All posts in “cryptocurrency”

In a 130-page court filing, Kik claims the SEC’s lawsuit ‘twists’ the facts about its online token

CEO Ted Livingston of Kik

Kik Interactive has hit back at the Securities and Exchange Commission lawsuit that claims a $100 million token sale was illegal. The company, which owns Kik Messenger, filed a 130-page response today in U.S. District Court for the Southern District of New York, alleging that the SEC is “twisting” the facts about its token, called Kin, and asking for an early trial date and dismissal of the complaint.

One of the key issues in the case is if Kin was just an in-app token used to buy games, digital products and other services in Kik Messenger, or if it was meant to be an investment opportunity, as the SEC alleges.

Kik’s general counsel Eileen Lyon said in a press statement that “since Kin is not itself a security, the SEC must show that it was sold in a way that violates the securities laws. The SEC had access to over 50,000 documents and took testimony from nearly 20 witnesses prior to filing its Complaint, yet it is unable to make the case that Kik’s token sale violated the securities laws without bending the facts to distort the record.”

The SEC alleges that the token sale, announced in 2017, came at a time when the company had predicted that it would run out of money after Kik Messenger had been losing money for years, and that it then used proceeds from that sale to build an online marketplace for the app.

In the filing, Kik’s legal team denied that charge, claiming that the SEC’s allegations about its financial condition “is solely designed for misdirection, thereby prejudicing Kik and portraying it in a negative light” and that Kik began working on a cryptocurrency-based model after exploring monetization options that would help it compete against larger tech companies.

They added that “Kik’s Board and Executive Team alike believed that Kin was a bold idea that could solve the monetization challenges faced by all developers (not just Kik) in the existing advertising-based economy, by changing the way people buy and sell digital products and services.”

The SEC also alleges that the sale of digital tokens to U.S. investors was illegal because Kik did not register their offer as required by United States law, even though it claims that Kik marketed Kin as an investment opportunity whose value would increase. In its response, Kik denied that it offered or sold securities, or violated federal securities laws.

In the company’s press statement, Kik CEO Ted Livingston said, “The SEC tries to paint a picture that the Kin project was an act of desperation rather than the bold move that it was to win the game, and one that Kakao, Line, Telegram and Facebook have all now followed.”

BlockFi, which lends money to cryptocurrency holders, just raised $18.3 million led by Valar Ventures

Last year, we told you about a New York-based startup that had begun lending cold, hard, cash to cryptocurrency holders who don’t want to offload their holdings but also don’t necessarily want so much of their assets tied up in cryptocurrencies.

Today, that two-year-old company, BlockFi, is announcing $18.3 million in Series A funding led by Peter Thiel’s Valar Ventures, with participation from Winklevoss Capital, Morgan Creek Digital, Akuna Capital and earlier backers Galaxy Digital Ventures and ConsenSys Ventures.

Apparently, BlockFi is gaining some traction.

Last year, after raising $1.5 million in seed funding from ConsenSys Ventures, SoFi and Kenetic Capital, it secured $50 million led by Galaxy Digital Ventures (the digital currency and blockchain tech firm founded by famed investor Mike Novogratz) that is used to loan out cash to customers who use their bitcoin and ethereum holdings as collateral.

The minimum deposit required: $20,000 worth of cryptocurrency.

According to founder Zac Prince, who talked with Bloomberg about BlockFi’s newest round, enough people are now using those loans that BlockFi has seen its monthly revenue grow more than 10 times since January.

No doubt the uptick in loans correlates with the rebound in Bitcoin’s value, which was priced as low as $3,400 earlier this year but is now valued at roughly $11,400.

Prince also told the outlet that he expects annual revenue to hit eight figures by the end of this year. In startup land, that means it’s time to roll out new money-making services. BlockFi already introduced a savings account product earlier this year that it says enables investors to earn interest on their assets. They are not backed by the FDIC, though the company says it “operates with a focus on compliance with U.S. laws and regulations.” And while it won’t say exactly what’s coming up next, it says in a statement about the new round more products are being added to its existing platform.

