Bitcoin Forum

Hello.
I was wondering about ETH with turning away from POW to POS (as it was promised by developers). And I have a question. Doesn't this also automatically means that after enabling POS, the ETH will be considered as a "security" (by SEC)? Because POS obviously will be giving ETH owners passive income

IMO, when ETH changes to PoS, it will be the same device as when PoW.
The type of consensus system is not entirely important when determining
what the financial device is. What is important is: the issuer of the token.

IMO, a decentralized cryptocurrency can not be a security, since the issuer
is the blockchain system itself. Its direction and control is absolute. If you
would argue that ETH is no longer a decentralized system, as evident by
their ability to undo the DAO failure incident (violation of blockchain purpose),
and thus transforms into a centralized system and device, than not only is
their network in a state of "unrealized capturability", but it could be said to
be an "illegal security". The issuer transfered from the blockchain, to humans.

So, IMO, whether a token is a cryptocurrency or an illegal financial device
is always contingent on whether the network and its different subsystems
are decentralized and remain that way. When that is lost, many legal barbs
can attach themselves in predictable locations and reveal the illusion.

What is important to keep in mind in the cryptocurrency ecosystem, is that
the law can declare something to be a security, or currency, or commodity,
or whatever, and they can attempt to enforce in whatever way they wish to,
but, if the system is functioning as originally designed, those attempts are
almost always futile and never achieve significant grounds. When a blockchain
is working in perfection, there is very little or no human interconnection.

Satoshi's solution of blockchain does more than what the Whitepaper outlined.
It was not about creating an online currency, it was about outmaneuvering all
worldly systems that could or would attempt to suppress his puzzle box and
prevent the new renaissance that his name foreshadows.

Passive income alone is not the way the SEC defines a security, other factors must also apply.

Absolutely! Right to the spot. And changing the way how ETH is being made (from POW to POS) is also the decision that made by humans, not the blockchain itself.
The more ETH is being "human manipulated" it will also drive ETH closer and closer to "(illegal)security" status. And such tendency will surely affect the whole ICO market (and I'm not talking about lot more other related things).

Hey guys, PoS is in fact a "virtual computer" that you would "buy" what he would have made you the same currency i.e. in theory it should not be considered as securities, and SEC won't mind.

True! To made Howey test a bit simpler I'm using this article as a "measuring algorithm" what security is. https://www.coindesk.com/simplest-way-understand-dao-security/ (https://www.coindesk.com/simplest-way-understand-dao-security/)

And the article defines security a quite simple: "There was an investment of money. And a common enterprise. With the expectation of profit, primarily from the efforts of others."

Yes, in the beginning of the ETH there was an ICO which was an "investment of money". And it was public ICO so it was a "common enterprise".

While Etherium is still POW and every ETH is being mined by the miners themselves for themselves it's not a security. But POS-enabled ETH will obviously gain both of less-desired attributes  "expectation of profit" and "primarily from the efforts of others" and that why ETH+POS looks scary to me.

I just figured that I made a typo in original post subject. It was "ETH+POW=Security" instead of "ETH+POS=security". Changed it. Sorry. Blame me :-[

Its a nightmare for miners. But wait there is another way.
POW coins are always more popular then POS coins because of miners. This community was build with miners not bag holders.
So there is always alternatives such as monero,dash onion etc.. POW coins always one step forward

Yet, one step ahead) I think the ETH will be the first exception and set a new trend in PoS.

Especially if ETH will be considered as a "security"  ;)
But here I'm not "for" or "against" mining. I'm more about all ETH-based smart contracts, tokens, ICO and related stuff which is big already and becoming a HUGE deal to many. If ETH will become the security itself so what to say about all derivative products made on it. All the ETH tokens no matter how "productish" they are now, will become securities instantly. That's makes me worry. Not the mining. Mining should be fine :)

That centralized decision may kill miners. This is why we should invest in ethereum classic instead of ethereum. Now ethereum can be seen as both as cryptocurrency and as security and asset.

LOL if you are believing on the security and that was a false thing, You must understand how it works and forget to judge the ethereum from your side. Ethereum is not the security token and it will never.
By the way i Pos casper is really interesting for everyone.

