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Overstock’s tZERO Begins Distributing Its Security Token to Investors

Security token trading platform tZERO, a portfolio company of digital retailer Overstock, has begun the process of giving investors control of tokens bought during a sale the firm completed last August. In a letter sent to investors late Thursday, tZERO CEO Saum Noursalehi outlined the first steps toward taking custody of the tZERO security tokens. TZERO wrapped up the $134 million offering in August, and in October said that it had completed the issuance of the tokens, which were then locked up in a custodial wallet until January 10, as outlined in a press statement at the time. “As you are aware, on October 12, 2018 we completed the issuance of the tZERO security tokens. The tokens have been locked up in wallets maintained by tZERO on behalf of our token holders for 90 days following the issuance,” Noursalehi wrote. “Now that the three-month lock-up period has concluded, you must decide where to hold your security tokens.” According to the letter, investors now have two options: create a brokerage account with broker-dealer and tZERO partner Dinosaur Financial Group or hold the tokens in a personal wallet, which is subject to a two-step verification process, according to tZERO. “If you initially choose to hold your security tokens in your personal wallet, you may later move your tokens into a digital securities brokerage account you open up with Dinosaur,” the firm said. What isn’t clear at this time is exactly when tZERO is expected to begin actual trading of the security token on its platform. In the letter, tZERO told investors to “look out for another tZERO update regarding the commencement of security token trading.” Jonathan Johnson, the president of Medici Ventures – which oversees Overstock’s blockchain efforts, including tZERO – told CoinDesk last month that the security token platform will officially go live in January. A prototype of it was unveiled last April. Source:
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Seed CX Launches New Wallet Features for Institutional Clients

Institutional-focused crypto exchange Seed CX is launching a new wallet solution aimed at adding security and transparency for its customers. The company, which raised $15 million in funding last fall, announced Thursday that its new wallet features on-chain settlement, and provides each customer a unique wallet rather than using omnibus wallets. Provided through its settlement subsidiary Zero Hash, the new wallets allow the exchange to synchronize its internal accounting on the appropriate blockchain. As such, market participants can independently verify all deposits, withdrawals and other transactions associated with their wallet. The new system also increases the number of wallets malicious actors would have to attack if they wish to steal funds, according to a press release. Edward Woodford, co-founder and CEO of Seed CX, said in a statement that the exchange is looking to “make it as difficult for hackers as possible” to steal funds, and limit the amount that could potentially be stolen. Woodford added:
“On-chain settlement helps Seed CX provide trading firms with an experience that is both cost effective and high performance, while also providing the operational and financial security investors demand.”
Zero Hash public director Julie Myers-Wood explained that the company learned from issues other exchanges faced, according to a statement. “Giving participants full visibility into their own unique wallets is a big part of that, but it’s not enough. Zero Hash has a wide range of operational controls designed to provide investors with a first-of-its-kind experience,” she added. Source:
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Token Exchange DX.Exchange Says It Has Patched Security Vulnerability

Security token trading platform DX.Exchange says it has patched a security vulnerability that allowed anyone to access user authentication tokens. DX.Exchange, which went live on Monday, offers crypto tokens representing shares in a number of Nasdaq-traded firms. The company uses Nasdaq’s matching engine and financial information exchange protocol to facilitate the trading of these digital securities. However, in its first few days, the platform revealed sensitive data, including password reset links, as reported by Ars Technica. It is unclear how many user accounts were at compromised, though an anonymous trader told the news site that he collected “about 100 … tokens over 30 minutes.” Ars further reported that it was able to collect “a large number” of authentication tokens. In a statement, the DX.Exchange attributed the bug to “an authentication token error,” but said the issue was resolved before any damage could occur. Daniel Skowronski, the exchange’s CEO, said in a statement that user funds were not at risk, explaining:
“We are happy to report that the vulnerability has been successfully patched, and no user funds were compromised … Customer funds were always safe, our multi layer advanced monitoring and defense mechanism was able to avoid any further issue.”
The statement went on to note that any developers who discover bugs in the future can report them to the exchange directly through a bug bounty program. Source:
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Bitcoin Price Tumbles 10% as Crypto Markets Flash Red

