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The Justice Department said Friday that two men from Orange County, California, have agreed to plead guilty to securities fraud charges in connection with a $1.8 million initial coin offering.

The DOJ’s case centered around the actions of Dropil Inc and its two founders, Jeremy McAlpine and Zachary Matar, who will submit their pleadings in the coming weeks, per the Friday release.

According to prosecutors, McAlpine and Matar allegedly sold so-called DROP tokens to thousands of investors, with the funds ostensibly intended to fund the activities of a crypto trading bot. Per the DOJ, neither McAlpine or Matar registered with the Securities and Exchange Commission. Yet “[t]o induce investors to purchase DROPs, McAlpine and Matar made a series of false statements to investors in a ‘White Paper’ published on Dropil’s website and on its Twitter account, promoting the cryptocurrency’s supposed success,” 

As the DOJ noted:

“The defendants also manufactured fake Dex profitability reports and made payments in the form of DROPs to Dex users, giving the false appearance that Dex was operational and profitable. McAlpine and Matar also made false statements about the volume and dollar amount of DROPs sold both during and after the ICO, stating Dropil had successfully raised $54 million from 34,000 investors both foreign and domestic. In fact, the ICO raised less than $1.9 million from fewer than 2,500 investors.”

“In total, the defendants obtained approximately $1,896,657 from 2,472 investors through the sale of approximately 629 million DROPs. But McAlpine and Matar did not use at least $1.6 million of the invested money as promised, using it instead to fund disbursements to themselves and their associates,” the DOJ continued.

McAlpine and Matar previously agreed to settle with the SEC in connection with a civil suit filed by the U.S. securities regulator in 2020.

© 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.

The mining difficulty of the Bitcoin network has dropped by 27.9%, as the network adjusts to the massive drop in hash rate. This is the biggest decrease in mining difficulty since the network went live in 2009.

The Bitcoin network updates its mining difficulty level every 2,016 blocks, which is roughly every two weeks. This is designed to make sure blocks are produced every ten minutes or so, despite a fluctuating hash rate.

And in this case, the hash rate has certainly been volatile. Since the previous adjustment on June 13, Bitcoin’s seven-day moving average hash rate has fallen from 136.47 EH/s to 85 EH/s — down 35%.

This was largely caused by a crackdown on bitcoin mining in China, which is causing the hash rate to migrate as operations seek friendlier jurisdictions elsewhere. The eventual record-high drop on Saturday was in a much higher percentage than what was estimated to be a week ago.

This lower hash rate led to a slower rate of block production as the remaining hashing power was unable to keep up with the high difficulty level. For the last two weeks, blocks were produced nearly every 13.9 minutes on average, much higher than usual, based on The Block’s calculation.

On July 1, it even took 129 minutes to produce a block, the longest time since 2011, although it’s worth noting that multiple factors come into play here, including the inherent variance in block times.

© 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.

Beeple, the digital artist who helped make the term “non-fungible token” a household name when he sold a collection of blockchain-based art for $69 million, has now launched his own NFT platform. 

The platform, which the artist co-founded with Pitchfork founder Ryan Schreiber, is called WENEW and is today kicking off its first-ever auction. 

The initial sale, which will run from July 2 to July 5, will feature a collection of “moments” created in partnership with Wimbledon and Grand Slam winner Andy Murray. 

Specifically, it is auctioning off an NFT connected to a video clip capturing the exact moment Andy Murray won the Grand Slam tennis tournament in 2013, becoming the first male singles winner from the U.K. in 77 years.

Besides owning the NFT, the highest bidder will have the opportunity to play tennis with Murray on a court at Wimbledon. They will also receive a VIP behind-the-scenes tour, two tickets to Centre Court for the 2022 men’s Wimbledon finals, and souvenirs signed by Murray. 

In addition to this, the buyer will have access to a “comprehensive editorial experience” meant to provide deeper context and insight into why the moment is valuable. 

Buyers can alternatively bid on NFTs that come in packs of 20, 50, 100 and 500, starting at $49 and featuring footage of other iconic Murray moments: his trophy lift, victory interview, 2012 runner-up speech, and a highlight reel of his best shots from Wimbledon 2013. 

