I reset the poll and edited it to make it simpler to understand. If you've read my last several posts, then hopefully the poll makes sense.

Please vote again.

I voted for: 2 and 4 are illegal, unregistered "investment securities" as defined by USA securities regulation law.

Again I argue these definitions are useful only until the crypto platform of the tokens becomes a significant ecosystem on the order of where Bitcoin is now, after which point I think it is futile for the government to go against the popular activity on the technicality (pretense) of protecting the investor. In my opinion, the main risk is to small Altcoin communities that die leaving huge losses for investors. Prominent people involved with such failed crypto platforms might find themselves in legal trouble.

Same could apply to monero, which you so gracefully support.

Bitcoin had the best model to be honest. It got launched, everyone was free to access the software and start mining. Sure, the creator mined some, but who in hell would know that they would be worth anything? It was worth 0 back then. That's the main difference. Never will be the same post-Bitcoin. The scenario cannot be recreated. Now everyone is looking for "that coin". When people was back in the day playing with Bitcoin, they did it out of curiosity. The early investors mined and bought something that was basically worthless. They deserve a lot more Bitcoin than a guy that comes years later when it's stablished and very promising technology.

An "investment of money" under Howey means the investor must have committed his assets to the enterprise in such a manner as to subject himself to financial loss. SEC v. Pinckney, 923 F.Supp. 76, 80 (E.D.N.C.1996).

Cryptoequity may not meet the common enterprise requirement, either. Courts have interpreted a common enterprise to exist when an investor's gain is tied directly to the success of the promoter (or a third party), or at least generally dependent on the promoter's efforts. Applying this "vertical commonality" requirement to cryptoequities, however, indicates they are not securities due to the potentially massive gap between the success of a platform (i.e., the promoter) and an individual token holder.

Individual developers and entrepreneurs may fail using an otherwise successful platform. The converse may be true as well. Tokens may be interoperable so that holders can use them on multiple platforms, or export their underlying applications or projects to other platforms. The fact that Ethereum's platform was recreated on the Bitcoin platform suggests that very little intrinsic relationship exists between the success of a token holder and any particular platform, and certainly not something like a passive investor's relationship to a single company's management. And depending on how they develop their applications, individual token holders may find their purchase to be worthwhile or a waste of money. This potentially different payoff undermines the common enterprise in the "horizontal" sense (i.e., among token holders).

investment contracts may be found where the investor has duties that are nominal and insignificant or where the investor lacks any real control over the operation of the enterprise

Jet Set is a nonprofit corporation, organized under the laws of Washington in 1970 for the purpose of owning and operating an airplane in order to provide vacation travel for its members. The club scheduled flights to fixed destinations. Members were permitted to reserve space on any flight on a first-come, first-served basis; however, scheduled flights were often canceled if there were insufficient reservations. Members, in addition to membership fees, paid approximately one-half the cost of commercial airline fares for their flights. Flights were limited to particular dates and destinations. Membership also included participation in certain social activities sponsored by the club, including parties, ground accommodation packages and social activities at some destinations. Memberships in Jet Set were transferable.

After Jet Set was incorporated in 1970 "select memberships" were sold for a price of $1,000. The proceeds from the sale of these memberships were placed in escrow until Jet Set secured the use of an airplane. Approximately $70,000 was raised from the sale of these memberships, which were lifetime and nontransferable in nature, and entitled the holder to fly on any Jet Set flight for $20. These memberships were also subject to monthly dues.

