And again I have studied the SEC regulations and all these marketing to speculators is clearly a violation of the Howey test for being an unregistered illegal investment security.
Okay, I'm going to step in at this point. For the record, I don't own any DASH and I never have: not even in the days when it was Darkcoin. I've also been an interested but apathetic spectator when it comes to this Hatfield-McCoy feud between the DASHers and the Moneroites. Further for the record, I do own a tiny haunch of AEON. Pecuniary-wise, I'd have to be counted as a very minor 'McCoy', but my AEON holdings are worth less than a tank of gasoline.
A-mint has brought up the Howey test before, and I thank him for it. We need people like him to do so, even if (in this case) I think he's misguided. It's clear that he zeroed in on an issue that gets to the heart of what open-source
means.
First of all, for everyone, here are the four criteria of the Howey Test from
this source (which jibes with
Wikipedia):
An investment contract under the Howey Test was defined as follows:
1. an investment of money due to
2. an expectation of profits arising from
3. a common enterprise
4. which depends solely on the efforts of a promoter or third party
What this meant for J. Howey, and for all real estate investors in the future, was that anytime you're searching for investors, no matter if the investor goes on the deed or has a mortgage, if the investor is relying on you to make their profits you are considered to be selling a security. The Howey Test set the standard for securities laws in raising money for real estate investments.
Now, the paragraph below the list is a common-sensical way of summing it up for the real-estate-investment community.
But for a cryptocurrency, it's misplaced and it's important to know why. I can certainly see the SEC hauling in a cryptocurrency dev team on Howey-Test grounds by good ol' reasoning-by-analogy. But if they do - unless the cryptocurrency has clearly been designed to be a security
and nothing more - I'd fight like hell in any public venue that would have me. And the grounds I'd be fighting on pertain to #4: "which depends solely on the efforts of a promoter or third party."
"which depends
solely on the efforts of a promoter or third party." That
solely flat-out contradicts the open-source nature of cryptocurrency - not in the sense of the underlying tech, but in the sense of the open-source nature of a cryptocurrency's ecosystem and value growth. In order for a grass-roots cryptocurrency to grow in value,
there have to be independent actors building value by layering services on top of the crypto. It could be something as rinky-dinky as someone offering to sell his Etsyeque creations for a cryptocurrency, but even rinkity-dinkity actions like that cohere to the open-source ecosystem vision.
Even if they add zero demand for the cryptocurrency, they're priceless in terms of effort. Why? because they're
living examples of the open-source nature of ecosystem growth.The Supreme Court decided the way it did because J. Howey & Co. actively discouraged independent efforts in their promotional materials. Put another way,
J. Howey & Co. actively encouraged the buyers of their orange-grove lots to sit on their behinds and leave the profit-gathering to J. Howey et. al. as managers. With respect to the typical cryptocurrency, that part of the test is either inapplicable or the diametrical opposite. Which dev team would
not be delighted if a business-savvy independent built a viable business using the dev team's cryptocurrency?
This is the equivalent of J. Howey asking the buyers of his land to manage the orange groves independently and share any orange-growing tricks they come up with. Had he done that, I don't see how he could have lost his case.
If the SEC wins a Howey-Test case against a cryptocurrency, it will have succeeded in ramming a spike through the brain of the entire altcoin space. After a decision like that, us altcoineers will be essentially condemned to being the Phineas Gages of fintech: running around in a short-term way playing with our digitized answer to penny stocks. The dream of building a new economy through independent efforts will have been squished to death by that iron spike.
Let me give an example of how different the altcoin ecosystem is from the regular business world. Some time ago, I walked to a Home Depot outlet early in the morning to take photos of the goods they had on their shelves. I came across their Internet affiliate program and got the idea that I could use their shelf-stock as underlying data to build a better Website and/or app: it would have paid for itself by affiliate sales. This endeavour started off well - I hit it off with at least one member of the floor staff - until I bumped into a rule-enforcing kind of gal employee who told me that I was not allowed to take pictures of the stock because I wasn't an employee. I was actually surprised, surprised enough to look at her blankly before explaining that I was
collaborating with Home Depot. I was only taking pictures so as to take quickie "notes" on what their stock was, for the purpose of driving more folks to spend money on Home Depot's goods. That chivvying moved her not at all; she replied that she had asked the store manager and he had backed her up. "Company policy." She did say I could write Home Depot's corporate office to ask for special permission. So I did, and I never got back a reply.
This little experience of mine shows how profoundly
different the space 'round here is from the regular listed-company world. I've been so long in this space, hearing "corporate policy means you can't do such-and-such" actually baffled me for a moment. "Whut? I'm tryin' ta help ya out here."
Had Home Depot had a cryptocurrencyesque management, the store manager would have clapped me on the back and encouraged me! Even if that idea of mine sunk into the netherworld of unpopular affiliate Sites, whose nether is legion, he still would have given me props for trying.
Okay: I know that very few people do take matters into their own hands with respect to building ecosystems. We're all creatures of habit, even us altcoineers, so naturally we've all fallen into the habit of seeing and treating an altcoin as if it were a penny stock: a vehicle which first you plop your money into and then sit on your duff waiting for a capital gain. I'm like that myself; I really am. I admit it.
But habits can be broken, albeit slowly. Getting over them, hard as it is to do, is much, much easier than it is to break a mandate from a regulatory agency designed to monitor stocks & bonds exerting its authority over something new and profoundly, if subtly, different than the instruments which that agency was designed to oversee.
That's why - even if the SEC landed on a questionable cryptocurrency using the Howey Test as its theory - I'd fight it like hell in the "court of public opinion" unless it were a Paycoin-like scam - one where the dev make a promise
that was supposed to be made good from his own funds - or a Ponzi scheme where the dev claimed a backing that wasn't there. Both of these cases are so obviously similar to penny-stock crookery, the SEC can do what it pleases with those jokers as far as I'm concerned. I'd just stand up if they went after a real cryptocurrency, even a questionable one, whose value-growth depends upon independent action even if incentivized. That type of crackdown would crush the independent-action value-growth track of cryptocurrency's unique "open-source ecosystem" growth.
Granted, it's a hard vision for even us folks to pick up and assimilate. It took me a long time for my old speculator's habits to erode to the point where I could "see" the ecosystem vision. But the point is, there's no regulation or mandate that forbids me from not only "seeing" it but also pitching in. If the SEC wins one of those against-the-crypto-vision cases, there will be.
Like many of my posts here, this is prolly half-baked: with respect to semantic content, I'm not a good self-editor. But I hope it's baked enough to get this very important point across:
The open-source nature of cryptocurrency ecosystems means that a cryptocurrency is not a listed company. Treating it so in law would fatally cripple its "brain."
In closing, to A-mint, I want to say:
"I disagree with what you said, but I'm damn glad you said it!" This overhanging issue needs to be tackled before we-all get snarled up into trouble.
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EDIT:
X-posted here for the benefit of
americanpegasus.
