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Kazakh authorities have floated tighter regulatory conditions for bitcoin miners in recent days — a state of affairs that could spur some operations to leave the country for friendlier shores.

As local news outlet Kazinform reported on February 4, Kazakh authorities are looking into increasing the tax on electricity for cryptocurrency miners from one tenge to five tenge (USD$0.0023 to $0.012). 

Marat Sultangaziev, Kazakhstan’s first vice-minister of finance, further suggested requiring crypto miners to pay a monthly tax on equipment, whether or not they earn block rewards or even turn the ASICs on. The vice-minister compared the idea to a similar tax that casino operators pay on their machines.

The day before, Bagdat Musin, Kazakhstan’s minister of digital development, posted on his personal Facebook to attack unregistered “gray” miners for consuming 1 gigawatt of the country’s electricity. 

“Gray miners are severely damaging our energy system. Now the energy costs of illegal mining are estimated to exceed 1 gigawatt,” wrote Musin, inviting those aware of unregistered mining operations to send reports to his office. 

Current rules in Kazakhstan distinguish so-called “gray miners” from so-called “white miners.” White miners are those who have signed on to a new registry at the ministry of digital development. The ministry was working at speed to register miners throughout the end of 2021.

In keeping with that push for registration, Musin further advised unregistered gray cryptocurrency miners to come under the department’s new regime.

The news comes after the government cut off cryptocurrency miners from electricity for most of January, as the country faced widespread energy shortages and massive protests over rising fuel prices. As those protests raged, the government cut off electricity throughout the country, triggering hashrate declines for major pools with exposure.

While internet access has returned, energy remains scarce. Though earlier reports said that Kazakh energy authorities were only planning on blocking electricity to miners until the end of January, multiple miners in the country told The Block that they were still waiting:

Makhat Serikuly, a consultant on mining for BlockchainKZ, told The Block, “We are back online, but electricity is still limited. We had a surplus, but now a deficit, so they are cutting off power to miners.”

Kanat Amren, a Kazakh miner, agreed that the situation was dire. “They can’t work without electricity, and for now, white miners have had their electricity shut off,” said Amren.

As China cracked down on cryptocurrency mining early in 2021, neighboring Kazakhstan, with its cheap electricity, welcomed a flood of miners. It quickly became the second-largest source of Bitcoin’s hashrate, after the US and ahead of Russia.

However, with the situation in Kazakhstan growing less certain, miners are increasingly looking to relocate to the US or Russia, as local miners indicated to The Block.

Didar Bekbau, founder of mining firm Xive.io, has recently tweeted favorably of Russian President Vladimir Putin’s seeming support for continued crypto mining in the country. 

© 2022 The Block Crypto, Inc. All Rights Reserved. This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.

The US-based sportswear giant Nike is suing StockX, an online resale marketplace selling shoes, streetwear and other goods, for trademark infringement, trademark dilution and other charges.

Nike claims StockX allegedly sold Nike-branded non-fungible tokens (NFTs) that did not originate from Nike during a mid-January drop, using Nike’s brand to sell digital assets at higher prices than the physical item that the NFT represents. 

As per the lawsuit, Nike’s complaints against StockX are as follows:

“Without Nike’s authorization or approval, StockX is ‘minting’ NFTs that prominently use Nike’s trademarks, marketing those NFTs using Nike’s goodwill, and selling those NFTs at heavily inflated prices to unsuspecting consumers who believe or are likely to believe that those ‘investible digital assets’ (as StockX calls them) are, in fact, authorized by Nike when they are not.”

Nike requested in the lawsuit that StockX cease and destroy all NFTs associated with Nike’s trademarks and pay for damages Nike suffered. 

StockX is another online marketplace facing legal ramifications for selling NFTs in an unauthorized manner. On February 2, a music NFT marketplace called HitPiece came under fire for selling digital assets of music without the original creators’ consent and originally pulled down its platform.

© 2022 The Block Crypto, Inc. All Rights Reserved. This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.

A crypto project, known as VanityBlocks, has started turning whole Ethereum transaction blocks into non-fungible tokens (NFTs) — preventing anyone else from having space in that block.

The first Genesis NFT was created on January 16. It was in block 14017777 and the transaction to create the NFT took up the entire block, costing about 5.31 ETH ($16,600 USD). A more recent mint on January 31 for block 14114114 cost over 3.42 ETH ($10,700 USD) in transaction fees. As of publication, VanityBlocks has minted only these two blocks. 

The second NFT minted has already been sold to an interested buyer. It was sold for 7 ETH ($21,000) on the same day it was minted.

One Ethereum block can hold between a few to several hundred transactions depending on the size of each transaction. Transactions on Ethereum are designed to cost more if they contain more code, which is used to deter spam. In this case, the code was designed to keep performing operations until it hits a certain amount of gas used (the term used for measuring the weight of a transaction and how much its transaction fee should therefore be).

