Which crypto-coins are "investment securities"? Implications?

[TPTB_need_war]

To those voting, "invesment securities" has a meaning in law which is different than your common sense thought of what it should mean. Please take the time to understand the difference before you vote. In particular it doesn't mean any share of anything you investment in. There are certain tests of whether a share of something is an "investment security" or not.

Please indicate if your vote in the poll does not include all those which are below your choice and why.

Please review the following three linked posts wherein I overview my interpretation of the USA and also international law on what constitutes an "investment security" which must be registered with the government regulatory agencies around the world:

https://bitcointalk.org/index.php?topic=1211093.msg12739508#msg12739508
https://bitcointalk.org/index.php?topic=1211093.msg12727136#msg12727136
https://bitcointalk.org/index.php?topic=1211093.msg12722193#msg12722193

Also my comment:

BitShares 2.0

• DPOS claims[1] that by having the stakeholders in the system vote, that the controlling group which is the corporation comprising the developers is not in control. Well publicly listed entities allow shareholders to vote, and that doesn't absolve the classification of investment securities. Ostensibly Bitshares is trying to not run afoul of the criminal and civil liability that results from unregistered investment securities, but my interpretation of the law[2] is they may be still acting as a controlling group since investors depend on them to add value to the investment and the future performance of the investment (again I am not making any declaration that they are or are not, I am raising awareness on this issue for potential investors and participants).
  
  

  [1]

  https://bitshares.org/technology/delegated-proof-of-stake-consensus/ This design was chosen to ensure that delegates technically have no direct power and that all changes to the network parameters are ultimately approved by the stakeholders. This is done to protect the delegates against regulations that may apply to managers or administrators of cryptocurrencies. Under DPOS, we can truly say that the administrative authority rests in the hands of the users, rather than either the delegates or witnesses.

  [2]

  https://bitcointalk.org/index.php?topic=1211093.msg12739508#msg12739508 https://bitcointalk.org/index.php?topic=1211093.msg12722193#msg12722193

Apparently the implications of not registering "investment securities" means harsh fines and potentially criminal charges can result on being involved with these unregistered "investment securities". I am interested in this from the implications of not only the long-term future of the coin if it is attacked later by government regulators, but also as it pertains to government classification of taxation of the various crypto-coins:

https://www.reddit.com/r/Bitcoin/comments/3pu6v7/by_ruling_that_%C6%80itcoin_exchange_is_taxfree/

did i just read that EU made BTC tax free EU-wide ?

NO

bitcoin was already vat (or as the yanks call sales tax) free.. it has been for 6 years, what has happened is that they have ruled that they wont suddenly make it a VAT inclusive product, and thus keep it at its currency status..

just remember everything is free until its ruled to not be. so dont assume the courts or governments make it free.. they simply decide not to be greedy

did i just read that EU made BTC tax free EU-wide ?

In terms of VAT, because bitcoin is regarded to as a currency by the ECJ. As for capital gains, I think there is still tax for that.

[1715009513]

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[1715009513]

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[TPTB_need_war]

I am wondering why I can't get any feedback on this?

It is as if everyone wants to sweep this under the rug and pretend this issue doesn't exist  

My theory is the powers-that-be are allowing all this illegal activity to proliferate so that when they are ready in the future to collapse the crypto economy into a fully regulated one, they can bring securities law actions against various parties and their involvement in selling, brokering, exchanging, etc unregistered "investment securities".

I would appreciate some rational feedback from level-headed forum participants. Especially those with relevant experience and knowledge.

[othe]

Isn´t everything effectively controlled by a group? At least by the users, even if there is no "leadership" or "company" behind it or "miners" controlling it.

[TPTB_need_war]

Isn´t everything effectively controlled by a group? At least by the users, even if there is no "leadership" or "company" behind it.

But the securities law definitions seem to require that the group has managerial control in order to classify the shares of the investment to be "investment securities".

But if you bought tokens in a game, you wouldn't be taking the pronouncements of the users of the game as promises for the future value of your tokens. The users are not in control of the management of the product (its protocol, compiled code, marketing, planning/implementing hard forks, etc). Crypto-coins are like a virtual game and the value is what the users say it is, so isn't a currency unless the users treat it as such.