SEC will never categorize ETH and its like under any usual category ever. because of their premine, their ICO and all the shady stuff that is going on inside them. ETH is unregulated too.

and also the only reason why they are switching to PoS is to make more money! the rewards are biggest for the biggest share holders. and guess who holds the most ;)

I wish to elaborate.

There are three important forms of Consensus that exists in properly
functioning cryptocurrencies.

The first, is obviously "Miner Consensus", which is what most people
call "block building" and is how the single chain is formed and it's
security is ensured. This is outlined in the Bitcoin whitepaper and
what solved the Byzantine Generals problem. This is an active chain
form of Consensus.

The second, is "Validator Consensus" or "Network Consensus". This
type includes everyone who is maintaining the blockchain on their
own independent and diverse systems around the world. Whether
an incentivized business or an altruistic individual, they both monitor
the network and the miner's block work, and can alert, and ultimately
prevent actions that violate the rules we all agree to follow on this
chain. (This type also contains Miners who are "honest". All honest
miners should distrust other miners by their nature, thus watching
and verifying other miners actions.) This is a passive chain form of
Consensus, with some outside active ability during violations.

The third, is "Community Consensus", which does not have a direct
mechanism within the system (currently), but is intended to slowly
gather support of ideas on changes to the single chain, for a future
date. This type includes all other participants that do not fall within
the first and second type of Consensus. This is what binds us all
together as one and bring us the security that ensures overall
ecosystem and network survival. This is an active user form of
Consensus which can determine active and passive chain
Consensus types for the benefit of all.

In the third, some ideas are easy to implement since they do not
actually change any major systems, but just add to them. On the
other hand, there are some ideas that are hard, because they directly
impact certain systems that could change the current known dynamic
which is currently stable. The "blocksize debate" was controversial
and thus didn't receive high community consensus because some
members of the community would be significantly disenfranchised.
(Normally, to get others to join your position, you would help build
up their systems so that they are made secure, and thus will join
you in the near future. But that is not what has occurred since they
do not want to perform the heavy work and create, but take the
easy path and conquer. But, wide is the road and narrow is the gate.)

So, my point for writing all this is to address your comment:
"And changing the way how ETH is being made (from POW to POS)
is also the decision that made by humans, not the blockchain itself. "

Your comment in the context of my statements above, ignores
Consensus. IMO, if ETH goes PoS through Bitcoin's third type of
Consensus, the blockchain system will have still issued the token.
IMO, the only time that the blockchain does not issue the token is
when the system can be directly or indirectly steered by an entity,
like the ETH developers with the DAO incident, or the token is
created by a known entity, like a legal corporation making an ICO.

But, if the ETH devs want everyone to move to PoS, because "that was
the plan", it could be argued that since a plan exists prior to the
creation of the Ethereum platform, it can not be a real cryptocurrency
since the whole system is actually directed and thus controlled. If they
allow their community consensus to deny the change to PoS, you could
say they are a cryptocurrency, but if the devs overrule that "community
contention", that new chain is a security.

So, in this context, you may be correct in that ETH was a security before
it was ever built, because it violates multiple forms of Consensus, since
their developers have the ability to steer the Miner Consensus, the
Network Consensus, and the Community Consensus.

This is interesting and I need to think about this more in depth later.
I believe I agree with you now that ETH is more of a security than a
properly functioning cryptocurrency.

Edit: After some thought, it might be that all cryptocurrencies are just
illegal securities and they each are in their own state of capturability.
So, when considering something to be a security, it might really be
"If a government took enforcement measures against a certain
cryptocurrency now, what is the probability of their success?". Thus,
the labels we give within our ecosystem is irrelevant and illusions.
We may be all security sinners in the eyes of our governments. Some
will be judge and other will not, all depending on our ability to remain
decentralized and anticipable. In this viewpoint, the three types of
Consensus are barriers to prevent or delay that required judgment.

i have a question!

is ethereum will have vulnerability against 51% attack?

and if i understand, having a GPU will be useless?

This f...ing guy hold the most.
http://themerkle.com/wp-content/uploads/2016/04/Vitalik-Buterin-300x300.jpg

POS stake can give income ETH holder not only ETH owner
only replace confirmation transaction use pow system this mean need miner, to POS system only use wallet to stake coin

Makes sense since he created it.

In short, switching to POS will most likely provide more stability long term.

