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>>> Another Hacked Florida City Pays a Ransom, This Time for $460,000
New York Times
By Patricia Mazzei
June 27, 2019
https://www.nytimes.com/2019/06/27/us/lake-city-florida-ransom-cyberattack.html
MIAMI — Even the phones went down in the government of Lake City, Fla., after hackers launched a cyberattack that disabled the city’s computer systems.
For several days after computer systems were paralyzed by a ransomware attack, the staff of the small North Florida town worked with the F.B.I. and an outside security consultant to restore phone lines, email and online utility payments. But in the end, city leaders called an emergency meeting this week and reluctantly approved paying the hackers the ransom they demanded: 42 Bitcoin, or about $460,000.
It was the second city to agree to a large ransom in two weeks. Riviera Beach, in Florida’s Palm Beach County, signed off on an extraordinary $600,000 payment last week, also in Bitcoin, a cybercurrency that is difficult to trace.
As in Riviera Beach, the brunt of Lake City’s ransom will be paid by insurance. Only $10,000 will come out of the city’s coffers.
“With your heart, you really don’t want to pay these guys,” Mayor Stephen Witt said. “But, dollars and cents, representing the citizens, that was the right thing to do.”
The F.B.I., as it typically does, recommended against agreeing to the hackers’ demands. But Mr. Witt said a prolonged recovery would have cost taxpayers more. Though there was no guarantee that the attackers would release the city’s data, Mr. Witt said information technology staff had already been making strides since the ransom had been paid.
On Thursday, a third Florida city, Key Biscayne, said it too had been the victim of a cyberattack that began on Sunday. It was not clear if the attackers demanded a ransom, but the city said it had brought most networks back up by Wednesday night.
Ransomware has become a digital epidemic for the public sector, which often manages large, tangled webs of computer networks, running older software, with limited budgets to defend them. Police departments in Illinois, Maine, Massachusetts and Tennessee have all opted to pay the ransom demands to get back their data. The difference in Florida is that the attackers are now emboldened, raising their ransom demands by a factor of 10 or more.
City officials in Baltimore, a much larger city that has been fighting a massive ransomware attack for the past two months, have spent $18 million on recovery. Hackers there had demanded a ransom of $80,000. A slew of other governments, including the city of Atlanta, have faced similarly crippling breaches.
The Lake City attack began on June 10 when an employee clicked on a malicious email and infected the city’s computers with ransomware, according to the mayor. The program, which the city identified as malware known as “Triple Threat,” affected everything but Lake City’s police and fire departments, which are on a separate server.
“As a result, all Emergency services remain intact,” the city said when it disclosed the attack.
Several days went by before the hackers demanded a ransom. At first, the city, which is about 65 miles west of Jacksonville, at the point where Interstate 10 and Interstate 75 meet, had some luck restoring its systems on its own. But then it ran into trouble, so city leaders decided instead to negotiate with its insurance carrier, the Florida League of Cities, to make the ransom payment.
“Any I.T. professional will tell you they’re fending off attacks all the time,” said Eric Hartwell, deputy general counsel and insurance counsel for the Florida league, which began offering cyberattack liability coverage to its hundreds of members a few years ago. “It’s not necessarily a new thing — I just think for whatever reason, the news cycle is now showing municipalities are no different from private corporations.”
There is a chance Lake City could have decrypted the ransomware on its own. A spokesman for the city said the ransomware was a variant of a malware strain called “Ryuk.” Security experts have successfully unscrambled Ryuk ransomware in 3 to 5 percent of cases, according to Emsisoft, a security firm. Part of the problem, said Brett Callow, a spokesman at Emsisoft, is that security experts need better communication channels with victims. His firm created ID Ransomware, a free website that allows victims to upload strains of ransomware so that security experts can help them to decrypt it.
In Europe, similar projects have proved successful. Security experts, law enforcement and local officials are partnering on the No More Ransom Project to share information about attacks in real time, share decryption techniques, and point law enforcement toward attackers’ command and control servers. In Poland last year, the Polish police, Belgian Federal Police and Europol arrested a Polish national suspected of having infected several thousand computers with ransomware. Security experts said they have had similar success working with the Dutch National Police, but have had a harder time connecting with the F.B.I. because the agency has stricter communication protocols.
Mr. Witt said Lake City fired an employee who it deemed had not done enough to protect the computer systems from an intrusion. That employee was not the same person who clicked on the malicious email, he said.
“We’re developing a system with a backup that hopefully won’t be vulnerable,” Mr. Witt said, imploring other small-town mayors to do the same. “Every other town needs to look at their system — today.”
“I have been in office 14 years,” he added. “We’ve had tornadoes. We’ve had hurricanes. We’ve had fires that they told me were going to maybe reach the city limits. But this was unusual. This was different.”
