Blockchain technology needs deregulation and a hands off approach from state and federal regulators
People building the infrastructure that powers these innovative networks are operating in a grey area with few protections. Innovators may be may be wrongly found to be money transmitters under state money transmission law (even if they don’t take custody of consumer funds), just as people running servers for message boards, blogs, and web pages could have wrongly been liable for defamation and copyright infringement in the 1990s (even though they were merely relaying other people’s content without editorial control). These problems are the same, and blockchain technologies deserve the same solution and policy approach that the early Internet enjoyed.
On a platform such as Steemit, Peerplays, Ethereum or future tech, we typically have concepts such as witnesses, validators, delegates, signers, masternodes etc. These roles are similar to the server operators who existed in the infancy of the Internet where anybody could set up a web server or email server and host websites. The server host was not liable for the activities of the user or client. If the law did not recognize that the server host should not be liable for the behavior of the client then the world wide web as we know it would not exist, the Internet as we know it would not exist, as many of the technologies including search engines would have been choked off by lawsuits, regulations, and unnacceptable risk.
Deregulation is the way to invite big money and investment into this space
Currently the Blockchain and crypto space operates in the grey. There is great uncertainty about what is legal and illegal, uncertainty about taxes and how to pay it, and these kinds of uncertainties increase the risks for early adopters. As a result the early adopters have to be risk takers, and are perceived by risk adverse as the lunatic fringe in many cases, as it's simply not safe to touch cryptocurrency directly even now in 2017. If many of you have experienced what it was like just to talk about cryptocurrency in 2013 you would remember that you couldn't even talk about it without seeming like a criminal, a hacker, or someone with something to hide. In addition many of you may have experienced trying to give cryptocurrency to people who for some reason would rather not have any contact with it, and wouldn't even accept it as a gift.
In order to change this the laws have to be reformulated. There is simply no way around legal reform because the laws are so bad that the existing laws in many cases make it impossible to follow. The laws being complicated raises the cost for developers who have to hire lawyers and ask law professors how to proceed even with fundraising. If these laws are not changed this could cost millions of dollars in legal fees for projects trying to manage their risks.
Truly smart contracts backed by contract law
Once we deregulate and reform the laws we can focus on creating true smart contracts. An example would be a self executing will which has legal authority to pass resources from one person to another in the event of death. Similar deadman switch style smart contracts which are legally aware, which can have the authority of private law, can allow the passing of crypto-assets from for example father to son, or friend to friend, or many to many, and through this we can gain increased security.
Artificial intelligence and the law
Assuming that Ethereum iEx.ec, Golem, or Tauchain work well with artificial intelligence, then we can finally have truly smart contracts and enhanced legal analysis. This is going to have an incredible impact on contract law, private law, and I'm not even qualified to study the implications other than to say there will be huge implications.
Why we need tax exemption for cryptocurrencies and the blockchain technology
Considering that currently Bitcoins are under a confusing web of taxes and it's decreasing the ability to actually put thee technologies to legal use, we need to in my opinion promote relaxation of the taxes along with deregulation of the space. There is precedent for this move, the Internet Tax Freedom Act:
I would suggest we push for a Blockchain Tax Freedom Act for similar reasons. The fact that we do not have this is one of the primary suppressors of potential in cryptospace. It is what prevents people from using Bitcoin to buy coffee at Starbucks. It is preventing people from truly exploring this space and innovating because of unforeseen risks. In fact, the IRS recently is using a John Doe Summons on Coinbase to pursue their own mission but even Coinbase didn't have enough clarity on taxes to provide tools to help users pay taxes. In my opinion, all taxes should be forgiven, and all activities in these early growth stages of blockchain technology should be tax exempt. This would mean no capital gains taxes on crypto trades, and if possible no capital gains for people exiting crypto.
Conclusion
If we want to reduce risks for developers, users, and all stakeholders in the cryptospace, we should push for deregulation, and a Blockchain Tax Freedom Act. There is no reason not to, as in the United States we have Republicans in Congress, Senate, and the Presidency, yet even in this environment I don't see a push for this? It's time to do it.
