POS is a scheme for illegal unregistered securities

[nullius]

Well, this POS advocate is making my argument for me—I will save this and quote it in the future, for it succinctly explains something that I have been trying to get through to people:

@Andrew Glidden (Blockchain at Berkeley

The counterargument [against Howe prong 3] is that if all participants stake at equal rates, everyone’s wealth will scale by the same proportion, resulting in a general increase in the price level (i.e., inflation). Furthermore, because staking increases the money supply, it will tend to dissipate the holdings of individuals who do not stake. This rising tide does not actually lift any boats: although nominal holdings of each participant are increasing, their actual purchasing power is not. Thus, participants do not actually profit by staking; rather, they are caught in a Red Queen’s Race, running just to stay in the same place.

This property is important for the security of the network. Security is maximized when all individuals stake as much as possible, because this reduces the likelihood that any one actor controls which transactions are included in, or excluded from, the blockchain. A happy consequence of the Red Queen’s Race is that all participants are invested, in multiple senses, in the welfare of the network: every owner has a general interest in the network’s security (to maintain the value of unbonded assets), a direct financial interest (the risk of losing bonded assets), and active participation in creating and validating blocks.

To the extent there are profits, they result from a disproportionate level of staking. (Note that this is a very real possibility due to differences in individuals’ needs for liquidity.) Staking rates are especially likely to be different across consumers in non-delegated PoS protocols due to higher barriers to entry. If staking is only available to individuals wealthy enough to maintain the required equipment, relatively poorer individuals will stake less frequently, effecting a net transfer of purchasing power toward the relatively wealthier stakeholders. Staking will thus be motivated by the prospect of profit, and not merely a desire to avoid wealth dissipation. (One interesting consequence of this is the tension between the “common enterprise” and profitability elements. The higher the barriers to entry for staking, the less common the enterprise and the more profitable staking is. Delegation reduces the barriers to entry for staking, and thus reduces the differences in the rates at which participants stake and the real benefits to staking.)

Compare what I said here, among other places:

@nullius

POW forces even high-capital miners to divest themselves of newly-issued coins, so that they can pay their electricity bills; this is beneficial to everyone else, except for those who just want free money. In POS, whales who can afford to lock up huge amounts of money grow their dominance of the total supply with obscenely high profit margins, while hapless little Twitter-buyers chase a mirage of so-called “passive income”.

To understand why Glidden, in defending POS, argues that POS is not profitable, see Part I of the same series (the link is broken on Medium):

@Andrew Glidden (Blockchain at Berkeley

To determine whether an asset is a security, the SEC uses the so-called “Howey test,” which provides that an asset is a security if it has all of the following characteristics:

1. Investment of money

2. In a common enterprise

3. With the reasonable expectation of profit

4. Based on the entrepreneurial efforts of others

I had tried to focus on the obvious substance, and to avoid Internet argumentation over technicalities. But now that you bring up an essay on the Howe test, why not.

Please ty reading it not with Hopium or a pro-POS bias, but rather, with a coldly objective view of how an American judge will probably see it. Better yet, try playing (from your perspective) Devil’s Advocate: Try to argue why a POS coin is an unregistered security. I myself do the same thing in the opposite direction; I believe that I have examined all sides of the argument.

Whatever POS system Zcash tries to design, do ECC and the Zcash Foundation really want to risk someday arguing in court, not on the Internet that their POS system doesn’t fit all four prongs of the Howe test? (The relevant case is Securities and Exchange Commission v. W. J. Howey Co., 328 U.S. 293 (1946), for those so inclined—and who have case law search access, which is dominated by the West/Lexis duopoly in America. Reading a case in isolation is how pro se parties and Internet pundits fall flat.)

I observe that the combination of developer-seigniorage and POS fits prong 4 even more clearly than some other POS systems.

The same factor, plus the community governance structures and centralized entities (ECC and ZF), clearly fit prong 2.

For prong 3, Glidden’s best argument, quoted at length above, is that POS is not profitable, or may not be profitable. I partly agree with his argument; in parts of it, he hit the nail on the head! But POS is sold to retail as profitable to them, while only the whales have sufficient capital to benefit. This is one of the reasons why I call POS a scam per se.

Glidden’s argumentation about prong 1 lacks merit so badly that I think any judge would give it short shrift. If you don’t believe me, try it in court—at your peril.

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@steve.b

Well…how many forks of bitcoin do we have? And none of those are commodities, but bitcoin is?? Either Mr.Gensler didn’t research the situation before weighing in on it; or he meant to say: “only bitcoin [and its various derivative forks] can be considered commodities.”

They are scams, so I don’t see how that is relevant. Now that you bring it up, I think that Mr. Gensler’s identification of Bitcoin without mentioning any of the scam-forks shows that he may be unusually clueful for a regulatory official. Bitcoin forks are trivial to make, but Bitcoin itself cannot be duplicated. As my personal text on the Bitcoin Forum has said since 2017, “There is only one Bitcoin.” The SEC implicitly agrees here.

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P.S., the type of rapid-fire argumentation that resulted with you in another thread, q.v., tends to be unproductive and unreadable to others. Please try to avoid peppering the thread like that; I will try to avoid same.

@nullius

I observe that out of exactly 172 words in your post, 143 words (83%) are about POS—123 words (73%) are an attack on Bitcoin, anti-Bitcoin talking points that I have seen in many places, not about Zcash at all—and exactly 0 words (0%) are about privacy.