CRYPTO INDEX SERIES
CIS Gazette 14/Sep/2020
A summary of the weeks news & events in the Crypto/Blockchain world
A Week, Full of Hackers and New Regulations
Last week, the Slovakian cryptocurrecy exchange, Eterbase, was hacked for 5,4 million dollars. The accounts in six hot wallets (wallets connected to the internet as opposed to cold wallets that remain; which stays offline) with bitcoin, ethereum, algo, ripple, tezos, and tron, were stolen. Hot wallets let cryptocurrency users store, send and receive tokens, and they are linked with public and private keys that help facilitate transactions. The keys also act as a security measure. However, because hot wallets are connected to the internet, they are more vulnerable to hacks and thefts.(1)
Analysts in Eterbase said they informed the law enforcement authorities and will help them with ongoing investigations. They also added they have enough capital adequacy for meeting all financial obligations.
In July, another European crypto exchange Cashaa lost 336 bitcoin (worth around $3.1 million at the time) to hackers. The London-based platform said the hacker attacked one of its Blockchain.com wallets, which is used to store BTC and make transfers from the exchange. Worldwide, bitcoin exchanges have become a prime hunting ground for cyber-criminals. Last year, Japan’s Bitpoint was raided for $32 million and a few months later South Korean platform Upbit suffered a $52 million loss. Zaif, another Japanese exchange, was attacked for $60 million in 2018.
Besides all these hacking activities, the European Central Bank (ECB) quickened the appropriation of digital currency studies. The ECB President Christine Lagarde said during the pandemic, purchases receive digital payments in expanding numbers and the trend was extremely fast. ECB is also working on a European national bank digital currency (CBDC)2. ECB explained EU inhabitants grasped digitalisation, with e-commerce sales expanding 20% between February and June 2020, even though total retail sales declined 1.2%. Lagarde specified the volume of online payments had encountered “double-digit growth rates” since the beginning of the outbreak and the ECB supports building up a CBDC to address the move towards digitalisation, noting quicker and less expensive cross-border payments. The Eurosystem has so far not made a decision on whether to introduce a digital Euro. In the retail space, the digitalisation of the economy and the development of cheap, highly effective digital payment solutions displaying innovative features, which are instantaneous and more user-friendly, undergo a decline of the use of cash in transactions, which puts into question the availability of central bank money for the public, and an increase of cashless payments which leads to wider use of commercial bank money. This trend has apparently accelerated since the outbreak of the Covid-19 crisis.
ECB would like to fix the roots of inefficiencies in the current payment arrangements, in particular - but not only- in the cross-border context, and that some innovations, especially crypto assets, will help address them. Lagarde also stated Europe is facing urgent and strategic choices on payments that affect on financial sovereignty for decades to come. The four main observations on payment systems, also called “strategic square” are as follows:
• Cross border payments shortcomings,
• BigTech's global projects in the financial sector (including stablecoins),
• The developing European Payment Initiative and,
• The potential Central Bank Digital Currency (CBDC)(3).
Another bullet point from last week was the success of the payment services directives (PSD1&2) which illustrates that the European legislation can accompany new trends and trigger innovation. With new settlement assets such as Global Stablecoins, the adaptation of existing regimes will have to fit into a larger regulatory framework, to be adopted at a global level.
Besides the European Union, the Russian Federation is also discussing crypto assets regulations. Russia’s new cryptocurrency-related law, “On Digital Financial Assets,” or DFA, seems to have had little impact on the local cryptocurrency industry so far. The DFA law essentially provides legal status to digital assets like Bitcoin (BTC), but prohibits their use for payments in Russia. Furthermore, the industry experts found the new law as unclear, not entirely understood by the industry players and that it has neither a negative nor a positive impact on the Russian crypto industry. As reported, Russia is preparing to pass another law called “On Digital Currency,” or DC, in late 2020. In contrast to the DFA law, the DC bill will purportedly provide an actual regulatory framework for using crypto in Russia. On Sept. 3, Russia’s Ministry of Finance proposed to amend the DFA law to ban all crypto transactions except through inheritance, bankruptcy and enforcement proceedings4.
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