Prince previously spent roughly five years in consumer lending and began investing his own money in crypto in early 2016.

He told us last year that his “lightbulb moment” for the company came as he was in the process of getting a loan for an investment property. Instead of using a traditional bank, he decided to list his crypto holdings to see what would happen, and the response was overwhelming. “I realized that there was no debt or credit outside of [person-to-person] margin lending on a few exchanges, and I had the feeling that this was a big opportunity that I was well-suited to go after.”

Other companies providing crypto-backed loans that are issued in fiat currencies include CoinLoan, SALT Lending, Nexo.io and Celsius Network, among others.

North Korea funds weapons program with stolen cryptocurrency, U.N. report claims

North Korea has been using cyberattacks on banks and cryptocurrency exchanges to steal an estimated $2 billion, a U.N. report claims. 

The confidential report, seen by Reuters, claims the heavily sanctioned country has been using the money to fund its weapons program, which includes building weapons of mass destruction. 

The report, which cites independent experts monitoring the situation, says North Korea has been launching “increasingly sophisticated attacks to steal funds from financial institutions and cryptocurrency exchanges to generate income,” as well as using cyberspace to launder the money. The experts are looking into at least 35 reported cyberattacks in 17 countries. 

North Korea did not respond to Reuters’ request for comment. The country’s leader Kim Jong Un met with U.S. President Donald Trump three times, with the two sides agreeing they will resume talks on Pyongyang shutting down its nuclear weapons program (the talks are yet to materialize). 

The U.S. State Department did respond, saying it calls “upon all responsible states to take action to counter North Korea’s ability to conduct malicious cyber activity, which generates revenue that supports its unlawful WMD and ballistic missile programs.”

Cryptocurrency theft has been a common occurrence throughout the space’s short history, and it showed no signs of stopping in recent years, with crypto exchanges being a big target. Just this year, hackers stole $40 million from Binance, $32 million from Bitpoint, and $4.2 million from Bitrue, to name a few. 

According to U.N. experts, stealing from cryptocurrency exchanges made it easier for North Korea to avoid being tracked. 

This is not the first time North Korea has been accused of cyberattacks. In September 2018, an alleged North Korean spy was charged of hacking Sony Pictures Entertainment’s servers in 2014. A 2017 report claimed North Korean hackers have stolen about $88,000 worth of bitcoin between 2013 and 2015. 

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Libra, Facebook’s global digital currency plan, is fuzzy on privacy, watchdogs warn

Privacy commissioners from the Americas, Europe, Africa and Australasia have put their names to a joint statement raising concerns about a lack of clarity from Facebook over how data protection safeguards will be baked into its planned cryptocurrency project, Libra.

Facebook officially unveiled its big bet to build a global digital currency using blockchain technology in June, steered by a Libra Association with Facebook as a founding member. Other founding members include payment and tech giants such as Mastercard, PayPal, Uber, Lyft, eBay, VC firms including Andreessen Horowitz, Thrive Capital and Union Square Ventures, and not-for-profits such as Kiva and Mercy Corps.

At the same time Facebook announced a new subsidiary of its own business, Calibra, which it said will create financial services for the Libra network, including offering a standalone wallet app that it expects to bake into its messaging apps, Messenger and WhatsApp, next year — raising concerns it could quickly gain a monopolistic hold over what’s being couched as an ‘open’ digital currency network, given the dominance of the associated social platforms where it intends to seed its own wallet.

In its official blog post hyping Calibra Facebook avoided any talk of how much market power it might wield via its ability to promote the wallet to its existing 2.2BN+ global users, but it did touch on privacy — writing “we’ll also take steps to protect your privacy” by claiming it would not share “account information or financial data with Facebook or any third party without customer consent”.

Except for when it admitted it would; the same paragraph states there will be “limited cases” when it may share user data. These cases will “reflect our need to keep people safe, comply with the law and provide basic functionality to the people who use Calibra”, the blog adds. (A Calibra Customer Commitment provides little more detail than a few sample instances, such as “preventing fraud and criminal activity”.)