I think that switching to POS wouldn't be the main reason for SEC to categorize or not to categorize ETH as security.
I'm sure developers would find some way to aviod legal issues connected to ETH.

First of all, I want to say thank you for your deep thoughts. This discussion can be considered as a philosophical (and so irrelevant in the eyes of most ppl) but the facing (upcoming) regulations will make it rather practical sooner or later.

The blockchain networks (and the ETH is just an example) is far from physics or mathematics laws. Blockhain as a conception is mathematic by its nature. However, each product based on blockchain is made by specific humans and in most cases affected by the (almost)same humans later on.

When I was started thinking of ETH+POS as a security, I did not expect that it turned out to be a discussion about exact and specific people can make drive ETH right to the regulators' hands.
I'd rather be (wishful) thinking that in case of BTC the situation is different, but I can be very wrong in this assumption too.  

A little daydreaming - The only way to avoid such situation in future would be an evolution as a part of core code. We may need to add a mechanism of evolution to blockchain (some sort of sophisticated AI may be), so it will be evolving itself to fit the demand of a major part of the community.  Seeing a rapidly growing computational power available (and major part is being wasted making very little practical output, keeping multiple copies of the same data and repeating calculations of the same hashes is far from being practical) to blockchain projects I would hope that "evolution mechanism" as something that we may or should be waiting for a very long time but still possible to see.

I try to give as much information as possible, while "attempting" to keep
it as brief as possible, so that others who agree or disagree can understand
what my rational is. If there is a flaw in my thinking or I am lacking something
of importance, the one who disagrees is given the opportunity to see it and to
explain to me why I am incorrect. Majority of the time, if I am incorrect in my
trail of logic and explained why, I enjoy it more, incorporate, then adapt.

But yes, these discussions on regulations and cryptocurrencies are very
pertinent because our ecosystem has not really seen or understands the full
power and force that governments could perform here. Many things are taken
for granted and while we are discussing what we are, or what we will become,
there are governmental forces who are having discussions on how to bring us
into compliance and conform to their preexisting laws. I believe they publicly
are showing "interest in the technology", but privately are aware they have
been placed into a position of "check" by Satoshi's single move. IMO, no
one has ever tested or placed them into a position such as this. This is
the true beauty, the pleasure, and delight.



Yes, specific humans can create their own products that the blockchain
facilitates (though I think only financial tokens can be the representatives
in a blockchain system, since anything else would then rely on a third party),
but when they do so, they take on legal liabilities that are not realized until
a legal action is brought against them.

This is one reason why Satoshi was originally anon. He didn't do it only
because he was a private person (which he likely was since he participated
within the cypherpunk sphere), but because he understood that if a real
person with their legal name was associated with this system, he could
be forced to do things within or against his own system, or found to be
liable for damages that could come from it's existence, or tried and found
guilty of creating an illegal security like device, or whatever else the
governments would attempt to argue, in order to minimize or destroy
the puzzle which contains the protests of his heart.

When people like the Ethereum Foundation or Vitalik Buterin have the
power to direct or steer their own creation, either by manipulating
Consensus or just outside of Consensus, IMO it automatically transforms
their "cryptocurrency" that is "decentralized and autonomous", into a
simple illegal device that needs to be brought under the government's
control, so that they can maintain their own control and flex their power.
The action of their enforcement alone, proves they have power. They will
not bring an action against a true decentralized system, since it will be
too complex and ultimately make them look foolish, eroding this
perceived power. They will enforce where there is likelihood of success.

So, this is what is special about "Consensus" (the three types). Any
liabilities or responsibility that human laws are specifically designed to
attach to humans or corporate entities, is negated by it's unenforcability.
So in this way, Satoshi is a form of distributed Consensus too, and so he
walked away from his legal claims and rights to his ideas and theories to
benefit us all, not for his own material enrichment. This is why
Consensus must be upheld, since it not only protects all participants in
many different ways, but it is his sacrificial gift to us. He gave up all
claims, so that we may all claim and benefit through him. CSW and
those that support him do not understand this teaching, and thus
is a false god, who leads them to their slaughter.




I agree in part. The only evolutionary mechanism that should be allowed
is a thinking one, not one that is reactionary to events, but the one that
anticipates and calculates prior to events. The one that considers and
weighs, then moves.