References
- https://coincenter.org/entry/congress-should-create-a-blockchain-technology-safe-harbor-luckily-they-already-figured-it-out-in-the-90s
- https://www.nytimes.com/2017/03/19/technology/lawyers-artificial-intelligence.html
- https://law.mit.edu/NinaKilbride
- https://en.wikipedia.org/wiki/Internet_Tax_Freedom_Act
- https://www.law360.com/articles/886479/bitcoin-users-should-expect-more-irs-and-doj-scrutiny
http://www.coindesk.com/mauritius-the-tropical-paradise-looking-to-become-a-blockchain-hub/
I was one of the blockchain specialists that was consulted by the Mauritian government official in the Coindesk article I just linked.
I am not disagreeing with your approach to how governments should handle crypto, however I am saying in order to get governments to actually accept it, it has to be reframed as "sandbox regulation".
Semantics are everything getting governments to accept something new.
deregulation does'nt matter as blockchain is going to succeed any how....
Don't you think it can succeed better with less regulatory resistance?
I agree... but it will succeed irrespective of any kind of regulation... nobody can regulate blockchain technology...
In the end it's all about control and greed.
yes..technology needs to deregulation.
I have been working in machine learning for a decade. While you are on point about some of the implications, some of the others are far off concerning timelines. I believe you are about 5 years ahead concerning when deregulation needs to happen. Crypto right now is fairly unregulated in most areas except new york in US. Russia and China go back and forth on legislation to pick up and dump on the market, clearly.
Deregulation needs to happen AFTER the scene is cleaned up.
The ICO scene needs to be REGULATED rather than just let be to allow scammers to take advantage.
This is where sensible regulation like the Sandbox in Mauritius is far ahead of the game.
That is also why you see people flocking to Mauritius. The government has taken an active role in learning about the technology, but rather than rush to implement the tech, they are taking their time and taking a hands off approach, but set a regulatory sandbox to protect innovation.
You cannot have a regulatory sandbox without "regulation".
This is where the Mauritian government is using legislation to PROTECT innovation.
But again, I believe what you're saying WILL be necessary in about 5 years after governments have actually invested and the major players have jumped into the game.
The reason they will not go into unregulated markets is because you have investment schemes like the one in Isle of Man/Britain where the government reimburses 1/3rd of all investments if the investments fail.
Meaning, if you invest in regulated market in Britain, the government guarantees that you will ALWAYS at least get a third back, no matter what.
That type of environment is why Bank to the Future is having so many successful raises.
Okay I see where we disagree. You think the ICO scene needs to be regulated. I don't see a reason why we require external regulation when we have all the tools technically to self regulate. I also don't see a need for an ICO scene in the first place but if there must be one I don't see a reason why outdated regulations need to apply to concepts which bring new possibilities.
This can happen with better tools, better information, knowledge sharing, due diligence, I do not see why we need external entities to do this. Our tools might even be superior in capabilities.
Cleaned up by what, by who, and how? And what impact do you think that will have on the space if there is a clean up? I just don't see how it can possibly turn out better than if we simply design our own tools to regulate ourselves.
Again, I am not sure if you are aware of the difference between Angel investing and investing for ROI. They are very different, and have different laws regulating them.
ICOs are the equivalent of crowdfunding and are not the same as IPOs. Until there is regulation of ICOs in ANY way, they can be abused by international bodies that have no legal responsibility to show up and be brought to trial in the US. At least if there was some regulation on AML/KYC standards for the space, the self regulation you allude to would be enough for most small businesses/organizations looking to do ICOs.
Again, this is why having regulatory bodies with a nation actually look at cryptocurrency and establish a regulatory sandbox is completely different than the government just ignoring it altogether.
Again, I am going to assume that you are an anarchist or libertarian, and in effect that ideology is a little too far for governments to actually implement the FULL "hands off" we're not touching it approach.
Laissez-faire is an ideology for a reason.
You made a point on developer accountability which converges with my point. If we are going to ask that developers not be anonymous then we have to reduce the risks for developers who decide to be accountable. If we don't then anonymous development will become the norm as a way to reduce the level of risk developers face from ICOs. Pseudo-anonymity can work but is not ideal and so in my opinion we have to figure out ways to reduce risk (increase security) for developers in this space.
