Malta Regulator Issues Virtual Assets Rulebook – Reaction from Stakeholders Muted or Negative

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The Malta Financial Services Authority (MFSA) has now published a Virtual Financial Assets (VFA) Rulebook specifically pertaining to the regulation of Issuers of VFAs under the Virtual Financial Assets Act (VFAA).

However, it seems that the publication of this rulebook has not got down very well with financial services providers who spoke to CCN. Some have lamented that it is onerous and over-cautious in several aspects and makes business slightly more complicated where cryptocurrencies and blockchain are concerned.

Speaking to CCN, Joseph Borg, Partner at WH Partners said that although the publication of the rulebook was a positive step, this needs to be polished to be actually effective.

“I strongly suggest to stakeholders to participate in this consultation in order to help the MFSA come up with a well-balanced regulatory framework that is robust and attractive at the same time. It is clear that some things published in the rule book need to be polished and, in some cases, toned down. However, if sensible responses with workable solutions to the consultation paper are received, I am sure that our regulators will take them on board and fine-tune the framework accordingly”, Borg said.

CCN also spoke to Dr. Simon Schembri, Partner at Ganado Advocates Corporate Department on the rule book who was more circumspect in his comments.

“The two consultation papers relative to the first two chapters of the ‘Virtual Financial Assets Rulebook’ provide a well-defined framework for what will constitute the eventual two chapters of the Rulebook,” he stated. “There are some issues which merit further discussion with the regulator, and in fact, as interested parties in this space, we have already provided our feedback for relative amendments and clarifications within the time frame of the conclusion of the first consultation period relative to the first chapter. We are currently reviewing the second consultation paper relative to the second chapter, issued just two days ago and we will provide with our feedback to the regulator in due course.”

Other stakeholders who spoke on condition of anonymity said that the rulebook needed to be drastically revised to be effective as in it’s current state, it was a ‘no go’.

Binging on Blockchain

Following the positive feedback received on the proposed introduction of a new legislative framework regulating Initial Coin Offerings (‘ICOs’) and the provision of certain services in relation to virtual currencies, the MFSA drafted and submitted to the Government the Virtual Financial Assets Act.

The Act was published on the 20 July 2018 and shall come into force on such date as the Minister for Digital Economy may establish by notice in the Gazette. On 4 July 2018, the MFSA published a Consultation Paper on the Virtual Financial Assets Regulations to be issued under the Virtual Financial Assets Act which presents a draft Legal Notice setting out regulations on: [i] exemptions; [ii] fees; [iii] control of assets; and [iv] administrative penalties and appeals (‘the Virtual Financial Assets Regulations’). This consultation closed on 20 July 2018.

The Authority is now preparing the rules underlying and complementing the Act and the Virtual Financial Assets Regulations. The Rules will provide further detailed regulation applicable to operators in this field of financial services.

As presented in the Consultation Paper on the Virtual Financial Assets Rulebook for VFA Agents which was published on 12 July 2018, the MFSA is proposing the introduction of a rulebook, titled the ‘Virtual Financial Assets Rulebook’, which will be subdivided into three chapters as follows:

Chapter 1 : Virtual Financial Assets Rules for VFA Agents
Chapter 2 : Virtual Financial Assets Rules for Issuers of Virtual Financial Assets
Chapter 3 : Virtual Financial Assets Rules for VFA Service Providers

The consultation for Chapter 1 of the Virtual Financial Assets Rulebook closed on 31 July 2018 whilst the consultation for the others closes on 13 August. The scope of this Consultation is twofold: to obtain industry feedback in relation to [i] Chapter 2 of the Virtual Financial Assets Rulebook, which is annexed to this paper; and [ii] the Authority’s interpretation of the transitory provision provided under Article 62(1)(a) of the Act, which is found under section 3 of this Consultation Paper.

It is important to note that capitalized terms within Chapter 2 of the Virtual Financial Assets Rulebook, including the term ‘Regulated Information’, will be defined in the Glossary that will be issued by the MFSA in the coming weeks.

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Brian Armstrong: Coinbase Signed Up 50,000 Users per Day in 2017

Cryptocurrency exchange Coinbase CEO Brian Armstrong said in an August 14 interview with Bloomberg that it was signing up 50,000 users per day in 2017.

Speaking at the Bloomberg Players Technology Summit in San Francisco on Tuesday, Armstrong said that the “technology [Bitcoin] is going through a series of bubbles and corrections, and each time it does that, it’s at a new plateau.” He added that “people’s expectations are all over the map, but real-world adoption has been going up,” stating that he sees “real world adoption pretty steadily increasing each year.”

