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Circle CEO Talks Tornado Cash Sanctions and the Fight for Privacy

Major crypto firms Circle and Coinbase have been forced to comply with the US Treasury Department’s sanctions against Tornado Cash under Bank Secrecy Act (BSA) requirements, said Circle CEO Jeremy Allaire on Tuesday.

The executive discussed the precedent set by the department’s latest move as it pertains to privacy and security on the internet, and what it means for the blockchain industry going forward.

Crossing a New Threshold

As explained by Allaire in a Twitter thread, both Circle and Coinbase have “restricted the movement of USDC funds” into sanctioned ETH addresses associated with Tornado Cash. The Treasury Department provided a full list of these addresses in a press release on Monday.

The Centre consortium, founded between Circle and Coinbase, has the power to freeze USDC from entering certain addresses at the smart contract level. According to the analytics company Dune, Tornado Cash’s addresses were added to USDC’s blacklist the day of the Treasury’s announcement.

The CEO highlighted that nearly all Virtual Asset Service Providers have likely taken similar steps, given that avoiding US sanctions obligations could land them up to 30 years in prison. Nevertheless, he warned that the state’s latest impositions have “crossed a major threshold”  in internet history, in that a major government is now blocking the functioning of open source software.

“It raises extraordinary questions about privacy and security on the internet, and the future of public internet digital currency,” he said. “We have noted the tension between privacy and security as a policy matter – yesterday, this stopped being an abstraction.”

Regulating an Open-Source Protocol

Unlike other centralized entities, Tornado cash is an open-source tool deployed using smart contracts on Ethereum. It can be used by anybody to enhance the privacy of their transactions – but is also frequently used by criminals to cover their on-chain tracks after stealing money.

For example, Nansen analytics found in late April that about 15% of Tornado Cash deposits were stolen goods from the Ronin Bridge hack – the largest hack in Defi history.

Given the circumstances, Allaire said that it is now a time for the crypto industry to “sharpen its focus” on policy issues related to financial privacy. While policy efforts in the past have focused on centralized intermediaries and issuers, more attention must be given to “open source, self-running protocols” from now on.

Allaire added that Circle will be contacting crypto industry leaders and developers in the coming days to construct policy frameworks aimed at striking the balance between privacy, and financial integrity surrounding open-source code.

“This is a pillar in the fight to protect DeFi and the future of public internet digital currency,” he concluded.

Vitalik Buterin – co-founder of Ethereum – revealed on Tuesday that he personally used Tornado Cash when sending cryptocurrency donations to Ukraine. He said the transaction was geared towards “protecting the recipients,” rather than his own identity.

The post Circle CEO Talks Tornado Cash Sanctions and the Fight for Privacy appeared first on CryptoPotato.

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Robinhood Crypto Fined $30 Million by New York Regulator

Robinhood Crypto – the cryptocurrency-focused unit of the online brokerage firm – has been slapped with a $30 million fine by the New York State Department of Financial Services (NYDFS).

The department alleged on Tuesday that Robinhood violated both anti-money laundering and cybersecurity regulations, by neglecting to certify adequate programs for each. As a result, the company will also be forced to retain an independent consultant to ensure it is compliant with NYDFS regulations.

Robinhood’s Regulatory Shortcomings

As detailed by the Wall Street Journal, the regulator found “significant failures” in Robinhood’s oversight of its compliance programs. It both failed to allocate the necessary resources to those programs as the firm grew and failed to foster a “culture” of compliance.

For one, the NYDFS stated that Robinhood had an insufficiently staffed Bank Secrecy Act and anti-money laundering compliance program. Furthermore, it did not make appropriate upgrades to its transaction monitoring system to match its growing size, transaction volume, and customer profiles.

Regarding its cybersecurity program, Robinhood allegedly followed policies that did not align with NYDFS virtual currency and cybersecurity regulations. The regulator said it even lacked a dedicated phone number on its website for receiving customer complaints, making for inadequate consumer protection

The department uncovered these shortcomings as part of an investigation disclosed by Robinhood in a filing with the Securities and Exchange Commission last year. The brokerage initially expected to pay a penalty of $10 million, but raised those expectations to $30 million in July 2021.

Tuesday’s settlement marked the regulator’s very first enforcement action within the cryptocurrency sector.

“DFS will continue to investigate and take action when any licensee violates the law or the Department’s regulations, which are critical to protecting consumers and ensuring the safety and soundness of the institutions,” said NYDFS superintendent, Adrienne A. Harris, in a statement.

