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The law can be slow to adapt to emerging technologies such as cryptocurrency. However, with a thorough knowledge of existing legal avenues, adaptation is not always necessary. Macpherson Kelley recently acted in a case that demonstrates how trustees in bankruptcy can use existing tools at their disposal to investigate, and ultimately recover, cryptocurrency held by bankrupts.

Identifying and locating cryptocurrency

If a trustee becomes aware that a bankrupt has owned or traded in cryptocurrency assets, the trustee will normally:

Cryptocurrency exchanges operating in Australia are required to comply with Australias anti-money laundering and counter-terrorism financing legislation, which includes requirements to implement know your customer (KYC) identification procedures. Those procedures require trading platforms to ensure customers provide 100 points of identification to be registered as a user. Those KYC procedures enable trustees to identify the owner or controller of a cryptocurrency account.

A trustees inquiries can range from:

Tracing cryptocurrency to a specific wallet address can be a relatively straightforward process. However, while securing (and realising) the cryptocurrency can be another challenge altogether, though it is often not insurmountable.

Securing cryptocurrency

The steps necessary to secure any cryptocurrency will depend on a range of factors, most particularly the manner in which the cryptocurrency is held and whether the bankrupt is assisting the trustee in their inquiries.

If the cryptocurrency is held on a cryptocurrency trading exchange, the trustee may direct the bankrupt to hand over details of any account passwords or private keys. A trustee should also write to all trading platforms within Australia to enquire whether any accounts are held in the bankrupts name, instruct them to freeze all such accounts and deliver up details of any access codes and passwords under the powers granted to trustees under the Bankruptcy Act 1966.

Trustees face greater difficulties where cryptocurrency is held in a software (or soft) wallet (such as Metamask), or offline in a hardware (or hard) wallet (such as a Ledger or Trezor). A hard wallet is a device the size of a small USB stick that stores the users private access keys.

Where cryptocurrency is stored on a hard wallet, securing the cryptocurrency requires the trustee to physically obtain the hard wallet device itself as well as the access password or pin. Alternatively, locating the seed recovery phrase to the hard wallet (a 12 or 24 random word passphrase) can be used to recover the cryptocurrency in the event the wallet device is misplaced or destroyed.

Hard wallets can, therefore, be easily concealable, and the assets held on them can very quickly be moved to another location or account. If a trustee suspects a bankrupt is seeking to hide cryptocurrency, swift and decisive action may be required to prevent the dissipation of those assets, including via the courts where necessary.

Search Warrant

Under section 130 of the Bankruptcy Act 1966, a trustee may, in some circumstances, apply to a Court for a warrant to search a premises in which they suspect there is property of the bankrupt or property connected with a bankrupts examinable affairs and, if any relevant property (such as a hard wallet) is located, seize that property or secure it against interference.

In order to succeed in an application of that nature, the trustee must satisfy the Court that there are reasonable grounds to issue a warrant.

Broadly, the trustee must adduce evidence to satisfy the Court that the issuing and execution of the warrant will:

What does this look like in practice?

Macpherson Kelley recently acted for a trustee who successfully applied to obtain a warrant to search a premises and seize property connected with cryptocurrency that the trustee believed was being concealed by the bankrupt.

In order to obtain that warrant, the trustee provided the Court with evidence, gathered from their inquiries, that showed the bankrupt was likely concealing cryptocurrency. That evidence included wallet addresses and the results of a tracing exercise that revealed the bankrupts assets has been transferred through various cryptocurrency wallets and was held in various cryptocurrencies including Ethereum and Ripple.

The trustee also provided evidence regarding how cryptocurrency is held and transferred, and demonstrated how hard wallet devices can be concealed to substantiate how issuing the warrant would assist the trustees investigations.

The Court ultimately accepted the trustees evidence and issued the warrant. The warrant then had to be executed with the assistance of the police and Principal Lawyer Daniel Wignall, who had experience in identifying any cryptocurrency wallets at the premises or other property that may be related to the bankrupts cryptocurrency trading activity.

On execution of that warrant, the trustee located and seized several hard wallet devices and other IT equipment. The trustee also seized other evidence that led to discovery of significant but previously undisclosed cryptocurrency accounts.

