CoinDesk Crypto

Israeli officials have moved to seize potentially millions of dollars in cryptocurrency from addresses it says are controlled by Hamas.

The wallets, 84 in all, hold a mix of cryptocurrencies including BTC, DOGE, ADA, XLM, XRP, ETH and others, according to files from the National Bureau for Counter Terrorist Financing. Tracing firm Elliptic estimated in a blog post that the crypto wallets have received over $7.7 million in total. 

“A number of them are deposit addresses at exchanges, while others belong to brokers,” Elliptic co-founder Tom Robinson told CoinDesk.

Related: FATF Report on Extreme Right Financing Highlights Cryptocurrency Use

Of that, $4.1 million is in the USDT stablecoin and an additional $3.4 million is in bitcoin, with relatively meager amounts sprinkled across other coins. Tron’s TRX accounts for $165,000, ETH for $51,000 and DOGE for $40,000, according to Elliptic’s analysis.

The blockchain-sleuthing firm said the seizure order indicates “that Hamas is now using a range of crypto assets,” an evolution of the terror group’s previous reliance on bitcoin alone. 

Defense Minister Benny Gantz greenlit the seizure order on June 30 “having been convinced” that the wallets were linked to the terror group or used to “perpetrate a severe terror crime,” according to the seizure order.

Related Stories

• Palestine’s Central Bank Reportedly Mulling a CBDC Launch
• 52 US Representatives Are Backing a Bill Targeting Hamas Financing
• Bank of Israel Has Already Tested a Digital Shekel

Today, privacy-focused Bitcoin wallet Wasabi reports it has made significant progress toward the release of its Wasabi Wallet 2.0.

Founded almost three years ago, Wasabi Wallet pools multiple users’ unspent transactions (UTXOs) into a single Bitcoin transaction using CoinJoin. CoinJoin is a trustless process that makes it difficult for third-party observers, or even participants, to trace funds and it significantly lowers transaction fees. In order to protect the anonymity of its users, Wasabi traffic runs through the Tor network, an online network that focuses on censorship resistance and anonymity, by default. 

Wasabi Wallet 2.0 aims to improve the user interface of the wallet as well as introduce a more efficient coinjoin framework, which developers call WabiSabi.

Related: BitMEX CEO Maps Out Future ‘Living by the Rules’

“One of the biggest challenges was developing the software for more than just cypherpunks and people very well versed in Bitcoin,” said CTO David Molnar. 

“It was difficult to get the developers and contributors to see the bigger picture, that we can only win the privacy war if we expand our vision to include all future Bitcoin users and not just the privacy advocates and cypherpunks.” 

While the new UI will allow users to access “pleb-friendly,” frictionless and secure payments via Tor, WabiSabi boasts its own set of upgrades:

• Users will no longer need to run coins through multiple coinjoins in order to gain privacy.
• There will no longer be a minimum (0.1 BTC) or maximum (7 BTC) denomination when using coinjoins;
• There will be improved block space efficiency, allowing more inputs into a single coinjoin transaction. This will lower fees for each user.

Wasabi Wallet 2.0 has no defined launch date; however, the company has committed to and published three milestones:

• Wasabi Wallet 2.0 Preview will contain only the most fundamental features and will be used only on the Bitcoin testnet. This will be released in around 6-14 weeks.
• Wasabi Wallet 2.0 Release Candidate will include all features and will be available to the public for reviewing and testing. The team will work on this version until ”the quality of the software is sufficient.”
• Wasabi Wallet 2.0 Final Release (Series) will be the first version of the 2.0 series and the default when new users download the wallet. With that being said, both versions will be available until “most users” migrate to 2.0.

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• Bitcoin News Roundup for July 7, 2021

Cryptocurrency exchange Kraken has joined a growing chorus of analysts suggesting that a wave of new Grayscale Bitcoin Trust (GBTC) shares hitting secondary markets might be good for bitcoin prices.  

The Grayscale Bitcoin Trust, the world’s largest digital-asset fund, allows institutional investors to gain exposure to bitcoin through shares in the trust, which now holds 654,600 BTC. That’s about 3% of the cryptocurrency’s total supply. (Grayscale is a unit of Digital Currency Group, which also owns CoinDesk.) 

The institutional investors can buy into the fund at its net asset value – essentially, the value of the underlying bitcoin – but they are subject to a lockup period of six months. Because so many investors bought into the trust early this year, many of those lockups are now expiring, meaning more GBTC holders will soon be able to sell their shares on the secondary market.  

Related: BitMEX CEO Maps Out Future ‘Living by the Rules’

A widely cited report from the JPMorgan suggested that the GBTC “unlocks” might lead to “downward pressure on GBTC prices and on bitcoin markets more generally.” But cryptocurrency analysts and investors, including Amber Group and Arca Funds, have suggested that the GBTC unlockings might actually be good for bitcoin prices.  

According to a report from Kraken Intelligence, recent data indicates that close to 40,000 BTC worth of GBTC shares will unlock in July. That works out to about $1.36 billion, based on a bitcoin price of $34,000. 

“Despite 40K BTC worth of GBTC shares unlocking in July, market structure suggests that the unlock will not weigh materially on BTC spot markets anytime soon, if at all, like some have claimed,” Kraken Intelligence wrote in the report. 

