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Ponzi Schemes Using Virtual Currencies (2014) [pdf]

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Re: Ponzi Schemes Using Virtual Currencies (2014) [pdf]

#41

Post by TaylorGood »

xdeqx366 wrote: post #24
TaylorGood wrote: post #14

Ponzi aside, let's say it's the greatest cryptocurrency idea. The SEC has right to use their Howey Test to determine whether it's a security. Based on 1,2,4 below, is this not ICO's? Under the Howey Test, a transaction is a security (or investment contract) if: 1. It is an investment of money 2. There is an expectation of profits from the investment 3. The investment of money is in a common enterprise 4. Any profit c…

As a crypto-developer working in the blockchain space, my primary company has opted to do an ICO as part of its operations. The company has existing VC backing of between 4-10 million, and the project would benefit from blockchain - for one aspect. By no means is a new token necessary, but that fact seems to have been side-stepped. The product exists, and perceivably the token could be usable upon issuance... I enjoy…

Same. A quick chat with an attorney who is an SEC specialist basically said "if it breathes" i.e. involves money that ICO is seen as a security. The SEC putting together the digital division which covers cryptocurrency tokens is part of what led to him saying this. Basically fish in a barrel.

It is in my opinion that any US-based ICO is now in a lottery as to whether they get the SEC visit.

Not legal advice at all, just sharing an excerpt from a coffee chat.

Re: Ponzi Schemes Using Virtual Currencies (2014) [pdf]

#42

Post by xdeqx366 »

TaylorGood wrote: post #41
xdeqx366 wrote: post #24

Earlier quoted context omitted.

As a crypto-developer working in the blockchain space, my primary company has opted to do an ICO as part of its operations. The company has existing VC backing of between 4-10 million, and the project would benefit from blockchain - for one aspect. By no means is a new token necessary, but that fact seems to have been side-stepped. The product exists, and perceivably the token could be usable upon issuance... I enjoy…

Same. A quick chat with an attorney who is an SEC specialist basically said "if it breathes" i.e. involves money that ICO is seen as a security. The SEC putting together the digital division which covers cryptocurrency tokens is part of what led to him saying this. Basically fish in a barrel. It is in my opinion that any US-based ICO is now in a lottery as to whether they get the SEC visit. Not legal advice at all, j…

What was your decision? Did you stay or leave?

Re: Ponzi Schemes Using Virtual Currencies (2014) [pdf]

#43

Post by elmar »

danharaj wrote: post #40
elmar wrote: post #37

Earlier quoted context omitted.

Under this "Howey Test" Bitcoin would be considered a SEC registered security.

Bitcoins aren't issued, they're created by mining and they are used to participate in the blockchain. In particular, there's no third party trying to valorize my BTC. However if I created a coin the possession of which entitles you to a cut of my bitcoin mining operation, yes that would be a security.

Bitcoin mining is like buying a lottery ticket, you exchange electricity cost for the chance of wining Bitcoins.

You could make the case that Bitcoin main valuation is from the network efect, so other people buying and using Bitcoin increases the value of your Bitcoin.

Re: Ponzi Schemes Using Virtual Currencies (2014) [pdf]

#44

Post by kevando »

whataretensors wrote: post #4

"No minimum investor qualifications. Most legitimate private investment opportunities require you to be an accredited investor. You should be highly skeptical of investment opportunities that do not ask about your salary or net worth." This is a ridiculous regulation that prohibits class mobility as software eats the world. Apparently being middle class means you are too stupid to realize you are being scammed, but i…

I don't see this any different than advertising laws. Given the nature of capitalism, people will always try to bamboozle each other and if the benefit of bamboozling someone is high enough, we get really smart bamboozlers. I think it's natural to plan ahead and prevent this.

Re: Ponzi Schemes Using Virtual Currencies (2014) [pdf]

#45

Post by passwordreset »

TaylorGood wrote: post #41
xdeqx366 wrote: post #24

Earlier quoted context omitted.

As a crypto-developer working in the blockchain space, my primary company has opted to do an ICO as part of its operations. The company has existing VC backing of between 4-10 million, and the project would benefit from blockchain - for one aspect. By no means is a new token necessary, but that fact seems to have been side-stepped. The product exists, and perceivably the token could be usable upon issuance... I enjoy…

Same. A quick chat with an attorney who is an SEC specialist basically said "if it breathes" i.e. involves money that ICO is seen as a security. The SEC putting together the digital division which covers cryptocurrency tokens is part of what led to him saying this. Basically fish in a barrel. It is in my opinion that any US-based ICO is now in a lottery as to whether they get the SEC visit. Not legal advice at all, j…

Can you ask him how a virtual currency can also be a security? Tulips could be a security, OK; but, didn't the Securities Exchange Act of 1934 exempt currencies from being considered a security?

