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More than 10 percent of $3.7 billion raised in ICOs has been stolen: Ernst & Young

by UNTV News   |   Posted on Tuesday, January 23rd, 2018

FILE PHOTO: A man walks past an electric board showing exchange rates of various cryptocurrencies including Bitcoin (top L) at a cryptocurrencies exchange in Seoul, South Korea December 13, 2017. REUTERS/Kim Hong-Ji

NEW YORK (Reuters) – More than 10 percent of funds raised through “initial coin offerings” are lost or stolen in hacker attacks, according to new research by Ernst & Young that delves into the risks of investing in cryptocurrency projects online.

The professional services firm analyzed more than 372 ICOs, in which new digital currencies are distributed to buyers, and found that roughly $400 million of the total $3.7 billion funds raised to date had been stolen, according to research published on Monday.

Phishing was the most widely used hacking technique for ICOs, with hackers stealing up to $1.5 million in ICO proceeds per month, according to the report.

The research also noted that the volume of ICOs has been slowing since late 2017. Less than 25 percent of ICOs reached their target in November, compared with 90 percent in June.

The study comes amid a cryptocurrency investing craze, with young companies raising hundreds of millions of dollars online to fund their projects, with often little more than a handful of employees and a business plan outlined in a so-called “white paper”.

The challenges faced by more recent ICOs in reaching their targets are partly attributable to the lower quality of projects, as well as issues that have emerged around earlier projects, said Paul Brody, global innovation leader for blockchain technology at Ernst & Young (EY).

“The volume just exploded, people raised their fundraising goals and the quality just dropped,” Brody said in an interview.

“We were shocked by the quality of some of the white papers, we see clear coding errors and we see conflicts of interest between the companies issuing tokens and the community of token holders.”

In ICOs companies typically raise money to build new technology platforms or to fund businesses that use cryptocurrencies, also called tokens, and blockchain, the software that underpins them. Yet for many of these projects the need for blockchain and cryptocurrencies is often unjustified, according to EY.

It also noted valuations of ICO tokens are often driven by “fear of missing out”, or “FOMO”, and have no connection to market fundamentals such as project development. EY said “FOMO” has led investors to pour money into ICOs at record speeds, with the 10 shortest lasting ICOs attracting $300,000 per second on average.

The study also found several instances in which the underlying software code of a project contained hidden investment terms that had not been disclosed, or contradicted previous disclosures. For example, a whitepaper might state that there will be no further issuance of a cryptocurrency, while the code might leave that option open.

Reporting by Anna Irrera

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Gibraltar moves ahead with world’s first initial coin offering rules

by UNTV News   |   Posted on Monday, February 12th, 2018

FILE PHOTO: Cryptocurrencies are seen on a website that tracks the value of initial coin offerings (ICO) in this illustration photo taken September 5, 2017. REUTERS/Thomas White/Illustration/File Photo

LONDON (Reuters) – Gibraltar will introduce the world’s first regulations for initial coin offerings with dedicated rules for the cryptocurrency sector whose fast growth has triggered concern among central bankers.

They are worried about financial stability and protecting consumers but regulators have so far adopted a patchwork approach to ICOs, ranging from bans in China to applying existing securities rules in the United States.

This has created legal uncertainty for transactions that sometimes straddle many countries.

An ICO involves a company raising funds by offering investors tokens in return for their cash or cryptocurrency such as bitcoin, as opposed to obtaining shares in the company from a traditional offering.

Over $3.7 billion was raised through ICOs last year, up from less than 82 million euros in 2016, a leap that has rung alarm bells among central bankers as some firms rush to issue tokens before new rules are introduced.

Gibraltar’s government and Gibraltar Financial Services Commission (GFSC) said lawmakers will discuss a draft law in coming weeks to regulate the promotion, sale and distribution of tokens connected with the British overseas territory.

The GFSC said it would represent the first set of bespoke rules for tokens in the world.

“One of the key aspects of the token regulations is that we will be introducing the concept of regulating authorized sponsors who will be responsible for assuring compliance with disclosure and financial crime rules,” said Sian Jones, a senior adviser to the GFSC.

The regulation will establish disclosure rules that require adequate, accurate and balanced information to anyone buying tokens, the government and Financial Services Commission said in a joint statement.

Central bankers have lined up in recent weeks to call for cryptocurrencies and ICOs to be regulated, saying that while innovation in finance can bring benefits, consumers must be protected.

“Tokens could post substantial risks for investors and can be vulnerable to financial crime without appropriate measures,” the finance ministers and central bank governors of France and Germany said in a letter on Friday.

“In the longer run, potential risks in the field of financial stability may emerge as well,” said the letter calling on the Group of 20 economies (G20) to discuss cryptocurrencies at their next meeting.

Gibraltar’s move is being closely watched by regulators from across the world, including Britain and Singapore, who may come forward with their own rules.

Jay Clayton, head of the U.S. Securities and Exchange Commission, said on Tuesday that tokens are securities and subject to the same investor protection rules as share offerings.

French markets watchdog AMF published a discussion paper last October on ICOs, but it has not yet said if it will push ahead with rules.

Gibraltar is looking to boost its thriving financial services industry beyond gaming after Britain, along with Gibraltar, leave the European Union in 2019.