Thus as I read the way the "investment securities" are typically defined by the courts and law (at least what I could find quickly), it appears the test is whether there is a controlling group MANAGING the product that drives the value of the investment shares.

The users are not managing the coin. They often disagree with each other and have no consistent managerial organization. They are just using it within the confines of the protocol.

Only the developers truly have the influence to alter the protocol and have it widely adopted. So in my mind the test is whether the developers are acting like an organized controlling manager of the coin. A lead developer could be offering updated code for improvements to the coin and still not really be in control, if others are also doing so more or less uncontrolled by that lead developer and the nodes in the system are not dictated to or controlled by one managerial group as to which code they choose to run on their node. But if these developers have joined together in a coordinated group that is managing the coin and the users depending on the pronouncements and website of this controlling group for the official coin gospel, then I say it falls dangerously close to being classified as an "investment security" and especially if coins were sold to investors with the proceeds going to that managing, controlling group, and even more especially if there is ongoing revenue stream being taken from the coin and given to that managing, controlling group.

The stated reason that securities regulation exists is essentially to protect naive investors from incomplete, incorrect, and fraudulent disclosure by the managers of the investment. Thus if there are no managers, then there is nothing to protect the users from. How could the government regulate a protocol that no one is control of? Instead they can only regulate those who manage investments and those who facilitate exchanging shares in them.

Bitshares and Dash appear to me to be trying to escape the concept of "control" by passing the control off to masternodes and delegates, but in essence if you own most of the coins (or have influence over or confluence with those who do, because of your ability to control which developments get adopted), then you control these masternodes and delegates. So this appears to maybe be an obfuscation of their controlling and managerial role. They appear to be trying to sidestep the securities law, but I think they may fail. They are also US citizens, so I would not want to be doing what they are doing (I am also a US citizen).

Btw, I thought Monero was probably very safely distant from this problem until you told me they automatically manage the changing of the protocol every 6 months. That is a managerial role by a consistent controlling group. That would concern me if I were them. But I am very paranoid, maybe too much so.

Feel free to change your vote if I have changed your opinion with my post.

Edit: my opinion is that if there are funds supplied to develop a product and the managerial control is given up after delivering the product, then the product (and its tokens) are not "investment securities". So in my interpretation, a crowdfunded development of a coin that is then turned over to the community to run autonomously without ongoing managerial control of the developer or any controlling group, would thus not cause its coins to be "investment securities". But I am not attorney so consult your own legal advisor and I want to read what others think.

[TPTB_need_war]

It concerns me that so far the only two voters have voted to characterize as "investment securities" a decentrally fairly-distributed coin, where no tokens were ever sold by the creator of the coin, and the creator (or his descendant group) has no ongoing managerial control over product (or company or scheme) invested in.

Also per the terms of the poll, unless the voters posted in the thread to explain why not, their votes means all items below their selected choice are also "investment securities", thus these two aforementioned votes are essentially saying that all crypto-coins including Bitcoin are unregistered "investment securities". Do they realize that would mean many exchanges and other exchanging of these securities are illegal? (at least the risk thereof in some jurisdictions)

My purpose with this thread is to try to gain insight into how users and investors are thinking about this risk. It appears to me thus far that no one has cared nor thought about it. Which is amazing to me given the potential harm that could come to all of us for not being astute on this issue.

[TPTB_need_war]

Andreas Antonopoulos makes the point that what distinguishes decentralized crypto-currency from other forms of money, including digital money, is that it is a decentralized protocol, i.e. a language and not centralized platform (API) nor institution. Since I agree 100% with this definition and especially how he explains it in the context of the history of money, it appears to coincide with my view that the securities law applies to managed platforms and institutions and not to decentralized, unmanaged protocols. Thus if some group is controlling the protocol, I think they could be argued to be the managers of the "investment securities" which are the coins.

Thus I agree with the voter who voted that all crypto-currencies which have a group managing the protocol are thus "investment securities", regardless whether they sold the coins or not.

I highly recommend listening to that presentation by Andreas. When he states "peer-to-peer" and "state moved to the ends i.e. the peers" he is referring to the End-to-End principle:

...versus to a normal PoW system where the payer's signature is autonomous from the network. The latter is the end-to-end principle because the intermediaries—between the originator and the construction of a transaction to the destination—are incapable of harm, substitutable, and fungible. Put more abstractly, the intermediaries are idempotent, referentially transparent, transitive, and commutative.

P.S. I inadvertently locked the poll but I unlocked it now. I didn't know I had clicked Lock poll. I also reset the poll (3 votes lost), because before some voted misunderstanding what the question stated.

[smooth]

Too many options in the poll. I can't even figure out how to vote.

My opinion is that no one really knows since these laws are incredibly unclear, basically written to give maximum power and abusable discretion to regulators and prosecutors. ICOs seem like the most obvious and highest risk (the securities law issues arise before the coin launches at all). Trying to call it a crowdfunded product seems quite weak when there is obvious intent and expectations by nearly all participants to treat it as an investment (i.e. economic reality trumps fine print). I'm looking at you Ethereum.

Other cases become less clear. Plausible arguments could be made either way.

If you want zero risk, don't play. I'm pretty sure that is somewhat by design. The investments industry doesn't like disruption or competition from technological change, upstarts or scrappy independents.

In general I don't think stepping aside helps much. Whatever you did before you stepped aside is probably enough for culpability if money changed hands.

[TPTB_need_war]

ICOs seem like the most obvious and highest risk (the securities law issues arise before the coin launches at all). Trying to call it a crowdfunded product seems quite weak when there is obvious intent and expectations by nearly all participants to treat it as an investment (i.e. economic reality trumps fine print). I'm looking at you Ethereum.

In general I don't think stepping aside helps much. Whatever you did before you stepped aside is probably enough for culpability if money changed hands.

The case law says that as long as the user has managerial control then whether you sold a product enabling the user to take control, then as long as the developer has had no control, then the user entirely culpable thus the shares in the product that was sold at ICO are not a security, because there is nothing backing it. It appears you are wrong in the case that the developer steers far from any managerial control throughout the entire process. The devs could be liable for selling a faulty product if they didn't put proper disclaimers in the terms of sale, but that is orthogonal to the tokens of the product being classified as a security. Afaics, Ethereum did assert managerial control. Also perhaps one can argue that Monero's devs appear to assert managerial control (the 6 month forced upgrade thing is one potential sign of that control as who would diffuse that every 6 months if not the ongoing devs exerting managerial control, as the n00b users are totally dependent). It appears that whether the users think it is an investment or not, has nothing to do with the classification as a security. That is why I wrote in the OP to not try to apply your common sense opinion, because the law is not based on your common sense opinion.

smooth your opinion is appreciated, but I would like to point it seems to be entirely based on opinion; whereas, I cited the law (in the USA and in the EU).

In law, opinions are like ass-holes, everyone has them, but the law is something written down and appended to by case law court decisions as you know.

You claim the laws are not clear, but that appears not to be the case. The laws especially in the USA seem to use the test of managerial control. Did you even study the links and sources I provided?

http://www.lextechnologiae.com/2011/06/26/why-bitcoin-isnt-a-security-under-federal-securities-law/

WHERE THE TERM ‘SECURITY’ COMES FROM
A security implies an investment method or instrument that is secured against something else.

BUT IF CURRENCY CAN BE A SECURITY, THEN BITCOIN IS A SECURITY BECAUSE IT’S A TYPE OF CURRENCY, RIGHT?
Wrong. Bitcoin is not really a type of currency, at least not of the type recognized as securities. No entity or assets back up Bitcoin value. Bitcoin value is entirely virtual—a Bitcoin is only worth what another person thinks its worth. This is different than currency issued by countries.

Bitcoin is backed by no entity, no commodity, no organization.