Kraken Under Investigation

Similarly, the popular cryptocurrency exchange Kraken is also being investigated for sanctions violation by the US Treasury department. The latter alleges that Kraken serviced sanctioned Iranian users, and was expected to levy a significant fine against the exchange as of last week.

Money laundering and illicit finance in crypto have been top of mind for U.S. regulators in 2022. However, the Treasury Department clarified in March that the use of digital assets in such schemes “remains far below that of fiat currency and more traditional methods,” in a yearly report on the matter.

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Huobi Receives Regulatory Approval in Australia (Report)

The Aussie financial regulators reportedly greenlighted one of the leading cryptocurrency platforms – Huobi Group – to register as a digital currency exchange provider in the country. This is the company’s latest expansion step and first in Australia.

Founded in China, Huobi had to move its operations abroad due to the adverse stance against the crypto industry in the world’s most populated nation. It has headquarters in numerous countries, while its main base is in the Seychelles.

Huobi Arrives in ‘The Land Down Under’

According to a recent coverage, the regulatory nod from the Australian Transaction Reports and Analysis Centre (AUSTRAC) enabled Huobi Global to provide cryptocurrency services to local consumers. They can use the platform to purchase and sell digital assets, such as Bitcoin and Ether, in their local currency (the Australian dollar).

At a later stage, Huobi plans to provide Over-the-Counter (OTC) services. Commenting on the move was the firm’s CFO – Lily Zhang:

“We have always made security and compliance our highest priorities, as we believe that only under this principle can we grow alongside the industry to provide professional and secure services to our users.”

Over the years, Huobi secured regulatory approval in a range of nations, including Japan, South Korea, the USA, and Hong Kong. In November last year, it migrated its spot-trading operation to Gibraltar due to the crypto-friendly stance of the local watchdogs.

“Gibraltar, as a highly experienced, sophisticated, and globally recognized international financial services center, fits our needs well,” Du Jun – Co-Founder of Huobi Group – said at the time.

A week ago, the Dubai Virtual Assets Regulatory Authority (VARA) allowed the platform to offer a variety of cryptocurrency products and services to customers in the UAE’s financial hub.

Zhang outlined that Huobi is “pleased to see the growing number of licenses and registrations” the organization receives, which proves its goal to develop the industry and achieve global expansion.

Huobi’s Problems Because of the Bear Market

Similar to Coinbase, Gemini, CryptoCom, and many other rivals, Huobi Group also dismissed some of its workforce. The main reason for the 30% layoff was said to be “the sharp drop in revenue after the removal of all Chinese users.”

A few weeks later, the entity halted its Thailand operations, requesting clients to withdraw all their assets before shutting down permanently.

“After the closure of the Huobi Thailand platform, Huobi Thailand will no longer have any connections nor legal binding with Huobi Group and its affiliates. Huobi Group and its affiliates are not and will not be responsible for any issues regarding to Huobi Thailand,” the company explained.

A month ago, rumors indicated that one of the firm’s Founders – Li Lin – was looking to sell his stake in the exchange. The exec holds more than 50% of the shares.

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European Banking Authority is Concerned About The Lack Of Crypto Experts

On July 27, José Manuel Campa, president of the European Banking Authority (EBA), said that he was “concerned” that the EBA could not comply with the regulations ordered by the MiCA due to the lack of qualified personnel specialized in cryptocurrencies.

Campa said that the demand for specialized personnel in the technology and cryptocurrency area in Europe “is in high demand across society,” so it has become almost impossible for the EBA to hire staff specialized enough to meet the requirements of the new job offers.

The EBA was created in the wake of the financial crisis to ensure that European banks had enough capital to face any economic problem. As the crypto ecosystem grew, part of its functions implied supervising some stablecoins and cryptocurrencies used in Europe as a means of payment.

EBA is Worried By The Dynamic Nature of the Crypto Industry

Campa noted that the agency is concerned about the logistics of planning how to correctly exercise its new powers because even though it is almost 3 years away from knowing exactly which digital currencies the EBA will oversee, a lot can change in the crypto ecosystem during that time due to its dynamic creative nature.

“My concern is more about making sure the risk we have identified . . . [in the crypto market] is properly managed. If we don’t do as well as we should have, we’ll have to live with the consequences,”

On the other hand, the EBA official was optimistic about the global macro scenario, noting that a financial crisis in Europe is highly unlikely to happen, at least in the “short term,” despite the high inflation and the economic contraction of the region as a whole.