Execution of the warrant, and the evidence obtained as a result, advanced the trustees efforts to recover assets for the benefit of creditors and enabled further investigation into the bankrupts cryptocurrency trading activity.

Key take aways

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Trading Halt: Capturing Cryptocurrency via the Courts - Lexology

What is the Howey test?

The Howey test is a legal test used in the United States to determine whether a transaction qualifies as an investment contract and, thus, is considered a security under federal law. The test was established by the U.S. Supreme Court in SEC v. W.J. Howey Co. (1946), and it has since been applied in numerous cases to determine whether various financial arrangements and offerings constitute securities.

According to the Howey test, a transaction must contain an investment of funds in a group venture with the expectation that all gains will come from group efforts. A transaction is deemed a security if it satisfies these requirements, in which case it is subject to federal securities laws and regulations.

The test involves three key criteria that must be met in order for a transaction to qualify as a security, as discussed below:

The first criterion is a financial investment, which means that participants in the transaction must be risking their own money. This comprises both financial and in-kind investments.

The second requirement is a shared enterprise, which denotes that the financial success of the investors is somehow connected. This can be proven by providing evidence of the investors resource pooling or reliance on a third party to manage their investments.

The third criterion is an expectation of profits solely from the efforts of others, which means that the investors are relying on someone else to generate a return on their investment. This could include, for example, profits generated by a third-party manager or profits generated by the efforts of a particular group or organization.

The implications of the Howey test for cryptocurrency are significant, as the test provides a framework for determining whether a particular cryptocurrency offering should be classified as a security under U.S. law. If a cryptocurrency offering meets the criteria outlined in the Howey test, it may be considered a security and subject to federal securities laws.

This has important ramifications for crypto businesses and investors since breaking federal securities laws can result in penalties, legal action and reputational harm to the business. To make sure they are in compliance with federal securities laws, cryptocurrency companies should carefully consider the Howey test before creating their offerings.

Related: Crypto and securities: New interpretation of US Howey test gaining ground

Tokens that do not pass the Howey test are considered utility tokens that provide investors with access to a future product or service or can be redeemed for discounted fees.While utility tokens are typically not considered securities, the SEC has suggested that the presence of a utility token framework does not necessarily mean that a project is exempt from being classified as a security.

Ultimately, the implications of the Howey test for cryptocurrency will depend on how regulators choose to apply the test in practice and how cryptocurrency companies choose to structure their offerings to comply with federal securities law.

Cryptocurrency companies need to be aware of the federal securities laws in the United States to ensure compliance with them. Here are some key things to keep in mind:

Therefore, cryptocurrency companies need to be aware of and comply with federal securities laws in the United States. This includes understanding whether their tokens are considered securities, disclosing the use of funds, and complying with registration and disclosure requirements.

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What are the Howey test and its implications for cryptocurrency? - Cointelegraph

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With the rise of cryptocurrency, and its potential to revolutionize cross-border finances, individuals and businesses have started taking full advantage of digital currency. Unfortunately, this means that hacking has become an ongoing risk for crypto users. With media headlines continuously describing cases of stolen funds due to poor security practices it has become increasingly important to know how to protect crypto from hacks. In this blog post Ill be discussing what experts expect will look like by 2023 guiding you on what tools and strategies you need currently implement into your workflow for maximum protection against hackers.

A February 2023 report from Chainalysis, a blockchain forensics firm specializing in tracking down fraudulent activity, indicated that 2022 was an unprecedented year for crypto hacking with $3.8 billion stolen from cryptocurrency businesses and organizations. Crypto security involves how to keep crypto safe while managing risks, understanding how cryptography works with data encryption and virtual ownership and how to keep crypto safe that can result in financial loss. Understanding how to securely store digital tokens, as well as how to handle exchanges and activities involving cryptocurrencies, are important steps in utilizing crypto security most effectively. By having a smart strategy for crypto security, individuals can protect their investments in digital currency from potentially malicious actors.

Taking a multi-layered approach to asset management is critical for cryptocurrency protection. Without a comprehensive view of the risks associated with cryptocurrency, massive losses can occur due to unanticipated or uncontrollable events. Implementing protective layers such as vaulting, threat intelligence and timely notification systems are all crucial components of any cryptocurrency security measures. Various tools such as wallets, hardware, and firewalls should be employed to secure cryptocurrency assets. Building a culture of safe cryptocurrency storage practices within an organization is also key in protecting cryptocurrency investments. Taking these steps can significantly reduce the risk of theft or unauthorized access to your cryptocurrency funds while speeding up processes and simplifying ongoing management tasks.

Storing large amounts of crypto in an offline cold storage wallet is an excellent security measure to protect against pump-and-dump schemes and other malicious tactics prevalent in the crypto space. Cold storage wallets are not connected to the internet, making them significantly less vulnerable than online storage solutions that can be broken into more easily by digital criminals. Furthermore, you can check this article to protect yourself from the pump and dump crypto schemes. As pump and dump schemes have become more common, so have cold storage wallets, with their added safety measures becoming the go-to choice for those looking to store substantial sums of cryptocurrency securely.

Using a Virtual Private Network or VPN can help to secure crypto transactions while still allowing users access to the websites they need. A reliable VPN will encrypt data sent from your device, so if it is intercepted by cyber attackers, it cannot be read. Furthermore, a VPN can unblock websites that have geo-restrictions, ensuring access to important information. Additionally, using a VPN will keep your browsing history and IP address hidden, protecting you from tracking by hackers. VeePN is a great example of those VPNs that allow you to access exchanges from any location. Of course, if you want, you can check this useful content, to find numerous reviews. Also, consider using a VPN extension while browsing crypto websites. Why? Well, a VPN extension can lead you to a secure website, which helps protect your data from potential malware or phishing attempts. But, be careful to use free ones, because free VPN servers can have many security issues, and they are not as reliable. Moreover, free VPN servers can sell your data.

It's important to protect your private keys and not share them with anyone, not even those you trust the most. Sharing your private keys makes it easy for someone to access your digital accounts or valuable assets without permission, which could put you at considerable risk of identity theft, financial fraud, or other malicious activity. Before you consider sharing or entrusting private keys with someone else, make sure that you understand all of the potential risks. Your security is too important to put in anyone elses hands.

While many people are aware of the importance of utilizing strong passwords, two-factor authorization is an additional measure that can greatly improve security. Two-factor authorization requires both something you know (such as a password) and something you have (such as a physical token or your smartphone). This makes it much more difficult for an unauthorized person to gain access to your account, even if they have your password. Many major websites and online services now offer two-factor authorization, and it is highly recommended that you take advantage of this security measure where possible.

To ensure that your assets are safe, it is essential to regularly monitor your cryptocurrency wallets for any unexpected or unauthorized transactions and withdrawals. This can be achieved through vigilant tracking of your wallets using robust security protocols, such as two-factor authentication, which provides an extra layer of security against hackers and other forms of cybercrime. By deploying multiple wallets and software programs, you can take the necessary steps to actively manage your cryptocurrency portfolio giving yourself a peace of mind knowing that each transaction is strictly monitored. With these simple yet effective measures, owning crypto assets just became much more secure and organized!

In conclusion, using a multi-layered approach to crypto security is essential to protecting digital assets. Utilizing the seven workflow steps outlined in this blog post will increase your level of protection when utilizing cryptocurrencies and blockchain technologies. Cold wallets are best when securing large amounts of crypto; make sure not to share your private keys with anyone, and deploy two-factor authorization wherever possible. Additionally, dont forget to employ a virtual private network (VPN) to unblock websites and encrypt data when using public networks. To stay up-to-date with the trends of cryptocurrency security, be sure to check out this article from Forbes. Thanks for reading and keep your crypto safe!

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$3.8 Billion in Cryptocurrency Lost to Hacks Last Year - How to ... - Cryptonews

The White House Council of Economic Advisers has criticized crypto assets. In the Economic Report of the President, published on March 20, there are over 30 pages detailing the councils thoughts on crypto assets. The report noted flaws and problems related to crypto assets.

The Economic Report noted, among other things, that none of the benefits promised by cryptocurrencies have materialized. These benefits include cryptocurrencys promise to improve payment systems, increase financial inclusion, and more.

Furthermore, the Economic Report criticizes crypto assets as a form of investment. According to the report, crypto assets do not currently have a fundamental value, serve as a substitute for fiat currency, increase financial inclusion, or improve the efficiency of payments. Instead, their innovation has been mostly about creating artificial scarcity in order to support crypto assets prices, according to the report.

Then, the Economic Report points out how DeFi creates serious risks to investors. Namely, the report points to the use of significant leverage and the performance of regulated functions without compliance with appropriate regulations. According to the report, DeFi platforms that operate as unregulated banks, broker-dealers, exchanges, etc. should adhere to all applicable laws and regulations.

The White House Council of Economic Advisers accuses some supporters of crypto assets of being ignorant of fundamental economic principles in a particularly harsh statement. Although advocates often claim that digital assets, particularly crypto assets, are a revolutionary innovation, the design of these assets frequently reflects an ignorance of basic economic principles that have been learned in economics and finance over centuries.

Ultimately, the Economic Report emphasized the need for effective regulation within the crypto asset space. Although the report acknowledges some of the potential of crypto assets and the technology that underpins them, it also claims that there are currently more issues than advantages.

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Notably, the report discussed how a U.S. CBDC might modernize the countrys financial system without the dangers or irrational exuberance that come with crypto assets.

The post White House Economic Report: Cryptocurrency Falls Short of Promises appeared first on Coin Edition.

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As Circles $USDC has lost ground, Tether-issued $USDT is now the dominant stablecoin on both Ethereum and Polygon.

Regulatory FUD from U.S. authorities has helped to catalyze a regime change in the world of cryptocurrency stablecoins, as $USDC has lost its dominant position to $USDT on both the Ethereum and Polygon blockchains.

The March 11 collapse of Silicon Valley Bank certainly shook crypto holders faith in the stability of $USDC (at least in the very short term), as it was disclosed that $USDC issuer Circle had more than $3 billion in reserves stored at the failed financial institution. $USDC suffered a major but brief de-peg, and it regained its $1 value a few days later, when Circle executives were able to reassure investors that the SVB collapse did not impact its ability to maintain the 1:1 backing for the stablecoin.

The apparent irony is that U.S. regulators statements and actions against stablecoins (notably $BUSD) have incentivized crypto holders to abandon stablecoins from U.S.-regulated issues (such as Paxos and Circle) in favor of issuers like Tether who are not subject to U.S. regulations.

According to DefiLlama, $USDC lost its dominant position on Ethereum to $USDT on March 18, a week after the SVB debacle. $USDc had accounted for the plurality of stablecoins on Ethereum since the beginning of 2022. However, $USDT rose to the top spot as it benefitted from investors switching out of $USD and, since December 2022, $BUSD.

The narrative on Polygon is different but has the same result: $USDT has surpassed $USDC as the dominant stablecoin on the Ethereum sidechain.

The wrinkles in the story, however, are that $BUSDs market share on Polygon was never significant; $USDC had always been the dominant stablecoin on Polygon; and $USDTs ascent came at the expense of $USDC and $DAI.

Perhaps most importantly, $USDT surpassed $USDC on Polygon on March 2, according to DefiLlama, more than a week before SVBs failure accelerated the abandonment of $USDC.

Overall, $USDT has strengthened its grip on the entire USD stablecoin marketplace, increasing its share of stablecoin holdings on all blockchains from less than 50% to nearly 60% since the beginning of the year.

The Tether-issued stablecoin accounts for almost all stablecoin holdings on Tron and is rapidly gaining even more ground on BNB Chain as $BUSD is being phased out.

One area where $USDC has maintained its edge over $USDT is on the fast-growing Arbitrum blockchain, where $USDC has 63% of the stablecoin market.

Ethereum is an open-source, distributed computing platform based on blockchain technology that can execute smart contracts - that is, the terms written in the contract will be executed transparently, automatically when the previous conditions are satisfied, and no one can interfere. At the same time, Ethereum also allows developers to build decentralized applications (DApps) and decentralized autonomous organizations (DAO).

Website | Twitter | Documentation | Whitepaper | Reddit | Discord | Youtube | GitHub | Ethereum Foundation Blog |

Polygon is a sidechain scaling solution that runs alongside the Ethereum blockchain allowing for speedy transactions and low fees. MATIC is the networks native cryptocurrency, which is used for fees, staking, and more. The effectiveness of Polygon as an alternative to Ethereum has seen existing projects such as Aave and Curve adopting its chain.

Website | Twitter | GitHub | Reddit | YouTube

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