SO, WHAT IS A SECURITY UNDER FEDERAL LAW?
The SEC v. W.J. Howey Co. involved the sale of units of a Florida citrus grove coupled with a service contract for farming those units. The U.S. Supreme Court ruled that this arrangement amounted to an investment contract. Investment contracts are included in the definition of securities in both the Securities Act of 19331 and the Securities Exchange Act of 19342 and are therefore subject to SEC regulations. The Court defined an investment contract as:

a contract, transaction or scheme whereby a person invests his money in a common enterprise and is led to expect profits solely from the efforts of the promoter or a third party, it being immaterial whether the shares in the enterprise are evidenced by formal certificates or by nominal interests in the physical assets employed in the enterprise.

The court in Glenn Turner borrowed a California test for determining whether something classified as a security—the risk capital test. The test looks at whether the investor subjects his money to the risk of an enterprise over which he exercises no managerial control. The idea behind the test is that investments of this type are the basic economic reality of a security transaction.

The test looks at whether the subjection of the investor’s money to the risk of an enterprise over which he exercises no managerial control is the basic economic reality of a security transaction.

So thus when there is another manager of the enterprise other than the users, then the shares of the enterprise are "investment securities". But then there is no manager and the user exercises the only management over his own shares, then the user exercise the only managerial control that exists, thus the shares are not securities! As stated in the law by the court decisions.

The European law appears to be more lax and you may not run afoul it as easily, but I argue that the same test will be applied in European law as follows... (I didn't have time to dig up European case law to confirm my logic)

It appears that securities regulation in the EU is limited to shares in companies (and certain bonds), but if you are selling coins which you used to fund development activities and you are controlling the coin ongoing, one might argue this is equivalent to a company operating an exchange which trades the shares it issued. In other words, you didn't register your company but it is still operating as a company. Thus I do think offering ICOs in Europe are potentially culpable especially as EU totalitarianism proceeds with the sovereign debt collapse the push to federalize the governance and taxing power to Brussels as a "solution" to the ("incorrigible nations") debt crisis, i.e. the member nation debts need to be consolidated thus fiscal policy and thus law needs to be consolidated (the Euro was the Trojan horse to full integration of sovereignty). Does anyone think this interpretation of potential risk is ludicrous and if so then why?

Perhaps a securities case will be brought as part of a class action lawsuit, such as if Ethereum investors become disgruntled.

http://ir.lawnet.fordham.edu/cgi/viewcontent.cgi?article=1472&context=ilj#page=9

http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=CELEX:31989L0298:EN:HTML

Council Directive 89/298/EEC of 17 April 1989 Section 1, Article 2: 2(e) 'transferable securities' shall mean shares in companies and other transferable securities equivalent to shares in companies, debt securities having a maturity of at least one year and other transferable securities equivalent to debt securities, and any other transferable security giving the right to acquire any such transferable securities by subscription or exchange;

[smooth]

smooth your opinion is appreciated, but I would like to point it seems to be entirely based on opinion; whereas, I cited the law (in the USA and in the EU).

It is labeled as opinion and I wouldn't portray it otherwise. It is based on having digested reasonably credible analysis though. I don't feel like digging up actual links. You have a lot more patience for that than I do.

Thus, it can certainly be reasonably disregarded for failure to provide supporting background material. However, if something about what I wrote seems totally unsupported (as opposed to being one of several differing views), you're probably missing something.

[smooth]

The case law says that as long as the user has managerial control then whether you sold a product enabling the user to take control, then as long as the developer has had no control, then the user entirely culpable thus the shares in the product that was sold at ICO are not a security, because there is nothing backing it. It appears you are wrong in the case that the developer steers far from any managerial control throughout the entire process.

You are, I think, attempting to thread a needle here where the "developer" is an employee or contractor for another entity where the other entry has all the control. The could certainly happen in some cases, but remember economic reality has a lot of weight, and can trump organization paperwork.

[TPTB_need_war]

smooth your opinion is appreciated, but I would like to point it seems to be entirely based on opinion; whereas, I cited the law (in the USA and in the EU).

It is labeled as opinion and I wouldn't portray it otherwise. It is based on having digested reasonably credible analysis though. I don't feel like digging up actual links. You have a lot more patience for that than I do.

Thus, it can certainly be reasonably disregarded for failure to provide supporting background material. However, if something about what I wrote seems totally unsupported (as opposed to being one of several differing views), you're probably missing something.

I edited my post to make my source more clear. I know you are busy and sorry to burden you, but isn't this really important?

Do you have any pointer that can lead me to type of references you are thinking might support your opinion?

[smooth]

It appears that whether the users think it is an investment or not, has nothing to do with the classification as a security.

No.

One and only one link on this thread. I'm getting back to work now.

"According to the Howey test, an instrument is only a security if it involves an investment of money or other tangible or definable consideration used in a common enterprise with a reasonable expectation of profits to be derived primarily from the entrepreneurial or managerial efforts of others."

http://www.legalandcompliance.com/securities-resources/securities-glossary/howey-test-to-determine-if-an-investment-is-a-security/

That is why crowdfunding a movie does not violate securities law, or even a toy, watch, etc. where you get the item as a reward. Coins not so much.

[TPTB_need_war]

The case law says that as long as the user has managerial control then whether you sold a product enabling the user to take control, then as long as the developer has had no control, then the user entirely culpable thus the shares in the product that was sold at ICO are not a security, because there is nothing backing it. It appears you are wrong in the case that the developer steers far from any managerial control throughout the entire process.

You are, I think, attempting to thread a needle here where the "developer" is an employee or contractor for another entity where the other entry has all the control. The could certainly happen in some cases, but remember economic reality has a lot of weight, and can trump organization paperwork.

Well if you sell a product that meets the specifications you provided to the users, and you have no control over what happens after that, then no one claim you had control and the users didn't. They had the disclosure of what they buying. They had the control whether to buy. They had the only control that anyone had over the tokens after the crowdfund ICO. As long as the lead dev exerts no position of increased control as compared to any other users after delivering the product as specified, then he has had no control.

In other words, the lead dev must cease to have any control once the sale is completed and the users have to decide what to do with what they purchased.

The coin would obviously need to be in testnet for a while to hammer out of all the bugs.

If the users voted on their own volition to hire a dev to make some change to the protocol via decentralized donations, that dev didn't have managerial control. Rather the users did. The other users can veto it by not adopting the new protocol changes.

[TPTB_need_war]

It appears that whether the users think it is an investment or not, has nothing to do with the classification as a security.

No.

One and only one link on this thread. I'm getting back to work now.

"According to the Howey test, an instrument is only a security if it involves an investment of money or other tangible or definable consideration used in a common enterprise with a reasonable expectation of profits to be derived primarily from the entrepreneurial or managerial efforts of others."

http://www.legalandcompliance.com/securities-resources/securities-glossary/howey-test-to-determine-if-an-investment-is-a-security/

That is why crowdfunding a movie does not violate securities law, or even a toy, watch, etc. where you get the item as a reward. Coins not so much.

smooth, law is based on words. We must read words with comprehension, not just ignoring parts of the sentences we do not like.

The red bolded phrases are the salient part of the test I am referring to. To be an investment security requires an ongoing "common enterprise" where the buyer "reasonably expects profits" due to the ongoing "entrepreneurial or managerial efforts of others" in that enterprise. When the developer sells some software and tokens encoded in a genesis block of the protocol of that software, there is no common enterprise. The users take that and decide whether to make it a common enterprise. For example, they could throw away the genesis block if they wanted to and were able to organize themselves to do so.

It can be argued thus that Bitcoin is an investment security. The core developers exert a lot of managerial control in the common enterprise that the users do not. They've even formed a Blockstream corporation around their operation.

[smooth]

It appears that whether the users think it is an investment or not, has nothing to do with the classification as a security.

No.

One and only one link on this thread. I'm getting back to work now.

"According to the Howey test, an instrument is only a security if it involves an investment of money or other tangible or definable consideration used in a common enterprise with a reasonable expectation of profits to be derived primarily from the entrepreneurial or managerial efforts of others."

http://www.legalandcompliance.com/securities-resources/securities-glossary/howey-test-to-determine-if-an-investment-is-a-security/

That is why crowdfunding a movie does not violate securities law, or even a toy, watch, etc. where you get the item as a reward. Coins not so much.

