national security

China Unlikely to Approve Oracle and Walmart’s TikTok Deal – Blockchain and Bitcoin Implications

China appears to be on edge regarding Oracle and Walmart’s deal with parent company ByteDance for TikTok’s US operations, calling it an “unfair” deal.

China is outraged by US’ TikTok demands

In addition, it appears that there are divided beliefs regarding what the TikTok deal entailed. While President Trump had said that the Oracle deal for TikTok “will have nothing to do with China” and that “all of the control is Walmart and Oracle, two great American companies,” the remarks appeared to have struck a sensitive chord among Chinese regulators.

The editor-in-chief for the Global Times, which operates as a tabloid for the official newspaper of China’s Communist Party, publicly said:

“Stop extorting. You think TikTok is a company from a small country? There’s no way the Chinese government will accept your demand. You can ruin Tiktok’s US business if US users do not object, but you can’t rob it and turn it into a US baby.”

The editor-in-chief added that it was “hard to believe that Beijing will approve such an agreement.”

Trump thinks TikTok is a breach of privacy

US regulators have recently declared that TikTok would transform into a new US-owned entity, dubbed TikTok Global. Four of the five board members would also be American, and that seemed to satisfy President Trump’s previous resistance towards the video-sharing app.

The United States president had declared on numerous occasions that the social app popularized by millennials posed a threat to national security, as it had been reported through a Wall Street analysis to have been tracking online user activity through questionable methods and without permission.

Why China would never green light the deal

According to Reuters, Beijing had opposed the forced sale of TikTok by ByteDance, stating that it would prefer to see the multibillion-dollar media app shut down in the United States, rather than to see it operated by predominantly American companies.

Speaking about the fact that Beijing would never okay the deal, the official news outlet for China’s leading Communist Party, Global Times, wrote:

“If the reorganization of TikTok under U.S. manipulation becomes a model, it means once any successful Chinese company expands its business to the U.S. and becomes competitive, it will be targeted by the U.S. and turned into a U.S.-controlled company via trickery and coercion, which eventually serves only U.S. interests.”

Furthermore, it stipulated that the underlying algorithm behind TikTok will never be shared with Oracle, despite the American tech company’s future stake in the media app.

Beijing would definitely keep the algorithm for its own purposes, as TikTok is alleged to share the same source code as Douyin, which is a China-based video sharing platform similar to TikTok. The latter, though deemed a global hit, is not available for download in China.

Blockchain and Bitcoin implications

TikTok currently boasts of approximately 100 million monthly active users in the US and is downloaded around 2 billion times globally.

If TikTok’s US deal is rejected by China, Bitcoin(BTC) and blockchain may potentially benefit.

Should ByteDance’s business agreement with Oracle be dismissed, this would mean that the US may lose TikTok operations. This would give way to other social media platforms, such as Voice, to surge in popularity among the former American TikTok users, who will be looking into other platforms for entertainment.

Voice, which is birthed from the high-performance blockchain platform Block.one, may greatly benefit from the ban as it can potentially scoop up the 100 million monthly users. As it is blockchain-based, this may also address the privacy concerns posed by Donald Trump and his administration.

Subsequently, this may lead to a spotlight on Bitcoin and cryptocurrency, as they run on blockchain ecosystems.

At the time of writing, Bitcoin is trading north of $10,400, after a surge past the $11K mark over the weekend. Bitcoin whales remain bullish on Bitcoin and are expecting it to surge, as it seems to be “the only long-time protection against inflation,” according to Gemini co-founder Tyler Winklevoss.

Trump's National Security Council Sees DLT as Critical Weapon in US-China Tech War

The United States National Security Council has named distributed ledger technology (DLT) as one of the most critical focus areas in America’s battle to maintain technological dominance against China and Russia.

The National Security Council (NSC) of the Trump Administration believes that the technology that gave rise to blockchain and cryptocurrency is one of twenty critical and emerging technologies where the United States must remain leaders in the US-China tech cold war.

As published in the National Security Council’s report on Thursday entitled “National Strategy for Critical and Emerging Technologies”, DLT is one of twenty focus areas that require prioritization in development, adoption, and investment—to ensure the United States remains the leader in global technology.

Other emerging and disruptive technologies that are on the NSC’s shortlist include AI, data science, quantum computing, weapons of mass destruction deterrent technology and space technologies.

The NSC document reads :

“Throughout our history, American achievements and leadership in science and technology (S&T) have been a driving factor for our way of life, prosperity, and security. However, American leadership in S&T faces growing challenges from strategic competitors, who recognize the benefits of S&T and are organizing massive human and capital resources on a national scale to take the lead in areas with long-term consequences.”