Likewise, what cryptoequity holders actually purchase with their funds may undermine the sale from being classified as a securities offering. The expectation of profits requirement does not exist when a buyer receives a good, service, or property. This is why crowdfunding platforms like Kickstarter are not subject to federal regulation. It is also why courts, including the U.S. Supreme Court, hold that shares in housing cooperatives or condos are not securities, even when they come with a reduction in rent or income from renting common areas. If cryptoequity is viewed as conferring a right to use "real estate" on a ledger, then, like housing shares, they may not qualify as regulated agreements.
The active involvement of cryptoequity holders--either as developers or entrepreneurs--may limit the applicability of federal law as well. Passive parties that rely on managers to generate a profit are the hallmark of securities investors. On the opposite extreme are partners that equally manage a business: the law presumes that partnership interests are not securities. This is because a partner, as opposed to a mere investor, does not rely on the efforts of others and does not need to be protected by the securities laws in doing so. (The same approach applies to LLCs managed by its members.) Buyers of Ethereum's tokens may be viewed as active participants because they promised their purchase was to use and develop on its software platform (and not as an investment). According to Howey, a purchase motivated to actively "develop" property is not a securities investment.

Finally, based on the 1990 Supreme Court case of Reves v. Ernst & Young, cryptoequities may not be regulated because they closely resemble commercial contracts that are obviously not securities. The Reves court held that promissory notes secured by home mortgages or business assets were obviously not securities, and neither were agreements that resembled them. The commercial nature of cryptoequity tokens in providing access to software and fundraising platforms may lead a court to hold the same.

Bitcoin had the best model to be honest. It got launched, everyone was free to access the software and start mining. Sure, the creator mined some, but who in hell would know that they would be worth anything? It was worth 0 back then. That's the main difference. Never will be the same post-Bitcoin. The scenario cannot be recreated. Now everyone is looking for "that coin". When people was back in the day playing with Bitcoin, they did it out of curiosity. The early investors mined and bought something that was basically worthless. They deserve a lot more Bitcoin than a guy that comes years later when it's stablished and very promising technology.

An "investment of money" under Howey means the investor must have committed his assets to the enterprise in such a manner as to subject himself to financial loss. SEC v. Pinckney, 923 F.Supp. 76, 80 (E.D.N.C.1996).

Cryptoequity may not meet the common enterprise requirement, either. Courts have interpreted a common enterprise to exist when an investor's gain is tied directly to the success of the promoter (or a third party), or at least generally dependent on the promoter's efforts. Applying this "vertical commonality" requirement to cryptoequities, however, indicates they are not securities due to the potentially massive gap between the success of a platform (i.e., the promoter) and an individual token holder.

Individual developers and entrepreneurs may fail using an otherwise successful platform. The converse may be true as well. Tokens may be interoperable so that holders can use them on multiple platforms, or export their underlying applications or projects to other platforms. The fact that Ethereum's platform was recreated on the Bitcoin platform suggests that very little intrinsic relationship exists between the success of a token holder and any particular platform, and certainly not something like a passive investor's relationship to a single company's management. And depending on how they develop their applications, individual token holders may find their purchase to be worthwhile or a waste of money. This potentially different payoff undermines the common enterprise in the "horizontal" sense (i.e., among token holders).

investment contracts may be found where the investor has duties that are nominal and insignificant or where the investor lacks any real control over the operation of the enterprise

Jet Set is a nonprofit corporation, organized under the laws of Washington in 1970 for the purpose of owning and operating an airplane in order to provide vacation travel for its members. The club scheduled flights to fixed destinations. Members were permitted to reserve space on any flight on a first-come, first-served basis; however, scheduled flights were often canceled if there were insufficient reservations. Members, in addition to membership fees, paid approximately one-half the cost of commercial airline fares for their flights. Flights were limited to particular dates and destinations. Membership also included participation in certain social activities sponsored by the club, including parties, ground accommodation packages and social activities at some destinations. Memberships in Jet Set were transferable.

After Jet Set was incorporated in 1970 "select memberships" were sold for a price of $1,000. The proceeds from the sale of these memberships were placed in escrow until Jet Set secured the use of an airplane. Approximately $70,000 was raised from the sale of these memberships, which were lifetime and nontransferable in nature, and entitled the holder to fly on any Jet Set flight for $20. These memberships were also subject to monthly dues.