The red bolded phrases are the salient part of the test I am referring to. To be an investment security requires an ongoing "common enterprise" where the buyer "reasonably expects profits" due to the ongoing "entrepreneurial or managerial efforts of others" in that enterprise. When the developer sells some software and tokens encoded in a genesis block of the protocol of that software, there is no enterprise. The users take that and decide whether to make it an enterprise. For example, they could throw away the genesis block if they wanted to and were able to organize themselves to do so.

"Ongoing enterprise" or "ongoing efforts" is not part of the definition. Selling interest in a time- or scope-iimited project still counts. That's still a common enterprise with profits potentially derived "primarily" from the efforts of others.

If someone privately finances development and then sells it when compete, with no further efforts, then that could possibly work. But realistically what buyers are going to buy that? At best, they will do so only at a very discounted price.

As far as users voting to tell the developer what to do (during ongoing maintenance), seems like a very gray area to me. Giving general guidance is probably not good enough as success may still depend "primarily" on the decisions made by developer. As a practical matter, making all the important design, development, and delivery decisions by voting of generally unskilled users seems unworkable (and possibly even voting by skilled experts). You may comply with securities law but you will violate the laws of successful software development.

EDIT: Also, purely mined coins don't obviously fall within this definition because no money or other consideration is ever given to be used by the developer. (An alternative argument would be that the entire network, as opposed to development, is the enterprise, but then in that case one may question whether the developer has a "primary" role in its success; certainly users, investors, merchants, etc. have a huge role in the success of a currency network.) If the developer premines or instamines and the sells those coins, that begins to move closer.

[TPTB_need_war]

It appears that whether the users think it is an investment or not, has nothing to do with the classification as a security.

No.

One and only one link on this thread. I'm getting back to work now.

"According to the Howey test, an instrument is only a security if it involves an investment of money or other tangible or definable consideration used in a common enterprise with a reasonable expectation of profits to be derived primarily from the entrepreneurial or managerial efforts of others."

http://www.legalandcompliance.com/securities-resources/securities-glossary/howey-test-to-determine-if-an-investment-is-a-security/

That is why crowdfunding a movie does not violate securities law, or even a toy, watch, etc. where you get the item as a reward. Coins not so much.

The red bolded phrases are the salient part of the test I am referring to. To be an investment security requires an ongoing "common enterprise" where the buyer "reasonably expects profits" due to the ongoing "entrepreneurial or managerial efforts of others" in that enterprise. When the developer sells some software and tokens encoded in a genesis block of the protocol of that software, there is no enterprise. The users take that and decide whether to make it an enterprise. For example, they could throw away the genesis block if they wanted to and were able to organize themselves to do so.

"Ongoing enterprise" is not part of the definition. Selling interest in a time- or scope-iimited project still counts. That's still a common enterprise.

I inherited this ability from my very gifted attorney father I think.

The sentence requires the money to be used in a common enterprise with an expectation of profits to be derived primarily from the entrepreneurial or managerial efforts of others. The money from the crowdfunding is not used in any common enterprise. The pre-crowdfund development work is a sole enterprise of the developer until the time it is sold (think about who owns what, the devs owns his work and the investors own their money, until the exchange takes place). The developer takes the money and the money is never used in the common enterprise. The Howe Test requires the invested money to be managed in a common enterprise and the investors to expect profits from the management of those funds invested in the common enterprise.

You are entirely misreading it because ostensibly you did not pay attention to how the word 'used' interacts with the fact that in a crowdfund, the seller is not in a common enterprise (with the buyers of the crowdsale) until he sells and per the Howe test the funds must then be used in that common enterprise formed. But if the developer leaves any managerial role at the point-of-sale and takes the funds raised with him, then he is not subject to the Howe test as specifically worded.

If someone privately finances development and then sells it when compete, with no further efforts, then that could possibly work. But realistically what buyers are going to buy that? At best, they will do so only at a very discounted price.

The developer can pledge to be available for ongoing work for donations as desired by any investors that wish to donate to him. He would not violate the Howe test.

