CoinIRA Blog

During her last press conference as head of the US Federal Reserve System, Janet Yellen indicated she and her colleagues are cautiously eyeballing Bitcoin, the volatile cryptocurrency that’s been capturing headlines globally over the last couple of weeks. And while she acknowledged some other central banks might be considering adopting a cryptocurrency, the Fed is unlikely to follow suit. “There is a discussion going on among central bankers about the potential merits of … adopting a digital [cryptocurrency] currency. And there might even be a central banker or two around the globe that might go in that direction,” Yellen said. “But I really want to caution that this is not something the Federal Reserve is seriously considering at this stage. While we are looking at research on this topic, there are to my mind limited benefits from introducing it, a limited need for it, and some substantial concerns. So I would really doubt that the Federal Reserve would soon go in that direction.” The Fed chief stated she sees only a limited risk to the financial system from crypto. “Often, risks threatening financial stability arise when there is exposure of the banking system to fluctuating asset valuations,” she explained, “and I really don’t see any significant exposure of our core financial institutions to threats from Bitcoin.” Yellen also noted the cryptocurrency plays a very small role in the payment system. “It is not a stable store of value, and it doesn’t constitute legal tender. It is a highly speculative asset,” she said. Further, the Fed doesn’t play any regulatory role related to Bitcoin, “other than assuring that banking organizations that we supervise are attentive [to] appropriately managing any interactions they have with participants in that market, and appropriately monitoring anti-money laundering, Bank Secrecy Act responsibilities that they have,” she added.

In the first filing of charges brought by the US Securities and Exchange Commission’s new cyber unit, the agency has sued what it called “a fast-moving initial coin offering fraud.” The SEC filed charges against Dominic Lacroix, of Quebec, Canada, and his company, PlexCorps. According to the agency's complaint, filed in New York, Lacroix and PlexCorps allegedly marketed and sold securities called PlexCoin on the Internet to investors, claiming they would yield a 1,354 percent profit in less than 29 days. Lacroix's partner, Sabrina Paradis-Royer, also was charged. According to the SEC, this purported scheme raised up to $15 million from thousands of investors since August. Based on its filing, the SEC obtained an emergency court order to freeze the assets of PlexCorps, Lacroix, and Paradis-Royer. The SEC accuses Lacroix, Paradis-Royer, and PlexCorps of violating the anti-fraud provisions of US federal securities law. The agency also alleges Lacroix and PlexCorps violated the registration provisions of said laws. The complaint seeks permanent injunctions, disgorgement plus interest and penalties. For Lacroix, the SEC also seeks an officer-and-director bar and a bar from offering digital securities against Lacroix and Paradis-Royer. The company is also being investigated by Quebec's Autorité Des Marchés Financiers (Financial Markets Authority) or QAMF over its offering activities. In response, PlexCorps said on its Facebook page: “We are being depicted as robbers, scammers, and fraudsters everywhere in the media. They are smearing our name with some allegations that can sometimes be false or misleading... All PlexCoin purchased were distributed and we are now listed on many cryptocurrency exchanges. We claim that PlexCoin is not a fraud since no one had their money stolen from us…. There is a big difference between not being accused, presumably being accused and being guilty.” The company also pledged to cooperate with the SEC and the QAMF.

Have you been a successful cryptocurrency trader? Do you keep your crypto assets in a Coinbase wallet? If you’ve had over $20,000 in annual transactions, your information could soon be handed over to the IRS for inspection. According to CryptoCoinsNews, the IRS will be given access to over 14,000 such users after a California federal court ordered Coinbase to hand them over. In 2016, the IRS targeted the exchange with the intent of forcing it to “hand over customer financial records to the tax-collecting agency.” A federal judge had approved a summons “requiring Coinbase to disclose transaction records of bitcoiners between January 1, 2013, and December 31, 2015.” Coinbase was able to save 480,000 customers’ records from disclosure, which is a 97% reduction from what was originally requested, however, 14,355 customers will have their name, birth date, address, and taxpayer ID handed to the IRS. In a highly invasive invasion of privacy, the government is also allowed to request the records of all account activity and any associated account statements of these users. David Farmer, Director of Communications for Coinbase, told CCN that the company is “proud” of what they achieved “as a small company against a large government agency.” The court declared that the order was “justified based on the discrepancy that there are more Coinbase users trading bitcoin [sic] than reporting gains on their tax returns.” Recognizing that this will continue to be an issue as cryptocurrencies have risen in popularity amid record-breaking gains, Farmer added, “In the future, we hope to work with the IRS to establish a reasonable tax reporting method that makes sense for virtual currency service providers and consumers alike.” Since the government believes that it’s possible some of these users have used cryptocurrencies to avoid paying taxes and that virtual currency holdings can be treated as property that can be gained or lost, Uncle Sam will likely demand that these users pay back taxes. Accounting Today is warning taxpayers that they “should consult their tax advisors in determining whether they need to report any virtual currency transactions.” This is especially important because the IRS has recently “announced two new programs focusing on data investigations and international tax enforcement.”

