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Quick Take

• A new public ransomware payment tracker called “Ransomwhere” launched in early July.
• The platform crowdsources Bitcoin addresses and other information associated with ransomware attacks. 
• Here’s how better and more accessible retrospective data can help address the ransomware problem.

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It looks like payment for order flow is becoming less important to the now-public stock and crypto brokerage Robinhood, according to data compiled by The Block. 

During the second quarter of the year, Robinhood reported in a 606 filing with the Securities and Exchange Commission that it brought in $217 million from payment for order flow (PFOF). PFOF refers to the process of brokers offloading their retail stock and options orders to large trading firms to internalize. Those trading firms pay for that order flow. It’s controversial because some opponents say that practice introduces conflicts of interests, whereas proponents say it’s helped bring down the cost to trade. 

Robinhood has long been reliant on the practice for the bulk of its revenues, but it looks like that’s changing given the data.

Robinhood’s PFOF payments declined by ~35% from the first quarter of the year to the second. In Q1, it made $331 million from PFOF. Meanwhile, the firm is set to see its revenues increase from $522 million in the first quarter to an estimated $546 million to $574 million, reflecting an increase of 4.59% to 9.96%. 

That indicates Robinhood has seen an increase in its transactional revenues outside of stock and options trading, specifically in transactional crypto revenues and lending from its margin and premium product, Robinhood Gold. Clients of Robinhood Gold can trade with margin and have access to more in-depth market data, according to its website.

As for crypto, several sources told The Block the company has been eying a broad expansion of the unit, dubbed Robinhood Crypto, fueled in part by the outsize impact it’s had on its bottom line. 

Diversifying its business could prove to be beneficial in the event that regulators crackdown on PFOF. Indeed that is something that the firm noted in its S-1 as a risk:

“If our customers begin to disfavor PFOF and Transaction Rebate practices generally or the specific market markers with whom we do business due to any negative media attention, they may have an adverse view of our business model and decide to limit or cease the use of our platform.”

The Securities and Exchange Commission, led by chairman Gary Gensler, is expected to review the practice.

Robinhood had a shaky debut on the Nasdaq last week, falling by more than 10% during the course of the trading day. But it has since pared those losses and has surged during Tuesday’s session, hitting nearly $47 a share — up more than 30% since Thursday. 

© 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.

Sandwiches have now been added to Bakkt’s digital asset ecosystem. 

Select restaurants of Quiznos, a fast-food sandwich chain, will test accepting bitcoin in certain locations in Denver, Colorado beginning in mid-August, according to a company release. 

Bakkt, a digital asset platform, is facilitating the bitcoin transactions. Customers must download the Bakkt app, purchase bitcoin, then use it at a pilot restaurant in Denver, such as one in the Denver airport. Bakkt users who purchase a meal with bitcoin will receive $15 in BTC as a reward. 

“Through this partnership, we are introducing unique experiences to Quiznos customers by enabling them to take advantage of new ways to interact with digital assets and bringing bitcoin utility to the mainstream consumer market,” said Sheela Zemlin, Chief Revenue Officer at Bakkt, in the statement. “We will closely watch how this pilot performs, with the potential to expand the partnership to additional Quiznos locations across the country.”

Bakkt, which went public earlier this year on the New York Stock Exchange via a SPAC, had originally solely focused on providing cryptocurrency-related services when it was first founded in 2018. 

However, the firm expanded its reach to include other digital assets and their transactions, such as offering customers the ability to convert airline reward points into cryptocurrency and launching a retail app that consolidates gift cards, cryptocurrencies, and other digital assets in a centralized location.

© 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.

FTX.US — the US version of the crypto exchange — has hired Ryne Miller as its general counsel, according to a release.

Prior to joining FTX.US, Miller spent eight years at law firm Sullivan & Cromwell LLP, rising to become a partner and co-head of its commodities, futures and derivatives practice.

Previously he was an attorney at the U.S. Commodity Futures Trading Commission (CFTC) where he worked under Gary Gensler, who is now the head of the U.S. Securities and Exchange Commission (SEC).

“His industry expertise and leadership will be critical as we forge cooperative working relationships with US regulators amid the expansion of our businesses,” said Brett Harrison, President of FTX.US.

Harrison himself joined FTX.US in May this year. He was previously head of semi-systematic technology at market maker Citadel Securities. He joins a host of traditional finance workers entering the crypto space in recent months.

© 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.

Securities and Exchange Commission Gary Gensler said Tuesday during an event that “right now, we just don’t have enough investor protection in crypto.”

“Frankly, at this time, it’s more like the Wild West,” Gensler continued.

The statements, prepared ahead of time and made public by the SEC, represent perhaps Gensler’s most expansive comments to date on the topic of regulation and crypto, though he stressed that he was speaking for himself rather than the agency itself. And though some of his comments have been aired elsewhere — for example, Gensler has said publicly that he wants more regulation for exchanges and seeks to cooperate with Congress on the matter — Tuesday’s speech laid out in clear terms the agency’s regulatory priorities for the industry under his leadership.

Indeed, while Gensler described himself as “technology-neutral,” he went on to claim that he is “anything but public policy-neutral.”

“As new technologies come along, we need to be sure we’re achieving our core public policy goals,” Gensler continued.

Gensler’s speech focused on a number of key areas: tokens that are classified as securities, trading and decentralized finance (DeFi) platforms, stablecoins, and financial products tied to crypto such as exchange-traded funds.

Exchanges and stablecoins on the agenda

On the first topic, Gensler pointed to the viewpoint held by his predecessor, Jay Clayton. 

“I find myself agreeing with Chairman Clayton. You see, generally, folks buying these tokens are anticipating profits, and there’s a small group of entrepreneurs and technologists standing up and nurturing the projects,” said Gensler. “I believe we have a crypto market now where many tokens may be unregistered securities, without required disclosures or market oversight.”

He also honed in on so-called stock tokens, which have drawn the attention of regulators around the world in recent months.

“Make no mistake: It doesn’t matter whether it’s a stock token, a stable value token backed by securities, or any other virtual product that provides synthetic exposure to underlying securities. These products are subject to the securities laws and must work within our securities regime.”

Next, Gensler turned to crypto trading platforms, which he said “not only can implicate the securities laws; some platforms also can implicate the commodities laws and the banking laws.” In the remarks, he was referring to both centralized and decentralized marketplaces.

“A typical trading platform has more than 50 tokens on it. In fact, many have well in excess of 100 tokens. While each token’s legal status depends on its own facts and circumstances, the probability is quite remote that, with 50 or 100 tokens, any given platform has zero securities,” Gensler said, going on to note:

“Moreover, unlike other trading markets, where investors go through an intermediary like the New York Stock Exchange, people can trade on crypto trading platforms without a broker — 24 hours a day, 7 days a week, from around the globe. Further, while many overseas platforms state they don’t allow U.S. investors, there are allegations that some unregulated foreign exchanges facilitate trading by U.S. traders who are using virtual private networks, or VPNs. The American public is buying, selling, and lending crypto on these trading, lending, and DeFi platforms, and there are significant gaps in investor protection.”

“Make no mistake: To the extent that there are securities on these trading platforms, under our laws they have to register with the Commission unless they meet an exemption,” Gensler continued. “Make no mistake: If a lending platform is offering securities, it also falls into SEC jurisdiction.”

Gensler also made note of the size of the stablecoin ecosystem, stating “nearly three-quarters of trading on all crypto trading platforms occurred between a stablecoin and some other token.”

“Thus, the use of stablecoins on these platforms may facilitate those seeking to sidestep a host of public policy goals connected to our traditional banking and financial system: anti-money laundering, tax compliance, sanctions, and the like,” he continued. “This affects our national security, too. Further, these stablecoins also may be securities and investment companies. To the extent they are, we will apply the full investor protections of the Investment Company Act and the other federal securities laws to these products.”