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>>> Facebook Wants Its Cryptocurrency to One Day Rival the Greenback
Social-media giant says Libra will be better than Bitcoin. But the company is late to the party and other payment initiatives have stumbled.
Bloomberg
By Kurt Wagner , Olga Kharif , and Julie Verhage
June 18, 2019
https://www.bloomberg.com/news/articles/2019-06-18/better-than-bitcoin-facebook-unveils-libra-cryptocurrency?srnd=premium
Facebook Announces Plans for Libra: Is it Really a Currency?
Facebook Says Its New Cryptocurrency Will Be Better Than Bitcoin
Facebook Inc. unveiled plans for a new cryptocurrency that the social-media giant hopes will one day trade on a global scale much like the U.S. dollar.
Called Libra, the new currency will launch as soon as next year and be what's known as a stablecoin -- a digital currency that's supported by established government-backed currencies and securities. The goal is to avoid massive fluctuations in value so Libra can be used for everyday transactions in a way that more volatile crypotcurrencies, like Bitcoin, haven’t been.
Read More: Facebook’s Cryptocurrency Project: Who’s In and Who’s Out
Libra is the culmination of a year-long effort to devise an easy way for Facebook users to send and receive money through its messaging services. Private messaging is one of the company’s fastest growing products, and Chief Executive Officer Mark Zuckerberg is embracing this by integrating all Facebook’s messaging products to let users communicate between its different apps.
This focus comes at a time when user growth of the main social network has plateaued in some major markets, and regulators are scrutinizing the company’s frequent privacy failures. Payments are a potential way to turn messaging into a business that complements Facebook’s advertising operation, which generates almost all its revenue.
To come anywhere close to matching the U.S. dollar for utility and acceptance, Libra will need to be widely trusted. So Facebook and its partners are mimicking how other currencies have been introduced in the past.
“To help instill trust in a new currency and gain widespread adoption during its infancy, it was guaranteed that a country’s notes could be traded in for real assets, such as gold,” the companies wrote in a white paper. “Instead of backing Libra with gold, though, it will be backed by a collection of low-volatility assets, such as bank deposits and short-term government securities in currencies from stable and reputable central banks."
Facebook Wants Its Cryptocurrency to One Day Rival the Greenback
The total number of Libra can change, and new digital coins can be issued whenever someone wants to exchange their Libra for an existing fiat currency, so the price shouldn’t fluctuate any more than other stable currencies, according to David Marcus, head of the Facebook blockchain team that’s spearheading the project.
“It would make a scenario where there’s a run on the bank completely impossible, because we are backed one-for-one,” he said. Libra will also be audited, he added, an important step in an industry with limited transparency.
Facebook has closely guarded its crypto plans for more than a year, though many of the details have already been reported by Bloomberg News and other outlets.
Read about how Marcus tapped PayPal talent to build Facebook’s blockchain team.
Marcus, who used to run Facebook Messenger, said Facebook plans to build a new digital wallet that will exist inside Messenger and its other standalone messaging service, WhatsApp. Once Libra is up and running, the currency and the digital wallet should make it easier for people to send money to friends, family and businesses through the apps. Libra will run on the so-called blockchain, a database that can use millions of computers to verify transactions, eliminating risks that come with information being held centrally by a single entity. Facebook created a new subsidiary, called Calibra, to build the new wallet and focus on the company’s blockchain efforts.
Facebook's track record in payments and commerce has been spotty. A few years ago, it began letting people buy flowers or hail an Uber through its Messenger service. Those features have not been huge hits. In 2010, it began offering Facebook Credits, a way to buy virtual goods inside Facebook games. But in 2012 it scrapped Credits, and in 2013 it started working with third-party services like PayPal process some payments. Facebook's revenue from "payments and other service" was less than 2% of total sales in 2018.
The Decline of Facebook Payments
Facebook's payments revenue as a portion of overall revenue has been declining.
If successful, Libra could make Facebook a much bigger player in financial services. That’s a big “if,” though. Cryptocurrency companies have been trying to build cross-border, digital currencies on the blockchain to disrupt traditional banking and payments for a decade. Nothing has caught on at the scale of traditional money yet.
When it finally arrives, Libra will be late to a party that’s been going on so long, many of the party-goers have either left or collapsed. Some past attempts to make coins usable for commerce, such as Bitcoin, haven’t widely caught on yet because price volatility mainly attracted traders and speculators. Predecessor stablecoins, like Tether, have been used by some traders to park funds in during times of high volatility, but have not been broadly adopted for commerce.
Read more about Facebook CEO Mark Zuckerberg’s early plans for cryptocurrency.
