The Legal Basis of Cryptocurrency Forks

in #cryptocurrency4 months ago

Prologue: The recent confusion in comments I’ve seen about legal property rights and cryptocurrency forks, led me to write this post. This post has some passing relationship to my previous post on Blockchain Consensus, but I’ve focused this post on the legal implications rather than the social ones, and I’m also writing this more for the general reader rather than for cryptocurrency people (but it still assumes some small knowledge of cryptocurrency).

How does a cryptocurrency get started?

Before I talk about the primary legal basis for cryptocurrency forks, I need to cover a little basic background about how and why cryptocurrency networks exist.

A new cryptocurrency is born when someone writes some software that defines the rules for that cryptocurrency, and then one or more people decide to run that software on their computers. For most cryptocurrencies, the people running this software do this on an entirely voluntary basis: they sign no contracts to run the software.

The cryptocurrency software is generally open-source licensed by the developers so that anyone is allowed to run it and that anyone can modify the software as they like and run their own modified form of the software.

Why does a cryptocurrency coin have value?

In most cases, a cryptocurrency coin only has value because people decide to agree it has value (by being willing to exchange it for other goods). In such cases, the price of the coin rises and falls relative to other goods purely based on people’s sentiment about the coin.

There are exceptional cases, however, such as when a corporate entity will legally back a coin’s value by promising to allow the coin to be exchanged for some fixed good at any time, but these types of cryptocurrency are much less common.

At first, all the above may seem really strange. Based on what I’ve said above, you would be right in concluding that anyone can potentially create their own cryptocurrency, create as much of it as they like, convince people it has value, then use that newly minted cryptocurrency to buy food, land, etc. This is exactly what happens whenever a new cryptocurrency is created.

But the trick is to convince people that the newly created currency has some value. You either have to have a lot of charisma, or your cryptocurrency has to offer some utility (some capability) that wasn’t available from the existing currencies (having both charisma and a coin with utility helps even more).

What is a cryptocurrency fork?

A cryptocurrency fork results when someone decides to take an existing cryptocurrency software, modify the rules of the cryptocurrency, then convince other people to run that modified software. In fact, technically speaking you don’t even need to convince someone else to run the software you’ve modified in order to create a fork: you can just run it on your own computer. But as mentioned in the previous section, the value of a coin depends on what value people decide it has, so if you’re the only one running the software, fewer people are likely to decide it has value.

As a side note, forks happen all the time in the cryptocurrency ecosystem. They can happen because people are unhappy with the distribution of the coins, because of some perceived technical weakness of the existing coin (for example, it takes too long to send it), or just because someone decides they have enough charisma to get people to value a new coin which will make the new coin creator rich (there’s actually a technical term for this in cryptocurrency: shitcoin). In fact, there’s a reasonable size group of people that believe that only bitcoin has value, and all other coins are just “shitcoins” created to enrich greedy coin creators.

The legal basis of a cryptocurrency fork

Ok, with the background information out of the way, lets move on to analyze the legal basis for someone to operate a fork (a modified version) of an existing cryptocurrency network. In practice, forks happen all the time, but are they legal?

Given the legal climate in the US, it is worth making a few short disclaimers at this point: I am a not a lawyer, and this is not legal advice: it is purely my opinion developed over time, and based on my understanding of US law combined with an expert understanding of cryptocurrency software.

For the sake of this post, I’m only going to address US law, primarily because I know it better than the laws of other countries. Even if I don’t directly say it every time hereafter, all the legal analysis that follows should be assumed to be with regard to US law.

As a first point, it is legal to run cryptocurrency software on your computer that operates as a node in a cryptocurrency network in the US. I’m not going to go into any more depth on this issue, since it’s well established elsewhere.

The key issue around cryptocurrency forks is software licensing

But the next question that emerges is, can someone run a modified form of a cryptocurrency software (i.e. a cryptocurrency fork) on their computer? To legally do so, the computer operator must clear several legal hurdles: 1) did the original creator of the software license the software in such a way that the computer operator can run a modified copy and 2) did the computer operator enter into any contract that prevents him from running a modified copy.

For most cryptocurrency software, both these hurdles are easily cleared and forks pose no legal problems. Most cryptocurrency software is licensed by the creators in such a way that anyone can run the software, either in it’s original form or in a modified form. And most computer operators will not have signed a contract that enforces they run a particular form of the software. In fact, most computer operators that run cryptocurrency software do so on an entirely voluntary manner, without contractual obligations of any kind.

Also note that even if some computer operators do sign a contract to not run a modified form of the software, this isn’t likely to stop a fork of the software if the software license itself doesn’t explicitly forbid forking: there’s always other computer operators who haven’t signed any contract that can run a modified form, in that case.

But what about property rights and harm to property holders from a fork?