During the speech, Gensler appeared to express interest in exchange-traded funds (ETFs) tied to bitcoin futures, referring to CME.

“I anticipate that there will be filings with regard to exchange-traded funds (ETFs) under the Investment Company Act (’40 Act). When combined with the other federal securities laws, the ’40 Act provides significant investor protections,” he said. “Given these important protections, I look forward to the staff’s review of such filings, particularly if those are limited to these CME-traded bitcoin futures.”

Looking to Congress

Ultimately, Gensler is hoping for Congress to grant the SEC additional powers and resources as it expands its oversight of the crypto, according to the speech.

“Certain rules related to crypto assets are well-settled. The test to determine whether a crypto asset is a security is clear,” said Gensler. “There are some gaps in this space, though: We need additional Congressional authorities to prevent transactions, products, and platforms from falling between regulatory cracks. We also need more resources to protect investors in this growing and volatile sector.”

He went on to say:

“In my view, the legislative priority should center on crypto trading, lending, and DeFi platforms. Regulators would benefit from additional plenary authority to write rules for and attach guardrails to crypto trading and lending.”

How the process for obtaining those resources and authorities remains to be clear. Senators are currently debating the scope of tax reporting requirements for crypto “brokers” as part of a billion-dollar infrastructure bill. Last week, Rep. Don Beyer (D-VA) filed a far-reaching bill focused on the regulation of digital assets and stablecoins. 

Gensler reinvoked the topic of national security as his prepared remarks came to a close.

“Right now, large parts of the field of crypto are sitting astride of — not operating within — regulatory frameworks that protect investors and consumers, guard against illicit activity, ensure for financial stability, and yes, protect national security,” he said. “Standing astride isn’t a sustainable place to be. For those who want to encourage innovations in crypto, I’d like to note that financial innovations throughout history don’t long thrive outside of our public policy frameworks.”

© 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.

DeFi trading platform dYdX is launching a governance token, according to its foundation website.

Similar to previous governance token launches, a portion of the initial supply will be distributed to past users of the protocol who meet certain conditions. In this case, 7.5% of the supply will go to previous dYdX users. Token allocations are to take place over a five-year period.

The launch is a notable one, coming from a major decentralized finance structure. In a sense, it follows in the footsteps of projects such as Uniswap (UNI) and Compound (COMP), both of which have decentralized their governance structures through the retroactive airdropping of tokens to their userbase.

The governance token will be used to decide the future direction of the protocol, and token holders will be able to vote on proposals to add new features. This will take place on the newly launched governance system.

An additional 5% of the total supply will be used to fund an R&D treasury “to be allocated on an ongoing basis through contributor grants, community initiatives, liquidity mining, and other programs,” according to the foundation website.

Also notable are what appear to be geographic restrictions on the token, per the site. “DYDX is not available in the United States or other prohibited jurisdictions. If you are a resident of, or incorporated or headquartered in, the United States of America or another prohibited jurisdiction, then you are not permitted to receive a distribution of, or transact in, DYDX.”

© 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.

Electric Coin Company CEO and Zcash founder Zooko Wilcox proposed in a blog post today that the privacy coin Zcash should ditch its proof-of-work (PoW) blockchain and move to proof of stake (PoS).

“While there are many who prefer PoW, I believe that PoS would make ZEC more valuable to more people! The benefits are great, and they far outweigh the drawbacks and risks,” he said in the post.

Proof of work is a method that requires miners to use intensive calculations to solve tricky math problems. It works on the basis that the energy consumed by the network helps to keep it secure — since an attacker would need to expend a similar or greater amount of work to attack it.

Instead, proof of stake requires validators (the equivalent of miners) to put up collateral and take turns adding blocks to the blockchain. If they act maliciously, they can lose their staked funds. It has been a hot topic recently since it has a lower impact on the environment.

Wilcox noted that it’s down to the Zcash community if it wants to make such this change, but he put forward his reasons why it should happen.

