The cryptocurrency business is thriving, but many things are happening, including, $656M lost from crypto hacks, scams, and rug pulls in H1 2023, US SEC saying Bitcoin ETF applications are inadequate, Central Bank Digital Currencies (CBDCs) gaining traction across 130 nations worldwide, and much more!
In this issue:
- $656M lost from crypto hacks, scams, and rug pulls in H1 2023.
- South Korea approves crypto bill to protect investors, which goes into effect in one year.
- US SEC says Bitcoin ETF applications inadequate: WSJ.
- Inflection AI raises $1.3B in funding led by Microsoft and Nvidia.
- CFTC technology advisory board to address DeFi and DAO issues at July meeting.
- Central Bank Digital Currencies (CBDCs) gain traction across 130 nations worldwide.
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$656M lost from crypto hacks, scams, and rug pulls in H1 2023.
According to a June 30 report by Web3 security firm Beosin, the total value of cryptocurrencies lost in scams, hacks, and rug pulls amounted to $656 million during the first half of 2023. This includes the loss of $471.43 million in 108 protocol attacks, $108 million in various phishing scams and $75.87 million over 110 rug pulls. For hacks, the amount represented a significant decrease over H1 2022 and H2 2022, where $1.91 billion and $1.69 billion were lost, respectively.
In addition, Beosin analysts wrote: “Approximately $215 million of stolen assets were recovered, accounting for 45.5% of all stolen assets. In contrast, in 2022, only 8% were recovered. $113 million of stolen assets were transferred to mixers: $45.38M into Tornado Cash and $68.14M into other mixers.”
In a dashboard compiled by Beosin and Footprint Analytics, only one project was hacked for more than $100 million, that being Euler Finance’s $195 million flash loan hack on March 13. The firm opened redemptions on April 12 after hackers returned most of the stolen assets.
The vast majority of crypto lost in H1 2023 were coins and tokens minted on the Ethereum blockchain, at 75.6%. Meanwhile, the second largest stolen asset class, Binance Smart Chain tokens, came at just 2.6%. Furthermore, most of the stolen crypto was lost due to smart contract vulnerabilities (56%), while 21.4% had no clear identifiable reasons for the loss. Nevertheless, the numbers represent a significant decrease over H2 2021, when a record $2.1 billion in crypto was lost due to hacks, phishing scams, and rug pull.
South Korea approves crypto bill to protect investors, which goes into effect in one year.
South Korea’s National Assembly approved a bill that focuses on protecting the interests of cryptocurrency investors in the country’s first step to build a legal framework devoted to such digital assets, according to the Assembly’s official website. As stated, the legislation, which translates as the Virtual Asset User Protection Act, is expected to come into law in a year.
Within the bill is an amalgamation of 19 proposals from lawmakers, requires crypto service providers to ring-fence users’ assets and deposits, to have insurance, to hold a portion of reserves in offline cold wallets in case of hacks or system failures, and to maintain records of all transactions.
The legislation includes penalties for price manipulation, false promotion of crypto assets, and failing to provide required information to investors. Penalties for those convicted include a minimum of one year in prison or a fine of three to five times the amount of profits earned from such violations.
Amazingly, the bill defines “virtual assets” as an “electronic representation of an economic value that can be traded or transferred electronically.” Also, the bill excludes the central bank digital currency (CBDC) under the Bank of Korea, the country’s central bank.
It’s important to mention, the legislation, however, does give the Bank of Korea the right to request data from cryptocurrency platforms, a right it had been arguing for with the country’s financial regulators. The bank has stated the cryptocurrency market could have a significant impact on financial and monetary stability and hence it needs some oversight.
As of 2020, South Korea had one of the most active cryptocurrency economies in the world, ranking 7th worldwide on the Global Crypto Adoption Index compiled by blockchain data platform Chainalysis. However, the country fell to 23 on the index in 2022, the same year as the US$40 billion collapse of the Terra-Luna cryptocurrency and stablecoin that was launched in the country and caused massive losses to hundreds of thousands of investors. Regardless, the Upbit crypto exchange in South Korea remains the world’s third-largest by trading volume, according to CoinMarketCap data. The Terra-Luna debacle helped drive legislation in South Korea to establish a legal framework to cover cryptocurrencies, focusing first on investor protection. The next stage of crypto legislation is expected to focus on rules for local companies in token issuance and information disclosure.
US SEC says Bitcoin ETF applications inadequate: WSJ.
U.S. Securities and Exchange Commission (SEC) said the recent series of spot Bitcoin exchange-traded fund (ETF) applications by asset managers were inadequate and not sufficiently clear, according to a report by Wall Street Journal.
Crypto’s biggest enemy, the SEC has informed exchanges Nasdaq and Cboe Global Markets, which filed the applications on behalf of the asset managers, that the applications are not comprehensive, according to the WSJ report.
Bitcoin prices have surged since asset managers, including BlackRock, WisdomTree, and Fidelity, applied for a spot Bitcoin ETF in June. However, Bitcoin fell below US$30,000 for the first time in a week shortly after the WSJ report. It quickly bounced back to US$30,113 at 11 p.m. in Hong Kong.
The SEC has been tightening rules and has filed lawsuits against cryptocurrency exchanges including Binance and Coinbase while calling several altcoins like Solana, Cardano, Polygon, and BNB, as securities and therefore requiring appropriate registration.
Earlier this month, SEC Chair Gary Gensler, said in a speech, “There’s nothing about the crypto securities markets that suggests that investors and issuers are less deserving of the protections of our securities laws.”