According to regulatory filings, most of the shares that will be unlocked in July are owned by large institutions. Kraken said that those large institutions “presumably bought GBTC shares with BTC to harvest the premium to net asset value (NAV) that the shares were trading at.”

Related: Market Wrap: Ether Outperforms Bitcoin as Crypto Sentiment Improves

“Whether these buyers of GBTC are market participants who hedge their purchase by selling BTC or are new, natural buyers, will likely determine what impact, if any at all, the sale of GBTC shares could have on the cryptocurrency,” Kraken wrote.

In a note last month, JPMorgan strategists, led by Nikolaos Panigirtzoglou, wrote that the unlocking of the GBTC shares posed a downside risk to bitcoin. 

“Selling of GBTC shares exiting the six-month lockup period during June and July has emerged as an additional headwind for bitcoin,” the strategists wrote.

Related Stories

• Bitcoin Privacy Wallet Wasabi Lays Out Roadmap for Version 2.0
• Bitcoin News Roundup for July 7, 2021

Former Commodity Futures Trading Commission (CFTC) Chairman Timothy Massad said in a Bloomberg op-ed that a bitcoin exchange-traded fund (ETF) would be good for investors and regulators, but the likelihood of that happening in the near future is low.

• Massad said a bitcoin ETF would enable retail investors to invest in cryptocurrency without having to purchase it and deal with the complexities of custody.
• The U.S. Securities and Exchange Commission (SEC) faces an important decision about cryptocurrency and whether to approve a bitcoin ETF, said the ex-CFTC chairman.
• Massad highlighted that crypto exchanges are unregulated and investor protection is weak.
• “The SEC does not have the authority to regulate these exchanges because it can only regulate exchanges that trade securities, and bitcoin and the other widely traded tokens are not securities,” Massad wrote.
• The regulator could use the ETF approval process to improve transparency and integrity of trading on crypto exchanges,  Massad added.
• Over the years, there have been numerous applications for a bitcoin ETF, and to date, the SEC has rejected all applications.
• Many crypto market participants expect new SEC Chairman Gary Gensler, a former MIT professor who taught classes about bitcoin, to approve a bitcoin ETF later this year.

Read more: Brazil Stock Exchange Lists First Bitcoin ETF in Latin America

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In the beginning there was blockchain, and it was good. It opened the door, and let the rays of light of a new decentralized digital economy shine in. However, the wider we pushed that door open, the less bright that light shined.

Investment firm Oppenheimer raised its price forecast for Coinbase (NASDAQ:COIN) and said it’s more bullish on the crypto exchange before it reports second-quarter earnings next month.

• Analyst Owen Lau wrote in a note to clients that Oppenheimer estimates Coinbase will post record second-quarter trading volume, revenue and users, according to reports Wednesday.
• “We continue to see a sharp dislocation between [Coinbase’s] fundamentals and its valuation and believe the current price offers an attractive entry point for long-term investors,” Lau wrote.
• Oppenheimer raised its price target for Coinbase to $444 from the $434 it set in May, the reports said. It reiterated its “outperform” stance.
• Coinbase shares were little changed at press time.
• The crypto exchange, which went public on Nasdaq in April, is due to post second-quarter results on Aug. 12.

Related Stories

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• Market Wrap: Bitcoin Rangebound Into the Weekend, Lags Crypto Stocks
• Fed’s Powell May Have Met With Coinbase CEO in May

Coinbase’s below-market interest rate on deposits of the stablecoin USDC might reveal confidence in its own strength – a bet that customers will view the cryptocurrency platform as a safe place to keep their money. 

When the biggest U.S. cryptocurrency exchange rolled out the new deposit service last week for the dollar-linked stablecoin USDC, at a rate of 4%, it touted the ability to pay customers “more than 50x the national average of a traditional savings account.”

Coinbase didn’t go out of its way to highlight that other crypto lending platforms are offering depositors higher rates – in the neighborhood of 8%. The crypto lender Celsius, for example, is currently advertising an annualized percentage yield (APY) on USDC deposits of 8.88%.

Related: Oppenheimer More Bullish on Coinbase

Asked about the below-market deposit rate, Coinbase pointed to the hazards of lending money to platforms that might be more risky: “We have recently seen the rise of crypto interest accounts that offer attractive rates on customers’ assets,” a Coinbase representative said in an emailed response to questions sent by CoinDesk.

“While the high interest rates are appealing, they can present varying levels of risk,” the representative added. “When you read the full terms and conditions, you may find that your assets are loaned to unidentified third parties and subject to their credit risk, which could result in a total loss of your crypto holdings.”

Such commentary highlights an increasingly relevant question as more cryptocurrency firms try to woo big institutional investors and companies to digital-asset markets with promises of high returns: What is the creditworthiness of the lender that’s accepting the deposits, and will it be able to repay them when depositors ask to redeem?   

To deposit is to lend

Just as big companies typically pay lower interest rates on bonds than a smaller junk-grade issuer, Coinbase might be betting that it can get away with paying a lower interest rate on deposits because it’s a big, well-known player in the cryptocurrency industry, with a stock that’s publicly traded – meaning it has to publicly disclose financial statements and a welter of information about its risks.    

