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Representative Tom Emmer (MN) reintroduced his Safe Harbor for Forked Assets Act today.

The proposed legislation would prohibit the Internal Revenue Service (IRS) from leveraging penalties related to forked assets until it issues further guidance for taxpayers.

Under the bill, the personal receipt of a cryptocurrency resulting from a fork, or an event during which a cryptocurrency network splits into two distinct chains, would fall under the safe harbor, meaning it wouldn’t constitute a taxable event until the IRS provides additional clarity.

The IRS released guidance related to hard forks in October 2019. At the time, it sought to clarify that taxpayers who receive new crypto as a result of a hard fork are responsible for any accession of wealth related to the event. Those who don’t receive new crypto don’t have the same responsibility. 

Critics of that guidance said the effort failed to sufficiently clarify the tax treatment for hard forks and airdrops because it is not entirely clear what it means to “receive” cryptocurrency. Emmer and other members of the House of Representatives agreed, sending a letter to the IRS, urging it to distribute additional information. 

Months earlier in 2018, Emmer first filed a bill seeking to create a safe harbor for those holding forked assets. After the IRS’s 2019 guidance on hard forks, he reintroduced it, saying the guidance placed an additional burden on taxpayers by denoting any crypto received from a hard fork as a taxable event. 

The IRS has yet to issue additional guidance on the subject, and with the release of the new bill, Emmer charged the agency with keeping up with the pace of innovation as he reintroduced the bill for a second time.

“Taxpayers suffering from a lack of tax guidance are being unfairly punished for investing in an emerging technology,” he said. “What has been issued by the IRS so far is not pragmatic and has not supported the technology nor those who engage with it.”

© 2021 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.

Crypto exchange FTX has partnered with Norway-listed chess company Play Magnus Group, founded by current world chess champion Magnus Carlsen, for a long-term deal.

As part of the deal, FTX will become the official crypto exchange partner of the Meltwater Champions Chess Tour and the presenting partner of the next Major of the Tour, the FTX Crypto Cup, which runs from May 23 to May 31. 

FTX will also sponsor a bonus prize of $100,000 in bitcoin for the cup, in addition to the $220,000 fund that the tour already has in place. The winner of the FTX Crypto Cup will be guaranteed a spot in the Final of the Tour in San Francisco in September. The FTX Crypto Cup is the final Major in this season’s year-long Meltwater Champions Chess Tour.

FTX will also be a presenting partner of Play Magnus Group’s coverage of the upcoming World Chess Championship in November 2021. 

In a similar partnership last month, FTX became the official and exclusive crypto exchange partner of the basketball team Miami Heat. As part of that deal, Miami Heat’s home stadium became FTX Arena.

When asked what the main objective of such partnerships is, FTX CEO Sam Bankman-Fried told The Block that the crypto exchange operator looks to attract non-crypto natives to its platform. “We’re excited to partner with the best in lots of areas and to expand to a natural user base of ours,” said Bankman-Fried.

© 2021 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.

© 2021 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

• The Block reported in February that institutions, mostly in North America, had pre-ordered half a billion dollars worth of bitcoin mining machines from Chinese manufacturers.
• Since then, they’ve continued placing orders.

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The Federal Deposit Insurance Corporation (FDIC) put out a request for public feedback on depository institutions holding digital assets on May 17. 

The FDIC insures bank deposits in the United States — insurance that is a requisite for depository institutions to operate in the country. Today’s announcement is a call for “current and potential digital asset use cases” at insured institutions. 

Otherwise, the FDIC’s interest is broad in its scope. The announcement calls for information on digital assets in payments, settlement, reserve holdings, custody and investing at member banks. 

The questions involved are notably open-ended, including: “Are there any unique aspects of digital asset activities that the FDIC should take into account from a supervisory perspective?”

As the line between crypto firms and traditional banking continues to blur, regulatory bodies like the FDIC are showing increasing interest in how to onboard crypto. As of this past autumn, the FDIC was looking for “FinTech Counsel” to join its legal team. 