One claim I’ve seen recently is that someone who creates a fork that doesn’t include another user’s stake has infringed on that other user’s property rights and is therefore liable for harming that other user. But, in my opinion, this is a flawed analysis due to a basic misunderstanding of cryptocurrency operation and/or the value of cryptocurrency itself.

If someone creates a fork that doesn’t contain a user’s stake from a previous fork of the software, the user who “lost” his stake can simply start another version of the software on his own computer that still has his stake (he creates a fork where his stake still counts) and optionally convince others to run his version that has his stake, instead of the fork that doesn’t have his stake.

Even if the person running the fork was previously running a different version of the software that recognized the user’s stake, he has no liability for running the new software, assuming he is under no contractual obligations that prevent it: any benefits that users derived from his voluntary operation of a previous version that don’t exist with the new version were simply “freebies”.

As a non-cryptocurrency example of this, consider the case where you used a voluntarily-operated social media site where you got reputation points for answering questions. If the social media operator decides to close down or just eliminate the point system, you lose all your points. But if the operator had no contractual obligations to you, then it was a just a free benefit, that you’ve now lost.

But compared to the social media example above, cryptocurrency has a nice advantage due to it’s distributed nature: unlike in the social media site case, the software and data will generally still be available for a while on someone’s computer, so that you (and others) still have the option of running the software on your own computers, regardless of what the old operator does with his computer.

In the above scenario, there are now two cryptocurrency forks running on separate computer networks. In this case, both coins may or may not have value: it solely depends on whether other people are willing to accept the coins from either network in exchange for other goods. This is one of the really interesting things about cryptocurrency: valuations are set purely by the users, and this means that people are able to voluntarily decide what currency has value and what people they want to associate with via the mechanism of cryptocurrency exchange.

Beyond the legal realm

At this point, I’ve addressed all the legal issues surrounding a fork that I can think of right now. But the above scenario of two forks operating simultaneously with differing stakes may leave you wondering about why people might choose to accept one or the other fork as the one they want to operate on. I thought about addressing some reasons at the end of this post, but after some thought, I’ve decided to leave it to a separate post tomorrow, to keep separate the comments on two fundamentally separate issues.

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Nice analysis. As a tech lawyer and crypto expert I agree.

@apshamilton Hey, just reminding you that you agreed to all this in this post and it directly relates to what Steem witnesses are doing now.

Not out for an argument, just thought it is a fair point that was brought to my attention.

What @blocktrades described above is what the Hive fork from Steem did:

creates a fork that doesn’t contain a user’s stake from a previous fork of the software

Implicit in this statement was that the old fork and cryptocurrency continued running unchanged, including keeping the coin name and exchange listings etc.
Because a "fork" where the blockchains on both sides don't actually continue running is not a fork at all in the normal English language usage of the term (not geekspeak).

What HF23 did was not a fork, merely a code change to an existing blockchain that stole property from one set of users and gave it to another.

There is nothing "new" about New Steem apart from theft.
It has retained all the valuable accoutrements of old Steem (exchange listings, coin name, front end websites, marketing Intellectual Property, founder company support etc) and is legally the same asset.

By contrast Hive was a true fork with Steem and Hive going their separate ways but with Hive having to create all these accoutrements from scratch.
Hive is legally a new asset.

Calling it a code change does not change the fact that it was a fork, its a hard fork. Also, no one is obligated to run old code, if witnesses choose to run a new fork no one can force them to continue running old code. Ticker symbols are technically no-man's land, since they don't belong to the blockchain or a company and are ultimately up to the exchanges to agree to use or not.

A blockchain is not a corporation, no one owns the blockchain and no company has intellectual property rights over it if it is an opensource blockchain. Blocktrades pointed it out, the situation is the same in both cases, you cannot coerce anyone to run a copy of a blockchain. You have every right to run the old code yourself, but you cannot force the consensus witnesses to run the old version.

I'm not disagreeing with your stance in favor of Steem over Hive. What all this so far has told me is that public blockchains using DPoS are not effective for storing value. And that the witness system doesn't work. For a blockchain's assets to be a good SoV that blockchain needs to be maximally decentralized.

I'm not condoning Justin or the Hive founders, I think both parties acted shamefully. My conclusion is that what we are seeing is that delegated proof of stake is a failed consensus system for a blockchain intended for storing value precisely because you cannot force the witnesses to run the code you want.

Strong article again 💪
it is a long way to voluntarism. The felt/experienced vulnerability of people probably comes from the problem, that users are passive and have no skills to scape and form the opensource-cryptolandscape except for using/not using a certain system. We need more UIs where people can create fork-proposals with the push of a few buttons.

It's actually interesting you bring this up, as it is one issue I've been thinking about for a while: the imbalance of power in cryptocurrency that exists depending because of different levels of programming skills (and/or the money to hire a programmer). My initial thought was something similar to what you're mentioning, a single software system that could embrace something like forking.