Related: Coinbase to Woo India Recruits With $1,000 in Crypto

“We don’t know the exact legal structure Coinbase has this wrapped in, but 4% might not be a bad rate for accessing the debt markets if it falls under the camp of an unsecured liability of the company,” David Grider, lead digital asset strategist at Fundstrat, wrote in his weekly newsletter on June 30. “But many users will rightfully view Coinbase as a highly creditworthy borrower and find the ability to ‘lend to them’ attractive.”

Circle, the crypto native financial services firm that powers the USDC stablecoin, also offers an APY of around 4% on its USDC Circle Yield product.

Circle Yield is “an institutional-grade product,” Jeremy Allaire, CEO at Circle, recently said on CoinDesk TV’s “First Mover.”

“The USDC that is lent out is overcollateralized on our platform, which is very significant,” he said.

Compound Labs’ newly launched Compound Treasury business offers an APY of around 4% on deposits of U.S. dollars, which are then converted into USDC and invested in Compound’s decentralized lending protocol. The Compound Treasury website says the accounts are offered by “Compound Prime LLC,” which according to regulatory filings is a company incorporated in Delaware. The accounts are offered in part by the digital asset firm Fireblocks Inc. and Fireblocks LLC, a money-services business, according to the website.

A competitive market

Coinbase’s comparatively low interest rate might be well-timed in terms of the market dynamics: Some cryptocurrency lenders have recently been reducing their deposit rates, partly because the market has cooled from earlier in the year. 

BlockFi, Ledn and Matrixport have cut their interest rates on deposits of USDC for July amid changing market conditions, while the rates on top decentralized finance (DeFi) protocols such as dYdX, Aave and yearn.finance are already as low as 0.47%.

BlockFi’s new interest rates for USDC deposits in July are between 5% and 7.5% depending on the size of the deposits. Ledn and Matrixport are in the range of 6.5% to 9.5%.

“The borrowing demand is not great,” Cynthia Wu, head of business development and sales at Hong Kong-based Matrixport, said. With bitcoin’s price “rangebound around $30,000, there’s not much to do.”

The fear with depositing tokens to a lending platform is that the company might run into trouble. The accounts aren’t backed by Federal Deposit Insurance Corp. insurance, as is the case with savings deposits at a U.S. bank.

What could go wrong?

As Grider wrote, the risks are plentiful: “If the lenders’ assets become impaired somehow during a sell-off where liquidated collateral doesn’t cover loans issued, or during a hack lose funds, or due to the default of an uncollateralized counterparty, or due to improper management – users can lose a substantial portion of their funds, since these types of institutions are not regulated like banks.” 

CoinDesk reported in June that the cryptocurrency custodian Prime Trust had cut its contract with Celsius, citing “red flags.” A person familiar with the situation, who did not want to be identified because of the sensitivity of the matter, said Prime Trust’s risk team was concerned about Celsius’ strategy of “endlessly rehypothecating assets.”

A Celsius spokesperson told CoinDesk that the company has “never rehypothecated” New York residents’ crypto assets. 

Under Celsius’ terms of service, the company also holds assets for customers in Texas and Washington state. Celsius “may lend, sell, pledge, hypothecate, assign, invest, use, commingle or otherwise dispose of assets and Eligible Digital Assets to counterparties or hold the Eligible Digital Assets with counterparties, and we will use our best commercial and operational efforts to prevent losses,” according to the terms. 

In early June, Celsius announced that it had invested more than $200 million in mining equipment and other investments. 

Yield generation and sustainability

Other crypto lenders, still providing relatively higher APYs for their USDC deposits such as Nexo and Voyager Digital – with APYs of 12% and 9%, respectively – say their higher rates are justified by how they manage depositors’ funds.

“There are, naturally, moments when we have slightly more funds earning interest,” Antoni Trenchev, co-founder and managing partner of Nexo, said in an email response via a representative. “In these situations, we engage in market-neutral trading strategies to generate yields.”

Trenchev predicted that Coinbase’s entry to the USDC yield-earning products would eventually push “subpar” platforms out of the market.

“This process is already becoming evident,” Trenchev said. “Unsustainable services are slowly losing traction.”

“At Voyager, we conduct proper due diligence and risk mitigation analysis before we loan out any assets,” Steve Ehrlich, Voyager’s CEO and co-founder, said via a representative. “Voyager only loans out assets to highly vetted financial institutions that are regulatory compliant and well-capitalized, each with a trusted base of counterparties.”

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The Bank of Jamaica is planning to pilot its delayed central bank digital currency (CBDC) across financial institutions in August, according to a Jamaica Observer report.

• Speaking at a Rotary Club conference last week, Bank of Jamaica Governor Richard Byles said there are plans to expand the trial between September and December and then gradually move toward a full-fledged launch.
• According to Byles, financial institutions will exchange CBDC with businesses and individuals at a rate of J$1 (0.07 U.S. cent) in cash to 1 CBDC.
• “We’re currently looking at all the technical sides of the system and we have a sandbox in the bank that we have the whole infrastructure in,” Byles said. ”As we work through the technical minting [redeeming] of the currency, we have to test it rigorously as a pilot and that we’ll do in August.”
• The bank had originally planned to begin the pilot in May, but was delayed for  unspecified reasons.
• The central bank is working with Ireland-based technology firm eCurrency Mint to support the rollout.
• As reported by CoinDesk, the government of Jamaica views the accelerated transition to a digital society and economy as vital to economic recovery following the COVID-19 pandemic.

