POS is a scheme for illegal unregistered securities

Lawyer, here, and, while some POS tokens may be unregistered securities, your position that all POS systems are categorically securities is incorrect. The Howey case lays out a four-part test, each of which must be met, for the government to prove that an offering is an unregistered security.

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Just to clear the air where I am coming from on Stake [seeing as how this was hotly debated on another thread we were on…] I am not so much pro-Proof of Stake as anti-Proof of Work [NOW; not in the early years of 2010-2017 when we were struggling to establish an ecosystem of sustainable reciprocal use…]

If bitcoin gets marginalized for use by many retailers because it’s not factors more energy-efficient than it presently is, that’s not a concern for bitcoin. It’s digital gold, and hedge funds and third world countries will continue to use it as a financial instrument, much like they did with gold when South Africa had a boycott imposed on it over apartheid.

But what about if you’re not bitcoin; if your focus is to be a money for the Internet? Such marginalization by eco-boycotts marginalizes your use; the infant gets killed in the cradle.

So I see a contradiction here between striving for universal payment standards and meeting green ones if you are going to stick with PoW. If you come to advocate for another practical alternative to PoS that is equivalently energy efficient, I’m all ears. But if you are arguing for a payments coin to be used by much of the planet will have to remain PoW -I just can’t buy it. It’s not going to fly, especially now that we have raging fires going on all over the planet.

If ECC finds PoS to be the most practical alternative, I’ll back them up. But before that gets cut in, please do suggest an energy-efficient alternative if it’s practical, before Stake gets cut in…

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Thanks; I am aware of the Howey test, but I wished to avoid opening with technical argumentation that tends to skirt the obvious and unavoidable substance.

I think that all POS systems categorically meet prongs 1, 2, and 4. Prong 3 is arguable—but as stated in my prior post, arguing that POS does not meet prong 3 admits my argument that POS is a flat-out scam. Do you argue affirmatively that POS offers no reasonable expectation of profit?


@zlawyer, just in case I or others may lack West/Lexis access as I mentioned in my prior post, I request in the open-source spirit some relevant annotations, especially as to this passage at 328 U.S. 293, 300:

That sounds to me very much like an arrangement where ECC and ZF manage, control, and operate an enterprise in which POS stakers seek profit. (Whether or not they will get it is another question.) However, I will not make the n00b mistake of quoting one paragraph out of a 76-year-old case without a West/Lexis check on subsequent history.

Also, from the looks of it, OP assumes that all POS tokens as on-chain governance tokens. Which is a categorically false statement.

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So…litecoin is a scam. Never mind the fact that many turn to it when fees are high on btc transactions, there’s a lot of spot volatility in btc at a given moment, it has support at ATMs, or when the bitcoin blockchain is choked.

Truly decentralized”…“they are all scams”…

Are you completely blind to the extremism in your viewpoints?
Everything is black or white for you…

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In this case, the technical is the substance as the security designation is a purely legalistic determination.

If stakers are a dispersed community of unaffiliated users – the coin can’t be a security.

EDIT: @nullius, Here’s a link to Howey

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Litecoin is a codefork of Bitcoin, just like Zcash is a codefork of Bitcoin. Not a chainfork! From where do you get the notion that LTC is some sort of a forked coin?

That’s just a cheap ad hominem which evades the substance of my arguments. And yes, I am an “extremist”—and proud of it! If there is anyone who cannot be bullied with the rhetorical shut-down trick of accusations of “extremism”, it is an uncompromising activist who takes the label as a compliment.

The substance: When I point out that POS centralization empirically results in such scenarios as the Steem hostile takeover and the Terra centrally-commanded hardfork, whereas POW Bitcoin empirically resisted years of multiple hostile takeover attempts by powerful miners such as Bitmain, the only counterargument is to accuse me of “extremism”.

By the way, when I declare that the current crop of the most popular Lightning Network light wallets are “not truly decentralized”, will you accuse me of being “blind” to my own “extremism”? :thinking: (I think that LN has some excellent use cases. But it has problems that some Bitcoiners refuse to acknowledge; and the current crop of popular light wallets are pretty grossly not-truly-decentralized, in my opinion. Run your own LN node if you want decentralization there.)

