Ethereum Upgrade and Blockchain Identity Solutions Progress, SEC Addresses Digital Asset Custody, Data Published on ICO Penalties and Crypto Crimes | BakerHostetler

Ethereum 2.0 Moves Closer to Launch, Blockchain Identity Solutions Announced

By Jordan R. Silversmith

After having launched last week, the deposit contract for the newest upgrade to the Ethereum blockchain, Ethereum 2.0, now tops out at over 50,000 ETH, equivalent to over $22.5 million, which is one-tenth the way toward the threshold needed to activate the update. The deposit contract, a cornerstone of the Ethereum 2.0 update, is a bridge for major change in the Ethereum network. Rather than maintaining the traditional proof-of-work (PoW) consensus algorithm as its foundation, Ethereum 2.0 is intended to help the Ethereum network migrate away from PoW and toward a new technical infrastructure based on proof of stake (PoS). Once Ethereum 2.0 is triggered and goes live, early investors of Ethereum on the new network, or “stakers,” will reportedly begin earning block rewards at an estimated rate of 8 percent to 15 percent annually.

A collection of Spanish firms, including banking giants and energy firms, recently announced the development of a new “self-managed” digital identity system founded on blockchain technology. The group, named “Dalion,” said in an announcement that the mobile device-enabled ID platform will allow users to have more control over the ways their personal data is used. The group mentioned likely use cases including car rentals, insurance and loan applications, and sign-ups with utility providers. A proof-of-concept trial found the solution works “satisfactorily,” and while a second phase launches this month, there has been no word on when the platform will be released to the public.

A Japanese e-commerce giant recently announced that a blockchain platform is being integrated into the company’s online travel booking subsidiary. The integration of the platform means that customers can opt in to use the platform’s self-sovereign identity app and access bookings at more than 600,000 hotels and 200,000 rentals, according to an announcement. The blockchain-powered platform will reportedly allow customers to store and exclusively access travel documents in one location and eventually use cryptocurrencies to pay for bookings. The integration is scheduled to go live within the next two weeks.

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SEC Addresses Digital Asset Custody, Crypto Firms Achieve Licenses/Certs

By Robert A. Musiala

This week, the U.S. Securities and Exchange Commission (SEC) Staff of the Division of Investment Management, in consultation with the Staff of the SEC’s Strategic Hub for Innovation and Financial Technology (FinHub), published a statement addressing the recent letter by the Wyoming Division of Banking that gave a trust company authority to provide custodial services for digital assets, “including virtual currency and digital (tokenized) securities” under Wyoming law. The SEC statement encourages interested parties “to engage with the Staff directly on the application of the Custody Rule to digital assets, including with respect to the definition of ‘qualified custodian’ under the rule.” The SEC statement also calls on interested parties to submit comments to the SEC on the topic of the “Custody Rule and Digital Assets” and provides a list of topics that the SEC is interested in discussing with industry participants.

According to reports this week, cryptocurrency custodian Anchorage recently received a SOC 1 Type 1 certification from a Big Four professional services firm. The SOC 1 Type 1 certification is an independent attestation of Anchorage’s internal systems and controls. Another report this week noted that Texture Capital has received its broker-dealer and alternative trading system licenses from the Financial Industry Regulatory Authority (FINRA). The licenses are a key step forward in the firm’s plans to launch a marketplace for trading private securities issued on blockchain networks

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Crypto Fraudster Sentenced, Data on ICO Penalties and Crypto Crimes Published

By Veronica Reynolds

Last week, a software engineer formerly employed at a major tech firm was sentenced to almost a decade in prison for 18 federal felonies related to an attempt to defraud his former employer of more than $10 million. The scheme involved the engineer using his role at the company to steal “currency stored value” (CSV), including digital gift cards, and reselling the CSV online. The sentencing may have been influenced and more severe due to the fact that the man fraudulently used email addresses associated with his colleagues in an attempt to cover his tracks, as well as a bitcoin “mixing” service in an effort to hide the source of the funds that were directed to his bank account.

The SEC recently reported that in 2020 it collected around $1.26 billion in penalties from enforcement actions against unregistered initial coin offerings (ICOs), the majority of which was collected from Telegram. And abroad, the Canadian Revenue Agency is seeking judicial intervention to force cryptocurrency exchange Coinsquare to relinquish more than seven years of client data in an effort to trace tax gains received by Canadians who failed to report such gains to the agency.

A recent report by Crystal highlights that fraud and cybersecurity issues continue to proliferate in the cryptocurrency industry. The report details “security breaches, fraudulent activity, cyber-terrorism, and scams” related to cryptocurrencies between 2011 and 2020, noting 113 security attacks and 23 fraudulent schemes, which have resulted in approximately $7.6 billion worth of stolen crypto assets. Of that amount, $2.8 billion is attributed to theft resulting from security breaches and $4.8 billion is from scams.

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