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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.

China flags image via Shutterstock 

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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.

Test fail image via Shutterstock 

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Japan Eyes Regulation of Unregistered Crypto Investment Schemes

Japan’s financial regulator is reportedly looking to close a legal loophole that lets unregistered investment firms solicit funds in cryptocurrencies rather than cash.

According to a report from Sankei Shimbun on Tuesday, Japan’s Financial Service Agency (FSA) is planning revisions to bring such schemes under the country’s Financial Instruments and Exchange Act, although no timeline for the changes was provided.

Currently, the act prohibits unregistered schemes from collecting investments in fiat currencies, but it does not mention cryptocurrencies.

The issue has reportedly received increased focus from the watchdog in the wake of rising incidences of crypto pyramid schemes in the country. Back in November, police in Tokyo arrested eight men alleged to have run such a scheme that collected 7.8 billion yen (almost $69 million) in cryptos from thousands of victims.

The eight were said to have collected most of the payments in bitcoin, as well as another 500 million yen (about $4.40 million) in cash, under the guise of a bogus investment firm called Sener.

Sankei Shimbun cited officials as saying that, if the scam had solicited only cryptocurrency, it’s possible the criminals would not have been caught.

Japan’s FSA has been actively regulating the cryptocurrency space since the shockwave that followed the collapse of the Mt Gox exchange in 2014. Measures have included instigating a licensing scheme for crypto exchanges and scrutinizing exchanges over security and compliance with anti-money laundering rules.

Just yesterday, the agency was reported to be considering approving crypto exchange-traded funds (ETFs). At the same time, it has now apparently dropped plans to approve trading of crypto derivatives on financial exchanges due to concerns the products would encourage speculation.

Bitcoins on keyboard image via Shutterstock 

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Crypto Exchange Kraken Says US Subpoenas Becoming ‘Barrier to Entry’

San Francisco-based cryptocurrency exchange Kraken has said that the cost of handling government subpoenas is fast becoming a “barrier to entry” in the U.S.

On Saturday, the exchange tweeted an infographic from its “2018 Transparency Report,” indicating that the law enforcement and other inquiries it has received from various government agencies around the world have almost tripled year on year.

The firm received a total of 475 subpoenas in 2018 compared to 160 in 2017, with the majority (315) coming from U.S. agencies. The U.K. came in second with 61 requests and Germany third with 34.

“You can see why many businesses choose to block US users,” Kraken said in its tweet.

Source: Kraken/Twitter

Breaking down the U.S. figures, the agency making highest number of inquiries at Kraken was Homeland Security Investigations (HSI) with 91 subpoenas. That was followed by the FBI with 67 and the Drug Enforcement Administration (DEA) with 40. The SEC and the CFTC made 29 requests combined.

Kraken said in a Twitter thread that it gets requests for “all transactions, which could be petabytes of data when they actually only need the withdrawals from last week for one guy.” Such inquiries are “taxing” on the firm’s resources as they often require a “significant amount of education and back-and-forth,” it said.

When asked why it received more inquiries from the U.S. than other nations, the exchange replied:

“US is about 1/5 of clients but 2/3 of requests. US agencies are much more active and are much less surgical. For many requests, we have no matches. It wouldn’t be surprising to find that the same subpoenas go out to everyone in the hopes that a match will be found.”

The exchange is famously critical of U.S. officialdom. Back in April, Kraken CEO Jesse Powell told CoinDesk that the exchange would not be complying with an inquiry into crypto exchanges launched by the New York Attorney General (NYAG). “I realized that we made the wise decision to get the hell out of New York three years ago and that we can dodge this bullet,” Powell stated at the time.

Later, in September, when the NYAG report was released, finding that many crypto exchanges are vulnerable to market manipulation, Powell further tweeted that “NY is that abusive, controlling ex you broke up with 3 years ago but they keep stalking you…”

U.S. law image via Shutterstock 

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Japan’s Financial Regulator May Approve Crypto ETFs: Report

Japan’s Financial Services Agency (FSA) is apparently open to approving crypto exchange-traded funds (ETFs).

A Bloomberg report on Monday, citing a person “familiar with the matter,” said that the FSA is currently ascertaining institutional interest in ETFs that track cryptocurrencies and could ultimately give them the go ahead.

Japan’s ruling Liberal Democratic Party will reportedly submit draft legislation by March 2019, that could include such a move through amendments to existing financial rules. The bill, which would also bring in more self-regulatory oversight of the industry and class many ICO tokens as securities, could come into law by 2020, the report indicated.

However, Bloomberg added that the FSA has now dropped plans to include approval for trading crypto derivatives on financial exchanges due to concerns the products would mainly lead to speculation.

The increased scrutiny of the crypto space in Japan follows a major hack of the Coincheck exchange in January that saw around $533 million in cryptocurrencies stolen.

Crypto ETFs are seen by many market observers as a means to bring institutional capital into the sector, though not all are keen on the idea.

In the U.S., several participants are planning to launch such products, although the Securities and Exchange Commission (SEC) has not yet approved any. Back in August, the the agency rejected nine bitcoin ETF applications “to prevent fraudulent and manipulative acts and practices,” and in December postponed a decision on a product from VanEck/SolidX until February.

Further, SEC chairman Jay Clayton said at CoinDesk Consensus in November that he doesn’t see a pathway to a cryptocurrency ETF approval until concerns over market manipulation are addressed.

Tokyo image via Shutterstock