South Korean Financial Regulator Won’t Lift Ban on ICOs

South Korea’s state financial regulator – the Financial Services Commission (FSC) – has stated in a press release that it will continue to ban initial coin offerings (ICOs) in the country, after conducting an investigation into token projects that have been disregarding the law.

The FSC decision came as a result of a survey conducted by the financial institution itself, unveiling  that firms conducting ICOs were making use of foreign jurisdictions, but still raising funds from local businesses and individuals.

The survey in question was conducted in September 2018, as the FSC had sent the survey questionnaire to 22 local firms that handled ICOs abroad, and only 13 responded. According to statistics, the companies had held the ICOs since the second half of 2017, raising a combined total of 566.4 billion won ($509 million).

The survey also revealed that Singapore and Switzerland were the most popular places to host an ICO amongst those companies that responded to the FSC. Due to the survey, it was found out that companies had been setting up paper companies abroad in order to bypass the ICO ban in South Korea, whilst raising funds from Koreans as proved by the white papers and marketing materials used in the Korean language.

According to data gathered from the survey, some ICO projects did not reveal any important information for investors such as company profile and financial statements, and in some cases gave false information. Respectively, the risk for investors was also deemed high as the value of the projects’ tokens had fallen by an average of 67.7% since launch.

Due to the statistics gathered with this investigation, the FSC won’t lift the ICO ban in South Korea any time soon and advises the public to do due diligence and exercise caution before getting involved with ICO related projects.

South Korea formally banned ICOs in September 2017, citing lack of stability and ease of manipulation as cause to stop citizens from buying cryptocurrency tokens.

Hong Nam-ki, head of the office for government policy coordination, stated in October last year that the financial regulators in the country had been reviewing the topic over the course of recent months and declared that the FSC survey would guide decision-making for the policy. Hopes of a reversal appeared last year after the National Assembly began debating the ban, but the tone has evidently since turned grim.

BlockchainDefender’s Report on Lack of Trust and Its Impact on the Capitalisation of the Crypto Market

Our team at BlockchainDefender has conducted an in-depth study to determine how a lack of trust in the cryptocurrency industry affects its global market capitalisation. The resultant report aims to answer this question by taking a closer look at which of the established digital currencies have the best and worst online reputations.

The report looks at variations in reputation by country, and details which types of website are most likely to be negative about cryptocurrencies. From there, we compared the online reputation of various digital currencies to those of traditional exchanges. The third component of the report looks at the impact of a crisis on a cryptocurrency’s prices.

Finally, the report looks at why the crypto industry has a bad reputation and how cryptocurrencies can overcome this issue.

Specific Findings by Topic

As you look at our report you will notice that we examined a range of factors, including both visual and written representations of our findings. We looked at the impact of Google search results on the reputation of cryptocurrencies and crypto exchanges. We found a correlation between increasing negative online sentiment regarding cryptos and a drop in their market capitalisation. The reverse was also true, with positive sentiment and high search volume correlating to an increase in market capitalisation.

Next, we examined cryptocurrency reputation variations by country, with a focus on the United States, Germany, Japan, and the United Arab Emirates. We conducted these searches in each country’s native language.

The next aspect of the report focuses on the reputation of cryptocurrency exchanges compared to that of traditional exchanges. Our team at BlockchainDefender found that traditional exchanges have better control of their online reputations than crypto exchanges. Most of the negative sentiment comes from reviews.

Finally, we created a case study for a cryptocurrency in crisis following a hack, looking at brand search terms in the US, UK, UAE, Germany and Japan. There was minimal to no negative content about the currency prior to the crisis. Following the crisis, there was an increase in negative sentiment of 22.1% and a decrease in positive sentiment of 14%.

Conclusions and Takeaways

Based on our findings from the various studies, our BlockchainDefender team confirmed that the public and potential professional investors research blockchains, tokens, and cryptos online, making decisions based on their findings. The industry’s poor reputation has been worsened by hacks and scams, but this can be countered by making a concentrated effort to manage a cryptocurrency’s reputation.

To download a digital copy the report click here

Gemini Becomes the First Cryptocurrency Exchange to Pass a SOC Compliance Review

Gemini cryptocurrency exchange, founded by prominent brothers Cameron and Tyler Winklevoss, completed a SOC-2 Type 1 security compliance review, according to the announcement on the company’s blog.

New Attestation for Gemini

Service Organization Control (SOC) examination is based on Trust Service Criteria, which focuses on non-financial reporting controls. Specifically, SOC-2 reviews the effectiveness of control systems implemented for minimizing risks on security, availability, processing integrity, confidentiality and privacy of a system.

An organization that undergoes a Service Organizational Control (SOC) 2 audit aims to ensure that it has met the service criteria set by the American Institute of Certified Public Accountants (AICPA). The audit was conducted by auditing firm Deloitte, which reviewed Gemini’s exchange application, infrastructure, underlying customer database and its cryptocurrency storage systems that hold the keys of Gemini’s online and offline wallets.

According to the announcement, Gemini is the first in the cryptocurrency industry to undergo such an audit. The cryptocurrency exchange also noted that, in addition to the SOC-2 Type 1 test, it would undergo an SOC-2 Type 2 review in 2019.

Hope for Bitcoin ETF

The Winklevoss twins’ faith in Bitcoin remains strong as is their commitment to getting their Bitcoin ETF application approved by the SEC. In fact, becoming the first exchange to pass SOC-2 examination could give the commission more reason to approve their Bitcoin exchange traded fund.