The price of bitcoin fell more than 10 percent during Thursday’s trading session as the cryptocurrency erased a large portion of its recent gains. At 6:00 UTC, bitcoin opened the trading hour at a price of $4,018, but fell to $3,748 before the hour was complete. After trading sideways until 16:00 UTC, the sell-off accelerated to a low of $3,570, according to CoinDesk pricing data. Bitcoin’s current price of $3,610 reflects a $367 difference and more than 9 percent drop from its 24-hour opening price of $3,995, CoinDesk data further reveals. In the last 24-hours, a total of $6.4 billion of bitcoin was traded across exchanges as its total market capitalization fell roughly 7 percent from $70 billion to $64 billion. The broader market has accompanied bitcoin in its latest dip as it usually does when bitcoin markets show weakness. According to Coindesk’s Crypto-Economic Explorer (CEX), 18 of the 19 tracked cryptocurrencies are reporting double-digit 24-hour losses, with several extending depreciation beyond 15 percent including litecoin (LTC), neo (NEO) and cardano (ADA). Cardano is the worst performers today, currently printing an 18 percent loss. As it stands, the total capitalization of the cryptocurrency market is registering $122 billion, down 10.2 percent on the day according to CoinMarketCap. Disclosure: The author holds BTC, AST, REQ, OMG, FUEL, 1st and AMP at the time of writing. Source:
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China’s Internet Censor to Start Regulating Blockchain Firms Next Month

China’s internet censorship agency has approved a set of regulations for blockchain service providers in the country that will take effect in mid-February. The Cyberspace Administration of China (CAC) published its new “Regulation for Managing Blockchain Information Services” on Thursday, defining blockchain information service providers as “entities or nodes” that offer information services to the public using blockchain technology via desktop sites or mobile apps. The rules become official on February 15, according to the release. Among the 23 articles listed in the document, one requires blockchain service providers to register with the CAC within 10 working days of starting to offer services to the public. The agency also mandates that blockchain startups must register their names, service types, industry fields and server addresses. Further, it bans startups from using blockchain technology to “produce, duplicate, publish, and disseminate” information or content that is prohibited by Chinese laws. If blockchain startups fail to comply with the rules, the CAC said it would first issue a warning, while failure to act within the specified timeline would bring a fine ranging from 5,000 yuan ($737) to 30,000 yuan ($4,422), depending upon the offense. The CAC first published draft rules in October of last year. At that time, one of the articles also recommended that blockchain startups operating in fields such as news reporting, publishing, education and the pharmaceutical industry must also obtain licenses from relevant authorities prior to registration with the CAC. The final rules have dropped this article altogether. Previously, blockchain technology has been utilized to bypass China’s strict internet censorship – often dubbed “The Great Firewall.” For example, as part of the #Metoo movement and a recent pharmaceutical scandal in the country, individuals posted information on the ethereum blockchain to avoid censorship. Source:
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Two Thirds of Korean Crypto Exchanges Fail Government Security Check

Only a third of cryptocurrency exchanges inspected got a full pass in a recent government security audit. The Ministry of Science and ICT, the Korea Internet & Security Agency and the Ministry of Economy and Finance inspected a total of 21 crypto exchanges from September to December 2018, examining 85 different security aspects. Notably, only 7 of them – Upbit, Bithumb, Gopax, Korbit, Coinone, Hanbitco, and Huobi Korea – cleared all the tests, CoinDesk Korea reported Thursday. The remaining 14 exchanges are “vulnerable to hacking attacks at all times because of poor security,” the Ministry of Economy and Finance said, though it didn’t name the platforms. The agencies put down the security failures to “insufficient establishment and management of security system such as basic PC and network security.” The exchanges were inspected in a review that looked different aspects of administrative, network, system and operational security, as well as database backup and wallet management. South Korea has lost many millions of dollars in cryptocurrencies through hacks at exchanges such as Coinrail (over $40 million) and Bithumb (over $30 million). Back in February, the country’s officials said that they believed North Korean hackers were behind the attacks. Indeed, North Korea’s infamous hacking group, Lazarus, has been reported to be behind the theft of $571 million in cryptocurrencies since January 2017, according to a report from cybersecurity vendor Group-IB. In the wake of the security breaches, South Korea’s Financial Services Commission, in July of last year called on politicians to pass a bill regulating domestic cryptocurrency exchanges with urgency in order to counter lax security in the industry. Source:
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Security Token Trades on Regulated Platform in Market First

