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High Court Delivers Judgement on User Assets at Hacked Exchange Cryptopia

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Hacked cryptocurrency exchange Cryptopia today informed its users that the High Court of New Zealand has delivered its judgment on the status of their compromised assets.

In a tweet thread published on April 8, the exchange shared the 74-page court document detailing the judgment, summarizing:

“Today, 8 April 2020, Justice Gendall delivered his judgment finding firstly, cryptocurrencies are “property” […] and secondly, that account holders’ cryptocurrency were held on multiple trusts, separated by individual crypto-asset type. This means that the cryptocurrencies are beneficially owned by the account holders and are not assets of the company.”

Some creditors to get less than 50% of claims

As previously reported, the now-defunct Cryptopia was the target of a security breach in January 2019, which continued for two weeks after its detection until the exchange managed to regain control of its wallets. 

In today’s judgment, Justice Grendall revealed that users’ assets on the exchange had been held in multiple trusts, each of which grouped together account holders holding a particular type of digital asset. 

The result is that account holders within each specific group are treated as the co-beneficiaries of the same trust. 

As to whether crypto assets qualify under New Zealand’s trust law, Justice Grendall firmly concluded that crypto is “a species of intangible personal property and clearly an identifiable thing of value.” 

As property, crypto assets are therefore, “without question […] capable of being the subject matter of a trust.” Should the liquidators succeed to recover the stolen assets, the judgment therefore holds that:

“They are to be dealt with pro rata within each specific trust for the digital asset concerned according to the amounts recovered assessed against the amounts stolen.”

While account holders will be reimbursed, Justice Grendall determined that the pool of liquidated assets available to creditors is likely to be around NZD 5.4 million [$3.22 million]. 

This amounts to less than 50% of the value of their claims, given that the total value of all creditors’ claims is an estimated NZD 12.7 million [$7.57 million], NZD 5 million ($2.9 million) of which is being sought by the tax authorities.

Identity troubles

A further detail in the judgment refers to cases where the assigned liquidator, Grant Thornton, might be unable to ascertain the identity of a particular account holder. In such instances, the affected digital assets are to be dealt with pursuant to New Zealand’s Trustee Act.

This is particularly relevant in light of a revelation from Grant Thornton in August 2019. The firm then explained that some Cryptopia customers did not have individual wallets and their funds were pooled together, as the exchange kept details of customer holdings in its database. 

As a consequence, the firm said it was impossible to determine individual ownership by relying on wallet keys.

At the time, Grant Thornton assured users that it was working to “reconcile the accounts of over 900,000 customers, many holding multiple crypto-assets, millions of transactions and over 400 different crypto-assets […] one-by-one.”

In December, Grant Thornton revealed it had recovered almost $11 million and disbursed $2.46 million to certain preferential creditors. However, the firm said it was still “not practicable to estimate a completion date for the liquidation,” adding that “no detailed reconciliation” process between customer databases and crypto assets held in wallets “had ever been completed.”





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How DeFi will kill the retail bank

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The world runs on consumer spending and consumer saving. It is everyday people who actually power the most important parts of the global economy and the global financial system. 

For consumers, this system runs through their retail bank. It is where most people save, spend and pay their taxes. This is the battleground for the coming fight: the battle for global consumer deposits.

Make no mistake, this will be the fight of the century. It will change the shape of the world more fundamentally than the internet has already. The internet was about information. DeFi is about capital — and as we all know, money is power.

Today, most people either hate or are indifferent to their bank. That is probably because they fine you for tiny mistakes, keep you on the phone for hours, give you the worst interest rates imaginable, and provide you with a user experience that borders on hostile.

That is not always the fault of the bank. Consumer regulation and controls have been mounting to the point that compliance is often one of the biggest cost centers for all retail banks. Such institutions cannot innovate because they are built to resist change, not to embrace it.

An irresistible opportunity

Decentralized finance has flipped the model on its head, delivering a new world of financial products, built using smart contracts that allow consumers to switch between providers in a matter of seconds, all at the click of a mouse.

