Category Archives: Canada

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Canadian Police Appeal to Public to Apprehend Bitcoin ATM Fraudsters

Canadian Police Appeal to Public to Apprehend Bitcoin ATM Fraudsters

The Toronto Police Service in Canada has announced that they are approaching the public for information on individuals allegedly involved in scandals related to Bitcoin ATMs (BTMs).

Public assistance has been requested by the Calgary Police Service (CPS) Cybercrime Team to identify four culprits, allegedly involved in various fraudulent transactions made within Canada. The culprits targeted only one Canadian Bitcoin firm.

In September 2018, 112 fraudulent transactions at BTMs were made by the suspects. They did transactions from seven different Canadian cities including Hamilton, Calgary, Winnipeg, Ottawa, Sherwood Park, Montreal, and Hamilton, noted the press release.

As per the reports, in October 2018, CPS received initial information regarding the said fraud. “Double-spend” attacks were made by the culprits, believes CPS. In a double spend attack, money is withdrawn from a kiosk and the Bitcoin spend is immediately canceled before the BTM operator processes the withdrawal.

Reportedly, the fraud resulted in huge losses to the company, almost amounting to CAD 195,000 (USD 146,666).

Around USD 1.7 billion in digital assets were obtained by employing illicit means during 2018, noted recent research published in January by CipherTrace, a crypto analytics company.  Over USD 950 million out of those were obtained by hacking crypto exchanges. The said amount was 3.6 times lower in 2017.  Exit schemes, Ponzi schemes, and fraudulent initial coin offerings resulted in a loss of USD 725 million during the last year.

However, analytics company Chainalysis maintained that overall digital currency-related crime rate has decreased over a couple of years. Crime or fraud accounted for only 1% of all Bitcoin transactions in 2018. According to the report, usage of decentralized platforms and efforts to launder money through blockchain technology will increase during 2019.

 

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Canada Revenue Agency’s Crypto Audit Raises Some Hackles

canada, cryptocurrency, taxes

Canada’s tax department appears to be ramping up the pressure on cryptocurrency holders with its latest questionnaire to taxpayers.

Canada Revenue Agency (CRA), the government body responsible for tax collection across the provinces has sent out a detailed questionnaire to those suspected of owning cryptocurrencies. The survey targets those who may not have revealed the total and circumstances of their crypto holdings.

Taxpayers are asked if they use a cryptocurrency mixing service and whether any transactions have passed through a Bitcoin tumbler. A Bitcoin mixer or Bitcoin tumbler is a cryptocurrency anonymization service that breaks the link between a user’s old and new address and makes it impossible to track transactions in the Bitcoin network.

Canada is certainly not alone as it probes into its residents and their activities around cryptocurrency. Both the US and the UK have recently upgraded their taxation legislation to incorporate a more thorough investigation of taxpayers’ cryptocurrency dealings and holdings through the annual tax return.

In one set of questions the CRA questionnaire asks:

Do you use any cryptocurrency mixing services and tumblers? If so, which services do you use? Can you please provide us with the tracing history, along with all the cryptocurrency addresses you ‘mixed’? Why do you use these services?

What is different about the CRA’s approach is the depth of questioning into crypto activity which has certainly raised the bar over other jurisdictions. The whole idea of using a ‘mixer’ is defeated by taxpayers revealing their tracing history and is sure to go down badly within the industry, as once again user privacy is in danger of being infringed by the government.

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North America: Crypto and Blockchain News Roundup 23rd February to 2nd March 2019

North America

North America

Welcome to another weekly blockchain news roundup from around the world. Here we present to you all the latest Bitcoin news continent by continent and country by country.

Canada

Regulations Proposed After Quadriga CEO Reportedly Takes USD 140 Million to His Grave: Canadian public and regulators are calling for new regulations to be put in place after CEO Gerald Cotton died without giving the whereabouts of the USD 140 million worth of private crypto stash that belonged to investors of the exchange.

