Friday, November 9, 2018

A $388,000 Fine 😳

November 9, 2018

SEC Charges EtherDelta for Operating an Unregistered Exchange

SEC cracks down

The U.S. Securities and Exchange Commission (SEC) has charged EtherDelta's founder for operating an unregistered exchange. If you are unaware, EtherDelta is a decentralized exchange that facilitates the trading of the cryptocurrencies with no central party. All trading on the exchange is governed by smart contracts.

As a decentralized exchange, EtherDelta did not require users to register and did not collect any data from its customers. This anonymity is what draws people to decentralized exchanges like EtherDelta.

The SEC requires exchanges that trade securities to collect certain information from its users. The SEC ruled that EtherDelta does not follow these regulations and therefore is an unregistered securities exchange.

Steven Peikin, co-director of the SEC's Enforcement Division, described the SEC's motivation:

"We are witnessing a time of significant innovation in the securities markets with the use and application of distributed ledger technology. But to protect investors, this innovation necessitates the SEC's thoughtful oversight of digital markets and enforcement of existing laws."

Already settled

The founder of EtherDelta, Zachary Coburn, has already settled with the SEC on the charges brought to him. Coburn agreed to pay $300,000 in disgorgement, $13,000 in prejudgment interest, and a $75,000 penalty for operating an unregistered securities exchange. However, Coburn never admitted or denied his guilt in regards to the SEC's charges.

Are decentralized exchanges feasible?

Hardcore crypto enthusiasts view decentralized exchanges as necessary for crypto. For crypto to be truly decentralized, it needs a platform for trade that is not controlled by any central party. While decentralized exchanges fit crypto's mission, they may not be realistically feasible.

This story is just one example of the issues involved with decentralized exchanges. For one, as this example proves, decentralized exchanges are often not in compliance with government regulations. In addition, decentralized exchanges suffer from a lack of liquidity and are vulnerable to hacks.

ANALYSIS

Bitcoin ABC Takes the Lead in 'Pre-Fork' Trading

With just less than a week left until the scheduled Bitcoin Cash (BCH) system-wide upgrade, Bitcoin ABC seems to have a clear lead against its competitor Bitcoin SV.

In short, the BCH community is in the middle of a fight between two different code implementations. Because of this, the BCH community must decide a clear winner before November 15th or risk splitting the blockchain into two separate cryptocurrencies, one with Bitcoin ABC and one with Bitcoin SV.

Now, according to data from the cryptocurrency exchange Poloniex, Bitcoin ABC looks to have a clear lead in the exchange's experimental markets.

Crushing the competition

Yesterday, because Poloniex wanted users to decide for themselves which new code would be supported, the exchange created their experimental "pre-fork" trading to see how the market reacts...and it's not looking pretty for Bitcoin SV.

So far, while Bitcoin ABC (BCHABC) has remained relatively stable at around $500, Bitcoin SV (BCHSV) has plummeted far lower as it now trades at $63.

Looking further than price, traders have exchanged twice the amount of value on the BCHABC market than the BCHSV market, suggesting that users prefer Bitcoin ABC.

Now we wait

Regardless of current prices, the standoff between the two sides won't come to an end until November 15th when the event takes place.

Until then, Poloniex warns its users about the dangers of pre-fork trading:

"If you choose to engage in pre-fork trading, please note that, as with all trading on the platform, trading in these assets can be extremely risky, and you trade at your own risk. It is possible that one of these chains will not be economically or technically viable after the fork, and its value will drop to zero."

EXCHANGE

Bitcoin Trading Generated $43 Million in Revenue for Square in Q3

Bitcoin driving sales

On Thursday, Square released its third quarter earnings to its shareholders. Disclosed in its earnings report were details about how its Bitcoin trading business has been doing.

Bitcoin accounted for $43 million in revenue for Square in the third quarter of this year. This is up 51% from the same point last year, a time when Bitcoin was just getting ready for its massive bull run.

Subtracting the costs

Square disclosed in its statements how it subtracts the transaction fees to get to net revenue:

"We deduct bitcoin costs because we consider our role in the bitcoin transactions to be facilitating customer access to bitcoin. Since we only apply a small margin to the market cost of bitcoin when we sell bitcoin to customers, and we have no control over the cost of bitcoin in the market, which tends to be volatile, we believe deducting bitcoin costs is a better reflection of the economic benefits as well as the Company's performance from the bitcoin transactions."

After subtracting costs from the adjusted revenue, Square profited $500,000. This was only 2.5% of the company's total profit but is up more than 20% year over year.

DRAMA

Judge Unfreezes Charlie Shrem's Assets Amid Winklevoss Lawsuit

Earlier this month, the Winklevoss brothers claimed Charlie Shrem used part of their $250,000 investment in his exchange to buy 5,000 Bitcoins.

That may not have been a big deal back in 2012 when one Bitcoin was worth $13, however, at today's prices, that lump of Bitcoins is worth over $31 million.

According to Bloomberg, Judge Jed Rakoff has ruled to end the freeze on Shrem's assets after conducting an investigation.

A failed investigation

The decision to unfreeze came after an investigation spanning over 30 institutions to identify Shrem's assets came up with only a measly $10. That's far under what you would expect for someone like Shrem who likely spends up to $50,000 in monthly expenses.

Following the decision, the next time the Winklevoss brothers will face Shrem is in trial on June 17, 2019.

BITS

But wait, there's more...

Coinbase launched full trading of Basic Attention Token (BAT) on its platform.
Malaysia's education ministry has formed a new consortium of universities to issue and verify degrees on the NEM blockchain.
The largest cryptocurrency exchange, Binance, has launched an analysis division to conduct "institutional-grade" research reports.

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