U.S. regulations may represent another hurdle for Facebook. Creating a digital currency doesn’t just require buy-in from financial institutions who need to accept it, and consumers who need to trust it, but it requires approval from regulators, too. The Securities and Exchange Commission has shut down about a dozen businesses issuing their own tokens for violations of securities law. Marcus said Facebook has been in contact with regulators and central banks, but added that the company hasn’t received a “no-action” letter from the SEC yet. That would have safeguarded the project from regulatory action by the agency.
One way Facebook hopes to appease regulators is through the Libra Association, a governing body tasked with making decisions about Libra. At least 27 other firms, including Visa Inc., Uber Technologies Inc. and PayPal Holdings Inc., are part of the group. Marcus described these members as “co-founders,” and said they will have an equal say in how the cryptocurrency is managed.
“Facebook will not have any special privilege or special voting rights at the association level,” said Marcus, the former president of PayPal. “We will have competitors and other players on top of this platform that will build competing wallets and services.”
All Libra Association members are putting a minimum of $10 million into a reserve to help support the cryptocurrency’s value. This buy-in comes with voting privileges. However, the association’s governance structure is still in flux, and most of the group’s crucial decisions, including the creation of its charter, have not yet been decided, according to several members of the group. They asked not to be identified discussing private details.
“Facebook will not have any special privilege”
Libra’s timing could also pose challenges. Facebook is being investigated by the Federal Trade Commission over the company’s privacy practices. Some have called for the company to be broken up, including Senator Elizabeth Warren and Facebook co-founder Chris Hughes. Asking consumers to put more trust in the social media giant, and giving Facebook a strong entry into the world of digital payments and banking, will likely draw further criticism.
Opinion: Crypto-evangelists hoped digital currencies would challenge Big Tech’s data control. Zuckerberg has other plans.
The company plans to keep financial data gathered from Libra users separate from Facebook user data. That’s why Facebook’s digital wallet will exist under the Calibra subsidiary, which will house user transaction data on separate servers, Marcus said. If a WhatsApp user uses her Calibra wallet to send money to a friend or pay a retailer, those interactions won’t be stored alongside her social-media profile.
“There’s a clear distinction between Calibra and what Calibra has access to, and what Facebook Inc. has access to,” Marcus said. “It’s very clear that people don’t want their financial data from an account to be comingled with social data or to be used for other purposes.”
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>>> Fidelity Is Really In Love With Bitcoin: Texas Office Filled With Crypto ASICs
5-25-19
Avatar
Nick Chong
https://www.newsbtc.com/2019/05/25/fidelity-is-really-in-love-with-bitcoin-texas-office-filled-with-crypto-asics/
Many cynics say that institutions and other big names in the corporate world aren’t in Bitcoin (BTC) or crypto assets yet. But, this is quickly being proven not to be the case. In a recent tweet, a Bitcoin developer and industry insider revealed that one of the biggest names on Wall Street has and continues to mine BTC.
Fidelity Continues To Mine Bitcoin
According to Justin Moon, Fidelity Investments, one of the world’s largest asset managers and financial institutions, has a “room full of Bitcoin miners (ASICs) at their [Texas] office.” This likely marks the first time that a Wall Street institution, let alone one of the big names, has actually mined BTC and actively participated in public, renowned blockchains. As Moon puts it, “[this is] cypherpunk AF!”
This isn’t the first time that Fidelity was revealed to have actually truly involved itself in cryptocurrency.
In an episode of “Unconfirmed” with Laura Shin, Tom Jessop, an institutional executive-turned-Fidelity’s crypto chief, claimed that as early as 2015 or so, CEO Abigail Johnson was mining Bitcoin in her very own office. What’s more, Jessop stated that an R&D division of the company even once tested an internal Bitcoin payments network.
Ari Paul, the founder & chief investment officer of BlockTower Capital, earlier this year claimed that Fidelity has a cryptocurrency culture that is “bonkers.” The investor remarks that there are “hundreds of passionate advocates” of the innovation from the C-Suite to the lower rungs of the executive ladder, accentuating that Wall Street sees value in this budding ecosystem.
--- @AriDavidPaul
Fidelity’s cryptocurrency culture is bonkers. Literally hundreds of passionate advocates at every level of seniority at the firm. They have more people working on crypto than the 5 biggest crypto funds combined. ----
And, the company is obviously known to be working on a custody and trade execution solution for its 20 thousand-odd institutional clients, a purported majority of which believe that digital assets have a future and a place in their portfolios.
Strong Mainstream Support
This valuable tidbit of information confirms that mainstream players in finance and the corporate world are delving into cryptocurrency. As reported by NewsBTC previously, TD Ameritrade and E*Trade, two of the largest American retail brokerages, are soon expected to launch spot cryptocurrency trading support for their clientele. No dates or deadlines were mentioned, but these plans have been confirmed by sources to be solid.