“We’re not in a macro [economic] environment that’s pointing towards recession, we’re in a macro environment that’s pointing towards decreased growth . . . I’m not worried about banks really cutting down credit,”

MiCA Regulations to Take Effect During 2023

The controversial MiCA establishes several rules for the international regulation of the crypto ecosystem in Europe. It affects cryptocurrency issuers, exchange platforms, and wallets. It focuses mainly in stablecoins and how the crypto sphere can be safer and more stable.

According to Bruno Le Maire, French Minister of Economy, the regulation will put an end to “the crypto Wild West,” where the lack of regulation has facilitated many thefts and scams by people who take advantage of legal loopholes to commit their crimes.

Therefore, the EBA is short of time to assemble a specialized cryptocurrency team to enforce MiCA, especially since the independent agency does not have the same budget as other agencies and crypto companies around the world.

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Stablecoin Bill Delayed to September After Treasury Raises Concerns

The House Financial Services Committee has pushed back its long-awaited stablecoin bill to September following objections from Treasury Secretary Janet Yellen. This will delay congressional discussions on the subject until after the August recess, which ends on September 5th. 

Stablecoins and Bankruptcy

The legislation – negotiated between Committee Chair Maxine Waters (D-Calif) and Patrick McHenry (R-NC 10th District) – was initially scheduled for markup on Wednesday, July 27th. Its intention is to allow banks to issue stablecoins, and to let non-banks do so under oversight from the Federal Reserve. 

However, its legislative framework has furrowed the brows of both the Independent Community Bankers of America and the US Treasury. Secretary Yellen called Waters on Friday airing issues about how it would manage stablecoins held in custody on consumers’ behalf. 

Treasury reportedly suggested that the bill require wallet custody providers to segregate customers’ assets, ensuring their preservation in a bankruptcy scenario. 

This led to a stifling debate on the bill, which lawmakers claimed was near completion as of last week. Democrats attempted to implement the Treasury’s proposed change, while Republicans opposed it. 

Caitlin Long, CEO of digital asset bank Custodia, said this exact issue presents an “inherent problem” for non-bank stablecoin issuers. “Special receivership rules for banks & broker/dealers are designed to respect asset segregation,” she tweeted on Monday. 

The roadblock highlights Washington’s inability to establish a firm legislative foothold in crypto, alongside the growing partisan divide on the subject. 

Senators Lummis (Republican) and Gillibrand (Democrat) deliberately tried to foster cross-party cooperation on their digital asset bill unveiled in June. Though their proposed legislation also creates a stablecoin framework, Lummis believes it will likely not be tabled until 2023. 

Prioritizing Stablecoins

Stablecoins are arguably the largest blockchain innovation on both Washington’s and the Federal Reserve’s radar. 

Both Waters and McHenry called stablecoins a top priority following the President’s Working Group report on the assets in November. It warned that they may pose risks to financial markets, or assist criminals with money laundering if left unregulated. 

The central bank has also been exploring central bank digital currency (CBDC) as a potential alternative, or complementary partner to stablecoins. However, McHenry opposed this idea in May, claiming there were no cases for which CBDC issuance was necessary.

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Taiwan to Prohibit Purchasing Crypto With Credit Cards (Report)

Taiwan’s Financial Supervisory Commission (FSC) believes cryptocurrencies are risky and speculative assets. As a result, the regulator intends to prohibit the use of credit cards for crypto purchases.

Taiwan to Ban Credit Card Crypto Purchases

According to local reports, the FSC sent a letter to Taiwan’s Association of Banks earlier this month, asking credit card companies to stop facilitating payments for crypto-related merchants. The regulator also wants card providers to stop processing payments for stocks, futures, options, online gambling, and other high-risk transactions.

The FSC noted that credit cards should serve as a payment method for goods and services instead of facilitating financial investments and speculative trading.

The report added that credit card providers who currently service crypto merchants have three months to comply with the FSC’s requirement. After the deadline, the companies must submit an audit report to the regulator to show compliance.

Taiwan’s Central Bank Warns Against NFT Investing

Meanwhile, this is not the first time Taiwan has taken a tough stance against crypto-related activities. In April 2021, the country cautioned against investing in Bitcoin and other crypto assets, citing the “highly speculative” native of the asset class.

Three months later, Taiwan enacted anti-money laundering laws for digital asset service providers in the country. The AML rules require local exchanges to report transactions above $17,900 conducted in cash. In addition, customers must complete a mandatory know-your-customer KYC requirement before using any crypto exchange.

In June 2022, Taiwan’s central bank reportedly warned against investing in non-fungible tokens (NFTs) because the NFT market is full of fake transactions.

Taiwan to Launch CBDC

Despite its stringent stance against crypto assets, Taiwan is on the verge of launching a central bank digital currency (CBDC). Last month, the country’s central bank said it had been working on CBDC for the past two years, with retail trials already completed for the prototype.