When asked about his expectations for Initial Coin Offerings (ICOs), Armstrong said that ICOs are “an important innovation in the world” as they provide an opportunity for people around the world to raise funds for new ventures without relying on personal networks of angel investors.  “It’s a huge breakthrough,” he said.

While there are legal questions to consider, Armstrong said that he expects the ICO trend to continue, saying that “ICOs are breaking all the previous crowdfunding records.”

Armstrong said that Coinbase helped customers to trade $150 billion worth of digital currencies in 2017. He estimated that about 10 percent of cryptocurrencies are used in real life, in games and other online purchases.

Earlier this week, Coinbase announced the reduction of its Index Fund’s annual management fee “for all new and existing investors” from 2 to 1 percent in order to “attract investors who are familiar with lower-fee index funds in other asset classes.” That day, the exchange also announced that the Index Fund was rebalanced to incorporate Ethereum Classic (ETC), following the altcoin’s official listing on Coinbase last week.

Last week Coinbase successfully renewed its money transmitter license in the state of Wyoming. The license had been suspended as of mid-2014 due to stipulations in state law that required all exchanges to “double reserve” the digital assets of state residents with fiat currency.

Another Top-5 Cryptocurrency Exchange Plots Move to Malta’s ‘Blockchain Island’

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Another day passes by and although August is a traditionally slow month in the business and finance circles, Malta does not seem to be resting on its laurels at all. After several announcements regarding cryptocurrency exchanges and crypto banks, we now have the announcement coming that ZB.com, the world’s fith-largest cryptocurrency exchange by daily trading volume, is setting up shop on the sunny Blockchain Island.

ZB.com will set up its operations in Europe with the launch of a new exchange in Malta. The company, which is the world’s fifth-largest cryptocurrency exchange by traded value, will open an office in St Julian’s, a bustling business centre in the heart of Malta. This latest announcement follows those by Binance, OKEx and DQR, who have also opened offices on the island.

Parliamentary Secretary for Digital Economy and Innovation Silvio Schembri also tweeted about the announcement and told CCN that this was another link in the chain for Malta to cement its leading position in the cryptocurrency space.

The company will initially start out as a crypto-to-crypto exchange and will eventually look to offer fiat-to-crypto trading pairs through its new platform based out of the European island nation. This is the third exchange that is coming up with this proposition, after Binance and Bitbay.

“Malta is perhaps the world’s most progressive and forward-thinking nation in DLT, crypto and fintech, and we are very excited to be part of the Blockchain Island. We are confident we will be able to announce our live operations soon,” co-founder Jimmy Zhao said.

Other countries appear to be hesitant in the crypto space with several stalling on their regulation and implementation of crypto and blockchain companies. However, this does not seem to be the case in Malta, where the Virtual Financial Assets Act and two other crypto bills have sailed through the parliament. The bills are currently undergoing a consultation process, so there is still no tangible exchange which has started up yet since the blockchain laws will not come into effect until Oct. 1.

Zhao said he had recently been invited to Malta by his local partners and met with the Maltese government to discuss their crypto exchange operations. “You quickly realize Malta’s commitment to building and supporting the crypto ecosystem,” he added.

ZB.com regularly ranks among the five largest cryptocurrency exchanges in terms of daily trading volume, according to CoinMarketCap, trading an average of about $400m daily. The proprietary technology behind ZB.com also supports several other top-tier exchanges such as EXX.com.

ZB.com is strictly a cryptocurrency exchange and does not offer any other type of tradeable assets. That being said, there are various markets in which these cryptocurrencies can be traded. For instance, traders can exchange cryptocurrencies against QCash (QC), tether (USDT), and bitcoin (BTC).

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Ripple Exec: Ripple Considering Chinese Market to Speed Up Payment Solutions

Ripple is considering breaking into the Chinese market to apply its distributed ledger technology (DLT) to cross-border payments, a Ripple executive told CNBC August 15.

Jeremy Light, vice president of European Union strategic accounts at Ripple, said in a phone interview that the company is looking to enter the Chinese market to speed up international payments with its DLT. Light said that “China is definitely a country and region of interest.”

While blockchain is the technology that underpins cryptocurrencies, Ripple’s blockchain was initially designed to accelerate payments processing, which subsequently attracted over 100 financial establishments to its network. Though Ripple’s portfolio includes leading financial industry players like UniCredit, Santander, UBS and others, the company is likely to face strong competition of local fintech firms offering payment solutions.

In February, Ripple made an attempt to enter the Chinese market by partnering with Chinese payment service provider LianLian in order to offer faster and less expensive cross-border transactions to their customers across the U.S., Europe, and China.

