Značka: law

Sen. Warren: Biden administration worked to stop crypto being 'dangerously intertwined' with banks

Referring to the events surrounding the collapse of FTX as “a handful of magic beans”, Massachusetts Senator Elizabeth Warren seemed to frame the “contagion” spreading through the crypto space as a partisan issue.Speaking at a Senate Banking Committee nomination hearing on Nov. 30, Warren addressed committee counsel Jonathan McKernan, who confirmed that FTX’s bankruptcy had largely not affected traditional banking institutions in the United States. The Massachusetts senator, an outspoken skeptic of cryptocurrencies, used some of her time to applaud the work of Federal Deposit Insurance Corporation, or FDIC, acting chair Martin Gruenberg, who attended as part of his nomination to assume the position as part of a five-year term.“Our banks stayed safe even as crypto imploded because many of President Biden’s regulators, like acting chairman Gruenberg, fought to keep crypto from becoming dangerously intertwined with our banks,” said Warren. “He did this despite the Trump administration’s and crypto boosters’ aggressive efforts to bring crypto and all its risks into traditional banking.”Gruenberg responded in the affirmative to one of Warren’s questions in which she claimed the banking system would have been “less safe” had firms like FTX received similar insurance from the FDIC:“The evidence is clear now. We had companies that were engaging in highly speculative activity, highly leveraged, and vulnerable to a loss of confidence in a run. They did not have direct exposures to the insured financial institutions, and as a result the failure of those firms was really limited to the crypto space, and ended up not impacting the insured banking system.”Senator Elizabeth Warren speaking at a Senate Banking Committee hearing on Nov. 30Warren went on to refer to crypto assets as “toxic” and unsuitable to integrate in traditional banking, claiming taxpayers could suffer the consequences. The senator was one of the lawmakers behind a Nov. 23 letter calling on the Justice Department to investigate the collapse of FTX and potentially prosecute individuals involved in wrongdoing, specifically naming former CEO Sam Bankman-Fried for his role in the controversy.Related: How stable are stablecoins in the FTX crypto market contagion?The ripple effects of a major exchange like FTX declaring bankruptcy amid a bear market are ongoing. Crypto firm BlockFi filed for Chapter 11 bankruptcy on Nov. 28, saying FTX owed certain financial obligations to the company. Global lawmakers and regulators have also announced intentions to investigate the events surrounding FTX and potentially create new regulatory frameworks, including those from the European Central Bank, U.S. state governments, and securities regulators in the Bahamas.

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Canada crypto regulation: Bitcoin ETFs, strict licensing and a digital dollar