On the corporate side of things, cryptocurrency has started to see monumental levels of adoption. Announced Thursday, AT&T, a Texas-based American technology giant valued at $234 billion, will be accepting Bitcoin payments for its services through the Atlanta-headquartered BitPay. Per a press release, AT&T is now the first “major U.S. mobile carrier” to provide its millions of customers with the ability to purchase services for cryptocurrency.
Researcher Willy Woo noted that whenever common Joes and Jills use Bitpay to pay their AT&T bill or purchase an item or service through other retailers, which is technically a negative selling pressure on BTC spot, “thousands more will see it and consider buying a few thousands of BTC as an investment.”
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>>> The Biggest Fraud in History
BY JAMES RICKARDS
MAY 20, 2019
https://dailyreckoning.com/the-biggest-fraud-in-history-2/
The Biggest Fraud in History
My readers know that I’m a longtime critic of bitcoin. Bitcoin rose from about $2,000 in May 2017 to $20,000 by December 2017 in one of the greatest asset price bubbles in history.
I argued repeatedly that it was nothing but a massive bubble and that the bubble would probably burst when it hit $20,000.
In late 2017 it did.
Bitcoin crashed from $20,000 all the way to $3,300 by December 2018 — an 83.5% collapse in one year and the greatest recorded asset price collapse in history.
The crash of bitcoin was even more dramatic than the infamous collapse of tulip prices in the tulipomania in Netherlands in the early 17th century.
But suddenly, bitcoin is back in the news.
You’ve probably seen the headlines about bitcoin’s return. Bitcoin rose from $3,900 on March 26, 2019, to $8,100 on May 15, 2019, a gain of 52% in less than seven weeks.
Happy days are here again! Bitcoin mania is back!
60 Minutes even ran a feature on bitcoin last night.
Is this the start of a new rally back to the heights of $20,000? That seems highly unlikely.
Early Friday bitcoin plunged well over $1,000 in a massive flash crash, about 10% in one day. Easy come, easy go.
What caused the crash?
It seems that a bitcoin “whale” unloaded a massive holding.
A “whale” is a term for a cryptocurrency investor with a large amount of units, or “coins.” That gives them significant influence on the market control.
It’s been estimated that less than 450 people or entities own 20% of the entire bitcoin market.
And when someone buys or sells a massive amount, prices can swing dramatically, as we saw on Friday.
It is still not clear if the large sell order was deliberate or an accidental “fat finger” error.
Prices have recovered to some extent, and bitcoin’s trading around $7,800 today. But either way, Friday’s flash crash highlights a major weakness of bitcoin. It can all come crashing down like a house of cards, as bitcoin’s 2017–18 hair-raising plunge proves.
As an asset, bitcoin has very little to offer outside of speculation.
Bitcoin still has no use case except for gambling by speculators or the conduct of transactions by terrorists, tax evaders, scam artists and other denizens of the dark web. Bitcoin is still unsustainable due to extreme demands for electricity in the computer “mining” process.
It is still nonscalable due to the slow and clunky validation process for new blocks of transactions on the bitcoin blockchain. Bitcoin has no future as “money” because the supply of bitcoin cannot grow beyond a preset amount.
That feature makes bitcoin inherently deflationary and therefore not suitable for credit creation, which is the real source of any system of money. Bitcoin has been subject to continual price manipulation by miners through wash sales, front-running, ramping and other tried-and-true techniques for price manipulation.
The bitcoin infrastructure has been plagued with hacking, fraud, bankruptcy and coin theft measured in the billions of dollars. Bitcoin may go higher from here; it’s entirely possible. But it will then come crashing down again.
What is bitcoin’s intrinsic worth?
JPMorgan Chase has tried to break it down. They examined bitcoin as a commodity.
To arrive at its worth, JPMorgan Chase estimated the cost of producing each individual bitcoin by looking at factors such as electrical costs, computational power and energy efficiency. I mentioned these factors above.
When they crunched the numbers, what number did they come up with?
JPMorgan Chase estimated the intrinsic value of bitcoin at around $2,400. Let’s assume for now that’s accurate, or a reasonable approximation. Then even at $8,000, we can conclude that bitcoin is severely overvalued.
JPMorgan Chase compared bitcoin’s recent run-up to the bubble it experienced two years ago. Even though it is still far from $20,000, if we see another speculative frenzy it could undergo a similar run. But it would end the same way.
The bottom line is I would advise you to stay far away from bitcoin. Do not get sucked in by the hype.
Sadly, some people never learn. And my guess is that many will get burned all over again.
Read on for more.