Although the bank did not reveal the launch date for the CBDC, it noted that the digital currency would allow citizens to use a digital wallet to make payments without the need for a credit or debit card.

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Former Coinbase Product Manager Accused of Insider Trading

On July 21, the U.S. Department of Justice filed an indictment against Ishan Wahi, a former Coinbase manager, and two other individuals for obtaining approximately $1.5 million through cryptocurrency insider trading on the Coinbase exchange.

According to the Department of Justice, this is the first case of insider trading in the crypto industry. The defendants used their privileged knowledge while working at Coinbase to sell information to others and invest in cryptocurrencies scheduled for listing on the exchange.

Ishan Wahi and his brother Nikhil Wahi were arrested this morning in Seattle, Washington. Wahi’s partner and friend Sameer Ramani is still free but wanted.

Ishan Wahi Used His Coinbase Position To Commit Fraud

Wahi had access to exclusive messaging groups for high-ranking Coinbase employees. Because of this, he received privileged information about the exact date on which some cryptocurrencies would be listed on the platform, being able to invest large amounts of money before other people.

A Twitter post was critical to this investigation. The account reported that someone purchased “hundreds of thousands of dollars of tokens exclusively featured in the Coinbase Asset Listing post about 24 hours before it was published.” Coinbase replied and assured that it was already conducting the appropriate investigations, adding that whoever engaged in these fraudulent activities would be immediately fired and referred for prosecution.

After a month of investigations, Coinbase tracked down Wahi and scheduled him for a meeting on May 16, but the evening before the meeting, Wahi purchased a one-way flight to India. He couldn’t get away because he was arrested at the airport. Before his arrest, Wahi sent several messages to his brother and business partner, alerting them of the investigation.

All three defendants face conspiracy charges and wire fraud, each carrying a maximum sentence of 20 years. However, the maximum penalty can only be determined by the judge.

Crypto Crime Doesn’t Pay

Coinbase has a long track of collaborating with US authorities, both helping them fight crime and shaping their business to comply with federal regulators.

For Damian Williams, U.S. Attorney, these charges will serve as a reminder of U.S. authorities’ effectiveness in fighting crime, even breaking the myth that the Web3 is untouchable and outside the law.

“Today’s charges are a further reminder that Web3 is not a law-free zone. Just last month, I announced the first ever insider trading case involving NFTs, and today I announce the first ever insider trading case involving cryptocurrency markets. Our message with these charges is clear: fraud is fraud, whether it occurs on the blockchain or on Wall Street.”

Michael J. Driscoll, FBI Assistant Director, said that even though the fraud committed was on a cryptocurrency exchange and not in a traditional market, today’s action demonstrates “the FBI’s commitment to protecting the integrity of all financial markets.”

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South Korea Proposes to Defer Planned Crypto Tax Until 2025 

In a tax reform introduced on Thursday, the South Korean government proposed to postpone the planned 20% tax on crypto earnings for two years. If accepted, crypto earnings in South Korea will be taxed from 2025.

The tax plans for the digital asset sector were originally to kick in from January 2022. But in December 2021, the previous government deferred it for a year after massive backlash from investors. The digital asset taxation issue also figured in the Presidential poll campaigns early this year, in which the incumbent President emerged as a pro-crypto leader.

The Finance Ministry is planning to submit the bill related to the tax reforms in the National Assembly before September 2, media reports said.

Market Infra Before Taxation

The South Korean government is working on the “Digital Asset Basic Act,” a regulatory framework for the digital ecosystem in the country, and it’s likely to be introduced in 2024. The tax reforms introduced today are part of the new government’s economic policy roadmap. Among other things, it says the upcoming Digital Asset Basic Act should regulate ICOs and the listing of cryptocurrencies.

Before the election, Yoon Suk-yeol had said that crypto earnings should be taxed only after preparing proper market infrastructure for the digital asset sector.

Tax Threshold Unchanged

However, despite President Yoon Suk-yeol’s pro-crypto stance, his promise before the election that his government will increase the threshold for capital gains tax on crypto earnings from $2,000 to $40,000 has not been incorporated into the current tax reform.

The minimum taxable earning from crypto activities remains unchanged at KRW 2.5 million (US$1,900) in a financial year.

Part of Broader Tax Reforms

The deferment of the planned tax for the crypto sector is part of the broader tax reform marked by tax cuts to boost corporate investments.