Nobel Prize-winning economist Joseph Stiglitz suggested in a recent Bloomberg interview that Bitcoin is illegitimate as a form of currency and ought to be outlawed. Stiglitz, a harsh critic of laissez-faire, whose economics influences include Paul Krugman and John Maynard Keynes, said: “One of the main functions of government is to create currency. And Bitcoin is successful only because of its potential for circumvention, lack of oversight. So it seems to me it ought to be outlawed. “It doesn't serve any socially useful function. We ought to just go back to what we have always had,” he added. “This is just a bubble... a bubble that's going to give a lot of people a lot of exciting times as it rides up and then goes down.” However, David Mondrus, CEO of Trive (which aims to empower journalists via the blockchain), strongly disagreed, noting in comments to the press that Stiglitz “misses the point on Bitcoin.” Mondrus readily acknowledged that circumventing third parties, including government, is one of the major functions of Bitcoin, but it is precisely because of the failure and overreach of such parties that it was invented, he asserted. “Let's remember that the Madoffs served on both the NASDAQ and SIFMA [the Securities Industry and Financial Markets Association], that Enron had the ‘smartest guys in the room’, and that MERS [Mortgage Electronic Registration Systems] was a direct violation of the laws of 26 states and yet was created regardless,” the cryptocurrency professional added. “Regulators have either been ineffective or complicit in their duties. Strengthening regulations in the face of this history works about as well as marijuana prohibition. “Maybe it's time we stopped relying on third parties, governments, and regulators to keep us safe and relied on ourselves,” Mondrus continued. “Maybe it's time for personal responsibility and self-determination.”

South Korea and Japan are both accountable for approximately 70 percent of global Bitcoin trades, with South Korea being the third largest Bitcoin market. Now, South Korea’s biggest bank is preparing to join in on the cryptocurrency market, leading most of the banking world that by-and-large still can’t shake its fears of the digital currency world. According to Bloomberg, Shinhan Bank is “in the process of selecting a company to test a bitcoin [sic] vault and wallet platform.” Upon regulatory approval, the service will likely be launched by mid-2018. Shinhan will be developing “a test server for the vault service to store the cryptocurrency safely, a mobile application to use the service, and statistical and analytical tools.” Aside from the private sector, however, the South Korean government remains skeptical of cryptocurrencies. Finance Minister Kim Dong-yeon has said the government is considering taxes on the digital currency and South Korea’s Prime Minister Lee Nak-yeon has expressed concern that young Koreans are using the system for illegal activities and fraud. But since the South Korean government believes that cryptocurrencies are used in speculation, not as payment tools, the Financial Supervisory Service (FSS) has said that they are not a “legitimate currency” and they have “no plans” thus far to supervise Bitcoin trading. This may change soon, though, since the day that Bitcoin hit $11,000 it was reported that South Korea’s Goto Mall, the largest underground mall in the nation, will soon be accepting Bitcoin in every store. The Goto Mall has 620 stores and about a half-million people per day, on average, walk through the recently renovated shopping center. Moreover, according to PaymentWeek, the mall has established its own cryptocurrency exchange by teaming up with the local exchange HTS Coin to create a smart payment system accessible by mobile app. The operation could also be a huge convenience for travelers who don’t want to deal with foreign currency exchanges. Such exciting developments in the cryptocurrency world at the same time Bitcoin and other digital currencies are hitting record highs are great news for crypto advocates.

In a highly ironic move designed to circumvent US-led financial sanctions, Nicolas Maduro, the socialist dictator of Venezuela has announced the creation of the “petro” digital currency backed by oil, gas, gold, and diamond reserves. According to Reuters, “The leftist leader offered few specifics about the currency launch...but he declared to cheers that ‘the 21st century has arrived!’” He added that it would help Venezuela “advance in issues of monetary sovereignty, to make financial transactions and overcome the financial blockade.” While private Venezuelan citizens have been looking to Bitcoin to save them from the troubled bolivar and to “bypass controls to obtain dollars or make internet purchases,” it is odd and ironic to see a socialist dictator looking to the capitalist invention of cryptocurrency to save his country from its economic turmoil that has left millions starving in the streets. “Currency controls and excessive money printing have led to a 57 percent depreciation of the bolivar against the dollar in the last month alone on the widely used black market,” reports Reuters. This highly regulated monetary environment begs the question of how a state-controlled cryptocurrency will survive. Rather than using it to give people choices and open the markets, the dictator is obviously only looking to cryptocurrency to pay debts to bondholders and foreign creditors. Without any widespread private use, the “petro” will have difficulty proving its value. According to Vox, Maduro’s current currency policy only “allows people who have government connections to exchange Venezuelan bolivars for US dollars at a special, extremely discounted rate.” These people who receive government-subsidized bolivars can then buy and sell things like food while pocketing the difference. It’s highly likely that Maduro would apply the same government handout system to the “petro” to benefit his cronies. Venezuela has been in deep recession since 2014 after a drop in global oil prices and an over-regulated currency produced record-breaking inflation. In fact, the International Monetary Fund estimates that prices in Venezuela are set to increase more than 700 percent this year. In addition, the US government enacted sanctions against Maduro, many of his senior officials, and the country’s state-owned oil company this summer.