In October, Toronto-based Coinsquare became the first crypto trading business to get dealer registration from the Investment Industry Regulatory Organization of Canada (IIROC). That means a lot as now Coinsquare investors’ funds enjoy the security of the Canadian Investment Protection Fund in the event of insolvency, while the exchange is required to report its financial standing regularly. This news reminds us about the peculiarities of Canadian regulation of crypto. While the country still holds a rather tight process of licensing the virtual asset providers, it outpaces the neighboring United States in its experiments with crypto exchange-traded funds (ETFs), pension funds’ investments and central bank digital currency (CBDC) efforts. An era of restricted dealersCoinsquare, which happens to be Canada’s longest-operating crypto asset trading platform, benefits from its new legal status as none of its competitors can currently boast the same legal footing. By publishing time, all other local players must have the status of a “restricted dealer,” signaling that they’ve made their registration bid and now await IIROC’s decision. The Guidance for Crypto-Asset Trading Platforms was introduced by IIROC and the Canadian Securities Administrators (CSA) in 2021. It requires crypto businesses dealing with security tokens or crypto contracts to register as “investment dealers” or “regulated marketplaces.” All local companies have been given a two-year transitory period, during which they should start the registration process and, in some cases, obtain the “restricted dealer” temporary registration. The list of “restricted dealers” that have been granted a two-year relief period to operate amid the ongoing registration process is rather short and includes mainly local companies, such as Coinberry, BitBuy, Netcoins, Virgo CX and others. These companies still enjoy a right to facilitate buying, selling and holding of crypto assets, but what lies ahead of them is the stringent compliance procedure necessary to continue their operations after 2023. For example, Coinsquare had to obtain an insurance policy that includes an endorsement of losses of crypto assets and fund a trust account maintained at a Canadian bank. The prosecutors have been watching closely for any non-compliance. In June 2022, the Ontario Securities Commission (OSC) issued financial penalties against Bybit and KuCoin, claiming violation of securities laws and operating unregistered crypto asset trading platforms. It obtained orders banning KuCoin from participating in the province’s capital markets and fining the exchange for more than $1.6 million.The land of experiments At the same time, there are adoption cases in Canada that sound radical to the United States. For example, there are dozens of crypto ETFs to invest in the country, while Grayscale still has to lead the court battle with the U.S. Securities and Exchange Commission (SEC) for a right to launch its first ETF. The world’s first Bitcoin (BTC) ETF for individual investors was approved by the OSC for Purpose Investments back in 2021. Purpose Bitcoin ETF accumulates around 23,434 BTC, which is actually a prominent symptom of the bear market. In May 2022, it held around 41,620 BTC. The major outflow from the Purpose Bitcoin ETF occurred in June, when about 24,510 BTC, or around 51% of its asset under management, were withdrawn by investors in a single week. Recent: FTX’s collapse could change crypto industry governance standards for goodAnother breakthrough in Canadian crypto adoption erupted when the country’s largest pension funds started to invest in digital assets. In 2021, the Caisse de Depot et Placement du Québec — one of the largest pension funds in the French-speaking province of Quebec — invested $150 million into Celsius Network.The same month, the Ontario Teachers’ Pension Plan announced its $95-million investment in FTX. Unfortunately, this news didn’t age well as both companies have since collapsed and both pension funds had to write off their investments. Perhaps, in that light, the U.S. Department of Labor’s warning to employers against using pension funds that include Bitcoin or other cryptocurrencies now seems like a prudent precaution. Due to its cold climate, cheap electric supply and light regulation, Canada is among the world’s leading destinations for crypto mining. In May 2022, it accounted for 6.5% of the global BTC hash rate. However, this fall, the firm managing electricity across the Canadian province of Quebec, Hydro-Québec, requested the government to release the company from its obligation to power crypto miners in the province. As the reasoning goes, electricity demand in Québec is expected to grow to the point that powering crypto will put pressure on the energy supplier. The development of the CBDC is another direction where Canada has been moving faster than its neighbor to the south. In March 2022, the Bank of Canada launched a 12-month research project focused on the design of the Canadian digital dollar in collaboration with the Massachusetts Institute of Technology. In October, the Bank of Canada published a research report and proposed several particular archetypes of CBDC as useful for organizing “the possible CBDC designs.” While back in March, there was “no decision made on whether to introduce a CBDC in Canada,” the country’s recent budget amendment contains a small section on “Addressing the Digitalization of Money.” In the statement, the government said consultations with stakeholders on digital currencies, stablecoins and CBDCs are being launched on Nov. 3, although exactly which stakeholders will be engaged remains unclear.The partisan divide The discussion of what could have become Canada’s formal legal framework for crypto — bill C-249 — showed a sharp partisan divide around the topic. A bill for the “encouragement of the growth of the cryptoasset sector” was introduced to the House of Commons in February 2022 by a member of the Conservative party and ex-Minister Michelle Garner. The lawmaker proposed having Canada’s Minister of Finance consult with industry experts to develop a regulatory framework aimed at boosting innovation around crypto three years after the bill’s passage. Despite the voiced support from the local crypto community, the bill didn’t meet much approval among fellow lawmakers. During the second reading on Nov. 21–23, members of other political parties, including the ruling Liberal party, blasted both the proposition and the Conservative party with accusations of promoting the “dark money system,” and Ponzi scheme and bankrupting retirees and as a result, C-249 is now officially buried. While Michelle Garner introduced the bill, Conservative party leader Pierre Poilievre took most of the heat. A former Minister of Employment and Social Development, Poilievre has been advocating for more financial freedom through tokens, smart contracts and decentralized finance. Earlier this year, he urged the Canadian public to vote for him as their leader to “make Canada the blockchain capital of the world.”The next general elections in Canada are scheduled for 2025, and given C-249’s failure and the general condition of the market, it’s not likely that Poilievre and the Conservatives will get broad support in the Parliament for their pro-crypto efforts until that time. Currently, the Conservative party holds only 16 out of 105 seats in the Senate and 119 out of 338 in the House of Commons. What’s nextFrom a trading platform perspective, there are specific challenges that the industry strives to address, Julia Baranovskaya, chief compliance officer and co-founding team member at Calgary-based NDAX, told Cointelegraph. The majority of industry stakeholders would like to see “clear guidelines and a risk-based approach.” Currently, a majority of regulatory authorities in Canada have chosen to apply existing financial industry rules and regulations designed and implemented for the traditional financial industry.However, Baranovskaya highlighted that in recent years, regulators have been engaging in a closer dialogue with the crypto industry. The Securities Commission has created a sandbox and encouraged crypto asset trading platforms and innovative types of businesses offering alternative financial instruments to join. The IIROC has also been leading a dialogue with the industry participants to understand business models better and identify how the current framework can be applied to them.Recent: Bitcoin miners look to software to help balance the Texas gridBut, the challenges of the fragmented regulatory framework and the lack of crypto asset-specific regulations are still here. Most of the existing regulations are based on the product, but with the constantly evolving crypto space, the product-based approach “would always stay a few steps behind.” In Baranovskaya’s words: “Understanding the underlying technology behind crypto assets and De-Fi products that work out a flexible but robust regulatory regime that can adjust to the ever-changing crypto asset space is essential.” 

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SEC chair's crypto oversight strategy in question as ecosystems collapse

While regulations are often aimed at protecting citizens from bad actors, the effectiveness of crypto regulations in the United States is in question owing to the colossal fall of major exchanges and ecosystems over the past year — FTX, Celsius, Voyager, and Terra (LUNA).Congressman Tom Emmer showed concerns about the oversight strategy implemented by Gary Gensler, the chair of the U.S. Securities and Exchange Commission (SEC) for the crypto ecosystem. Emmer has been vocal against Gensler’s “indiscriminate and inconsistent approach” toward crypto oversight. On March 16, the Congressman revealed being approached by numerous crypto and blockchain firms that believed Gensler’s reporting requests to be overburdensome and stifling innovation.We are even more concerned now as we’ve seen his strategy miss Celsius, Voyager, Terra/Luna– and now FTX.— Tom Emmer (@RepTomEmmer) November 25, 2022Congressman Emmer had previously asked the SEC to comply with the standards established in the Paperwork Reduction Act of 1980, which was designed to reduce the total amount of paperwork burden the federal government imposes on private businesses and citizens. On an end note, Emmer said that “Congress shouldn’t have to learn the details about the SEC’s oversight agenda through planted stories in progressive publications,” adding that he was looking forward to Gensler’s public testimony before the Financial Services Committee.Related: My story of telling the SEC ‘I told you so’ on FTXAmerican CryptoFed DAO, the first official DAO in the U.S., began a litigation battle with the SEC over 2021 token registrations and opted not to have attorneys in its fight for registration.American CryptoFed also indicated its plans to file a motion for extending the deadline for its answer to the SEC’s Order Instituting Administrative Proceedings.