Read more: Jamaica to Pilot CBDC Later This Year

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Developers building on Polygon now have Alchemy’s toolkit at their disposal.

Alchemy, which has been described as the Amazon Web Services (AWS) of the blockchain world, is an infrastructure provider that helps developers build decentralized apps (dapps) on Ethereum and other networks.

Ethereum’s limited throughput and mercurial gas fees have prompted many developers and users alike to turn to layer 2 solutions like Polygon, which offers faster transactions and cheaper fees – 500-times cheaper, in some cases, according to Alchemy Product Manager Mike Garland.

Related: Ash Egan Launches VC Fund With $55M in ‘Inception Capital’

Polygon has attracted a number of leading projects in recent months, including decentralized finance (DeFi) platform Aave, Kyber Network and others. 

Alchemy is moving quickly to expand to multiple layer 2s: first Arbitrum in May, Optimism in June and now Polygon, its biggest partnership yet. The developer has also partnered with Dapper Labs’ Flow and Crypto.com’s Crypto.org as part of its greater plan to become multi-chain. 

Alchemy’s Polygon tie-up is symbiotic, Garland said: Alchemy’s developers gain access to Polygon, and teams building on Polygon gain access to Alchemy’s developer platform, along with its infrastructure and developer tools. It’s a combo meant to fuel ecosystem growth.

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MetaMask broke 5 million monthly active users for the first time in April. This serves as one of many indicators that cryptocurrencies and the ecosystem built around them are gaining momentum. 

The Shyft Network, a platform designed to help cryptocurrency firms comply with anti-money laundering (AML) rules, has launched its main public blockchain system.

Combining elements of Ethereum and Bitcoin, the Shyft Network is an open base-layer platform that houses decentralized identity applications, compliant cryptocurrency transactions and tools to make decentralized finance (DeFi) palatable to regulators, without compromising DeFi’s open appeal.

Alongside Wednesday’s mainnet launch is the unveiling of the Shyft Federation, a diverse group of 21 entities, from core crypto development teams to large financial institutions, that will run nodes on the Shyft Network and ensure it has a decentralized architecture from the get-go.

Related: CoinMarketCap, Animoca Join Huobi’s Public Blockchain as Validators

Regulation of cryptocurrency is inescapable. The Shyft project helps crypto companies meet the identity and data sharing requirements of the Financial Action Task Force (FATF), a global anti-money laundering group, but with the least amount of centralized trusted authority, akin to how blockchains already work.

“A lot of projects are taking a kind of progressive decentralisation approach,” Shyft co-founder Joseph Weinberg said in an interview. “But we are saying this needs to be hardened, ready for primetime, and come with really good censorship resistance across the infrastructure from day one.”

The Shyft Federation consists of 21 private Tor nodes (referring to “the onion router,” a layered system designed to protect privacy), run by companies, organizations and even a sovereign government (Weinberg wouldn’t disclose which country) that perform a function similar to mining a blockchain. Named Federation members include CoinShares, BitFury, ChainSafe and Fabric Labs. 

Under the hood, Shyft runs a modified version of the Ethereum Virtual Machine (EVM), a kind of software rulebook that governs the changing state of the blockchain that is followed by all the nodes on the network. In the case of Shyft, a proof-of-authority consensus system is operated by the federation of nodes, with all the relaying done inside Tor to protect against things like denial-of-service attacks, Weinberg explained.

Decentralized SWIFT

Related: Axie Profiting From Booming NFT Economy as Bitcoin Struggles

In legacy finance, centralized technology such as SWIFT exists to collect counterparty information and route payments. (Blockchains were not designed to require any identity information for routing payments on-chain, which means there is no way to determine counterparty risk.) 

Shyft’s Veriscope application, a system of smart contracts running on top of the network’s base fabric, creates a counterparty discovery and coordination layer for crypto finance, Weinberg said. Veriscope is designed to satisfy the data-sharing requirements of FATF’s “travel rule,” but without sacrificing the core pillars of decentralization and open innovation, he said. 

In addition to hosting the Veriscope travel rule product, the now-live Shyft mainnet, will be home to a national identity system for Bermuda built with the country’s government, and also a set of smart contracts to help regulators accept and work with DeFi.

KYC and composability

The problem encountered when throwing a lot of “know your customer” (KYC) at a DeFi platform is that it “denatures” all that’s interesting about the platform, Weinberg pointed out.

“The moment you add KYC, you break composability,” he said, referring to the idea that DeFi projects can easily build atop each other.

To solve for that, Shyft offers an on-chain KYC rules engine that can be customized so that, for example, a KYC policy from one institution can be made available across many institutions at once, or pre-defined rules can be created around particular institutional liquidity pools and users can choose to opt in, Weinberg said.

“So we can basically start to re-architect composability,” Weinberg said, adding:

“In the future there will be all these institutional pools, things like Aave Pro, and the next piece will be, how do we connect all of them together so that we can recreate that experience of transitive liquidity?”

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Investment firm Borderless Capital has closed a $10 million fund for mining and staking HNT, the native token of The People’s Network, which is built on the Helium blockchain.

