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Are Rogue Countries Turning to Crypto for Sanctions Relief?

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Today we live in a world mired in war on many fronts. While there are a number of armed conflicts going on, there are also economic wars being waged that have a huge significance in the fate of nations. After the collapse of the Soviet Union, a new economic order was formed with the US and the West generally holding the reins. The US and Europe are generally able to dictate the terms on which global trade is done due to the dollar’s de facto role as the global currency. The US dollar currently accounts for about 60% of all central bank foreign exchange reserves, while the next closest currency is the euro with 20%.

With that much of the world’s wealth concentrated in western currency, global business runs at a western pace. While this may have its upsides, it can come at a cost for countries that don’t want to play ball according to US rules. Instead of military force, the US and its allies use their economic power to cordon off countries that differ from them politically. This can be seen in the sanctions levied by the US against Russia, Iran, and others, and the economic tensions that bubble up periodically between the US and China.

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Cryptocurrency Technology to Eclipse U.S. Domination

While America’s power has, outside of certain situations with China, gone unchecked, the relatively recent emergence of cryptocurrencies has opened up new pathways of global commerce independent from Washington’s purview.

Owing to cryptocurrencies’ benefits in terms of transparency and freedom from any outside interference, U.S. rivals view blockchain technology as an effective weapon against U.S. economic restrictions. However, as it stands now, the strategy of sanctions resistance based on crypto fundamentals is a long shot, because currently none of the platforms operating on blockchains can compare to the conventional banking system when it comes to volume and speed of financial transactions. And what is far more important, with many blockchain ventures still dependent on fiat money, U.S. policymakers are capable of pulling the strings on businesses in the cryptocurrency field, too.

At the same time, countries at odds with American foreign policy have recently been exploring cryptocurrencies and blockchain projects as potential means of circumventing US economic dictates. The technology is rather fast-evolving and many believe it holds enough potential to carve out a pathway for a brand-new value transfer system that could function apart from that controlled by the United States. The target timeline is a few decades away, but some countries are establishing a framework right now, with Russia, China, Iran, and Venezuela at the forefront. It is noteworthy that, while exploring crypto as a state venture, the last three actors have banned their citizens from using crypto assets already active on the market, though the success of such restrictive measures is anything but evident. In the following section, we will take a look at how major U.S. adversaries are deploying blockchain technology to circumvent sanctions and reduce Washington’s influence.

Rogue Regimes Working Out Crypto Solutions to Evade Sanctions

The geographic spread of the idea to launch government-run cryptocurrencies has stretched from the Korean peninsula to South America. In late September 2019, it was reported that North Korean authorities had devoted significant technical resources to the development of Pyongyang’s own cryptocurrency which would give the DPRK access to online goods and services and integrate the most isolated regime in the world into global trade. Whether the national digital currency will be able to help North Korea cope with current economic problems is still a question, with its scarcity of electricity, computer equipment, and quality specialists. The matter is also more complex due to the country’s restricted internet network, recent cybercrime accusations and the significant role of the dollar in Korean partner economies. However, the DPRK initiative is likely to be supported by other nations that have been exploring state-backed cryptocurrencies in order to bypass U.S. sanctions, like Venezuela, Iran, and Russia.

Despite Nicolás Maduro’s failure to consolidate the strength of the Petro, the digital currency represents a milestone in monetary history as the first-ever functioning national cryptocurrency. Pegged to the country’s oil, gold and mineral reserves, the Petro served as a payment method for government benefits as well as one of the units of account, along with the local bolívar, for Venezuela’s national oil company, Petróleos de Venezuela. Later on, Maduro tried to introduce sanctions-busting crypto-barter transactions based on the use of Petro to sell Venezuelan oil and gold, but his plans failed to come to fruition amid reports that the currency was never really made available and had no actual oil backing at all.

Facing U.S. pressure for more than 40 years, Iranian authorities have become quite experienced in implementing extensive evasion measures, like their famous commodity-based, barter-style, “gas-for-gold” schemes. With its Instrument in Support of Trade Exchanges (INSTEX), which is a EU-based cryptocurrency international payment gateway, Iran has carved out a possible means of staying in touch with the world. In late July 2018, Tehran announced its intention to issue a sovereign token to both circumvent the U.S.-controlled international payment system SWIFT, which had disconnected the majority of Iranian banks, and to move international trade beyond the scope of traditional banking operations. The resulting currency, PayMon, was built on the Stellar blockchain protocol as a new core mechanism for cross-border payments and has already interested a number of European and other countries as a method of continuing trade with the isolated nation.

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Russia, which has acted as a facilitator for the aforementioned crypto-related projects to avoid different limitations in worldwide trade, is also laying the groundwork for blockchain transformation in the government’s financial sector. The potential integration of cryptocurrency into the Russian market became much more real once the USA threatened to disconnect the country from SWIFT. Initially, Vladimir Putin opposed the development of a state-owned digital currency, but later recognized the potential of a ‘crypto-ruble.’ Judging by its assistance in the development of Petro and Paymon, Russia is eager to build a system that will help U.S. rivals tackle sanction challenges.