Recently, tech giant Tencent implemented a pilot blockchain ecosystem for invoices, which enabled the issuance of China’s first digital invoice on blockchain. It is the only pilot of its kind to have received the official approval of the State Administration of Taxation, and has been designed for comprehensive use by consumers, merchants and tax authorities.

Ant Financial, the company behind mobile and online payment platform Alipay, entered into “definitive agreements” with investors to secure $14 billion in a Series C equity financing round in June. The company planned to invest the funds into accelerating Alipay’s blockchain and other innovative technologies in order to deliver financial services to unbanked and underbanked consumers.

Bad Trip: Pot Company High Times Backtracks on Accepting Bitcoin in IPO

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High Times Holding Corp, a New York-based media group advocating for cannabis usage, has decided against accepting bitcoin in its initial public offering (IPO), according to a filing with the Securities and Exchange Commission (SEC) dated Aug. 13.

The SEC filing states that the initial announcement made two weeks ago, in which the company had said it would accept cryptocurrencies for its IPO, was “distributed in error.”

At the beginning of August, CCN reported that High Times was accepting cryptocurrency for its IPO — which it claimed would have made it the first stock offering ever to accept investments in digital assets.

According to the report, the offering was compliant with SEC Regulation A+ — a framework which allows small businesses raise up to $50 million of funding — and it also stated that the company had begun receiving cryptocurrency investments.

At the time, High Times CEO Adam Levin had said the company was “taking another step into the future” by making it possible for investors who own cryptocurrencies such as bitcoin and ethereum to be part of the “public capital raise.” Levin went further to describe cryptocurrency as the currency of the future that has “created a new investor base across the world.”

The Aug. 13 filing with the SEC runs contrary to the announcement made two weeks ago. The company has now rescinded its statement about accepting bitcoin as a form of payment from investors for stock in the company.

The new filing reads, “This press release was distributed in error as the Company will not be accepting bitcoin as payment for shares. As provided in the Company’s subscription agreement related to the offering, the Company will only be accepting check, credit card, ACH or wire transfer as payment for subscription to shares.”

While the recent filing doesn’t reference ethereum, which was mentioned in the initial announcement, it is safe to assume they won’t be accepting that asset either.

Cryptocurrencies are seen by many as an alternative to cannabis-related payment issues that makes it difficult for customers to make purchases with their credit or debit cards. The industry suffers from hostility from the banks and has become a target for thieves due to the large amount of cash kept on site.

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Coinbase to Pursue Decentralized Form of Identification Following Acquisition

Cryptocurrency exchange and wallet service Coinbase has acquired San Francisco-based startup Distributed Systems Inc., which works on decentralized identity solutions, according to an August 15 announcement.

In the blog post, B Byrne, project manager for Identity at Coinbase, said Distributed Systems will help the exchange work on new ways to validate and verify identity within its plans to develop an open financial system. The blog post says:

Blockchain technology that powers cryptocurrencies offers a new way to let us all be “verified” everywhere we go on the internet, feeling safer about our interactions with others and opening the door to the experiences that require trust.”

In the blog post, Byrne describes a type of identity wherein users retain control over their private information, without having to give a copy away. Citing the example of a Social Security Number, Byrne says that every time one is asked to provide it, the recipient now has a version of that information, which “has exactly the same power as the original.”

With the new acquisition, Byrne says Coinbase will work toward a decentralized identity that will “let you prove that you own an identity, or that you have a relationship with the Social Security Administration, without making a copy of that identity.”

Byrne further stated that Coinbase needs to be “deliberate about how and where we apply this technology,” considering anonymity, privacy, and other sensitive data issues.

According to TechCrunch, Distributed Systems was incorporated in 2015 with a focus on developing an identity standard for dApps called the Clear Protocol. Last year, the startup reportedly raised a $1.7 million seed round led by venture capital fund Floodgate.

The company was considering raising a $4 million to $8 million round this summer, but the team began negotiations about investment with Coinbase, which resulted in the acquisition.

Coinbase has previously acquired companies in order to expand its services. In June, the exchange acquired securities dealer Keystone Capital Corp. in addition to Venovate Marketplace, Inc., and Digital Wealth LLC in order to become a fully regulated broker dealer with the U.S. Securities and Exchange Commission. The acquisition could help Coinbase extend its offerings and subsequently expand into non-crypto financial products.