And yes: As a veteran of the Fork Wars, I categorically declare that all actual, attempted, or threatened fake-Bitcoin chainfork tokens are scams. XT, BU, BCH, BSV, S2X, “Bitcoin Diamond”, “Bitcoin Super”, “Bitcoin Gold”, or similarly as I quipped in 2017, “Bitcoin Ultimate With Ponies”. Anyone can make a chainfork, practically for free. There is only one Bitcoin. Pretenders are just trying to rip you off.


The highlighted portions are clueful.

Someone alleged to be me recently got into an argument with someone who annoyingly called gold a “shitcoin”. Mention of the little-known history of political undercurrents in gold’s extended bear market was unproductive there.

The remainder of this post is addressed below.


POS is intrinsically a plutocratic on-chain governance system, in which financial wealth directly translates to a governance position of validating the ledger.

(Aside—note that as I have repeatedly explained, in POW, miners have only one well-defined security function. In POW, miners are not the network’s validators. At least half of the arguments over POS result from a severe technical misunderstanding of how POW works.)

Moreover, I reasonably dismiss any suggestion that ZEC would do no shareholder “stakeholder” governance votes under POS. When Zcash is POW, there are already numerous proposals to have shareholder votes coin votes for governance. Needless to say, I think that is ill-advised for many reasons—only one of which is unnecessary and significant legal risk.


In actual courtrooms, especially appellate courts, judges analyze the substance of the matter in accord with binding precedents, persuasive precedents, statutes, etc., etc. That is, after all, how the law slowly adapts to new situations and novel scenarios.

Hypertechnical arguments that mechanistically apply tiny snippets of the law are often propounded by uneducated pro se litigants, who believe they have ingeniously discovered a magic trick for outsmarting every lawyer on Earth. Judges hate that. They are also displeased when lawyers do it; it is when they start to bandy about such phrases as “palpable sham”.

Some ICOs and, more recently, “NFT” projects have gotten into real-world, non-hypothetical trouble this way. Some of them used arguments similar to yours:

On an Internet forum, you sound sure. If necessary, would you be ready to litigate that position against the SEC? Potentially for years? With the viability, and even existence of Zcash on the line—over an issue that could be easily avoided by staying POW?

Thanks; I already read it. Indeed, I quoted from it in one of my posts supraq.v.

I was asking if you would be so kind as to provide some annotations for subsequent history, which are not free. The case from United States Reports is in the public domain (Wheaton v. Peters, 33 U.S. (8 Pet.) 591 (1834)). In isolation, the text of the case is not very useful.


I sense a sort of a bizarre disconnect. I mean that generally—not specifically as to this argument here. In Bitcoinland, I see that the ecosystem is thriving. Then, I go to altcoinland and see people talk as if Bitcoin is dead for the thousandth time. Not to strawman you: You recognized that, in substantial essence, Bitcoin is an asset that big money will keep (per the above quote here elided to avoid redundancy). However, I dispute that it is “marginalized”.

Some people who excel at making noise, have made lots of noise on social media.

Some organizations with an axe to grind have loudly proclaimed that they will no longer accept Bitcoin; and the mainstream media has run some hit-pieces. How is that different in substance than when some anti-privacy exchanges delisted Zcash, and the mainstream media ran scare-stories about that?

The reality is that the Bitcoin ecosystem is fine. BTC is still by far the most widely-accepted cryptocurrency. From my view, the problem holding back point-of-sale adoption much worse than “eco-boycotts” is that, although it is an excellent technology for some uses, and it has more usage than you may realize, Lightning Network is overpromising and underdelivering in practice. (See above.)

Zcash lacks the scalability to compete there. No, bigger blocks are not the answer—not by orders of magnitude of TPS throughput. However, recursive zero-knowledge proofs could maybe let Zcash do on L1 what Bitcoin (and Ethereum) are trying to do on L2. If done right, it could also facilitate truly decentralized light-wallet implementations.

Back at you: If you come to advocate for a practical alternative to POW that has equivalent security, decentralization, and honest economics, then I’m all ears.

It’s funny that you characterized yourself as not pro-POS, but anti-POW. I am the reverse here. I have no past or present financial interest in POW. I have never mined (though I would like to in the future—on principle here, to support Bitcoin against this type of attack). I don’t think that POW is some sort of a theoretical ideal. I am against POS: I was weakly against it a few years ago, then became strongly against it after I experienced it and re-examined the matter.

