Quote from: Raxitto on September 28, 2017, 08:30:24 AM

TZero, a subsidiary of Overstock, announced on Wednesday, September 27, the launch of the first exchange that will [] offer a legally approved and regulated alternative to a major ICO stock exchange, such as the New York Stock Exchange and the Nasdaq.

Did you not see that I was analysing that press release in my prior post? I quote myself:

Quote from: Hyperme.sh on September 28, 2017, 02:34:30 AM

Quote

https://www.coindesk.com/regulated-icos-arrive-overstock-open-exchange-legal-token-trading/

Two of you guys sent this to me. My stance is it probably has some validity but with many possible caveats

I will continue my analysis by quoting from the 1933 Securities Act:

Quote from: https://www.sec.gov/about/laws/sa33.pdf#page=2

Section 2(3) The term sale or sell shall include every contract of sale or disposition of a security or interest in a security, for value.

Quote from: https://www.sec.gov/about/laws/sa33.pdf#page=3

Section 2(7) The term interstate commerce means trade or commerce in securities or any transportation or communication relating thereto among the several States or between the District of Columbia or any Territory of the United States and any State or other Territory, or between any foreign country and any State, Territory, or the District of Columbia, or within the District of Columbia.

Quote from: https://www.sec.gov/about/laws/sa33.pdf#page=4

Section 2(11) The term underwriter means any person who has purchased from an issuer with a view to, or offers or sells for an issuer in connection with, the distribution of any security, or participates or has a direct or indirect participation in any such undertaking, or participates or has a participation in the direct or indirect underwriting of any such undertaking;

Quote from: https://www.sec.gov/about/laws/sa33.pdf#page=21

EXEMPTED TRANSACTIONS
Section 4(a) The provisions of section 5 shall not apply to
(1) transactions by any person other than an issuer, underwriter, or dealer.
(2) transactions by an issuer not involving any public offering.

Quote from: https://www.sec.gov/about/laws/sa33.pdf#page=30

PROHIBITIONS RELATING TO INTERSTATE COMMERCE AND THE MAILS
Section 5(a) Unless a registration statement is in effect as to a security, it shall be unlawful for any person, directly or indirectly
(1) to make use of any means or instruments of transportation or communication in interstate commerce or of the mails to sell such security through the use or medium of any prospectus or otherwise; or
(2) to carry or cause to be carried through the mails or in interstate commerce, by any means or instruments of transportation, any such security for the purpose of sale or for delivery after sale.

And the 1934 Securities Act:

Quote from: https://www.sec.gov/about/laws/sea34.pdf#page=66

TRANSACTIONS ON UNREGISTERED EXCHANGES
Section 5. It shall be unlawful for any broker, dealer, or exchange, directly or indirectly, to make use of the mails or any means or instrumentality of interstate commerce for the purpose of using any facility of an exchange within or subject to the jurisdiction of the United States to effect any transaction in a security, or to report any such transaction, unless such exchange (1) is registered as a national securities exchange under section 6 of this title, or (2) is exempted from such registration upon application by the exchange because, in the opinion of the Commission, by reason of the limited volume of transactions effected on such exchange, it is not practicable and not necessary or appropriate in the public interest or for the protection of investors to require such registration.

Quote from: https://www.sec.gov/about/laws/sea34.pdf#page=111

REGISTRATION REQUIREMENTS FOR SECURITIES
Section12. (a) It shall be unlawful for any member, broker, or dealer to effect any transaction in any security (other than an exempted security) on a national securities exchange unless a registration is effective as to such security for such exchange in accordance with the provisions of this title and the rules and regulations thereunder. The provisions of this subsection shall not apply in respect of a security futures product traded on a national securities exchange.

[]

(j) The Commission is authorized, by order, as it deems necessary or appropriate for the protection of investors to deny, to suspend the effective date of, to suspend for a period not exceeding twelve months, or to revoke the registration of a security, if the Commission finds, on the record after notice and opportunity for hearing, that the issuer of such security has failed to comply with any provision of this title or the rules and regulations thereunder. No member of a national securities exchange, broker, or dealer shall make use of the mails or any means or instrumentality of interstate commerce to effect any transaction in, or to induce the purchase or sale of, any security the registration of which has been and is suspended or revoked pursuant to the preceding sentence.

