Blockchain Investments and Pilots Continue, Enforcement Actions Persist

By Simone O. Otenaike, Njeri Chasseau, Emily R. Fedeles & Joanna F. Wasick on June 29, 2018

In this issue:

• Public and Private Sectors Continue to Invest in Blockchain

• Businesses Continue Investment in Blockchain Enterprise Solutions

• Financial Services Sector Continues to Integrate Blockchain Amid Promise and Challenges

• Enforcement Update: DOJ and Other Agencies Seize $20 Million in Cryptocurrencies

Public and Private Sectors Continue to Invest in Blockchain

Earlier this week, Andreessen Horowitz unveiled plans to launch a $300 million fund that will invest exclusively in crypto startups and buy and hold unaffiliated crypto assets. The dedicated crypto fund will be co-led by former federal prosecutor Kathryn Haun, the firm’s first-ever female general partner. The VC firm is not new to investments in crypto assets – the firm’s general fund has invested in such “non-qualifying investments” for the past five years. But the introduction of a dedicated crypto fund allows the firm to invest in crypto startups via equity, convertible notes or tokens without limitations.

The aerospace and defense (A&D) industry is also investing in blockchain technology. According to recent reports, A&D firms are looking to blockchain as a mechanism to reduce maintenance costs, increase aircraft availability, minimize errors in tracking parts and eliminate falsified data. In a recent A&D report, 86 percent of respondents from A&D companies plan to integrate blockchain into their business models by 2021.

The government of South Korea recently announced plans to pilot blockchain technology in the areas of livestock supply chain management, customs clearance, online voting, real estate transactions, cross-border e-document distribution and shipping logistics. According to Coindesk, the South Korean government will invest $9 million in the development and application of blockchain technology to the government systems that regulate these six areas.

Last week, two university systems announced their respective blockchain educational initiatives. Stanford University will serve as the headquarters for a new blockchain research center that will develop a curriculum and best practices for blockchain technology. And for the first time ever, UC Berkeley will open its blockchain education program to the public. UC Berkeley’s online professional certificate program starts next month and is designed to equip students for careers in developing blockchain technology for the enterprise. More than 7,000 students have signed up for this inaugural program.

To read more about the initiatives covered in this week’s post, see the following:

Businesses Continue Investment in Blockchain Enterprise Solutions

By Njeri S. Chasseau

Last week, Microsoft, in conjunction with consulting giant Ernst & Young (EY), announced the launch of a copyright royalty payment system that leverages the Quorum blockchain. The system would “streamline the process of tracking and collecting copyright payments” in an effort to deliver greater monetary value to creators. The solution is designed to manage and protect confidential business arrangements and aims to assist with tracking which parties’ rights are part of a project and which parties are entitled to payment – a process that can often be convoluted and inefficient.

Walmart is currently in the process of developing two enterprise systems – one for streamlining the food supply chain and another for storing medical records. Walmart is working with a number of other companies through the so-called Food Trust to bring clarity and integrity to the food product supply chain, with a focus on ensuring that “farm to table” items are from quality sources. In addition, last week Walmart was awarded a patent for a storage system that will maintain medical records on a blockchain, which can then be accessed from a wearable device that could also be accessed by medical personnel if a person is unresponsive. This system would be greatly enhanced by the amount of patient data Walmart would have access to should it decide to complete a contemplated purchase of the health insurance provider Humana.

Other recent blockchain initiatives include a patent application published June 21 by pharmaceutical company Merck & Co. that seeks to leverage blockchain to combat drug counterfeiting and allow better control over pharmaceutical product supply chains. In Belgium, the Antwerp Port Authority is partnering with Antwerp blockchain startup T-Mining to develop a blockchain-based system that will automate and digitize certificates of origin and phytosanitary certificates, which could streamline the inspection process for cargo loads of fruits and vegetables that are shipped to and from Belgium ports. According to a recent report in The New York Times, the business benefits of blockchain are projected to reach more than $21 billion by 2021.