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FTX’s collapse could change crypto industry governance standards for good

The crypto market is often referred to as the Wild West of the finance world. However, the events that have unfolded within this space recently would put to shame even the hardiest of cowboys from the day of yore. As a quick refresher, on Nov. 8, FTX, the second-largest cryptocurrency exchange in the world till about a month ago, faced an unprecedented liquidity crunch after it came to light that the firm had been facilitating shady deals with its related firm Alameda Research.In this regard, as 2022 continues to be rough on the global economy, the crypto sector, in particular, has been ravaged by a series of meltdowns that have had a major impact on the financial outlook and investor confidence in relation to this maturing industry. To this point, since May, a growing number of prominent projects associated with this space— such as Celsius, Three Arrows Capital, Voyager, Vauld and Terra, among others — have collapsed within a matter of months.FTX’s downfall specifically has been extremely damaging for the industry, as evidenced by the fact that following the company’s dissolution, the price of most major crypto assets dipped majorly, having shown no signs of recovery thus far. For example, within just 72 hours of the development, the value of Bitcoin plummeted from $20,000 to approximately $16,000, with many experts suggesting that the flagship crypto may bottom out close to the $10,000–$12,000 range, a story that has been mirrored by several other assets.What lies ahead for cryptocurrency exchanges?One pertinent question that the recent turbulence has brought to the forefront is what the future now holds for digital asset exchanges, especially centralized exchanges (CEXs). To get a better overview of the matter, Cointelegraph reached out to Dennis Jarvis, CEO of Bitcoin exchange and cryptocurrency wallet developer Bitcoin.com. Recent: Bitcoin miners look to software to help balance the Texas gridIn his view, CEXs are being faced with a tremendous uphill battle right now, especially with revenues being low and stricter regulation waiting around the corner. In light of the current scenario, he pointed out that more and more people are and will continue to gravitate toward the use of self-custodial storage solutions, adding:“It’s obvious you can’t trust these centralized intermediaries. There will always be a place for CEXs, but over the long term, I believe they will play a minority role in the crypto ecosystem; certainly nothing like the outsized role they’ve enjoyed up to now.”Alex Andryunin, CEO of exchange market maker Gotbit, told Cointelegraph that there is already a major surge of institutional interest in decentralized exchange (DEX) trading. To this point, he highlighted that just a couple of months ago (i.e., September), his clients’ DEX-centric profits lay at $8 million but jumped to $11.8 million in subsequent months, signaling a 50% rise despite the bloodbath across the entire crypto industry. He added:“In my opinion, Binance, Coinbase, Kucoin and Kraken’s business models will survive the ongoing turbulence. However, even large entities like Coinbase are not currently competing with Binance. The company has no big competitors left. Even inside the U.S. market, Binance US is growing, while Coinbase, Gemini and Crypto.com are falling in DAU, as of Q3 2022.”Gracy Chen, managing director for cryptocurrency exchange Bitget, believes that we will now see trading ecosystems enter a consolidation phase, with these platforms being scrutinized more than ever before. In her view, this will create an opportunity for exchanges with strong balance sheets and solid risk management practices to cement their market share. “Ultimately, we believe there would be no more than 10 centralized exchanges with strong competitiveness in the industry,” she told Cointelegraph.Robert Quartly-Janeiro, chief strategy officer for cryptocurrency exchange Bitrue, shares a similar outlook. He told Cointelegraph that the collapse of FTX can and should be viewed as a historic moment for the industry, one that will force exchanges to become more professional and transparent in their day-to-day operations.“It’s incumbent on exchanges to provide a better experience to crypto investors. They must become better and more trustworthy places to trade. Not all will make it, but those real pedigrees will survive. It’s also important to remember that the role of exchanges is to protect investors’ funds and provide a market — not be the market. FTX got that wrong,” he added.Can DEXs fill the void?While most experts believe that as long as centralized exchanges like Binance and Coinbase continue to maintain sensible balance sheets, there’s no reason for them not to benefit from their competition biting the dust. However, Jarvis believes that moving forward, these major crypto entities will feel the heat of competition from DeFi protocols, especially since many people have now started to wake up to the intrinsic problems associated with trusted intermediaries. He went on to add:“I think you’ll see a lot more CEXs begin to invest in DeFi versions of their CeFi products. It will be tough for them, though, because companies have been building products designed for self-custody and DeFi for a long time.”Similarly, Chen believes there will be new opportunities for decentralized finance (DeFi) in the near term, adding that a large portion of all centralized crypto services, especially lending/debt services, will cease to exist, stating that the CeFi lending model has proven to be relatively untrustworthy at this point. “DeFi will usher in huge development opportunities. Custody services, transparency and top-shelf risk management policies will become the norm for centralized services,” she said.However, Andryunin noted that most DeFi protocols are still not convenient for retail traders, adding that there are hardly any quality DEXs with features like limit orders today. If that wasn’t enough, in his view, most platforms operating within this realm today offer an extremely weak user experience.“Users need to understand concepts related to metamask and other extensions, with many experiencing difficulties related to fiat/crypto input. Even if the average retail trader uses DeFi, they will most likely return to some CEX with a high proof-of-reserve rating,” he added.Crypto’s future lies in the marriage of CeFi and DeFiAccording to Julian Hosp, founder of decentralized exchange DefiChain, transparency will be key to how customers continue to select exchanges henceforth. He suggested that pure DeFi will continue to be too difficult to use for most customers while pure CeFi will be too difficult to trust, adding:“Solid exchanges may be able to increase their stranglehold; however, we will see more and more platforms mixing DeFi and CeFi into CeDeFi, where customers have the same fantastic user experience from CeFi, but the transparency from DeFi. This will be the road forward for crypto.”Expounding his views further on the matter, he added that over the coming months and years, DeFi liquidity will no longer be concentrated on one dominant blockchain and will quite likely spread across multiple ecosystems and protocols, as evidenced throughout the history of this decade-old market.Lastly, Chen believes that in an ideal scenario, CeFi could provide better products with better margins and leverage, while DeFi could offer trustless custody services. However, as things stand within the CeFi area, there are neither on-chain custody services nor mature regulations like those present within the traditional finance industry.Moving forward, it will become imperative that the old and new crypto financial paradigms meet so that a liquidity superhighway can be devised for DeFi platforms to draw from. This is especially important since this market suffers from a lack of concentrated capital. However, for this to happen, existing players from both the centralized and decentralized industries will have to come together and work in conjunction with one another.History should serve as a lesson There is no doubt that the recent FTX disaster serves as a stark reminder that people should refrain from storing their wealth on exchanges that are not transparent. In this regard, Nana Obudadzie Oduwa, creator of digital currency Oduwacoin, told Cointelegraph that moving foward, it is a must that crypto enthusiasts realize the absolute importance of storing their assets on cold storage and hardware wallet solutions, adding:“There is no doubt that cryptocurrency is the future of money and blockchain-based technologies are doing their part in redefining transactions, much in the same way as the internet did to the telecommunications industry. However, people cannot trust their money in other people’s hands like exchanges, except when they are regulated with proof of insured funds.”Quartly-Janeiro believes that moving ahead, it is important that there is a level of institutional credibility and capability within the crypto landscape, adding that much like what happened with Lehman Brothers and Barclays back in 2008, liquidity can be an issue in any asset class.Recent: House on a hill: Top countries to buy real estate with crypto“While Coinbase and others will continue to attract customers, the size of an entity doesn’t immune it from risk by itself,” he noted.Lastly, Jarvis claims that over the past several years, the core tenets of crypto have been compromised because of money, market share and technological expediency. In his opinion, this recent wave of insolvency is an ongoing painful episode in crypto’s evolution, one that is probably for the best since it will set the industry on a better path — i.e., one that is rooted in the ethos of decentralization and transparency. Therefore, as we head into a future driven by decentralized crypto tech, it will be interesting to see how the market continues to evolve and grow from here on out.