Conclusions:

Anyone (including issuers and underwriters) that transfers (i.e. spends) a fungible token (which was issued as a security) in a bona fide transaction in exchange for goods or services isnt disposing nor transferring a security (regardless whether the security was registered, issued under an exemption, or illegally issued as an unregistered security), because the payee (who receives the token) isnt entering into an investment contract because the payee treats the transaction as income not for a profit expectation on the token.
Anyone (including dealers, issuers, and underwriters) may sell a fungible token (which was issued as a registered security) while that securitys legal registration is maintained.
Tokens issued (legally or illegally) as unregistered securities (or whose registration has been revoked) may only be sold by those who arent dealers, issuers, and underwriters, unless those tokens are no longer securities.^*

Anyone obtained the tokens from the issuer or another underwriter, with the intent to resell them is an underwriter. Thus for unregistered securities to be legal for resale, they must have been held by some holder other than the issuer for 3 years so as to make it clear they werent originally held with an intent to resell them. If so held for 3 years, then when the tokens are sold, theyre no longer securities if the funds arent pooled into a common enterprise presuming the horizontal commonality definition.
Exchanges must be registered if they offer public trading (i.e. non-accredited investors allowed) of tokens which are securities. Theres no legal way for any (registered or unregistered) exchange to offer public trading of unregistered securities.

^* _{Even though the funds of the resales are not pooled to the common enterprise per the requirement of the horizontal commonality definition, the Securities Act restricts resales which are an extension of distribution of the issuer by underwriters. However, arguably if the common enterprise has ceased and/or the tokens were previously spent on goods or services, the restriction no longer applies because the distribution no longer applies to the former investment contract. The Securities Act doesnt allow dealers (aka exchanges) to offer trading for securities with revoked registrations, but presumably this is because theres not clarity as to whether speculators would be basing their profit expections on the resurgence of the common enterprise and reinstatement of registration.}

So the Overstock/TZero news merely means that they will streamline registration of token sales under the Securities Act. These issuers will need to maintain the compliance with the SEC in order for those tokens to be legal for dealers (aka exchanges registered with the SEC) to trade. The registered securities tokens will not be tradeable on the unregistered exchanges we have now.

Tokens issued as registered securities is an ongoing centralization requirement and not suitable for a permissionless, enduring cryptocurrency that will trade on centralized registered exchanges (aka dealers) and unregistered exchanges i.e. not legal for dealers if registration is not maintained and not legal for unregistered dealers unless they have an exemption (presuming the SEC and other nations will begin to crackdown with their preexisting securities regulations as China recently did). Unregistered exchanges (i.e. not registered dealers) can only legally trade tokens which arent securities. Also if the tokens (issued as registered or unregistered securities) were never held for 3 years, then every user transitively becomes an underwriter and thus it is illegal to trade the tokens even on decentralized exchanges (which I pointed out in my blog could be hypothetically enforced on investors who comply with tax reporting). However, it is always legal (w.r.t. to the 1933 Securities Act) to spend any tokens for goods or services (and it also avoids AML regulation).

Also bear in mind that the Overstock/TZero option will not be viable for 99.9% of the ICOs that are being issued in our ecosystem, because those issuers do not want to comply with all the disclosure limitations (e.g. they cant make non factual hyped claims) and oversight on their use of the funds raised. In short, the speculation in our ecosystem doesnt want realism because the reality is that none of the projects are actually attaining any adoption or use other than selling empty speculation bags to greater fools.

Quote from: Hyperme.sh on September 26, 2017, 08:49:04 PM

Quote from: James A. Donald the first person to interact with Satoshi Nakamoto on the mailing list

Every website reporting on the altcoin boom and the initial coin offering boom has an incentive to not look too closely at the claimed numbers. Looks to me that only Bitcoin and Steemit.com have substantial numbers of real users making real arms length transactions [] The crypto coin business is full of scammers, and there is no social pressure against scammers, no one wants to look too closely, because a close look would depress the market. There is no real business plan, no very specific or detailed idea of how the coin offering service is going to be of value, how it is going to get from where it is now, to where it is going to usefully be [] When you buy an initial coin offering, you are usually buying shares, usually non voting shares, in a business with no assets and no income and no clear plan to get where they will have assets and income, as in the dot com boom.

