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Topic: The altcoin topic everyone wants to sweep under the rug - page 10. (Read 24383 times)

sr. member
Activity: 420
Merit: 262
I want to add that I realize the legal issues make any PUBLIC pre-sale/pre-mine choice dubious. If you do public ICO then the tokens must be registered as securities. If you do PRIVATE pre-sale and then PUBLIC royalties from mining as Zcash proposes, then the miners apparently have to register as Money Service Businesses under FinCEN regulations and the coming G20 plan to harmonize these regulations starting in 2017.

Appears the only options for legal distribution are PRIVATE ICOs (that can include any qualified investors as so defined by the SEC but you can't advertise this to the public-at-large and has to be viral within the qualified investor social network).

Or via PUBIC proof-of-work mining.

IANAL yet I think Ethereum violated the securities law.

Some have also claimed that PUBLIC airdrops might be legal, when these are not marketed as investments but rather for-use tokens.
sr. member
Activity: 420
Merit: 262
Zcash does not understand this thread about funding and distribution models and I also point out how the recent Ethereum shrilling has thus made Ethereum illegal:

Have you done[published very transparently and with equal emphasis to other technobabble hype] any analysis?

You should be asking Ethereum that question.

Did Nick "Satoshi" Szabo mention any such analysis during his apparent endorsement of Ethereum in his presentation where he promoted centralization as a problem.

Did Ethereum just violate the SEC securities law by underpromoting transparency (c.f. the linked Coin Center report), e.g. hiding it in obscure layers as r0ach has shown and put talking head Vitalik on a stage to promote the shit out of it with technobabble.

> There's actually a good reason for securities regulators to look critically at such deals —
> because they are an opportunity for the seller to take advantage of the buyers, and to find
> buyers who are naive or vulnerable. An ICO is an acute opportunity for a "pump-and-dump"
> scam. I didn't want even the appearance of the possibility of such a thing to be associated
> with Zcash. I also didn't feel comfortable taking money from people who may be ill-informed
> and who may be unable to afford the loss if the project were to fail.
>
> It's ironic: there is a certain segment of the cryptocurrency world who considers an open ICO
> to be good because it exposes a bunch of self-selected people to the upside, but this is the exact
> same reason that securities regulators such as SEC regard such things as potentially bad: because
> they expose a bunch of self-selected people to the downside! (And insidiously, the cost to the
> buyers is potentially to the benefit of the seller.)

But you have steadfastly ignored the numerous times I (shelby3 on the Zcash forum and Zooko's AMA) have asked you to comment on the FinCEN regulations which seem to require that all Zcash miners will have to apply as Money Service Businesses (and note even the Coin Center report mentions FinCEN at the top of page 3), if you require miners to transfer 11% of the coinbase block rewards to your corporation. Even if you build in the protocol the requirement that 11% of the coinbase is to be transfered to your foundation, the miner still is the one who creates the block and decides on his own free will whether to honor the protocol or fork the protocol. This is very dubious and I don't think miners will risk it! You may think that FinCEN regulations do not apply globally, but the G20 has announced plans to cooperate against money laundering (and the recent false flag operation in France is being used as another excuse just as that false flag 9/11 got the BigT Lie rolling with the resultant "Patriot" Act). You think you are clever, but you are digging your grave by monkeying around trying to skirt USA regulations, which you've now admitted in public above. Not good. You are starting to demonstrate that you are not competent to run this operation. Please stop being obstinate and wake up to the realities.

That will kill your coin because it means that FinCEN controls your coin.
sr. member
Activity: 420
Merit: 262
Warned Zcash their plans for an 11% royalty on coin emission may run afoul of FinCEN guidance, and also suggesting they read this thread about the Howey test.

Surely team Zooko have considered this and have a plan to meet any fincen requirements. If not, the zcash is a dead man walking and someone will fork and release a clone without the 11% elephant baggage. Some smart tech people can be quite stupid ...

In the AMA Zooko was ignoring that specific question, he answered promptly to everything else.

That tells me he

a) pretends the issue doesn't exist and hopes it goes silently away as he has $1M duty to his investors
or
b) is careful not to say anything about it in public in order to claim ignorance later.