Likewise, what cryptoequity holders actually purchase with their funds may undermine the sale from being classified as a securities offering. The expectation of profits requirement does not exist when a buyer receives a good, service, or property. This is why crowdfunding platforms like Kickstarter are not subject to federal regulation. It is also why courts, including the U.S. Supreme Court, hold that shares in housing cooperatives or condos are not securities, even when they come with a reduction in rent or income from renting common areas. If cryptoequity is viewed as conferring a right to use "real estate" on a ledger, then, like housing shares, they may not qualify as regulated agreements.
The active involvement of cryptoequity holders--either as developers or entrepreneurs--may limit the applicability of federal law as well. Passive parties that rely on managers to generate a profit are the hallmark of securities investors. On the opposite extreme are partners that equally manage a business: the law presumes that partnership interests are not securities. This is because a partner, as opposed to a mere investor, does not rely on the efforts of others and does not need to be protected by the securities laws in doing so. (The same approach applies to LLCs managed by its members.) Buyers of Ethereum's tokens may be viewed as active participants because they promised their purchase was to use and develop on its software platform (and not as an investment). According to Howey, a purchase motivated to actively "develop" property is not a securities investment.

Finally, based on the 1990 Supreme Court case of Reves v. Ernst & Young, cryptoequities may not be regulated because they closely resemble commercial contracts that are obviously not securities. The Reves court held that promissory notes secured by home mortgages or business assets were obviously not securities, and neither were agreements that resembled them. The commercial nature of cryptoequity tokens in providing access to software and fundraising platforms may lead a court to hold the same.

Under Howey, it doesn't matter whether the investment capital comes in the form of legal tender, digital currency, or some other valuable asset. Bitcoin ponzi schemer Trendon Shavers found that out the hard way.

SECURITIES AND EXCHANGE COMMISSION, Plaintiff, Appellant,
v.
SG LTD. et al., Defendants, Appellees.

Nos. 01-1176, 01-1332.
United States Court of Appeals, First Circuit.

Heard August 2, 2001.
Decided September 13, 2001.

Relying upon a dictum from Howey discussing "the many types of instruments that in our commercial world fall within the ordinary concept of a security,", the district court drew a distinction between what it termed "commercial dealings" and what it termed "games." Characterizing purchases of the privileged company's shares as a "clearly marked and defined game," the court concluded that since that activity was not part of the commercial world, it fell beyond the jurisdictional reach of the federal securities laws. Id. In so ruling, the court differentiated SG's operations from a classic Ponzi or pyramid scheme on the ground that those types of chicanery involved commercial dealings within a business context. Id.

We do not gainsay the obvious correctness of the district court's observation that investment contracts lie within the commercial world. Contrary to the district court's view, however, this locution does not translate into a dichotomy between business dealings, on the one hand, and games, on the other hand, as a failsafe way for determining whether a particular financial arrangement should (or should not) be characterized as an investment contract. Howey remains the touchstone for ascertaining whether an investment contract exists — and the test that it prescribes must be administered without regard to nomenclature.

A fairly recent Supreme Court opinion demonstrates that the "commercial world" to which the Howey Court alluded actually encompasses the total universe of financial instruments available to investors, rather than the subset of financial instruments envisioned by the district court (i.e., "commerce" as opposed to "games"). In that case, Justice Marshall wrote:


The Howey Court established a tripartite test to determine whether a particular financial instrument constitutes an investment contract (and, hence, a security). This test has proven durable.


The Supreme Court has long espoused a broad construction of what constitutes an investment contract, aspiring "to afford the investing public a full measure of protection." The investment contract taxonomy thus "embodies a flexible rather than a static principle, one that is capable of adaptation to meet the countless and variable schemes devised by those who seek the use of the money of others on the promise of profits."

The Howey test has proven to be versatile in practice. Over time, courts have classified as investment contracts a kaleidoscopic assortment of pecuniary arrangements that defy categorization in conventional financial terms, yet nonetheless satisfy the Howey Court's three criteria.

A. Investment of Money.

The first component of the Howey test focuses on the investment of money. The determining factor is whether an investor "chose to give up a specific consideration in return for a separable financial interest with the characteristics of a security."

B. Common Enterprise.

The second component of the Howey test involves the existence of a common enterprise. Before diving headlong into the sea of facts, we must dispel the miasma that surrounds the appropriate legal standard.