Inflection AI raises $1.3B in funding led by Microsoft and Nvidia.
On June 29, Palo Alto-based Inflection AI announced the completion of a $1.3 billion raise led by Microsoft, Reid Hoffman, Bill Gates, Eric Schmidt, and Nvidia. The new capital will be partly allocated to building a 22,000-unit Nvidia H100 Tensor GPU cluster, which the company claims is the largest in the world. The GPUs will be used to develop large-scale artificial intelligence models.
Inflection AI is also developing its adjutant AI system dubbed “Pi.” The firm explained that Pi is “a teacher, coach, confidante, creative partner, and sounding board” that can be accessed directly via social media or WhatsApp. The company’s total funding amount has reached $1.525 billion since its inception in early 2022.
Despite the growing investment in large AI models, experts have warned that their actual training efficiency can become severely restricted by current technological limitations. In one example raised by Singaporean venture fund Foresight, researchers wrote, citing the example of a 175 billion parameter large AI model storing 700 GB of data: “Assuming we have 100 computing nodes and each node needs to update all parameters at each step, each step would require transmitting about 70 TB of data (700 GB*100). If we optimistically assume that each step takes 1s, then 70 TB of data would need to be transmitted per second. This demand for bandwidth far exceeds the capacity of most networks.”
Continuing from the above example, Foresight also warned that “due to communication latency and network congestion, data transmission time might far exceed 1s,” meaning that computing nodes could spend most of their time waiting for data transmission instead of performing actual computation. Foresight analysts concluded, given the current restraints, that the solution lies in small AI models, which are “easier to deploy and manage.”
CFTC technology advisory board to address DeFi and DAO issues at July meeting.
According to a report published by the Block, the Commodity Futures Trading Commission’s (CFTC) Technology Advisory Committee will convene on July 18 at its Washington D.C. headquarters to discuss several technological issues, including digital assets, blockchain technology, and decentralized finance.
CFTC Commissioner Christy Goldsmith Romero, who is sponsoring the committee, stated that the July meeting would focus on decentralized finance (DeFi) models, particularly decentralized autonomous organizations (DAO), and the recent CFTC Ooki DAO case.
Following the recent regulatory win against Ooki DAO, which failed to respond to an enforcement action taken by the regulator, the committee will assess the implications of the judgment. The ruling established a precedent that other DAOs could be held responsible for legal violations as a “person” under the Commodity Exchange Act. However, the statutory classification of DAOs remains a widely debated issue in the cryptocurrency space. Some crypto investment firms, such as Paradigm, have pushed back against enforcement actions claiming that individual participants in DAOs cannot be held liable unless there is evidence of a deliberate violation of the law.
The advisory body’s agenda also includes several other DeFi-related issues, including those related to the increasing use of blockchain technology, and artificial intelligence. In addition, the committee plans to create three subcommittees, one of which will focus specifically on analyzing digital assets and blockchain technology.
The upcoming meeting could have a significant impact on the regulations governing the rapidly evolving DeFi space. The increased adoption of DeFi protocols and tools has occurred largely outside traditional financial structures, attracting both supporters and detractors due to its largely decentralized, permissionless nature.
Central Bank Digital Currencies gain traction across 130 nations worldwide.
According to a report published by Reuters, new research from the U.S.-based think tank Atlantic Council has revealed that 130 countries, which make up around 98% of the global economy, are now actively investigating the implementation of central bank digital currencies (CBDCs). According to the study published on Wednesday, almost half of these countries are at a stage of advanced development, pilot testing, or launch.
Research suggests that all G20 nations, except Argentina, are in one of the aforementioned advanced phases. So far, 11 countries, including several Caribbean nations and Nigeria, have launched their CBDCs. Pilot testing in China alone now involves 260 million people in 200 different scenarios, covering areas like e-commerce and government stimulus payments. On the other hand, India and Brazil plan to launch their digital currencies in the coming year.
The European Central Bank aims to commence its digital euro-pilot testing before a potential launch in 2028, and over 20 other countries are anticipated to move forward with significant steps toward pilots this year. In contrast, the United States’ progress on a digital dollar mainly revolves around a wholesale (bank-to-bank) version, while work on a retail version meant for the general population appears to have stalled.
Increased interest in CBDCs comes as physical cash use declines, and governmental authorities look to protect their monetary control against the spread of Bitcoin and the presence of large tech companies. Sanctions imposed on countries like Russia and Venezuela have also raised concerns and highlighted the importance of alternative payment networks for long-time U.S. allies such as Europe.
The Atlantic Council observed that the number of wholesale CBDC developments has doubled since Russia invaded Ukraine and the subsequent G7 sanctions response. The report also noted that there are now 12 multi-country “cross-border” projects underway. In Europe, Sweden remains at the forefront of CBDC development, while the Bank of England continues to work on a potential digital pound expected to be in use by the latter half of this decade. Other countries, such as Australia, Thailand, South Korea, and Russia, are set to continue their pilot testing throughout the year. However, it is worth noting that some countries that have already launched CBDCs, like Nigeria, are facing a lack of interest among users, whereas Senegal and Ecuador have ceased development efforts altogether.
Closing
That’s it for now! Thanks for reading today’s newsletter! Be sure to have a look at the Blog section to read our previous editions as well! Have a look at our Guides section if you’re interested in learning more about crypto! And finally, don’t forget to follow us on Twitter!