The Federal Reserve recently issued similarly early-stage guidance for “novel institutions” looking to access their services, which the Fed has traditionally reserved for more rarified financial institutions. 

© 2021 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.

U.S. crypto exchange company Coinbase said Monday that it plans to conduct a $1.25 billion private debt offering.

“Coinbase Global, Inc. (“Coinbase”) (Nasdaq: COIN) today announced its intention to offer, subject to market conditions and other factors, $1.25 billion aggregate principal amount of Convertible Senior Notes due 2026 (the “notes”) in a private offering (the “offering”) to persons reasonably believed to be qualified institutional buyers pursuant to Rule 144A promulgated under the Securities Act of 1933, as amended (the “Securities Act”),” the firm said in a statement, adding:

“Coinbase also expects to grant the initial purchasers of the notes a 30-day option to purchase up to an additional $187.5 million principal amount of notes solely to cover over-allotments. The notes will be senior, unsecured obligations of Coinbase, will accrue interest payable semi-annually in arrears and will mature on June 1, 2026, unless earlier repurchased, redeemed or converted. The notes will be convertible into cash, shares of Coinbase’s Class A common stock, or a combination thereof, at Coinbase’s election.”

The move comes just over a month after Coinbase’s stock began trading on Nasdaq via a direct listing. Last week, Coinbase said it brought in $1.8 billion in total revenue for the first quarter of 2021.

$COIN closed at $248.24 at the end of Monday’s trade session, according to Nasdaq data.

© 2021 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.

Paradigm, the crypto investment firm led by Fred Ehrsam and Matt Huang, has made a string of key hires as it looks to build a business that goes far beyond simply picking winning investments.

The firm, which has backed startups from Uniswap to BlockFi to Fireblocks, is known for being one of the largest funds in the space with billions of dollars under management, according to a source. In recent months, the firm has hired a number of executives to lead new initiatives as it looks to differentiate itself from competitive venture capital firms, according to chief operating officer Alana Palmedo. 

The new hires include veteran technology communications professional Jim Prosser, who formerly worked at public relations agency Edleman. Prosser also held top communication spots at Twitter and SoFi. Reena Jashnani-Slusarz, recently joined as Paradigm’s new general counsel, stepping into the position previously held by Gus Coldebella. Meanwhile, Coldebella has taken on a new position as chief policy officer. On the trading side, Kevin Pang joined the firm last month from Jump Trading to build out a new crypto trading unit. In December, the firm hired Dan McCarthy as a talent partner. 

Since its founding in 2018, the firm has attracted investments from high-profile funds including Sequoia and endowments of Stanford, Harvard, and Yale, as noted by The Block’s John Dantoni. 

The expansion of the firm’s mandate through these new hires speaks to the vision of Ehrsam and Huang, according to Palmedo. 

“The broader strategic vision that Matt and Fred set out is based on the firm not being a traditional venture firm,” she said in an interview with The Block, adding: “Paradigm has always felt it was critical to be alongside the builders that we back.”

While Paradigm doesn’t have plans to launch new funds in the future, it does have plenty of dry powder to allocate to projects in the space.

The addition of communication, trading, and recruiting capabilities could help the firm stand out to founders, who are increasingly looking for venture investors to offer more than just a check. The VC landscape for crypto is also getting more competitive, with firms like a16z looking to raise larges sums of cash to deploy in the market.

As reported by Business Insider, venture capital firms are looking to pour money into the space in what Brian Fakhoury, an analyst at Underscore VC, described as a “a tsunami.”

The new functions could help Paradigm stay ahead of the competition. While the firm says it is more focused on its portfolio companies than potential rivals, the new businesses do target competitors. 

On the trading side, Pang is building out internal proprietary trading tools that will help the firm engage with the burgeoning decentralized finance market. That will help the firm more directly engage in governance and help bootstrap liquidity for new tokens. 

“We want to be an active participant in this market and service providers have trouble servicing firms like us,” Palmedo said. “We are building the tools.” 

That would give the firm some of the chops of VCs in the market that are affiliated with their own prop trading shops, including Jump Trading’s sister firm Jump Capital and Alameda. 