But that in turn led me to thoughts on a much more radical system with dramatically different economic underpinnings than current cryptocurrency systems. But it's a huge topic, and I plan to approach posting about it slowly, partly to bridge the gap between current economic thinking, and partly because some of my ideas about it are still unformed. I am planning to create a prototype of such a system that can be tweaked with time, as new ideas emerge.

As an aside, I find it mildly humorous that the spellchecker for this site's editor doesn't recognize the word "cryptocurrency".

Interesting Read.

I read somewhere else Craig White wants to take some sort of suit against those that forked bitcoin because the MIT license didn't include use of the DB or something.

That's possible in theory, but unless he can show he owns the rights to that particular component of the software, he wouldn't have standing to bring a lawsuit to court.

Craig Wright ?

No, dude. That's the guy who's suing for the Beetcorn rights. Totally different case.

I understand the confusion though. :)

Okay. Thanks for clearing that up. :)

lol yep, well at least you understood who I was referring too

Hey, @blocktrades.

I appreciate the analysis on the legalities of forking. I didn't know that some folks thought it was an issue, since it's happened elsewhere with varying degrees of success.

I guess what I would be most interested in is knowing the legality of using a soft fork to effectively freeze, or however it should be phrased, the use of an account or accounts on an existing blockchain. Are there legal ramifications for that? What recourses does an account have in the event it happens to them?

For me, that's far more front and center, and frankly, I don't know the answer when it comes to cryptocurrency. I wonder if there's even precedent for it, and if so, how that turned out. If it hasn't happened prior to what happened here on STEEM, what are things that could realistically be done to legally reclaim use, providing that whatever terms there might be for having the soft fork removed were not met?

Hi Glen, I'm trying to answer that particular legal issue in this section of the post: "But what about property rights and harm to property holders from a fork?"

As a specific issue, it has happened on Steem before. Steemit Inc create a fork (I think someone said recently it was HF9) that changed balances on accounts (actually on further reflection, I think they changed the keys on those accounts to keys owned by Steemit itself), after someone obtained the keys of many users due to a bug on the steemit.com web site and began moving the funds of those accounts to their own accounts.

I read through that and did so again now. What I get from the section is, if an account is forked out, they can go ahead and try to run a version of the blockchain where they're not.

re: HF9

I hadn't heard about that. There seemed to be a reluctance to do anything like that, even to obviously bad actors, in the time I've been here, other than starting to pull whatever initial delegation from the Steem account.

What I get from the section is, if an account is forked out, they can go ahead and try to run a version of the blockchain where they're not.

That is one of the key points of the section.

But the other point is even more significant: even if they didn't have the recourse to run a copy of the software where their stake is still there, they still would have no legal recourse, because the node operator ran the software on a completely voluntary basis and has no contractual obligations to run any particular form of the software (or even to continue running any form of the software). This isn't destruction of property in the traditional sense, because the "property" in this case was just a free benefit/service offered by the software operator (plus the other people who run computer nodes of the software).

Thanks for the post and commentary back and forth with Glen. It has help me understand a little bit more.

Okay.

I'm not sure if this makes me feel any better. :) On the one hand, I guess knowing that Justin Sun can't necessarily win a lawsuit against STEEM et al for minimizing the Steemit stake is good to know, since it in essence eliminates one tack he could take that would no doubt be devastating to the blockchain if he could win.

On the other hand, from the account owner standpoint, it's kind of terrifying to know that such a thing is possible without any recourse. Whether the likelihood of it happening is high, low, or in between. I wish I had known this over two years ago. I would have made a more informed decision when I joined STEEM. :)

Thank you for all the answers. I appreciate you writing this post and taking the time to respond.

Hi Glen, I put a Q/A section at the end of my new post, the last one trying to address your concern about the potential for destruction of your coins in a fork. There's no complete comfort in the answer, but maybe you'll find some.

Hey, @blocktrades.

Thanks for doing that. I have read through it. From a purely technical standpoint, I get the dynamics and mechanics of it. The problem is, as you mention in the post, there's human beings involved, with all of their myriad of emotions, principles, experiences and vested interests.

So, knowing it can occur (however unlikely it may be for most of us), is better than not knowing, as I guess I did up until now. Or rather, I knew it was allowed by code. I guess it was the social contract idea, which seems to be tossed around quite a bit right now for other things, that I felt would keep such a thing in check.

Obviously, it has its limits, and for many here, that limit has been met, temporarily or otherwise.

Love this point...

What's both great and terrifying is the very nature of a decentralized digital idea of value.. You are safe if enough people agree you are safe. And you are not if enough people think you are not..