The bizarre incident caused the exchange to go into bankruptcy and seek creditor protection. The cautionary tale is forcing the community and the government to ensure that digital assets can still be accessed after a person’s death to distribute to his heirs.

Crypto Ponzi Scheme Banned in Ontario: USI Tech, a US-based Ponzi scheme claiming to deal in forex and cryptocurrency has been banned in Ontario by the Ontario Securities Commission. The abrupt closure comes after the company’s management threw its Canadian affiliates under the bus.

Last month, the OSC had issued a Cease Trade Order against the platform without any reason and the company tried to get out of it by saying that it hadn’t sold any product in Canada directly but only through local independent traders. That is when OSC came to the conclusion that USI Tech was dishonest and warranted a blanket ban.

USA

Congressman Tells Federal Reserve Chair That Cryptocurrencies Will Improve Innovation in the Country: Representative Warren Davidson (R-OH) has told the Federal Reserve chairman that cryptocurrencies can help innovate the fintech space in the country in a recent congressional hearing.

He said:

“Bitcoin doesn’t represent blockchain anymore than a website represents the internet. It is one use…..Capital has fled the United States where this innovation [was] initially off to a good start. Do you believe that regulatory certainty could foster innovation in this market…in the token economy?”

Davidson also cited the development of the internet as a similar example to that of the crypto sector and suggested the Federal Reserve Chair allow it to do so. The response of some of the other lawmakers was not as encouraging as Davidson’s.

Ripple Lawsuit to Remain in Federal Court: Ripple scored a minor legal victory last week when it announced that the securities lawsuit against the company’s XRP cryptocurrency was to remain in Federal court despite a move by the prosecution.

Lawyer Jake Chervinsky announced the development through a tweet on 1st March 2019 and said that the plaintiff’s motions were denied by the court and termed it as a minor victory. The case currently being fought by Ripple is a class action lawsuit against Ripple CEO Brad Garlinghouse and Ripple for illegally selling unregistered securities in the country.

Specific Tokens to Be Exempted from Securities Law in Rhode Island: A new bill tabled in the Rhode Island legislature suggests that some digital tokens should be excluded from securities laws of the state.

The bipartisan effort H5595 recommends a series of amendments to the Rhode Island Securities Act and suggests several revolutionary changes. According to the new bill, tokens for consumptive use including receipt of services, goods or content may not fall within the securities laws.

But, the bill clearly suggests that tokens are not allowed to be used for investment purposes and so, it makes the adoption of the new bill a tricky subject up for debate in the state assembly.

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No Money Left, QuadrigaCX Tells Creditors At Supreme Court Hearing

No Money Left, QuadrigaCX Tells Creditors At Supreme Court Hearing

The Nova Scotia Supreme Court hearing has heard QuadrigaCX creditors pleas for reimbursement of funds following the death of the exchange’s founder, but the coffers are reportedly empty.

The Halifax courtroom was told that the USD 70 million in cash and USD 190 million in Bitcoins and other digital assets could not be repaid to the 115,000 cryptocurrency traders owed funds at this stage as there were no funds available.

QuadrigaCX’s misfortune began when the founder and CEO 30-year-old Gerald Cotten died in early December 2018, but the exchange waited until early January to announce his passing. Funds locked in cold storage amounted to 26,488.59834 Bitcoins; 11,378.79082 Bitcoin Cash, 11,149.74262 Bitcoin Cash SV, 35,230.42779 Bitcoin Gold; 199,888.408 Litecoins; and 429,922.0131 Ether at the time of Cotten’s death.

As a result, USD 190 million in missing cryptocurrency is locked in offline digital wallets, but because Cotten was the only person with access to the encrypted passcodes, the funds are inaccessible. With the suggestion that the creditor lawyers’ fees should be capped at USD 100,000, payable by QuadrigaCX, the company’s lawyer was forced to admit, “As of today, we don’t have anything.”

He later claimed the money was to be made available by Cotten’s widow, Jennifer Robertson.