Arguments for proof of stake

Wilcox presented a range of arguments for his thinking. First, he claimed that doing so would reduce selling pressure since miners would no longer need to sell newly miner coins to pay for costs of production (electricity and hardware costs, for example). The idea here being that stakers would instead be able to hold onto their coins for longer, rather than selling them.

Second, he said it would be good for the acceptance of Zcash if it was more energy efficient. While he disagreed that proof-of-work mining is amplifying global warming and helping to destroy the world, he acknowledged that public perception is more important for wider adoption.

Third, Wilcox said proof of stake providers greater security at a lower cost, claiming that proof-of-work systems overpay for network security. “In PoS, the community can get better security — including economic finality in which you can be sure that a payment you’ve received won’t be forked away — and performance at much lower cost,” he said.

Beyond those reasons, he also suggested it would be more decentralized and increase demand for ZEC, its native coin. Plus staking would let anyone take part, which would hark back to Zcash’s early days when many community members were mining it on their computer GPUs.

© 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.

“They’re looking to collect $30 billion in crypto taxes — it’s not the worst time to be a crypto tax provider.”

That’s Dan Hannum, COO for crypto tax accounting software company Zenledger, who says he has qualms with the U.S. Senate’s bipartisan infrastructure bill despite the fact that it stands to accelerate the growth of his firm.

As the two-thousand-plus-page piece of legislation slowly moves through Congress, Zenledger is announcing a fresh injection of capital: $6 million in a Series A funding round led by Bloccelerate VC. Mark Cuban’s Radical Ventures, G1 VC, Borderless Capital, 4RC, Centrality, BIGG Digital Assets and CoinGecko, among others, also participated.

Between its tax gap proposal, possible expansion of reporting requirements and plans to expand funding for the Internal Revenue Service (IRS), the Biden Administration has made it clear that it’s taking crypto tax evasion seriously.

Meanwhile, senators are openly criticizing what some have called “unworkable” crypto reporting language in the draft bill. And while it remains unclear if the contentious provisions will stand as written, heightened reporting requirements could be a boon for the crypto tax game.

“Do I think that there’s multiple issues with this bill that don’t quite make sense? Yes. There is room for improvement 100 percent,” said Hannum. “But it just continues to show that the U.S. government specifically and globally are taking corporate taxes really seriously. They’re going to be investing tens, if not hundreds of millions of dollars into crypto tax enforcement and software.”

Crypto proponents are concerned over language that would potentially group miners, decentralized finance startups and others under the “broker” reporting requirements despite their lack of brokerage services. If the provision sticks, that could mean a wealth of entities would have a lot more reporting to do to U.S. tax authorities.

Taxes in focus

As the debate in Washington continues, Zenledger is getting ready for whatever may come.

Hannum said the IRS’s decision to move its crypto question to the top of the 1040 form translated to an estimated 5x in customer growth heading into tax season. Regardless of the infrastructure bill, the base of people looking to report their crypto will get bigger, with coming IRS guidance and the overall tack of the Biden administration with respect to the technology.

Zenledger sees the wide-reaching implications of the infrastructure bill as a net negative, though. Rushing broad tax reporting requirements could lead to confusing standards that hurt taxpayers when forced to utilize solutions that aren’t best fit for crypto.

The industry already saw this in some exchanges’ use of 1099Ks to report users’ capital gains. This led to confusion between the industry and the IRS that left some taxpayers with confusing mandates to pay additional thousands of dollars despite good faith reporting. It’s unclear what the form of best fit might be for the bill’s broad brokerage reporting mandates, especially for many types of transactions between different types of entities like miners and DEXs. 

“It’s just like a kind of a nightmare [to report],” said Hannum. “So I think we’re still going to have really bad reporting requirements, even if they’re mandated to report.”

For that reason, Zenledger has been in contact with lobby groups about the support it can provide in advocating for better crypto provisions.

“If we stifle innovation in the U.S., then that’s one of the largest markets in the world gets shut off or brought down,” he told The Block. “We want to see a world where we go from 1.5 trillion to 25 trillion to 100trillion to 250 trillion (market cap). We want to see this asset class grow and expand over time with crypto tax reporting.”