One interesting thing that may not be obvious, is that this is actually true of regular "fiat currencies" like dollars and euros. If people lose faith in those, the same loss of value can occur. You can see this today in countries that have hyperinflation, where the residents begin to use currencies from other countries as a medium of exchange in preference to their country's currency. Essentially fleeing their native currency for a fork that is perceived to be safer.

I was going to say something similar, tbh.. the only difference being whatever government exists might back the currency.. rather than code.. but then they can't really control inflation..

but then, a Government is often only as valid as the faith the people put into it..

Yes, and I'll cover that reluctance based on socio-economic reasons in a separate post, probably published tomorrow. Of course, some people are reluctant/scared simply from a legal perspective, so that's all I wanted to address in this post.

Took one for the team. I clicked the link, so you don't have to. Inside I found:

For example if me now am and am alone in my room or anywhere but I don’t know how to press a phone and I call somebody for help it means am going to lose life due to lack of knowledge.

#truth

Forget @blocktrades' post, get this man on trending stat!

This triggered a wicked joke within my mind but I think I'll just bite my tongue this time.

The whole idea of laws in cryptospace as a whole is baffling when you consider how global it is. In Nigeria for example, we have zero laws in relation to blockchain and whatnot. We do have propriety laws and the likes but due to the ambiguous nature of cryptospace, I doubt there'll be any parallels.

So if you patent and protect your International software with US laws and indeed even aganist forking , what's stopping me from Forking anyways based on the laws of my society?

There's very little to stop such forking from taking place. There are international treaties in place between many countries to recognize IP rights granted by other treaty participants, but I'm sure there are countries that are not signatories to such treaties (generally they are poorer countries that see being a signatory as being a disadvantage, something I think they are probably right about).

In such a case, where the fork is being operated in one or more countries that don't recognize the IP rights, the countries that abide by those IP treaties could enact laws preventing their residents from connecting to and using such networks, but they wouldn't legally be able to stop the entire network from operating.

Also, it's worth noting that if they (e.g. the US) did pass legislation of this sort, it would be very difficult to enforce, and probably drive such currencies to a black market.

It seems like one of those situations where something gets more complicated whenever we try to "simplify" it.

I mean, crypto space as a whole thrives off a high level of anonymity from both users and developers.
People generally come here because they want to get away from governments, laws, policies and whatnot. This leads to a question, do people have to go through KYC registration before making a fork? I ask because I wonder what the basis is for "legally" protecting your product against people that you technically can't even track.

No, under current US law (or laws in any country I'm aware of ), there's no requirement to register either yourself or other users of a cryptocurrency fork. Cryptocurrency network node operators are not currently considered money transmitters, so no KYC collection requirement exists for them.

Therefore attempting to "protect" one's software from forking becomes an exercise in futility, at least for the case of forking.

Above all, legal frameworks regarding cryptocurrency are either nonexistent or in their infancy. Attempts to apply existing legal conceptual frameworks to crypto are not going to be entirely successful. New ways of conceiving and languaging what currency is and what legal rights exist around creating, possessing, and transferring it are necessary.

I like how simply you addressed the topic and want to point out this part for those still confused as to the legality of forking a chain:

If someone creates a fork that doesn’t contain a user’s stake from a previous fork of the software, the user who “lost” his stake can simply start another version of the software on his own computer that still has his stake (he creates a fork where his stake still counts) and optionally convince others to run his version that has his stake, instead of the fork that doesn’t have his stake.

This is similar to "if you don't like how you are being governed, declare independence." Create your own sovereign nation-state. The difference is it is digital and there is effectively no limit to the amount of chains that can exist simultaneously. So applying old scarcity-based concepts of ownership of real-estate are not going to cut it when it comes to crypto real-estate.

That being said, there is no way to stop people and governments from trying. They will continue to attempt to conceptualize what blockchain is in terms of what is known until the differences from traditional monetary forms come into clearer relief over the years heading into mass adoption.

Looking forward to the second part you mentioned!

Above all, legal frameworks regarding cryptocurrency are either nonexistent or in their infancy. Attempts to apply existing legal conceptual frameworks to crypto are not going to be entirely successful. New ways of conceiving and languaging what currency is and what legal rights exist around creating, possessing, and transferring it are necessary.

That is no longer in question here in the US, the federal chairman has already come out and defined that crypto currencies do in fact have value. They had to make that determination so people could move forward with lawsuits.

https://www.sec.gov/news/testimony/testimony-virtual-currencies-oversight-role-us-securities-and-exchange-commission

You do not have to be listed with the securities exchange to have your crypto treated the same as any other fiat.

Nice analysis. Maybe an even better example instead of the social media reputation are MMPORGs.
In those game very regularly there are items which can be exchanged for exorbitant amounts of real world money. However, it is not uncommon for the game operator to reduce the power of such an item in a patch rendering the item "useless". This doesn't give you any right to process the company either.

