It is my position that all POS systems categorically are illegal unregistered securities, which will ultimately be found to fall under the jurisdiction of the American SEC and other securities regulators around the world.
In substantial essence, POS systems—all POS systems behave as enterprises in which shareholders, under the transparent ploy of so-called “stakeholders”, are accorded rights, interests, and votes substantively commensurate to capital contributions of paid-in equity. They have the key attributes of securities. On the flipside, they lack the key attributes of gold or Bitcoin.
Governments tend to move slowly. I believe that it is only a matter of time before they catch up and catch on to the whole POS fad. And like ICOs, and like some de facto securities issued under the rubric of “NFTs”, it does not matter what you call it. Semantic games present a palpable sham. In the real world, arbitrary self-interested opinions expressed on the Internet are meaningless.
Before a judge, the most powerful argument in the world is: “It looks like a duck, it walks like a duck, and it quacks like a duck.”
When the SEC Chair claims that Bitcoin is a “commodity” (thus effectually disclaiming SEC jurisdiction), but he leaves an ominous question mark hanging over all other cryptocurrencies, I would think that altcoins should be trying to make themselves more like Bitcoin, not less.
Bitcoin is very clearly not a security. There is no Bitcoin enterprise. BTC buyers and hodlers have zero equity paid-in to the nonexistent Bitcoin enterprise. They make no capital contribution, and have nothing to contribute capital to. They have no shares, no “stake”, no shareholder “stakeholder” or “coin holder” votes.
They have money: A virtual currency with an exchange rate that freely floats at market. After market demand first developed from zero, the valuation of BTC has ranged between 0.0002 unit pizza per BTC,[1] to an ATH thus far as of 2022 of >$67,000—a range of 26,800,000x (assuming an approximate cost in May 2010 of $25 for two deluxe pizzas to trade for 10k BTC; IIRC, the actual cost was around $25).
This, in turn, raises the question of whether or not BTC is a commodity. The same question as to gold evokes considerable controversy; however, it is widely claimed that gold is a commodity with special properties, distinguishable from other commodities. As a practical matter most relevant to Zcash’s U.S.-based entities, in the U.S., the CFTC sometimes regulates some types of gold trading (e.g., leveraged trading of precious metals); in some other jurisdictions, gold is free of any similar regulations.
Either way, BTC investors have only a virtual monetary thing—a thing which arguably may be a durable, fungible monetary commodity, only in the sense that gold is sometimes called a commodity—with a market value set by supply of and demand for that thing. Indeed, the BTC market may be analysed as the purest abstraction ever yet developed of supply-and-demand pricing.[2]
Note: I view BTC trading as forex—not as commodities trading; and I strongly advocate this “forex” view of cryptocurrency. From the perspective of buyers, holders, and sellers, trading BTC/USD is not substantively different than trading EUR/USD; and I myself have always treated ZEC/BTC, ZEC/USD, ZEC/EUR the same way. But that is not the topic here. I also view XAU trading as forex, so my model of this is fully consistent.
Zcash or Zstock?
I urge that Zcash should strive to make itself more like BTC. Focus on growing ZEC value as money: Private digital cash.
Are you a shareholder “stakeholder” of the cash in your wallet? Do you press a button in your wallet that pays you more cash just to lock your cash up so that you can’t use it? Do you use the cash in your wallet in votes or other “governance” mechanisms that look suspiciously an awful lot like corporate stockholder votes? Or do you use the cash in your wallet as a store of value and a medium of exchange?
Forget about plutocratic “coin votes”. In addition to all of the arguments that @tromer has repeatedly raised, they are de facto shareholder votes for governance of an unregistered security.
Yes, true, indeed. And furthermore, shareholder “coin holder” voting is a wide-open invitation to securities regulators.
Instead of growing the awful labyrinth of Zcash governance structures, decentralize—decentralize—decentralize! The issue here is that the more you build these governance structures, the more it looks like a sort of a joint stock enterprise with shareholders “stakeholders”.[3]
And don’t fall into the POS trap.
Did nully go legalist?
