Úno 28

So Why Did Goldman Sachs-Backed Circle Really Buy Poloniex?

· February 28, 2018 · 10:00 am

Goldman Sachs-backed startup Circle made waves earlier this week when it acquired cryptocurrency exchange Poloniex. A couple of experts share their thoughts on the implications for the soon-to-be first compliant US crypto exchange and its customers.

Most Crypto Exchanges ‘Over-Regulate Themselves’

As the dust settles on Circle’s acquisition of Poloniex, U.S. regulators are keeping a close eye on KYC/AML compliance of cryptocurrency exchanges.

Joseph Weinberg

Joseph Weinberg, OECD Think Tank Special Advisor and Chairman of Shyft, a blockchain protocol that will create a new standard for the KYC/AML mandates, shared his comments with Bitcoinist. He states:

Most crypto exchanges that are processing fiat to crypto transactions are very compliant and, in some cases, even more so than banks. It all really depends on jurisdictions and the compliance policies given by countries to crypto exchanges.

He continued:

For crypto exchanges, the challenge lies in how little formal guidelines there are from regulators. As a result, most of the industry has been doing self-compliance in absence of clear procedures. To err on the safe side, crypto exchanges over-regulate themselves. For example, most exchanges ask for passport verification in order to confirm users’ identities, whereas most banks only require government-issued IDs, such as drivers licenses.

Interestingly, Circle acquired the crypto exchange over a year after announcing it was shifting focus from Bitcoin to blockchain-based services. At the time, the company informed its Bitcoin customers that they can can cash out or transfer their balances to Coinbase, if they wished to continue to use the cryptocurrency.

So why did Circle decide to jump back into the crypto game?

It appears that Poloniex was struggling to keep up with the unexpected surge in new users as prices skyrocketed in the second half of 2017. Additionally, being based in the United States, the company also had to keep up with rising compliance costs as it rolled out its new KYC policies late last year.

Weinberg explains:

In the past, Poloniex had a lot of issues with onboarding new users and properly building out its KYC process, mainly due to the large amounts of time it takes to verify users. Given the level of KYC that exchanges force themselves to go through, scaling compliance is almost a separate product that the exchange has to build out.

According to him, this is where Circle comes in with their KYC/AML expertise. He says:

Through this acquisition, Circle will deploy more people to help handle compliance—more employees to build and process KYC due diligence faster. This is the same type of issue traditional banks have when it comes to scaling. Compliance costs keep multiplying, and yet, they aren’t always found to be effective.

The SEC Is Watching

Meanwhile, another takeaway has been put forth by Nathaniel Popper, author of Digital Gold: Bitcoin and the Inside Story of the Misfits and Millionaires Trying to Reinvent Money.

Popper noted on Twitter that the SEC informally suggested to Circle that no enforcement action will occur if the Boston-based startup “cleans up Poloniex and turns it into a regulated exchange.” He adds:

The SEC seems to be saying here that it’s okay if you broke the rules, as long as you get acquired by a legitimate player before we crack down on you.

The question now seems to be whether the SEC will apply this same thinking to other virtual currency exchanges if they are acquired by large players.

In addition to facilitating compliance, Circle also announced that it will add fiat bridges and expand operation to other markets. Namely, the company promised to explore “USD, EUR, and GBP connectivity that Circle already brings to its compliant Pay, Trade, and Invest products.”

This would imply that the exchange must also become compliant and answer to regulators from across the pond, who are currently scratching their heads on how to approach cryptocurrencies without stifling innovation in the process.

Therefore, regulators in the U.S. and abroad could be playing the carrot and stick strategy by providing an incentive for crypto exchanges to get acquired by the large players, such as Goldman Sachs, before a potential crackdown. Admittedly, this could also be a clever way for traditional finance to not only appear innovative through association but also assimilate would-be future competitors.

If true, the strategy may be futile and usher in the Streisand effect to boot. As technology advances, so do new methods of exchanging cryptocurrency. Therefore, assimilating centralized exchanges like Poloniex could force users to migrate en masse to decentralized exchanges and further bolster their development.