Regards,
Jim Rickards
for The Daily Reckoning
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>>> Fidelity Will Offer Cryptocurrency Trading Within a Few Weeks
By Matthew Leising
May 6, 2019
https://www.bloomberg.com/news/articles/2019-05-06/fidelity-said-to-offer-cryptocurrency-trading-within-a-few-weeks?srnd=premium
Asset manager will target institutional customers, not retail
Crypto markets continue to be plauged by fraud and theft
Fidelity Investments, which began a custody service to store Bitcoin earlier this year, will buy and sell the world’s most popular digital asset for institutional customers within a few weeks, according to a person familiar with the matter.
The Boston-based firm, one of the largest asset managers in the world, created Fidelity Digital Assets in October in a bet that Wall Street’s nascent appetite for trading and safeguarding digital currencies will grow. It also puts Fidelity a step ahead of its top competitors that have mostly stayed on the sidelines so far. The firm said in October that it would offer over-the-counter trade execution and order routing for Bitcoin early this year.
Fidelity would join brokerages E*Trade Financial Corp. and Robinhood in offering cryptocurrency trading to clients, though Fidelity is only targeting institutional customers and not retail investors like E*trade and Robinhood, said the person, who asked not to be named discussing private matters. A study released by Fidelity on May 2 found that 47 percent of institutional investors think digital assets are worth investing in.
“We currently have a select set of clients we’re supporting on our platform,” Fidelity spokeswoman Arlene Roberts said in en email. “We will continue to roll out our services over the coming weeks and months based on our clients’ needs, jurisdictions, and other factors. Currently, our service offering is focused on Bitcoin.”
Fidelity closer to offering crypto trading
According to the survey, which questioned 441 institutional investors from November to February, 72 percent prefer to buy investment products that hold digital assets, while 57 percent choose to buy them directly.
The hurdle to make crypto appeal to more mainstream investors is that it continues to be plagued with fraud, theft and regulatory infractions. The latest case involves the New York attorney general accusing Bitfinex, one of the largest Bitcoin exchanges, of hiding the loss of about $850 million in client and corporate cash. Vancouver-based Quadriga Fintech Solutions Corp., which is going through bankruptcy in Canada, owes 115,000 clients about $193 million in cryptocurrencies and cash after the death of founder Gerry Cotten last year.
Bitcoin has jumped more than 50 percent this year, extending the wild price swings that have attracted many individual investors to the mostly unregulated coin. The original digital currency gained widespread notoriety when it surged 1,400 percent in 2017, before tumbling 74 percent last year.
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>>> Crypto’s Long Road to Acceptance May Have Started Here
In the wake of the 2018 crash, two dozen traders gathered to plan its emergence as a new asset class. Step one: a clearinghouse.
By Alastair Marsh
April 24, 2019
https://www.bloomberg.com/news/articles/2019-04-25/crypto-s-long-road-to-acceptance-may-have-started-here?srnd=premium
He sent the invitations when the party was over.
Only after the cryptocurrency craze’s collapse hit bottom in December did Standard Chartered Plc veteran Hoe Lon Leng issue his call to the market’s biggest traders: join him to brainstorm making digital tokens part of the world’s financial architecture.
It may seem quixotic, but the goal of the two dozen men gathered Jan. 20 at a resort on Singapore’s Sentosa Island was to create the framework for an orderly market in crypto derivatives—part of every primitive asset class’s journey to acceptance. If they succeed, those hours spent in Sofitel meeting rooms hemmed in between an 18-hole golf course and one of the city-state’s sandy beaches could prove to be a turning point, these true believers say.
“We see this as getting the crypto market into shape in order to absorb the entry of traditional finance firms,” said Simon Nursey, Leng’s former colleague who attended the meeting. (Leng’s crypto initiative is a personal project, and his employer is not involved). “We are witnessing the emergence of a new asset class.”
Such visions underscore the schizophrenic world of cryptocurrencies—digital money that its advocates cheer as the future free from meddlesome officaldom. But alongside finance professionals prospecting for a big score and institutional investors testing it out, a rogue’s gallery of anarchists, criminals and fraudsters has left a stink on virtual currencies that is proving hard to wash away.
“Crypto is now practically a pejorative,” said Eoin O’Shea, a former compliance chief at Credit Suisse Group AG who now runs Temple Grange Partners, a risk and compliance consultancy. “It will need to shake off this taint if it is to go mainstream.”
Yet in the wake of crypto’s 2018 crash, traders flew into Singapore from Hong Kong, Tokyo and New York to join Leng’s caucus.
The gathering brought together traders from firms including Mike Novogratz’s Galaxy Digital Holdings Ltd. and Circle Internet Financial Ltd., which counts Goldman Sachs Group Inc. among its investors, as well as exchanges Binance and Coinbase. Together, the group embodied the first Crypto OTC Roundtable Asia.
