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Top Crypto News – 27/02/2018

What Ban? China’s Crypto Exchanges Didn’t Just Survive – They’re Thriving


It began like this: officials from the People’s Bank of China stepped into the offices of the largest crypto exchanges in the country and sat down with their executives.

From the financial regulator’s Shanghai and Beijing bureaus, the officials told the exchanges they were interested in identifying whether anti-money laundering and capital control mandates were being met.

But according to Robin Zhu, chief operating officer at Huobi, the regulators had an ulterior motive that January day.

“The regulator wanted to grab a big picture of how significant cryptocurrency trading was in China – how does bitcoin work; where does the money come from; where does it go to; how do people make and lose money?” Zhu said.

The PBoC also requested information on the exchange’s trading volume and user numbers. In addition to the platform’s data, Huobi had been regularly submitting information and reports about worldwide government policy in an effort to help the PBoC understand the industry.

Zhu definitely thought something was up. To him, it seemed like the PBoC was gathering information in an order to create a framework for regulating the industry, something many exchanges wouldn’t have necessarily been worried about.

But then September came and with it the announcement that the PBoC was banning initial coin offerings (ICOs) and shutting down domestic fiat-to-crypto order book trading.

It seems the inquiries paved the way for the ultimate clampdown, one that severely affected cryptocurrency exchanges in the country.

In a previous interview with CoinDesk, Huobi’s founder and CEO Leo Li reported trading volumes followed suit. On November 1, 2017, these figures were just 5 percent of what they were on Sept. 15, the last day before the close of order-book trading.

Yet, not to be deterred, exchanges such as Huobi have continued to thrive, finding new ways to grow their business.

Zhu told CoinDesk:

“Whatever the policy may be, we will comply with the rules and are here to say. The [bitcoin] trend is irresistible. And down the road it is very likely China will lift its ban on cryptocurrency trading.”

Westward and eastward expansion

In fact, two of China’s largest exchanges at the time, Huobi and OKCoin, already have offerings that again rank within the top 10 in the world by trading volume – Huobi Pro and OKEx, two platforms that now trade cryptocurrencies only.

And Zhu told CoinDesk that Huobi Group has more than doubled its staff to over 400 since September, signaling a strong commitment even facing a tightened regulatory landscape.

“The shift to over-the-counter trading is an unexpected pivot to us. We had never anticipated that to be one of our business strategies,” said Zhu.

But until some of the pressure is lifted, Huobi is proceeding with an aggressive expansion plan.

Over the past few months, the exchange has opened offices in Hong Kong, Singapore, South Korea and the U.S.

Through partnerships with Japan’s SBI Group and an unnamed partner in South Korea, Huobi is expecting its new exchanges in those countries to be running by March of this year. And in San Francisco, the company’s new office is focusing on research and fostering blockchain startups, but Huobi has also employed compliance experts that as well, hinting at a possible crypto service launch in the U.S. too.

“Once we have fully understood the legal issue in the U.S., opening a new exchange remains to be the next phase of the plan,” Zhu said.

While Zhu claimed that opening up operations overseas has always been a part of Huobi’s long-term strategy, the PBoC’s actions undoubtedly forced the platform to expedite its pivot.

All in all, the pivot has been good to Huobi, which is already seeing a more diverse user base, according to Zhu. For instance, Huobi Pro currently has about 3 million users and less than half of them are from mainland China today.

Loyalty, and revenue, token

Yet, Huobi is still focused on its adding services for its existing user base.

Toward that goal, Huobi even launched its own token, HT, which runs on the ethereum blockchain, as a way to create user loyalty (and bring in some additional revenue).

Instead of following the ICO model that most startups do, whereby tokens are sold to interested investors, Huobi is giving the tokens away as a free gift to users that purchase service fee packages on its platform.

Over the course of 14 days, the announcement of the HT tokens resulted in investors rushing to buy some $300 million as pre-paid service fees, which Huobi Pro is able to collect in advance.

Following the launch of its own token, Huobi Pro announced a new exchange named HADAX, which allows investors to vote with HT on which new cryptocurrency assets they want listed for trading on the platform.

“We can’t evaluate every new cryptocurrency because there are simply too many of them,” Zhu explained. “HADAX gives investors the choice to vote for tokens they believe are worth trading.”

According to Huobi’s data, as of Feb. 24, the HADAX platform has collected 8.5 million HT from 104,308 users who have cast a total of 85 million votes for 75 different crypto assets.

And with this, Zhu said:

“In the long term, we think crypto-to-crypto trading has more potential than fiat currencies because of the large number of trading choices that can be available.”

The rise of Binance

But the PBoC’s ruling didn’t only add hurdles, it also seemed to lift up a new crypto exchange which has a significant connection to the country.

Binance was launched in July of last year (just two months prior to the PBoC’s ruling) by former top executives from OKCoin, Zhao Changpeng and He Yi. At the time, Binance also disclosed that its first round of funding came from two Chinese venture capital firms – Blackhole and Funcity.

Yet, because its base was outside of mainland China, Binance was in the right place at the right time. When uncertainty prevailed in the domestic market, Chinese investors began withdrawing crypto assets and shifting them onto overseas platforms, according to Zhu.

He said:

“The timing was perfect for Binance.”

Six months after its launch, Binance has now grown into one of the top cryptocurrency exchanges, having seen $2 billion in trading activity in the past 24 hours, according to CoinMarketCap.

“Although Huobi already launched Huobi Pro at the time, we didn’t have as many tokens available for trading as Binance did,” Zhu said, adding that the service is now recording more than $1 billion in daily trading volume.

And even though Binance has previously announced it would limit the access for users from inside China, Zhu said, “One can always surf the internet ‘scientifically'” – referring to the use of Virtual Private Networks (VPNs), which mask user’s IP addresses.

Zhu continued:

“If you have assets in an exchange and now you are prohibited from accessing it through a normal process, you definitely will rack your brain to get in there.”

Light up dragon image via Shutterstock
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Hacked Japanese Exchange Considers Capital Tie-Up to Regain Public Trust


Possible Capital Tie-Up

Hacked Japanese Exchange Considers Capital Tie-Up to Regain Public TrustThe Tokyo-based cryptocurrency exchange Coincheck is reportedly “considering a capital tie-up to strengthen its financial base and regain trust following a massive cryptocurrency theft from the exchange in a hacking incident about a month ago,” Jiji Press reported, citing an informed source. The exchange lost 58 billion yen worth of the cryptocurrency NEM (~USD$544 million) on January 26.

The source told the publication:

There have emerged several possible partners, including an investment fund.

Hacked Japanese Exchange Considers Capital Tie-Up to Regain Public Trust
Coincheck CEO talking to the press.

An official in the crypto industry commented, “Coincheck’s customer base of over one million is fascinating.” However, there are concerns that the exchange could lose its customers going forward as it still struggles to compensate victims. “Investing in the company could involve great risks,” an official at a financial institution elaborated.

Jiji Press reported on Monday that “Coincheck expressed its eagerness to continue its business,” adding that “the company will strengthen its computer security system and information disclosure policy.”

Three Victim Groups

It has been about a month since the hack and the prospect of Coincheck compensating roughly 260,000 customers and restarting its business are still uncertain, Sankei reported. While the exchange resumed yen withdrawals on February 13, crypto withdrawals have not resumed. In addition, Coincheck promised to repay customers approximately 46 million in yen, rather than in cryptocurrencies.

Hacked Japanese Exchange Considers Capital Tie-Up to Regain Public Trust
Coincheck’s executives explaining about the hack.

On February 15, seven Coincheck customers filed a lawsuit at the Tokyo district court seeking the return of their cryptocurrencies, rather than Japanese yen. The plaintiffs are requesting their NEM and 12 other kinds of cryptocurrency, including bitcoin and ether, Business Insider Japan reported.

Another victim group was formed on February 22, and the third is also scheduled to be established, the news outlet added.

Hacked Japanese Exchange Considers Capital Tie-Up to Regain Public TrustEarlier this month, a meeting of Coincheck victims was held in Tokyo; approximately 35 users attended as well as three lawyers from the law firm Authense. An association of Coincheck’s victims was also established at the meeting.

Meanwhile, Nikkei reported that the Tokyo police department of cybercrime is setting up a headquarters this week to investigate the hack. It will be staffed with 100 investigators, including those familiar with cryptocurrency technology.

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ICOs and Exchange Sign-Ups Create Boom for Automated Compliance Industry


Know Your Customer

ICOs and Exchange Sign-Ups Create Boom for Automated Compliance IndustryAutomated regulatory compliance companies are reporting that the rapid growth in the number of cryptocurrency exchange users and ICO investors has created a boom of new business for them.

From the start of 2017 to the end of Q4 there was a ten-fold increase in checks for crypto-related clients, Eamon Jubbawy, the cofounder and COO of document verification business Onfido, told Business Insider. “It’s not insignificant. A 10X uptick in any industry you’re serving is going to show. It’s definitely helped our growth recently but we work with such a wide variety of people.”

Jubbawy said that his company, which offers services to Bitstamp, is now vetting “millions” of IDs for clients from 214 countries. “Asia is massive, obviously Europe and the US as you’d expect but also places like India as well are big,” he said. “It’s a global phenomenon.”

No North Korean Drug Dealers

ICOs and Exchange Sign-Ups Create Boom for Automated Compliance IndustrySimilar to banks, brokers and other traditional financial companies cryptocurrency businesses find that they must weed out potential clients that can put them at risk of running foul of AML laws or international sanctions laws. Charles Delingpole, the CEO and founder of anti-money laundering checking service Complyadvantage, said: “We’ve had a definite uptick in companies using us for crypto-related activities. No company wants to deal with North Korean drug traffickers, right?” he explained. “No company wants to have a supplier who’s linked to corrupt Venezuelan politicians exporting cash.”

Jubbawy added: “The guys who are coming to us are saying hey, we want to make sure the people who are investing are legitimate people rather than people who are looking to move around dirty money, can you verify they’re not on any terrorist watch lists or anything like that? We love the fact we can inject a bit of trust and security into an industry that is otherwise set up for potential criminal activity.”

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‘Satoshi’ Craig Wright Is Being Sued for $10 Billion


Craig Wright, the nChain chief scientist who previously claimed to be the pseudonymous bitcoin creator Satoshi Nakamoto, is being sued for a whopping $10 billion.

The lawsuit is being brought by Ira Kleiman on behalf of the estate of his brother, Dave, who has been linked to the earliest days of bitcoin. Kleiman, a forensic computer investigator and author, passed away in 2013 following a battle with MRSA.

Kleiman’s role in the development of bitcoin came to light amid the controversy from late 2015, when Wright – an Australian businessman and academic – was identified by Gizmodo and Wired as the possible identity behind Nakamoto, who departed the project in 2010.

The bitcoin community responded mostly with skepticism regarding the claims, with some alleging that the proof offered by Wright was bogus. Wright later said that he would offer no additional proof to back the claim, and in the years since he has worked as the chief scientist for startup nChain and aligned with Bitcoin Cash, the breakaway cryptocurrency that launched last summer.

At the heart of the new lawsuit, according to a complaint filed in the U.S. District Court for the Southern District of Florida on Feb. 14, is an alleged hoard of more than 1.1 million bitcoins, which Ira Kleiman’s lawyers say is worth in excess of $10 billion. He is being represented by Boies Schiller Flexner LLP, a well-known law firm that has been involved in high-profile court cases like Bush v. Gore, which followed the 2000 presidential election.

Wright, court records show, has been accused of allegedly conducting “a scheme against Dave’s estate to seize Dave’s bitcoins and his rights to certain intellectual property associated with the Bitcoin technology.”

“As part of this plan, Craig forged a series of contracts that purported to transfer Dave’s assets to Craig and/or companies controlled by him. Craig backdated these contracts and forged Dave’s signature on them,” attorneys for the plaintiff wrote.

Included alongside the complaint are a number of additional filings, including the business registration for a firm called W&K Info Defense Research LLC, in which Kleiman and Wright were business partners.

In addition to the roughly 1.1 million bitcoins, Ira Kleiman is also seeking compensation for the intellectual property his lawyers claim arose from the partnership between his deceased brother and Wright.

“…Plaintiff demands judgment against Defendant for the value of the wrongfully retained Bitcoin and IP, together with court costs, interest, and any other relief this Court deems just and proper,” the complaint states.

Wright issued a one-word comment on Twitter when asked about the lawsuit.

Notably, the complaint doesn’t seek to assert whether Wright is the person behind the Nakamoto identity, stating that “it is unclear whether Craig, Dave and/or both created Bitcoin” (though at least one observer says that the issue could ultimately come before the court if the suit progresses).

“For reasons not yet completely clear, they chose to keep their involvement in Bitcoin hidden from most of their family and friends. It is undeniable, however, that Craig and Dave were involved in Bitcoin from its inception and that they both accumulated a vast wealth of bitcoins from 2009 through 2013,” it goes on to say.

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