Another adversary of Washington is Cuba. The Cuban government is searching for a way to get out of its financial crisis, and is looking at launching a national cryptocurrency to increase the income level of its citizens. These measures are in part a response to what president Miguel Diaz-Canel has called America’s “asphyxiating financial persecution.”

Crypto-Yuan As Main Competitor for U.S. Dollar

Despite the January agreement between the US and China to diminish the trade war between two technological, economic and military superpowers, it seems like a conclusive detente is far from being achieved. Of all U.S. opponents, the Middle Kingdom is the most technically advanced, and perhaps the most capable of successfully undermining the global hegemony of the dollar.  One way of doing this is by optimizing the country’s cryptocurrency infrastructure with the help of a national digital asset pegged to the People’s Bank of China (PBoC). The mass adoption of crypto-yuan in China, the second-largest economy in the world, now is the most promising potential backdoor to U.S. economic control and something that could catapult China to the top of the alternative trade ecosystem.

For China, the development of blockchain technology in general and the digitized renminbi in particular is a national long-term strategic priority through the year 2050. The borderless transactions capable with the crypto-yuan could significantly simplify trade activity between countries in Africa, Asia and Europe involved in maintaining the “One Belt, One Road ” multi-billion-dollar global economic project. While the PBoC has been exploring the launch of a national cryptocurrency since 2014, the coronavirus pandemic has provided a new impetus for the project’s development. The digital yuan is currently being tested in four major Chinese cities.

Crypto As a Driver of New Economic Activity

Although the above-mentioned U.S. adversaries are hostile to any operations with cryptocurrencies that are not government-backed, independent cryptocurrencies remain the most popular means of using blockchain technology in these countries. It stands to reason that, should some of these national projects succeed, the popularity of other cryptocurrencies will rise as well. And a large influx of cryptocurrency traders can be expected, too. While the majority of Chinese traders stick to exchanges of Chinese origin like OKEx, Huobi or KuCoin, western options, with proven security and high liquidity like HitBTC are quite popular there as well. Should crypto take on a new and enhanced role in the economy post-covid, these crypto exchanges will likely become even bigger hubs of activity.

The decentralized nature of cryptocurrencies is what makes them capable of weakening the impact of sanctions and the way they are imposed. Governments across the world looking to escape from western fetters have realized that crypto may be their golden ticket. With the global economic structure under more stress now than ever before, the chance for many of these countries to strike is at hand.

Amy Day is an independent researcher

Source: https://www.financemagnates.com/cryptocurrency/are-rogue-countries-turning-to-crypto-for-sanctions-relief/

Finance Magnates

Judge Tosses $53M Fraud Case Against Ikon Finance and Hantec Market

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A judge in the UK high court dismissed a breach-of-contract suit against both Ikon Finance and Hantec Markets where a heavyweight retail client was seeking $53.0 million in damages over the allegedly misappropriated funds.

Ikon Finance exited the retail forex market in 2017 following regulatory restrictions by the UK Finance Conduct Authority (FCA). At the time, Hantec acquired the retail client base of IKON Finance after the regulator said that the rival broker has inappropriate human and operational resources in place.

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Following this, a Jordanian resident named Hafez Fakhri Taji Al Farouqi accused IKON Finance of moving his account to Hantec without his consent, seeking nearly $11.6 million in misappropriated funds and damages. He also filed a lawsuit against Hantec for $42 million in civil damages, alleging the migration of his account took place without prior authorization.

Al Farouqi also claimed that both brokers secretly deducted unauthorized commission and introducer fees from his account. Another argument was that Hantec Markets closed his account without sending cancellation terms, giving reasonable notice, or enough time to make alternative arrangements.

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The litigation began in December 2019, but after a six-month investigation, a judge acquitted both brokers, saying it was “fanciful” to believe they had faked trades that caused Al Farouqi to incur substantial losses. The case was entirely tossed out because the evidence was too weak to support a conviction that IKON and Hantec conned the Jordanian investor or breached regulations when they closed out.

Hantec Markets responds

Back in October, Hantec Markets has strongly refuted all claims of Hafez, and the FCA-regulated broker is fighting back against each allegation. Specifically, the company said it’s neither obliged to continue their relationship or to explain for what reasons it closed any client’s account. It also denied that the retail trader had suffered any loss or damage as a result of its decisions and that it gave him a “reasonable” nine days’ notice before the closure of his account.

After doing a background check, Hantec added in its defense that it did not charge any commission from Al Farouqi’s accounts. The UK-based FX trading brand also tried to dismiss the suit on the grounds that the investor agreed to move his trading account after he ticked a dialogue box to accept Hantec’s terms and conditions.

