BTC and the BSA

Also: Silvergate Bank's deposits, Uniswap's vote, and more

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October 20, 2020 By Daniel Kuhn If you were forwarded this newsletter and would like to receive it, sign up here.  Top shelf Signature Bank's deposits grew by over $4 billion. Non-profits have rejected bitcoin donations made from hackers. And a FinCEN investigation raises questions about bitcoin mixers and the Bank Secrecy Act. Here's all the news people are talking about in crypto today. Corporate DeFi? R3’s open-source variation of its enterprise blockchain, Corda Network, will see the addition of a native cryptocurrency. The new coin, called XDC, will open the gates to build central bank digital currencies (CBDCs) and decentralized finance applications (DeFi) on the network. Programmed by the Cordite Society, a group of former bankers building decentralized tools, the XDC system will have compliance baked in to meet anti-money laundering (AML) standards, as every node represents a legal entity, CoinDesk’s Ian Allison reports. The Cordite Network is welcoming new members to vote on the rate of supply of XDC and other points of governance going forward. Ironic outcome Uniswap’s first voting process demonstrated the need to overhaul its governance system, Dharma CEO Nadav Hollander has said, following a "disappointing outcome." The vote was over reducing the token threshold required to make and pass proposals on the protocol. Despite 98% of the votes cast being in favor of a proposed change, the total number needed for a successful vote fell short of the 40 million required by about 400,000. A successful vote would have seen this requirement drop by around a third. Hollander also said the vote "galvanized users to delegate in much higher numbers," which was a "healthy outcome for Uniswap." Dirty money Robinhood-esque hackers who stole from corporations to give to charities have seen their donations rebuked. Members of the hacking group Darkside attempted to give bitcoin donations to two non-profits, Children International and The Water Project. The group used ransomware to steal from profitable companies with the intention of giving “some of the money” to charity, according to a BBC report citing a darknet blog. To make the donations, the cybercriminals used the service offered by The Giving Block, a U.S.-based project that converts donations into dollars for charities not set up to handle cryptocurrencies. "If the donation is linked to a hacker, we have no intention of keeping it," Children International said. CBDC platform LINE Corporation, operator of the popular messaging app, is jumping into the CBDC game with a platform to allow central banks to develop digital currencies. The platform reportedly will help central banks develop customized, blockchain-based CBDCs by offering tools to issue digital tokens, tokenize assets and run decentralized applications (known as dapps). LINE is not alone. Mastercard recently released a platform allowing central banks to test how proposed digital currencies would work in real life. A LINE representative told South Korean newspaper Chosun that "major" Asian nations are already in discussions with the firm, though they could not disclose which ones. Deposit growth Deposits at crypto-friendly Signature Bank grew by $4.11 billion, an 8% increase, in the third quarter of 2020. Over the past year, deposits have grown by $15.28 billion or nearly a 40% increase, according to the bank's earnings release. Signature reports $54.34 billion in total deposits. "Crypto firms are often a rich source of low-cost deposits for the few banks that openly serve the sector. As such, analysts have paid close attention to deposit growth at Signature, Silvergate Bank and Metropolitan Commercial Bank," CoinDesk's Nathan DiCamillo reports. CoinDesk is partnering with DC Fintech Week, one of the world’s premier policy and regulation-focused digital currency conferences, to produce a special edition of CoinDesk Live.  The virtual event, which runs Oct. 19-22, brings together marquee names from Switzerland’s FINMA, Sweden’s Riksbank, the Bank for International Settlements, the U.S.’ Commodity Futures Trading Commission and the International Monetary Fund to discuss stablecoin regulation, central bank digital currencies, the future of money and more.  Quick bites How Will Bitcoin Lead to More Freedom? (Jim Epstein/Reason) Closing Time for Bitcoin’s Iconic Room 77 – ‘And That’s OK,’ Says Owner (Colin Harper/CoinDesk) Polymarket Raises Massive $4 Million Round From Polychain, Naval Ravikant, Other Notable Investors (Rory Murray/Forbes) The Yield Protocol – which enables fixed-rate lending on Ethereum – is live (Mike Orcutt/The Block) Grayscale Bitcoin Products Underperform for Month: Report (Jeff Benson/Decrypt) At stake Bitcoin & the BSA The executive behind the Helix and Coin Ninja bitcoin mixing services will pay a $60 million fine, following a Financial Crimes Enforcement Network (FinCEN) investigation that raises questions around the legality and future of these privacy-protecting tools.  Bitcoin mixers are services designed to anonymize the source of funds. The U.S. financial watchdog hailed these civil charges as the "first" action against a bitcoin mixer.  It was also said to be the first time the U.S. Department of Justice explicitly called bitcoin mixing a "crime," casting a shadow on any service that obscures bitcoin's publicly accessible path, CoinDesk’s Danny Nelson reported. Prosecutors allege Harmon ran the unregistered money services business Helix from 2014 to 2017, conducting 1,225,000 transactions for customers and is "associated with virtual currency wallet addresses that have sent or received over $311 million." From 2017 on, prosecutors say Harmon provided money transmission services via Coin Ninja. Each of these transactions are said to be in violation of the Banking Secrecy Act. Prosecutors also said Harmon had a responsibility to file suspicious activity reports and systemically flouted U.S. money laundering laws. “If you're in the crypto space you're about to become as familiar with the BSA as you think you are with the 33 and 34 acts and the Howey test,” Stephen Palley, a partner in the Washington, D.C. office of Anderson Kill, tweeted. “Each one of these violations is a separate violation of the BSA.  That is why the penalty is so massive.” “The max penalty is $209,144,554. That's a gobsmackingly enormous number because BSA non-compliance is heavily penalized and because FinCEN really really wants you to comply and really really wants you to be in pain if you don't comply,” Drew Hinkes, an attorney with Carlton Fields, tweeted. Harmon also faces criminal proceedings in U.S. federal court. Who won #CryptoTwitter? ATTENTION: Scammers have been sending fraudulent emails with links to sites disguised to look like coindesk.com. If you are in doubt about a link, type https://www.coindesk.com directly into your browser; do not copy and paste. Remember, if something seems too good to be true, it probably is. Blockchain Bites A newsletter from CoinDesk See previous editions Copyright © 2020 CoinDesk, All rights reserved.  Our mailing address is:  250 Park Avenue South New York, NY, 10003, US  Want to change how you receive these emails? You can update your preferences here.