In an open source game on a distribute ledger, at least, you could choose to continue running "the game" as it was. However, most players most likely will go to the new game instance where the rules favor the vast majority and not the minority that was using those overpowered items such that that "fork" of the game will not be worth much.

Yes, that is a better example. I chose a social media site because it's something most everyone is familiar with if they use a computer nowadays, but for anyone who's played an MMPORG, your example brings home the point clearer.

BIggest issue with forking cryptocurrencies is that who can legally change the license that the original creator inserted to the code, and if it is changed to conflicting one, is it still legally binding.

As I see it, you can replace full directories from source code and use compatible license in directory that replaces the removed directory.

If license in new code is incompatible with license of the original code in the root directory of the source code, it is not legally binding.

Using two licenses in same source directory is only allowed if two binary files don't touch each other as in neither is linked against the other.

A lawsuit would wreck the price of Steem.

This clarifies a lot of issues that kept my mind troubled the last few days...

Thank you very much for this comprehensive analysis.

I haven't had time to research this issues in-depth but I wanted to mention a couple of thoughts.

Criminal law is treated differently than civil liability, and just because someone is not found criminally liable for an act, they can still be sued and found financially liable in a civil court. Civil courts commonly handle disputes regarding business finances.

Cryptocurrency networks are transcontinental and thus international agreements and treaties may apply, although enforcement of these agreements may not fall on local authorities. I'm not aware of any agreements that would necessarily apply to cryptocurrency at this time, but i thought it was worth mentioning.

I can see someone attempting a law suit against a fork under criminal law (if they can convince a prosecutor to do it) or under civil law. I suspect a civil suit is the most likely case that could occur, but my analysis applies to either type of suit.

Witnesses running the fork should be aware of the risk of a civil suit in the US where the standard of evidence is lower than in criminal court and amounts to "the balance of probability" instead of "beyond a reasonable doubt."

You're referring to evidentiary rules, but evidentiary rules have no bearing on matters of law, only on matters of evidence. All the arguments in my post are based on interpretations of law, not on the probability of any fact based on evidence, so there's no advantage to a civil suit versus a criminal suit when disputing those arguments.

I'm referring to the "standard of proof," as outcomes are going to be decided based on the evidence, and the standard of proof in a civil court case, preponderance of the evidence, is lower than a criminal court case, proof beyond a reasonable doubt.

I'm fully aware of what you're talking about. You just don't get what I'm saying. Please re-read my last reply. If you still don't get it, it I'll try to rephrase it a different way or add some more explanation. In my previous reply, I was assuming you might have some formal legal training (otherwise, my explanation so far is going to go over your head, because the operation of our legal system can be a strange thing to comprehend, even the parts that make sense).

A standard or burden of proof has two parts, the burden of production, which deals with evidentiary rules, and the burden of persuasion, which in a civil case is the preponderance of the evidence instead of proof beyond a reasonable doubt. I assume you have obtained legal counsel, but all witnesses voting on the fork should be aware of the lower burden of persuasion needed to assess financial penalties in US civil courts.

I think most people are already going to understand that when two normal parties disagree in a civil action that neither party is presumed to have an advantage when it comes to persuasion. I guess you're thinking that maybe some people think there should be an additional burden of proof on the side of the person claiming harm, but I don't think most people would anticipate that. Fundamental rules of law like that mostly come from the will of the people, or they would mostly likely have changed over time.

To me, this is something of a non sequitur to the legal analysis of forking I'm making. And the fact that you keep bringing the discussion back to the witnesses specifically as a direct warning, leads me to believe you have an agenda in making this non sequitur.

Very well and deeply explained thanks for sharing this helpful information

Forks are destabilizing, so it's kindof a last resort, but DPos minimizes the instances of forks by having governance. However, when governance fails, the coinholders are allowed to say "we need new leadership." Shareholders can't control who the forked shares are dropped on, so it's all about creating or joining the coalition that votes for the best governance. Risk is high, so most people just hold both or sell the forked coin immediately, but this means much higher potential gains for those who support the new fork. I personally think we need to fork Bitshares. The whole governance needs to be ousted, and I'd rather lose money short-term for long-term gains than let the Chinese and CEX's slowly bleed us dry.

Good article. Are you very concerned about this affecting our investment?

I'm going to address the economics of forks in a separate post (probably will publish tomorrow). For organizational purposes, I want to keep this post just on the discussion of legal issues around forks.

I am a newer of this argument. Thank you for your accurate analysis

Having a distributed network accross the world makes enforcing laws difficult, as each country has different laws. So USA laws become irrelevant.

I don't think this is true, because cryptocurrency nodes are run in given geographical locations, even if the entire network itself is spread across multiple countries. Hence, at minimum, the local laws apply to the individual computers (nodes) operating in particular countries, in my opinion.