A regulated alternative trading system (ATS) has facilitated a secondary trade of security tokens on a blockchain in a milestone for the development of this market. SharesPost, a registered broker-dealer, ATS and registered investment advisor, said Wednesday it had executed its first secondary transaction with BCAP tokens issued by Blockchain Capital. The tokens, which run on top of the ethereum blockchain, represent shares in the Blockchain Capital III Digital Liquid Venture Fund. SharesPost did not disclose the size of the trade for reasons of confidentiality, though SharesPost Digital Asset Group CEO John Wu told CoinDesk that it was essentially a proof-of-concept transaction. The Digital Asset Group is the division within SharesPost which oversaw the test. “This was a small trade, it’s like a pilot program, we’re ‘running the water through the pipes’ to make sure,” he explained. “To our knowledge, this was the first trade of digital securities by an Alternative Trading System and broker dealer in which the ATS custodied the digital securities. This clears the path for companies to do compliant STO’s in the U.S. and provide their investors with secondary liquidity.” While SharesPost is the first registered firm to also custody the crypto assets it traded, it is not the first to conduct a secondary transaction overall. OpenFinance Network, another regulated ATS and broker-dealer, already offers BCAP tokens for trade, according to a press release. Previously, SharesPost offered custody of digital assets and support for over-the-counter trading (OTC) of digital securities. Next, the company intends to launch real-time trading order books. The company claims that it will be able to provide sufficient liquidity for institutions or other accredited investors shifting into digital assets. In a statement, SharesPost founder and CEO Greg Brogger predicted that ultimately, digital securities will play a prominent role in private capital markets. Speaking to the significance of the BCAP trade, he explained:
“Now companies can efficiently raise capital and provide liquidity globally by leveraging blockchain technology in a way that complies with securities laws. We are very excited to be connecting the more than 50,000 institutional and individual accredited investors using the SharesPost marketplace with companies and funds like Blockchain Capital that are leading the way.”
Blockchain Capital co-founder and managing partner Bart Stephens added in the announcement that “SharesPost is unique in its support of private companies and funds because they offer a comprehensive platform on which our investors can interact to enable liquidity.” In particular, Stephens said SharesPost will benefit the investor community by providing data and analysis on issuers and assets listed on its platform. Editor’s note: This article has been updated to note that OpenFinance Network has already conducted a similar secondary transaction, though it does not provide custody solutions. Source:
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Lawyers Rush In: New UNH Blockchain Program Nabs Big-Name Speakers

It’s not a bear market for everyone. “A crypto winter for the price is a crypto summer for attorneys,” said Jason Civalleri, adjunct professor at the University of New Hampshire Law School. “As the price sinks, you have a lot of demand for legal services.” That’s why UNH Law is rushing to offer a new certificate program in blockchain and cryptocurrency. As exclusively told to CoinDesk, over 100 students have expressed interest in the program, which will feature of slew of industry players as guest lecturers – including Hester Peirce of the U.S. Securities and Exchange Commission, Ethereum Foundation researcher Vlad Zamfir and MyCrypto CEO Taylor Monahan. “The law student that comes out today needs to be technologically proficient,” UNH professor and program director Tonya Evans told CoinDesk, adding that the university’s blockchain credentials will be “another way to practice what we preach.” Student interest in cryptocurrency has been on the rise nationwide, regardless of market trends. Indeed, Andrew Hinkes, an adjunct professor at the New York University School of Law told CoinDesk that 80 students have already registered for the upcoming blockchain course at NYU, and registration is still open for another month. Demand for the course is so high it is now offered every semester. Hinkes also receives weekly requests for academic lectures about regulation and cryptocurrency, compared to just a few annual requests in years past. “When the value of these assets go down, there are people who have presumably lost money and therefore might want to sue,” Hinkes said. Speaking of the ICO boom in 2017, he added:
“That’s class-action defense, class-action prosecution and all sorts of civil and criminal litigation work emerging from this rush to obtain funding in ways that might not have been compliant, and all the regulatory and enforcement actions that we presume will come.”
Hinkes pointed out the statute of limitations is often up to five years and regulators have a habit of taking their time to build cases. As such, he expects there will be a boom in demand for blockchain-savvy legal services for years to come.

