Topic: So, stock exchange is not allowed in usa using bitcoins? - page 5. (Read 11624 times)

Thank you for your compelling legal argument.  The first entity which gets dragged into court over Bitcoin should hire you to represent them.

Not just Pty Ltds (who have to give ASIC details related to share-holdings).  Ltd companies have to maintain a share registry which can be inspected by the public and organisations which have members (such as unions and non-profits) have to maintain records of membership.

At law, regardless of how many Bitcoin enterprises have styled themselves in an effort to make themselves sound legitimate, most of them are either sole traders or simple partnerships - meaning that the business has no separate legal existence from its owners and that they have full personal liability in respect of its activities.

It's even possible that by using language which has a specific legal meaning to inaccurately describe their operations, some Bitcoin enterprises have intentionally misled their users in a manner which is an offence in and of itself.

Wrong. Let me address point by point.

Every object in this Universe is a stored value. Because every object that exists has some value. Stored value concept is flawed.

If they treat bitcoin as commodity then they should treat bitcoin stock exchange as barter exchange!

Bitcoin is not a payment processing protocol. If it is then every message or email sent is a payment and is subject to monetary regulation!?

Bitcoin is not money. Bitcoin network is a system for announcing trust relations between people. One bitcoin is a standard measure for trust on this network. By assigning 2 standard measures of trust to Bob's public key and 1 standard measure of trust to Carol's public key, via the block chain Alice announces to the world that in this particular moment she trusts Bob twice as much than Carol. Nowhere in the world to my best knowledge trust relations between people are taxable or subject to monetary regulations!

There were no actual registered companies on glbse. It was mostly people listing their mining rigs and other things.

The other funny part is that here were no companies that even accepted fiat it was mostly mining operations.

I doubt any glbse "companies" actually listed any of their glbse shareholders on a shareholder register.

At least in Australia a pty ltd company needs to have a share register somewhere. Since you didnt know who owned your shares at any time on glbse there was no way to keep that register thus to list you are probably breaking at least some company laws.

The only sane course is to assume that all Bitcoin-based businesses are illegal whether they appear to be so or not.

Even if you think it's completely lawful protect yourself by running it in a way that you'd be safe even if it was illegal.

Of course one thing which we've seen happen with Bitcoin businesses is them starting out handling small amounts of other people's funds and eventually handling large amounts.  There'll likely always be a threshold above which operators will be required to do the full box and dice registration, and operators who don't plan for that from the beginning should probably be avoided or you are just going to see lots of businesses closing down when they reach that threshold because they either can't be bothered with or can't afford the registration process.  The is all the kind of stuff which should be allowed for in the business plan of any viable enterprise anyway.


What you believe the law should be doesn't affect how it operates in the real world.  That Bitcoin is intended to be a currency is explicitly stated in the "official" documentation regarding the protocol.  Satoshi himself descibes it as "electronic cash", so you're not going to get far arguing that it's merely a payment processing method.  Even if it was just a payment processing protocol, payment processing is subject to regulation.  So are commodities.  So is stored value. 

You'll grow someday, puppy. Then you'll understand. Patience.

i know by using bitcoins it wont make all laws go away lol,
but why does SEC not take over those stupid virtual stock exchanges where you can get real cash back?

You gotta love this place. Some  irony that a well thought out,  reasonable and informative post like Mike Hearn just wrote is followed by a single line post showing drop dead stupidity, ignorance and even inability to read whats been written already.

It does! Bitcoin is not money. A stock exchange that doesn't deal with money shouldn't be regulated by the government.

I think it's worth trying to understand the wider context around these sorts of laws and regulations (as noted elsewhere, regulations are simply laws created by unelected civil servants).

Securities laws were introduced in the 30s and extended many times to deal with fraud and abuse related to investments. You don't need to look very far in the bitcointalk forums to find the sorts of scams the regulations are intended to prevent. Arguably there's no need for regulations to stop people investing into obviously bogus schemes like the one run by pirateat40 because "caveat emptor" should suffice, but many problematic investments did not appear so obviously absurd and hence securities laws were passed to force transparency.

The underlying goal of these laws is to ensure investors understand what they are investing in. If you look at the 34 page long SEC Form 1-A it is asking questions like:  who is issuing this security, what is their background, what are they doing and what are the risks involved? Note that not stating things has been interpreted by the courts as fraud in the past, so filling out this form often involves considerable amounts of disclosure.

For example, had pirateat40 attempted to comply with these regulations, he would not have been anonymous and he would have had to explain how he was getting the returns he promised. Obviously, he didn't have any interest in doing either of these things as the explanations would have been unsatisfactory.

So as far as financial regulations go, the spirit of securities laws is pretty reasonable. This is especially the case when you recall that we all live in strongly inflationary environments today, which means the only way to save money for retirement is to give all your savings to a third party so they can invest it for you. In an environment where everyone is literally forced to hand over their life savings to the securities market at least 50% of all investors will be of below average intelligence, so an overbearing "nanny state" is understandable.

Where things come unglued is the intersection of old laws with new technologies. Securities laws have built-in assumptions that are invalidated by new capabilities we are developing via Bitcoin related research. Primarily, they assume that (a) securities are issued and traded on a small number of exchanges (b) exchanges are businesses that have a geographical scoping and (c) securities have inherently high overheads. In future none of these things will be true.

If a security is offered over the internet, is it being "sold into a state" from the USAs perspective? Probably. Does that mean you should have to try and simultaneously comply with every countries and country sub-regional laws simultaneously simply to issue a bond online? That would be absurd and unhelpful, and almost certainly impossible given that countries requirements often conflict - but it's one interpretation of existing laws.