They focused on private bilateral derivatives known as over-the-counter contracts, instead of exchange-traded products like Bitcoin futures. Unlike the futures contracts that trade on public markets managed by regulated companies such as CME Group Inc., OTC contracts, including options, are not standardized. They also expose traders to the credit risk of their counterparts.
When Wall Street bankers from firms including Deutsche Bank AG and Goldman Sachs Group Inc. in 2005 created a standardized contract for credit default swaps on mortgage-backed securities, the market boomed, until it melted down just a few years later.
While no official statistics exist for bilateral crypto derivatives trading, Nursey estimates volumes total around $750 million per month across swaps and options contracts. That’s a fraction of the trillions that change hands weekly in the interest-rate derivatives market.
The Singapore meeting gave birth to what will be the first clearinghouse for crypto derivatives to increase trading volume and dramatically reduce trading costs. The venture, known as Liquidity Offset Network, should be operational and regulated by the Singapore Monetary Authority as soon as July, said Nursey, 46, who until November was head of foreign-exchange options trading for Asia at Standard Chartered. The network will be the central counterparty, while the services it offers, including margin calculations and confirmation, are known as OTSafe, according to Nursey, who says he’s financing the network along with a silent partner.
The point would be to eliminate the need for traders to post collateral with each of their counterparties, an arrangement that can quickly exhaust all the resources of a small fund. Were the same fund to face a single central counterparty—in this case the clearinghouse—it would need to hold less collateral, he said.
“It’s very hard to grow a market on a bilateral basis,” said Darius Sit, a Singapore-based managing partner at crypto trading firm QCP Capital who helped Leng organize the meeting. “It is almost impossible to arrive at a system both parties see as fair and equal.”
An accepted guide of trading conventions would also help, laying the ground for institutional investors and Wall Street banks to join, said Nursey. A handful of mainstream finance firms are looking at crypto investments or businesses, but most have steered clear.
For Leng, 44, crypto trading is similar to many of the other nascent markets he has seen in a 20-year career at firms including Tudor Investment Corp., Goldman Sachs and now Standard Chartered. He’s even written an introductory guide to crypto.
The violent price swings and makeshift infrastructure for digital assets are reminiscent of the Asian currency derivatives market in late 1990s, which began with a few in-the-know dealers and grew quickly as the contracts became widely adopted, said Leng. OTC derivatives on Bitcoin, Ethereum and the like could also grow rapidly.
CORA will hold a second meeting in Chicago in May to draw more U.S. traders into its initiative. Such a move could be crucial because of the U.S.’s outsize influence, said Rich Rosenblum, co-founder of GSR, a Hong Kong-based algorithmic trading firm focused on digital assets who did not attend the Singapore meeting.
“Due to weak regulatory oversight in Asia, it will be challenging for initiatives of this kind to have an industrywide impact,” said Rosenblum. “Similar efforts in the U.S. have the opportunity to work with more progressive regulators, which may be the deciding factor in what sets the global standards and legal framework of the future.”
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>>> Dollar Dominance Under Multiple, Converging Threats
BY JAMES RICKARDS
APRIL 16, 2019
https://dailyreckoning.com/dollar-dominance-under-multiple-converging-threats/
Dollar Dominance Under Multiple, Converging Threats
For years, currency analysts have looked for signs of an international monetary “reset” that would diminish the dollar’s role as the leading reserve currency and replace it with a substitute agreed upon at some Bretton Woods-style monetary conference.
That push has been accelerated by Washington’s use of the dollar as a weapon of financial warfare, including the application of sanctions. The U.S. uses the dollar strategically to reward friends and punish enemies.
The use of the dollar as a weapon is not limited to trade wars and currency wars, although the dollar is used tactically in those disputes. The dollar is much more powerful than that.
The dollar can be used for regime change by creating hyperinflation, bank runs and domestic dissent in countries targeted by the U.S. The U.S. can depose the governments of its adversaries, or at least blunt their policies without firing a shot.
But for every action, there is an equal and opposite reaction.
As the U.S. wields the dollar weapon more frequently, the rest of the world works harder to shun the dollar completely.
I’ve been warning for years about efforts of nations like Russia and China to escape what they call “dollar hegemony” and create a new financial system that does not depend on the dollar and helps them get out from under dollar-based economic sanctions.
These efforts are only increasing.
Russia has sold off almost all of its dollar-denominated U.S. Treasury securities and has reduced its dollar asset position to almost zero. It has been amassing massive quantities of gold, and has increased the gold portion of its official reserves to over 20%. Russia has almost 2,000 tonnes of gold, having more than tripled its gold reserves in the past 10 years. It has actually acquired enough gold to surpass China on the list of major holders of gold as official reserves.
This combination of fewer Treasuries and more gold puts Russia on a path to full insulation from U.S. financial sanctions. Russia can settle its balance of payments obligations with gold shipments or gold sales and avoid U.S. asset freezes by not holding assets the U.S. can reach.