Or his legal counsel has advised him to not discuss such issues in public.
hero member
Activity: 966
Merit: 1003
Warned Zcash their plans for an 11% royalty on coin emission may run afoul of FinCEN guidance, and also suggesting they read this thread about the Howey test.

Surely team Zooko have considered this and have a plan to meet any fincen requirements. If not, the zcash is a dead man walking and someone will fork and release a clone without the 11% elephant baggage. Some smart tech people can be quite stupid ...

In the AMA Zooko was ignoring that specific question, he answered promptly to everything else.

That tells me he

a) pretends the issue doesn't exist and hopes it goes silently away as he has $1M duty to his investors
or
b) is careful not to say anything about it in public in order to claim ignorance later.
sr. member
Activity: 420
Merit: 262
Warned Zcash their plans for an 11% royalty on coin emission may run afoul of FinCEN guidance, and also suggesting they read this thread about the Howey test.

Surely team Zooko have considered this and have a plan to meet any fincen requirements. If not, the zcash is a dead man walking and someone will fork and release a clone without the 11% elephant baggage. Some smart tech people can be quite stupid ...

Appears they are really this clueless:

Zooko (CEO of Zcash) is answering questions live now for the next 2 hours if anyone wants to participate:

https://forum.bitcoin.com/post16211.html

See my (shelby3's) posts in the above thread for numerous gaps in Zooko's knowledge about crypto currency (their team really needs someone like me but they've screwed up the funding model so I won't be joining them, much better to fork their code which is something I will be able to do if my other plans are successful giving me adequate resources to hire the necessary zk-snarks experts and then I can also expand it to smart contracts while fixing Ethereum's insoluble flaw). There is no way they can meet FinCEN regulations for the miners, because the corporation is not the miners. The miners will need to comply, or not mine.

Readers I urge you to read my posts in that thread linked above wherein I correct numerous myopias of Zooko. It will be very educational. I have explained some scams going on for Bitcoin right now.
sr. member
Activity: 405
Merit: 250
Warned Zcash their plans for an 11% royalty on coin emission may run afoul of FinCEN guidance, and also suggesting they read this thread about the Howey test.

Surely team Zooko have considered this and have a plan to meet any fincen requirements. If not, the zcash is a dead man walking and someone will fork and release a clone without the 11% elephant baggage. Some smart tech people can be quite stupid ...
sr. member
Activity: 420
Merit: 262
Warned Zcash their plans for an 11% royalty on coin emission may run afoul of FinCEN guidance, and also suggesting they read this thread about the Howey test.
sr. member
Activity: 420
Merit: 262
SEC, "Some mining contracts are securities":

sr. member
Activity: 420
Merit: 262
I replied to you in the long thread about the Howey test.

Your reply:

Afaics, the Howey test only requires that investors had a reasonable cause to expect their gains would come from the efforts of some group or community. So if you are pitching your coin to investors, I think you will be culpable. Just being decentralized in terms of distribution of the coins (and not selling it directly) doesn't appear to be sufficient. The Supreme Court said it will look past any obfuscations and always at the underlying economic reality, meaning whether the investors were reasonably relying on the lead developer for their future returns.

says that you're either antsier or more prudent than I. You seem reluctant to accept that Howey requires that all four criteria be met, and even more reluctant to recognize the efficacy of a "best-efforts" defense. Did you read the link I supplied, or the Wikipedia article on Howey? W.J. Howey went out of his way to discourage independent action. By my lights, that's the complete opposite of the peer-to-peer foundations of cryptocurrency. As I noted, I'm no lawyer myself...but I fail to see why a best-efforts defense backed up by repeatedly and publicly encouraging independent entrepreneurial action won't hold up.

A capable lawyer could really drag out the case by slowly and emphatically introducing every individual exhortation by the dev (team) to build an independent service for the cryptocurrency - as Defense Exhibit A, B, C, and so on in a performance that would be a lot like a filibuster - and not stop introducing them until he runs out, or is shouted down by the judge (which would give him good grounds to "except" [i.e., indirectly object and give notice of a future appeal.]) or until the prosecutor agreed to stipulate that there's a pattern of exhortation that's the opposite of the pattern of W.J. Howey's exhortations. To mount a defense of this kind, all you need to do is be somewhat of a nag. Tongue

I can probably safely assume you didn't read the entire thread of prior discussion and analysis at the link I provided to you. I don't have time to go redigest that thread again, so I will just attempt to broadly resummarize from memory. You should refer to the thread to dig deeper.