If you're one of those who may be kicking yourself for not getting in on the ground floor of Bitcoin or just before it started to gather steam, there may another opportunity of interest to you. The MAD Network’s public token launch will begin on December 14^th at 10 AM Eastern Time, after a November 30^th pre-sale for “strategic industry and investment partners,” the company announced recently. The price per MADtoken will begin at $0.25. The MAD Network’s fundraising goal is to raise $25 million, with an implied market capitalization of $55 million. Initially, the money raised through the token sale is to be injected into MADnet Books, the MAD Network’s decentralized payment rail. The company plans to distribute the total of 220,000,000 MADtokens as follows: Community Token Sale (42 percent), MAD Technologies Foundation (20 percent), MAD Network Founding Team (10 percent), MadHive Equity (10 percent), Seed Round (8 percent), Ecosystem Partners (4 percent), ICO Expenses (3 percent), Supervisor Nodes (2 percent), and Advisors (1 percent). “We will be using the open-source software platform CoinCart to manage investors and issue tokens; it will act as the enterprise-grade software to manage the entirety of the sale,” the company said. The platform will enable it to collect necessary documentation from investors prior to registration so that it can maintain strict compliance with AML/KYC standards. Prior to purchasing the MADtoken, investor applicants will be asked to read and accept the terms of the token sale. The platform will manage wallet information for all investors, accepting investments in multiple cryptocurrencies. MADnetwork characterizes itself as a distributed ad technology ecosystem designed to minimize the role of intermediaries and return lost value to advertisers and publishers. The company believes that blockchain technology can revolutionize the advertising business and wants a slice of that pie.

A new white paper from Deloitte highlights the threats that blockchain technology – also known as Distributed Ledger Technology (DLT) – faces on the cybersecurity front and suggests possible countermeasures. “Security considerations in relation to the cryptographic and immutable nature of blockchain technology include key management, the risk of an attacker overpowering a private blockchain, centralization of authority within the network, [and] privacy and the right to be forgotten,” the firm says. For key management, the white paper notes there exist multiple well-established best practices for storing and transmitting private keys, such as secure hardware modules. However, cyberattackers have other ways of causing havoc, such as a denial-of-service (DOS) attack, which undermines the capability of processing transactions. “Where a ledger uses a proof-of-work [POW] consensus mechanism, an attacker (possibly an insider in one of the participating entities) could create a disproportionate number of nodes and then reverse blocks and amend historical transactions at will,” Deloitte says. For example, if each participant in a POW blockchain utilizes only 10 nodes, spinning up 1,000 nodes on Amazon could enable 100 blocks to be reversed. “For this reason, POW consensus is not recommended for permissioned blockchains,” says the firm. Consensus tools like Proof of Authority or Practical Byzantine Fault Tolerance ought to be deployed instead. In this context, centralization can prove highly vulnerable, because “compromising this authority can put the entire system at risk,” it adds. Therefore, when implementing permissioned blockchains, peers should operate in a decentralized network to limit this possibility. Finally, there is the right to be forgotten – a requirement to remove data – something Deloitte says can be hard to implement on platforms where data is immutable. Sometimes it’s possible to prune a blockchain of blocks older than a set number of years. Another approach is to encrypt all data written to the chain.

Right before the weekend, Bitcoin climbed from below $16,000 to a new high of $19,500 in less than an hour on the US-based GDAX exchange, ahead of the launch of Bitcoin futures this week. Bitcoin then dropped by 19% to $13,482 on Friday, December 8th. But while on Saturday it dropped again between 9-12%, CoinDesk reported on Sunday that “the market’s most recent session” indicates gains of “more than 5 percent” across cryptocurrencies. Sunday was the opening day for the new Bitcoin futures contract at the Chicago-based CBOE Global Markets exchange, “followed by CME Group the next week,” according to Reuters. The launches “could open the door to short speculators who believe the price has risen far too quickly.” Still, JPMorgan and Citigroup have decided not to immediately clear Bitcoin trades for clients once investors start trading futures contracts. For that, investors can look to Goldman Sachs, which says it plans to soon clear Bitcoin futures for some clients. Bitcoin was up “almost a third” throughout the week and has tripled in price since October, alarming some bearish Bitcoin analysts who have been warning of a Bitcoin bubble. But despite warnings of a bubble, millions of new investors have created wallets and millions more have pushed the Coinbase app to the top of the charts. Coinbase and Trezor reported traffic that slowed trading through the week. In addition to major exchanges beginning to hop on the crypto-bandwagon, speculators are also possibly encouraged by the successful test of the Lightning Network technology on Thursday that is meant to “allow Bitcoin to work significantly faster” since users can “transact outside of the blockchain.” Cameron Winklevoss is particularly excited about Bitcoin’s recent gains and made headlines over the weekend, saying he believes Bitcoin “is a gold disruptor” and that it will soon appreciate by 10 to 20 times its current value. According to Bloomberg, the millionaire is thought to be one of the largest holders of Bitcoin.