Category: Articles

Crypto Exchange Market: Top Issues to Consider

If one wants to trade, he/she mostly relies on crypto exchanges. But we should remember: nothing is flawless in our world. And the exchanges are no exception.  We’ve already been focusing on their problems and trends, rivalry with over-the-counter market and the issues of scalability. Now it’s high time to make a kind of a conclusion to our research. Today we’ll talk about principal issues crypto exchanges face today, the way they influence and are influenced by users and the entire crypto market. Let’s get it started. Trust and security  As of now, market conjuncture doesn’t allow new exchanges to cut through the noise. Firstly, it’s all about the users’ bearish behaviour. Alex Strześniewski, a Business Development Director at CoinDeal (coindeal.com), says the following: “It's difficult to attract users for a new exchange. It's difficult to convince new users to involve because the people who entered the bull market a year ago, they have already got their favourite exchanges which they are not likely to give up using”Alex StrześniewskiBusiness Development Director at CoinDeal   And it’s hard to argue with that. Community has become much more skeptic and experienced than 2-3 years ago. New projects are now perceived with a pinch of salt and, as a rule, cannot break through, thus not creating the healthy competition on the market.  Here’s what we’ve got: new projects die on the vine, ‘whales’ and ‘old boys’ make the exchange market monopolised. As a result, the environment becomes stagnated, with no essential updates and changes. And how the practices of Mt.Gox, Bithumb and Coincheck have shown (those exchanges have suffered severely from hacker attacks), the changes have long been a must. That’s why new exchanges should find unique ways to involve skeptic users. Community should trust you in every aspect of the trading process, and that’s what Jason Wang, CHAOEX CEO, is talking about: “To build trust is never an easy task. We at CHAOEX fully understand that we need to consistently deliver information about us, to let user know everything about our team, platform, know what we are doing. We have our own channel, which help us show that we do not only live in the moment, but also have eventful past and promising future. We try to keep users updated with the problems we face and always take their advice and comments into our consideration. Our community is our friends – and one of our key goals is to make them feel it”Jason WangCHAOEX CEO   According to Max Grain, a Product Management Executive of Bitlish, trust is underpinned by the variety of factors. He adds the following: “Trust is based on operational history, openness, and even pricing policy. We at Bitlish have one of the lowest commissions for Visa/Mastercard operations in the world. Other factors have less impact, but it’s never stop trying to improve the user experience”Max GrainProduct Management Executive of Bitlish   Scalability Another equally important issue of new exchanges is the way it keeps up with the pace of its own development. In simple terms, it’s scalability. Through the prism of the time, the issue of scalability has been pursuing the crypto market since its birth. Naturally, when Bitcoin emerged in 2009, it was not initially designed with the idea of widespread use and adaptation in mind. As the number of daily transactions continued to rise, an increasing number of issues were popping up. The same thing is with crypto exchanges. Ilya Bere, Changelly CEO, shared his experience with us:  “After the hype of 2017, we realized that scalability was one of the critical factors for long-term market survival. In particular, one of our focuses in 2018 was the increasing of the technical scalability of our project. Meanwhile, since our partners are exchanges, we still see some of them facing scalability issues as demand increases. We hope that in the nearest future all players will be ready for a new crypto wave”Ilya BereChangelly CEO   A suitable scaling solution is an optional way out, which could already become useless in several months. A team behind the exchange should follow a well-thought-out strategy and play long-term. Here’s what Andrei Popescu, a Co-Founder of COSS.IO, explains: “Even a small exchange should be ready for large-scale trading. Such trading implies high volumes and scrutiny that even the most popular crypto asset exchanges today may not be prepared to handle.”Andrei PopescuCo-Founder of COSS.IO   Self-regulation  Regulatory measures, both internal and external, play a lead role in exchange’s success. Users want their assets to be fully protected, and that’s what reliable and complex regulation contributes to. A textbook example of how to comply with law is KuCoin. Its Co-Founder and concurrently a Vice-President stated his position on the issue:  “We work with several external AML institutions. They are quite matured in terms of service package setting and implementation. As an exchange, we aim to better serve our users, if there are AML services with higher quality, why shouldn’t we integrate them for users’ sake? Plus, we also have internal team in charge of AML procedures. Backed by the internal-external collaboration, we believe that the efficiency of our work will improve, without sacrificing security and privacy.”Johnny LyuKuCoin VP   Wrapping up  The race “to Become as Trustworthy as Possible” is going on. And that is amazing: the harder competition is, the more approaches and alternatives appear. Users must have choice, because where there’s the choice, there is also a great room for the further development. We are already in history, operating in the fastest-growing environment, with no end in sight. But still, there’s a lot to do and bring here.    *This article is based on the exclusive interviews with top-managers of several crypto exchanges. Cryptonomos is most grateful to Andrei Popescu, Co-Founder of COSS.IO; Johnny Lyu, KuCoin VP; Srdjan Mahmutovich, Kriptomat CEO; Jason Wang, CHAOEX CEO;  Ilya Bere, Changelly CEO; Max Grain, Product Management Executive of Bitlish, and Alex Strześniewski, Business Development Director at CoinDeal.

Articles/February 1, 2019
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Is it difficult to build a successful crypto exchange? Cryptonomos asks exchange executives

