SegWit sidechains in the United States

[AliceWonderMiscreations]

If SegWit happens and the block continues to remain at 1 MB so demand dictates an increasing TX fee for anything not SegWit, and if I were to run my own SegWit side-chain - would it be subjected to federal and state laws regarding KYC, money laundering, and permits beyond what is required to just accept a payment in an on the block transaction?

I have a suspicion it would, but I do not know the legal implications of running a side-chain, so I thought I would ask.

I'm in California but I have servers all over the US (and one in London)

EDIT - to clarify, things like LightningNetwork (or whatever it is called) are what I'm talking about - side chains that need/want SegWit in the main blockchain.

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[AgentofCoin]

If SegWit happens and the block continues to remain at 1 MB so demand dictates an increasing TX fee for anything not SegWit,]and if I were to run my own SegWit side-chain - would it be subjected to federal and state laws regarding KYC, money laundering, and permits beyond what is required to just accept a payment in an on the block transaction?

I have a suspicion it would, but I do not know the legal implications of running a side-chain, so I thought I would ask.

I'm in California but I have servers all over the US (and one in London)

UPDATE: After rereading your question, it actually makes no sense.
You misunderstand aspects of SegWit and the proposed Lightning Network.

I think you meant to mean "Lightning Network Hubs". So if you ran your own
"Business Hub" to accept LN TXs, would you be required to comply with governmental
regulation as a business? Depending on how the LN is implemented (since their are
different proposals and ideas) and if you will have a "Business Hub" then yes, you will
do what you are doing now with Bitcoin's mainchain and any type of compliance.



Below was my original posting.
The reason why Bitcoin is not directly regulatable currently, is because it has nodes
all over the world, all running the same network. In comparison, when a company
creates a internal private ledger, such as Coinbase, in order to maintain their business,
all the associated inputs need to be auditable in order to follow all laws and rules like KYC,
AML, and etc.

If you created and ran a stand-alone SegWit side-chain system, in theory, you would
need to comply with those same laws as well as register as a money transmitter. Your
business that was relying upon a decentralized network (Bitcoin) then becomes a private
ledger like system for payments (Coinbase). Though each US State is different with their
laws and interpretations, overall you will be targeted and watched by government agencies,
and they will likely attempt to entrap you by using your system in illegal ways.

If your SegWit sidechain system was decentralized with many different people all performing
their own transactions and etc (which is what LN in theory does) then you would mitigate any
possible liabilities.

Your issue is whether you proposal is centralized or decentralized. Depending on your answer,
determines your liability.

*This is my opinion and should not be considered a legal opinion or advice. OP should seek a
licensed counsel within the States they wish to conduct the proposal, to determine a proper
legal course of action.

[AliceWonderMiscreations]

If it makes no sense, then how are payment on LN "instantly confirmed" even though there has not been a block on the blockchain to confirm them?

There has to be a transaction record with them somewhere, and what are the legal implications of running one of those transaction records that must be independent of the blockchain?

[AliceWonderMiscreations]

From what appears to be the LN homepage `Funds are placed into a two-party, multisignature "channel" bitcoin address.'

So before I can use it, I have to be part of a multi-signature address.

That means for me as a business to accept it, either I have to open up a multi-signature address on the blockchain with customers BEFORE they spend, or use a service that does.

What are the legal implications to either of those? That is what I'm asking, I need to know because if we don't get bigger blocks, I've got a problem if I can't implement LN. That probably means implementing it myself because the type of business I'm currently involved in, while legal, isn't suitable for companies like BitPay and thus likely isn't suitable for those running a LN multisig service.

https://lightning.network/lightning-network-summary.pdf

[AgentofCoin]

If it makes no sense, then how are payment on LN "instantly confirmed" even though there has not been a block on the blockchain to confirm them?

In theory, they are instantly confirmed due to NOT being in a block.
The LN design is in such a way that the "instant confirm" is a "credit".
Later, when the LN channel is closed, the "credit" will be inscribed within
the Bitcoin blockchain becoming a finalized bitcoin transaction.

There has to be a transaction record with them somewhere, and what are the legal implications of running one of those transaction records that must be independent of the blockchain?

I do not know what you mean by a "transaction record".

I have already given my opinion on the legal ramifications of being a "business hub".

[AgentofCoin]

From what appears to be the LN homepage `Funds are placed into a two-party, multisignature "channel" bitcoin address.'
So before I can use it, I have to be part of a multi-signature address.
That means for me as a business to accept it, either I have to open up a multi-signature address on the blockchain with customers BEFORE they spend, or use a service that does.

Correct.
I assume that when the LN system exists, opening a multisig address
will be an automated part of the system. Users/clients will not be sitting
around all day opening and closing channel with businesses. It will we simplified.

What are the legal implications to either of those? That is what I'm asking, I need to know because if we don't get bigger blocks, I've got a problem if I can't implement LN. That probably means implementing it myself because the type of business I'm currently involved in, while legal, isn't suitable for companies like BitPay and thus likely isn't suitable for those running a LN multisig service.

https://lightning.network/lightning-network-summary.pdf

If you take the funds directly, like bitcoin: you are responsible for KYC and AML.
If you take the funds through a service, like Coinbase: they are responsible for KYC and AML.

If you are a business, it is very likely you will outsource your KYC and AML to services.
It would be almost impossible for you to KYC and AML otherwise.

It is very likely there will be no "big blocks".
Your only options in the future will be to use a service, host a Hub, or do individual
multi-sig txs with clients, or use the Bitcoin blockchain directly.


Your legal question is mostly hypothetical since there is no platform in existence in which
to apply legal theory to do. Everything I have said is speculative and based on my limited
knowledge of LN and other like systems.

[AliceWonderMiscreations]

It is very likely there will be no "big blocks".
Your only options in the future will be to use a service, host a Hub, or do individual
multi-sig txs with clients, or use the Bitcoin blockchain directly.

That is what I was afraid of, and it may be the end of my relationship with bitcoin.

In the adult industry, those who process payments charge insane amounts AND impose stupid rules like not being able to use the word "golden" unless you pay an even higher amount, regardless of the context (e.g. an adult forum can't talk about the movie Golden Child in its off-topic section without risking loss of credit card processing, because that's two no-no words to the processors, and they don't give a sh*t about context - their scanner sees it and they threaten to cut you off)

Without bigger blocks, it looks like bitcoin will no longer serve the purpose it was created for and a different crypto-currency will need to be used.

Ah well.

[AgentofCoin]

It is very likely there will be no "big blocks".
Your only options in the future will be to use a service, host a Hub, or do individual
multi-sig txs with clients, or use the Bitcoin blockchain directly.

That is what I was afraid of, and it may be the end of my relationship with bitcoin.

In the adult industry, those who process payments charge insane amounts AND impose stupid rules like not being able to use the word "golden" unless you pay an even higher amount, regardless of the context (e.g. an adult forum can't talk about the movie Golden Child in its off-topic section without risking loss of credit card processing, because that's two no-no words to the processors, and they don't give a sh*t about context - their scanner sees it and they threaten to cut you off)

Without bigger blocks, it looks like bitcoin will no longer serve the purpose it was created for and a different crypto-currency will need to be used.

Ah well.

Wait. Why can you not ask your clients to send their bitcoin payments with a wallet
that uses SegWit txs? (If SegWit is implemented.)

So your concern is your clients really want "instant confirmations" and "low fees"?