While the document clearly identifies areas of technology that must be prioritized and researched, it provides no clear roadmap to achieve the strategy nor does it provide real insight into the cost of the tech implementation.

Tech War Standings

A recent white paper by Amazon Web Services, IBM, and Deloitte among others, highlighted that the US Department of Defense is falling behind its rivals in its global military blockchain race with Russia and China.

The report warned:

“The two superpowers that pose the greatest threat to the US are both heavily investing in both the research and development of blockchain technology.”

The briefing highlights China as being on the “economic warfare” offensive with its central bank digital currency or DCEP, while Russia is on defense with a lab dedicated to blockchain cyber threat mitigation.

In addition, China has been advancing in leaps and bounds in their own pursuit of DLT and blockchain. The Chinese Blockchain Service Network (BSN), has been open for commercial use since April 2020, after six months of internal testing. The BSN provides small businesses and individuals to operate blockchain applications easily without using a private blockchain network. The network also aims to lower costs, estimating that hosting a decentralized application (Dapp) would only cost around $260 – $390 a year.

US Lawmakers Question Tron Founder Justin Sun and DLive CEO on Extremist Content Following Capitol Riots

Two U.S. lawmakers have published an open letter to Tron founder Justin Sun and DLive CEO Charles Wayn in the wake of the Capital riots—asking them to explain how they moderate extremist and white supremacist content.

The letter was published by U.S. lawmakers Reps. Raja Krishnamoorthi (D-Ill.) and Jackie Speier (D-Calif.) on Feb. 9 and it also specifically asked Sun and Wayn whether DLive identified any crypto donations from foreign entities to the individuals present on Jan. 6 at the Capitol Riots.

The pair of U.S. lawmakers—who are part of the House Select Committee on Intelligence—published the open letter on The Verge on Tuesday amd asked Sun and Wayn to explain how they plan to prevent extremist content from being broadcast on the crypto streaming platform in the wake of last month’s attempted insurrection in Washington at the confirmation of President Joe Biden.

The US representatives asked for Sun and Wayn to explain in detail how DLive, the decentralized video streaming alternative to YouTube, can protect younger users from extremist content and whether the company has any methods to identify bad actors financing extremist content.

DLive is a decentralized video streaming platform that aims to disrupt the existing monopolized video streaming services on the internet, which are dominated by a few market players such as Twitch and YouTube. DLive is a subsidiary of BitTorrent, which was acquired by Justin Sun’s Tron Foundation in 2018. Users are paid through crypto from their viewers when the content creator stream videos.

During the Capitol hill insurrection in January, several far-right extremists leverage DLive to live stream their attack on the Capitol building. DLive CEO Wayn announced after the domestic attack that only gaming content would be able to receive payments.

Several of the live streaming extremists on DLive were arrested following the attacks and the open letter addresses these users, it reads:

“Several of these individuals earned thousands of dollars in DLive’s digital currency that day, and a number received large donations through the platform ahead of the event. One individual received $2,800 in a live stream on January 5th, 2021, in which he encouraged his viewers to murder elected officials.”

The letter also asks:

“Did DLive or BitTorrent identify any foreign-based blockchain donations to individuals who were subsequently removed from the platform after the January 6th Capitol riots?”

The two US lawmakers who authored the letter are part of the House Select Committee on Intelligence—one of the congressional committees looking at how the Capitol Riot insurrection occurred and whether crypto played a role in financing it.

A hearing will be held later this month by the House Financial Services Subcommittee on the financing of domestic terror following the Jan. 6. Insurrection on Capitol Hill where the discussion will likely focus on a $500,000 transaction in Bitcoin made by a French extremist and blogger to pay right-wing figures who appear to be heavily involved in the attack.

Court Upholds OFAC's Designation of Tornado Cash Under IEEPA

The United States District Court for the Northern District of Florida issued a decision concerning the designation of Tornado Cash by the Office of Foreign Assets Control (OFAC). The case, identified as Case 3:22-cv-20375-TKW-ZCB, revolved around the designation of Tornado Cash under the International Emergency Economic Powers Act (IEEPA). The IEEPA authorizes the president to declare national emergencies to handle unusual foreign threats to the United States’ national security, foreign policy, or economy. Utilizing this authority, the president had declared national emergencies concerning malicious foreign cyber-enabled activities and North Korea’s nuclear missile program.