Related: DeFi will bring global revolution to the traditional finance space

It is not that the DeFi model is just better — it’s simply fundamentally different. In the old world of retail banking, we had to trust the people that run banks. This trust is expensive. In the new world of decentralized finance, we trust the code that provides our financial services.

Protocols such as Aave, Uniswap and MakerDAO have the ability to directly control assets like USD Coin (USDC), Ether (ETH) and Wrapped Bitcoin (wBTC), enabling the rise of financial products that can operate 24/7, 365 days a year, with 100% uptime and no staff. It removes the cost of checks and balances. It takes handcrafted financial processes and turns them into automated programs.

Decentralized finance gives entrepreneurs an irresistible opportunity to truly compete in the world of global finance — a place that was once the exclusive realm of multinational corporations with eight-figure legal teams on retainer. Not only this, DeFi lowers the switching costs for a consumer to almost zero: I can move my capital from Aave to Compound to Uniswap in a matter of minutes, with precisely zero paperwork.

Related: DeFi-ing the odds: Why DeFi could rebuild trust in financial services

On DeFi, capital can flow almost instantly to the best value opportunities, and it provides the thing that global finance truly needs: real competition and real innovation. This competition is why DeFi will kill the retail bank. If I can get 15% APR in my favorite DeFi savings decentralized application, why would I ever keep my money in a bank?

With opportunities come threats

But right now, all is not well in DeFi. To date, DeFi on Ethereum has seen over $285 million in hacks, rewards are unfairly shared, and Ethereum continues to be congested and expensive to use.

The trust model of DeFi is code, not humans. The community is essential to the success of any ecosystem. To win, a platform must never get congested — no matter how many people are using it.

Related: Smart contract exploits are more ethical than hacking… or not?

We need a decentralized network where developers can build quickly without the constant threat of exploits and hacks, where every improvement will get rewarded, and where scale will never be a bottleneck. Because only then can the retail banks be slain and we get to see what great consumer finance truly looks like.

This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research when making a decision.

The views, thoughts and opinions expressed here are the author’s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.

Piers Ridyard is the CEO of Radix DLT, a secure decentralized network. Piers also founded and exited Surematics, a YCombinator company, and was mining on the genesis block of Ethereum in July 2015. Piers graduated from the University of Manchester and the University of Law and has a CFA level 1.



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Colombian capital supports blockchain and emerging tech with $2.3M fund

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Colombia’s capital of Bogotá is funding blockchain development as part of the city’s broader investment in innovative technologies.

According to a Monday announcement on the city of Bogotá’s official website, the municipal government will provide 8.8 billion Colombian pesos ($2.3 million) to local companies as part of four new programs in the city’s Innovation, Technology and Creative Industries Fund, or FITIC.

The new funding includes a contribution of of 2.8 billion pesos, ($739,000) to the development of local blockchain startups through a program called “Hub Blockchain Bogotá.” The project aims to support 100 blockchain-focused companies in order to boost their competitiveness on the global market and provide tech advice for implementing blockchain within participating companies.

The new innovation funding campaign is organized with support from the Superior Mayor of Bogotá, the District Secretariat for Economic Development, Jorge Tadeo Lozano University, state entrepreneurship body Innpulsa, and Singapore-based blockchain accelerator Tribe Accelerator.

Related: Colombia’s oldest commercial bank pilots crypto services

Bogotá Mayor Claudia Lopez took to Twitter on Monday to invite local businesses to apply for the program starting on June 25. “Each company will be able to receive from the FITIC from 10 to 50 million pesos in capital to be able to take their idea forward,” the mayor said.

Colombia has been actively exploring blockchain technology. Last August, the Colombian Ministry of Information Technology and Communications called on the public sector to adopt blockchain technology in payments, land registration, voting, data management, supply chain and others areas. Previously, Bogotá launched a series of free online courses on a broad spectrum of new technologies including blockchain.