Three teams of lawyers from separate law firms based in Nova Scotia and Toronto have been selected to represent the creditors. Bennett Jones of Toronto and Halifax-based McInnes Cooper have already signed up 181 users who are owed about USD 22 million. McInnes Cooper lawyer Benjamin Durnford said one of the key roles of counsel will be communicating with affected users scattered around the world. Avoiding innuendo on Reddit, where anonymous participants often trade in rumor, would be an issue, he argued.

Meanwhile, Toronto-based Osler, Hoskin & Harcourt and Halifax-based Patterson Law representing 134 affected users owed about USD 19 million told the judge that one of its lawyers was luckily a cryptocurrency expert: “We don’t need to familiarize ourselves with cryptocurrency… We already have that.”

 

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Blockchain Association of Canada Merges with Chamber of Digital Commerce

Blockchain Association of Canada Merges with Chamber of Digital Commerce

The Chamber of Digital Commerce, Canada’s largest blockchain trade association, has decided to join hands with the Blockchain Association of Canada (BAC). The new organization will be named as the Chamber of Digital Commerce Canada. An official press release on the website of the Chamber of Digital Commerce confirmed the news of this partnership.

Tanya Woods, executive director and policy strategist of the BAC, will serve as the managing director of this new association. Woods has experience of working with Microsoft, BCE, the Canadian government and Nintendo. She stated in the press release that a strong and coordinated blockchain ecosystem is desired by the Canadian government and blockchain leaders. Such a system should facilitate a collaborative environment and ensure the progress of blockchain technology in Canada.

Executive chairman of the Blockchain Research Institute, Don Tapscott, expressed his views by saying that Canada had the potential to become a world leader in the crypto sector. He believed it essential for Canada to have a united blockchain community.

Established in July 2014, the Chamber of Digital Commerce comprises of 200 companies. These companies include tech-giants like Microsoft, Bitpay, IBM and Overstock. These companies are now looking to invest in blockchain technology.

Recently, in October 2018, reports came out that a blockchain shipping solution developed by IBM would be used by the Canada Border Services Agency (CBSA) on a trial basis. The blockchain-based system is expected to bring cost effectiveness, fewer errors and automation of distribution and trade processes.

Owing to its favorable regulations, low energy costs, innovation and high-speed internet, Canada is poised to become a global leader in the crypto sector.

 

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Crypto Exchange QuadrigaCX Funds Trapped in Cold Wallet as Only Dead CEO Had Access

Crypto Exchange QuadrigaCX Funds Trapped in Cold Wallet As Only Dead CEO Had Access

Another colossal misfortune greets 115,000 crypto traders who had their funds trapped in the now insolvent crypto exchange QuadrigaCX as it has reported that it is unable to access about USD 190 million of funds stored in the cold storage as well as fiat drafts held in custody, according to a filing for bankruptcy with the Nova Scotia Supreme Court on 31 January.

QuadrigaCX’s misfortune began when the founder and CEO Gerald Cotten reportedly died from Crohn’s disease in early December 2018, but the exchange waited until early January to announce his passing.

It was common practice for Cotten to move funds from the hot wallet into the cold storage for security purposes, and it was his sole responsibility. However noble the act – protecting users from hackers, – his passing has left the crypto exchange in a predicament, as only he has access to the cold wallet storages.

According to the affidavit submitted by Robertson, the storages hold 26,488.59834 Bitcoins; 11,378.79082 Bitcoin Cash, 11,149.74262 Bitcoin Cash SV, 35,230.42779 Bitcoin Gold; 199,888.408 Litecoins; and 429,922.0131 Ethereum as at 18 January and further reports indicated that the exchange was still accepting deposits after Cotten’s death.

The exchange also had challenges with fiat custody as funds that were deposited in a personal account were frozen – the company had no corporate account due to the nature of cryptocurrency business in the region, and funds operated through third-party has also been held back awaiting further order from the court, according to the affidavit.