I had read the actual Supreme Court text and not just summary of interpretation. The judgement revolves around the interpretation of the meaning of "investment contract" and it specifically says that there are no specific cases that will preclude the interpretation of the economic reality:

Quote from: SEC v. W. J. Howey Co.
The term 'investment contract' is undefined [...]it had been broadly construed by state courts so as to afford the investing public a full measure of protection. Form was disregarded for substance and emphasis was placed upon economic reality. An investment contract thus came to mean a contract or scheme for 'the placing of capital or laying out of money in a way intended to secure income or profit

So there are no specific rules. The court will look at the economic reality of whether participants were placing of capital or laying out money in expectation of profit. Note that 'capital' might not even mean money. It can include applying their effort, which is a form of human capital. I confirmed this by reading in depth other expert interpretations and subsequent case law.

It appears to me that the court will look at the reasonable expectations of the participants. And always side with protecting the public. Thus my interpretation is if the participants are not investing but just using your tokens, then they don't need to be protected by securities registration. However if your tokens are being invested in by investors expecting a profit, then you need to register then with the SEC. This is why I advised making sure the ecosystem is well diversified asap, so that by the time investors start accumulating the tokens, then it can't be alleged that the investors were basing their investment on the ongoing effort of the original developers of the coin. It is with this interpretation that I have concluded that even coins (such as Aeon and Monero) which distributed their coins via PoW are still culpable under this law. And I don't understand why smooth is risking his already lucrative employment as a software developer to work on a coin that could end up getting him in big trouble. He doesn't need that! And for what gain? IMO Monero and Aeon are not solving any major paradigmatic issues for crypto. OTOH, since they are very small fish, they are likely to never amount to any legal case, but again why waste effort?

But again I am not a lawyer, so you can't cite my posts as legal advice!!
sr. member
Activity: 420
Merit: 262
Hopefully, we would be OK with regard to securities law if we premine 100% and distribute those coins to users of our app at no cost.

I think so if you can also get many other apps to use your coins and create a huge diverse ecosystem for these tokens (but I don't think you can do that without losing your focus on your app!), but consult your own attorney. Note smooth and others felt premine was culpable. I argued against that. None of us are lawyers.

I doubt distributing 100% at no cost is a problem.

How do you prove 100% was distributed not to yourself? I think you should remove the "100%" and reconsider if that changes your stance since you were stating in my thread that a premine is culpable.
legendary
Activity: 1330
Merit: 1000
Cross-referencing and wondering why no one wants to rationally discuss this topic?

https://bitcointalksearch.org/topic/which-crypto-coins-are-investment-securities-implications-1218269

I would make that list on the OP a bit simpler for simpletons like myself.The questions look too formal/sanitised for the majority of peeps who tune in and I have looked at a few of your threads and they are interesting but some of the points I would compress a bit.Maybe something like

question= is it illegal to premine a coin and sell it through an ICO/IPO and then run off with all the raised funds and do no development leaving the buyers/investors/community swinging in the breeze?

answer=yes and if not it pretty much should be

sr. member
Activity: 420
Merit: 262
hero member
Activity: 616
Merit: 500
I hope more ICOs will come so we might see scammers buying expensive drinks and hookers like EQX coin back in the good old times
sr. member
Activity: 420
Merit: 262
My point is that because of the broadness of the FinCEN mandate if a virtual currency meets the very narrow FinCEN requirement of de-centralized virtual currency then it also fails the Howey test but not the other way around. I fail to see how a crypto - currency can be both a de-centralized virtual currency under the FinCEN requirements and at the same time pass the Howey test making the currency itself a security.

So your point is that because FinCEN has defined how a decentralized crypto currency can be "money", then "money" can't also be an investment security.

This is failure of logic because FinCEN's guidance is not exclusionary. Saying that decentralized crypto currency has an attribute which is that it shall be considered "money" from the perspective of FinCEN's jurisdiction and mandate over money transfers, is not saying that decentralized currency is only "money" in every other case of jurisdiction and mandate. If you can find any where that FinCEN wrote that decentralized currency is ONLY money and nothing else, then please do. There is a big difference between qualifying as a money equivalent for the purposes of FinCEN's jurisdiction and being declared to be ONLY money in every possible case. Otherwise this exhibits that you don't understand well legalese.