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'Substantial amount' of FTX's assets stolen or missing — bankruptcy counsel

James Bromley, a partner at law firm Sullivan & Cromwell representing debtors in FTX’s bankruptcy case in the District of Delaware, has said that assets at the firm continue to be at risk from cyberattacks.In a livestream of FTX Trading’s bankruptcy proceedings on Nov. 22, Bromley said new FTX CEO John Ray had laid out core objections aimed at getting the firm, remaining employees, and funds through the controversial and public collapse. According to the FTX co-counsel, a core group of employees have continued to work at the exchange to ensure assets were secure and records maintained, but hackers have posed a threat since Nov. 11 when the company filed for Chapter 11.“We’re not just talking about crypto assets, or cash assets, or physical assets — we’re also talking about information, and information here is an asset,” said Bromley. “Unfortunately […] a substantial amount of assets have either been stolen or are missing. We are suffering from cyberattacks, both on the petition date and the days following, and we have, as I mentioned earlier, engaged sophisticated expertise to protect against the hacks, but they continue.”The lawyer said that FTX had enlisted the help of several legal, cybersecurity, and blockchain analysis firms as part of the proceedings, including Chainalysis — the firm has previously provided information relevant to crypto-related enforcement cases by U.S. government agencies. Bromley added there was another cybersecurity firm involved in the case, but said he would not disclose its identity due to concerns hackers would benefit from the information.An unknown actor already removed 228,523 Ether (ETH) from FTX amid the exchange’s collapse and bankruptcy, later converting some of the funds into Bitcoin (BTC). As of Nov. 21, the attacker had moved roughly $200 million in ETH to 12 different wallet addresses. Related: FTX hacker is now the 35th largest holder of ETHReorganization at the leadership level was also a priority objective for FTX under Ray, who criticized former CEO Sam Bankman-Fried’s public comments on the debacle. Bromley added that under Bankman-Fried, the exchange had been “in the control of a small group of inexperienced and unsophisticated individuals,” some or all of whom may have been compromised.“At the same time of the run on the bank, there was a leadership crisis [at FTX]. The FTX companies were controlled by a very small group of people led by Sam Bankman-Fried. During the run on the bank, Mr. Bankman-Fried’s leadership frayed, and that led to resignations throughout the ranks.”The livestreamed hearing was the first available to the public since FTX Group’s bankruptcy filing on Nov. 11, but new information on the company’s collapse continues to be released through court documents and media outlets. Bankman-Fried, his family members, and other high-level FTX executives reportedly purchased multiple properties in the Bahamas worth more than $121 million. Bromley said in court that an entity associated with Alameda Research bought roughly $300 million worth of real estate in the island nation, but did not explicitly name the former FTX CEO.

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Tornado Cash developer Alexey Pertsev to stay detained until next year’s hearing

Detained Tornado Cash developer Alexsey Pertsev will spend another three months in custody in the Netherlands, according to a court hearing held on Nov. 22.Cointelegraph attended a preliminary court hearing at the Palace of Justice in ’s-Hertogenbosch, which outlined the basis of the case against Pertsev after 103 days in custody. The prosecution outlined a broad overview of its investigation, painting Pertsev as a central figure in Tornado Cash’s operation before Advocate WK Cheng delivered his first defensive argument.Cheng highlighted several points outlining Tornado Cash’s use cases and misconceptions around its functionality. “I’m disappointed about the decision from the court. We’ve tried to explain as clearly as possible what the standpoints are from the defense,” Cheng told Cointelegraph after the preliminary hearing. The advocate confirmed that the first session has been postponed to Feb. 20, 2023, and reiterated his belief that the state had presented a one-sided interpretation of Pertsev’s involvement with Tornado Cash. “We are going to do some requests, we’re going to some investigations, things that we need to work out to have cleared up. And we’re going to try to prepare for the next court session.”The prosecution highlighted concerns that Pertsev is a flight risk if he was to be released before the first session despite a raft of promises from his legal team, which would include surveillance in his home and weekly check-ins at the local police station.This story is developing and will be updated with further background information.