And Russia is providing other nations a model to achieve similar distance from U.S. efforts to use the dollar to enforce its foreign policy priorities.
Certainly any talk of a monetary reset must involve China. Despite its present weakness, China is still the second-largest economy in the world and the fastest-growing major emerging market. Like Russia, China is amassing gold, and likely has far more gold than it officially lists. It has also been helping to suppress gold prices so that it can buy gold cheaply without driving up the price.
Europe has also shown signs that it wants to escape dollar hegemony. For example, German Foreign Minister Heiko Maas has called for a new EU-based payments system independent of the U.S. and SWIFT (Society for Worldwide Interbank Financial Telecommunication) that would not involve dollar payments.
SWIFT in the nerve center of the global financial network. All major banks transfer all major currencies using the SWIFT message system. Cutting a nation off from SWIFT is like taking away its oxygen.
In the longer run, these are just more developments pushing the world at large away from dollars and toward alternatives of all kinds, including new payment systems and cryptocurrencies. The signs of a reset are everywhere, but at least for now the dollar is still king of the hill.
The dollar represents about 60% of global reserve assets, 80% of global payments and almost 100% of global oil sales. With such a dominant position, the dollar will not be easy to replace. Still, the trends are not good for the dollar. The international reserve position may be 60%, but as recently as 2000 it was over 70% and just a few years ago it was still at 63%. That trend is not your friend.
Another challenger to the dollar is the IMF’s special drawing rights or SDRs. The SDR is a form of world money printed by the IMF. It was created in 1969 as the realization of an earlier idea for world money called the “bancor,” proposed by John Maynard Keynes at the Bretton Woods conference in 1944.
The bancor was never adopted, but the SDR has been going strong for 50 years. This article describes how the IMF could function more like a central bank through more frequent issuance of SDRs and by encouraging the use of “private SDRs” by banks and borrowers.
At the current rate of progress, it may take decades for the SDR to pose a serious challenge to the dollar. But that process could be rapidly accelerated in a financial crisis where the world needed liquidity and the central banks were unable to provide it because they still have not normalized their balance sheets from the last crisis.
In that case, the replacement of the dollar could happen almost overnight. Individuals will not be allowed to own SDRs, but you can still protect you wealth by buying gold. That’s what Russia and China are doing. Both countries have more than tripled their gold reserves since 2009.
But attacks on the dollar are not limited to gold or SDRs themselves. The most imminent threat to the dollar actually comes from a combination of gold and digital currency.
The fact that Russia and China have been acquiring gold is old news. Still, there are practical problems with using gold as a form of currency, including storage and transportation costs. But Russia is solving these transactional hurdles by combining its gold position with distributed ledger, or blockchain technology.
Russia and China could develop a new cryptocurrency that would be transferred on a proprietary encrypted ledger with message traffic moving through an internet-type system not connected to the existing internet. Other countries could be allowed into this new system with permission from Russia or China.
The new cryptocurrency would be a so-called “stable coin,” where the value was fixed with reference either to a weight of gold or another standard unit such as the SDR. Goods and services would be priced in this new unit of account. Periodically, surpluses and deficits would be settled up in physical gold.
Such net settlements would require far less gold than gross settlements (where every transaction had to be paid for in real-time). This type of system (also called a “permissioned blockchain”) is not pie-in-the-sky, but is already under development and will be deployed soon. But you can count on the U.S. government being the last to know.
The development of a gold-backed digital currency is just one more sign that dollar dominance in global finance may end sooner than most expect. And we may be getting dangerously close to that point right now.
Regards,
Jim Rickards
for The Daily Reckoning
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>>> Quadriga’s Late Founder Revealed Crypto Storage in Old Podcast
By Doug Alexander
February 15, 2019
https://www.bloomberg.com/news/articles/2019-02-15/quadriga-s-late-founder-revealed-crypto-storage-in-old-podcast?srnd=premium
Gerry Cotten said access keys were kept on paper back in 2014
Customer accounts remain frozen as company searches for codes
Quadriga CX founder Gerry Cotten died in December possibly holding the only keys to C$190 million ($143 million) in cryptocurrencies -- but five years ago, he revealed exactly how his digital exchange stored Bitcoin for its clients.
Cotten was interviewed on the “True Bromance Podcast” in February 2014 when he was living in Vancouver, in which the show’s hosts -- actors Sage Brocklebank and Michael Karl Richards, and producer Brett Michael -- were given a primer on cryptocurrencies and an explanation of his new venture. About an hour in to the rambling discussion, Cotten warned of the dangers of losing passwords needed to access Bitcoin.