There are several hundred crypto exchanges in the world, a lot more than stock and commodity exchanges taken together. And new crypto exchanges open almost every day even on the bear market. Cryptonomos has asked several executives of crypto exchanges about how to develop a profitable business and attract customers. Technology, reputation, fees, customer support and trust are cornerstones of successful business
 The success of the crypto exchange starts from its website, it shows whether the exchange is reliable, or not, says Kriptomat CEO Srdjan Mahmutovich. “We noticed our new clients first put and withdraw some small amount of money, that they are testing us, whether our solution works. Once we pass the test, they could start trusting us,” he says.  Changelly.com has designed a simple interface for a broad audience, says its CEO Ilya Bere: “Even though regular customers and professional traders often use our product, the service is more focused on a mass audience. I'm talking about those who come to the crypto industry as a beginner and independently study all the market aspects aiming to diversify their portfolios”. “To make a successful exchange is not easy at all,” says CHAOEX CEO Jason Wang, “this business is related with people, so the community is the most important to help us growing during this crypto winter. We design new operation activities to build community. Recently one of our users noticed that he never saw so many activities on other platform besides CHAOEX. Even when the market is dump, our users can earn. And we entertain them too.” According to Jason Wang, CHAOEX team should understand at least three aspects: trading system, blockchain knowledge and community.   Technology Technology is of crucial importance, say all executives who participated in our survey. “Technology is crucial to advancing this mission; our technologists collaborate with researchers and managers to design, engineer, and run exchange platforms which enable systemization and scale in everything we do,” says Andrei Popescu, Co-Founder of COSS.IO.  “The basic IT knowledge helps us build high concurrency system, this is the basement of exchange, then we can list all individual (custom) blockchains besides ERC20 tokens, then understanding the trading system to improve user experience”, says CHAOEX CEO Jason Wang. According to him, CHAOEX can upgrade the platform 3 times a week as the whole intellectual property is owned by it co-founders, which is a big advantage, because they can change the platform as users wish.  Customer Support: time-consuming and expensive  One of our biggest problems is customer support, says Alex Strześniewski, Business Development Director at CoinDeal. “Since day 1 we've customer support chat, which is currently available in 6 languages and as we grow there's going to be more. Sometimes one of the founders of Coindeal, is on Telegram, answering questions or me. Our customers really enjoy being able to see someone on another side who cares about the customers and their money,” he adds. Kriptomat offers online support in 20 languages, says its CEO Srdjan Mahmutovich: most people who register at Kriptomat have to pass KYC, and it is important that they should understand the exchange’s employees. “We have very fast and helpful customer service,” says Jason Wang, “we always consider each user's request personally and there were not a single problem that we couldn't solve. We gathered 100K+ new users from Nov to now, that's a strong number that inspires us to move forward." Trust “Building trust is the most important thing and other criteria are also important but they can be managed more easily,” says Max Grain, Product Management Executive at Bitlish, “people value trust, if customers have a positive experience with an exchange then any problem which may arise can be solved." According to Johnny LYU, VP at KuCoin, “trust is a must feature for an exchange to grow bigger”. Trust is based on two pillars – exchange security and its relations with customers. For example, Stellarport chose a decentralized model to protect customers’ funds. “Trust is a big factor. At centralised exchange there can be hacks. Stellarport doesn`t control the funds, so the risk of hacks is minimum,” says its Co-Founder Ishai Strauss. Customers’ trust is the result of the exchange’s operational history, openness, and customer relations, says Max Grain from Bitlish. “To build trust will never be easy,” says CHAOEX CEO Jason Wang, “we try to keep users updated with the problems we have and take their advice and comments. Besides, our customer service talk to our users as they are friends. Users really like it and step by step trust us.” Coindeal chose creative approach to transfuse trust in their customers, tells Alex Strześniewski: “One of the founders had a genius idea. Now we are an official global sponsor of Wolferhampton (football team in English Premier league). No company sponsors a Premier League team, if they want to make a scam exit in 6 months, right? I think that was a brilliant move not only in terms of acquiring new customers, but building trust.” Since more and more newcomers begin to trade at crypto exchanges, we asked Alex Strześniewski (Coindeal) for a list of things one should check before making the first trade. Reputation The best way to find out about an exchange is to search through reviews from individual users and well-known industry websites. Fees Most exchanges should have fee-related information on their websites. Before joining, make sure you understand deposit, transaction and withdrawal fees.  Payment Methods What payment methods are available on the exchange? Credit & debit card? Wire Transfer? PayPal? If an exchange has limited payment options, then it may not be convenient for you to use it.  Verification Requirements Although verification, which can take up to a few days, might seem like a pain, it protects the exchange against all kinds of scams and money laundering. Geographical Restrictions Make sure the exchange you want to join allows full access to all platform tools and functions in the country you currently live in. Exchange Rate Different exchanges have different rates. It’s not uncommon for rates to fluctuate up to 10% and even higher in some instances. 24/7 User support  Effective user support services are a critical element for the development of any online service. Most crypto exchanges do not provide support in real time. In some cases, users even have to wait for a few days for an exchange to reply, sometimes even weeks. This article is based on the exclusive interviews with top-managers of several crypto exchanges. Cryptonomos is most grateful to Andrei Popescu, Co-Founder of COSS.IO; Johnny Lyu, KuCoin VP; Srdjan Mahmutovich, Kriptomat CEO; Jason Wang, CHAOEX CEO; Max Grain, Product Management Executive of Bitlish, changelly.com CEO Ilya Bere, Alex Strześniewski, Business Development Director at CoinDeal, and Stellarport Co-Founder Ishai Strauss for their time and expertize. 

Articles/January 29, 2019
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KYC & AML: Designed to Resuscitate the Crypto Market