largest crypto lawsuit ever 😳 / what really happened to bitcoin's Lightning Network ⚡️ / Binance Jersey closing 🇯🇪

The relationship between Bitfinex, the USD-backed stablecoin Tether (USDT), and the price of bitcoin is at the heart of the largest cryptocurrency lawsuit ever...

Inside.com Part of   Network October 19, 2020

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Market Watch Bitcoin $11,698 7 day: +1.6% Ethereum $379 7 day: -2.2% All crypto $364b 7 day: -0.5% Bitcoin dominance 59.3% 7 day: +0.9% Prices as of 4 p.m. EDT

NYAG Court Order from April 2019 Regarding the trillion-dollar Bitfinex-Tether lawsuit. The relationship between Bitfinex, the USD-backed stablecoin Tether (USDT), and the price of bitcoin is at the heart of the largest cryptocurrency lawsuit ever.  Over the years, plaintiffs have accused cryptocurrency exchange Bitfinex of manipulating markets and the price of bitcoin through its related stablecoin, Tether (USDT). One plaintiff is New York Attorney General (NYAG) Letitia James. For background on her ongoing lawsuit, see this edition of Inside Cryptocurrency. In today's edition of Inside Cryptocurrency Premium, I dive deep into the industry's largest lawsuit, with dozens of citations and facts about Panama, Reginald Fowler, Crypto Capital, iFinex, Wells Fargo, Tether, and the price of bitcoin. Start your free 14-day trial today! FREE TRIAL