It blazed a trail in January by introducing the world’s first bespoke license for “fintech” firms using the blockchain distributed ledger technology that underpins ICOs.

“We remain fully committed to ensuring that we protect consumers and the reputation of our jurisdiction,” said Albert Isola, Gibraltar’s commerce minister.

Gibraltar is also reviewing its rules for investment funds that involve cryptocurrencies and tokens.

($1 = 0.8159 euros)

Editing by Anna Willard

 

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Uniform global curbs on cryptocurrency trading may be hard: BOJ official

by UNTV News   |   Posted on Friday, January 26th, 2018

FILE PHOTO: Photo illustration of Bitfinex cryptocurrency exchange website taken September 27, 2017. Picture taken September 27, 2017. REUTERS/Dado Ruvic/Illustration

TOKYO (Reuters) – Policymakers around the world may debate ways to deal with the volatility of bitcoin and other cryptocurrencies but imposing global, across-the-board regulations on their trading won’t be easy, a senior Bank of Japan official said on Thursday.

South Korea and China have tightened regulations but Japan wants to ensure any rules that it adopts won’t hinder innovation, said Hiromi Yamaoka, head of the Japanese central bank’s division on payment and settlement systems.

“There’s undoubtedly growing interest among global policymakers on how to deal with cryptocurrencies,” Yamaoka, whose division also oversees cryptocurrencies, told Reuters.

“Japan’s approach would be to think about how to curb excesses without discouraging innovation,” he said.

Bitcoin BTC=BTSP soared more than 1,700 percent last year to a record high as investors snapped up the virtual currency on expectations of further steep gains.

Alarmed by the global boom, national authorities across the globe, particularly in Asia, have attempted to put the brakes on trading of cryptocurrencies. Fears of a wider clampdown pushed bitcoin down nearly 20 percent last week.

Yamaoka said while there were some “speculative moves” in the cryptocurrency market, it was hard to say whether bitcoin was experiencing a bubble because cryptocurrencies have no underlying assets to measure their real value.

It will also be hard to define which cryptocurrency needs to be regulated and for countries to agree on a uniform set of rules, given it isn’t easy to come up with common regulations even for traditional banking services, he said.

“It’s uncertain whether global cooperation would mean global regulation…It may mean sharing a common view on the risks involved in cryptocurrency trading and seeking to send out a common message,” he said. “Global harmonization may not necessarily mean global regulation.”

NO MAJOR PROBLEMS SO FAR
France has urged for debate on bitcoin at a meeting of G20 major economies in Argentina in March. Germany has also said any attempt to regulate cryptocurrencies must be on a global scale.

Yamaoka said while cryptocurrency prices have been volatile, they have yet to disrupt Japan’s banking system as cryptocurrencies are hardly used for payments and settlements.

As long as they are not used much for payments and settlements, they won’t affect monetary policy much, he said.

But policymakers need to check how much exposure banks have, how much funds are investing in them globally, and how much leverage investors are taking, Yamaoka added.

“So far, I don’t think there are any big problems. But we need to look carefully,” he said.

“If the exposures turn out to be huge, we may need to follow up and work to maintain financial stability together with the Financial Services Agency.”

Japan’s global share of the bitcoin market jumped after a clampdown last year by Beijing. The government in April granted cryptocurrencies legal status as a means of settlement and recognized several digital currency exchanges.

Additional reporting by Yoshifumi Takemoto; Editing by Jacqueline Wong

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Russia ready to regulate, not ban cryptocurrencies

by UNTV News   |   Posted on Thursday, January 25th, 2018

FILE PHOTO: A coin representing the bitcoin cryptocurrency is seen on computer circuit boards in this illustration picture, October 26, 2017. REUTERS/Dado Ruvic/File Photo

MOSCOW (Reuters) – Russia’s Finance Ministry said on Thursday it was working on legislation to regulate cryptocurrency transactions without fully banning them or legalising digital FX as a means of payment in Russia.

Russia had initially said it would ban crypto-currencies as they could be used to launder money and finance terrorism. But as such currencies and particularly Bitcoin grew popular worldwide, Russian authorities have changed tack.

The ministry said it had prepared a bill that would permit trade in cryptocurrencies through digital exchanges which met certain conditions and would also cover initial coin offerings (ICOs).

Doing this, the ministry said, would reduce the risk of fraud and make it possible to tax cryptocurrency transactions to support the state budget.

The ministry highlighted that digital currencies and tokens would not be allowed to replace the Russian rouble.

“It should be noted, that the use of cryptocurrencies in the territory of the Russian Federation as a means of payment is not being suggested,” the ministry said in a statement.

Authorities around the world, particularly in Asia, have attempted to rein in the global boom in trading bitcoin and other cryptocurrencies – a form of digital money created and maintained by its users.

Chinese authorities have banned initial coin offerings and shut down local trading platforms, while South Korea – where speculation on cryptocurrencies is also rife – is working on plans to ban virtual coin exchanges.

The Russian ministry stopped short, however, of proposing a full ban.

“Trades with cryptocurrencies have become so widespread, a legal ban on such activity would lead to the creation of conditions for the use of cryptocurrencies as an instrument to service illegal businesses, launder criminal incomes, and finance terrorism,” the Russian ministry said.

Reporting by Andrey Ostroukh and Jack Stubbs; Editing by Toby Chopra

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