Continuing education

Hinkes also agreed with UNH’s Evans that lawyers will require a deep understanding of these digital systems in order to apply that knowledge across cases. Evans said that in order “to hit that sweet spot between innovation and consumer protections,” lawyers in every industry will have to talk with their clients about how the law applies to various blockchain technologies, from bitcoin to smart contracts. Although these two subjects – software development and law – may seem unrelated, Hinkes warned that misinformation based on a lack of technical expertise can be damaging for lawyers and their clients. As such, Hinkes said it is “increasingly common” for professionals to seek continuing education programs like UNH’s. One such UNH student, nurse practitioner and attorney Lisa McGunnigle, told CoinDesk she wants to start incorporating her love of bitcoin into a law practice. “Flexibility is a large factor, though overall the quality of the courses and the teachers was key,” she said, speaking to why online courses led by technologists are so appealing to working professionals. Just like Hinkes, McGunnigle has noticed far more rigorous course options these days for learning about blockchain technology. “There seems to be a potential for fine-tuning the legal relationships surrounding cryptocurrencies,” she said. Source:
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Thai Finance Ministry Awards Licenses to 4 Crypto Firms, Rejects 2

Thailand’s Ministry of Finance has granted digital asset business licenses to four crypto firms, while rejecting two other applications. The news was announced Tuesday by the country’s Securities and Exchange Commission (SEC), which clarified that crypto businesses are regulated under the “Emergency Decree on Digital Asset Businesses B.E. 2561 (2018).” The four firms receiving licenses include three crypto exchanges, Bitcoin Exchange, Bitkub Online, Satang Corporation (Satang Pro), and one crypto broker-dealer Coins TH Co., the SEC said. Failing to win a license were Cash2coin and Southeast Asia Digital Exchange (SEADEX). The regulator said the two firms had not met the required standards – for example, custody systems and know-your-customer (KYC) processes were “inconsistent” and the effectiveness of their cybersecurity systems could not be verified. As a result, Cash2coin and SEADEX will have to cease business operations by Jan. 14, and have been told to return clients’ assets under their custody, the SEC said. The firms can, however, reapply for the license provided the approval criteria are ultimately met. Meanwhile, the SEC is still considering another application from a firm called Coin Asset. The company has made some executive changes which the SEC considers “material information” for license consideration. Until a decision is made, Coin Asset is permitted to carry out business operations. Thailand first announced its crypto licensing rules in July of last year, with 20 crypto firms applying for the license within a month. The rules require projects that intend to offer crypto services to gain approval from the SEC before starting operations. Source:
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Bitmain Poised to Appoint Tech Chief as New CEO, Says Report

Cryptocurrency mining giant Bitmain may be about to appoint an existing executive to lead the firm as its new CEO. A South China Morning Post report citing people with “knowledge of the matter” said Thursday that the “potential successor” of the firm’s current co-CEOs Jihan Wu and Micree Zhan is Haichao Wang, currently Bitmain’s director of product engineering. Wang has already taken over some of the leadership duties, while Wu and Zhan are expected to remain as chairmen and have the “final call” in the firm’s bigger decisions, according to the report. Back in November, it was reported that Wu had been ousted from the board of BitMain Technologies Holding Company, the entity currently seeking to go public on the Hong Kong Stock Exchange (HKEX). A Bitmain representative, however, at the time denied the board change, responding to a CoinDesk inquiry, stating: “There have been no board departures and co-founder Jihan Wu will continue to lead the company as co-chair, together with co-chief executive officer, Micree Zhan.” Bitmain is still awaiting the Hong Kong Stock Exchange’s (HKEX) approval for its initial public offering (IPO) application, filed in September of last year. The HKEX is apparently reluctant to green light the bid, however. Last month, a person involved in the talks told CoinDesk that the exchange is “very hesitant to actually approve these bitcoin mining companies because the industry is so volatile.” The mining giant is also undergoing a series of business changes, including layoffs. Last month, more than 50 percent of Bitmain’s entire staff was reportedly asked to leave. A Bitmain employee at the time confirmed the layoffs to CoinDesk, but said that “it’s hard to calculate a precise percentage at this stage.” Source:
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