Crypto market stagnated. And let there be no obscuring of that. We are now in a ‘buffer crypto-zone’, waiting for turning points to occur. The entire 2018 was mostly bearish, and today, everyone, including investors and crypto-related business initiators, is expecting the year 2019 to be more crypto-friendly.  New regulations, combined with KYC and AML procedures, are designed to contribute to the flourishing future of the crypto world.  Many critics say that abovementioned ‘duo’, besides being a calling card of company’s credibility, also acts as a ‘double edge sword’ and kills users’ anonymity.  But we have something to say in return: the absence of KYC and AML can kill the entire crypto space. Illustrative statistics of 2017 demonstrates a pretty obvious thing. 2 years ago, when KYC and AML were in their infancy, only 24% of ICOs worldwide had an official legal status. And one more study prepared by Statis Group shows that more than 80% of ICOs conducted in 2017 were identified as scams.  This leads to the conclusion that the appropriate legal support does not protect investors, and does not allow ICO initiators to carry out an ‘exit scam’ scenario.  We must admit that we live in a harsh world, and it’s far from utopian. Users with contrived and malicious intentions have always tortured the crypto world. That’s why regulatory measures must not be neglected. Crypto field has been and, actually, is the great ‘bait’ for fraudsters and criminals, especially when this bait is not essentially regulated.  Let us take, for example, an ICO model, where the money laundering is deplorably flourishing. In simple terms, an ICO takes one’s asset and redeems it for another - a token. These tokens can be freely traded for other crypto or fiat currencies on exchanges worldwide. This system presents a major risk for ICOs. They could easily be used for laundering proceeds of crime.  Many within the industry believe that the future of ICOs may instead lie in security token offerings (STOs). In a nutshell, the STO is an ICO-like investment model. The key advantage of using this route is that token holders are fully protected by the very same financial regulations as used in traditional security-based projects. Self-regulation is needed, but is still hard to be implemented. Max Grain, a Product Management Executive of company Bitlish, explains:  “Scaling brings its own changes and challenges, and a company’s team has to be ready to adapt. Procedures that worked well when you were small may have to give way to a more defined systems and procedures over time as the company grows” Hopefully, not only self-regulations are coming to the crypto market. For instance, in March 2018 the US Department of the Treasury published a letter summarizing its interpretation of the Bank Secrecy Act as it pertains to ICOs. The letter stated that: “Generally, under existing regulations and interpretations, a developer that sells convertible virtual currency, including in the form of ICO coins or tokens, in exchange for another type of value that substitutes for currency is a money transmitter and must comply with AML/CFT requirements” Last year, European Union also introduced crypto anti-money laundering regulation. Here the regulation applies not to ICOs, but to exchange services between virtual and fiat currencies, and custodian wallet providers which don’t comply with the AML directive.  These businesses become “obliged entities” under the new AML/CTF legislation, similar to traditional financial institutions such as banks. They are obligated to implement measures to counter money laundering and terrorist fundraising, such as customer due diligence (including KYC) and transaction monitoring. They are also required to maintain comprehensive records and report suspicious transactions. The only problem which these regulations entail is that they are not standardized. Andrei Popescu, a Co-Founder of COSS.IO, says AML should be harmonised worldwide: “Despite calls for the adoption of global AML standards for crypto assets trading, no such uniform rules have yet emerged. Differences in national regulations include the existence of special licensing requirements for Crypto Exchanges, the extent to which AML rules also cover administrators and wallet services, the extent to which ICOs are covered by securities laws or equivalent regulations with AML regulatory implications, and the extent to which a crypto-to-crypto exchange is treated differently from crypto-to-fiat exchange. In many cases, the regulatory status of these activities is either ambiguous or case-specific, or is otherwise subject to pending changes in law and regulation” The other side of the crypto-coin is trust. Market needs some time until community will get accustomed to every new regulation and legal improvement. Srdjan Mahmutovich, Kriptomat CEO, states on the issue:  “Crypto space is so fresh and new that no one knows where it all finishes, as we are at the beginning stage. One thing is clear - we do need to put in place more regulation; otherwise we won’t be able to attract all the masses of users to come here. People trust banks. Generally speaking, they do because they use their services on a daily basis. Time will show how much regulation should be put in place in order to secure the user and prevent abuse. Some people, if there`s no KYC, are actually worried, asking whether their assets secured. And that’s what KYC and AML will solve” Evolution is a long-term process, and the crypto market is no exception. We are standing on the verge of a new era – ‘Era of Regulation’ – a crucial period for the crypto world. Backed by harmonized regulation, cryptocurrency will be a great instrument for those who are keeping the interest of the society in mind as a top priority. AML and KYC will help keep it, and what’s more – will help meet it in a fully secure and trustworthy manner.  * This article is based on the exclusive interviews with top-managers of several crypto exchanges. Cryptonomos is most grateful to Andrei Popescu, Co-Founder of COSS.IO, Srdjan Mahmutovich, Kriptomat CEO, and Max Grain, a Product Management Executive of Bitlish.

Articles/January 24, 2019
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Will 2019 be the year of STOs?*