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Election tally: Does blockchain beat the ballot box?

In October, Greenland was reported to be exploring the feasibility of an online voting platform for its national elections. Among the options being considered is a blockchain-based system. That isn’t entirely surprising. Electronic voting, or e-voting, has long been viewed as a promising use case for blockchain technology. “It’s time for online voting,” wrote Alex Tapscott in a New York Times opinion piece in 2018. “Using blockchain technology, online voting could boost voter participation and help restore the public’s trust in the electoral process and democracy.”It seems especially timely now as large swaths of the world’s population are raising questions about election integrity — most notably in the United States, but in other countries as well, such as Brazil. Tim Goggin, CEO at Horizon State, for one, believes that blockchain-enabled elections represent a “significant improvement” over the way most elections are operated today. Voting machines break down, software fails and election irregularities often create uncertainty and doubt among the voting public. With a public blockchain, by comparison, “it is much easier for voters to trace their vote,” Goggin told Cointelegraph, “and audit an election themselves.” Moreover, if something untoward does occur in the voting process, it is easier to identify it on a decentralized ledger with thousands of nodes than on current tabulation systems “where counting is done behind closed doors,” says Goggin, whose company set up a public election for South Australia in 2019, the first time blockchain technology was used in the voting process for that Australian state.Still, blockchain technology’s potential vis-a-vis public elections has been highlighted off and on for some time now. No country has yet to use blockchain technology in a national election. Marta Piekarska, senior DAO strategist at ConsenSys, recalls working at Hyperledger in 2016, where blockchain voting was discussed as a promising use case. “Six years later, and we are still talking about this,” she told Cointelegraph. “We are still quite far from a situation where any kind of distributed ledger would be considered” — at least in a national election. A few countries, notably Estonia, have been experimenting with systems that allow people to vote online, she further explained. On the other hand, “Netherlands abandoned the idea of doing electronic voting due to some of the concerns around security and authenticity of the votes.” Then, there’s sparsely populated Greenland, where the vast distances make it difficult for people to vote in person. A group of researchers from Concordium Blockchain, Aarhus University, the Alexandra Institute and the IT University will soon be investigating “whether a blockchain-based system will be a more trustworthy e-election on the world’s largest island,” according to the Concordium press release.Ensuring trust is criticalAny voting system requires trust, and trust requires a number of properties — any one of which can be a challenge depending on the circumstances, Kåre Kjelstrøm, chief technology officer at Concordium, told Cointelegraph. For in-person voting, these include: whitelisting: ensuring only eligible voters take part; identification: voters need to prove their identity when casting a vote; anonymity: votes are cast in private and can’t be traced back to the voter; security: locations are secured by the government; and immutability: cast votes can’t be altered.“Any digital system that replaces a manual voting system needs to address at least those same issues to ensure trust and this has proven to be rather tricky to pull off,” Kjelstrøm explained. “But blockchain may prove to be part of a solution.”A public decentralized blockchain ensures immutability by default, after all, “in that any transaction written can never be deleted.” The system is secured by cryptography and “transactions are anonymous, but are open for inspection by anyone in the world,” said Kjelstrøm, adding: “The trick is to maintain privacy and anonymity while ensuring any eligible voter can only cast their vote once. […] This is a current research topic at top institutions.”Permissioned or public chains?“The main problems I see for public elections as opposed to say corporate governance is that there cannot be a permissionless [blockchain] system because voter information is private and we cannot trust all third parties,” Amrita Dhillon, professor of economics in the department of political economy at King’s College London, told Cointelegraph.“The second problem is that of inputting the vote at a location of the voters choice: We cannot prevent anyone coercing voters at the point at which they submit the e-vote,” she added. Recent: Is DOGE really worth the hype even after Musk’s Twitter buyout?Others say permissioned chains aren’t the answer because they are run by a single entity or a group of entities that exert complete control of the system. “Worst case this means that a private blockchain can be tampered with by those self-same guardians and elections rigged,” said Kjelstrøm. This isn’t much of a problem in Western countries, “but in large parts of the world this is not true.” On the other hand, if one can “weave self-sovereign identity (SSI) into the core protocol,” as Concordium, a layer-1 public blockchain, aspires to do, that “may be just the right technology to power public elections,” said Kjelstrøm.That said, Goggin noted that many governments will probably opt to use private blockchains in line with their own privacy/data laws, and there are many ways to set up permissioned blockchains. But, if they don’t at least offer the public an auditable trace of voting records, then they aren’t likely to boost the public’s belief in election integrity. He calls himself “a big fan” of public and distributed blockchains. The privacy question is especially knotty when it comes to public elections. “You should not be able to tell which candidate some individual voted for, or even if they voted at all,” wrote Vitalik Buterin in a blog titled “Blockchain voting is overrated among uninformed people but underrated among informed people.” On the other hand, you want to ensure — and if necessary prove — that only eligible voters have voted, so some information like addresses and citizen status may need to be collected. Buterin viewed encryption as a way to get around the privacy conundrum. Goggin suggests something similar. Horizon State might ask a client to “hash,” i.e., encrypt or scramble, eligible voter identities “before we are provided them, and we then hash those identities again.” This means that neither the client nor Horizon State can readily determine who voted or how they voted. He added: “Voters will be able to see their vote on the chain, but there is no way for voters to prove that it is their vote, given they can see other votes on the blockchain also.”Dhillon, for her part, proposes a compromise where “some parts of the process are centralized,” i.e., voters come to a booth where their identity is checked and they submit their vote, “but subsequent parts of the chain can be decentralized to make them more secure and tamper proof.”Technical limitations?In 2014, the city of Moscow’s Active Citizen e-voting platform was created to let Muscovites have a say in non-political municipal decisions, and in 2017 it used the Ethereum blockchain for a series of polls. The largest of these tapped 220,000 citizens and the voting results were publicly auditable. It revealed some scaling limitations.“The platform based on proof-of-work reached a peak of approximately 1,000 transactions per minute [16.7 transactions per second]. This meant that it would not be easy for the platform to handle the volume if a higher proportion of Moscow’s 12 million citizens participated in the voting,” according to Nir Kshetri, a professor at the Bryan School of Business and Economics at the University of North Carolina at Greensboro. From this, Kshetri and others concluded that this PoW version of the Ethereum blockchain “was not sufficient to handle national elections.” Things might be different in 2023, however, when Ethereum 2.0 implements sharding. This could boost the chain’s speed to as high as 100,000 TPS, which in turn “increases Ethereum blockchain’s attractiveness for voting,” he told Cointelegraph. But blockchains probably still need to be more secure before they are ready for public elections, though this is manageable in Kshetri’s view. “Blockchains are likely to become more secure with increasing maturity.” Buterin, too, said in 2021 that security was still an issue vis-a-vis elections. For that reason, “in the short term, any form of blockchain voting should certainly remain confined to small experiments. […] Security is at present definitely not good enough to rely on computers for everything.”Online transactions, unlike manual systems, “can occur in the blink of an eye,” added Kjelstrøm, and software-driven attacks on an e-voting system can “potentially foil or damage the system or the vote.” Therefore, “any new system would have to be introduced slowly to ensure the voting system remains intact and fully functional.” Governments might begin at a small scale and conduct proof-of-concepts for select non-critical elections first, he said. Usability is critical Technology isn’t the only obstacle that needs to be solved before blockchain voting attains wide adoption. There are political and social challenges, too.“The technology is there,” said Piekarska. “We can do it right now. I mean, decentralized autonomous organizations are governed through online voting now, and they are managing trillions of dollars.” But national elections are a different beast, she suggested, because:“On the government level, your problem is: how do you create a system that is usable by citizens?” One’s constituency is not tech-savvy members of a DAO, “but people like my mom, who is still struggling with online banking,” Piekarska added.How long will it be, then, before the first national election with blockchain voting? “Hopefully not decades, but surely we’re not there yet,” said Kjelstrøm.“It could be tomorrow or it could be in 50 or 60 years,” opined Piekarska, “because there are so many things that need to align.” In Europe, most people trust their governments and the quality of voting is not really an issue, so the push for encrypted auditable ledgers may not be so urgent. In nations with weaker governance where elections are often manipulated, conversely, why would the powers-that-be ever consent to tamper-free blockchain voting? Greenland, which struggles with participation in its general elections primarily because of the great distances that its citizens must travel to vote, might prove an exception.“Yes, some solid governments want to do the right thing but they struggle with the accessibility of in-person voting,” Piekarska acknowledged. “That’s probably where we might see the first movers because there is a very high incentive for them to do it. But these are unique situations.”Recent: Proof-of-reserves: Can reserve audits avoid another FTX-like moment?All in all, it’s critical that people have trust in their voting system, whether manual, electronic or blockchain-based, and building trust can take time. But, as more people become used to accessing public services online, electronic voting should take greater hold in different parts of the world, and once that happens, blockchain voting could catch on, given its well-documented advantages, allowing individuals to audit their own votes. Large-scale blockchain-enabled national elections are probably some years away still. Even so, Goggin has been engaging in discussions recently “about providing elections at that scale,” adding:“While it isn’t the norm yet, governments are beginning to consider the value that online blockchain voting systems can offer in efficiency, accessibility, speed, security and transparency.” 