ICOs are just a fundraising mechanism. Yes they are more like crowd funding than IPO. But crowd funding itself has legal requirements and is not at all an ideal setup. The SEC allows Crowdfunding but it's very strict on meeting the requirements. For that reason it is a risk or seems like it would be to do an ICO.
Donations have less risk in general. If people lose their money, they donated it to a cause they believed in. If people lose their investment, they are calling their lawyer. In both situations they might call their lawyer but if our goal is to reduce scams and outright fraud then legal means have negative consequences in terms of stacking risks on honest developers who would care enough just to keep their reputations and who don't need it to be enforced in that way.
The whole "anonymous developers" period was a very short and terrible phase.
Very few anonymous developers dominate the scene in 2017.
Again, yes, crowdfunding has legal requirements and ICOs meet those requirements when the people putting on the ICOs simply follow the rules.
There are very simple rules concerning AML/KYC that if you follow them with an ICO, everything is completely legal. Again, this is why we got lawyers and consulted them on the legality of all this.
ICOs only cross the line of becoming "illegal" when the people doing the ICOs make guarantees of profit, equity, or long term dividends.
THAT is illegal.
First, I am not a lawyer. Second, I am not an ideologue.
I'm not ideologically guided to reach my conclusions. My conclusions were reached by weighing risks and looking at evidence. Ideology doesn't solve practical problems in my opinion.
In practice, I am interpreting what you are saying is that ICOs are a low risk activity for developers. Ideology is irrelevant to the risk calculation. I'm simply skeptical that ICOs are as low risk as you say it is, and would place it under "unknown" or "unidentified" risk because we don't even have enough information to know for example with certainty if the SEC will see token sales as under their jurisdiction, or see a token as a security, or how that will play out.
My argument has been and remains that certain legal experts in the US have been saying that the ICO model is risky. In the papers I cited the Berkman Law Center. They claimed a DCO is a better template and provided reasons why in that document. Their own risk assessment led to the conclusion that the ICO or crowd fund approach brings risks, and whether you agree or not isn't the point. The point is I did cite a source for how I arrived at my opinion, and of course I have other sources too.
The hands off approach to technology doesn't necessarily require an ideology to reach that conclusion. The Internet Tax Freedom Act may have been pushed for ideological reasons but it turns out it actually worked in the benefit of the Internet. The whole Net Neutrality debate also is similar. I support both the Internet Tax Freedom Act and Net Neutrality in practice, based on the outcomes, not on ideological concerns. This means if you or anyone else can propose something which you can show would reduce risks to developers, users, or in other words law abiding participants in this space, then it would meet my criteria.
Note: If we look at Steemit it seems to fit the definition of a DCO as modeled in the result from the Berkman Center for the Swarm project. I base my opinions on Steemit which can be seen as a case study, and on that result primarily. All I ask from government is that they follow an evidence based approach to policy making (non-ideological).
Reference
I am not sure if you are aware that Steemit is built on top of Bitshares.
Bitshares is the DCO in this case, or originally they had launched intending to be a DAO.
I wrote this white paper on Decentralized Conglomerate Theory:
http://www.academia.edu/27773745/Decentralized_Conglomerate_White_Paper
Actually Steemit is built on top of Graphene, a modified version, not Bitshares 2.0 which also is built on top of Graphene but a different version. Steemit only has the Steem Dollar and a bunch of different features. In any case Steemit is a DCO but Steemit is not built on Bitshares.
An ICO and a DCO are not to be compared. I am not sure you are understanding the mechanism of a DCO.
A DCO should be compared to a DAO, not an ICO.
ICOs are like light versions of IPOs.
A DCO structure would be something that concerns operations and management, not initial funding.
Again, you are speaking from a very anecdotal point of view, and it is that of an ideologue even if you believe you are being objective.
I am a developer in the space, and have first hand experience with risk assessment.
I also have a master's degree in cyber-security for enterprise scale organizations. Risk assessment training is part of that.
I understand your positions, and I think you have conflated a few things, and that is what is leading to your disdain for ICOs. They are not meant to function anything like a DCO, and in fact that is something VERY different altogether.
My sources are cited. My sources cited are not ideological but are legal experts. My examples (Steemit, Swarm) could be used in an academic paper as case studies. Steemit seems to in my opinion meet the criteria to be considered a DCO. Steemit did not have an ICO, it did not launch like most other projects. Membership in Steemit is represented by the amount of Steem Power. Steemit can raise funds for projects simply by having members vote up or down (collaborative filtering). This to me is a lot lower risk than any ICO, or crowd funding.