Essentially the only way I can see to issue an unencumbered cryptocurrency by token sale, is to enforce on the decentralized ledger that the tokens cant be sold for 3 years and that all tokens were held by those who arent issuers nor underwriters after that 3 year restriction. The 3 year holding period seems to be consistent in the UK also, which is the other significantly developed market for securities. That at least makes it sure that the token is legal for all use, spending, and trading in a decentralized context (regardless whether its registered with regulators). However, even with this precaution undertaken, unregistered exchanges (i.e. not registered dealers) might still be wary of listing tokens which were originally issued as securities (before the 3 year freeze on the decentralized ledger) unless perhaps the regulators provide more clarity (and registered dealers exchanges dont offer trading in non-securities, but they may continue to offer trading if the said tokens were registered as securities and registration has been maintained and not revoked). And its possible some jurisdictions regulators might claim that the tokens remain securities indefinitely (because it cant be proven that the prior or future efforts of said common enterprise dont remain relevant to investors investment decisions, c.f. my blog for a quote of jurisprudence in a dissenting opinion). And because it cant be proven that all the tokens were at some point spent on goods and services (thus removing their securitization).

Additionally although afaics not strictly required by the law, it would be advantageous to also insure that ecosystem is sufficiently decentralized that the common enterprise that pooled the funds of the original token sale is no longer the basis of investors expectation profits.

Quote

been trying to follow ico related stuff on the legal side as i am in the usa. i have to be careful that all my crypto stuff is legal etc for taxes and such.

As explained above and in the blog for this thread, the ICO issued tokens so far have made all the holders underwriters and thus illegal traders. The exchanges trading these are illegal and going to be in trouble. Especially for someone in the USA, I would stop trading these ICO issued tokens. And wait for token sales that are compliant as I wrote about above in this post.

Non-securitized Issuance Without Proof-of-work

Tokens can also be issued/distributed by spending them for goods or services to avoid the investment contract, but the payee must have some reasonably liquid market to exchange them, otherwise it would be construed theyre holding them with a dependency on their future exchange value and the value they transferred to the issuer or underwriter was an investment in those tokens. As another way to avoid the Howey test requires of an investment contract, tokens can be distributed by giving them away where the recipient acquires them only for their utility (such as a currency) and not to resale them to another investor, and/or any value (the recipient transferred to the common enterprise, such as their ongoing use and promotion of the common enterprise) is not managed solely by centralized managers who the recipient relies on.

Disclaimer: IANAL. This isnt legal advice.

Quote from: Hyperme.sh on September 28, 2017, 11:38:14 PM

Quote from: e11io on September 28, 2017, 11:33:02 PM

Re: Don't be afraid of ICOs

What are your thoughts on this?

Study the facts.

Be afraid of every token sale which is not locked on the blockchain for 3 years before trading (or unless its a registered security and you only expect to sell it to other investors on registered exchanges). Your token will likely get delisted eventually from exchanges (unless it can be registered which is not the case for all the current token sales). Legal and criminal implications for you personally possibly for illegal trading on unregistered exchanges.

Crackdowns are coming eventually. China just the first salvo of what is coming from regulators in major nations.

Quote from: alyssa85 on September 24, 2017, 01:33:17 PM

Steem started dropping when the Poloniex wallet got disabled for "maintenance". That was 2 months ago, and I think when a lot of people realised they couldn't withdraw their Steem from Poloniex, they sold it for bitcoin, which they could withdraw. And the Steem price hasn't really recovered, because the wallet on Poloniex hasn't been re-opened.

It's a shame when exchanges mess with coins like that.

Thats an example of what is going to happen to all ICO issued tokens when the delistings come forth.

And STEEM is still trading on Blocktrades and Bittrex, so imagine the utter collapse towards 0 of the STEEM price if it had been delisted from every significant exchange.

Everybody going to get plenty of warnings but they will ignore the warnings of course.

Quote from: from Crypto.cat private chat

Quote from: Hyperme.sh

Bitcoin, Litecoin, Bitcoin Cash, and other tokens issued competitively with proof-of-work arent securities, because none of the funds paid for tokens was pooled into a managed common enterprise.

I'm just more thoroughly reading through your assessment and so my own summary is that essentially you have tokens issued as securities and then tokens which are not considered securities due to the way in which they were distributed.

Can you maybe highlight or make clearer why tokens such as ETH and the these ETH derived ICO's are considered securities? I know they are like crowd fundings and many of them are simply IOUs with some promise of a valuable token/platform in the future. Also, please clarify why the token for your Hypermesh project can't be issued similar to BTC to avoid these legal issues. (I haven't read through the ~~XxXX~~ (technology for Hypermesh project) details yet, but I assume it's because of the way it's mined or lack thereof.) Thanks!