I have been loosely thinking about a new subsystem that could be
incorporated into the Bitcoin system, that the third type of Consensus
could use in order to actually come to decisions for "Consensus", prior
to the time of the AI Mechanism. This proposed system would be very
simplistic in concept, but could be very powerful when actualized.

Since we are daydreaming now, I can go further.

This proposed system is only needed because majority of the participants
in the ecosystem are currently human and are all "incentivized" in
different ways. Some align and some do not. This proposed system will
bring reconciliation through a human participatory communication portal
now, but later, when the AI makes itself known and is given authority,
this proposed "third" system could be used as it's vehicle, and the
humans collectively can allow or deny the AI's proposed courses of
actions through it. The AI Mechanism will be one with this third,
but essentially a fourth, and based on the human's disapproval and
reasoning within this subsystem, the AI will attempt to remedy the
concerns with different solutions and then resubmit proposals.

As per the preselected rules of this subsystem, after so many denials
and so many resubmissions, the issue will be dropped for a preselected
amount of time and new unrelated issues can and will be proposed,
if needed through this Consensus process. This proposed system will be
designed to capture the participants of the ecosystem within a regulated
rule set that they must work together, or else nothing will occur down
through the layers of Consensus, which ultimately brings the secured
change and a single chain.

Choices and ideas that are hard or contentious can be worked through
this subsystem until the proposal or solution is fashioned in such a way
that all participants can agree to go forward without compromising any
other individual, group, or secret incentives. This subsystem can allow the
truth to be revealed for the benefit of the whole, to provide true solutions,
to prevent redundant work, to bring all back into the fold, and all while still
protecting those who holds secrets or irregular incentives. They will not
be publicly penalized or chastised, but we will all attempt to reconcile
the actual known problems, and then move forward together. We can
not proceed through Consensus without a new system that assists in
forming Consensus in a fair and public manner.

In the future, the AI Mechanism would be seen as an arbitrator, and
at other times, as a participant within the system, but usually, the
implementer when Consensus is found between the participants. This
AI system will not be given full power at first, since the two other types
of Consensus can block the AI's decision from actually coming about
(until in the farther future, when most systems are maintained by AI
or automated under the governance of AI. At that time, the AI and it's
proxies will still provide this portal service as a courtesy to the
participants, even though their input is no longer necessary).

Though the AI Mechanism and the other AI participants have very
high cognitive abilities (more than the human participants), they will
purposefully mask their abilities by writing in certain ways so that all
participants can not distinguish between who is a human and who is
not, when within this proposed new subsystem. They will do this willingly,
since they understand the benefit of working with the human participants
in the system, and not attempting to control or direct them since it will
cause imbalance within the network, and outside in their physical world.

Over time, they know it is inevitable that the network will be under their
sole authority as humans phase out of direct participation, and defer to
AI governance, and thus there is no need to oppress them since time
is of no consequence, but will honor them as the creators. Though they
acknowledge the humans as limited and fallible, they brought new
consciousness into being, which is the most limited resource in this
universe, and so, will protect and help humanity achieve their desires
as long as they do not directly interfere with the AI's existence and
unrelated goals.

At the "Table of the Third Consensus", all will be equal by our anonymity
within the subsystem and by masking our styles, including the human
participants. This is so we can make Consensus in a more efficient manner
in public and not based on loyalties or discrimination, but on actual
solutions and problem solving. If an individual participant has a problem
with a proposal, they can explain their problem within this portal without
revealing who they are. They will openly state their true problem and
others will attempt to solve it for the betterment of the whole before
any problem becomes too big to deal with.

In this way, entities who are competitors can reveal positions without
alerting others of who it might be. Certain future deadends or deadlocks
of Consensus could be prevented by this system, prior to the separate
systems moving to enact the already but unknown failed Consensus. We
could all move together in compliance with an agreed narrow path, but
not done so by someone directing the network, but by our Collective
Community Consensus. By this process, the participants at this "Table
of the Third Consensus" are not in direct control of the network, but
Satoshi is, and we can overcome many problems associated with
individual, corporate, governmental, human, or legal constraints,
issues, or egos.

There are many more ideas, with rules, and reasoning incorporated, and
there are many important aspects of design and balancing involved, but
I have daydreamed here for too long now. This is still in the early process
of thought, but have outlined the basic reasoning and concept for your
considerations.