BitAngels Founder Sues AT&T for $224 million Following Wallet Hacks

BitAngels founder Michael Terpin has filed a $224 million lawsuit against telecoms provider AT&T, alleging that its negligence led him to lose about $24 million worth of cryptocurrency to fraudsters, according to a CNBC report. In a 69-page deposition to the Los Angeles U.S. District Court on August 15, 2018, Terpin claims that AT&T “willingly” cooperated with hackers who co-opted his identity and thus gained access to his crypto wallets.

Crypto Wallet Hack

According to the filing, Terpin suffered two separate hacks within seven months of each other, with the second hack resulting in a loss of nearly $24 million in token funds.

He says that a fraudster successfully obtained his phone number by cooperating with an insider, escaping the otherwise mandatory identity check that would be required to get such information. After obtaining the phone number, according to the complaint, the fraudster was able to gain access to Terpin’s crypto wallet and steal his funds.

An excerpt from Terpin’s complaint reads as follows:

“What AT&T did was like a hotel giving a thief with a fake ID a room key and a key to the room safe to steal jewelry in the safe from the rightful owner.”

In its emailed response to the media, AT&T maintained its innocence, stating that it disputes the allegations and looks forward to presenting its case in court. Terpin is seeking a payout of $200 million in punitive damages in addition to $24 million in compensatory damages.

The event once again brings into focus the lingering security issues within the crypto space, coming on the heels of news that John McAfee’s “unhackable” BitFi wallet has allegedly been breached for the second time in as many weeks.

As one of the industry’s pain points, crypto fund security has long been identified as an existential threat to the entry of traditional financial institutions into the space. A number of solutions like Coinbase Custody and a proposed Goldman Sachs crypto custody solution have been mooted as potential solutions to the problem.

Alongside Roger Ver and Brock Pierce, Terpin currently runs BitAngels, an angel investment group specifically directed at bitcoin and cryptocurrency entrepreneurs, and the BitAngels/DApps Fund which focuses on digital currency.

Cryptocurrency Startup Swarm Is Selling Tokens Backed by Robinhood Shares

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Cryptocurrency startup Swarm has an ambitious plan to democratize venture capital, and it has today taken a major step toward that goal by listing tokens that allow investors to purchase fractional shares in privately-owned fintech darling Robinhood.

No, Robinhood, a wildly-popular commission-free stock trading app that recently earned a $5.6 billion valuation, isn’t holding a security token offering (STO), nor has it even announced plans to make its shares available to the general public through a traditional public listing.

Those hurdles, however, did not prevent Swarm from finding a way to bring Robinhood shares to the public anyway.

Here’s how it works. Through partnerships with brokers and syndicate managers, Swarm has sourced equity from former Robinhood employees looking to cash out before the firm’s eventual IPO. That equity is held by what is essentially a shell company, whose shares are then listed on the Swarm platform as SRC-20 tokens.

All of this, Swarm says, can be accomplished without Robinhood’s permission — much less its willing participation. In fact, when the crypto startup first announced in June that it planned to turn Robinhood shares into cryptocurrency tokens, a Robinhood spokesperson told CCN that the firm was not even aware of Swarm. When reached for comment today, the firm provided the same statement and said that it had no further comment.

robinhood cryptocurrency ethereum classicSwarm believes it has found a way to make private equity more accessible to non-VCs.

In any case, these tokens are now live on the Swarm platform, with a hard cap of $1 million in contributions.

“Secondary equities transactions and refinancing of legal entities which hold private company equity are not new in the United States. What’s new here is the tokenization of these assets, and the doors opened by this innovation,” said Philipp Pieper, CEO of Swarm Fund, in a statement.

He added:

“One of the key innovations of tokenization is that token owners can participate in the value creation of the very network they are part of. Swarm is bringing this paradigm shift to companies that are key players within this movement, but have yet to permit the network to participate.”

At present, though, that democratization of VC can only go so far. Due to regulatory concerns, Swarm tokens are restricted to accredited investors, who must demonstrate that they have a net worth of at least $1 million or an income above $200,000 ($300,000 combined if married) in each of the past two years and expect to meet that threshold in the present year as well. The firm has said that it hopes it will be able to make its products available to retail investors at some point in the future.

As CCN reported, Swarm has also announced plans to tokenize equity in other privately-owned tech companies such as Coinbase, Ripple, and Didi, though their shares have not been listed on the firm’s platform. Coinbase allegedly sent Swarm a cease-and-desist letter, but a Swarm spokesperson told CCN at the time that the company was confident that it would be able to proceed with its plans.

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AMA With Origin Team Reveals Plans for Decentralized Sharing Economy

Matt Liu, Josh Fraser and former PayPal head Yu Pan want to bring the blockchain to the sharing economy. The trio is devising a platform with an emphasis on inclusive, peer-to-peer service hubs designed to decentralize the same consumer cost-friendly business models that have made companies like Airbnb, Uber and Lyft so popular in recent years.