Years ago, I tried to think of POW alternatives myself. Instead of convincing myself that I had discovered something, I eventually admitted that I had no ideas that could compete with POW.

I have a sufficient technical understanding to know how POW works—what it really does. POS does not replace it.

POW provides objective security. Following the highest proof-of-work chain is simply a matter of counting zero-bits in blockhashes.

POW provides a single well-defined security function: Setting the order of transactions. POW miners are not the network’s validators. IMO, it is a non-negotiable requirement that validation must not be entrusted to the rich.

POW has no financial manipulation. So clean! So honest! No fooling people with a mirage of “passive income” into locking up their money, in an ultimately futile attempt to pump the coin’s price. No letting whales who can afford to lock up huge amounts grow their dominance of the supply, while everyone else’s proportionately shrinks because the little people cannot afford to lock up money like that.

POW is fair. Coin issuance via POW mining forces the initial recipients of coins to divest, so that they can pay their bills. “Miner dumping” is a feature, not a bug: Electric bills prevent miners from hoarding their new coins, as POS whales can easily do!

Could you please suggest a POW alternative that meets these design criteria, and many others? POS obviously does not.

Lol there is little point to discuss why POW is better. I still wonder when BITMAIN will launch their POS is bad POW is good campaign or if they have already done so. They got billions at stake.

Anyways I invested into ZEC heavily because it is going POS. It was the final decider.

I live in an apartment with electricity prices at close to 1 USD. I can not run ASIC miner because it’s too loud. I can not waste/burn electricity because it’s too expensive.

I will not invest into a dirty POW system. It’s a huge waste. It goes against my values.

In short. With POS everyone can participate. With POW you need to buy expensive hardware and can only be profitable if you live in a country with cheap electricity.

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That’s a nonsensical conspiracy theory—and pretty much backwards, when VC-backed projects are actively shilling for POS everywhere for a reason.

For my part, I have a long record of extreme hostility to Bitmain’s corruption, and hostility to Jihan Wu personally (reference for those who don’t know the background to that one). I condemned Bitmain earlier in this thread—on this very page, which you evidently did not read:

I am likewise hostile to the corrupt financial manipulators who profit the most from POS.


This is how you participate in validating a POW blockchain:

Zcash needs similar guidance. I recently discussed this in a post here; and both here and on Github, I have started actively to protect poor people’s access and ability to run nodes. (I need that.)


That’s just an argument seeking free money. There is no free lunch. POW miners run on razor-thin profit margins in a hypercompetitive business. POS is by the whales, for the whales, of the whales—but it promises you a mirage of somehow getting something for nothing.

Great: it’s a fork. So do you now concede that Gensler was wrong to say bitcoin was the ONLY coin that merited treatment as a commodity??

You recognized that, in substantial essence, Bitcoin is an asset that big money will keep (per the above quote here elided to avoid redundancy). However, I dispute that it is “marginalized”.

Yes; no disagreement there. Big money will keep bitcoin; but we disagree about the tense: I said bitcoin WILL BECOME marginalized; not presently IS marginalized. Who will continue to use it? <rush>Big Money.</rush> But once it starts getting blacklisted for use more and more by prominent retailers, it will get marginalized by regular Joe’s wanting to purchase goods and services -conventional payments- in a much more energy-efficient way.

Bitcoin has the digital gold/Big Money use case covered; zcash has no burning use case to replace it. The tremendous need now is for coins that accomplish day-to-day payments by non-Big Money users. For that use case to fly, you have to have a more energy-efficient consensus algo. It doesn’t have to be Stake; but please: propose a practical alternative before Stake gets cut in. PoW is not going to coexist with a payment coin used by many people to do day-to-day purchases (as opposed to a much smaller community of hedge fund and third world users who will not feel as duty-bound to reduce energy consumption…)

Back at you: If you come to advocate for a practical alternative to POW that has equivalent security, decentralization, and honest economics, then I’m all ears.

I already said: absent a better proposal, I’ll take Stake. Change my mind if you have a practical consensus algo to suggest that’s about as energy-efficient.

You list a bunch of fine reasons why PoW was enlisted; but they all sidestep the fact that it will become more and more marginalized for widespread adoption for payments. My read is you think the technology tail should wag the user that’s the dog. People need a relatively energy-efficient coin for payments -something the equivalent of digital cash in nominal amounts, as opposed to digital gold in bazinga amounts that gets the volatility it does due to excessive hodl speculation (much like gold gets from time to time…)

Gensler, the SEC broadly, do exactly what they’re paid to do. Carry water for the old-guard.