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SBF's lawyers terminate FTX representation due to conflicts of interest

Paul, Weiss, the law firm backing FTX CEO Sam Bankman-Fried (SBF) amid bankruptcy, renounced representing the entrepreneur, citing a conflict of interest. The decision to withdraw from representation after SBF’s tweets were found to disrupt the law firm’s reorganization efforts.Starting Nov. 14, SBF published a series of tweets that amassed extensive attention across Crypto Twitter. The move, however, sparked speculations that the cryptic tweets were used to distract bots from noticing concurrently deleted tweets. While no ill-intent could be concluded, Paul, Weiss attorney Martin Flumenbaum believed that SBF’s “incessant and disruptive tweeting” was negatively impacting the reorganization efforts:“We informed Mr. Bankman-Fried several days ago, after the filing of the FTX bankruptcy, that conflicts have arisen that precluded us from representing him.”The law firm’s decision to back out from helping SBF coincided with a much-awaited ruling of fellow fraudster Elizabeth Homes, who got sentenced to prison after being convicted of criminal fraud.SBF currently faces scrutiny from multiple directions, including ongoing investigations around the misuse of customer funds and disclosing of bankruptcy-related documents.Despite informing the defendants, the court may refuse an attorney’s request and order them to continue representation — which may seem impossible considering SBF’s behaviorial concerns raised by the law firm.Related: Sam Bankman-Fried says he regrets filing for bankruptcy: ReportRecently, Binance CEO Changpeng “CZ” Zhao opened up about the time when Binance was almost ready to bail out FTX from a collapse. Reflecting on the situation, he said:“When he came to me, I knew he was desperate. If we can’t help him, there’s probably nobody else that would. Probably a bunch of people passed on the deal before us.”However, the deal for a takeover was called off after a due diligence revealed bigger problems.