This doesn't make every node operator obliged to obey US law, but I think US law applies to people who operates nodes in the US, and I'm pretty sure on this point if they also reside in the US.

I guess we can always rely on nationalism and countries thinking of their own self-interest, I doubt there can ever be a day when all nations could agree on something so yes nodes could be taken down in certain countries but as long its spread across as many locations.

Now i'm wondering might be extreme but could nodes be run in international waters and how would that be governed?

It's a good question, but my knowledge of law in international waters is only second-hand. I've read somewhere that the laws of a ship in international waters was in someway related to the country where it's registered, but I have never researched the point, and I'm sure there's more to it. I would guess there's a whole separate body of law based on treaties between countries. But google could probably answer better than me on this topic right now.

But, if you're interested in this topic, you might find this article interesting: https://steemit.com/beos/@blocktrades/jurisdictional-agility-in-beos

That's the beauty of p2p, if nodes go down in one location/country, the network remains functional elsewhere :)

Not when the company sits on US soil.

That's the company's problem, not the blockchain's.

You can go ahead and believe that if you plan on operating the chain as designed and implemented by Steemit Inc., in what will become over time harder waters to find to float your ship in as Mr Sun has the financially means to take it country by country that you can operate (as this is your debate) your blockchain any way you want other than it to look anywhere similar to that of the functions of Steemit. Meaning if you are going to continue on with this insane argument you'd better be behind the scenes with everyone designing a whole new look to operating your blockchain that looks no where near similar to Steemits as to be a competitor who has stole someone's else logo's and designs which the vast majority of countries are going to concur belong to Sun. Good luck with that.

Very interesting.

This is a good explanation thanks. One thing that is still unclear to me and I would love to get clarification on in another post: what is the legal standing around coins that are considered securities and others that are not and how did it come about?

That is an interesting and complex topic. I'll definitely consider making a post on it in the future, as it's an area I've had to become well acquainted with due to our company's business: specifically we try to avoid buying/selling any cryptocurrencies that may be a security due to SEC regulations and licensing requirements. This is the biggest limit on what tokens we can offer on our site.

Thanks, I look forward to it!

I can help you with that. A hoard of lawsuits started being filed against people who fraud-ed people using crypto's. In order for the people who were ripped off to be able to proceed in court for losses the federal chairman had to make a determination that crypto's held value, he determined that crypto's hold the same value as any other fiat.
https://www.sec.gov/news/testimony/testimony-virtual-currencies-oversight-role-us-securities-and-exchange-commission

Thank you. I have heard that older chains are exempt somehow?

Just to clarify, sunlit isn't answering your actual question about what makes a cryptocurrency coin a security, it appears he is confusing securities laws and money transmission laws (which is kind of easy to do, since many articles published on the two subjects don't draw a clear line). I deal with these rules almost daily, and there's been times when it happens to me too.

The most applicable rule for whether a cryptocurrency is considered a security by the SEC is called the Howey test. I don't want to go into that much further here, but you can get a quick overview by googling it.

The issue he seems to be referring to revolves around "stores of value" and rulings and guidelines from FINCEN (the US regulator in charge of things like money laundering). But this is a totally separate issue from securities law.

And, yes, you're not really wrong in what you said, some mined forms of cryptocurrency have been ruled to fall outside the guidelines of security law, and this especially tends to be applicable to older cryptocurrencies (which were mostly mined). But this is part of a big topic, so more info some other time.

Thanks for that, I look forward to your next posts

I doubt that, but even if true, each new update or fork is argued to be a completely new network if I understand OP's logic correctly.

There are no exemptions, at least in any filings made in US courts, as long as the crypto has value it is held to the same rules applied to fiat, meaning if you lose your value over deceptive/illegal practices you can file suit for losses/damages.

I have understood the concept 'fork' very well. BTW, one personal question, is your stake ninja-mined too?

It all depends on your definition of ninja-mined stake, I've seen several with time. I did learn about the mining quite early because the Steemit guys were working in my basement at the time, and after some slight hesitation, decided WTH, I'll mine it and see what happens. The costs were low enough, that it didn't seem like much risk, just labor and computer rental time.

At some point in the future, I'll probably make a post about my history in cryptocurrency in general, including my experiences in Steem. But it's a little off-topic for this post to say much more here, as I'd prefer to keep this post focused on legal discussions about forks.

Thanks for the reply. And I'm expecting to learn more about it in your future post.