Yes there could be scams on Steemit but when you upvote on Steemit you're not suffering the cognitive risks of having spent your money to give them money. This is a key difference between Steemit and The DAO, and a big difference between Steemit and Swarm, or between Steemit and a Kickstarter style CrowdFunding platform.
If you don't believe I'm being objective then you'd be able to point it out with sources and evidence rather than just to claim it. Show me I'm not being objective by offering superior evidence.
I have some of the same training you have and a similar background. That being said, I am not a lawyer. So anything regarding legal I have to say is based on what I see from my sources and I cite them.
So the function of the ICO for The DAO was what exactly? And The DAO failed entirely, and nearly got the entire development team for Ethereum caught up in lawsuits. The hard fork was the escape hatch out of the potential SEC interference and lawsuits. My point is that we need to reduce the risks so developers can raise funds without having to fear lawsuits. I use Steemit as an example of a DCO, which can raise funds. My point is the ICO template is not for everyone, it's got unknown risks, and if we don't have to deal with those risks why should we as developers?
My point being that if I can raise the same money from donors as I could from an ICO then why would I bother with an ICO? If I could follow the model used by Dan Larimer and team, why would I bother following the ICO model? I see no additional benefit, but I see unknown risks. So where we differ is you don't believe the risks are unknown, so perhaps you believe the risks are known and low.
Based on your background you know how the risk assessments and risk matrices work. If the level of risk is known you can determine a course of action. I could say the risk is low for setting up an unregulated exchange, because not all unregulated exchanges got shut down, and many operators are getting very rich, but it doesn't change the fact that this might not continue for much longer and it's really leaving it up to the mood of regulators.
Just as we are seeing with unregulated exchanges a slow building crackdown. I would not be surprised if we start seeing a slow yet increasing crackdown on ICOs. Do I know this will happen? No I don't. Do I know this won't happen? No I don't. The fact that I cannot know which way it will go is why I would decide if I can get the same benefits without that uncertainty I would take the benefits from another means.
BTW:
Primavera de Filippi, Harvard / LOVE
I know Primavera very well, as I have spoken at multiple conferences with her. She is one of the premiere lawyers in the blockchain space, and she is very active in DAOs/DCOs space. It is great to see the concepts evolving :)
In that pic i am on the right end and Primavera is third from right.
Steemit absolutely DOES meet the criteria to be a DCO, but it is also built on top of a DCO...
So again, this is where ICOs have nothing to do with DCO
I posted my white paper. You should take a look when you get a chance. It discusses everything that we have discussed in this thread with sources. I am not arguing for the sake of arguing. I am offering counterpoints that have been thoroughly researched and I presented my accumulated research in the form of a white paper.
I am saying, Steemit is nothing like the platform that the DAO was meant to be, and further I am not sure if you are understanding what the difference is concerning the protocols, and what can be done on steemit vs. what was meant to be done on THEDAO or what is meant to be a DAO protocol.
Steemit was not DAO ready right out the gate, but the community built tools to make it function as such post release.
Steemit was meant to be a social network and reputation system.
The tools that were built afterwards are what gave it the DCO ish status.
That was organic evolution.
The only way to resolve our disagreement is for a formal paper to conduct an actual risk assessment for development in the crypto space. Until such a paper exists, we both are relying on very limited approaches.
If you'd like to take certain risks you can, if you don't like to take those risks you don't have to, but my point is until the actual risks are known we cannot have a definitive answer. With the current very limited information atmosphere I'm not confident the risks are known.
No, I am an actual developer in the space.
It is not hypothetical from my perspective.
Are you a developer?
That is not meant to be a confrontational question.
You'll find out when you see what I'm developing, when I choose to reveal it. But I can say I will avoid the ICO route in favor of a lower risk approach for myself if I find I can raise the same funds from another approach.
I would also say, the experiences of one developer cannot be extrapolated to give an indication for the experience of every developer. Your experiences probably wont be mine.
Crowdfunding is 100% risk for the person investing, and 0 Risk for the people receiving the funds until the crowdfunding crosses $1million threshold. Crowdfunding has specific rules.