1. The Legal Standard. Courts are in some disarray as to the legal rules associated with the ascertainment of a common enterprise. See generally II Louis Loss & Joel Seligman, Securities Regulation 989-97 (3d ed. rev.1999). Many courts require a showing of horizontal commonality — a type of commonality that involves the pooling of assets from multiple investors so that all share in the profits and risks of the enterprise.

Other courts have modeled the concept of common enterprise around fact patterns in which an investor's fortunes are tied to the promoter's success rather than to the fortunes of his or her fellow investors. This doctrine, known as vertical commonality, has two variants. Broad vertical commonality requires that the well-being of all investors be dependent upon the promoter's expertise.

In contrast, narrow vertical commonality requires that the investors' fortunes be "interwoven with and dependent upon the efforts and success of those seeking the investment or of third parties."

We hold that a showing of horizontal commonality — the pooling of assets from multiple investors in such a manner that all share in the profits and risks of the enterprise — satisfies the [Howey] test. Adopting this rule also aligns us with the majority view and confirms the intimation of Rodriguez. Last, but surely not least, the horizontal commonality standard places easily ascertainable and predictable limits on the types of financial instruments that will qualify as securities.

C. Expectation of Profits Solely From the Efforts of Others.

The final component of the Howey test — the expectation of profits solely from the efforts of others — is itself divisible. We address each sub-element separately.

1. Expectation of Profits. The Supreme Court has recognized an expectation of profits in two situations, namely, (1) capital appreciation from the original investment, and (2) participation in earnings resulting from the use of investors' funds. These situations are to be contrasted with transactions in which an individual purchases a commodity for personal use or consumption. The SEC posits that SG's guarantees created a reasonable expectancy of profit from investments in the privileged company, whereas SG maintains that participants paid money not to make money, but, rather, to acquire an entertainment commodity for personal consumption.

In Forman, apartment dwellers who desired to reside in a New York City cooperative were required to buy shares of stock in the nonprofit cooperative housing corporation that owned and operated the complex. Based on its determination that "investors were attracted solely by the prospect of acquiring a place to live, and not by financial returns on their investments," the Forman Court held that the cooperative housing arrangement did not qualify as a security under either the "stock" or "investment contract" rubrics. The Court's conclusion rested in large part upon an Information Bulletin distributed to prospective residents which stressed the nonprofit nature of the cooperative housing endeavor.

We think it noteworthy that the Forman Court contrasted the case before it with Joiner. In that case, economic inducements made by promoters in conjunction with the assignment of oil well leases transformed the financial instrument under consideration from a naked leasehold right to an investment contract. The Joiner Court found dispositive advertising literature circulated by the promoters which emphasized the benefits to be reaped from the exploratory drilling of a test well. Id. ("Had the offer mailed by defendants omitted the economic inducements of the proposed and promised exploration well, it would have been a quite different proposition.").

The way in which these cases fit together is instructive. In Forman, the apartment was the principal attraction for prospective buyers, the purchase of shares was merely incidental, and the combination of the two did not add up to an investment contract. In Joiner, the prospect of exploratory drilling gave the investments "most of their value and all of their lure," the leasehold interests themselves were no more than an incidental consideration in the transaction, and the combination of the two added up to an investment contract.

Seen in this light, SG's persistent representations of substantial pecuniary gains for privileged company shareholders distinguish its StockGeneration website from the Information Bulletin circulated to prospective purchasers in Forman. While SG's use of gaming language is roughly analogous to the cooperative's emphasis on the nonprofit nature of the housing endeavor, SG made additional representations on its website that played upon greed and fueled expectations of profit.

This is not to say that SG's gaming language and repeated disclaimers are irrelevant. SG has a plausible argument, forcefully advanced by able counsel, that no participant in his or her right mind should have expected guaranteed profits from purchases of privileged company shares. But this argument, though plausible, is not inevitable. In the end, it merely gives rise to an issue of fact (or, perhaps, multiple issues of fact) regarding whether SG's representations satisfy Howey's expectation-of-profit requirement.