As a result, the transaction for each NFT maxed out the 30 million gas limit, meaning that no other transactions could fit in each block.

The only transaction in each block is the one minting the NFT. The NFTs show the same image of a pair of eyes on a black background. In the NFT’s metadata, it contains the block number that it was mined in. The concept is that each NFT represents the block that it was mined in, somehow making it represent a part of the Ethereum blockchain.

The transactions minting the NFTs were also submitted through flashbots, a messaging app that lets Ethereum users connect with miners and have transactions included directly in a block (as opposed to broadcast publicly to the network). They may have agreed with the miner to only process this one transaction in the block.

VanityBlocks taking up entire blocks on the Ethereum blockchain in one go uses of some of the scant space available for other crypto users. As a result, it may have resulted in increased short-term transaction costs for anyone else trying to make transactions at the same time. And due to the way Ethereum transaction fees now work following EIP-1559, it would have also temporarily raised the amount of fees that must be burned in the following block.

This follows a trend of NFT projects purposely wasting resources or rare items in order to create NFTs of value. Other wasteful projects include one that burned a Banksy painting after minting it as an NFT (although this may be justified as it’s the kind of thing Banksy may have done — he did shred a painting after all). Another proposed the idea of destroying a rare original copy of the hit science fiction novel Dune.

H/T to Flashbots product lead Bert Miller and The Block Research analyst Simon Cousaert for helping with checking the transaction code for this story.

© 2022 The Block Crypto, Inc. All Rights Reserved. This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.

Quick Take

• For a fourth consecutive quarter, the blockchain/crypto sector saw historic levels of capital allocation by private investors
• NFTs/Gaming accounted for 43% of all deals during Q4, and its number of funding rounds more than doubled from Q3 to Q4 (96 to 233)
• Despite a decline in the market prices of digital assets, funding for the sector has continued to increase into January
• The sector is currently on pace to receive slightly more than $14.3 billion during Q1′ 22, which would be another record high

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Valkyrie’s bitcoin mining exchange-traded fund is slated to list on Nasdaq at tomorrow’s opening bell, according to a spokesperson for the issuer. 

Valkyrie filed a post-effective amendment for the Valkyrie Bitcoin Miners ETF on January 26, and then sought immediate acceleration of its effective date. Nasdaq joined the request today since the exchange approved the fund to list. It will begin trading tomorrow at the open under the ticker “WGMI.”

The fund will invest in public companies in the bitcoin mining industry.It doesn’t hold bitcoin directly, but rather invests in firms like Argo, Bitfarms, Hive and Marathon among others. It may invest up to 20% of its net assets in firms that hold the cryptocurrency on their balance sheet.

Additionally, its fact sheet commits that 80% of its holdings will be firms that utilize at least 50% renewable energy for their mining activities. 

WGMI is the third fund in a series of digital asset-focused ETFs the issuer plans to offer. It successfully brought a bitcoin futures ETF to market in October of last year, as well as the Valkyrie Balance Sheet Opportunities ETF, which invests in publicly traded firms with bitcoin exposure.

A spot bitcoin ETF has yet to reach the market due to a myriad of stalls and rejections from the Securities and Exchange Commission, including for Valkyrie’s own offering. 

© 2022 The Block Crypto, Inc. All Rights Reserved. This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.

Quick Take

• January saw the highest investment in the crypto sector to date.
• Several new funds were also launched, including from FTX and Pantera Capital.

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Professional services firm KPMG in Canada is allocating bitcoin and ether (ETH) to its corporate treasury, according to a Monday announcement. 

“Cryptoassets are a maturing asset class,” Benjie Thomas, the firm’s Canadian managing partner for advisory services said in a statement. “This investment reflects our belief that institutional adoption of cryptoassets and blockchain technology will continue to grow and become a regular part of the asset mix,” he said.

KPMG acquired Bitcoin and Ethereum on its balance sheet through Gemini, with the two companies exchanging a brief interaction on Twitter this morning.

The firm is also adding carbon offsets to maintain a net-zero carbon transaction to deliver on their ESG commitments, according to the statement.

The firm established a governance committee with stakeholders from Finance, Risk Management, Advisory, and Audit and Tax to provide oversight and approve the treasury allocation. Specialists also assessed the tax and accounting implications of the transaction. 

That KPMG in Canada would move in this direction is perhaps unsurprising, given its suite of crypto-related advisory services. 

“The cryptoasset industry continues to grow and mature and it needs to be considered by financial services and institutional investors,” said Kareem Sadek, KPMG in Canada’s cryptoassets and blockchain services co-leader. “We’ve invested in a strong cryptoassets practice and we will continue to enhance and build on our capabilities across Decentralized Finance (DeFi), Non-Fungible Tokens (NFTs) and the Metaverse, to name a few. We expect to see a lot of growth in these areas in the years to come.”