Google search queries for "lightning network" since 2015 Regarding bitcoin's Lightning Network: Lightning Network was heralded in 2018 as a viable scaling solution to bitcoin's congested network. However, interest in the project has fallen since early 2018 and not recovered.  What's really going on: At times, a single person controlled a majority of the Lightning Network's activity, the anonymous owner of LNBIG. LNBIG was one of the largest contributors to Lightning Network's operations. Its owner poured hundreds of bitcoin into Lightning Network nodes and often controlled over half of the network, with still 40% control as of September 2019. Background: In 2015, Joseph Poon and Thaddeus Dryja published a draft whitepaper for the Lightning Network. The proposed second-layer scaling solution sped up transactions by processing most bitcoin transactions off-chain, and then bundling them into packets and logging them as a group onto bitcoin's blockchain. Lightning Network provided cheaper and faster payments between users. Lighting Labs was the primary supporter of the project. It launched an initial release called "lnd 0.4-beta" that was sponsored by Jack Dorsey, CEO of Twitter (NYSE:TWTR) and Square (NYSE:SQ). The three primary Lightning Network development teams were Lightning Labs, Blockstream, and ACINQ. Various promotional stunts on Twitter were launched to attract attention to the project, the most famous of which was the "lightning torch."  The "torch" was a small amount of bitcoin that was passed between crypto celebrities using the Lightning Network. The aftermath: As the crypto community became aware of Lightning Network's centralization and lack of security, interest has declined from its 2018 height and has not recovered. Lightning Network has a centralized configuration whereby a few active nodes can act as "hubs," and even relatively small amounts of bitcoin deposited into nodes can grant that node authoritative privileges within the network. Moreover, Lightning Network does not have robust safety protections against attacks that originate within the system itself. The bitcoin held in Lightning Network totals $12.4m as of last month, or 0.006% of bitcoin's $216b market capitalization. Researchers investigate: In February 2020, a team of researchers published a paper indicating that Lightning Network remains centralized. Based on their findings after 18 months of data, the network had unequal wealth distribution, a small number of nodes with expansive authority, and a small oligopoly accumulating a significant amount of mining rewards. Researchers found that the surge in Lightning Network's popularity during 2018 was shortlived. Most public node operators from that time have vanished from the network and those nodes remain unused (i.e., did not route any payments). The anonymous owner of LNBIG also closed several inactive nodes, lowering Lightning Network's capacity. Hebrew University researchers tested a congestion attack on the payment channel network on Feb. 18. They found that an attack costing just $4,000 would severely disrupt the Lightning Network. The researchers concluded that "it is possible to disrupt the Lightning Network by locking most of its liquidity using less than half a bitcoin." Coindesk provided an update on Sept. 2, showing less than $13m of total value locked (TVL) in Lightning Network (again, 0.006% of the value of all circulating bitcoin). Google Trends

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Binance Jersey is closing soon Binance Jersey is closing. Less than two years after launching in the tax haven, all accounts will become inaccessible on Nov. 30. Binance Jersey was once an important fiat-to-crypto onramp for both Euros and British Pounds. Binance Jersey's daily trading volumes have subsequently dwindled. Today, Binance.je processes less than $250,000 in daily transactions; Binance.com processes $3.2b. Binance has other country-specific domiciles, including Singapore (binance.sg), USA (binance.us), U.K. (binance.co.uk), Australia (binancelite.com), and Uganda (binance.co.ug). A repeating story in other countries: Binance Uganda, for example, eased fiat-to-crypto purchases for the Chinese diaspora working on the Belt & Road. (A key country along China's Belt & Road, China owns one-fifth of Uganda's debt and many of its industrial properties. Uganda's economy is intimately tied to China.) Binance Uganda subsequently lost government approval for the listing of its Binance Coin (BNB). Elsewhere, the Malta Financial Services Authority previously ordered Binance to cease operations in its country. Binance's offices are difficult to locate and change frequently. Its CEO regularly refuses to locate himself and his employees. CoinTelegraph

Quick Hits: Binance has burned 2,253,888 BNB coins ($68m). LocalBitcoins competitor Paxful integrates with troubled cryptocurrency exchange Bithumb. Five of the largest miners of Filecoin (FIL) have turned off their machines to oppose the project's "unfair" economic model. The protests are beginning just one day into the mainnet launch. Read more on the troubled ICO here at Inside Cryptocurrency. Central bankers continue to evaluate CBDCs. The Block Crypto reports that a $46b hedge fund was "on the verge of" investing in cryptocurrencies. Chargebee is organizing the largest tech summit for change-makers of the SaaS space, featuring champions from HubSpot, Drift, Dropbox, Slack, etc. Join here.* *This is a sponsored post.