The Howey test will look at the economic facts and no obfuscations will color the inspection of the facts.

Edit: Also even that which is money to users in the FinCEN guidance doesn't preclude those tokens having investment attributes to issuers and speculators. FinCEN even makes a distinction between different types of entities involved with crypto currency, such as miners, issuers, etc..

I don't think that was his argument. It was that FinCEN's exemptions for decentralized virtual currencies are so narrow that it probably satisfies the SEC as well. Maybe true, maybe not. Certainly the SEC is not bound by FinCEN, however the issues have significant overlap.

Also, on the pre-mine issue, he quoted from FinCEN which says that if you "create" or "issue" units, you are an "administrator". Hard to make the case that anyone who premines or ICOs is not an "administrator" under this rule.

Get your facts straight. Afair, FinCEN (in more than one document, reiterating it in that prosecution) said if you create or issue AND redeem. The point is that by issuing and redeeming, then you are acting as an administrator from a money transmitting perspective, which is FinCEN's mandate.

I don't understand how some bizarro interpretation of narrowness has anything to with the SEC as their mandate is to protect investors. FinCEN doesn't have that mandate.

Seems like a lot of nonsense. You guys don't seem to base your analysis on the mandate and purpose of the agency, that is why you don't seem to make sense of their guidance.
legendary
Activity: 2968
Merit: 1198
My point is that because of the broadness of the FinCEN mandate if a virtual currency meets the very narrow FinCEN requirement of de-centralized virtual currency then it also fails the Howey test but not the other way around. I fail to see how a crypto - currency can be both a de-centralized virtual currency under the FinCEN requirements and at the same time pass the Howey test making the currency itself a security.

So your point is that because FinCEN has defined how a decentralized crypto currency can be "money", then "money" can't also be an investment security.

This is failure of logic because FinCEN's guidance is not exclusionary. Saying that decentralized crypto currency has an attribute which is that it shall be considered "money" from the perspective of FinCEN's jurisdiction and mandate over money transfers, is not saying that decentralized currency is only "money" in every other case of jurisdiction and mandate. If you can find any where that FinCEN wrote that decentralized currency is ONLY money and nothing else, then please do. There is a big difference between qualifying as a money equivalent for the purposes of FinCEN's jurisdiction and being declared to be ONLY money in every possible case. Otherwise this exhibits that you don't understand well legalese.

The Howey test will look at the economic facts and no obfuscations will color the inspection of the facts.

Edit: Also even that which is money to users in the FinCEN guidance doesn't preclude those tokens having investment attributes to issuers and speculators. FinCEN even makes a distinction between different types of entities involved with crypto currency, such as miners, issuers, etc..

I don't think that was his argument. It was that FinCEN's exemptions for decentralized virtual currencies are so narrow that it probably satisfies the SEC as well. Maybe true, maybe not. Certainly the SEC is not bound by FinCEN, however the issues have significant overlap.

Also, on the pre-mine issue, he quoted from FinCEN which says that if you "create" or "issue" units, you are an "administrator". Hard to make the case that anyone who premines or ICOs is not an "administrator" under this rule.

sr. member
Activity: 420
Merit: 262
I don't see any mention of Ripple being in violation because of sales of coins it gained during the time of distribution whether it be premine or otherwise. The mention of the premine was just a statement of facts, not a statement of a violation. It is the fact that Ripple was acting as an exchanger and centralized administrator that tainted any sales of XRP they made.

In the statement of facts [...] which is linked form the FinCEN page I quoted the following quote is very relevant.

I already pointed out that I didn't agree with your theory about the word pre-mine in the Preamble. It was not in the list of violations.

Edit: I would not touch a pre-mine without legal advice.

Perhaps readers shouldn't be touching any altcoin without legal advice, except do note that the investors who are not promoters nor issuers apparently have much lower culpability as discussed in detail far upthread.

I will not get in another long discussion repeating everything that was already discussed upthread. I am limiting how much time per day I can be on the computer, so I must allocate wisely.

I do appreciate your participation. Thanks.
legendary
Activity: 1007
Merit: 1000
seems pretty serious, although I'm not sure I fully understand it. My (basic) understanding is that cryptocoins and their exchanges need to meet certain regulations according to US law.... and that most, if not all, have not met said requirements??