This is not anecdotal.
Again...if a developer is receiving crowdfunding in the form of gifts with no equity, no debt, no promise of returns, there is NO RISK ATTACHED for developer.
The angel investor goes into an investment assuming 100% loss, i.e. the highest risk possible.
You're giving precise and absolute percentages. 100 and 0, which to me isn't likely to be accurate. Maybe what you mean to say is most of the risk is on the person investing, but this doesn't mean that it's 100%. And developers do have risk, as evidenced by the recent case where the FBI arrested a developer who created a tool which was useful to hackers.
In terms of sending money to someone in a crowd fund, if that person accepts the money and doesn't deliver, I would doubt they can avoid a lawsuit but again I am not a lawyer. In any case, It's not ever 0% risk if they can be identified in my opinion. If they are completely anonymous then the risk goes way down.
References
When you are talking about "citing your sources", I am saying I have written a white paper on this very issue, which I just posted. It has many sources and citations within, and has much more updated information more recently than 2014.
Cheers!
You are making this logical fallacy:
https://en.wikipedia.org/wiki/Argument_from_authority
Doctors smoke cigarettes and recommend it as healthy, doctors are authority so we must trust they know what they are talking about? No. Let the evidence speak for itself and anyone can decide which way to think about it without a care on that. If anyone determines my approach isn't scientific then they can just counter my blog post with one of their own which is more accurate. If they turn out to be right then I just change my opinions, but until that happens this is my opinion.
I posted my white paper, because in fact i agree with a LOT of the things you say in the white paper, but because I have already done the work i'm not going to redo it here. I simply post the white paper.
I agree with a lot of your blogs, and i am only offering counterpoints to give you a different perspective.
If you want to completely write them off because I don't feel like posting a link right NOW, fine...but i think if you read my white paper, you will realize that would be a huge mistake...
I don't write off your perspective. I realize we have similar goals here. I might not take the exact same approach but I don't have the same knowledge, information, or advice. Just know, when I do make decisions it's based on the best available knowledge, information, and advice I have at the time.
No, I'm not making a logical fallacy. I am pointing out that i have done the research, and you're not reading it.
Also, you have to realize when you are going too far with your suggestions.
Forgiving ALL TAXES is not something that will happen.
Reducing the tax rate from 35% to something much more comparable to Mauritius' 15% would be something that a government official will actually listen to.
After having worked with government officials first hand, I see now why you have to come with a pragmatic solution, and not go extreme.
What I think should happen is what I suggest. What actually will happen is a different story. Lawmakers are not always wise about these things. Of course they'll probably not forgive the taxes but we should push for it because we believe it should happen not because we think it's an easy victory.
Libertarians usually come with their extreme solution. Then pragmatists meet in the middle. We should demand tax forgiveness, but if we do not get that then we should hopefully get tax relief similar to what the Internet had with the Internet Tax Freedom Act. They didn't want to let the Internet be tax free either but if people didn't demand the impossible or what was seen as impossible back then we wouldn't have got that. A tax free Internet back then was seen as extreme but it ended up being the best thing for the Internet and for the economy.
Capital gains taxes are 0% in some instances. 15% capital gains has unintended consequences which they need to be aware of. The possible unintended consequence is that it's easy to get into crypto, build wealth, and then hard to spend it, hard to get out, and this is in effect locking people in as people might be afraid to actually spend their stash because cashing out could mean 39% tax. 15% tax is much more reasonable I agree, but 0% tax is what is desired while 15% is a compromise from that.
My worry is not for the security of the block chain but for the security on Androids etc...which hold the wallets. NSA and all our fav software/hardware manufactures have built in back doors. So we have our keys and all in an unlocked car. I do have etherium, bitcoin and litecoin as the profits are large. I suggest flushing profits after a while so you can't be robbed.
Exchanges also seem to be a weak point. They can pool all the coins and play games with fractional reserving. This however forces you out to external wallets I mentioned before.
The wild west can have gold rushes and gangs of robbers. I still want the self regulated as rather than goverment any day.
Free market bitcoin vs supressed gold/silver and see what we get? If we had a alturistic gov market rigging and monopoly laws would be used. We get bubbles and too big to jail.