If a security is not sold on an exchange at all but is done using some kind of peer-to-peer network, then we stumble into a whole other field of problems. Technically the rules around operating securities exchanges would become irrelevant, but the regulations governing the issuance of the securities would still apply. That's not inherently a problem (the principle that people should know what they're investing is still helpful), the problem is the proportionality of the regulations. The assumption that issuing a bond or stock is already complicated so making it even worse doesn't matter, is a huge stumbling block for any kind of lightweight market where issuers may be individual citizens or one-man companies. Once technology makes issuing a bond a one-click operation, a 34 page form seems ridiculous unless you're trying to raise millions of dollars. And it's not just the complexity of the paperwork. Many countries fund the regulatory agencies via fees levied on those being regulated! So that right there basically kills the idea of having lightweight P2P markets for issuance of micro-securities.

It's not all bad news. Technology is always ahead of the law and competent lawmakers know that. For instance, crowdfunding platforms like Kickstarter were in a legally grey area because the projects there could have been interpreted as being securities. Governments around the world are looking at passing laws that explicitly legalize what they're doing, and they're debating the compliance requirements for them now. As always the concern is how to minimize both fraud and paperwork. It's unlikely Kickstarter, or people who raised money via it, will ever be prosecuted for violating securities laws even if technically that might be possible.

I'm hopeful that in future if decentralized bond/stock markets become popular, the law will be amended to ensure the requirements are proportional and handle jurisdictional issues better. Most likely, waiving some of the requirements if the securities are below a certain size and dropping the requirements to follow a countries laws if a security is merely purchasable there. That sort of thing already happens, we just need more of it. I doubt anonymous securities will ever be allowed unless somebody can find a really compelling use case for them.

This is the TL/DR version.  Puppet expressed it in a paragraph what I rambled on about for pages.

See this is a misnomer

If buying drugs with dollars on the street corner is illegal, then buying drugs over the internet using bitcoins is just as illegal.  Bitcoin doesn't "magic" away laws simply because ... Bitcoin.
Likewise if selling unregistered securities for USD is in violation of US securities law then accepting Bitcoins didn't magically put it out of the jurisdiction of the SEC.    So a potential business owner has two options.  Make your business legal within the law (MtGox) or accept it is illegal and take steps to ensure the law can't reach you (Silk Road).  GLBSE did neither.  It was blatantly in violation of US securities law yet remained publicly known and operated from a state with close ties to the US.

First I am not advocating such policies nor do I think they are completely logical however the "long arm of the (US) law" is indeed long.  If you open your exchange in say Somalia you likely are safe (unless the DOD wants to test out some new reaper drone on a "financial enemy of the state") however if you are in a country which has "normal" relations with the US well your fraked.  Your own country will turn you, your assets, your servers, and everything else the DOJ asked for in a split second (and be happy about doing it).  Just ask the people who ran poker sites where it was "legal" and offered play to Americans (in violation of US law).  

As for:

Generally speaking (this applies for any law in any country) when something is deemed illegal it isn't the responsibility of the entity making it illegal to give you an "out".   It would be like saying "wait selling Marijuana is illegal how would I go about legally selling marijuana".    However you already expressed the "out" you just don't like it.  Collect KYC/AML information from all participants.  That combined with IP monitoring, and blacklisting known proxies gives you pretty good deniability.  If an American still bought securities on your site it would be pretty easy to prove you didn't have the INTENT to break the law.  Generally speaking (once again the real answer is consult legal counsel) is that violation of any law required INTENT.   While your activity may be technically unlawful (1 out of 200,000 participants is an American despite your best efforts) it doesn't rise to criminality.

One last point, I was just using US because it is the laws I am most familiar with.  I am 99% sure  that every other "first world" country had similar laws and an SEC equivalent used for regulation.  So it isn't just a matter of block Americans it becomes block Americans, French, Canadians .... .  That being said there likely are ways to get bend the law.  If one operated an exchange out of a financial privacy country ("aka offshore"), accepted connections only via tor, and made payments only via Bitcoin (think Silk Road equivalent for securities) while it likely would still be on the SEC radar there wouldn't be much they could do about it.

The way GLBSE went about it was just asinine.  It was just anonymous to bring in every scammer, huckster, and conman on the planet while just public enough to ensure that eventually it would bring the attention of an entity like the SEC.

Its funny people keep thinking that because its bitcoin related that its a legal grey area or unregulated.
That bitcoins are used on GLBSE doesnt matter, what does matter is that its an exchange for unregistered securities. Its like silk road, its not because they use bitcoins for payments that its illegal, its the weapons and the drugs. Duh.

See wikileaks

Read up on the actions taken by the US DoJ against offshore services which were offering online gambling services to US residents.  The gambling wasn't illegal per se but transferring money through US entities for that purpose of allowing US residents to gamble online was.  The DoJ seized the domains of the operators and froze the accounts of their payment processors.  Those services now require proof of residence from their clients.

Many nations already have AML/KYC regulations which require consumers of financial services to be identified by the service operators - that information usually requires proof of both identity and address.  In many countries, service operators would be breaking their own nation's laws by not collecting that information whether or not they offered their service to US residents.

I don't think currently there is anyone have enough knowledge about BTC from legal point of view, it is a totally different mindset when working with an internet currency, lot's of things are virtual, and our traditional laws mostly apply to physical things

That's unnecessary. They will simply be labeled "enemy of the state."

I see this stated often, but how exactly is this the case, either from a "legal land" standpoint or a logical one? Can someone doing something completely legal in their country magically fall under the jurisdiction of the United States merely because they don't exclude citizens of the United States from their business? How would you even go about that, without collecting and verifying identifying information for every single user of your service?