Still, the new funding will allow Zenledger to push global, and the U.S. bill doesn’t stand to cause headaches overseas. 

“This is going to be worse for U.S.-based companies, but that doesn’t mean crypto innovation is going to die out,” said Hannum.

© 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.

Pennsylvania-based bitcoin mining firm Stronghold Digital is poised to double its proprietary power capacity via an acquisition deal over a second power plant in the state.

The firm said in an announcement on Tuesday that it has signed a definitive agreement to purchase the Panther Creek Plant, which is located on a 33-acre site in Pennsylvania’s Carbon County. 

Stronghold already indicated the acquisition plan in its $100 million initial public offering prospectus filed in the U.S. last month. But a new detail revealed on Tuesday is that the plant has a generation capacity of 80 megawatts. Pending regulatory approvals, the deal would double Stronghold’s existing power capacity to 165 MW. 

Stronghold raised over $105 million in equity through private offerings earlier this year in its bid to bring bitcoin mining into its process of using waste coal — an environmentally toxic byproduct of coal mining — to generate electricity.

Based on Stronghold’s filing with the Securities and Exchange Commission, its current operational mining fleet consists of 1,840 units of both old and new mining models made by Bitmain and Canaan.

Per the breakdown, Stronghold has a hash rate of 85 PH/s with a combined power consumption of 4,170 kilowatt-hour located in its existing Scrubgrass Plant.

At bitcoin’s current mining difficulty, Stronghold is able to generate about 0.738 bitcoin every 24 hours in theory, while consuming around 100,000 kWh of energy. It touted an energy supply cost of $0.021 per kWh in its S-1 form, which would mean its bitcoin mining gross profit margin will be around 93% at bitcoin’s current price of around $38,500.

Meanwhile, Stronghold has raised $74 million in two loans backed by WhiteHawk Capital Partners ($40 million) and an affiliate of NYDIG ($34 million) to scale up its mining fleet and facility infrastructure. Since April, it has preordered through brokers 27,300 mining machines made by Bitmain, Canaan and MicroBT with a combined hash rate of 2,600 PH/s.

“Approximately 93% of these miners are scheduled to be delivered in 2021, with the first batch scheduled for delivery in August 2021, and the remaining 7% throughout 2022,” Stronghold said.

The first 16,000 units will be housed in its data centers at the Scrubgrass Plant with the remaining ones to be deployed at the Panther Creek Plant and a third unnamed station which Stronghold has under contract for purchase.

With its pending $100 million IPO, Stronghold aims to preorder an additional 27,900 miners, which would boost its proprietary hash rate to 3,000 PH/s by end of the year and 5,300 PH/s by December 2022. 

© 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.

Publicly traded bitcoin mining firm HIVE Blockchain has ordered 4,000 machines from Canaan, a China-based publicly listed bitcoin mining hardware manufacturer.

Announcing the news on Tuesday, Canaan said the aggregate operating hash rate of the 4,000 machines is 272 petahash per second (PH/s). Canaan did not mention the model of the machines or the value of the order. The machines are expected to be shipped to HIVE in two batches over the next 60 days — 2,000 machines each in August and September.

HIVE currently has a total Bitcoin operating hash rate of 925 PH/s. By August, the firm expects the hash rate to reach 1 exahash per second (EH/s). HIVE currently generates a daily income of $550,000 from its Bitcoin and Ethereum mining operations, translating to an annual run rate of $200 million. The firm said it intends to continue utilizing cash flow to purchase additional machines to increase its revenues. 

HIVE is based in Vancouver, Canada, and has mining facilities in Canada, Sweden, and Iceland. The firm went public in 2017 and is currently listed on the Toronto Stock Exchange, Nasdaq, and Frankfurt Stock Exchange.

Non-Chinese crypto mining firms are increasingly investing in equipment to scale their operations following China’s crackdown on the local crypto mining sector. These firms are poised to seize a bigger share of the bitcoin mining market in the near future, as The Block reported recently.

© 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.