In early January 2019, they stated:

“We are committed as ever to making an ETF a reality! The U.S. Securities Exchange Commission (SEC) could regard Gemini’s SOC-2 report as a factor in favor of its possible approval of a Bitcoin ETF.”

Gemini started the year off with an aggressive campaign around New York City calling for better regulation in the cryptocurrency industry. Banners were placed on taxis, bus stops and underground stations. The head of marketing at Gemini, Chris Roan, told the Wall Street Journal:

“We believe that investors coming into cryptocurrency deserve the exact same protections as investors in more traditional markets, adhering to the same standards, practices, regulations and compliance protocols.”

With this update, the founders of Gemini reiterate that their product is “trust” and the successful compliance review is an example of their dedicated efforts towards their vision. Once again Gemini proves to be a pioneer in regards to crypto, but remains to be seen if this is enough to beat the competition to an ETF approval.

Social Media Platform Kik Ready to Battle SEC in Court Over Securities Fraud Allegations

Canada-based social media giant Kik is currently facing an imminent enforcement action over an alleged securities infraction, after the U.S. Securities and Exchange Commission (SEC) judged its 2017 initial coin offering (ICO) to have involved the sale of unregistered securities.

According to a report published by the Wall Street Journal, the tokenized social media startup has warned US regulators that they would fight the proposed enforcement action against the company. Kik founder and CEO Ted Livingston has stated that the firm’s token – KIN – operates like a currency and therefore is not an unregistered security, as suggested by the SEC. It is reported that the company has managed to raise around $100 million in “KIN” tokens for its chat-based social media network — which can be earned on the platform, traded or redeemed for goods and services.

In addition to the WSJ report, Livingston has stated in a blog post that there are various projects at a similar point with the SEC and has commented that whilst he believes that the industry needs regulation, he argues it should not be done in this way. He further argued that the crypto space as a whole must challenge the application of securities laws to emerging assets such as decentralized platform tokens.

Having made the claim that the kin is a currency, Livingston argues that it is explicitly stated in the Securities Exchange Act of 1934 “that the definition of a security shall not include currency.” As such, the company argues that Kin fits the definition of a currency in that it is a medium of exchange, and therefore is exempt from the SEC’s definition of a security.

Furthermore, Livingston has said that the company’s token does not satisfy the Howey Test, which is the U.S. standard for determining whether something is a security.

The SEC had contacted the company after the launch of the ICO and most recently has sent a Wells notice, which states that Kik has violated securities law. As a response to the notice, the company Kik claimed that its ICO involved no fraud and the alleged accusations are believed to be unjustifiable such as the company had made substantial efforts in good faith to comply with all existing laws and regulations when selling Kin in September of 2017.

It is further mentioned in the post that, if the enforcement action is taken up, the firm is ready to go to court and is confident to prevail.

With ICOs having diminished in number, mostly due to the threat of regulatory actions, the verdict in this case could have a major effect on the crypto industry. If an American civil judge determines that Kik’s ICO wasn’t a securities offering, not only would the firm be safe from hefty fines and other stringent measures, but it could also aid dozens of other projects struggling under the SEC’s control.

Iran Rumored to Launch its Own Rial-Backed Cryptocurrency to Circumvent Sanctions

According to local news, Iran could possibly reveal its state-backed cryptocurrency at a conference in Tehran this week. Excluded from the global financial system, Iran has previously planned to use blockchain based financial tools as a way to bypass restrictions on its economic growth, which had been imposed by the United States.

The virtual currency is anticipated to be announced at the annual two-day Electronic Banking and Payment Systems conference, which starts on January 29 in Tehran. The theme of this year’s gathering is “blockchain revolution”.

The biggest blow to Iran’s economy came in November, when some of its banks were barred from SWIFT, the Belgian-based global messaging system that facilitates cross-border payments. Countries excluded from SWIFT cannot pay for imports or receive payments for exports, leaving them crippled financially, and having to rely on alternative methods of transferring money.

It was anticipated that Tehran would forge an alternative to SWIFT through a central bank-issued digital currency (CBDC), which could be a rial-backed crypto. Iran’s cryptocurrency is expected to be rolled out in phases. First as a rial-backed digital token, which will facilitate payments between Iranian banks and other Iranian institutions active in the crypto space, and eventually as a tool for the Iranian public to pay for local goods and services.

Whilst it would not directly facilitate payments between Iran and other countries, the state-backed digital currency could lay the groundwork for Iran to join a blockchain-based international payments system that could develop as an alternative to SWIFT.

Sources remain unsure whether such a large-scale implementation will take place, however more localized uses for the digital currency, such as consumer payments, are most likely to come to materialization.

Meanwhile, Iran signed a trilateral blockchain cooperation agreement with Russia and Armenia, at the ChainPoint 18 conference in Armenia on November 14th of last year.

Following this, the Russian signatory Yuri Pripachkin, head of the Russian Association of Cryptoindustry and Blockchain, had disclosed that “according to our information, an active development of an Iranian version of SWIFT is currently under way.”

Iran is not the first government to attempt to co-opt the crypto space to help its ailing economy.

Venezuela launched a controversial, state-backed cryptocurrency, the petro, last year. However, the Trump administration banned trade in the Venezuelan petro. Russia’s project, the crypto ruble, is still several years away from release according to government officials.

That being said, U.S. lawmakers warned they would also sanction any form of the crypto-rial.

Despite the many hurdles that the Iran’s digital currency faces, some of the country’s crypto enthusiasts believe the government’s adoption of blockchain could create a more productive and fruitful environment for the region.