It is past the middle of January. Time of the World Economic Forum in Davos, time of skiing, time of January blues and Siberian frosts, time of sitting by the fireplace with a good book and a glass of hot mulled wine… or, on the contrary, time of meditating under the shade of palm trees somewhere in Vietnam…  Hope you have had great winter holidays, because after the November market meltdown when bitcoin lost 36% of its value, we all needed some relaxation. But now it is time to look at the crypto market with a sober glance. June 2018 was the last month when the ICO market demonstrated stellar performance, and investors fueled more than $5.8 billion. For the rest of the year the ICO projects raised from $450 million to $1 billion per month. "The crypto gold rush has left behind too many casualties; many non-accredited investors and speculators were victims to really bad ICO punts. So many ICO projects performed so bad, exasperated the recent bearish market conditions, with some even reporting over 99% losses from their all-time high prices”Andrei PopescuCo-Founder of COSS.IO   “And we have warned you!” say regulators to thousands of investors who are nursing their wounds. To be fair, they did warn. ICOs are "vulnerable to money laundering and terrorist financing risks due to the anonymous nature of the transactions, and the ease with which large sums of monies may be raise in a short period of time," said the Monetary Authority of Singapore (MAS) as early as in August 2017. Still, so far regulators have done little to protect companies that deal with crypto assets and institutional investors that are ready to invest in them. An investigation carried out by the WSJ shows that $88.6 million has been laundered through 46 crypto exchanges since 2016. Few of the market participants noticed an event that may have far-reaching consequences for all of them. In November 2018, during the market meltdown, the first security token exchange, OpenFinance Network, was launched. It listed two of the earliest security tokens: Blockchain Capital (BCAP) and SpiceVC.  This launch marked the beginning of the new era of the security token industry. STOs are often defined by the formula: “ICO + Legal Compliance = STO” The basic difference between ICO tokens and security tokens is that the latter represent investment contracts. Paradoxically, but the very idea of such tool might be proposed by the SEC chairman Jay Clayton who said once: “I believe every ICO I’ve seen is a security”. Security tokens are digital assets that are subject to federal and global security regulations.  "I’m confident that STOs will be hugely popular by 2019 as they offer a familiar path for traditional investors to enter the space and an array of benefits compared to both the traditional finance sector and ICOs"Andrei PopescuCo-Founder of COSS.IO   Strangely enough, but STOs might be a by-product of the insufficient regulation. STO sales give some legal rights to investors. If an STO fails, its investors will be able to get some money back, because the issuer has some legal obligations. Besides, security tokens are traded on compliant trading platforms only. “With more than $256 trillion in real-world assets that have yet to be tokenized, STOs present a real alternative for companies and investors. Hosting an IPO is undoubtedly expensive. With an STO, companies can allow for investment through tokenization, which significantly cuts admin and legal costs while keeping the company and the process transparent. With improved regulations, STOs will become the more desirable choice for investors as increasing amounts of VCs and Family Offices eye-up the space, hoping to capitalize on the distribution power of ICOs with a legal, secure method of investing.”Andrei PopescuCo-Founder of COSS.IO   To put it differently, market participants decided to take the matter in their own hands, while regulators are trying to find a way to tackle money laundering in the crypto sector.  While the industry is experiencing barbarian growth, self-regulation takes the major role in terms of customer protection, and that’s risky, says Johnny Lyu, KuCoin VP. “After all it will be the market that’s the most powerful. And where there is a market, there are rules, and regulators. There is nothing wrong about regulations, it is to clean up the market.” In October, 2018 the Paris-based Financial Action Task Force (the global watchdog for money laundering) promised to set up its first rules on oversight of cryptocurrencies by June, 2019. “There is an urgent need for all countries to take coordinated action to prevent the use of virtual assets for crime and terrorism”, FATF says. Meanwhile, at least one country that has already legalized STOs. It is Uzbekistan. In 2018 Uzbekistan President Shavkat Mirziyoyev created Digital Trust fund to invest in blockchain-related startups and research and development. Now the Digital Trust is looking at STO and starting to build the framework for it, said Bobir Akilkhanov, its investment director. The Cryptonomos Blog wrote about the three Middle Asian countries (Kazakhstan, Uzbekistan and Kyrgystan) as they attempt to position themselves at the forefront of blockchain technology adoption.     * This article is based on the exclusive interviews with top-managers of several crypto exchanges. Cryptonomos is most grateful to Andrei Popescu, Co-Founder of COSS.IO; Johnny Lyu, KuCoin VP; Srdjan Mahmutovich, Kriptomat CEO; Jason Wang, CHAOEX CEO; Max Grain, Product Management Executive of Bitlish, and Alex Strześniewski, Business Development Director at CoinDeal.

Articles/January 22, 2019
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Exchange vs. Over-the-Counter Markets: Eternal War

Financial markets are complex environments with their own conjunctures and institutional structures. Historically, there are two basic ways to organize financial markets—exchange and over the counter (OTC).  The cryptocurrency is no exception. Today we’ll focus on the latter, OTC market, which is now gaining momentum in the crypto world.   What’s its nature? Over-the-counter trading is considered as one of the principal ways to trade crypto for those who want to buy or sell a large portion of digital assets. OTC trades are often placed by high-volume players – ‘crypto-whales’, such as hedge funds, private wealth managers and high-net-worth individuals. Despite the fact that OTC trading is not available for every crypto investor, the Bitcoin market here is roughly three times larger than the exchange one. As a rule, a minimum of $75,000 must be on the table before the discussion between parties can even begin. On average, the game for an institutional player in the OTC market usually starts in $50,000-and-up arena, depending on a company’s policy or individual’s preferences. Some centralized exchanges have already started offering OTC services. In summer, U.S. crypto exchange Bittrex launched an over-the-counter (OTC) trading desk. The new service allows approved clients to “quickly and conveniently trade assets”, and supports nearly 200 cryptocurrencies already offered by the exchange.  One of the latest to join the ‘OTC wave’ is U.S.-based crypto exchange Coinbase which opened its over-the-counter (OTC) crypto trading desk in November, 2018. In his latest interview, the company’s Head of Sales Christine Sandler said why the firm had resorted to the OTC trading: “We launched our OTC business as a complement to our exchange business because we found a lot of institutions were using OTC as an on-ramp for crypto trading” Why ‘whales’ only? It’s no secret that the rich do things differently.  That’s why they are the rich, though. Here ‘big boys’ could avoid excessive commission fees and, in a manner of speaking, feel more decentralized. When compared to exchanges, there transactions are completed through a centralized source. In simple terms, there’s a third party acting as the mediator between buyers and sellers.  If you have some extra millions of dollars, it will be extremely inconvenient to place such an order via crypto exchange due to the hassle with continuous verifications and big commission fees. Plus, the order can move the entire market down and hence will make a negative impact on your fortune. Over-the-counter markets are generally decentralized and have no centralized trading facility. This promotes heavy competition between counterparties and lower transaction costs. Here, there are many mediators who compete to link buyers to sellers. The advantage is that such rivalry ensures that costs for intermediary services are as low as possible. The big crypto OTC providers are Cumberland, Jump, and Circle. But it’s hard to rank them because their transactions and earnings are necessarily kept private. OTC market is not entered unreasonably. One of the principle advantages of OTC trading is that clients can trade with each other via broker without anyone else knowing about their interacting. It’s like you are the only one in restaurant, and brokers are the waitresses who compete in order to serve you.  The trendiest OTC instrument to have arrived on the scene is ICO investing. In most cases the ICO model allows investors to support their favorite projects and receive tokens directly without strict oversight from authorities.  However, where there’s a profit to be made, big brother (regulator) will be watching. Since OTC trading provides the possibility of avoiding official records, the regulators started watching quite thoroughly. That’s why traders and brokers even in OTC market may also need to complete KYC and AML procedures on each other to make sure they satisfy legal requirements. 