Meanwhile, the addition of Prosser to the team could help Paradigm secure earned media for its portfolio companies and work with them to shape their stories. 

“First and foremost we care about reaching and supporting crypto founders,” Prosser said. Naturally, Prosser said he also plans to spend time on both the firm’s own communications strategy. “The firm is young and it needs to establish itself and show the world that we are taking a new approach and supporting our portfolio.”

© 2021 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

• Uniswap v3 launched on May 5th, 2021, and has grown to ~80% of v2’s trade volume after its first week-plus of operation.
• The main innovations in v3 are custom liquidity ranges, which provide increased capital efficiency to traders while increasing the complexity of market-making.
• It’s difficult to know how the dynamics between active LPs and those using semi-passive strategies will play out.

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On May 17, the Federal Trade Commission published a spotlight on crypto investment scams. 

Per data compiled from Q4 2020 and Q1 2021, the FTC received reports of 6,792 cryptocurrency investment scams adding up to $80 million in losses. That figure compares to reports of 570 cryptocurrency investment scams adding up to $7.5 million in the same period the year before.

Source: FTC

The report found that young investors were especially prone to becoming entangled in such investment scams, with consumers between 20 and 49 “over five times more likely” to lose money in them as compared to older groups.

Moreover, the FTC said that “consumers in their 20s and 30s lost more money to investment scams than any other form of fraud.”

The rise in crypto investments scams corresponds to a period of rapidly increasing public interest in retail investment in general, and in cryptocurrency in particular. The six months covered in the FTC’s report also saw a bull run in the crypto market unprecedented since 2017, which, alongside meme-driven trading on platforms like Robinhood has attracted droves of young investors. 

The FTC also flagged that many of their reports were not about investment at all, instead entailing “giveaway” scams by imposters online.

Consumers reported sending $2 million to scammers masquerading as Elon Musk alone, not to mention a rise in online romances that devolve into requests for crypto transfers.

© 2021 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.

It’s not often you see a 51% attack of a blockchain from the hacker’s side. 

But an 18-year-old intern at venture capital firm Polychain Capital decided to show how such an attack works, for educational purposes.

“I’ve never seen a 51% attack against a live network (for good reason I suppose; most folks attacking networks for monetary gain probably don’t want to publicize themselves),” tweeted Anish Agnihotri today, adding: “So I recorded it for you.”

A 51% attack is one of the main ways in which a blockchain can be attacked. The premise of most blockchains is that, as long as the majority of hash power is controlled by good actors, looking to support the network, then it will work normally. But if a bad actor takes control of the majority of the hash power, then they can cause some issues.

One of the main ways that bad actors profit from a 51% attack is by performing a double spend. Using their greater amount of hash power, they secretly mine a longer alternative version of the blockchain. They will then make a deposit to a crypto exchange and see their balance go up. Then they will broadcast their alternative (and crucially, longer) chain to the network, eroding their previous transaction. This leaves them with their original money and the balance on the exchange.

Performing the attack

Agnihotri chose a tiny clone of the Ethereum blockchain called CheapETH to run the experiment. It has much greater block sizes (similar to Bitcoin Cash), making it cheaper to send transactions. But unlike Ethereum’s 629 trillion hashes per second, it has just a measly 559 million hashes per second. This makes it much more vulnerable to attack.

To carry out the attack, Agnihotri rented mining power capable of performing 1.44 billion hashes per second. This enabled him to take up about 72% of the network’s hash rate. He also rented a virtual machine to run the blockchain on. The total costs were under $100.

The video shows how he attacked the network. Agnihotri explained that he disconnected from the network, mined solo in his own pool for a few minutes, and then broadcast the longer version of the blockchain to the network. Shortly after he did so, block explorers updated to show that he had mined all of the recent blocks.

While Agnihotri attacked the network, he did not carry out a double-spend attack at the same time. In the documentation within the video, he points out the points at which a bad actor would perform such an attack. Afterward, he said that he would airdrop tokens to any pools that were affected by his attack through loss of mining and transaction rewards.

© 2021 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.