Do you have a bit of cryptocurrency in your pocket? With the rise of a Bitcoin to the value of US$4,374 (as of Oct. 2) many who don’t have a Bitcoin or two are envious of those who do. And while there are a great many uses for Bitcoin and other cryptocurrencies, the fact of the matter is, Bitcoin is the currency of choice by the cybercriminals perpetrating ransomware attacks across the globe.
Who’s Embracing Cryptocurrencies?
Mobile communications providers are embracing cryptocurrencies. AT&T filed and has been awarded a patent for a “decentralized and distributed secure home subscriber server.” In a nutshell, mobile transactions will be possible using Bitcoin within the AT&T mobile ecosystem if the claims included in the patent come to fruition. AT&T also filed a separate patent (pending) for “generating a service provider based secure token” using the Bitcoin blockchain methodology. The company is not alone—more than 1,100 patents have been filed in which Bitcoin is a factor within the mobile device ecosystem.
Banking is another sector embracing cryptocurrencies, albeit in a much more measured manner. But if those patent applications are any indication as to what the future holds, there are almost 400 patent applications where banking and cryptocurrency like Bitcoin is a key ingredient. Bank of America has its name attached to 9.5 percent of these applications. Again, a harbinger that cryptocurrencies are here to stay.
Indeed, CNBC tells us how the Mizuho Financial Group, a Japanese bank, is spearheading the push for Japanese digital currency, J-Coin. The consortium of Japanese banks has not been made public, but Japan Post Bank has been identified as another Japanese bank engaged. The J-Coin will be denominated in Japanese Yen, with a target launch in 2020 (prior to the Tokyo Olympics).
Similarly, Arabian Business ran a story on EmCredit, a subsidiary of Dubai Economy, and its plans to create a digital currency called emCash. Why? According to Ali Ibrahim, deputy director general of Dubai Economy, “Financial identity to contactless transactions reinforce Dubai as a competitive business destination.”
With the Future Apparently Bright, What’s Not to Like?
There is no argument that a certain criminal element is embracing cryptocurrencies, both for the anonymity provided as well as the ease with which unsavvy investors can be fleeced of their investments. These individuals are allegedly creating shells and calling them cryptocurrencies, and then offering an “initial coin offering” (ICO) to take your cash.
Last week the Security and Exchange Commission (SEC), charged Maksim Zaslavskiy (he has 6,900+ followers on LinkedIn) and his two companies DRC World (Diamond Reserve Club) and ReCoin with fraud. The SEC allegation is Zaslavskiy soaked ReCoin investors for a few million dollars, as he promised in his “initial coin offering” proceeds would be used to purchase real estate and hire teams of lawyers, brokers and accountants. Apparently, his investments only added up to $300,000 and he failed to hire all those experts. A separate ICO for DRC World solicited investors, from which the proceeds would be used to purchase diamonds. The SEC alleges that Zaslavskiy has purchased no diamonds and has not engaged in any business operations to do so. Though the SEC received a court order to freeze his assets and those of his companies, which would cause many to hunker down, not Zaslavskiy. A quick peek at various social networks shows Zaslavskiy remains active and posting about cryptocurrency.
Separately, the Department of Justice brought charges against Alexander Vinnik, whose Bitcoin exchange, BTC-e, was deeply engaged in money laundering and other criminal activities. The indictment details how Vinnik’s little empire processed more than $4 billion worth of transactions, the majority of which were associated with criminal activity.
It’s the Exchange, Not the Cryptocurrency, Right?
South Korea’s Financial Services Commission (Korean language link), acknowledged Bitcoin is well-anchored within the digital economy of the country, but nonetheless, ICOs will not be permitted. The commission identifies the warning issued by the SEC, the ban of ICOs by the China’s People Bank and the Singapore monetary authorities—all of which have issued warnings about cryptocurrencies and initial coin exchanges.
The People’s Bank of China issued a full-halt to any ICO activities in China Sept. 4. It went on to note that any entity that has completed ICO fundraisings should plan to return the funds. Xinhua news service reports the statement described “ICOs, in essence, are a kind of unauthorized and illegal public fundraising, which is suspected of being related to criminal activities such as financial fraud and pyramid schemes.” In 2017, Xinhua notes, the National Committee of Experts on Internet Financial Security Technology found 65 ICOs have taken place in China already, taking in 2.62 billion yuan (~$394 million) from 105,000 investors.
In Singapore, the Monetary Authority of Singapore provided clarification to its “regulatory position on the offer of digital tokens in Singapore.” While not outlawing cryptocurrencies, it has seen the evolution where the tokens or e-currency is implied to be a share or unit in a “collective investment scheme.” In those instances, the authority will regulate.
The concept of cryptocurrencies remains solid, as evidenced by the rise and acceptance of Bitcoin. The creation of electronic/digital currency exchanges and ICO’s is fraught with problems, and are being either regulated or banned on a wide basis.
The referenced SEC’s Investor Bulletin: Initial Coin Offerings, issued in late July, highlights companies are using the ICO and digital token sales to raise capital. It also lists appropriate uses and potential warning signs of investment fraud:
- Guaranteed high investment returns
- Unsolicited offers
- Sounds too good to be true
- Pressure to buy RIGHT NOW
- Unlicensed sellers
- No net worth or income requirements
The secure technology associated with the digital currencies are what provides the staying power, is driving new and novel means to use the technology and has solidified its place in the financial milieu.
As more and more ICO’s are hitting the market, including those with “celebrity endorsements,” we have but one piece of advice: Caveat Emptor.