Articles/January 17, 2019
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Biggest Risks for Crypto Exchanges: Internal Errors, Hacker Attacks, and Money Laundering

Invest in reliable assets, diversify your portfolio and choose a good crypto exchange, says a well-known maximum for investors. But as it often happens it is more easily said than done. Today we will talk about crypto exchanges and the risks related to them. This article is based on the exclusive interviews with top-managers of several crypto exchanges. Cryptonomos is most grateful to Andrei Popescu, Co-Founder of COSS.IO; Johnny Lyu, KuCoin VP; Srdjan Mahmutovich, Kriptomat CEO; Jason Wang, CHAOEX CEO; Max Grain, Product Management Executive of Bitlish, and Alex Strześniewski, Business Development Director at CoinDeal. Hacker attacks, money laundering and internal errors are the biggest risks that crypto exchanges face, analysts and market participants agree There are several hundred crypto exchanges in the world (from 200 to 600+, by different estimates), and many of them know what a hacker attack is. ‘Especially lucky’ exchanges, including Mt.Gox, Bitcoinica, PicoStocks, and Bitcurex have been attacked several times. In the three biggest hacker attacks crypto exchanges and their investors lost more than $1.3 bn. In January 2018 hackers stole $500 million worth of NEM coins from Coincheck, in February 2014 - $460 million worth in Bitcoin from Mt Gox, and in February, 2018 - $187 million worth in Nano from BitGrail. Investors certainly do not like to lose money, especially when it happens through the fault of exchanges.   According to the ICORating’s Exchange Security Report, $1.3 bn has been stolen over the past eight years from just 30 crypto exchanges. The research showed that 32% of exchanges have bad code errors. Only 46% of exchanges protect their users’ personal details properly and have sound requirements to passwords. And only 4 percent of exchanges answer all safety requirements. However, crypto exchanges’ lack of security is not always their fault The crypto space is becoming more mature with the inflow of institutional money, says Andrei Popescu, Co-Founder of COSS.IO and SCX Holdings. “As soon as more institutional investors enter the space, the market will be less concentrated”, he says. Institutional money needs enterprise-grade infrastructure, and it is already there, offered by the most renowned brokers, including Goldman Sachs, JPMorgan, Bank of New York Mellon, Northern Trust, Mitsubishi UFJ Financial Group, etc. Institutional investors are also looking for more regulatory clarity, but this is something the market is only expecting to get. May be as soon, as this or next year.  Improved regulation is something that has not emerged yet. This is especially true about Anti-Money Laundering (AML) Regulation of cryptocurrency. At present AML policies in different countries are not consistent and sometimes misleading, Allen & Overy consulting firm says. For example, in the US “a given cryptocurrency may variously be considered a currency, a security, or a commodity (and potentially more than one of these at once) under overlapping US regulatory regimes”, while in China, that boasts the strictest approach to cryptocurrency, all issuance and exchange services for cryptocurrency is effectively prohibited. Allen & Overy defines AML Risks in cryptocurrency as ‘elevated’. Such risks include: trafficking in illicit goods, hacking and identity theft, market manipulation and fraud, and facilitating unlicensed businesses. “Anonymity, liquidity, and borderless nature of cryptocurrencies makes them highly attractive to potential money launderers”, Allen & Overy concludes.  Banks do not know how to work with crypto exchanges According to Srdjan Mahmutovich, Kriptomat CEO, two years ago in Europe the crypto regulation was quite loose, it was quite easy to get a payment processor, or to get bank accounts. The banks did not know anything about this industry, so it was open field for all these things”, he says.  Now this has changed. “Some banks don`t want to open account, and I understand why: because of ICOs, scam, they don`t have enough knowledge to assess this. But many of them are unwilling to open accounts for exchanges. Why? Because of potentially negative PR they might get”, Srdjan Mahmutovich adds.  Banks know that cryptocurrencies are involved in 10% of the total of the $2 trillion of dirty money that is washed annually, but many of them are in no hurry to adjust their AML programs to catch cryptocurrency criminals. “Some banks are not accepting accounts related to cryptocurrency because they do not know how to handle them”, said Natasha Taft, an AML expert compliance consultant in New York, to finops.co. Little surprise that bank AML specialists recommend that all cryptocurrency transactions made by customers from certain countries, including Russia, Venezuela, Lebanon, Iran, North Korea, the Ukraine and Turkey should be flagged as high risk. It means that banks will avoid transactions with all citizens from those countries, without looking if their money is ‘clean’ or ‘dirty’. KYC procedure: cure-all solution or not? To avoid the Mt.Gox situation, crypto exchanges use AML and KYC (Know Your Customer) procedures to monitor customer behavior, says Jason Wang, CHAOEX CEO. Both AML and KYC are easy for users who need only to upload certain scans of documents to do certification. Some exchanges seem to exist only because they do not comply with AML requirements, says Max Grain, Bitlish’s Product Management Executive. However, such players will eventually close or be shut down as new restrictions clean up the market. There are bound to be regulatory challenges or changes, personnel, personality, and product issues along the way that will challenge how your AML operations takes place, he adds. This is especially important for a growing company because larger volume brings more AML related tasks.  In terms of regulation, there are a lot of crypto companies that are breaking the law, says Alex Strześniewski, Business Development Director at CoinDeal. For example, some exchanges want to add fiat currencies and allow their users to trade without undergoing KYC. “Even if there's a limit within which you can trade (without KYC), you still break the law”, says Alex Strześniewski. Regulation is good, he says, although it will be much more difficult to acquire new clients.  “You can probably look at that like Forex, where you have to go through KYC, and I think some of the biggest exchanges are going to be basically chased for their users: user profiles, who's trading on that platform, and I think we are going to see a really big decrease in the biggest exchanges' trading volumes, because they'll maybe make them go through KYC and then just cut off half the countries, which are troublesome”, says Alex Strześniewski. KYC that is supposed to protect both crypto exchanges and investors turned out to be only a half-measure, because it also created a thriving black market for fake IDs. On Internet, including specialized Telegram channels, it is possible to buy (and sell) fake IDs, necessary to pass KYC: passport scan, selfie, scanned bank statement. These documents can be bought for as little $50; and investors snap up fake IDs as a means of protecting their own identity. Investors have good reasons for being frustrated. If the mailing list gets leaked, there will be attempts to socially engineer them, sell the addresses on the black market or even blackmail their owners, claiming to have filmed the victim watching online porn and threatening to send the video to their friends and family. It is little wonder that people prefer to pay $50 for fake ID to avoid all this, which makes KYC a useless tool.  “Exchanges need more database from different countries and authorities (terrorists, people under sanctions, etc.) to verify each user and make sure all data is trackable”, says Jason Wang.  Crypto exchanges still have to do some homework and close loopholes to ensure security of investor money. However, regulators from different countries are also expected to do some homework to make the crypto space safer. The market needs some technical tools for AML and CTF monitoring to become more mature and ‘enterprise-grade’ to answer interests of ‘big money’ and institutional investors.