2. Solely from the Efforts of Others. We turn now to the question of whether the expected profits can be said to result solely from the efforts of others. The courts of appeals have been unanimous in declining to give literal meaning to the word "solely" in this context, instead holding the requirement satisfied as long as "the efforts made by those other than the investor are the undeniably significant ones, those essential managerial efforts which affect the failure or success of the enterprise." This liberal interpretation of the requirement seemingly comports with the Supreme Court's restatement of the Howey test. (explaining that "the touchstone is the presence of an investment in a common venture premised on a reasonable expectation of profits to be derived from the entrepreneurial or managerial efforts of others").

We need not reach the issue of whether a lesser degree of control by a promoter or third party suffices to give rise to an investment contract because SG's alleged scheme meets the literal definition of "solely." According to the SEC's allegations, SG represented to its customers the lack of investor effort required to make guaranteed profits on purchases of the privileged company's shares, noting, for example, that "playing with [the] privileged shares practically requires no time at all." SG was responsible for all the important efforts that undergirded the 10% guaranteed monthly return. As the sole proprietor of the StockGeneration website, SG enjoyed direct operational control over all aspects of the virtual stock exchange. And SG's marketing efforts generated direct capital investment and commissions on the transactions (which it pledged to earmark to support the privileged company's shares).

Under Howey, it doesn't matter whether the investment capital comes in the form of legal tender, digital currency, or some other valuable asset. Bitcoin ponzi schemer Trendon Shavers found that out the hard way.

SECURITIES AND EXCHANGE COMMISSION, Plaintiff, Appellant,
v.
SG LTD. et al., Defendants, Appellees.

Nos. 01-1176, 01-1332.
United States Court of Appeals, First Circuit.

Heard August 2, 2001.
Decided September 13, 2001.

Relying upon a dictum from Howey discussing "the many types of instruments that in our commercial world fall within the ordinary concept of a security,", the district court drew a distinction between what it termed "commercial dealings" and what it termed "games." Characterizing purchases of the privileged company's shares as a "clearly marked and defined game," the court concluded that since that activity was not part of the commercial world, it fell beyond the jurisdictional reach of the federal securities laws. Id. In so ruling, the court differentiated SG's operations from a classic Ponzi or pyramid scheme on the ground that those types of chicanery involved commercial dealings within a business context. Id.

We do not gainsay the obvious correctness of the district court's observation that investment contracts lie within the commercial world. Contrary to the district court's view, however, this locution does not translate into a dichotomy between business dealings, on the one hand, and games, on the other hand, as a failsafe way for determining whether a particular financial arrangement should (or should not) be characterized as an investment contract. Howey remains the touchstone for ascertaining whether an investment contract exists — and the test that it prescribes must be administered without regard to nomenclature.

A fairly recent Supreme Court opinion demonstrates that the "commercial world" to which the Howey Court alluded actually encompasses the total universe of financial instruments available to investors, rather than the subset of financial instruments envisioned by the district court (i.e., "commerce" as opposed to "games"). In that case, Justice Marshall wrote:


The Howey Court established a tripartite test to determine whether a particular financial instrument constitutes an investment contract (and, hence, a security). This test has proven durable.


The Supreme Court has long espoused a broad construction of what constitutes an investment contract, aspiring "to afford the investing public a full measure of protection." The investment contract taxonomy thus "embodies a flexible rather than a static principle, one that is capable of adaptation to meet the countless and variable schemes devised by those who seek the use of the money of others on the promise of profits."

The Howey test has proven to be versatile in practice. Over time, courts have classified as investment contracts a kaleidoscopic assortment of pecuniary arrangements that defy categorization in conventional financial terms, yet nonetheless satisfy the Howey Court's three criteria.

A. Investment of Money.

The first component of the Howey test focuses on the investment of money. The determining factor is whether an investor "chose to give up a specific consideration in return for a separable financial interest with the characteristics of a security."

B. Common Enterprise.

The second component of the Howey test involves the existence of a common enterprise. Before diving headlong into the sea of facts, we must dispel the miasma that surrounds the appropriate legal standard.

1. The Legal Standard. Courts are in some disarray as to the legal rules associated with the ascertainment of a common enterprise. See generally II Louis Loss & Joel Seligman, Securities Regulation 989-97 (3d ed. rev.1999). Many courts require a showing of horizontal commonality — a type of commonality that involves the pooling of assets from multiple investors so that all share in the profits and risks of the enterprise.

Other courts have modeled the concept of common enterprise around fact patterns in which an investor's fortunes are tied to the promoter's success rather than to the fortunes of his or her fellow investors. This doctrine, known as vertical commonality, has two variants. Broad vertical commonality requires that the well-being of all investors be dependent upon the promoter's expertise.

In contrast, narrow vertical commonality requires that the investors' fortunes be "interwoven with and dependent upon the efforts and success of those seeking the investment or of third parties."

We hold that a showing of horizontal commonality — the pooling of assets from multiple investors in such a manner that all share in the profits and risks of the enterprise — satisfies the [Howey] test. Adopting this rule also aligns us with the majority view and confirms the intimation of Rodriguez. Last, but surely not least, the horizontal commonality standard places easily ascertainable and predictable limits on the types of financial instruments that will qualify as securities.

C. Expectation of Profits Solely From the Efforts of Others.

The final component of the Howey test — the expectation of profits solely from the efforts of others — is itself divisible. We address each sub-element separately.

1. Expectation of Profits. The Supreme Court has recognized an expectation of profits in two situations, namely, (1) capital appreciation from the original investment, and (2) participation in earnings resulting from the use of investors' funds. These situations are to be contrasted with transactions in which an individual purchases a commodity for personal use or consumption. The SEC posits that SG's guarantees created a reasonable expectancy of profit from investments in the privileged company, whereas SG maintains that participants paid money not to make money, but, rather, to acquire an entertainment commodity for personal consumption.

In Forman, apartment dwellers who desired to reside in a New York City cooperative were required to buy shares of stock in the nonprofit cooperative housing corporation that owned and operated the complex. Based on its determination that "investors were attracted solely by the prospect of acquiring a place to live, and not by financial returns on their investments," the Forman Court held that the cooperative housing arrangement did not qualify as a security under either the "stock" or "investment contract" rubrics. The Court's conclusion rested in large part upon an Information Bulletin distributed to prospective residents which stressed the nonprofit nature of the cooperative housing endeavor.

We think it noteworthy that the Forman Court contrasted the case before it with Joiner. In that case, economic inducements made by promoters in conjunction with the assignment of oil well leases transformed the financial instrument under consideration from a naked leasehold right to an investment contract. The Joiner Court found dispositive advertising literature circulated by the promoters which emphasized the benefits to be reaped from the exploratory drilling of a test well. Id. ("Had the offer mailed by defendants omitted the economic inducements of the proposed and promised exploration well, it would have been a quite different proposition.").

The way in which these cases fit together is instructive. In Forman, the apartment was the principal attraction for prospective buyers, the purchase of shares was merely incidental, and the combination of the two did not add up to an investment contract. In Joiner, the prospect of exploratory drilling gave the investments "most of their value and all of their lure," the leasehold interests themselves were no more than an incidental consideration in the transaction, and the combination of the two added up to an investment contract.

Seen in this light, SG's persistent representations of substantial pecuniary gains for privileged company shareholders distinguish its StockGeneration website from the Information Bulletin circulated to prospective purchasers in Forman. While SG's use of gaming language is roughly analogous to the cooperative's emphasis on the nonprofit nature of the housing endeavor, SG made additional representations on its website that played upon greed and fueled expectations of profit.

This is not to say that SG's gaming language and repeated disclaimers are irrelevant. SG has a plausible argument, forcefully advanced by able counsel, that no participant in his or her right mind should have expected guaranteed profits from purchases of privileged company shares. But this argument, though plausible, is not inevitable. In the end, it merely gives rise to an issue of fact (or, perhaps, multiple issues of fact) regarding whether SG's representations satisfy Howey's expectation-of-profit requirement.

2. Solely from the Efforts of Others. We turn now to the question of whether the expected profits can be said to result solely from the efforts of others. The courts of appeals have been unanimous in declining to give literal meaning to the word "solely" in this context, instead holding the requirement satisfied as long as "the efforts made by those other than the investor are the undeniably significant ones, those essential managerial efforts which affect the failure or success of the enterprise." This liberal interpretation of the requirement seemingly comports with the Supreme Court's restatement of the Howey test. (explaining that "the touchstone is the presence of an investment in a common venture premised on a reasonable expectation of profits to be derived from the entrepreneurial or managerial efforts of others").

We need not reach the issue of whether a lesser degree of control by a promoter or third party suffices to give rise to an investment contract because SG's alleged scheme meets the literal definition of "solely." According to the SEC's allegations, SG represented to its customers the lack of investor effort required to make guaranteed profits on purchases of the privileged company's shares, noting, for example, that "playing with [the] privileged shares practically requires no time at all." SG was responsible for all the important efforts that undergirded the 10% guaranteed monthly return. As the sole proprietor of the StockGeneration website, SG enjoyed direct operational control over all aspects of the virtual stock exchange. And SG's marketing efforts generated direct capital investment and commissions on the transactions (which it pledged to earmark to support the privileged company's shares).

Consistency in our case is the probability of a double-spend (and the inability to reverse a record of a completed transaction, which is involved in the same probability), since that is the only consistency that we need. Consistency of topology seems to be irrelevant as a direct metric of any consistency that concerns the goal of the consensus.

Your white paper provides an equation for that probability with examples on page 14.

But afaik, you have not yet characterized how A or P declines as the probability of a double-spend declines. Additionally it is not clear if the equation is proven and one potential path towards validating it is to be able to relate analytically how A and P are affected as that probability changes.


The probability of a double-spend is given by the probability of a chain being orphaned.

It seems the difference in our thinking is you have not yet formulated a metric of consistency relevant to our application of network consensus (a.k.a. Byzantine fault tolerance and coherence). It is all about the double-spending prevention, and <joke>not the bass</joke>.


Ah I am a conceptual (abstract) thinker. You are thinking as a low-level network engineer, thus you miss the generative essence of how CAP applies. The availability of the P2P network is really irrelevant conceptually to how CAP relates to the goal of the consensus network— to order transactions in time and prevent (or record and blacklist) double-spends. Thus availability in the relevant conceptual context is the ability to extend the chain AUTONOMOUSLY. If for example in any alternative design the chain could only be extended after tallying a quorum, then availability would require a quorum to be present. The reason that proof-of-work is such an elegant solution to the Byzantine Generals issue, is because the solution is generated by autonomous actors (and thus the entropy of the system is open and not closed).

Until you understand conceptually, you can't begin to understand block chain scaling holistically.

And now I am giving away too much of my expertise for free to a potential competitor to my work. So I will need to stop. I had suggested we work together, because I had been thinking about these issues for a long time and I thought your DAG might offer some unique aspects towards formulating a holistic design for various CAP tradeoff scenarios. But now I need to see more analytical justification of your design before applying any more of my effort. The ball is now in your court. Knowing how people react to my statements, apologies in advance if this seems egotistical to any one, then they need to read this (meaning it would their ego and not mine, I am just stating objectively what I think...no ego involved).


Agreed.


I already showed mathematically how to defeat the selfish mining attack.


My stance (unless something shatters my perspective) is that it is now up to you all to formulate more compelling holistic explanation/characterization of your DAG within the context of the CAP theorem, and also provide analytical models.

I don't think I am being paid nor am I a team member, so therefor I shouldn't be trying to dig into the details of that. I have provided what I believe to be the relevant conceptual framework (you may disagree). And I have work to do on my own block chain scaling technology.

Good luck. I'll check back sometimes on progress.