“The government plans to help companies actively expand investment and create jobs…. If the tax cut boosts economic vitality, this will prop up the economic growth and boost tax revenue in the long term. Then, we could achieve the goal of enhancing fiscal soundness,” Finance Minister Choo Kyung-ho told a press briefing on Monday.

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Lummis-Gillibrand Crypto Bill Likely to Remain on Backburner This Year

The pro-crypto regulatory framework proposed by U.S. Senators Cynthia Lummis and Kirsten Gillibrand is unlikely to see the light of day this year.

Wyoming Senator Cynthia Lummis said on July 19 that the U.S. Senate is unlikely to vote on the bill this year.

“It’s a big topic, it’s comprehensive, and it’s still new to many US senators,” she told Bloomberg in an interview.

The wide-ranging scope of the legislation may make it difficult for lawmakers to digest quickly, she added. The bill, which was submitted in full on June 7, aims to protect investors without stifling innovation.

CFTC vs. SEC For Crypto Control

The legislation proposes that the Commodities and Futures Trading Commission (CFTC) becomes the official regulator of cryptocurrencies. Under this agency, they would be treated as commodities with more lenient rules and regulations.

Opposing the bill is Securities and Exchange Commission (SEC) Chairman Gary Gensler, who wants his agency to control crypto as he considers most of them to be securities. This would mean that crypto companies must jump through the same hoops as those offering stock trading and regular banking.

In June, Gensler said the new legislation could undermine the traditional finance industry, valued at a hundred times more than crypto.

The Lummis-Gillibrand bipartisan bill also outlines reserve requirements for stablecoin issuers, sanction compliance, and energy consumption reporting for proof-of-work miners.

The latter is something anti-crypto Senator Elizabeth Warren has been pushing for as she thinks crypto mining companies are killing the planet. Last week, Warren and five other Senators wrote to the Environmental Protection Agency (EPA) and the Department of Energy (DOE), citing the Bitcoin network’s energy consumption and demanding that mining firms report their usage.

Lummis said that the stablecoin provisions in the bill could make their way to the Senate Banking Committee “in the next few months” since they are deemed a priority.

The wheels of bureaucracy turn very slowly in the United States, which is still no closer to regulating the digital asset industry.

Market Rally Continues

Regardless of the regulatory uncertainty, crypto markets have continued to rally this week. The total market cap has topped $1.1 trillion for the first time in five weeks as Bitcoin and Ethereum hit multi-week highs.

However, macroeconomic clouds are still looming with a Fed rate hike and the declaration of recession in the United States expected next week.

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The UN Calls for Crytpo Clampdown in Kenya

The United Nations (UN) advised the governments of Kenya and other developing nations to impose comprehensive regulations on their cryptocurrency sectors.

Calling for a Clampdown

The global organization that maintains international peace and security – the United Nations – seems to have the cryptocurrency industry in its sight.

In a recent policy brief, it urged a range of developing countries, such as Kenya, to enforce strict rules on the sector, mandatory registration on crypto exchanges, and taxation on people who have generated earnings from trading with bitcoin or altcoins. In a bid to provoke a clampdown on the industry, the UN urged to:

“Require the mandatory registration of crypto-exchanges and digital wallets and make the use of cryptocurrencies less attractive, for example, by charging entry fees for crypto exchanges and digital wallets and/or imposing financial transaction taxes on cryptocurrency trading.

Regardless of the reason for the use of cryptocurrencies, crypto exchanges play a crucial role in enabling their broader deployment. Such exchanges function as clearinghouses, intermediating conversions between cryptocurrencies and sovereign currencies.”

Subsequently, the UN called on all banks and monetary institutions to stop providing clients with cryptocurrency services, including holding stablecoins and digital assets.

Crypto Thrives in Kenya

The initiative proposed by the United Nations might not be met with great joy in the African country. According to a recent study conducted by the same organization, Kenya is the leader in cryptocurrency adoption on the continent: 8.5% of the locals, or 4.25 million people admitted to being HODLers.

Interestingly, this adoption rate surpassed leading economies such as the United States (8.3%), which proves the narrative that digital assets are more popular in less developed nations.

The research determined that war-torn Ukraine is the global leader, with 12.7% of its residents having exposure to crypto, while Russia is second with 11.9%. Venezuela (10.3%), which has been battling high inflation and economic turmoil for years, ranked third.

Nonetheless, the UN stated that establishing the value of digital currencies held by different countries is difficult due to the lack of supervision in the space:

“The returns from cryptocurrency trading and holding are, as with other speculative trades, highly individual. On balance, they are overshadowed by the risks and costs they pose in developing countries. The sector is not regulated in the country and remains largely unregulated even in the developed world.”