Articles/January 16, 2019
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You are on Candid ‘Scamera’: Top-3 Recent Crypto Scams that Shook the World

The year 2018 ended. Many of experts are summarizing it as one of the most productive and turbulent periods for crypto world. Hardly anyone could agree with that, but that sounds banal, doesn’t it?  I’ve got something special in my store. I can’t call it a gift for you, but still it will be useful. As title reads, today we’ll review ‘The Hateful Trio’ – the biggest scams that managed to hit thousands of naive investors up for money. Modern Tech Vietnam-based Modern Tech promoted two ICOs, Pincoin and IFan, that ripped the world off more than any other. Pincoin was a coin that promised a ridiculous 40% monthly return on investment.  How can anyone be so naive to buy into such an obvious scam?   32k of investors! Yes, you heard it correctly; this couple defrauded more than 30,000 investors by encouraging them to invest in digital tokens. ICOs managed to steel *don’t read this if you have a heart problem* approximately 15 trillion dong ($650 million). Following the information about ‘exit scam’, angry investors besieged the company’s office. However, the building’s owners said Modern Tech had liquidated and cleared out of its office a month ago. Unfortunately, scammers are still not tracked down. However, if they are, they will have more than enough under their rug to answer for.   OneCoin That’s what we call ‘a scam with surprise’. The Founder of OneCoin is actually a Bulgarian businesswoman, Ruja Ignatova. However, although there’s one office in Bulgaria, the company is registered under the jurisdiction of United Arab Emirates’ Government.  The OneCoin scam promoted itself as a cryptocurrency blockchain project. However, it wasn’t’: it deemed itself to be one of the centralized platforms where the crypto funds were stored in a ‘highly secure manner’. Plus, the blockchain project was neither open-source nor decentralized in nature. OneCoin subordinate companies deeply ingrained in dozens of other countries across the globe. After the community realised that OneCoin was nothing more than a scam, the company faced a huge portion of investigations.  In May 2017, the Government of Kazakhstan levied strict regulations on the company and termed it to be one of the Ponzi schemes. Further, in July 2017, the Government of India arrested 23 people involved with the OneCoin scam. Chinese authorities also joined the process and seized $30 million dollars.  Even the Italian government noticed the Ponzi scheme and Italian Antitrust and Consumer Protection Authority (AGCM), imposed a fine on the company of almost €2.5 million. Noteworthy, Mark Scott, one of the key scammers in OneCoin, was officially indicted by a grand jury last year in August, and he was arrested by federal officers on September 5th. After the investments were taken in, Mark and his co-conspirators laundered the investor money through several shell companies. Around $400 million of funds stolen from investors were used to purchase a mansion for Scott and his family in Massachusetts.  Bitconnect  Bitconnect is probably the most notorious crypto scams in the world which caused the great hype around its HYIP (high-yield investment program).  It was launched in 2016 with the goal of allowing users to lend Bitcoin for interest. Though this goal was never realized, BCC acted as an alt-coin but allowed users to earn interest on their own wallet.  In simple terms, users exchanged Bitcoin for Bitconnect Coin (BCC) on the platform, and were promised astronomical returns on their investments. In addition, the company ran a lending program, where users lent BCC out to other users to make interest. Interestingly, underpinning by Ponzi schemes, Bitconnect made it to the top of 20 the most successful cryptocurrencies in terms of market cap. Its ‘kingpins’ fraudulently obtained billions of users’ dollars. For the record, only in India the Bitconnect team allegedly siphoned off about $12 billion from investors. On January 17, 2018, Bitconnect shut down and BCC prices crashed by 92% immediately after. As of September 2018, the token has been delisted from the last exchange that traded it, Trade Satoshi. It would appear that it’s no hard task to identify whether the project is scam or not. But still, fraudsters appear every day and, unfortunately, they succeed in their malicious intentions. For instance, Westland Storage company, real estate investment project, recently made a sudden and shocking exit. Many laud this exit scam as ‘Bitconnect twin’, because it implemented a similar Ponzi scheme.  Many should have noticed that it was a grift since its launch, because it was offering a 1% daily return of investment during the working days and 0.5% daily returns during the weekends. Ringing any bells? Yes, it reminds us of Bitconnect. Investigations are on the way, and most likely Westland Storage will be one of the biggest crypto scams of 2018. As of today, police forces are slow in reacting to crypto scams. That’s what we should wish them for the New Year – to act decisively and promptly. And we wish you, our dear followers, to be careful and not to neglect due diligence while involving into risky projects.  Celebrate responsibly and stay tuned!

Articles/January 10, 2019
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What Presents to Give for Crypto Christmas