Tornado Cash, a service utilizing smart contracts on the Ethereum blockchain to provide a degree of anonymity to transactions, was designated by OFAC on August 8, 2022, and later re-designated on November 8, 2022. This designation was challenged by the plaintiffs, who are users and a non-profit cryptocurrency advocacy organization. They argued that the designation of Tornado Cash’s core software tool exceeded OFAC’s statutory authority since it is mere computer code and no foreign entity has a legally recognized “property interest.” The designation listed 91 internet addresses affiliated with Tornado Cash, aiming to block and prohibit transactions through these addresses.

The Court’s decision upheld OFAC’s designation. It rejected the plaintiffs’ argument, stating that the operative language in the IEEPA is “any interest,” not “property interest” or “ownership interest.” According to the Court, Tornado Cash’s founders, developers, and Decentralized Autonomous Organization (DAO) have an indirect beneficial “interest” through the service’s usage, which increases the value of Tornado Cash’s governance token, TORN. The Court explained that an increased usage of Tornado Cash enhances the value of TORN, held by these entities, and thus establishes a financial “interest” for the purposes of the IEEPA.

Furthermore, the Court found that OFAC’s decision was not arbitrary or capricious and was adequately justified based on the foreign-affairs rationale, particularly given Tornado Cash’s involvement in laundering cryptocurrency for the benefit of the North Korean government. The Court also dismissed the plaintiffs’ First Amendment claims, stating the designation didn’t implicate Plaintiffs’ First Amendment rights as there are other privacy tools available for them.

In conclusion, the Court denied the plaintiffs’ motion for summary judgment and granted the defendants’ cross-motion for summary judgment, thereby upholding OFAC’s designation of Tornado Cash under the IEEPA. This judgment underscores the legal challenges faced by privacy-centric blockchain services in light of national security and foreign policy concerns.

Coinbase Bolsters Advisory Board with Security Experts

Coinbase, the prominent cryptocurrency exchange platform, has strategically augmented its Global Advisory Council with the induction of four esteemed national security experts on November 7, 2023. This move comes as part of Coinbase’s ongoing efforts to navigate the intricate landscape of global crypto regulations and strategic industry decisions. The newly appointed members are Dr. Mark T. Esper, Stephanie Murphy, Frances Townsend, and David Urban, each bringing a wealth of experience and deep insights into national security, which is becoming increasingly intertwined with the crypto and blockchain sectors.

Dr. Mark T. Esper, who served as the U.S. Secretary of Defense from 2019 to 2020, has a distinguished history in public service, the military, and the private sector, having held key positions such as Secretary of the Army and Deputy Assistant Secretary of Defense. He also has a background in think tanks and business associations and is decorated with multiple awards.

Stephanie Murphy, a former U.S. representative and businesswoman, represented Florida’s 7th congressional district and was intricately involved in national security policymaking during her tenure at the Department of Defense. Her Congressional committee assignments in Armed Services, especially as the vice chair of the Subcommittee on Intelligence and Special Operations, underscore her expertise in the field.

Frances Townsend’s career spans various roles, including serving as the Counterterrorism and Homeland Security Advisor to President George W. Bush and leading corporate affairs for notable corporations. Her current advisory roles with several high-profile organizations reflect her diverse experience in national security.

David Urban’s extensive experience over three decades in the military, law, business, and public service, coupled with strategic advisory roles in various companies, positions him as an asset to the Council. His teaching stint at Carnegie Mellon University and affiliations with strategic groups further add to his credentials.

These appointments are a part of Coinbase’s initiative to maintain a competitive edge in the rapidly evolving crypto landscape. They will work alongside existing members like former Senator Patrick Toomey and other distinguished figures from different sectors. The Council will particularly focus on the repercussions of regulatory uncertainty for crypto in the U.S., assessing the potential economic and national security ramifications. It will also examine the influence of crypto and blockchain on sectors ranging from international payments to internet governance.

The Global Advisory Council, which operates in conjunction with Coinbase Asset Management Academic and Regulatory Advisory Council, is tasked with providing insights that contribute to advancing Coinbase’s mission. The Advisory Council is poised to play a crucial role in steering Coinbase through the complexities of global crypto regulations and strategies.

US Congress Proposes Bill to Restrict Government Interactions with Foreign Adversarial Blockchain Networks

On November 8, 2023, the United States Congress witnessed the introduction of a significant piece of legislation – H.R.6307. Sponsored by Representative Zachary Nunn [R-IA-3], this bill aims to defend against the economic and national security risks posed by foreign adversarial blockchain networks. The bill has been referred to several key committees, including the House Foreign Affairs, Financial Services, and Intelligence (Permanent Select), for comprehensive consideration.