A total of about USD 32.5 million in fiat is stuck and awaiting court proceedings before any action can be advised. Perhaps there’s hope for creditors funds to be paid back, which is however largely dependent on how the court proceedings turn out. According to the affidavit:

“The residual balance of these funds [once the cost of the proceeding is deducted], combined with net recoveries from other sources, would be made available to satisfy the claims of Quadriga’s creditors as confirmed through the CCAA process.”

The exchange hopes for a preliminary hearing on 5 February to appoint a third-party Ernst & Young Inc., to monitor the proceedings.

While exchanges provide a rather unique opportunity for digital asset owners to interact and have played important roles in the development of the cryptocurrency industry; seeing that most of the promised platforms are yet to launch a viable product, safety remains an issue.

Exchanges continue to battle on the frontline with compliance, market share, liquidity and security threats and perhaps will continue to do so until there are more standard protocols applicable for the industry. Quadriga’s unfortunate situation is bound to trigger some ill feelings towards crypto, and dent what little reputation has been built thus far. Fear that it might follow suit with the biggest cryptocurrency exchange fallout in the history of crypto – the Mt. Gox – is a possibility.

This incident has, however, further demonstrated the need for users of crypto exchange to have more active roles in the control of their funds, whether stored on an exchange or in a cold wallet in case of emergencies and unpredictable natural disaster as with the case of QuadrigaCX. As for exchanges, employing contingent approach such as multi-signature security systems can go a long way to prevent disasters such as this from scaling.

 

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Canadian Banker’s Association: Outdated Methods Must Give Way to Digital ID

Canadian Banker's Association_ Outdated Methods Must Give Way to Digital ID

The Canadian Bankers Association (CBA) is driving banks to move towards what it calls a “federated model” of digital IDs replacing outmoded paper models throughout the country’s financial system.

The new system suggested would link links federal and provincial systems and allow user identities to be authenticated electronically. Canada’s six largest banks have also been collaborating with SecureKey Technologies Inc for the past two years on a blockchain-based system called Verified.Me, which is now seen as one potential solution for making the switch for paper to digital a simple and efficient one.

Neil Parmenter, CBA’s CEO, wants to unlock what he calls the “full potential” of banking in Canada, arguing:

“We should be open to innovative identity verification methods like document review through a live video connection, use of blockchain, biometrics and other methods that have begun to see widespread adoption in other parts of the economy.”

CBA, which represents more than 60 domestic and foreign banks operating in the country, is looking at viable solutions to updating its current security systems in consultation with Canada’s Federal Finance Department. Its suggested form of “open banking” would allow financial data sharing with other companies and banks.

Last year, a paper released by the Bank of Canada brought forth a positive argument for the implementation of central bank digital currencies (CBDCs). Published on 26 July 2018, the paper written by the bank’s Senior Economist in the Funds Management and Banking Department, Mohammad R Davoodalhosseini, went into great detail to emphasize the potential economic welfare gains that a CBDC could have for both Canada and the United States.

 

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Canada Debates Crypto Campaign Donations as Elections Loom

Canada Debates Crypto Campaign Donations as Elections Loom

With the Canadian General Election scheduled for later this year, Elections Canada, the body responsible for overseeing federal political fundraising, is polling the relevant parties on the question of whether campaign contributions could be allowed in Bitcoin or other cryptocurrencies.

Elections Canada have posted online that “with interest in cryptocurrency on the rise, political entities have requested guidance on accepting contributions and conducting other transactions in Bitcoin or altcoins”. This indicates that a change in the way donations are normally conducted may well be on the agenda, given the rise in Bitcoin’s popularity in the country.

With the relevant political parties being asked to forward their view before 21 January, there is time left. Elections Canada terms cryptocurrency donations as non-monetary, in-kind contributions, claiming:

“Like money, they can be used to make purchases from businesses that choose to accept them. But unlike money, they cannot be placed directly into a bank account. Instead, cryptocurrencies can be sold for traditional currencies that can be placed into a bank account.”