Is this possibly what XPY and 'he who must not be named' were trying to touch on when claiming to be registering with the S.E.C?
sr. member
Activity: 420
Merit: 262
My point is that because of the broadness of the FinCEN mandate if a virtual currency meets the very narrow FinCEN requirement of de-centralized virtual currency then it also fails the Howey test but not the other way around. I fail to see how a crypto - currency can be both a de-centralized virtual currency under the FinCEN requirements and at the same time pass the Howey test making the currency itself a security.

So your point is that because FinCEN has defined how a decentralized crypto currency can be "money", then "money" can't also be an investment security.

This is failure of logic because FinCEN's guidance is not exclusionary. Saying that decentralized crypto currency has an attribute which is that it shall be considered "money" from the perspective of FinCEN's jurisdiction and mandate over money transfers, is not saying that decentralized currency is only "money" in every other case of jurisdiction and mandate. If you can find any where that FinCEN wrote that decentralized currency is ONLY money and nothing else, then please do. There is a big difference between qualifying as a money equivalent for the purposes of FinCEN's jurisdiction and being declared to be ONLY money in every possible case. Otherwise this exhibits that you don't understand well legalese.

The Howey test will look at the economic facts and no obfuscations will color the inspection of the facts.

Edit: Also even that which is money to users in the FinCEN guidance doesn't preclude those tokens having investment attributes to issuers and speculators. FinCEN even makes a distinction between different types of entities involved with crypto currency, such as miners, issuers, etc..
sr. member
Activity: 420
Merit: 262
...
My mind is blown! Do these monerotards have any clue about user friendliness! Compile binaries from source (my gf wouldn't have any clue what binaries and source are)! Are you fucking kidding. That is ridiculous beyond ridiculous.

... but just think about this for a moment. One can compile the Monero binaries from source for various platforms, and post links to the compiled binaries here on BCT thereby demonstrating how Monero fails the Howey test.

As per how I interpret what I have researched about it (details are upthread), the Howey test refers to the economic facts not to the quality of execution of marketing.

The economic test is whether the securities are being marketed to investors and whether those investors base their decision to invest based on the efforts of some person or group's expected future efforts to deliver the return on investment.

IMO, every altcoin that is being promoted and distributed to investors seems to meet the Howey test. The development of the altcoin and its future value is not chaotic, but rather entrusted to some lead devs and some community leaders/promoters.

In the case of Bitcoin, its ecosystem is so widely distributed that one could argue that there is no single group that is being relied on that could even promote it to investors.

Just because Monero doesn't offer compiled binaries, IMO that doesn't sufficiently constitute a widely distributed ecosystem. Afaics, Monero is predominantly driven by a core group of devs and some community leaders/promoters.

That doesn't mean the SEC is necessarily going to crack down on Monero. I tend to think there are much lower hanging fruit, such as Dash and other much more scammy altcoins. And even those may never be large enough to attract the attention of the SEC.

One can argue that altcoins are just software and investors are acting on their own volition. But all the heavy pumping of Monero on these forums is going to work against that line of argument.

Edit: also I do think that it would be more dubious case for the SEC to go after a coin that is developed open source and which the developers and promoters receive no direct remuneration from the coin (unlike Dash and BitShares). I do see a qualitative distinction.
legendary
Activity: 2282
Merit: 1050
Monero Core Team
FinCEN guidance doesn't not apply to the Howey test. FinCEN is not tasked with protecting unsophisticated investors from fraud. FinCEN's job is to fight money laundering.

Somewhat true but remember "money laundering" is expansive and includes transmission of money that is the proceeds of fraud or to facilitate fraud. As such Fincen's scope reaches anti-fraud and consumer protection, often in cooperation with other agencies.


Yes. My point is that because of the broadness of the FinCEN mandate if a virtual currency meets the very narrow FinCEN requirement of de-centralized virtual currency then it also fails the Howey test but not the other way around. I fail to see how a crypto - currency can be both a de-centralized virtual currency under the FinCEN requirements and at the same time pass the Howey test making the currency itself a security.

Edit 1: FinCEN goes way further than simply dealing with fraudulent money transfers or money laundering.
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