Central to the bill’s purpose is the prohibition of U.S. government personnel from engaging in business with blockchain companies based in China. This move signifies Washington’s growing skepticism towards China’s role in the cryptocurrency sector. The bill specifically targets iFinex, the parent company of Tether and issuer of USDT, the leading stablecoin by market cap. Co-led by Representatives Zach Nunn (R-Iowa) and Abigail Spanberger (D-Va.), the Creating Legal Accountability for Rogue Innovators and Technology (CLARITY) Act, extends these restrictions to include transactions with Chinese-based blockchain networks.

A key driver behind this legislative move is the concern over national security and data privacy. The bill seeks to prevent foreign adversaries from gaining backdoor access to critical national security intelligence and the private information of Americans. Rep. Nunn highlighted the urgency of addressing China’s significant investments in blockchain infrastructure, citing the potential risks to national security and data privacy.

The bill delineates clear restrictions for government personnel, banning transactions with specific entities like The Spartan Network, The Conflux Network, and Red Date Technology Co., the latter being pivotal in China’s national blockchain initiative and its central bank digital currency (CBDC), known as the digital yuan.

In light of these developments, Red Date Technology responded by clarifying the intended use of the BSN Spartan Network for conventional IT, not crypto. The company has invited U.S. officials to review its open-source code, encouraging independent assessments of their technology.

This legislative proposal follows a trend of increased scrutiny over Chinese technology in the U.S., paralleling earlier actions like the ban on TikTok for government personnel over security concerns. The bill reflects heightened vigilance over foreign involvement in critical technological sectors and the perceived risks they pose to national security.

The introduction of H.R.6307 marks a significant moment in U.S. legislative efforts to address the challenges and risks associated with foreign adversarial blockchain networks. It underscores the importance of maintaining national security and data privacy in the face of rapidly evolving technological landscapes, particularly in the realm of blockchain and cryptocurrencies.

CFTC Report Underscores DeFi Risks and Calls for Action

The Commodity Futures Trading Commission (CFTC) of the United States, a key regulator of derivatives markets, has released a comprehensive report on decentralized finance (DeFi), highlighting both its potential and the significant risks it poses. This development marks a critical juncture in the oversight of the burgeoning DeFi sector, which has been a subject of both excitement and concern in the financial world.

Understanding DeFi and Its Challenges

DeFi represents a transformative shift in the financial sector, leveraging blockchain technology to create a system where financial products and services exist on a decentralized network, rather than being controlled by traditional financial institutions. This innovation offers promising opportunities for efficiency, accessibility, and financial inclusion. However, the CFTC report emphasizes that the lack of clear lines of responsibility and accountability in DeFi poses significant threats. These include risks to consumer and investor protection, financial stability, market integrity, and even national security.

Key Risks Identified

The CFTC’s findings are sobering. The absence of central oversight in DeFi creates vulnerabilities to fraud, hacking, and other financial crimes. The report stresses the urgent need for coordinated action to address these challenges, recommending an increase in technical capacity and data monitoring to better understand DeFi systems. Additionally, it highlights the importance of domestic and international collaboration among regulators and developers to identify and assess risks like information asymmetry, conflicts of interest, and operational vulnerabilities.

Policy Recommendations

To mitigate these risks, the CFTC report offers several recommendations. Policymakers are urged to focus on digital identity, know your customer (KYC), and anti-money laundering (AML) regimes, along with calibration of privacy in DeFi. The report advocates for prompt coordination between government and industry players, suggesting specific measures to strengthen AML/CFT protections in DeFi through collecting identity information and identifying compliance requirements.

The CFTC also recommends evaluating potential policy responses, including disclosure rules, third-party auditing, and governance frameworks. The goal is to foster an informed regulatory approach that balances innovation and responsible oversight, ensuring that the benefits of DeFi are not overshadowed by its potential risks.

Global Cooperation and Industry Engagement

Recognizing the global nature of DeFi, the report underscores the necessity of international cooperation for cohesive governance. Engagement and collaboration with DeFi builders, regulatory efforts, and international standard setters are highlighted as crucial for developing effective regulatory interventions. This approach is aimed at minimizing costs and avoiding unintended consequences while ensuring market integrity and consumer protection.

Conclusion

The CFTC’s report serves as a major step forward in understanding and regulating the DeFi space. It calls for a balanced approach that nurtures innovation while safeguarding against the risks inherent in a decentralized financial system. As the DeFi sector continues to evolve, the insights from this report will be instrumental in shaping a nuanced governance framework that supports technological advancement while protecting the public interest.