Provenance on the blockchain

Beeple, whose real name is Mike Winkelmann, gained widespread fame for Everydays: The First 5000 Days, a collection of 5,000 pieces he created over the course of 14 years. The collection sold for $69 million in March at auction house Christie’s, making it one of the highest art auction sales ever. 

Winkelmann said he decided to create WENEW after a number of musicians approached him wanting to collaborate on NFT projects.

“A lot of them were more popular than me,” he told The Block in a recent interview. “I quickly realized they didn’t need me because they’d already created moments, a bunch of cultural connections with their fans.”

“Making it somehow possible to collect those epic musical moments was, I thought, a very different take on NFTs,” he added. 

According to Winkelmann, WENEW was created to go beyond just the sale and creation of NFTs. He said he wanted to create a platform that adds value and context to these tokenized historical points in time, what he referred to as “moments.”

The platform’s business model is pretty straightforward. WENEW will connect creators with fans who would like to collect NFTs affiliated with them, and the platform will provide curation and context for each tokenized moment. The platform will take a percentage of each sale (they declined to disclose how much). 

According to WENEW CEO Michael Figge, the team behind the platform consists of 15 people, including writers and blockchain engineers. The platform does all of its programming in-house. 

The WENEW team declined to share information about its investors or other sources of funding, but maintained they are not focused on raising capital, but rather on “establishing the best ecosystem for moments and their legacies.” According to their website, the platform’s partners include TIME, Endeavor, IMG, Universal Music Group, and Warner Music Group among other entertainment companies. 

As for ‘moments’ from Andy Murray’s career, Figge acknowledged that there could have been people viewing those moments live and might have collected cellphone footage. 

“But this is different because it is originating from the moment-maker’s actual wallet. This moment bears Andy Murray’s cryptographic signature,” Figge said. “So when he puts that out there in the world, you are participating in the provenance of that memory.”

The future of NFTs 

But how much staying power might a new platform like this possess?

After all, though the number of weekly NFT transactions has remained relatively constant, the market has experienced a decline in recent weeks in terms of trading volume, average transaction value and sale price, according to data collected by The Block Research. 

Winkelmann said he doesn’t think the metrics decline means anything. 

“I see NFTs as such a simple concept — it’s just digital ownership. I don’t see it going away,” he said, adding:

“It’s going to be something like email, where you don’t decide whether you like it or don’t like it, you just have to use it because it’s how you prove ownership of a bunch of different things in your life.”

Image courtesy: Brandon Todd/WENEW

© 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

• A few years ago Karen Sprenger stepped in to negotiate with a ransomware group that had attacked one her company’s clients. Since then she has been the company’s chief ransomware negotiator.
• What exactly does a ransomware negotiator do? The Block connected with Sprenger to find out. 

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In a working paper published on July 1, researchers with the Bank for International Settlements looked at trends among crypto investors.

Central to the research was a refutation of the idea that crypto investors are predominantly investing in defiance of government-issued or fiat currencies. The authors lead the paper with the claim that “we disprove the hypothesis that cryptocurrency investors are motivated by distrust in fiat currencies or regulated finance.”

Rather than being an investment in the death of fiat, the researchers say that crypto investors are attracted to old-fashioned speculation, meaning that the area doesn’t need new regulation:

“From a policy perspective, the overall takeaway of our analysis is that as the objectives of investors are the same as those for other asset classes, so should be the regulation. Cryptocurrencies are not sought as an alternative to fiat currencies or regulated finance, but instead are a niche digital speculation object.”

The researchers also looked for patterns of overall digital asset investment based on race, gender and education level. Especially interesting is a chart they put out correlating ownership of specific crypto assets with education level.

Source: Bank for International Settlements

The authors of the paper are Raphael Auer and David Tercero-Lucas. Auer is the BIS’s principal economist for innovation and the digital economy, in which capacity he has been involved in a great deal of the bank’s research output on blockchain as well as central bank digital currencies. 

© 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.

On July 2, Greenidge Generation announced that it will be setting up a new bitcoin mining operation in Spartanburg, South Carolina. Per an announcement shared with The Block, the firm expects the mine to be operational by the end of 2021 or early 2022.