Written and curated by wide-eyed bitcoin watcher since $1, Aaron Wise. Streaming headline junkie, Associated Press fanboy, eye-strained news terminal watcher, 2017 founder of Cryptocurrency Newsfeed. Temporarily based in Florida while awaiting the construction of cryptopia.  Editor Edited by Eduardo Garcia in New York. Eduardo is writing an illustrated book about climate change that will be published by Ten Speed Press, an imprint of Penguin Random House. Bylines in The New York Times, The Guardian, Slate, Scientific American, and others. In one of his previous lives, Eduardo worked as a Reuters correspondent in Latin America for nearly a decade.

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Filecoin Miner Strike

Low bitcoin fees, CBDC 'bait and switch' and Binance closes Jersey

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October 19, 2020 By Daniel Kuhn If you were forwarded this newsletter and would like to receive it, sign up here.  Top shelf Token protest Five of the largest Filecoin miners, which secure that data storage network, have gone on strike, bringing attention to the project’s “unfair” economic model . According to a report by 8btc.com, miners are required to stake a significant amount of FIL tokens to start mining operations. But there’s a critical lack of FIL tokens off the bat. Purchasing tokens on exchanges at what could be inflated prices is seen as unattractive. “All the miners have been off since the mainnet went live. This is not some sort of protest but we have to shut them down because we really don’t have the tokens as collateral to mine,” ST Cloud CEO Chuhang Lai said in the report. In response to miner’s concerns, Filecoin has decided to release 25% token rewards in advance once a miner builds a block on the blockchain. Transaction count Bitcoin’s (BTC) miners are seeing depressed earnings as on-chain transaction activity and price action cools. "Boring price action and low volatility tends to reduce the count of transactions to and from the exchanges," Willy Woo, on-chain analyst and author of The Bitcoin Forecast newsletter, told CoinDesk over Telegram. Yesterday, there were only 231,437 transactions processed on the Bitcoin blockchain, the lowest since May 24 and down 40% from a peak on July 1, according to data provided by blockchain analytics firm Glassnode. With the network processing far fewer transactions currently, the percentage of miners' revenue derived from fees also dropped to a three-month low of 3.49% over the weekend. Schiff riff Noted Bitcoin skeptic Peter Schiff’s Euro Pacific Bank has become the focus of a major global tax evasion investigation. Initiated by the U.K., the U.S., Australia, Canada and the Netherlands, this investigation, dubbed Operation Atlantis, is seeking to determine if hundreds of “high risk” account holders were involved in tax evasion and money laundering through the bank. The investigation began in January and has its roots in the “Panama Papers,” which shed light on how some of the world’s wealthiest people and firms have been hiding money and evading tax in off-shore accounts. Crypto insurance Bitstamp, one of the world’s largest cryptocurrency exchanges, has introduced an insurance policy that covers the theft and other losses of user funds held on its platform. The Europe-based exchange said the new insurance policy will be provided by Paragon International Insurance Brokers in coordination with Woodruff-Sawyer, per a Thursday blog post. The policy applies to digital assets, such as bitcoin, that are held at the exchange both on and offline, and covers a number of crime-related circumstances, per the post. The underwriters will consist of various insurance companies and certain syndicates from one of the world's oldest insurance markets, Lloyd's of London. Branch closing Binance, the biggest cryptocurrency exchange platform by trading volume, is closing its dedicated Jersey branch , which offered fiat-to-crypto exchange for users trading with euros and U.K. pounds against a limited choice of crypto assets. Announced Monday, Binance said all deposits to the local platform will be disabled on Oct. 30, and trading and other services will cease on Nov. 9. Binance said its global service, Binance.com, now offers GBP deposits via the U.K.'s Faster Payments scheme, as well as SEPA payments for the euro. It also offers trading pairs against both currencies. As such, the company said, the growth of services on Binance.com has "extinguished the rationale for Binance Jersey as a distinct exchange." Quick bites Binance recorded an all-time high spot trading volume in Q3 (Yogita Khatri/The Block) MicroStrategy Redirects Hope.com to Bitcoin After $425 Million BTC Purchase (Robert Stevens/Decrypt) Binance Destroys $68 Million of BNB in Most Expensive Burn to Date (Robert Stevens/Decrypt) Coinbase’s New ‘Direction’ Is Censorship, Leaked Audio Reveals (Edward Ongweso Jr/VICE) With Ripple’s $10 million donation, Mercy Corps strengthens its bet on crypto (Leo Jakobson/Modern Consensus) At stake In just the past three days, central bank digital currencies have been reported to be a means to bust economic sanctions, tools to strengthen local monetary policy and marginally worse versions of payment tech we already have.  