The secret Gist link I provided to my yet unpublished blog about ~~XxXX~~ (technology for Hypermesh project) has nothing to do with the securities issue. ~~XxXX~~ is the technology for my decentralized ledger that enables it to achieve true decentralization unlike how proof-of-work and proof-of-stake must become centralized (oligarchy) controlled as explained in that Gist. ~~XxXX~~is one of my many technological and marketing advantages. But I dont want to go off on explaining that right now. Lets stay on the securities and fundraising issues for now.

Tokens are securities if theyre issued as investment contracts as per the Howey test and horizontal commonality as explained in my recent Steemit blog. That requires the funds transferred are pooled and managed by the issuer(s) who manage the common enterprise. The DAO, ETH, and ERC-20 ETH token sale tokens all seem to be issued as securities (some portion of ETH was issued by proof-of-work though).

Securities can be traded P2P (i.e. not on public exchanges) by those who arent issuers, underwriters, or dealers/exchanges regardless if they were registered or not (even if they were illegally issued). But the problem is that every trader of the token becomes an underwriter if the token wasnt held for 3 years by someone in the chain downstream from the issuer. So basically the only way I can see to issue a security that remains legal to trade P2P, is for it to be locked on the decentralized ledger (aka blockchain) for 3 years after issuance. So afaics, any token which was a security and wasnt locked for 3 years, is thus illegal to trade for anyone any where, except for those securities which were registered. Registered securities can be traded by anyone P2P and on registered exchanges (but not on unregistered exchanges) but only for as long as their registration is maintained by the issuer (with annual reports, etc). None of the token sales have been registered (and the token sales up to now afaics havent even be issued legally with correct exemptions so they can never be registered). The securities which arent registered but locked for 3 years, can afaics subsequently trade legally P2P, but whether they can trade on unregistered centralized exchanges is unclear. I reasoned that perhaps they can.

Tokens issued by proof-of-work or the other means I explained at the end of my recent BCT post, arent securities and thus can be traded legally P2P and on unregistered exchanges.

Its quite a convoluted mess to wrap ones mind around. I hope that explanation helped you better understand my recent posts:

https://steemit.com/cryptocurrency/@anonymint/future-ico-woes-and-alternatives-to-icos-for-fundraising
https://bitcointalk.org/index.php?topic=2208231.msg22330424#msg22330424

P.S. I want to research more the 3 years issue after I sleep.

P.S.S. For my Hypermesh projects token (which has been renamed as you know to a shorter name which we have not yet announced), the premine is locked for 3 years. The onboarding tokens which are issued to users who signup are issued as I explained in the section Non-securitized Issuance Without Proof-of-work. I explained why issuance that way makes them not securities. So the Hypermesh token is issued in two ways, the premine is a security and the onboarding tokens are not. So for 3 years, theres no ambiguity whatsoever because all the unlocked, tradeable tokens were issued not as securities and so the tokens can be traded P2P and on unregistered exchanges (just like Bitcoin and other tokens do now). After 3 years, the premine is unlocked for trading, but even though it was a security, then since it was locked for 3 years, then no one is an underwriter and thus it can be legally traded P2P. Whether the projects token (including onboarded tokens since all tokens are fungible with each other) can be traded on unregistered exchanges after premine is unlocked is a matter of intepretation, but there will be a decentralized exchange built into my project any way:

Quote from: Hyperme.sh wrote in Crypto.cat

Theres no benefit for us to register the premine as securities, because they must be held and not traded for 3 years (and maintaining registration is the antithesis of a decentralized ledger). However, as I wrote in that BCT post linked above, its possible the ecosystem will be so decentralized after the said 3 years, that those premine can no longer be construed to be securities. And thus the unregistered exchanges wouldnt delist our token if that is the correct interpretation. In any case, if we assure that all premine that was held for 3 years was held by those who arent the issuer and/or that all premine held by the issuer were never sold and always spent for goods and services, then after the 3 year period our token will continue to be legal to spend and trade in a decentralized context (and were planning a built-in decentralized exchange any way).

Note I just realized we should probably unlock the premine gradually so the market could gauge the level of premine selling so hopefully less potential the market could panic and sell off in anticipation if premine holders dont intend to cause a sell off.

Disclaimer: Im not advertising any sale of anything. Nothing has been decided yet. Just sharing/brainstorming/researching ideas at this point.