“It’s like burning cash in a way," Cotten told his hosts. “Even the U.S. government, with the biggest computers in the world, could not retrieve those coins if you’ve lost the private key. It’s impossible to retrieve those."
The warning resonates now with more than 100,000 customers in light of Quadriga’s current woes. Cotten, who ran Quadriga off his laptop, died while traveling in India, and no one knows how to recover the cryptocurrencies the exchange was holding for clients. Quadriga’s operations have been shuttered and the Vancouver-based firm is reorganizing under court-approved creditor protection with the help of Ernst & Young Inc.
Canadian exchange was early avenue for crypto
While Cotten, who last resided in Halifax, may have changed his procedures over the years, back in 2014 he was a big fan of protecting cryptocurrencies with a very low-tech solution: paper.
“The paper wallet is a great way to store your Bitcoins. Basically, all you need to send Bitcoins is your private key, which is a string of, a ton of numbers and letters," he said. “The best way to do it is take your private key, print it off, store it offline in your safety deposit box, vault, whatever, and then take the public key, which is your address, and use that to send money to it. So that way you can never have your Bitcoin stolen, unless someone, like, breaks into the bank, steals your safety deposit box and gets into your private key and so forth.”
And that’s exactly what he did for his firm in those days.
“At Quadriga CX, we’re obviously holding a bunch of Bitcoins that belong to other people who have put them onto our exchange," Cotten said. “So what we do is we actually store them offline in paper wallets, in our bank’s vault in a safety deposit box because that’s the best way to keep the coins secure.
“Essentially we put a bunch of paper wallets into the safety deposit box, remember the addresses of them," he said. “So we just send money to them, we don’t need to go back to the bank every time we want to put money into it. We just send money from our Bitcoin app directly to those paper wallets, and keep it safe that way."
Winklevoss Twins
Cotten’s measures aren’t unique. Bitcoin advocates Tyler and Cameron Winklevoss, the brothers who run the Gemini Trust Co. exchange, came up with a similar method to store and secure their own private keys using paper, according to December 2017 New York Times story. The brothers cut up printouts of their private keys into pieces and then distributed them in envelopes to safe deposit boxes around the country, so if one envelope were stolen the thief would not have the entire key.
Gemini has since created a high-tech version of the process to hold client money, and accessing the firm’s so-called digital wallets requires multiple signatures from cryptographically sealed devices never linked to the internet.
Read More: Crypto Exchange Founder Dies, Leaves Behind $200 Million Problem
Cotten explained in the podcast that his early measures left the crypto cache safe even if hackers got into his site.
“It’ll be a little annoying because we’ll have to clean up whatever mess the hackers make, however they won’t actually be able to steal any of the funds," Cotten said, adding that while they could “see the address of where the coins went" hackers couldn’t actually access it.
Now it’s up to the court appointed monitor to attempt to unravel the current mess, whether the keys are stored on paper as Cotten mentioned years ago or in more elaborate forms.
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>>> J.P. Morgan Chase Becomes First U.S. Bank With a Cryptocurrency
MSN Money
by Erik Sherman
2-14-19
https://www.msn.com/en-us/money/savingandinvesting/jp-morgan-chase-becomes-first-us-bank-with-a-cryptocurrency/ar-BBTAbxW?OCID=ansmsnnews11#page=2
How the mighty have taken a u-turn.
J.P. Morgan Chase CEO Jamie Dimon called bitcoin a fraud in September 2017 and said, “You can’t have a business where people can invent a currency out of thin air and think that people who are buying it are really smart,” By January 2018 he had walked the remarks back but said he still was “not interested that much in the subject at all.” In February 2018, J.P. Morgan called cryptocurrencies “risk factors” to its business, something it never previously said.
And now J.P. Morgan jpm has become the first bank to offer its own cryptocurrency, CNBC reported. But don’t expect it to become an investment vehicle—at least for now. The cryptocurrency, called “JPM Coin,” is intended for the bank’s wholesale payments business that moves $6 trillion around the world daily.
As long-time former banker and now cryptocurrency industry figure Alan Silbert said of Dimon in a January 2018 tweet, “Backpedaling is the first step in the program towards walking the path.”
There are two reasons J.P. Morgan is on that road. One is strategic. If cryptocurrencies are risk factors, it’s better to be inside than out, potentially watching someone walk away with your business.
The second is competitive. Wholesale cross-border payments involve the movement of large sums between banks as part of the complex dance of international transactions. Those movements have traditionally used wire transfers that can take a day to complete.
But global banking is moving toward blockchain, the database technology that drives cryptocurrencies and leaves a clear audit trail that supports a high level of regulatory compliance. A cryptocurrency can work at the same speed for real-time transactions instead of a wire transfer’s lag, giving the processor a competitive advantage.
Small trials of JPM Coin are expected to start within a few months.
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