Three years ago, in December 2015, John LeFevre, creator of@GSElevator on Twitter, wrote The Unofficial Goldman Sachs Guide to New Year’s Resolutions.  One of his recommendations said: Invest in a Bitcoin wallet. Because it will be the best-performing currency in 2016. Those who followed it, at the end of 2016 were much richer people. In 2016 bitcoin appreciated by 120%, easily beating 20% gains posted by the Brazilian Real and the Russian Ruble. Although at the end of 2018 bitcoin costs four times as much as it did three years ago, we all know that the year has been a hard one. Only in November bitcoin lost 36% of its value. Probably, at the moment recommending to buy cryptocurrencies is not a good idea, because you may find it awkward to talk to your relatives and friends whom you convinced to do it. However, a bitcoin debit car might be an appealing gift, for Christmas or for some other holiday. Or you may opt for a Bitcoin Gift Card. If bitcoin appreciates, you get gratitude from the person you gave the present to, if it depreciates, you lose nothing. Bitcoin Debit Cards To those who deal a lot with cryptocurrencies, bitcoin debit cards are becoming a necessity. At present it is easy to order a debit card and connect it to the bitcoin balance. It is Christmas, so treat yourself! You can choose a cheap utilitarian card or something expensive with a posh name and design. The number of companies that accept bitcoin as payment is growing, but sometimes using bitcoin can be awkward. Bloomberg reports, how one of the University of Puget Sound’s alumni decided to make a gift to his alma mater in crypto, and the University was baffled by this donation. A bitcoin debit card would have come handy in this situation. Bitcoin debit cards are prepaid debit cards that usually have a Visa or a Mastercard logo. They are much like regular debit cards, but owners top them up with bitcoin which is then converted into fiat. Bitcoin is drawn from a cryptocurrency wallet instead of a bank account. When one makes a purchase using the crypto card, an amount of crypto coins is automatically exchanged for fiat currency, and sent to the merchant. It is done fast and seamlessly. In this text we will tell you how to choose such a card, what to pay attention to and what to avoid at all costs. The first thing to avoid is scam cards. Surely, you heard some hype about Floyd Mayweather, one of the best defensive boxers in history, and music producer DJ Khaled, who were promoting the ICO of Centra Tech Inc. But we are interested not in their recent settlement with the SEC. This story is about the Centra card they were promoting.  Centra’s ICO raised $32 million from investors, and its co-CEOs said the money would be used to build a debit card for cryptocurrencies through a partnership with Visa. The trouble was that Visa never heard about this intention because the company never applied to run Centra cards on the Visa network. So avoid scam cards. And try to find some information about the card provider: it is not unlikely that the company has already announced its plans to close the project. On January, 5, 2018 many popular Visa’s bitcoin debit cards suddenly stopped working because Visa suspended the WaveCrest Startups that provided the major part of such cards on the market. The reason was a compliance issue. There is always a risk that something like this may occur again.  Mind that you BTC and other digital coins will be controlled by a third-party. However, you can reduce this risk by depositing a small amount of your Bitcoins into card balance.  Check where the card can be used. Some of the most popular bitcoin debit cards can’t be used, for example, in the US. Visit the card provider’s website to see if its English version is really good. Sometimes it is not, and you would not want to hand the reigns over your money to someone whom you are not able to understand. Check what fiat currencies the bitcoin debit card supports. If you need EUR and GBP, the card that supports only USD may be useless for you. Conversion rate. Normally, foreign currency conversion fees vary from 1% to 5%, but some cards offer no bitcoin conversion fees. ATM transaction fee. That would start from 1% of the transaction, otherwise the card may have a flat rate:  from $2.5 to $3.5 USD. Also check the number of ATMs at which the card can be used. There may also be a limit on daily maximum withdrawal. Some providers offer virtual bitcoin debit cards only. Such cards are convenient for online shopping, but there may be trouble with cash withdrawal. Virtual cards have smaller monthly service fees – starting from $1. Plastic cards have bigger fees – from $15 per month. Some issuers provide access to their platform to unverified users (with limitations placed on unverified accounts), while other demand verification that involves submitting several proofs of identity, address documents and Skype interview. Verification can take up to 10 working days. There may also be some hidden fees, from fees for worldwide delivery (which may be free, or may be not) to issuance fee and inactivity penalties. Some projects require to hold their tokens for a certain period. Some bitcoin debit cards are linked directly to a certain wallet system, which is by all means convenient, but unfortunately works in several countries only. You can find reviews about bitcoin cards here, here and here. There are dozens of bitcoin debit cards on the market already, and definitely there will be more. And if you are looking for a good present, a bitcoin debit card would certainly be appropriate. Either to yourself, or your relatives and friends.

Articles/December 25, 2018
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Crypto Regulations in 2019: What to Expect?

Bearing in mind the sensitiveness and volatility of the crypto market that we are witnessing right now, it can surely be said that next year regulators will stop being undetermined about crypto. Many countries, which have been implementing ambiguous and non-transparent policies so far, next year will likely take a holistic view of crypto.  So, what should we expect of 2019? Generally, governments will place due emphasis on two areas: taxation and investor protection. For the record, several countries like Poland and Japan already formulated crypto tax policies in 2018. In general, crypto regulations will become more widespread and harmonised. As you’ve already guessed, today we’ll talk about crypto and ICO regulations and how lawmakers are going to surprise the community in 2019.  Europe In October 2018, European regulators have explained that specific rules for crypto and ICO are on the way. Steven Maijoor, chair of the European Securities and Markets Authority (ESMA), said he was examining how ICOs fit into existing regulation and how they affect competition in the wider capital raising sector.  In addition, ESMA released a 2019 Annual Work Programme, which included a primary objective for the upcoming year:  “Achieve a coordinated approach to the regulation and supervisory treatment of new or innovative financial activities and provide advice to present to the EU institutions, market participants or consumers" Interestingly, the plans were revealed according to which ESMA is going to invest more than €1 million in order to develop a framework for overseeing cryptocurrencies and other fintech activities in 2019. However, in August 2018, the European Parliament’s Committee on Economic and Monetary Affairs published a proposal to impose new laws for ICOs in order to protect "consumers who are at risk from fraudulent activity taking place in this market". Speaking of taxation, French government recently claimed that it planned to boost its tax revenues by providing a regulatory cover for ICOs. It appointed a new tax force to draft regulations for ICO projects launching in the country. China  Turbulent approaches towards crypto have made China a hot topic for crypto community so far. However, in 2019 we should expect Chinese regulators to follow Japanese-like policies. An official from the Ministry of Industry and Information Technology in China recently confirmed that the authorities were working towards setting up national crypto-standards which would make decentralization and blockchain technology flourish. Li Ming, who is the director of the Blockchain Research Office at the standards institute under the Chinese IT Ministry, also revealed that a number of relevant government departments would be working toward establishing a nationwide ‘Blockchain and Distributed Accounting Technology Standardization Committee’. Malaysia  Malaysia is considered to be attractive for foreign investments as it has a highly diversified and robust economy. The country allows Bitcoin mining and trading with no restrictions.  However, the Central Bank of Malaysia recently issued a statement that Bitcoin is not considered to be legal tender and its users are poorly protected from fraudulent schemes and operational risks. The year 2019 is going to boost crypto development in Malaysian ‘hub’. According to local media, the government will enact regulations for cryptocurrency and ICOs in Q1 2019. This move is explained as a “part of the Securities Commission’s efforts to facilitate alternative fundraising avenues and new investment asset classes”. Looks like crypto investment flows are inevitable for Malaysia in the upcoming year.  World  Should we expect the international taxation in 2019? That is the question we all ask to ourselves. And it’s especially relevant in the context of recent meeting of G20 group leaders. In early December, they gathered in Buenos Aires to discuss global issues. One of the topics covered was cryptocurrency and how to regulate it in the best manner. According to the report, it is stated that G20 leaders are seeking to “build a taxation system for cross-border electronic services“. However, that’s controversial. While many are preparing their business for new taxes, others don’t even see any innuendo related to crypto. Gary McFarlane, a crypto analyst, thinks that it's not certain that the G20 focuses on crypto specifically:   "The G20 final communiqué doesn’t really add anything new. The statement in paragraph 26 of the communiqué talks about “the impacts of the digitalization of the economy on the international tax system”, but I think that has been misinterpreted by some as a call to tax cross-border transactions when in fact it is more a reference to finding solutions to global Big Tech corporations declaring their profits in low-tax jurisdictions". Most likely, in 2019 cryptocurrency will be losing one of its natural features – users’ anonymity. The pervasive AML and KYC procedures will be carried out in order to prevent money laundering, terrorist funding, exit scams, etc. However, if we want to operate in a stable and mature environment, we all have to make sacrifices. 