All of that might sound reassuring enough on the surface but Facebook has used the fuzzy notion of needing to keep its users ‘safe’ as an umbrella justification for tracking non-Facebook users across the entire mainstream Internet, for example.

So the devil really is in the granular detail of anything the company claims it will and won’t do.

Hence the lack of comprehensive details about Libra’s approach to privacy and data protection is causing professional watchdogs around the world to worry.

“As representatives of the global community of data protection and privacy enforcement authorities, collectively responsible for promoting the privacy of many millions of people around the world, we are joining together to express our shared concerns about the privacy risks posed by the Libra digital currency and infrastructure,” they write. “Other authorities and democratic lawmakers have expressed concerns about this initiative. These risks are not limited to financial privacy, since the involvement of Facebook Inc., and its expansive categories of data collection on hundreds of millions of users, raises additional concerns. Data protection authorities will also work closely with other regulators.”

Among the commissioners signing the statement is the FTC’s Rohit Chopra: One of two commissioners at the US Federal Trade Commission who dissented from the $5BN settlement order that was passed by a 3:2 vote last month

Also raising concerns about Facebook’s transparency about how Libra will comply with privacy laws and expectations in multiple jurisdictions around the world are: Canada’s privacy commissioner Daniel Therrien; the European Union’s data protection supervisor, Giovanni Buttarelli; UK Information commissioner, Elizabeth Denham; Albania’s information and data protection commissioner, Besnik Dervishi; the president of the Commission for Information Technology and Civil Liberties for Burkina Faso, Marguerite Ouedraogo Bonane; and Australia’s information and privacy commissioner, Angelene Falk.

In the joint statement — on what they describe as “global privacy expectations of the Libra network” — they write:

In today’s digital age, it is critical that organisations are transparent and accountable for their personal information handling practices. Good privacy governance and privacy by design are key enablers for innovation and protecting data – they are not mutually exclusive. To date, while Facebook and Calibra have made broad public statements about privacy, they have failed to specifically address the information handling practices that will be in place to secure and protect personal information. Additionally, given the current plans for a rapid implementation of Libra and Calibra, we are surprised and concerned that this further detail is not yet available. The involvement of Facebook Inc. as a founding member of the Libra Association has the potential to drive rapid uptake by consumers around the globe, including in countries which may not yet have data protection laws in place. Once the Libra Network goes live, it may instantly become the custodian of millions of people’s personal information. This combination of vast reserves of personal information with financial information and cryptocurrency amplifies our privacy concerns about the Libra Network’s design and data sharing arrangements.

We’ve pasted the list of questions they’re putting to the Libra Network below — which they specify is “non-exhaustive”, saying individual agencies may follow up with more “as the proposals and service offering develops”.

Among the details they’re seeking answers to is clarity on what users personal data will be used for and how users will be able to control what their data is used for.

The risk of dark patterns being used to weaken and undermine users’ privacy is another stated concern.

Where user data is shared the commissioners are also seeking clarity on the types of data and the de-identification techniques that will be used — on the latter researchers have demonstrated for years that just a handful of data points can be used to re-identify credit card users from an ‘anonymous’ data-set of transactions, for example.

Here’s the full list of questions being put to the Libra Network:

  • 1. How can global data protection and privacy enforcement authorities be confident that the Libra Network has robust measures to protect the personal information of network users? In particular, how will the Libra Network ensure that its participants will:

    • a. provide clear information about how personal information will be used (including the use of profiling and algorithms, and the sharing of personal information between members of the Libra Network and any third parties) to allow users to provide specific and informed consent where appropriate;
    • b. create privacy-protective default settings that do not use nudge techniques or “dark patterns” to encourage people to share personal data with third parties or weaken their privacy protections;
    • c. ensure that privacy control settings are prominent and easy to use;
    • d. collect and process only the minimum amount of personal information necessary to achieve the identified purpose of the product or service, and ensure the lawfulness of the processing;
    • e. ensure that all personal data is adequately protected; and
    • f. give people simple procedures for exercising their privacy rights, including deleting their accounts, and honouring their requests in a timely way.
  • 2. How will the Libra Network incorporate privacy by design principles in the development of its infrastructure?