• HNT.Fund’s wants to create a “Wrapped HNT” on the Algorand blockchain to enable HNT use in decentralized finance (DeFi) and centralized finance (CeFi) applications, according to an emailed announcement Wednesday.
• Helium uses blockchains and tokens to incentivize consumers and businesses to run commercial telecommunications hubs that support the ecosystem in what is called a “proof-of-coverage” model.
• It announced the launch of a 5G version of its network in April.
• HNT.Fund is the first non-Algorand fund that Borderless Capital has been involved in.
• Participants in the fund included Adam Bain, the former chief operating officer of Twitter, and Sandeep Nailwal, the co-founder of the Polygon protocol.

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Ash Egan, a partner at Accomplice VC for the last three years, is opening his own fund called Acrylic.

The name is a reference to the kind of paint. “I think crypto investing is still an art and not a science,” Egan said in an interview with CoinDesk.

Egan has raised $55 million from an array of funds and investors, including Cendana, a fund-of-funds; Accomplice, his former employer; Digital Currency Group, CoinDesk’s parent company; the founders of Bison Trails, the crypto staking company acquired by Coinbase; and others.

Related: Alchemy Adds Polygon Support for Faster Development on Ethereum’s Leading Layer 2

The fund is far smaller than new war chests from Andreessen Horowitz and Blockchain Capital but represents perhaps a more refined approach to helping crypto projects thrive.

Egan said founders have become much more clear in how they want investors to help, including in strategy, growing the community and promoting their ideas. While working on his own for now, the plan is to use the $55 million to “build an entire firm entirely focused on helping founders accomplish their vision.”

Acrylic will aim to be among the first checks for very new projects, which he describes as “inception capital.”

The firm has already made four investments: a governance startup called Automata, a North American mining operation called US Bitcoin Corp and two firms in rounds that have not yet been announced, one that makes decentralized finance more accessible for businesses and on that audits smart contracts.

Building blocks

Related: Ether Could Overtake Bitcoin as Store of Value, Goldman Sachs Says

Egan says he’s looking for the last few crypto primitives to come along (so far we’ve seen things like automated market makers, tokens and prediction markets, for example).

He’s on the lookout for the very first applications that cobble those primitives together. He wants to make equity investments in companies that are making cryptocurrency and blockchain technology accessible to the wider public.

“Broadly, my thesis is that smart contracts and crypto networks will permeate every industry, Egan said. “My belief is every kind of marketplace – every time you’re interacting with the internet – can be underpinned by crypto networks.”

Egan said he expects his investing to focus heavily on Ethereum due to its lead in developers and communities, but he remains blockchain-agnostic.

“I think one of the parts of the fund is just being reflexive and definitely following traction on these other layer 1s,” he said.

Prior to Accomplice, Egan made investments at ConsenSys Ventures and Converge. His wins across his investing career include early backing of firms like Chainalysis, BlockFi, Balancer, Bison Trails, Mina and others.

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South Korean prosecutors have indicted Lee Jung-hoon – the former chairman of Bithumb Holdings, the parent company of Bithumb Korea, which operates Bithumb’s crypto exchange – on charges of fraud.

The Seoul Central District Prosecutors’ Office indicted Lee on Tuesday, but didn’t take him into custody. 

According to an investigation report released by prosecutors, Lee allegedly swindled $100 million from Kim Byung Gun, chairman of BK Group and founder of a line of cosmetic surgery clinics, during a deal to negotiate Kim’s acquisition of Bithumb Holdings. 

Related: Where Did All the Blockchain Consortia Go? Feat. Paul Brody

Lee asked for $100 million upfront as a “contract fee” from Kim, according to the report. In return, Lee promised to list the BXA token on Bithumb’s crypto exchange. The BXA token is issued by the Blockchain Exchange Alliance, which was formed by Kim and a consortium affiliated with BK Group in December 2018. 

BK Group, of which Kim is sole owner, is nominally based in Singapore and is part of a corporate empire that started off as a cosmetic surgery clinic in Seoul. BK stands for “Beauty Korea.” 

Lee allegedly told Kim that he could pay the remaining acquisition costs using money made through the BXA token listing. The idea was for Kim to profit from selling BXA tokens on Bithumb and then use that money to pay for the acquisition of Bithumb. Kim originally agreed to pay $400 million for a 50% stake in Bithumb Holdings.

The BXA token was never listed on Bithumb. Prosecutors are claiming that Lee never had any intention to list BXA on Bithumb and that the promise to list the token was merely a ploy to get quick cash from Kim and defraud investors. 

Related: UBS Says Regulatory Crackdown Could Pop ‘Bubble-Like Crypto Markets’: Report

Lee managed to secure 8 billion won ($7 million) from more than 50 investors for the BXA project. He also pre-sold around 30 billion won ($26.4 million) in BXA tokens on the promise that the tokens would be listed on Bithumb. Those investors ended up suing both Lee and Kim for fraud in March 2020, but charges against Kim have since been dropped. 

Buyers of the pre-sold BXA tokens filed their own suit against Lee and Kim in April , but charges Kim in that case have also been dropped. 

Police investigators have determined that Kim, too, is a victim of fraud perpetrated by Lee.

Prosecutors have stated that they decided not to take Lee into custody because he has been “cooperative in all investigations” and that he has forfeited 70% of the aforementioned $100 million to the state.

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Russia is preparing legislation to allow law enforcement agencies to confiscate illegally obtained cryptocurrencies, Prosecutor General Igor Krasnov said, according to TASS.

Speaking at a conference in Saint Petersburg, Krasnov said cryptocurrency use by criminals is a serious issue for law enforcement. The country passed its first law regulating the digital assets last year. Now, the criminal and penal codes are being updated to allow law enforcement to “apply restrictive measures and confiscation to the virtual assets,” he said.

According to Krasnov, crypto is increasingly used for bribery, making it even harder to trace than it is with fiat money.

Related: Bitcoin Upside Stalls Near Resistance; Support at $33K-$34K

Earlier, a representative of Russia’s financial surveillance body, Rosfinmonitoring, said the agency was planning to trace bitcoin cash-outs and add a new classification code for suspicious transactions involving crypto.

Cryptocurrencies were introduced into the Russian legal system last year and deemed a taxable property. Russian public officials have been banned from owning crypto starting this year.

Recently, bitcoin has been getting traction as a fundraising tool among Russia’s civil and political activists, as well as independent journalists.

Read also: Russian Political Candidates Will Have to Report Crypto Holdings

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This week, we continue the conversation about Ethereum miners and how they’re preparing for changes to the reward dynamics of the network. Also, we take a look at what other asset types are popularly used on decentralized finance (DeFi) applications beyond ether (ETH). 

Welcome to another edition of Valid Points.

This article originally appeared in Valid Points, CoinDesk’s weekly newsletter breaking down Ethereum 2.0 and its sweeping impact on crypto markets. Subscribe to Valid Points here.

Pulse check: ETH locked in DeFi

Related: CryptoPunks Get Punked

The amount of ETH locked in DeFi applications declined 11.5% during the second quarter. Notably, the total dollar value of all crypto assets under management in DeFi apps remained steady over the same time period, which indicates a rise in other asset types such as stablecoins or governance tokens for DeFi collateral and liquidity. 

In particular, the number of tokenized bitcoin created on Ethereum has been on a steady rise since the start of this year. As of Tuesday, there are more than 250,000 tokens backed by BTC, collectively worth roughly $8.6 billion at the time of writing and representing about 1.2% of total bitcoin supply. 

While there are several protocols issuing bitcoin-backed stablecoins, the most popular one, responsible for over three-quarters of BTC supply on Ethereum, is Wrapped Bitcoin (WBTC). 

WBTC leverages a technology known as “atomic swaps” to facilitate cross-chain cryptocurrency trades. Users on Ethereum can request new WBTC tokens from certified “merchants” after undergoing necessary anti-money-laundering and know-your-customer (AML/KYC) identification procedures. New mints and burns of WBTC are tracked publicly through the blockchain, as is the amount of BTC backing these tokens 1:1 on Bitcoin. 

Related: State of Crypto: Yes, We’re Still Talking About Regulatory Clarity

Speaking to the growing volume of tokenized bitcoin in DeFi, Denis Vinokourov, head of research at Synergia Capital, said in an interview with CoinDesk in June, “It shows the hunt-for-yield trade is nowhere near the exhaustion mark and also underlines the growing comfort, as well as a sense of security, that wrapping bitcoin is a safe method in earning yield on assets, be that by retail or more professional market participants.”

New frontiers: Mining after The Merge

The Merge is one of two upcoming code changes on Ethereum that is expected to radically change network monetary policy and reward dynamics. It seeks to reduce the energy consumption of Ethereum by an estimated 99.95%. The other, Ethereum Improvement Proposal (EIP) 1559, is aimed at improving the transparency and efficiency of Ethereum’s fee market. 

Last week, we discussed miners’ perspectives on EIP 1559. While EIP 1559 is the more imminent upgrade slated for activation on the network early next month, its impact on miner revenue and profitability is minor in comparison with The Merge upgrade, according to Igor Stadnyk, the CEO of Ethereum mining pool Mineral. 

“Basically, the current EIP is not a huge reduction [to rewards]. A huge reduction was from five to three ether. A huge reduction was from three to two ether,” Stadnyk said in a phone interview with CoinDesk. 

Stadnyk is referring to changes that protocol developers have activated in the past on Ethereum to curb monetary inflation by reducing block subsidy rewards. Block subsidies are a fixed amount of ether awarded to miners for every block they successfully find and append to the blockchain. After The Merge, block subsidies will once again be reduced, only this time from 2 ETH to zero. 

When there’s nothing left to mine

Once Ethereum merges with the Ethereum 2.0 Beacon Chain, mining on the network will become obsolete. For miners, there will be no block subsidies, no transaction fees and certainly no miner extractable value (MEV). Revenue from transaction fees and MEV will instead be awarded to users who contribute to network security by staking their coin holdings in increments of 32 ETH. 

These users, also called “validator node operators,” will most consistently be rewarded on Ethereum in the form of interest on their staked ether. For validator node operators actively running software on Eth 2.0 today, their estimated annual percentage return (APR) for a single 32 ETH deposit is between 6% and 7%. 

For Ethereum miner Brian Lee, those returns aren’t a convincing reason to make the switch from mining to validating post-Merge, given that he would likely have to sell some of his bitcoin holdings in order to have enough ether to stake. Lee’s long-term bets are on bitcoin becoming “a better store for wealth” than ether because of the experimental and frequently changing roadmap of Ethereum. 

“So I’m thinking maybe I’ll switch to [mining] Ethereum Classic,” Lee said during a phone interview with CoinDesk. “There’s a ton of coins out there. I think a lot of guys I talked to [are] thinking about going to Ravencoin after Ethereum merges.” 

Finding a new home

As the world’s second-largest blockchain by market capitalization, Ethereum is the most profitable cryptocurrency to mine on graphics processing unit (GPU) devices. These devices are also frequently used for video gaming applications. GPUs, unlike application-specific integrated circuit (ASIC) devices that dominate the Bitcoin blockchain, can be repurposed for different tasks and computations. 

Michael D. Carter, the host of cryptocurrency mining YouTube channel BitsBeTrippin, told CoinDesk in a phone interview that according to his calculations, if all Ethereum GPU miners were to move over to Ravencoin, the price of the coin would have to appreciate roughly 10 times in order for miners to remain profitable. 

To Carter’s mind, the more likely scenario post-Merge is that miners end up splitting their computational energy, also called hashrate, across multiple different coins that support GPU mining and stay in business by spreading out to several new blockchain networks. 

“You’re going to see network discovery and you’re going to get buzz around other networks naturally because people are going to want to know: Where are the miners going to be pointing their hashrate? Is there anything as profitable? What’s the value propositions of these other networks?” Carter said.

And it won’t just be miners doing network analysis and profitability projections post-Merge for mining alternatives to Ethereum. 

Wolfgang Spraul, director of operations at Linzhi, a cryptocurrency mining hardware manufacturing company that builds Ethereum ASICs, told CoinDesk in an email, “If nobody on Ethereum is left using Ethash-PoW, [Ethereum’s mining algorithm], we will work with Ethereum Classic. And if no one there wants to use Ethash-PoW any longer, we will work with smaller coins like Ubiq.”

At this stage in the game with The Merge estimated by developers to be ready for activation early next year, mining pools such as 2Miners say it’s “too early to announce anything” concrete. 

Plus, Carter adds, there’s still lots of work to be done on the protocol development side for The Merge; as such, the Ethereum mining community will want to keep a close eye and stay involved in the development process. 

“We’re all investors and have aligned interests with regards to ETH succeeding, so it’s a bit counterintuitive to torch that to the ground [prematurely],” Carter said. “Let’s get through [EIP 1559] and then let’s get … back to The Merge.” 

Validated takes

• Lending rates and trade volume on DeFi applications have dropped significantly over the past few months. TAKEAWAY: Daily DEX volume declined 55% from May to June, while three-month interest rates for the stablecoin USDC on Aave, the largest decentralized lending platform by total value locked, has declined from a high of over 10% to less than 4% over the same period.”.  User growth for DeFi apps, however, has stayed relatively steady, growing 12% this past month. (Blog post, Glassnode)
• Jim Cramer, host of CNBC TV show “Mad Money,” announced he’s investing in ether again after selling nearly all of his bitcoin holdings. TAKEAWAY: Cramer announced he had sold “nearly all” of his bitcoin amid concerns over China’s crackdown on bitcoin mining and is turning to ether as an alternative crypto investment. The CNBC host said he bought more ether after bitcoin stabilized at around $30,000, adding that he likes Ethereum “because … it’s more of a currency.” (Article, Business Insider)
• Big Four accounting firm EY has published code for a new layer 2 scaling system to help battle increasing transaction costs on the Ethereum blockchain. TAKEAWAY: EY’s project, Nightfall 3, builds upon a privacy protocol on Ethereum that the firm “open-sourced” back in May 2019. Nightfall 3 combines the use of zero knowledge proofs (ZKPs) and optimistic rollups for efficient transaction verification. The code is available in the public domain on GitHub for anyone to access. EY global blockchain leader Paul Brody said this was done intentionally to help “speed up enterprise adoption” of Ethereum. (Article, CoinDesk) 
• A review of Ethereum 2.0 validator efficiency, showed the median validator is 98% effective at earning the maximum amount of rewards possible from the protocol. TAKEAWAY: The median validator is receiving 98% of its possible rewards, while no single validator reached 100% efficiency. The review shows that the majority of validator node operators are competent and can hardly improve upon current performance. (Blog Post, Pintail)
• A block number has been proposed for activation of the London hard fork upgrade on Ethereum. TAKEAWAY: A GitHub pull request to lock in the release of London at block number 12965000 was submitted by Ethereum Foundation’s Tim Beiko. Block 12965000 is expected to hit between 13:00 UTC and 17:00 UTC on Aug. 4. The proposal comes after two successful activations of the hard fork upgrade on Ethereum test networks Ropsten and Goerli, with a third testnet release scheduled for sometime today on the Rinkeby network. Beiko stated in a GitHub comment, “August 4th should provide enough time to advertise the client releases that are mainnet compatible, and allow infrastructure providers & node operators to upgrade.” (Governance Proposal, GitHub)

– Teddy Oosterbaan

Factoid of the week Open comms

Valid Points incorporates information and data directly from CoinDesk’s own Eth 2.0 validator node in weekly analysis. All profits made from this staking venture will be donated to a charity of our choosing once transfers are enabled on the network. For a full overview of the project, check out our announcement post. 

You can verify the activity of the CoinDesk Eth 2.0 validator in real time through our public validator key, which is: 

0xad7fef3b2350d220de3ae360c70d7f488926b6117e5f785a8995487c46d323ddad0f574fdcc50eeefec34ed9d2039ecb. 

Search for it on any Eth 2.0 block explorer site.

New episodes of “Mapping Out Eth 2.0.” with Christine Kim and Consensys’ Ben Edgington air every Thursday. Listen and subscribe through the CoinDesk podcast feed on Apple Podcasts, Spotify, Pocketcasts, Google Podcasts, Castbox, Stitcher, RadioPublica, IHeartRadio or RSS.

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Bitcoin (BTC) held support around $34,000 on Tuesday, but buyers took some profit just shy of the $35,000-$36,000 resistance zone. The cryptocurrency is up about 2% over the past 24 hours and remains in a tight trading range.

Buyers could defend support levels and attempt to break the 50-day moving average around $36,000. A breakout from the trading range would yield further upside towards $40,000 as momentum improves.

• The relative strength index (RSI) is approaching overbought levels, which could encourage short-term profit taking.
• Initial support is seen around the $33,000-$34,000 range as buyers were able to maintain a series of higher price lows over the past week.
• The month-long consolidation and declining volume suggest a volatile price move could occur as traders await confirmation of a decisive breakout.
• Although the intermediate-term trend is improving, upside remains limited beyond $40,000 given strong overhead resistance and trend weakness.

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Visa’s crypto-related cards saw a billion dollars of spending activity in the first half of 2021, the company announced Wednesday.

The billion-dollar mark isn’t entirely made up of consumers spending cryptocurrency. Some transactions are tied to fiat accounts but result in crypto rewards; some are indeed crypto transactions. The payments giant didn’t provide a breakdown. 

It’s the latest outcome from Visa’s partnerships with more than 50 crypto firms that have launched cards with the payment giant. The company’s crypto card program is part of a larger push that Visa is making to merge the crypto world with traditional banks that includes adding stablecoins to Visa’s payments network and plugging banks into cryptocurrency buy and sell features. 

Related: BlockFi Rate Cut on Bitcoin Deposits Leaves Rivals Scratching Heads

“We think the first piece of this is being the bridge between the crypto wallets and our existing network of merchants,” Cuy Sheffield, the head of crypto at Visa, told CoinDesk in an interview, adding:

“Then the next part is making it easier for our clients to issue and interact with those cards with things like being able to settle USDC. Then we’re starting to spend a lot of time around how Visa can be a bridge between our existing network of financial institutions and the crypto ecosystem.”

Visa powers both cards that allow consumers to easily convert crypto to fiat and spend it as well as cards that allow them to spend fiat and earn crypto as rewards.

Crypto lender BlockFi’s crypto rewards credit card is an example of the latter. It launched for the public on Tuesday with users getting 1.5% back in bitcoin on every transaction among other benefits. FTX will be an example of the former, as it joins the Visa Fast Track Program and launches a crypto card of its own, Visa also announced on Wednesday.   

Related: Visa, PayPal Join Crypto VC Blockchain Capital’s New $300M Fund

Visa’s crypto-related cards business is dwarfed by the overall amount consumers spend with Visa cards, which is more than $11 trillion in a year, according to Sheffield. The growth in crypto cards represents the establishment of a new category of spending, he said.

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Crypto.com is extending its sports sponsorship run in a deal with mixed martial arts organization UFC.

• The Hong Kong-based exchange will become UFC’s first official fight kit partner, an emailed announcement said Wednesday.
• Crypto.com branding will appear on the athletes’ kit worn both in and out of the Octagon competition arena.
• The partnership follows barely a week after Crypto.com said it was sponsoring Formula 1’s new “Sprint” format, starting with the British Grand Prix at Silverstone on July 17.
• Crypto.com has also sponsored the National Hockey League’s Montreal Canadiens and Italian soccer’s Coppa Italia final this year.
• Research by numerous organizations in recent months has highlighted how crypto tends to resonate with a younger demographic, an audience Crypto.com seems to be trying to attract by establishing a brand presence at sporting events that are likely to appeal to younger audiences.

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• Portland Trail Blazers to Wear NBA’s First Crypto Ad Patch (Sorry, PayPal)
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The Reserve Bank of New Zealand will explore the potential for a central bank digital currency (CBDC) as part of a series of consultations to be carried out by the end of the year.

• The central bank aims to consult on the “issues key to the future of how New Zealanders pay and save,” Assistant Governor Christian Hawkesby said Wedensday.
• One paper will explore the potential for a CBDC working alongside cash as a form of government-backed money.
• “The future will undoubtedly involve less cash,” Hawkesby said. “The potential for a CBDC to help address some of the downsides of reducing physical cash use is something we want to explore.”
• Other papers will focus on issues arising from cryptocurrency and stablecoins.
• New Zealand’s central bank joins its counterparts in the world’s major economies in exploring the potential for a CBDC, with China leading the way. South Korea and Sweden both appear to have moved from exploration to testing in recent months.

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