Articles/December 20, 2018
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Crypto Taxation around the World: from Germany to Japan

Do you pay taxes for using crypto? Or let’s better rephrase the question: do you know that you must or must not pay taxes for using crypto in your country?  If you do – and we are confident you do, still, this article is something you should not skip. Taxation is becoming one of the principal issues, when it comes to cryptocurrencies, as every country differs in its policies and approaches. Today we’ll examine which countries could be lauded as ‘tax havens’ for crypto owners and in which ones you will be taxed for a full ride. Buckle up, ladies and gentlemen, our trip across taxations is in high gear. Germany  Federal ministry of finance Germany Source:  Federal Ministry of Finance, photo: Ilja C. Hendel Germany is positioning itself as one of those European countries that have business-friendly tax policies. It has become a true shelter for both mid-term and long-term crypto investors. Here trading crypto is considered as a private sale under the rule 23 EStG which implies tax-free benefits. According to this document, trading cryptocurrencies is totally tax exempted, provided that your capital gains are not more than 600 EUR. The punch line is that in Germany digital currencies are not considered as a commodity, a stock, or any kind of currency. Instead, since 2013 they are recognised by the German Finance Ministry as private money in a way that’s similar to foreign currency. Interestingly, profits made through any kind of operation with crypto (e.g. mining, trading, exchanging) are subject to a capital gains tax (which is 25-28 percent, by the way) including a solidarity surcharge. According to the German Income Tax Act, if the assets are held for more than one year, they become tax exempt. Poland  President of Poland Andrzej Duda Source: Profil Prezydenta RP Andrzeja Dudy   A legal framework in Poland has been dramatically changing so far. In April 2018, the government decided to tax crypto investors on each and every crypto transaction they were involved in. The country’s government bound citizens to declare all their crypto and exchange gains. This far-fetched tax was too heavy for crypto owners. That’s why the government decided to backtrack it and commenced the establishment of a new well-thought-out one. Polish community had to wait for almost 3 months. In August, regulators in Poland have come forward with a long-promised Crypto Bill. This regulation, as government believes, will enable it to keep a strong focus on the illegal activities which are carried out in the guise of cryptocurrency transactions. The crypto taxation was officially released on 24th August 2018. Additionally, in mid-November, the Income Tax Department of the country has suggested President Andrzej Duda’s government to levy a steep tax of 19% on income from using crypto. If enacted, the taxation is expected to come into force from January 2019. USA  Internal Revenue Service Building on Constitution Avenue in Washington, D.C. Source: Wikimedia  The whole story with crypto-taxes in the US began in 2014 when the Internal Revenue Service (IRS), the country’s government agency that collects taxes and enforces tax laws, issued the general guidance on how cryptos are taxed. According to the guidance, in the US “virtual currency is treated as property”. It also says that crypto-taxes are calculated individually for every taxpayer who uses crypto and they depend on the coin’s value as of the date it was traded: A taxpayer who receives virtual currency as payment for goods or services must, in computing gross income, include the fair market value of the virtual currency, measured in dollars, as of the date that the virtual currency was received” As of today, by the look of things, Internal Revenue Service is not going to be soft with crypto owners. In February 2018, Coinbase, a San Francisco-based digital currency exchange, sent an official notice to about 13,000 customers, informing them that their data is being handed over to the IRS per their request. The IRS is also famous for using software designed to track crypto tax cheats.  Agency periodically sends emails to crypto holders, reminding them to pay their taxes and even published a memo, highlighting the “inherently pseudo-anonymous aspect” of crypto transactions. Japan  The Ministry of Finance Japan Source: Japan Times  Japanese crypto holders seem to be operating in a crypto-paradise, but it’s not that simple. Although country recognises the crypto as a legal means of payment, the main reason behind this move to legalization is to ensure tighter oversight from the Financial Services Agency of Japan over the virtual economy.   In Japan, cryptocurrency investors must pay between 15 and 55 percent taxes on their profits declared on their annual tax filings by the end of the year. Judging from the statistics which shows that the trading pair BTC/YEN is one of the most popular, we can safely say that the country will receive large revenues from taxing crypto. Speaking of the latest news, in early December, Japan’s government announced that it prepared a new system that would allow the National Tax Agency (NTA) to obtain data from transaction intermediaries – crypto exchanges. A new regulation is expected to come into force in late 2019.  According to several sources, this will be the case for those crypto owners who earned over 10 mln yen ( ̴$88,700) from crypto transactions.

Articles/December 18, 2018
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