This, according to Elections Canada, puts cryptocurrencies more on a par with stocks and bonds which the body regards as “a form of property”, thereby making them a non-monetary contribution.

For its part, the draft note provided by the body takes the position that cryptocurrency donations are non-monetary, in-kind contributions. It points out this correlation to other authorities such as Elections BC (British Columbia) and the US Federal Election Commission, as well as the Canada Revenue Agency.

This would mean that such offerings would be acceptable providing that cryptocurrency donations follow the same guidelines as set for other non-monetary contributions, exempting them from tax receipts.

Currently, none of Canada‘s major political parties currently offers the option for crypto donations and to date, no party has responded to the Elections Canada request.

 

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Kraken’s Law Enforcement Requests Tripled Last Year

Kraken's Law Enforcement Requests Tripped Last Year

US-based cryptocurrency exchange Kraken reported that the number of law enforcement requests it received in 2018 was three times that of 2017.

The infographic data shared by the exchange cites a total of 475 such requests last year, with a significant majority (315) coming from the US government despite the exchange also operating in Canada, the European Union, and Japan.

The Homeland Security Investigations (HSI) was responsible for the largest number of US government requests with a total of 91, followed by 67 subpoenas issued by the FBI, and 40 information requests from the Drug Enforcement Administration (DEA).

Kraken wrote on Twitter, ”You can see why so many businesses choose to block US users,” noting that the costs of dealing with such law enforcement requests are ”quickly becoming a barrier to entry.”

Peek at our Compliance team’s 2018 Transparency Report. You can see why many businesses choose to block US users. Cost of handling subpoenas (regardless of licenses) is quickly becoming a barrier to entry. Inquiries up 3x YoY. pic.twitter.com/YbyLEqhOUf

— Kraken Exchange (@krakenfx) January 5, 2019

While the US Securities and Exchange commision (SEC) made its fair share of headlines last year after cracking down on initial coin offerings (ICOs) and on cryptocurrency generally, Kraken’s data shows that there are at least 11 different government agencies directly involved with governing the industry.

The UK was responsible for the second largest number of requests to Kraken, totaling 61, followed by Denmark with 34. Kraken did not share whether the number of requests from law enforcement was at all correlated with the levels of use of the cryptocurrency exchange in each of the countries.

 

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Canada Urges Cannabis Retailers to Protect Customers’ Data

Canadian authorities are encouraging Canadian citizens to conduct cannabis purchases in cash in order to protect their personal information.

The Office of the Privacy Commissioner of Canada has published a document advising Canadian citizens that “adequate physical, technological, and organizational security measures are in place to safeguard personal information,” suggesting that that security protocols “must recognize and respond to the sensitivity of this information.”

The commissioner emphasizes that cannabis purchasers should minimize the amount of personal information given to retailers. Also, credit card purchases can be risky due to the online visibility of the credit card number and the cardholder’s name. Customers are also advised to ascertain before purchasing if their personal information is then stored online.

The reaction to this advice by eToro market analyst Mati Greenspan is that the liberalization of Canada’s cannabis sector will be a huge boon for local privacy coin adoption suggesting, “this will almost certainly increase the usage of privacy coins…in Canada,”

Under Canada’s new liberal cannabis legislation introduced in October, plants grown at home will be limited and only 30 grams will be allowed for personal possession in public. Also, strict driving legislation will allow police to track and penalize drug-impaired drivers through roadside saliva testing for over the limit THC content.

Supply chain management is sure to become a major factor under Canada’s new legislation. DMG Blockchain Solutions is currently negotiating with cannabis licensed producers, quality assurance labs, retail distributors, and government regulators, to develop a cannabis supply chain solution. DMG describes itself as a diversified blockchain and cryptocurrency company that works on end-to-end solutions to monetize blockchain’s ecosystem.

Statistics Canada says sales at cannabis stores in the two weeks following the landmark legalization totaled $43 million with different retail structures in each province and territory affecting the availability of cannabis across the country.

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