Why do you believe Circle acquired Poloniex? Share your comments below!

Images courtesy of Shutterstock, Twitter/@nathanielpopper.

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Úno 24

Coinbase Gives IRS More Than 10K Users’ Information

· February 24, 2018 · 9:30 am

After fighting the IRS in court, popular digital currency marketplace Coinbase has been ordered by the Northern District of California to turn over more than 10,000 users’ personal information and trade history — but it could have been much worse.

The Taxman

The Beatles once sang:

If you drive a car, I’ll tax the street,
If you try to sit, I’ll tax your seat.
If you get too cold, I’ll tax the heat,
If you take a walk, I’ll tax your feet.

Now, you can add “If you sell on Coinbase, I’ll tax your trades.”


According to Coinbase support, the popular cryptocurrency marketplace notified roughly 13,000 users concerning a summons from the Internal Revenue Service — the United States’ tax collection agency and official administers of Congress’ Internal Revenue Code.

As described in the United States District Court’s decision, the IRS served up a summons to the exchange regarding records of almost every single Coinbase user over a period of several years. The exchange, however, failed to comply — leading to the IRS narrowing its request to significantly fewer individuals with larger accounts. The Northern District of California both granted and denied parts of the United States of America’s Petition to Enforce, resulting in Coinbase’s being ordered to turn over more than 10,000 users’ information, on suspicion that they failed to pay federal tax on their cryptocurrency profits.

The information provided to the IRS by the cryptocurrency exchange includes users’ “taxpayer ID, name, birth date, address, and historical transaction records for certain higher-transacting customers during the 2013-2015 period.”

Coinbase Is on Your Side

Though nobody enjoys dealing with the IRS, it’s worth noting that Coinbase sought to protect its users’ information from the federal government’s tax collectors. As explained by the exchange:

In December 2016, the Internal Revenue Service issued a summons demanding that Coinbase produce a wide range of records relating to approximately 500,000 Coinbase customers. Coinbase fought this summons in court in an effort to protect its customers, and the industry as a whole, from unwarranted intrusions from the government.

Bitcoin Taxes

Coinbase also considers the result of its initial non-compliance a victory, writing:

After a long process, the court issued an order that represents a partial, but still significant, victory for Coinbase and its customers: the order requires Coinbase to produce only certain limited categories of information from the accounts of approximately 13,000 customers.

Have you received a notification from Coinbase in regards to your information being turned over to the IRS? Do you appreciate the exchange’s initial non-compliance? Let us know in the comments below!

Images courtesy of Wikipedia Commons, Coinbase, and Bitcoinist archives.

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Úno 06

FUD Storm Continues as China Steps Up Pressure Against Cryptocurrencies

· February 6, 2018 · 9:00 am

Following false fears of a Bitcoin ban in India, the FUD storm continues as China looks to completely eradicate cryptocurrency trading—but can they succeed?

Chinese FUD Strikes Again

It’s been a rough month for Bitcoin and the cryptocurrency market. The price of the dominant cryptocurrency has dropped below $8,000, and many altcoins have suffered even more significant losses, following a seemingly endless flood of FUD (Fear, Uncertainty, and Doubt) from mainstream media outlets.

Now, it appears the FUD of the day is that China, already notoriously unfriendly towards cryptocurrency, is ready to block all access to cryptocurrency trading websites and initial coin offerings (ICOs) by utilizing its notorious Great Firewall of China.


The troublesome story comes primarily from Financial News, a publication affiliated with the People’s Bank of China (PBOC), which is quoted as stating:

To prevent financial risks, China will step up measures to remove any onshore or offshore platforms related to virtual currency trading or ICOs.

Since then, advertisements for cryptocurrencies have reportedly stopped appearing on both Baidu and Weibo—China’s largest search engine and social media platform, respectively.

Scaling the Wall

Though China continues to be an enemy of cryptocurrency, it remains to be seen whether or not their increased measures have a greater effect than their already-instituted domestic ban.