I believe also now reading the Howe test more carefully, that Monero may not be culpable, because Monero is not using the money that was invested in the common enterprise. And Bitcoin may fall into the same category. But just to be safe, if it were my coin I would remove things from the protocol that force users to rely on the managerial control of the core devs, such as that forced hard fork every 6 months.

Note Bitshares, Ethereum, and Dash all appear to be very culpable. Exchanges trading those coins should consult with their attorneys about criminal and civil liability for trading unregistered securities.

As far as users voting to tell the developer what to do (during ongoing maintenance), seems like a very gray area to me. Giving general guidance is probably not good enough as success depends "primarily" on the decisions made by developer. As a practical matter, making all the important design, development, and delivery decisions by voting of generally unskilled users seems unworkable (and possibly even voting by skilled experts). You may comply with securities law but you will violate the laws of successful software development.

A developer can make a proposal to do some work. Users can vote by making donations on that specification and other proposals if there are any from any others contractors that wish to do some work. Not all the users have to agree. If the contractor has enough donations to meet his desired remuneration, then he proceeds. The users later decide whether to adopt that work in the common enterprise which only they manage.

A developer can also volunteer work, as he might be a holder of the coin too who wants to exert some of his control over his investment.

You are correctly pointing out that making a coin that is not yet mostly finished doesn't fit well this model. And the market really needs finished coins, not coins still being experimented on. Sell a new coin if you want to radically change the features.

I would endeavor to produce a coin where the major features were set and done.

And the things that need to change are orthogonal to the protocol which no longer needs to change. Separation-of-concerns is a very important design principle for computer science and programming.

[smooth]

Your crowdfunding argument does not work because a commitment to pay by sponsors is itself valuable consideration. It is used by the developer to backstop development and reduce risk (and can be used in other ways, such as to support raising capital from others).

https://en.wikipedia.org/wiki/Consideration#Option_contracts_and_conditional_consideration

I'm also not sure that the definition of crowdfunding necessarily means the developer doesn't get the money until the project is complete. If that's what you mean you should be clear on that, but from an investment contract point of view, it probably doesn't matter.

You are correctly pointing out that making a coin that is not yet mostly finished

I guess this is yet another gray area but I'm not really sure what "mostly finished" means here.

If it has all features appears to be "done" but it turns out to crash such that no one other than the original developer can or will fix it then everyone is going to lose all their money. So the developer's efforts or lack thereof may still be critical. I guess that is a market value question too. If the developer says "I won't fix it if it breaks" then what will the ICO price be vs. the case where the developer will fix it? I think very, very different, which argues for the importance of the developer's efforts even after launch, but who knows I might be wrong.

remove things from the protocol that force users to rely on the managerial control of the core devs, such as that forced hard fork every 6 months

There is nothing in the protocol for that. If no further updates are released (or if users don't install the updates), nothing will happen after six months. It will just keep going forever (assuming people continue to use it and it doesn't crash). The idea of the six month window is to continue to add them on a rolling basis with updates, so no one is surprised. (Off topic for this thread though, if you want to discuss it you know where the Monero thread is.)

[TPTB_need_war]

Your crowdfunding argument does not work because a commitment to pay by sponsors is itself valuable consideration. It is used by the developer to backstop development and reduce risk (and can be used in other ways, such as to support raising capital from others).

https://en.wikipedia.org/wiki/Consideration#Option_contracts_and_conditional_consideration

I'm also not sure that the definition of crowdfunding necessarily means the developer doesn't get the money until the project is complete. If that's what you mean you should be clear on that, but from an investment contract point of view, it probably doesn't matter.

A crowdfund can be configured to allow every potentially interested buyer to remove his offer to buy at any time. The terms of a crowdfund are configurable. You could have it set that sale does not take place until the product is ready for sale, and it can also be that every buyer must reconfirm their interest to buy before their purchase proceeds. You might also choose only to start the crowdfund when the product is ready for sale and each commitment is queued until it reaches your threshold, then the money is taken and product is delivered. If threshold is not reached, you could declare the crowdfund a fail and no money changes hands.

So in that case it can be considered a poll and no money has been entered into any consideration, thus your Wikipedia link is inapplicable. But it is good you made these points, because a crowdfund done another way might not be excepted from your point.