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Could Hong Kong really become China’s proxy in crypto?

With its partial autonomy, the island city of Hong Kong has traditionally served as “a gate to China” — the local trade center, backed by transparent English-style common law and an openly pro-business government strategy. Could the harbor, home to seven million inhabitants, inherit this role in relation to the crypto industry, becoming a proxy for mainland China’s experiments with crypto? An impulse to such questioning was given by Arthur Hayes, the former CEO of crypto derivatives giant BitMEX in his Oct. 26 blog post. Hayes believes the Hong Kong government’s announcement about introducing a bill to regulate crypto to be a sign that China is trying to ease its way back into the market. The opinion was immediately replicated in a range of industrial and mainstream media.What happenedIn late October, the head of the fintech unit at the Securities and Futures Commission (SFC) of Hong Kong, Elizabeth Wong, announced the liberalization of Hong Kong’s regulatory landscape by allowing retail investors to “directly invest into virtual assets.” Up until recently, only individuals with a portfolio worth at least $1 million (which marks about 7% of the city’s population) have been granted access to centralized crypto exchanges by the SFC. The regulator has also been reviewing whether to allow retail investors to invest in crypto-related exchange-traded funds, Wong noted.Roughly a few days after, on Oct. 21, Hong Kong’s Secretary for Financial Services and the Treasury, Christopher Hu, shared his city’s fintech plans, among other efforts, directed at “transferring wealth to the next generation.” The key is establishing a regulatory regime for virtual asset service providers, and a certain bill was already introduced to the city’s lawmakers, as Hu specified. Finally, on Oct. 31, during the city’s FinTech Week 2022, Hong Kong Financial Secretary Paul Chan assured attendees that the digital transformation of financial services is a key priority for his team. Chan’s colleague, the CEO of the Hong Kong Monetary Authority (HKMA), Eddie Yue, promised “radical open-mindedness” regarding the innovations. According to him, the HKMA is in the process of establishing a regulatory regime for stablecoins and has already issued guidelines to banks about cryptocurrency or decentralized finance-related services.Crackdown on the Mainland, uncertainty on the islandHong Kong’s intention to open up for crypto comes a year after a devastating crackdown on the industry in Mainland China. Until 2021, the People’s Republic Of China has been enjoying a status of a world leader in hash rate and cryptocurrency mining. Starting in May 2021, Chinese regulators began prohibiting involvement in crypto for financial institutions, then mining operations and, finally, the work of exchanges and trading for individuals. Although that didn’t effectively outlaw the crypto ownership as such, any potential for institutional development of the crypto industry in the country was frozen. Back then, Hong Kong officials didn’t confirm (or deny) that the island city would comply with Beijing’s hardline policy on digital assets, but investors nevertheless started considering their options. Recent: How are ‘lite’ versions of crypto apps helping adoption?While today it may sound ironic, in 2021, relocating his headquarters to the Bahamas, Sam Bankman-Fried of FTX was highlighting the importance of long-term regulatory guidance and clarity, which Hong Kong laced in his opinion. This uncertainty took its toll indeed — after attracting $60 billion in crypto between July 2020 and June 2021, Hong Kong started to witness the largest players opening up alternative offices in the Caribbean or neighboring Singapore. FTX was joined by the likes of Crypto.com, BitMEX and Bitfinex. The Hayes narrativeMixing two plot lines — one which traces all the most important crypto innovations to China, and the other which notes Hong Kong’s historical role as the entry point to communist China — Hayes argued:“Hong Kong’s friendly reorientation towards crypto portends China reasserting itself in the crypto capital markets.” According to Hayes, Hong Kong authorities cannot diverge too far from Beijing in their decisions, so opening up the crypto market amid the crackdown in the Mainland couldn’t be an autonomous act. The reason behind Beijing’s benevolence to such a U-turn lies in the anxiety of Hong Kong losing its status as the principal Asian financial center. It has certainly faltered during the COVID-19 pandemic when the hardline lockdown policy, exercised in China and Hong Kong, caused an investment escape wave to the neighboring competitor, Singapore, which had eased its restrictions much earlier. Another major factor behind China’s possible support of Hong Kong’s crypto liberalization, according to Hayes, is the former’s problem with a giant United States dollar trade proficit. Historically, like almost any nation in the world, China has been storing dollar income in assets like U.S. Treasury bonds. But the example of Russia, whose foreign assets were blocked due to financial sanctions after an invasion of Ukraine, has worried Chinese officials. Hence, it is highly probable they would seek another type of asset in which to store their USD income. Cryptocurrencies and related financial products might be the option. Reality checkSpeaking to Cointelegraph, David Lesperance, founder of Lesperance & Associates law firm, who has been dealing with Hong Kon and China-based clients for more than 30 years, doubted the possible interest of the Chinese government in opening up to crypto:“Rather, they are interested in having complete control over their population, including those who reside in HK. This is demonstrated by such actions as social credit scoring, facial recognition, household registration, exit bans, zero COVID-19, etc.” Putting crypto aside, recent years have seen tightening political, cultural and economic control of China over Hong Kong with the national security law of 2020 sweeping the previous civil freedoms away, a change in school curricula to emphasize the Chinese history of the region and the ongoing integration of Mainland companies into the island’s juridical space. These signs of the shortening distance between the Mainland and Hong Kong might attract the attention of global regulators. As one banker said to CNN recently, “The worst scenario is that the West would treat Hong Kong as the same as the Mainland China, and then Hong Kong would suffer the kind of sanctions.”The elephant in the room is China’s central bank digital currency (CBDC) project. The rapid development of the digital yuan (also known as e-CNY) and the ban on crypto is hardly a coincidence. As Ariel Zetlin-Jones, associate professor of economics at Carnegie Mellon University’s Tepper School of Business, told Cointelegraph back in 2021, in the aftermath of the crackdown: “China clearly wants to promote the digital Yuan. Removing its competitors by banning crypto activities is one way to do this so it seems reasonable to consider this motivation as one rationale for their policies.”The digital yuan became the most actively transacted currency in a recent six-week m-Bridge pilot of cross-border payments among the digital currencies issued by central banks of China, Hong Kong, Thailand and the United Arab Emirates. As state-owned Chinese media noted after the experiment, “Hong Kong [is] poised to be a vibrant center for e-CNY’s use in international trade.”Recent: Breaking down FTX’s bankruptcy: How it differs from other Chapter 11 casesLesperance emphasized that the introduction of e-CNY and the continuing restrictions on the rest of the crypto, even when it comes to domestic miners, confirms Beijing’s drive to control the financial sphere in the first place:“Control over the financial lives and assets of the Chinese citizens is the ultimate control. This will be achieved when all transactions are done in e-yuan. Facilitating other crypto-currencies would undermine this move toward complete control.”

