of this market and what other role agencies have?”

Though he downplayed the role of virtual currencies in the marketplace, this does not mean that Giancarlo has sat back in regulating them.

He outlined five steps the CFTC is taking in his answer to Aderholt.

Assert its legal authority where appropriate
Increase staff competency
Robust consumer education effort
Aggressive enforcement against fraud and manipulation
Inter-regulatory agency cooperation

He also noted that regulation for virtual currency is complex.

“The CFTC’s authority is to regulate derivative markets, comprehensively.” Giancarlo stated. “When it comes to underlying spot markets- whether those are markets for commodities, whether they are markets for precious metals- we do not have regulatory authority. What we do have is fraud and manipulation authority, the ability to bring enforcement actions for fraud and manipulation at underlying markets. That’s been the case in our history at the CFTC and that’s is now how we approach virtual currencies. So, in the case of the two launched bitcoin futures at the CME and CBOE, we have comprehensive regulatory oversight. In the case of the underlying cash markets- well they’re not really cash markets because they’re traded in bitcoin, what we call spot markets in bitcoin- our authority is limited to enforcement of fraud and manipulation.”

As Congressman Aderholt noted, Giancarlo also detailed the agency’s regulatory plans for virtual currency in his written statement, and here’s part of that.

“In FY 2018, the exchanges self-certified several new contracts for futures products for virtual currencies. These innovations impact the regulatory landscape and with this budget request, the Commission will invest more in new technologies and tools that support important surveillance and enforcement efforts.

“Under the CEA (Commodity Exchange Act) and Commission regulations and related guidance, exchanges have the responsibility to ensure that their Bitcoin futures products and their cash-settlement process are not readily susceptible to manipulation, and DCOs have the responsibility of risk management to ensure that the products are sufficiently margined. The CFTC has the authority to ensure compliance with both. In addition, the CFTC has legal authority over virtual currency derivatives in support of anti-fraud and manipulation including enforcement authority in the underlying markets.

“The CFTC has been in close communication with the SEC with respect to policy and jurisdictional considerations, and in connection with our recent enforcement cases. We have also been working with the U.S. Treasury and the FSOC. In addition, we have been in communication with our foreign counterparts through bilateral discussions and the International Organization of Securities Commissions.

“In the past several weeks the CFTC has filed a series of civil enforcement actions against perpetrators of fraud and market abuse involving virtual currency. These actions and others to follow confirm that the CFTC, working closely with the Security and Exchange Commission (SEC) and other fellow financial enforcement agencies, will aggressively prosecute those who engage in fraud and manipulation of US markets for virtual currency.”