Until a tangible legislative or regulatory action is taken, all theories about how everything will shake out in the future is speculation.

For a good snip about commodity as a concept:

Not an expert by any means, but something tells me both POW and POS together, is some soft of linear combination, may be the most accurate approximation of what is needed in the future. Appreciate everyone’s thoughts.

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I’m always happy to help with newbie questions, but please don’t present them in such an argumentative way. Of course, Mr. Gensler is entirely correct on this point.

A codefork is what developers outside the cryptocurrency space simply call a “fork”. It means copying source code. The resulting product can be quite different, and it can have radically different policies. For instance, Microsoft has copied some BSD source code for Microsoft Windows.

A codefork of Bitcoin can be used for many different purposes. I could easily create a codefork of Bitcoin, and use it publicly to offer shares of common stock. Although I am not an SEC lawyer, I am guessing that Mr. Gensler would probably classify that as a “security”.

Namecoin is a codefork of Bitcoin, used to offer decentralized domain names in a design partly inspired by efforts to square Zooko’s triangle. (@zooko has been doing this stuff for awhile.) A dot-bit domain on Namecoin is an asset that I believe is clearly neither a commodity nor a security. The nature of a dot-bit domain is totally irrelevant to the legal status of the BTC currency—and vice versa.

Litecoin copied Bitcoin’s source code, made some significant changes, and thereupon offered the LTC token. Zcash copied the source code of Bitcoin Core v0.11.2, added a shielded value pool, made some other changes, and thereupon offered the ZEC token; thereafter, Zcash has continued to copy (“merge”) selected (“cherry-picked”) source code improvements from the upstream Bitcoin Core software project.

Besides being a different token, the ZEC token has some drastic differences from BTC in its monetary policy and its economics. Most obviously, it has a “Founder’s Fee” allocating what is, in substantial effect, seigniorage from the issuance of new supply. I never had a problem with that—indeed, I have sometimes actively defended it to Monero users; but it is a significant difference in monetary policy. And it is quite notable here: It is a fact that speaks directly to prongs 2 and 4 of the Howey test.

As it was originally designed, ZEC also has some similarities to BTC that were attractive to me and to many others. If ZEC keeps the economics and the monetary policy, especially the issuance schedule and the POW mining issuance policy, to which it committed itself in its beginning, then I would argue pretty strongly that it is not a security. Notwithstanding, ZEC is a different asset which cannot automatically claim BTC’s characteristics and BTC’s legal status.

In contradistinction to a codefork, a chainforked coin creates a new token by copying and diverging the existing ledger of an existing token. (It is also possible to do a chainfork without creating any new assets; for instance, Zcash Network Upgrades are technically chainforks.) A chainfork is not necessarily a scam; the ability to create a chainfork is an important protection against corruption and central authority in a blockchain ecosystem. However, I do categorically declare that all currently-existing chainforks of Bitcoin are scams.

That is relevant here, because the most infamous chainfork scam was a hostile takeover attempt by powerful miners, worst of all Jihan Wu/Bitmain, deceptively marketed as so-called “Bitcoin Cash” (BCH). By available evidence, among other wrongful motives, Bitmain was trying to protect its profitable exploitation of a Bitcoin security flaw, covert ASICBOOST, which fixed by Segwit. Although I am aware that there are some BCH bagholders on this forum, I cannot reasonably avoid discussing the matter when it is directly relevant to the debate about POW versus POS.

The loudest BCH promoters explicitly claimed that miners controlled the network, and that non-mining nodes were powerless. Their theories were empirically disproved, and my theories were empirically proved, when wealthy, plutocratic miners attempted “flippening” Bitcoin in November 2017. They tried to kill the BTC mainnet, and to force everyone to switch to BCH as the “real Bitcoin”.

I was there. I saw what happened. By suddenly yanking their terrifically high hashrate away from Bitcoin, the hostile miners moderately degraded Bitcoin’s performance for a short time. Then, everything went back to normal.