To read more about the continued investment in blockchain enterprise solutions, see the following:

Financial Services Sector Continues to Integrate Blockchain Amid Promise and Challenges

By Emily R. Fedeles

The financial services industry continues to explore ways to harness the power of blockchain. A new remittance service recently launched by AlipayHK and GCash uses blockchain technology to allow customers to transfer funds between Hong Kong and the Philippines within seconds without having to use intermediaries. Meanwhile, RippleNet, a decentralized network of payment providers and banks connected via Ripple technology, has added Kotak Mahindra Bank – a leading bank in India with more than 1,300 branches – to its network of banks, which will allow consumers to settle cross-border payments to and from India in minutes rather than days, with end-to-end tracking.

According to Coindesk, an open source community named Cordite is building on the R3 Corda blockchain to design digital tokens that would allow the digital representation of numerous assets traditionally held and traded by highly regulated financial institutions. These digital assets would be similar to Ethereum-based ERC-20 tokens, but they would be specifically designed for the banking industry. Notably, the main contributor to the project is the Royal Bank of Scotland.

As the financial sector continues to integrate blockchain solutions, blockchain businesses around the globe are having difficulty obtaining bank accounts. According to a recent report in the Irish Times, Irish bank AIB indicated that blockchain businesses present difficulties in complying with anti-money laundering (AML) and know your customer (KYC) requirements. Similarly, amendments to AML rules applicable to cryptocurrency exchanges in South Korea have resulted in domestic banks having to tighten up monitoring of related bank accounts. In Switzerland, the financial director of Zug recently called for a working group to be established by the Swiss Bankers Association to assist blockchain companies in opening bank accounts.

For more information on blockchain developments in the financial services sector, see the following:

Enforcement Update: DOJ and Other Agencies Seize $20 Million in Cryptocurrencies

By Joanna F. Wasick

On Tuesday, the Department of Justice (DOJ) issued a press release detailing the seizure of over $20 million worth of bitcoin and other cryptocurrencies used to launder proceeds of illegal transactions over the darknet. In a first-of-its-kind sting, personnel from various government agencies posed online as money launderers and vendors of illicit products on darknet market sites. Deputy Attorney General Rod J. Rosenstein sent a strong message that the internet is no haven for illegal activity. “Criminals who think that they are safe on the Darknet are wrong,” he said. “We can expose their networks, and we are determined to bring them to justice.” In addition to bitcoin, the DOJ seized U.S. currency bills, gold bars, cryptocurrency mining devices, weapons and narcotics. Thirty-five individuals were arrested and await prosecution. According to Bloomberg, an agent from the FBI recently said the FBI currently has 130 cases tied to cryptocurrencies.

The government’s increasing capacity for law enforcement in the digital space goes hand in hand with increased regulatory efforts to stem misuse of cryptocurrencies at the onset. Japan’s Financial Services Agency recently ordered six licensed cryptocurrency exchanges to enhance their internal-auditing and user-protection systems in an effort to stem money laundering and to protect the public from fraud. At a June 25 event, Andrew Smith, director of the U.S. Federal Trade Commission’s Bureau of Consumer Protection, advocated for increased cryptocurrency regulation, stating that consumers lost $532 million to cryptocurrency-related scams in the first two months of 2018 alone. A Bloomberg article released earlier this week reported on “cryptocurrency ‘bounty campaigns,’ where social media influencers get paid to promote ICOs by the entrepreneurs (and in some cases scammers) behind the offerings.”

Cryptocurrencies with enhanced privacy and anonymity features are receiving specific scrutiny. On June 20, the deputy assistant director of the U.S. Secret Service’s Office of Investigations called for regulation of such coins, which, the director said, serve primarily to subvert legitimate law enforcement. In response, Zcash, a cryptocurrency offering enhanced anonymity, stated that the American public was best served by a government that protects, not penalizes, organizations that advocate for privacy rights.

For more information on enforcement activities, see the following: