The difficulty of mining bitcoin is reduced; Crypto Addressed by CFTC Chair; Congress Addresses Crypto Tax, Accounting; Encryption Enforcement and Crimes Continue | Baker Hostetler
Bitcoin Network Mining Difficulty Continues Downtrend Amid Heatwave
Of Jordan R. Silversmith
A recent analysis of Bitcoin mining activity has shown that the Bitcoin Network mining difficulty has dropped by 5 percent recently, continuing a three-month downward trend since reaching an all-time high in May 2022. This is the third consecutive downgrade of the mining difficulty. the first time that has happened since last July, when China banned Bitcoin mining. According to reports, the drop in difficulty this time is a result of US miners shutting down their machines for the past two weeks due to high electricity prices, as record heat waves have continued. The rising cost of mining has reportedly had significant effects on miners in Texas, who are experiencing warmer-than-usual temperatures that have prompted some miners to shut down operations to accommodate the state’s power grid load. Although extraordinary electricity costs have caused some industrial-scale miners in Texas and beyond to curtail their mining activity, some miners may benefit. Analysts believe that the lower difficulty is good news for small-scale Bitcoin miners, because reduced difficulty allows miners to confirm transactions using fewer resources, allowing small-scale miners to compete with larger miners for mining rewards.
For more information, please see the following links:
CFTC Chair Addresses Crypto; Proposed bill would simplify crypto tax rules
Of Keith R. Murphy
The US Commodity Futures Trading Commission (CFTC) recently published a keynote address by Chairman Rostin Behnam discussing the future of cryptocurrency regulation. Among other observations, Chairman Behnam noted that despite information indicating that one in five American adults have invested in or otherwise used cryptocurrency, the market has developed without clearly defined regulatory boundaries, adding that the recent “crypto winter” has revived the call for a regulatory approach. Behnam stated that the US digital asset industry does not fall within a single comprehensive regulatory regime, and later suggested that “as with any trading market, the digital asset market would benefit from uniform imposition of requirements focused on ensuring certain core principles, including market integrity, customer protection and market stability.” Among other statistics, he shared that the CFTC has pursued more than 50 enforcement actions since 2014, including for digital asset-related misconduct, retail fraud involving digital assets, illegal offering of OTC digital assets, and making false or misleading statements and omissions. Federal Trade Commission information that Behnam shared, since 2021, more than 46,000 people have reportedly lost more than $1 billion in cryptocurrency due to fraud, and the top cryptocurrencies used to pay fraudsters include bitcoin, tether, and ether. Behnam promised that The CFTC would continue to use its enforcement authority to protect consumers in the digital asset space from fraud and manipulation.
In another recent development, two senators this week proposed a bipartisan bill that would simplify the application of tax rules to digital currency transactions. According to a press release, under the proposed Virtual Currency Tax Fairness Act, small personal cryptocurrency transactions under $50 will be exempt from capital gains taxation. Under current law, a taxable event occurs every time a digital asset is used. The proposed bill, which received positive reactions from the cryptocurrency industry, reportedly includes an aggregation rule that identifies related sales and exchanges as a single transaction in an effort to prevent potential tax evasion.
For more information, please see the following links:
Members of Congress Criticize SEC Bulletin on Crypto Accounting Treatment
Of Christina O. Gotsis
In late July, four members of Congress sent a letter to the US Securities and Exchange Commission (SEC) asking it to withdraw a bulletin advising on the accounting treatment of crypto assets. The SEC bulletin recommends that public companies, as well as private companies that combine with special purpose acquisition companies, report crypto assets as liabilities and provide additional information about the value of those assets. This represents a deviation from the practice of holding custodial assets in own accounts off the balance sheet. The congressmen warned that the change would make safekeeping of such assets by banks “financially unfeasible” and argued that the SEC did not follow “due process,” such as providing a public comment period.
While SEC Commissioner Hester Peirce called the bulletin a “scattered and ineffective” attempt to regulate crypto, SEC Chairman Gary Gensler argued that the measure will help protect investors amid a downturn in digital asset markets. Gensler defended the bulletin, SEC Staff Accounting Bulletin No. 121, saying the bulletin follows the same process as the 120 bulletins before it in its mission to protect investors. Gensler reportedly characterized the bulletin as “advice” for companies seeking accounting guidance for crypto assets. The bulletin itself also notes that it is “interpretive guidance for entities to consider” and does not carry the agency’s “official endorsement.” Gensler reportedly noted that a bank’s bankruptcy puts customers’ digital assets at risk, and that those assets are “not well enough developed” and are “sufficiently different” from traditional assets such as stocks or bonds.
For more information, please see the following links:
DOJ, SEC, and OFAC Continue Cryptocurrency Enforcement Actions
Of Robert A. Musiala Jr.
This week, the US Department of Justice (DOJ) published a press release announcing that Michael Stollery, “[t]CEO of Titanium Blockchain Infrastructure Services Inc. (TBIS)[,] pleaded guilty … to his role in a cryptocurrency fraud scheme involving TBIS’ initial coin offering (ICO) that raised approximately $21 million from US and overseas investors. According to the press release, Stollery admitted that he made a number of false and misleading statements to buyers of tokens in the TBIS ICO and commingled the ICO investors’ funds with his personal funds, using a portion of the proceeds for personal expenses. Stollery pleaded guilty to one count of securities fraud and faces up to 20 years in prison.
According to reports this week, two major US cryptocurrency exchanges may be under investigation by government agencies. A report noted that, according to sources, a major US exchange is under investigation by the US Securities and Exchange Commission (SEC) related to certain cryptocurrency tokens listed on the exchange. Another report details a reported investigation of another major US cryptocurrency exchange by the US Treasury Department’s Office of Foreign Assets Control (OFAC). According to reports, the OFAC investigation is related to alleged sanctions violations involving exchange clients in Iran, Syria and Cuba.
In a recent development, blockchain analytics firm Chainalysis has published Chainalysis 2022 State of Cryptocurrency Investigations Survey. The survey asked a population of government employees about topics related to the successes and challenges of cryptocurrencies. Among other things, survey respondents indicated the following sentiments: (1) cryptocurrency will advance the financial system in a positive way; (2) cryptocurrency is prevalent in a variety of different types of crime, including drugs, fraud, theft, and cybercrime; (3) accurate data, transaction visualization, and training are essential for effective use of blockchain analytics tools; and (4) 74 percent indicated that their government agency was not currently well equipped to investigate cryptocurrency-related crime.
For more information, please see the following links:
Reports show hackers resorting to Cryptojacking and DeFi to Siphon Crypto
Of Lauren Bass
According to a recent report issued by cyber security firm SonicWall, global incidents of cryptojacking reached record highs earlier this year. Cryptojacking refers to a cyberattack in which hackers implant malicious software on a computer system and then covertly command the system to mine cryptocurrency for the hackers’ benefit. Overall, incidents increased by 30 percent, with retail suffering a 63 percent increase and the financial sector witnessing a 269 percent increase in attacks so far this year. The report suggests that (1) the decline in ransomware attacks, (2) system vulnerabilities caused by Log4j, and (3) cryptojackers’ ability to operate under the radar all contributed to cybercrime’s rise in popularity.
In similar news, risk management firm Crystal Blockchain recently released a report detailing the most significant security breaches and fraudulent activity in cryptocurrency over the past decade. According to the report, decentralized financial exchanges (DeFi) have become an increasingly popular target for malicious actors, with over $2.5 billion lost due to DeFi-related breaches, fraud and hacks in 2022 alone.
For more information, please see the following links:
[View source.]