From an investment contract point-of-view, when the money is committed (without recourse to revert is probably also important factor) is what matters. Expression of interest to buy is not a monetary instrument. It is a poll.

Note that getting people to buy a crowdfund, will likely involve closing the source code until after the sale. Otherwise others might be emboldened to offer to fork your code and do a free release. You need some momentum going in, so likely you'd want to have something in the protocol where the open source is automatically revealed after a set period of time. Will need to think more about this.

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A crowdfund can be configured to allow every potentially interested buyer to remove his offer to buy at any time.

Okay that is a somewhat unconventional definition. If no one commits to anything then I agree you are likely outside the definition.

But this is getting quite contrived in my view:

1. No commitment for funding.

2. No efforts post-sale by the developer to fix the damn thing if it breaks

3. No efforts by the developer to refine post sale (at least none that are important to success)

Maybe you can avoid problems with securities law, but in practical terms the project seems like a mess of other problems.

[TPTB_need_war]

A crowdfund can be configured to allow every potentially interested buyer to remove his offer to buy at any time.

Okay that is a somewhat unconventional definition. If no one commits to anything then I agree you are likely outside the definition.

But this is getting quite contrived in my view:

1. No commitment for funding.

2. No efforts post-sale by the developer to fix the damn thing if it breaks

3. No efforts by the developer to refine post sale (at least none that are important to success)

Maybe you can avoid problems with securities law, but in practical terms the project seems like a mess of other problems.

Actually there is a crowdfunding platform that has refunding at any time before the milestone is funded.

You pretty much know if you have commitments to funding. You talk to people. You gauge market sentiment and the competitive landscape.

I specifically wrote refutations to #2 and #3 up thread.

The developer can pledge to be available for ongoing work for donations as desired by any investors that wish to donate to him. He would not violate the Howe test.

A developer can make a proposal to do some work. Users can vote by making donations on that specification and other proposals if there are any from any others contractors that wish to do some work. Not all the users have to agree. If the contractor has enough donations to meet his desired remuneration, then he proceeds. The users later decide whether to adopt that work in the common enterprise which only they manage.

A developer can also volunteer work, as he might be a holder of the coin too who wants to exert some of his control over his investment.

You are correctly pointing out that making a coin that is not yet mostly finished

I guess this is yet another gray area but I'm not really sure what "mostly finished" means here.

If it has all features appears to be "done" but it turns out to crash such that no one other than the original developer can or will fix it then everyone is going to lose all their money. So the developer's efforts or lack thereof may still be critical. I guess that is a market value question too. If the developer says "I won't fix it if it breaks" then what will the ICO price be vs. the case where the developer will fix it? I think very, very different, which argues for the importance of the developer's efforts even after launch, but who knows I might be wrong.

Mostly finished means you don't need to hard fork the protocol, because it is very difficult to coordinate hard forks from optional code patches done by volunteers who are not in control in the eyes of the users.

If it crashes, I think the users will most likely accept any patch by anyone that makes it run again. The developer is not the only person who can fix open source. I find it very amusing that you argue with me for over a year (and intensely for a couple of days recently in private) about how great Monero is because of volunteerism and open source, and now when your point-of-view favors my argument you suddenly argue that open source is impotent and only the one dev can fix or improve anything. Makes it seem all the more suspicious that you are not sincere and have an agenda. Maybe you just don't like to ever lose any public debate.

remove things from the protocol that force users to rely on the managerial control of the core devs, such as that forced hard fork every 6 months

There is nothing in the protocol for that. If no further updates are released (or if users don't install the updates), nothing will happen after six months. It will just keep going forever (assuming people continue to use it and it doesn't crash). The idea of the six month window is to continue to add them on a rolling basis with updates, so no one is surprised. (Off topic for this thread though, if you want to discuss it you know where the Monero thread is.)

Othe was the one that wrote (in another thread) that hard forks are forced every 6 months. I was basing on his statement. Then you told me recently in private that users could opt out by editing the source code. Now you tell me the clients will continue on working if there is no hard fork. I can only go based on what you Monero folks tell me. I don't hang out in Monero threads.