According to the South China Morning Post, the PBOC-affiliated article admitted that recent attempts to eradicate digital currencies by shutting down domestic exchanges haven’t worked as well as planned, quoting:

ICOs and virtual currency trading did not completely withdraw from China following the official ban … after the closure of the domestic virtual currency exchanges, many people turned to overseas platforms to continue participating in virtual currency transactions. Overseas transactions and regulatory evasion have resumed.

The Financial News’ article also spins the planned ban as being for the protection of the country’s citizens, stating:

Risks are still there, fuelled by illegal issuance, and even fraud and pyramid selling.

China has already banned ICOs and domestic cryptocurrency exchanges, but many eager investors inside the country have found workarounds. According to Donald Zhao, a Bitcoin trader who moved to Tokyo following China’s domestic ban, China’s new regulations might succeed in making it even harder for individuals to circumvent the law:

It is common for people to use VPNs [virtual private networks] to trade cryptocurrencies, as many exchange platforms relocated to Japan or Singapore … I think the new move literally means it would be even harder to circumvent the ban in China … people promoting related business programmes may be arrested.

Still, where there’s a will, there’s a way, and people who really want to trade cryptocurrencies will likely figure out how to do so in secret.


Though stricter regulations in China aren’t going to help the market recover any faster, it’s worth mentioning that other countries are set to benefit. According to Cathay Capital’s Ace Yang:

It’s positive news for Japan and Singapore, because demand for participating in trading is not diminishing and traders have got to go somewhere.

What do you think about China’s claim to increase measures against cryptocurrency trading? Do you think it will have any long-term effects, or is it just another case of FUD? Let us know in the comments below!

Images courtesy of Shutterstock, Bitcoinist archives.

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Led 31

South Korea Government ‘Will Not Ban Or Suppress’ Cryptocurrency – Minister

· January 31, 2018 · 6:30 am

South Korea’s government has confirmed it has “no intention” of banning or “suppressing” cryptocurrency trading in fresh comments on the industry.

‘No Intention To Ban’

In comments Wednesday quoted by Reuters, finance minister Kim Dong-yeon, who earlier in January said that a shutdown was still a possibility, finally ended apprehension surrounding the future of cryptocurrency trading in the country.

Kim had faced a 200,000-strong petition demanding he be fired from his position after the comments, which along with those by justice minister Park Sang-ki, sent shock waves through cryptocurrency markets and sparked public outrage.

South Korea won't ban crypto trading

“There is no intention to ban or suppress cryptocurrency,” he said.

The confirmation may come as less of a surprise to some, as Seoul moves forward with regulatory improvements to the exchange sector at breakneck speed in recent weeks.

In addition to tax and security obligations, an anonymous trading ban became law Tuesday, with exchanges now obliged to ensure account identities match those of bank accounts.

The pace of change is already causing teething problems, however, as Bitcoinist reported as the ban commenced that big-volume exchanges were finding it considerably easier to work with banks to stay compliant.

Conversely, smaller exchanges faced being cut off from the market through lack of compliance as banks failed to cope with demand. This, sources say, could see one million users caught out.

crypto exchange

Soeul Goes After Illegal Actors

Not just bonafide actors, but also the shadier side of South Korea’s trading market has caught the attention of regulators.

Customs in the country has announced it has uncovered “illegal foreign exchanges” involving cryptocurrency worth almost $600 million this week, with investigations ongoing.

The organization stated:

Customs service has been closely looking at illegal foreign exchange trading using cryptocurrency as part of the government’s task force.

Bitcoin prices have, meanwhile, stopped reacting to developments in South Korea’s regulation after Japan’s major hack and legal troubles at Tether stole the limelight.

What do you think about the latest developments in South Korea? Let us know in the comments below!

Images courtesy of Pxhere and Bitcoinist archives.

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Led 24

South Korea Fines 6 Exchanges For Security Law ‘Violations’

· January 24, 2018 · 8:30 am

Six major South Korea cryptocurrency exchanges have received fines of around 25 million won ($23,500) for lax security measures which “violated” laws.