Greenidge is planning its new mine in partnership with LSC Communications, which, like Greenidge, has received investment from Atlas Holdings. Unlike its first bitcoin mine in Dresden, New York, Greenidge will not own this location, but will operate based on a 10-year lease. 

A representative for Greenidge declined to specify how much the firm is paying for the lease in Spartanburg. As to whether the Dresden plant’s expansion will continue, the representative answered: “Our activities in Dresden, where we continue to supply power to the Grid and have a fully carbon neutral bitcoin mining operation, are not impacted by this announcement.” 

The LSC location is a retired printing plant, which previously drew 80 megawatts of power, a figure that Greenidge expects to be able to increase. As of March, the Dresden plant was using 15 megawatts to mine a reported $50,000 worth of bitcoin daily. 

Per the announcement, the LSC location already runs on electricity that is two-thirds carbon-zero — especially sourced from nuclear power. Greenidge plans to compensate for remaining emissions from the new mine, as it does with its New York mine, carbon offsets. Per a representative, the firm purchases offsets certified by either the American Carbon Registry (ACR), the Climate Action Reserve (CAR) and Verra, which ensure that “any projects funded by Greenidge reduce emissions or increase sequestration of greenhouse gas in a manner that is real, permanent, and verifiable.”

Greenidge has, however, been the subject of some controversy as the most public of a number of new bitcoin mining farms in upstate New York that state lawmakers targeted earlier this year. When it announced its carbon offsets program, it was among an group of miners to do so. 

Bitcoin miners have been expanding operations in the U.S. and elsewhere as China cracks down on its local industry. The regulatory expectations of U.S. authorities have become more critical to mining firms, with many North America-based miners banding together to assemble new standards for energy mix reporting.

© 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.

“Big Four” consultancy EY said Friday that it is open-sourcing the prototype code for Nightfall 3, a Layer 2 protocol focused on Ethereum scaling that, like the firm’s past releases, utilizes zero-knowledge proofs. 

At their heart, rollups are intended to move the processing or execution of Ethereum-based transactions from the primary network, or Layer 1, to a secondary layer, the idea being that such an approach can improve transaction throughput. Rollups exist as smart contracts on Ethereum.

One particular form of rollups being pursued by developers in the Ethereum space are so-called optimistic rollups, which, as EY notes, are named as such “because the system assumes the transactions to be valid unless proven otherwise and eliminates the process of having all participants verify all transactions.” This scaling approach has drawn VC interest, being viewed as a means to scale the Ethereum network while work on the next iteration of Ethereum continues.

Per EY’s statement, the company built the new tool in response to “network congestion and raised transaction costs” in light of the platform’s use by DeFi protocols and their user bases.

“Based on EY experience, ZK-Optimistic roll-ups are currently among the most effective in balancing security incentives and mathematical efficiency for running private transactions on the public Ethereum network. As we have in the past, we are again contributing this code into the public domain to speed up enterprise adoption of this technology,” Paul Brody, EY’s global blockchain lead, said in a statement.

© 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.

Investment firm Grayscale has introduced cardano (ADA) to its large cap fund — giving it a significant weighting compared to the rest of the coins in the fund, beyond bitcoin and ether.

The majority of the fund is invested in bitcoin (67.47%) and ether (25.39%), totaling just shy of 93%. The fund now includes a 4.26% weighting to ADA, meaning that it comprises a majority of the remaining allocations.

Beyond cardano, the fund is invested in bitcoin cash (1.03%), litecoin (0.99%) and chainlink (0.86%).

Grayscale has made a few changes to the large-cap fund so far this year. On January 5, the firm removed XRP from the fund, after the U.S. Securities and Exchange Commission (SEC) filed a lawsuit against Ripple, alleging it had sold unregistered securities. On April 6, it added chainlink to the fund.

The purpose of the fund is to enable investors to get exposure to cryptocurrencies with the largest market caps. The fund is assessed quarterly in terms of adding or removing coins, but weightings are changed on a daily basis.