Blocktrades, I'd be interested to find out about my stake as well, if it's that kind. Majority of my stake was purchased starting in April until December 2019.
Looking forward to read more of your post about this topic.

any stake purchased on an exchange or earned through posting on Steem blockchain is not a "ninja mined" stake. Your stake is not ninja mined. In the very earliest days of the Steem blockchain "miners" could earn steem by solving math problems with computers (proof of work). It is called a "ninja mine" because it was not (well) publicized in advance of the chain becoming operational nor did Steemit, Inc provide documentation on how to set up a miner and mine. So basically, Steemit Inc ran a bunch of computers to mine steem, didn't tell anyone else they could run computers to mine steem, and didn't help other people set up computers to mine steem once they did figure out they could mine it. So by the time other people had heard about it and set up their own miners, Steemit Inc already had the lion's share of the Steem produced by mining. It was a "ninja" mine because it was sneaky LOL

Thanks for your response. I wanted to ask because a lot of posts going around by so many and saying that those steem sold and bought on the exchanges were probably the ninja mined tokens, which he supposedly wasn't legally allowed to sell. I wanted to find out if what I bought from the exchange weren't illegal tokens.

And of course just like anyone else, no one wants to be conned or be a part of that or take part of that type of dealership dealings that's crappy and fraudulent.

Thanks for the response and explanation, appreciate it .

When were Communities actually ready to be launched? And were we lied to by Steemit Inc. about the delivery timeline? Was delivery intentionally held back in order to facilitate the Sale of Stinc? You or anyone outside of Stinc may not know but these are just a few the questions that need to be answered. Many people made financial decisions based on possible mis representations made by Stinc. All of this proves how far we are from actual Decentralization, especially in the event that lawsuits start to fly and we need to bring in a 3rd party law firm to sort this all out.

This mess could have been avoided with clear, timely and truthful communication from Stinc as well as a Sale of Stinc being contingent upon the Ninja Mine Stake to continue to be used as promised by Stinc. Why not use a Smart Contract ?

This may have been the plan all along. Ninja Mine some Steem and make a stealthy exit with no regard for the chaos we are currently left in.

Steemit Inc is truly trustless and no more verbal agreements should ever be considered. Only consider Smart Contracts that execute upon breach of contract moving forward.

So, is it legal to punch someone in the face? Normally no, unless you are a boxer or if it's in self defense and you are being attacked. There may be forks that normally would not be legal but if the fork is done in self defense to defend yourself from lies, misrepresentations and damages then it most likely is legal.

This seems overly optimistic. I would be shocked if Justin Sun doesn't sue someone from this. The Top Witnesses that colluded to make this happen would probably be his first target. He's worth $500 million, I would imagine that buys some very good lawyers.

I can also hire some pretty good lawyers. Also, I have my doubts about just about every other statement you made above, however. But none of this is really directly relevant to my post, this post is an analysis of the potential legal liabilities of any fork.

Good point. I was extrapolating to our current situation given the timing of this post.

For what it's worth, that is not something I am hoping happens or want to see happen. Just what happened somehow feels wrong to me and I would not be surprised to see lawsuits come of it, depending on how negotiations go in a couple weeks.

I'd be shocked if he did Sue. This would be extremely bad for all of the purchases he made on his whimsical shopping spree. Maybe next time he'll do some due dilligence before window shopping and impulse purchasing. It would pretty much taint everything he's involved in and most likely encourage counter suits and he'd be drained of his wealth in legal fees and settlements and may even have some assets frozen (lol ) . He's already established a pattern of deceit and lying. I think he will become a lot more negotiable and open up lines of communication at this point. It's time for him to pay his karmic debt.

Yeah well that karmic due runs both ways. First you'd all have to find un- scrupulous criminal mob laden like attorney's to take any of your cases, any legitimate attorney is going to laugh you guys out of his office once you explain you took someone's stake and turned it into a shitcoin because that's basically according to the description above is exactly what you did. Why did you do it?...to protect your own stake that a percentage of that came from forking more off the backs of the lower tier here. These forks have been done at the disadvantage of someone or another for the advantage and protection of the top tier. They have been running around on here like some rootin' tootin' cowboys making up all the rules mindless of those it hurts including the success of the platform itself. Once lawsuits start flying this may start getting the attention needed for scrutiny, smh, the pot calling the kettle black.

like I said, "I'd be shocked if he did Sue." I am in agreement with you and don't think lawsuits are the way forward.

also , those law firms already exist

www.SilverMillerLaw.com

They handled Bitconnect, Krakken, Coinbase and ICO Fraud

"...once you explain you took someone's stake and turned it into a shitcoin because that's basically according to the description above is exactly what you did."

If any witness explains to an attorney that this is what they did, then they're not very smart witnesses. And I'm not sure if you were simply making this argument as a way to point out that kind of ignorance or if you actually believe that this is what witnesses have done.

"These forks have been done at the disadvantage of someone or another for the advantage and protection of the top tier."

Can you elaborate on who these disadvantaged people are and who these "top tier" people are?

"They have been running around on here like some rootin' tootin' cowboys making up all the rules mindless of those it hurts including the success of the platform itself."