6 Of 10 Exchanges Ordered To Pay

As local news media outlet Yonhap News Agency reports Wednesday, government officials will press forward with penalties in what some commentators view as an increasingly promising sign of bringing the domestic cryptocurrency industry under regulatory control.

“Although the size of transactions and the number of users are surging, overall user protection measures are insufficient,” the publication quotes the Korea Communications Commission (KCC) as saying.

South Korea

The decision to fine exchanges flouting the Information and Communications Act, which include well-known names such as Korbit, Coinone and Coinplug, follows a joint investigation into security setups at ten exchanges which several government agencies ran from October to December last year.

‘Tiny’ Fines

The move is the latest is Seoul’s ongoing bid to solidify the exchange market, having confirmed this week that anonymous trading would end January 30 and exchanges must pay tax on 2017 profits in full by April 30.

Reactions have been mixed, with native exchange users in particular sensitive following mass uproar resulting from the government’s handling of the issue over the past months.

Consensus appears to be similarly lacking on the fines, a KCC source telling Yonhap the amounts involved are “too low” and industry figures likewise voicing suspicions.

“I know there is an indication that the amount imposed on each operator is too low, but this measure imposes the maximum amount possible under current information and communication network law,” the official stated.

Nonetheless, security problems at Korean exchanges have received significant negative press amid rumors North Korea was stealing funds for its own ends on a regular basis.

Amid the suspicion, one media company hired white hat hackers to create and then compromise accounts on five exchanges, which it reports was successfully done with what it describes as “basic” tools.

What do you think about the South Korean exchange fines? Let us know in the comments below!

Images courtesy of Shutterstock, Twitter

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Led 03

Malaysia Remains Open to Crypto Trading

· January 3, 2018 · 6:30 am

With the majority of Asian nations attempting to regulate cryptocurrency exchanges, the number of those declining to clamp down is dwindling. Malaysia is among those nations that are currently free from regulatory laws and are not imposing a ban on crypto.

According to the Malaysia Reserve, the country’s finance minister said that the central bank will not impose a blanket ban on cryptocurrencies as such action will only curb innovation and creativity in the financial sector, particularly fintech. In an interview with the news outlet, he stated:

The government is fully aware of the need to strike a balance between public interest and integrity of the financial system.

Public Protection

Similar to action in Thailand, Malaysia wants to inform and protect the public from making rash investments in the nascent crypto markets. The ministry said that the monetary authority is taking a cautious approach with digital currencies, including Bitcoin, to ensure safety measures are in place to protect the interest of the public.

The statement went on to say:

It is not the intention of the authorities to ban or put a stop on any innovation that is perceived to be beneficial to the public. However, similar to any financial and investment schemes, there is a need to have proper regulation and supervision to ensure any risk associated with such schemes are effectively contained.

Malaysian Government to Introduce Regulatory Framework for Cryptocurrencies

No Regulation

Currently, Bank Negara Malaysia (BNM) does not regulate cryptocurrencies. However, it will ensure that exchanges comply with requirements to conduct customer due diligence and report suspicious transactions to the authorities. This is a similar stance to that taken in South Korea, where authorities have laid out plans to regulate how exchanges handle their clients to prevent money laundering and criminal activity.

The Malaysian finance ministry went on to state:

Financial innovation will not only enhance productivity of economic activities, but also make financial intermediation more seamless, it is imperative for the authorities to have a thorough understanding on digital currencies before embarking on any policy actions. This is particularly relevant to recent innovation like bitcoin, which remains unregulated globally and not battle-tested against shocks, unlike more conventional mediums of exchange.

With a global market capacity rapidly approaching $700 billion and the majority of crypto trading taking place in Asia, governments and central banks in the region need to get ahead of the game.

Will Asian nations continue to lead the way in the crypto markets? Add your comments below. 

Images courtesy of GoodFreePhotos, Pixabay, and Bitcoinist archives.