Al Farouqi reiterated in its December that the broker didn’t follow good practices as a nine-day notice period did not give him an opportunity to respond if they misunderstood the facts of his situation.

As widely known, IKON Finance managed to avoid several lawsuits against its operations around the world, including those suing its NFA-licensed subsidiary in the US, IKON Global Markets.

Source: https://www.financemagnates.com/forex/brokers/judge-tosses-53m-fraud-case-against-ikon-finance-and-hantec-market/

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Finance Magnates

Vitalik Buterin Says Ransom Hackers Behind $5M-Fee ETH Transactions

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Two transactions spotted on the Chinese mining pool Spark Pool have stunned everyone in the Ethereum community over the last two days. While nearly 20,000 ETH worth $5.2 million was paid as the transactions fees, the value transferred was only 350 ETH worth less than $90,000 — and one of them was only 0.55 ETH or $133.

At glance, the crypto community suggested that the sender mistakenly mixed up the fields on the value of the transfer and the fee. Today, however, Ethereum’s Co-Founder Vitalik Buterin and China-based blockchain analytics company PeckShield floated the idea that a yet-to-be-disclosed exchange is being held to ransom by hackers who gained unauthorized access to its wallets.

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Criminals are thought to have captured partial permissions, such as server management or something similar. But since the exchange’s private key has a multi-signature verification, which help protect against theft by requiring multiple private keys to sign each outgoing transaction, they were unbale to send crypto holdings to their own wallets.

So, the unusual transactions that grabbed the community’s attention were carried out by the ransomware gang to blackmail the exchange and force them to send their chunk, otherwise they would continue to burn their assets though paying excessively high transaction fees.

Ethereum’s Co-Founder further explained that “Similar situations could happen in “scorched earth” games, including scorched-earth vaults aka “Moeser-Eyal-Sirer” vaults, as well as scenarios where hackers can slash but not steal staked funds”.

While the story is yet to be confirmed, the human error theory doesn’t make sense any more as if it was true with the first transaction, the second one might invalidate this assumption. In addition, it can easily be noted that wallet address sending the few ethers and paying generous gas price belongs to a crypto whale. The shipper’s wallet had over 21,000 ETH left in the address, worth more than $5 million, even after the $5.2 million transaction fee was paid out.

Further, the sender’s wallet has been very active all the time, showing several transactions almost every minute, which matches operations carried out by a trading venue.

Blackmail campaigns are not uncommon in the crypto space. A few months ago, Binance revealed that a pro-claimed hacker previously demanded 300 BTC from it for “withholding 10,000 photos that bear similarity to Binance KYC data.” After he refused to give the team any irrefutable evidence regarding the source of breach, Binance ended conversation, but the hacker then started distributing the KYC data online and to media outlets.

Source: https://www.financemagnates.com/cryptocurrency/news/vitalik-buterin-says-ransom-hackers-behind-5m-fee-eth-transactions/

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Estonia Tightens Checks on Crypto Firms, Cancels 500 Licenses

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The Estonian regulators have revoked licenses of 500 cryptocurrency firms, roughly 30 percent of total approved providers, as it continues to tighten its grips on risky activities.

The move comes as a series of scandals in Europe have undermined trust in authorities’ ability to tackle money laundering.

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Estonia, a Baltic state in north-eastern Europe, came under the spotlight after Danske Bank, Denmark’s biggest lender, was accused of watching $230 billion through a tiny Estonian branch.

Estonia was among the first jurisdictions in Europe to legalize crypto-related activities back in 2017. In less than three years since the country introduced licensing for companies operating in the cryptocurrency industry, the number of licenses issued has surpassed 1400.

The Estonian Financial Intelligence Unit (FIU), the regulator issuing the licenses, said the regulatory crackdown is not meant to curb cryptocurrency industry but rather regulate the field more thoroughly to prevent risks related to money laundering.

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So far, the FIU dropped the hammer largely on crypto firms that failed to start operations in Estonia within six months of getting a permit, Bloomberg reported, quoting Madis Reimand, who heads the Baltic country’s intelligence unit.

“This is a first step in tidying up the market, allowing us to take care of the most urgent issues by permitting operations only for companies that can be subjected to Estonian supervision and coercive measures,” Reimand added.

The regulator said that authorities in the Baltic country have learned lesson from the banking sector the hard way, and that they must now deal with new international risks, and cryptocurrencies are amongst the most urgent of these.

Furthermore, the Estonian government has passed a bill that tightens the regulation on granting licenses to crypto providers. Among other things, the application processing time was extended from 30 to 90 days, and the license fee has been increased from EUR 345 to EUR 3,300.

Crypto entities registered in Estonia will also need to incorporate in the country or open an Estonian branch of a foreign company.

Source: https://www.financemagnates.com/cryptocurrency/regulation/estonia-tightens-checks-on-crypto-firms-cancels-500-licenses/

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