Who have been? Witnesses? Steemit Inc.? Others?

"Once lawsuits start flying..."

IF...and that's a very big "if." I doubt any lawsuits will ever be filed, particularly against mostly anonymous people running some different version of code on a blockchain.

If any witness explains to an attorney that this is what they did, then they're not very smart witnesses. And I'm not sure if you were simply making this argument as a way to point out that kind of ignorance or if you actually believe that this is what witnesses have done.

Basically the ignorance of it, who did it I have to admit I don't know. The last I heard after it happened was written up as people were still trying to figure out the "who dunnit" of it. lol. If no one still knows it'd make a great Steemit Who Dunnit story for someone, for a writer with a great sense of humor it could actually be quite humorous, they could play it out like a game of clue changing up all the characters to witnesses and all the weapons into the necessary technology parts it would have taken to accomplish it. I'd actually do it myself if I had that kind of technology savvy.

Can you elaborate on who these disadvantaged people are and who these "top tier" people are?

Anybody who invested their own money to increase their voting power and that voting power took a hit as a result of the last hard fork. I know you are going to be hard pressed to find anywhere in the white paper that there is a disclaimer that as an investor you could potentially face loss of value as the result of a hard folk because it doesn't exist. It does't exist for a reason, that reason being that no one in their right mind would hand over their cash if someone could just create a fork that took a chunk of it's value away. *I am not a legal expert on it but I do think in situations like these there may be requirements of commitment in terms that the paper spells out you can increase your return by investing would have required these accounts who were negatively affected to have been grandfathered in under the old clause. In essence meaning it could be done but it couldn't have been done to pre-existing investors. The losses any investors should have been seeing should have come as a direct result of decreases to market value.

The top tier would have been anyone who didn't suffer similar losses in the same manner and/or was made to look as though they were to suffer cut but the design of the folk made up for those losses in another manner.

Who have been? Witnesses? Steemit Inc.? Others?

Who ever designs and implements these hard forks. Are there any witnesses who sit down and participate in the structuring of a hardfork....I have no idea.

"Once lawsuits start flying..."

For the most part I agree but like I stated I still wouldn't underestimate Justin. One reason is because of the fact he isn't hiding under a rock somewhere, the other being would be that old cliche that money talks and bullshit walks and he has enough money to hire the best powerhouse attorneys to use legal arguments in court whereas the justification as seen by those on the platform for doing the fork isn't the issue involved as opposed to the question that it was done illegally, (The Oppression of Minority Stakeholder Law, though he may not be a minority stakeholder the tactic used is similar and applies), that that is the basis and legal argument for the suit and if the defendants feel harmed there is other legal recourse for them to address that issue other than to violate laws in place. Effectively shutting down the debate if a judge concurs and I've seen it happen or written about many times where a judge specifically looks at the violation in the narrow focus upon which it was filed, agrees with the plaintiff and reprimands the defendants that violating laws isn't a recourse to address their concerns and rules in favor of the plaintiff. You often see these types of judgement's with people who can afford to hire powerhouse attorney's who have the ability to argue furthering case points as examples of why the defendants counter argument holds no weight or basis upon which the plaintiff filed their suit. In a very closed gap focused narrative it controls the narrative and keeps the rest of the debate from public record and scrutiny. Effectively, like I stated, shutting it down.

Thanks for the summery and insights! This was very clear and easy to understand! Hope all is well :)

Glad I'm not one of the top witnesses right now. That's all I have to say on the matter.

What a nice analysis @blocktrades! Thank you for this very useful information. Many do not know the subject...

Well articulated and laid out post Blocktrades!
Was well worth the read in my opinion.

@jackmiller recommended this on #pypt. thanks alot for the interesting read.

Thank you very much @blocktrades! @jackmiller shared this on #PYPT. I will be cross-sharing as well!

It is refreshing to get facts instead of rumors and conjecture.


Awesome analysis! Helpful to understand legal implications of blockchains.

It would be interesting if you could do a writeup on other blockchain based legal issues for example blockchain-based legal tech.

Thanks and well done!

There are a lot of such issues, and I'll definitely think about writing some on this topic in the future.

Cool example with social media reputation points 👍

Very interesting take on this.

Adam of ROTFL witness.

Well described, and in very easy to understand wording.. Kudos..

Might help clear up some concerns about forking away from Tron, should that happen to pass..

하이브 증인들은 내 하이브를 훔쳤다.

하드포크를 하면서 특정 계정의 지갑을 건드리는 게 법적으로 구속력이 없을지는 몰라도, 블록체인에 올려진 창작물에는 법적인 구속력이 있다고 생각합니다.

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You are confused, that's why you need to write a disillusion prologue as this.

Don't stop your power-down, you will need it. :)