On August 9, 2018, the three hosted an Ask Me Anything (AMA) session on Reddit to discuss the project known as Origin.

According to Fraser, Origin has sought to build something that would classify as a “community effort” from the very beginning. Inspired by systems like the Ethereum Project, Protocol Labs and Ox, executives aim to give individuals new ways of trading code, information and cryptocurrency.

What Does Origin Do?

Origin targets the global sharing economy by seeking to create decentralized, peer-to-peer marketplaces. Buyers and sellers can engage in transactions through a distributed open web using the Ethereum blockchain and the Interplanetary File System (IPFS). The platform is fully decentralized and claims to decrease censorship.

One of the initial questions was why Pan — who was previously involved in both Google and PayPal, some of the internet’s biggest companies — decided to work with Origin and enter the crypto field in the first place. Pan replied that it was at PayPal where he met both Fraser and Liu, who increased his interest in the ideals and strengths of digital currencies.

“It was just really exciting seeing what the field has become,” he explained. “Before this, I was working on VR, mobile streaming, kids’ activities, electronic lending and some robot stuff.”

Bigger, Better and Broader

The question served as a minor introduction. From there, the inquiries became more complicated and diverse, and centered on Origin’s later plans. One Reddit user asked about the company’s finances and potential insurance offerings. Insurance has become a top issue in the crypto space — particularly how exchanges and crypto-based ventures plan to insure and protect workers and clients alike.

According to Liu, new forms of decentralized insurance options are likely to emerge in the future, as there probably won’t be a parent company providing initial protection for such platforms. While nothing presently exists, he says that Origin is working on arbitration that utilizes crypto-economic incentives and on-demand insurance services.

One Thing Leads to Another

The discussion on insurance led to one regarding customer safety, as well as company compliance. With regulation still up in the air, many members of the public say they don’t trust cryptocurrency and call it “risky.”

One user stated that centralized platforms have “vetting systems or programs for new drivers or hosts to be initiated” and asked if these elements would still be present with a decentralized platform.”

Fraser responded that Origin will instill strong identity layers through what’s known as the ERC 725, an open identity standard built through the Ethereum network. “We’ve seen the dangers of companies having too much power from controlling user data,” he explains. “From a practical standpoint, a lot of the other features we’re wanting to build into our platform require a trustworthy identity system in place for them to work. We’re proud to be able to contribute on this important standard for the benefit of the whole community.

“Users on the Origin platform will be able to build their reputations across multiple marketplaces, and people will be able to decide for themselves who they want to trust and transact with. Trusted third parties will be able to verify parts of your identity, and then publish attestations on the blockchain on your behalf.”

Cryptocurrency Markets Maintain Momentum Despite Slight Retracement

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The cryptocurrency markets continued their positive momentum on Wednesday evening as most of the coins held on to the double-digit gains achieved over the past 24 hours. Most importantly, altcoins acted independently of the bitcoin price, with several performing significantly better than the largest cryptocurrency by market cap.

As of press time on Wednesday, BTC was trading at around $6,350, having briefly even crossed $6,600 during the day before falling back. Ethereum roared back to the $300 mark, as noted earlier, although it had gone down slightly to the $286 level at press time — still a rise of 10 percent overall.

Perhaps the most sluggish of performers was bitcoin cash, which only rose by five percent to settle at the lower $510’s after having even touched the $530 level during the day. Ripple (XRP) also managed to claw back some of the massive losses experienced over the past days with a solid 12 percent gain and was trading at $0.288 on Bitfinex, although it had reached the $0.30 mark earlier in the day.

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EOS was also up by around eight percent over the past 24 hours, settling at around $4.70, whilst stellar was trading at around $0.22, a sluggish four percent increase which was below the rest of the market’s performance. Litecoin was also up by around eight percent to retake the $56 level but was still way back from recovering the massive losses made over the past days.

NEO and ethereum classic posted impressive increases of over 15 percent each, although the former dropped back to below the $17 level after some heavy selling in the evening on Wednesday. ETC managed to maintain the $12 level after posting an impressive 20 percent increase over the past few hours, although this subsided to trade at around $12.20 at press time.

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Cardano was quite sluggish when compared with other currencies as it only increased by about five percent to trade at $0.095 at press time.

Other smaller currencies by market cap, such as VET and IOT,  also began a good recovery from the slaughter of the past days when they traded at around $0.008 and $0.46 respectively, representing increases of 13 and eight percent.

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