The global CBDC conversation really got going in earnest after the Facebook-incubated Libra Consortium was announced to the world, which sparked regulatory backlash and calls for national digital currency experiments. In a recent International Monetary Fund (IMF) report, it’s clear Libra is still front of mind for many central bankers.  In a hypothetical scenario, IMF researchers describe a bait-and-switch where “Big Techs” advertise a corporate-run but fiat-backed stablecoin, only to de-peg them later on: becoming something of a stateless currency unto their own. This is clearly undesirable for central bankers, who wish to exert granular control over monetary policy.  Even before the pandemic-led economic crisis, the global economy was cooling. Global productivity, wage growth, inflation and GDP stagnated in the 2010s, leaving most central banks without the “ammunition” to stimulate sufficiently. With many financial chiefs, like Federal Reserve Chairman Jerome Powell and Bank of England Governor Andrew Bailey, eschewing long-standing central bank political independence to call for a coordination of monetary and fiscal policy.  While CBDCs are seen as a panacea, the IMF thinks it could expand central banks’ toolbox, providing new ways to deal with old problems. For instance, CBDCs could allow central banks lower policy rates “below the effective lower bound,” letting them exert better control over their economies. Still, initial reports back from the world’s most advanced CBDC experiment in China have been wanting. Early still to see how a “digital yuan” might be used for state economic programming, the first trial has painted a scene where people are uninterested in using the novel currency.  The city of Shenzhen and the People's Bank of China launched a "red envelope" lottery earlier this month, giving away 20 million of the digital yuan (worth around $1.5 million) to locals. Many found the play-money inconvenient and similar to existing payments apps like Alipay. “It’s especially important to offer convenience and other benefits to promote the use of digital yuan,” a senior economist at PwC China told Reuters. It’s just another bind for the central banks. DC Fintech Week CoinDesk is partnering with DC Fintech Week, one of the world’s premier policy and regulation-focused digital currency conferences, to produce a special edition of CoinDesk Live.  The virtual event, which runs Oct. 19-22, brings together marquee names from Switzerland’s FINMA, Sweden’s Riksbank, the Bank for International Settlements, the U.S. Commodity Futures Trading Commission and the International Monetary Fund to discuss stablecoin regulation, central bank digital currencies, the future of money and more.  We’ll be streaming Day 1 of DC Fintech Week. Watch CoinDesk Live: DC Fintech Week Edition on Oct. 19 on Twitter and YouTube. Op-ed Cryptocurrency Is Just a Minor State Threat "If many people decide they would rather hold cryptocurrencies than state-backed currencies, it will diminish states’ abilities to project power through their coins," says Steven McKie is a founding partner and managing director at Amentum Capital, in a new op-ed for CoinDesk. But we shouldn't overstate the threat. "States still have the armies, the police  and – on a good day anyway – democratic legitimacy. All of that still matters, and will for a long time," he writes.  Who won #CryptoTwitter? ATTENTION: Scammers have been sending fraudulent emails with links to sites disguised to look like coindesk.com. If you are in doubt about a link, type https://www.coindesk.com directly into your browser; do not copy and paste. Remember, if something seems too good to be true, it probably is. Blockchain Bites A newsletter from CoinDesk See previous editions Copyright © 2020 CoinDesk, All rights reserved.  Our mailing address is:  250 Park Avenue South New York, NY, 10003, US  Want to change how you receive these emails? You can update your preferences here.