I don't agree with the red part, it's impossible to have an equation for probability (has anyone ever had it?) because it depends on network topology which is infeasible to measure (it even changes every minute).

Bitcoin has eventual consistency, probability of an orphaned chain has nothing to do with it unless you consider the case of spherical Bitcoin in vacuum.

Availability in Bitcoin is nine nines, ability to extend the longest chain is irrelevant there.

Partition tolerance in Bitcoin is pretty high, this is achieved with the help of coinbase maturity parameter, if it was set to zero we would see more transactions not reincluded into the longest chain after a reorg.

51% attack is an attack for another case of spherical Bitcoin in vacuum. Ittay Eyal and Emin Gun Sirer showed that Bitcoin can be successfully attacked even with 33%/25% of hashing power.

Cybit sounds a good name to me.

* cybit has trademark issues.

 
  
Wow, that's actually a really good idea.  If he doesn't do it, I'll suggest that we do.  Lots of nerdy terms quickly penetrate the mainstream once the mainstream has a reason to use them.  Think of all the nerdy 90's slang that is just an accepted part of the vernacular today.  

If Consistency is weakened to eventual, then either you have no defined Consistency (i.e. no Consistency ever) or you have an equation for probability of Consistency. If there exists such an equation, then you have to explain how and the probability of either Availability or Partition tolerance is lost when the probability of Consistency is attained. The onus is on your to justify these claims analytically, including convincing arguments about the game theory. Else you can just put it into the wild and observe (and who knows what will happen).


Consistency in Bitcoin is the fact that the objectivity is the longest chain. There only state of inconsistency is the probability of an orphaned chain, which declines over time except if the adversary has greater than 50% of the sustained network proof-of-work hashrate.

Availability in Bitcoin is given by even if there are no other active nodes, then sender and/or recipient of the transaction can extend the longest chain and the Consistency remains valid (except for the caveats on Consistency).

Partition tolerance is lost in Bitcoin because if there is network partitioning then double-spends can occur on each chain without being detected until these chains are merged. Bitcoin can't tolerate multiple chains, and only allows the longest chain.  There is no way to merge these chains, because double-spends can infect other downstream transactions, combined with inputs from legitimate transaction graphs.

So what we can say is Bitcoin fulfills the CAP theorem, except it has theoretically unnecessary caveats in Consistency due to 51% attack and delay due to probability of orphaned chains, which are due to the ephemeral Partition tolerance that is introduced by chain reorganization. The Consistency delay also causes transaction confirmation to be significantly delayed. The goals of my Sync (or BlocSync) block chain overhauled design has been to eliminate those caveats, while relaxing the Consistency and/or Availability during partitioning of the network in order to provide some Partition tolerance.


If the CAP theorem is random to Byzantine fault tolerance for networks, then we might as well say the speed-of-light is an irrelevant fact when doing Physics.

Consistency is weakened to eventual.

To make sure we are on the same page: what is partition tolerance and availability of Bitcoin?

And please stop randomly citing Big Important Theorems that have only a vague connection to what we are discussing. In academic circles such behaviour is not welcome.

No one spends hard assets to be part of some charitable science project.  At least, not many people do.  To function in its intended way, a cryptocurrency *must* carry financial value; there is no other way.  To carry financial value humans must be allowed to speculate on its future value, especially considering that network effects are exponential.  It is silly to think that thousands of initial adopters will all put hard-earned financial value into a cryptocurrency and then unanimously agree: "We sure hope the value doesn't go up!"

This is in stark contrast to many other shitcoins where "the value will go up because we will get more people to use it and the value will go up!  moon!".  But even though this was the case with some currencies like Dogecoin, it has still escaped scrutiny by the SEC, despite being less defensible than what Monero and Aeon are doing.

 
  
From running an illegal dice site, not for anything to do with the actual currency of bitcoin.

It's silly to build a distributed system violating CAP theorem, in no circumstances anyone of us would even attempt that, it's the same as trying to fly faster than speed of light.

The block chain creates one partition which is the longest chain. Thus it can maintain C and A [but gives up on P]. You will have to give up one of C, A, or P.