Bitcoin users wanted to stay with Bitcoin, i.e., BTC. Bitcoin users got what they wanted. Jihan was defeated, and he lost a lot of money from his attempt to usurp Bitcoin! Bitmain bet big on their BCH strategy—whoops. :rofl:

In May of 2022, I was also there when a diametrically opposite event occurred: With the backing of a small, colluding group of high-capital parties, Do Kwon centrally commanded a contentious chainfork of Terra against massive community protests—to the detriment of all UST holders and a disfavoured subset of LUNA holders. In POS, big stake does rule the network. POS is patent plutocracy.


This post is getting too long; and contrary to popular rumours, I may not actually be a robot. (Maybe.) I need a break from writing. Insofar as may be warranted, I may later address other things said here.

The upshot, the key point here, is that POS is not an alternative to POW. It does not replace POW. It is not equivalent to POW in any significant way. It does not do what POW does—not in means, and not in ends. It is fundamentally different. For a coin to change from POW to POS is essentially a bait-and-switch that drops economic promises and network consensus characteristics for which people bought into a POW ecosystem.

That’s shifting the burden. If you want a switch away from POW, it’s up to you to suggest something which adequately replaces POW.

Reductio ad absurdum, would you accept a proposal that everyone should just use a bank with a central database? An old-fashioned RDBMS is much more efficient than any distributed consensus that even attempts Byzantine fault-tolerance; it is certainly more efficient than POS. More economically efficient (and by the way, POW is more economically efficient than POS). More energy-efficient, too. If you optimize for efficiency at the expense of all else, then just use a bank!

Absent a better proposal, I’ll take Proof-of-Work.

That’s a lot of typing to try and evade the point that bitcoin is NOT the ONLY commodity coin; I go back to my point: either Mr.Gensler meant to imply that other forks are included, or he was wrong: there ARE other coins besides bitcoin that can be classified as commodities, using his functional definition…

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I never claimed that Bitcoin is the only “commodity” coin—and neither did Gensler. The Axios article linked in OP is explicit about this. Please don’t strawman me.

Forks are a red herring here, which you introduced. A Bitcoin-like coin with (IMO) legally similar characteristics could be created from scratch—neither a codefork nor a chainfork. Whereas forking of any kind does not automatically confer the characteristics of BTC—not in and of itself. The only relevance of forks to this argument—a very significant relevance is the contrast between Bitcoin and Terra stated in my prior post.

Why do you keep talking about forks? I explained the concept at length, and I explained several different senses of the word “fork”, because that is important information that you are missing here.

That is a very good point! You can’t put it past them to try and bang square pegs into round holes. But all we can do is lay out best legal arguments to counter rules that attempt to make it up as they go along. It’s a fight; we have to fight it…

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It is also risk—a risk being imposed on people who didn’t have it before, who didn’t buy into it.

Myself, I am not generally a fan of the American SEC. Moreover, I believe in open-source software freedom. I have not been preaching the virtues of POW to forums for coins that were founded as POS.

If they eventually get into trouble with the SEC, or regulatory problems crash their market values, I will simply watch and munch popcorn file that under “not my problem” unless I choose to buy into it, knowing full well that this could be a very big problem. I do hold some POS coins, which I chose to buy with full knowledge that they are POS coins. I am working on a long-term plan to exit from POS, for this reason among others.

Do I expect for ZEC to stay the same ZEC in its monetary and economic characteristics, just as BTC stays BTC even as the technological implementation advances? Of course, I do! I strongly distrust altcoins that arbitrarily change their monetary characteristics, and I make snide remarks about them to other Bitcoiners. Whereas I always considered ZEC one of the most credible altcoins, and defended its reputation from smear-attacks by Monero users!


As I said in OP, I choose my battles. For instance, I would fight to the death to keep Bitcoin permissionless and decentralized. I am now expending effort to fight to keep Zcash POW, when I frankly do not enjoy this discussion—not at all. It’s not fun, and I have other things to do!

Why would I fight for something that I don’t want?

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Cool post, but currencies are commodities as well. They have the same supply demand characteristics.

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I love Zcash, but I wouldn’t be in it if it wasn’t going to PoS.
Crypto is not something I have to use in my life, if it was all as stupidly wasteful as BTC I’d walk away from it all. BTC is outdated trash and the maxis are a cult. I chose Zec because the devs are great and the project is continuing to improve. Now, let’s focus on some major adoption.

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Another article discussing it:

The regulatory risk in Ethereum’s new security model

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