Grayscale is a crypto-focused asset management firm. It also offers trusts for a variety of cryptocurrencies, with its largest funds being for bitcoin and ether. While these trusts ballooned over the last year, some have recently been hit by emergence of rival products — with the Grayscale Bitcoin Trust (GBTC) currently running at a -9.5% discount. This has caused the amount of new money heading into the fund to dry up.

© 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.

South Korean cryptocurrency exchange Bithumb has banned its employees from trading on its own platform.

Announcing the news on Friday, Bithumb said the move is to enhance transparency over crypto transactions, but an upcoming law in Korea mandates local crypto exchanges must prohibit employees from trading on their own platforms.

The law becomes effective September 25. If crypto exchange employees don’t comply by the date, they could face a fine of 100 million won (around $88,000) from the Korea Financial Services Commission (FSC) if they get caught trading on the platforms they work for.

Bithumb said it will completely ban Bithumb employees from trading on its platform by the end of this month. To that end, it has received “a written oath” from its staff that they will withdraw all funds by that time.

“From this month on, we will strictly manage whether or not employees comply with the regulations through continuous monitoring, self-audit, and internal reporting system operation,” said Bithumb.

Bithumb currently already has some other restrictions imposed on its employees, it said. These include prohibiting them from trading during work hours and from buying new cryptocurrencies within 72 hours of their listing on the exchange. Bithumb also requires all employees not to use company information for personal trading benefits.

Given the law is imminent, other Korean crypto exchanges, such as Upbit and Korbit, could follow Bithumb’s move. The law also requires local crypto exchanges to partner with local banks to open real-name bank accounts for customers by September 24. While bigger exchanges could meet the requirements, smaller exchanges in Korea could shut down given the requirements.

Earlier this year, Binance Korea and OKEx Korea shut down, ahead of the law that went into force in March that no longer allows Korean crypto exchanges to share their order books with other exchanges.

© 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.

Chengdu is kicking off its second giveaway campaign of the China’s central bank digital currency (CBDC), dubbed the digital yuan or the e-CNY, but with a notable difference this time.

The Chengdu government said in an announcement on Friday that it is issuing 12 million e-CNY — worth around $1.85 million — through a lottery to 100,000 residents as part of the ongoing CBDC test. This comes months after the municipal government started its first giveaway campaign of 40 million digital yuan in February. 

But instead of issuing free digital yuan to lucky citizens that they can use wherever the e-CNY payment is supported, the latest test comes with a theme called “low carbon summer transportation” that gives away the e-CNY as allowances to encourage citizens to take more public transportations.

As such, the free e-CNY will arrive with a pre-programed utility for paying for subway and bus tickets through Chengdu’s Tianfutong mobile app or for shared bikes on the Meituan mobile app. 

Specifying conditions for using the e-CNY

This appears to be the first time that the Chinese government is testing the programability of the e-CNY, which is a technology advancement on traceability and ensuring a certain fund in the e-CNY form can only be spent on intended purposes.

According to the government’s blog post, local residents can register for the lottery starting from July 3 and choose either a “subway+bike” or “bus+bike” package.

Lottery winners will still need to download and activate a standalone e-CNY mobile app like in previous tests. But different to the ten tests that have been done throughout six Chinese cities so far, the free digital yuan in the latest test won’t be given out to lottery winners’ e-CNY mobile app wallets.

Rather, the free digital yuan will be credited to a user’s Tianfutong or Meituan mobile app as coupons. By activating their e-CNY wallet apps using the same mobile number they have signed in with on Tianfutong or Meituan, users can then activate the coupons and the e-CNY payment option from within the two mobile apps.

To take mass transportation rides, lottery winers in Chengdu will first pay with the e-CNY coupon, which will cover only parts of the fees. They will need to pay the remaining fees from within their e-CNY mobile apps after topping up the balances through their bank accounts.

But it appears users won’t be able to convert the values of the e-CNY coupons for taking rides into the general purpose e-CNY stored in their digital yuan wallets. 

Earlier this week, it was reported that other Chinese cities are also integrating the e-CNY payment option within their mass transportation systems. 

Residents in the Chinese capital city of Beijing who have already activated the e-CNY standalone apps in previous lottery campaigns can now pay for subway fees using the e-CNY across all 24 lines in the Beijing railway system, which covers 428 stations.

© 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.