Anyone who knows me may raise here a legitimate question: I am technically an anarchist. Why am I making legalistic arguments? Although I am not actually against governmental systems in the abstract, I usually have the utmost contempt for legalistic arguments within the structures of systems that I deem irredeemably corrupt.
My reasons here are several:
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As a matter of Realpolitik, I choose my battles. I can see the writing on the wall here: I believe that securities regulation is a systemic risk for POS, a probable eventuality, and perhaps even nigh inevitable. And I assuredly will not fight for POS, when I am very strongly against POS for other reasons. What I will do instead is to try to protect things that I care about, such as Zcash.
POS is now eating the world of so-called “crypto”. As a Bitcoiner, I will be laughing and munching popcorn if/when the SEC runs like a wrecking ball through POS-land. I anticipate that some rich VCs will probably flex their lawyers and their lobbying connections to try to protect their POS gravy-train for ripping off retail newbies, and there will be salty tears shed by the paid shills on “crypto Twitter”, and the SEC, et al. will just say, “LOL, no, you can’t issue de facto securities without our expressing our authoritative, enforceable opinions about it.” Quite a show!
I won’t be laughing if Zcash runs itself down the path to perdition here.
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As a matter of Realpolitik, I don’t mind seeing corrupt VCs and other financial mass-manipulators play Pied Pipers leading their part of so-called “crypto” to eventual destruction.
My harsh words against POS are directed at the system, and at a subset of its promoters. One of the worst aspects of POS is how it misleads many well-meaning people. Some of my friends have become deeply involved in POS, based on what started as a sincere belief in its promises—before eventual disillusionment at the rampant financial corruption of those who are not well-meaning. I think that a significant proportion of those who want POS are probably so sincere. I myself have bought into POS coins; I never believed in POS, but I previously saw it only as a minor foible.[4]
Whereas in and of itself, worst of all for how it misleads many people with sincerely good intentions, POS is an intrinsically unethical meta-scam. It is plutocracy and financial mass-manipulation. It is an existential threat to the freedom for which I embrace the concept of cryptocurrency. This must stop.
Although I generally dislike the SEC and other regulators, I even wouldn’t mind helping them here—for the same reason that I may sometimes call the cops, regardless of whether or not I am fond of the police in my neighbourhood. Something bad needs to be stopped. I may personally lack the power to stop it myself. Whether I like it or not, the metaphorical cops will be getting involved here anyway—sooner or later. So, better sooner than later!
The foregoing states a point that has long been obvious to me. I began to write this post about it for this forum a few weeks ago. A part of the problem with POS is that there are so many reasons to oppose it, it is difficult to reduce it all to a concise argument; at some point, I hope to build an entire website on this subject.
I decided that I had better finish this up, when I saw the below quote in a discussion that was not even about POS, but about peremptorily changing the economics of ZEC in an attempt to pump it; however much this applied in that context, it applies a thousandfold to POS:
Good point! And another problem is that “treating the coin like a share of common stock” is in itself a blatant violation of securities laws in numerous jurisdictions around the world—including the jurisdiction to which both ECC and the Zcash Foundation are subject.[5]
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I am ever-fascinated by the fact that in May of 2010, an ask order to sell BTC at a rate of of 0.0002 unit pizza was sitting on the book for four days before someone bothered to fill it.
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Perspicacious observers will note that at the time when BTC was where ZEC now is on its issuance curve, BTC was around 1%–2% of its current market value. ↩︎
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Moreover, it bears repeating everywhere: Never forget that centralization was what killed DigiCash—an otherwise excellent concept, and another @zooko project, with cryptographically enforced privacy comparable to Zcash. Bitcoin was designed to be robust against DigiCash’s failure; Zcash can attain the same decentralized systemic robustness as Bitcoin, although it certainly does not have it now. ↩︎
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At this point, any of my continuing involvement in POS is simply me trying to be a ruthless mercenary capitalist like everyone else. If everyone else is just greedily grubbing for profits, then until the music stops, why shouldn’t I take advantage of the game according to its established rules? ↩︎
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With due apologies for what may seem to be an excessively U.S.-centric post about cryptocurrency, the jurisdiction of Zcash’s centralized legal entities is of disproportionate importance here. ↩︎
(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.)