Re: Ponzi Schemes Using Virtual Currencies (2014) [pdf]

#46

Post by wakamoleguy »

baby wrote: post #36
wakamoleguy wrote: post #31

Earlier quoted context omitted.

It seems that in practice, yes, most people who are buying into ICOs have an expectation of profits based on the actions/development/promotion of a third party team running the project. Matt Levine talked about some of the nuances of this back when the SEC released a report about the DAO[1]. A couple days ago, I stumbled across a blog post of the Colony.IO project[2], who are creating a token and blockchain platform…

So wouldn't that be more of a pyramid scheme rather than a ponzi scheme?

I'm not sure exactly what you are asking about. I was focusing on the distinction on whether a coin would be considered a security or not. As far as I understand it, one could operate in a fraudulent manner (or not) regardless of that distinction. In order to not run afoul of securities law, companies have to either ensure that they are following said laws or avoid dealing in securities.

If you're referring specifically to Colony.io, then I have no idea. I just read their blog post.

Re: Ponzi Schemes Using Virtual Currencies (2014) [pdf]

#47

Post by wakamoleguy »

DennisP wrote: post #39
wakamoleguy wrote: post #34

Earlier quoted context omitted.

It's not a strawman. The parent is suggesting that we as a people have no problem with allowing low-income or low-net-worth people to gamble (pointing to the acceptance of Las Vegas as evidence). Then an equivalence is drawn between gambling and securities investing. By pointing out that, in fact, 31 states make commercial casinos illegal[1], I am refuting the suggestion that gambling is considered acceptable, which…

Meanwhile 44 states run lotteries. Apparently gambling is acceptable in principle, just not competition with the states' games. https://en.wikipedia.org/wiki/Lotteries_in_the_United_States

I'm not sure it's that simple. There's a wide spectrum of types of gambling, and equal variation in the laws regulating those types. Going to Vegas and losing your money on dice sounds like commercial casinos, which is why I chose to highlight it. Most states do have lotteries, as you point out, and gambling where the proceeds go to charity is also legal in most states (see previous sources in this thread). Once you start shifting the type of gambling, though, you also get further from the analogy at hand. One way to look at it is that providing revenue for education or charities could be seen as a public good that outweighs the undesirability of gambling.

To take it back to the original argument, the question is then to decide where investing sits on that spectrum. I am not sure, but I do think there are enough reasonable differences between investing in securities, commercial casino gambling, and lotteries to expect that they may have different regulations.

Re: Ponzi Schemes Using Virtual Currencies (2014) [pdf]

#48

Post by Mimisbrunnr »

xdeqx366 wrote: post #28
TaylorGood wrote: post #14

Ponzi aside, let's say it's the greatest cryptocurrency idea. The SEC has right to use their Howey Test to determine whether it's a security. Based on 1,2,4 below, is this not ICO's? Under the Howey Test, a transaction is a security (or investment contract) if: 1. It is an investment of money 2. There is an expectation of profits from the investment 3. The investment of money is in a common enterprise 4. Any profit c…

Is "common enterprise" the only distinction between gambling and a security?

Not an answer to your particular question, but semantics seems to be the only difference between insurance and gambling.

If a bookmaker offers you a $500 bet that your house won't catch on fire this year, what is the difference in both intent and outcome?

The law is a fickle beast.

Re: Ponzi Schemes Using Virtual Currencies (2014) [pdf]

#49

Post by CryptoPunk »

TaylorGood wrote: post #14

Ponzi aside, let's say it's the greatest cryptocurrency idea. The SEC has right to use their Howey Test to determine whether it's a security. Based on 1,2,4 below, is this not ICO's? Under the Howey Test, a transaction is a security (or investment contract) if: 1. It is an investment of money 2. There is an expectation of profits from the investment 3. The investment of money is in a common enterprise 4. Any profit c…

I'm not a lawyer but from what I've read, the Howey Test is more specific than 4 would suggest.

An unqualified read of 4 would count digital pokemons as securities. The effort has to be in the active management of the enterprise, and most of the profit has to come from this management - as you'd see in someone running a business - for the investment to be deemed a securities transaction.

In the case of Pokemon, or cryptocurrency, most of the value comes from the activity of the users.

Re: Ponzi Schemes Using Virtual Currencies (2014) [pdf]

#50

Post by zerocrates »

unkown-unknowns wrote: post #22
TaylorGood wrote: post #14

Ponzi aside, let's say it's the greatest cryptocurrency idea. The SEC has right to use their Howey Test to determine whether it's a security. Based on 1,2,4 below, is this not ICO's? Under the Howey Test, a transaction is a security (or investment contract) if: 1. It is an investment of money 2. There is an expectation of profits from the investment 3. The investment of money is in a common enterprise 4. Any profit c…

How many of the Howey test questions must be "yes"? All? Any? More than x number of them?

All.
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