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South Korean prosecutors call on Terra co-founder Shin Hyun-seong to cooperate: Report

Authorities in South Korea have reportedly requested Terraform Labs co-founder Shin Hyun-Seong, also known as Daniel Shin, to appear as part of an investigation into the collapse of the firm.According to a Nov. 14 report from Hankyoreh, the Seoul Southern District Prosecutor’s Office’s Joint Financial and Securities Crime Investigation Team announced that Shin should appear before prosecutors sometime this week. Authorities reportedly alleged that the Terra co-founder held many LUNA tokens — since rebranded Lun Classic (LUNC) — without the knowledge of retail investors and earned roughly 140 billion won — more than $105 million at the time of publication — in profits from illegal sales before the firm’s collapse.“Reports that CEO Shin Hyun-seong sold Luna at a high point and realized profits or that he made profits through other illegal methods are not true,” reportedly said Shin’s attorney.According to Shin’s LinkedIn profile, he has not been involved with Terraform Labs since January 2020 — though this does not include information on investments in the company. Shin went on to found the fintech firm Chai Corporation, where he is currently CEO.Related: South Korean prosecutors accuse Do Kwon of manipulating Terra’s priceThough Shin reportedly still lives in South Korea, his fellow Terra co-founder Do Kwon was also a target of prosecutors as part of multiple investigations into the firm globally. Reports on Kwon’s location have varied from Singapore to other countries following the collapse of Terra, but the South Korean national has repeatedly said he isn’t “on the run.”Wherever Kwon may be, his passport is reportedly no other valid following an October order from South Korea’s foreign ministry. The Terra co-founder faces lawsuits from investors, investigations from global authorities and the social media ire of many crypto users who lost money following the collapse of Terraform Labs.

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Manhattan District Attorney’s Office probes FTX collapse: Report

Prosecutors with the United States attorney’s office in the Manhattan district of New York have reportedly begun investigating the fall of crypto exchange FTX.According to a Nov. 14 report from Reuters, a source with knowledge of the investigations said authorities in New York were looking into the collapse of the major crypto exchange following FTX declaring bankruptcy on Nov. 11. The report followed news the state of California’s Department of Financial Protection and Innovation announced it would be investigating the “apparent failure” of FTX. The ongoing saga with FTX may be shifting to the regulatory and legal implications of a major crypto exchange collapsing. Rumors have circulated around social media platforms and news outlets concerning the firm as well as former CEO Sam Bankman-Fried. So either the collapse of FTX and SBF’s was — checks notes — an inevitable result of a speculative bubble managed by 20-something douchebro tech kids — or a sophisticated global money laundering operation masterminded by — checks notes — Joe Biden.Occam’s Razor, kids.— Rick Wilson (@TheRickWilson) November 14, 2022Cointelegraph reported that as of Nov. 12, the FTX co-founder was “under supervision” in the Bahamas — where many FTX staff were based. The country’s securities regulator also ordered FTX’s assets frozen on Nov. 10, and the exchange was reportedly under investigation for criminal misconduct over its insolvency.Related: FTX’s ongoing saga: Everything that’s happened until nowBankman-Fried, also known as SBF, has lost his status as a billionaire following the controversy, with many reports suggesting the former FTX CEO’s net worth may have fallen more than 90%. Amid the exchange’s liquidity crisis and bankruptcy filing, SBF has apologized more than once on Twitter, saying he “should have done better” in providing transparency on the situation.Cointelegraph reached out to the Manhattan District Attorney’s Office but did not receive a response at the time of publication.

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CySEC requested FTX's European arm suspend operations prior to bankruptcy: Report

The Securities and Exchange Commission of Cyprus, or CySEC, reportedly issued a statement amid FTX filing for Chapter 11 bankruptcy in the United States that the regulator requested the exchange halt operations for its Europe arm.According to a Nov. 11 Reuters report, the CySEC said it had asked FTX Europe to “suspend its operations and to proceed immediately with a number of actions for the protection of the investors” on Nov. 9. It’s unclear why the financial regulator chose to reiterate its call to the crypto exchange, given FTX Europe was one of roughly 130 companies in FTX Group which will be filing for bankruptcy. CySEC approved the FTX arm to operate in the island nation from its regional headquarters in March, with its European headquarters based in Switzerland. Amid FTX’s liquidity issues, global financial policymakers have responded with suggestions for additional regulations on crypto firms, as well as freezing assets with the exchange’s local businesses, as was the case in the Bahamas.Related: Crypto.com scores regulatory approval from Cyprus SECFTX CEO Sam Bankman-Fried said on Nov. 11 he would be working on “giving clarity on where things are in terms of user recovery” as soon as possible. He resigned amid bankruptcy proceedings, with John Ray taking over as CEO.

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