© 2022 The Block Crypto, Inc. All Rights Reserved. This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.

Embedded finance company DriveWealth on Monday said it would roll out a crypto trading offering to its partners and their retail investors.

DriveWealth offers infrastructure that allows other fintechs such as Revolut, MoneyLion and Block’s Cash App to support fractional stock trading. It says it has more than 100 partners globally. 

The move comes through the launch of two subsidiaries, DriveLiquidity and DriveDigital which will handle and execute trades, and follows the completed acquisition of Crypto-Systems.

“Creating DriveWealth’s crypto vertical strengthens our ability to empower retail investors to enter these markets, while also equipping our partners with the end-to-end technology they need to power the investing experience as we move into the virtual asset space,” Bob C0rtright, founder and CEO of DriveWealth said in a press statement. 

In comments to CNBC, Cortright added that the move would take on Coinbase’s “unsustainable” fees.

“As regulatory environments tighten around crypto and customers get more focused on spreads and efficiency, we can’t continue in a world where you can charge 200 basis points on a transaction,” he said. 

The moves follow DriveWealth’s $450m Series D funding round, which saw its valuation top $2.85 billion. The round was led by Insight Partners and Accel, with participation from Softbank Vision Fund alongside Greyhound Capital and Point72 Ventures.

© 2022 The Block Crypto, Inc. All Rights Reserved. This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.

Ethereum scaling project Polygon has raised $450 million in a private token sale.

Sequoia Capital India led Polygon’s fundraise, with more than 40 other investors participating, including SoftBank Vision Fund 2, Tiger Global, Alan Howard, Kevin O’Leary, Galaxy Digital, Sino Global Capital, Alameda Research, Digital Currency Group, Accel, Union Square Ventures, and Dragonfly Capital.

The investors were given Polygon’s MATIC tokens at a discount but the project’s co-founder Sandeep Nailwal declined to share specific details. The current price of MATIC is around $2, up 16% in the last 24 hours, according to CoinGecko.

With fresh capital in hand, Polygon plans to allocate $100 million to its ecosystem fund and about $10 million each to its various scaling products, including Hermez, Miden, Zero, and Nightfall, per year, said Nailwal. “That’d provide us three to five years of runway,” he added.

Polygon recently committed to investing $1 billion in ZK-rollup-related scaling efforts and since then has announced two acquisitions worth $650 million: Mir and Hermez. Nailwal said the fresh capital will allow Polygon to consolidate its Ethereum scaling efforts and onboard the next billion users to Ethereum.

Since its founding in 2017, Polygon has massively grown its ecosystem. Over 7,000 decentralized applications are currently building on Polygon, the project said. Some of its major partners include Aave, OpenSea, Mark Cuban’s Lazy.com, and Dolce & Gabbana for its NFT efforts.

“The platform of choice to build on the blockchain today is Polygon,” said Shailesh Lakhani, MD at Sequoia Capital India. “Thousands of developers across a range of applications are choosing Polygon and their complete set of scaling solutions for the Ethereum ecosystem.” 

While Polygon is getting popular, it ran a massive risk of losing almost all of its tokens in December due to a critical bug. Polygon moved to fix the vulnerability, but still, a malicious actor exploited the bug and stole MATIC tokens worth over $2 million at the time. In the process, Polygon also paid a total of about $3.46 million in bug bounties to two whitehat hackers who discovered the bug.

Polygon recently also removed C-level roles such as CEO and COO, saying that the project is decentralised and cannot have such positions.

© 2022 The Block Crypto, Inc. All Rights Reserved. This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.

Mitsubishi UFJ Trust and Banking, the trust banking arm of Japan’s largest financial institution, has announced plans to launch a yen-pegged stablecoin in 2023.

According to a report by Nikkei on Monday, the stablecoin dubbed “Progmacoin” will be used for clearing and settlements of digital securities.

Progmacoin will reportedly be deployed in the settlement of digital securities on the planned SBI and SMBC digital securities exchange scheduled to go live this year. The Osaka-based platform will utilize blockchain technology for trading non-traditional securities like real estate and art.

By using a stablecoin settlement layer, the bank hopes to accelerate fund delivery for such trades while also expanding Japan’s tokenized securities market. Mitsubishi UFJ Trust said the utilization of a stablecoin settlement layer for digital securities will also help to reduce the cost of fund delivery.

The bank’s stablecoin is coming amid the enactment of Japan’s revised Settlements and Payment System Act that seeks to simplify fund settlements across banks and financial institutions in general.

While Mitsubishi UFJ Trust has plans to launch Progmacoin in 2023, there are reports that financial regulators in Japan are looking to impose strict limits on domestic stablecoin issuance.

© 2022 The Block Crypto, Inc. All Rights Reserved. This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.