  • 3. How will the Libra Association ensure that all processors of data within the Libra Network are identified, and are compliant with their respective data protection obligations?

  • 4. How does the Libra Network plan to undertake data protection impact assessments, and how will the Libra Network ensure these assessments are considered on an ongoing basis?

  • 5. How will the Libra Network ensure that its data protection and privacy policies, standards and controls apply consistently across the Libra Network’s operations in all jurisdictions?

  • 6. Where data is shared amongst Libra Network members:

    • a. what data elements will be involved?

    • b. to what extent will it be de-identified, and what method will be used to achieve de-identification?
      c. how will Libra Network ensure that data is not re-identified, including by use of enforceable contractual commitments with those with whom data is shared?

We’ve reached out to Facebook for comment.

Domain registry moves to ban cryptocurrency names

Sorry, crypto companies, you can’t register a .bank domain name.

fTLD Registry Services, which operates the new top-level domain (TLD) extensions .bank and .insurance, is looking to ban cryptocurrency services from registering a domain name.

The registry, which is run by “a coalition of banks, insurance companies and financial services trade associations from around the world,” announced its proposed amendments to its registrant eligibility policies late last month. fTLD concurrently opened a public comment period on the changes; it will run until August 24.

While anyone can register most top-level domain extensions, some registries do apply restrictions to who qualifies for its names. The .bank TLD, which costs around $1,000 per year, is among those with the most restrictive policies. To qualify for a .bank domain name, the registrant must be a government regulated retail bank, savings association, national bank, or bank holding or parent company. There are exceptions listed in the policy, however — one such entity that can also currently apply for a .bank domain are financial service providers.

“The original purpose of the Service Provider category was to enable banking core processors to provide infrastructure (e.g., online banking services) using a .BANK URL or to provide DNS and/or hosting that is compliant with fTLD’s Security Requirements,” said senior director of compliance and policy at fTLD, Heather Diaz, in a statement to Mashable.

The industry has clearly changed since the .bank domain launched in 2015. At the time, fTLD viewed service providers as tech services geared specifically toward regulated banks. Since then, the registry has received an uptick in applications for .bank domain names from fintech companies, such as cryptocurrency firms, looking to use the extension for authority.

“More recently, as the financial services arena has evolved, particularly as it relates to fintechs offering financial products/services (e.g., P2P payment providers, cryptocurrency companies), we have found that some prospective Registrants were seeking domains to enhance their legitimacy to market to regulated entities and/or consumers,” she said.

The changes proposed to the .bank registrant eligibility policy would completely remove the “service provider” category. Only government regulated retail banks will be qualified for a domain. The updated policy would also explicitly state that cryptocurrency or digital currency companies, P2P payment providers, money transfer application companies, and non-banking financial institutions like microloan and currency exchange companies, as well as payday lenders, would be ineligible for a .bank domain. Basically, only government-regulated retail banks will be qualified for a domain.

According to Diaz, service providers in both .bank and .insurance TLDs make up only .012% of registrations. Furthermore, the registry has never approved a cryptocurrency company’s domain application.

“We’re making this move to further secure these trusted spaces,” she explained.

ICANN, the organization that oversees and manages IP addresses and the domain name system, approved of the new general top-level domain name extensions in 2011. Before then, top-level domains were regulated to abbreviations, such as .com, .org, and .net, along with country code domains, like .us, .uk, and .ca. Following the ICANN rule change, any entity could pay $185,000, plus an annual $25,000 fee, to become a registry and run its very own dot whatever domain extension.

According to fTLD Registry Services, there are more than 500 banks using the .bank domain name. There are currently around 2,800 .bank domain names registered in total.

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