US Officials Warn of AI's Role in Cyber Crimes

The evolving landscape of artificial intelligence (AI) is not only a frontier of innovation but also a source of burgeoning challenges, especially in cybersecurity and the legal system. Recent developments and commentary from U.S. authorities shed light on strategies to manage the potential risks associated with AI advancements.

AI in Cybersecurity: A Double-Edged Sword

AI’s role in cybersecurity is emerging as a critical concern for U.S. law enforcement and intelligence officials. Notably, at the International Conference on Cyber Security, Rob Joyce, the director of cybersecurity at the National Security Agency, underscored AI’s role in lowering technical barriers for cyber crimes, such as hacking, scamming, and money laundering. This makes such illicit activities more accessible and potentially more dangerous.

Joyce elaborated that AI allows individuals with minimal technical know-how to carry out complex hacking operations, potentially amplifying the reach and effectiveness of cyber criminals. Corroborating this, James Smith, assistant director of the FBI’s New York field office, noted an uptick in AI-facilitated cyber intrusions.

Highlighting another facet of AI in financial crimes, federal prosecutors Damian Williams and Breon Peace expressed concerns about AI’s capability in crafting scam messages and generating deepfake images and videos. These technologies could potentially subvert identity verification processes, posing a substantial threat to financial security systems and enabling criminals and terrorists to exploit these vulnerabilities.

This dual nature of AI in cybersecurity — as a tool for both perpetrators and protectors — presents a complex challenge for law enforcement agencies and financial institutions worldwide.

AI in the Legal System: Navigating New Challenges

In the legal arena, AI’s influence is becoming increasingly prominent. Chief Justice John Roberts of the U.S. Supreme Court has called for cautious integration of AI in judicial processes, particularly at the trial level. He noted the potential for AI-induced errors, such as the creation of fictitious legal content. In a proactive move, the 5th U.S. Circuit Court of Appeals proposed a rule mandating lawyers to validate the accuracy of AI-generated text in court documents, reflecting the need to adapt legal practices to the age of AI.

Diverse Responses to AI Regulation

In reaction to these multifaceted threats, President Biden’s Executive Order on the safe, secure, and ethical use of AI marks a significant step. It seeks to establish standards and rigorous testing protocols for AI systems, especially in sectors of critical infrastructure, and includes a directive for developing a National Security Memorandum for responsible AI use in the military and intelligence sectors.

The responses to these regulatory efforts are varied. While some experts like Senator Josh Hawley favor a litigation-driven approach to AI regulation, others argue for swifter, more direct regulatory actions given the rapid pace of AI advancements.

Echoing these concerns, the Federal Trade Commission (FTC) and the Department of Justice have warned against AI-related civil rights and consumer protection law violations. This stance is indicative of an increasing awareness of AI’s potential to amplify biases and discrimination, underscoring the urgent need for effective and enforceable AI governance frameworks.

China Alerts on Foreign Mapping Firms Using Crypto Rewards for Sensitive Data Collection

The Chinese Ministry of State Security (MSS) issued a warning on February 20, 2024, about certain foreign mapping companies engaging in activities that potentially compromise national security. According to Zaobao, these companies incentivize individuals within China to collect sensitive geographical data through the use of specialized equipment and “check-in” activities on maps, in exchange for crypto currency rewards. This practice leads to the unauthorized collection and real-time transmission of sensitive geographical information to servers located outside of China. The MSS highlighted that this activity is particularly concerning when it involves targeted areas, offering high rewards for their data, and thus attracting collectors to these sensitive locations.

The MSS’s concern stems from the increasing use of advanced technologies such as big data, which, while improving navigation precision and convenience in daily commutes, also raises the risk of sensitive information leaks. This unauthorized data collection poses a significant threat to national security, as the leaked information, including traffic networks, important infrastructure, and military facilities, could be technically analyzed and processed by foreign entities.

The statement further emphasized the integral role of geographical spatial information data in economic and social development, and the danger it poses once sensitive information is leaked. To counteract this threat, the Chinese national security authorities, in cooperation with relevant departments, are taking measures against both domestic and foreign individuals and enterprises involved in the illegal collection and smuggling of China’s sensitive geographical spatial information data. The aim is to prevent the illegal outflow of such data and mitigate the risks associated with data leaks.

Moreover, the MSS clarified that collecting and transmitting geographical spatial information data across borders without the necessary qualifications for mapping services in China might violate various Chinese laws, including the Counter-Espionage Law, the Surveying and Mapping Law, and the Data Security Law. The statement underscores the close link between geographical spatial information data and national security, highlighting the actions being taken to safeguard China’s sovereignty, security, and developmental interests from unauthorized and illegal data collection activities by foreign companies and individuals lacking the proper mapping qualifications within China.