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Comment by pbiggar | Hacker News Reader

I consider every ICO to be a scam and that this sort of thing will become par for the course, with basically every speculator in the space losing money - except those who manage to trick main street investors to cash them out.

However, this is weird: “Within hours they refunded me ethereum with a dollar amount equal to what I had contributed in early September, but since the coin has more than tripled in value since then, they kept the rest of my contribution, essentially stealing quite a lot of money from me.”

Yeah, that's bullshit. They owe you your money back, they don't owe you the gains that you would have gotten if you had speculated in Ethereum instead.

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It seems like the scam went like this: make ICO, invest all the money in ETH. If ETH spikes by the time you are required to perform, you refund with the now appreciated ETH at $ prices and call it good. Otherwise you go ahead with your shitty coin and just deal with investors being mad that they didn't become billionaires.

Edit: so if that is indeed the scam then essentially the claim of wanting the returns on ETH is saying that the mark deserves them because the gains were ill gotten via transferring the risk to the mark.

Good point. Yet another reason to stay the fuck away from this space.

This also makes me wonder about another "scam".

* Buy some of coin X

* Use that to buy some cash equivalent good that has a return policy (longer the better)

* If X appreciates by the time the return policy is up, you return the goods, collecting the gains.

* If X depreciates you sell the goods for cash in USD which likely won't have varied much in the intervening time.

* Repeat, and you will have effectively captured 100% of the increase of X while completely derisked.

No one will return you the original number of BTC for refunds for this reason. But if they did then this would work.

The hardest part of that would definitely be finding the counterparty.

I’m sure there’s a government or two that insists paying back exact currency amounts.

They would if BTC had dropped in value though. That's the rub. They choose the refund currency at refund time.

Scenario 3: ETH crashes hard and is worth close to nothing so you refund the ETH amount that people invested. Basically zero net loss!

Basically, they got investors to give them call options on ETH for free.

Isn't that basically how short-selling works?

The person loaning out their shares gets paid for the risk. In this case the investors were effectively conned into being the counterparty on a call option on ETH for no vig.

In straight short selling, no you don't. Your broker gets paid though.

But your broker is on the hook for the difference if you decide to sell. In that instance they're taking the profit but also the risk. The issue here is that this guy found a way to make someone unwillingly take the risk.

This is the same scam that the companies building BTC miners were pulling on people.

They would announce their miner, get massive presales in BTC, then 6 months later when customers are getting anxious they would start refunds. And, of course your refund is in the USD amount from your BTC at the price 6 months ago, not at current USD price. The miner company just stole your profits!

No sorry if you consider ETH to be a currency and payment was made in that currency then repayment is expected in that currency. Let's say you borrow US$1000 from a friend. That $1000 would have bought 1000 candies when you borrowed that money. One year later 1000 of the same candies costs $800 because the USD became stronger. You cannot repay your friend with 1000 candies and say you are good. You took $1000 and your friend wants $1000, not something that was equivalent to $1000 at the time you borrowed the money.

I agree conceptually: if both sides consider the transaction to in ethereum-denominated currency, then there is a logical argument to what you said.

But legally, ETH is not a currency. If they take this to court, the court will award the original USD price. They bought an asset worth $x. They are owed $x.

When we get away from this funny money "we're inventing currencies" bullshit, there is a law of the land. An asset was promised, and they are owed the value of that asset when purchased, in USD.

Exactly, what if ETH dropped to 1$? I am sure they would want their USD back.

Agreed. Like I said IF you consider ETH a currency. If you don't then that's an argument against all cryptocurrencies in general.

Correct, and the USG does not. IRS guidance calls all cryptocurrencies property.

I'm not a fan of cryptocurrencies myself but I am trying to argue the spirit of the transaction which considered ETH as a currency.

Legally I am with you 100% that the investors are out of luck. That's the price of "investing" in a highly speculative vaporware "currency".

> If they take this to court, the court will award the original USD price. They bought an asset worth $x. They are owed $x.

That's not true at all, outside of very specific asset-classes.

A better analogy: let's say we make a trade where I pay you in land, and you don't give me what I'm owed in that trade. I would expect my land back, not its dollar-value.

We do things this way, in the case of land, precisely because my land might turn out to e.g. have gold under it that might make it worth 100x more. If you conned me out of the land, and then found the gold, guess what? That's rightfully my gold.

Refunds aren't legally equivalent to suing for damages. If someone doesn't give you a refund for breaking a contract where you transferred an asset to them, your legal fallback isn't suing for damages; it's suing to get a court-order to execute a seizure in order to reclaim your property, or the things it has in turn been traded for by the contract-breaker. (You know, like repo companies do when you buy stuff on a credit card and then let it go to collections!)

Can you explain how you chose land as the equivalent asset class? That doesn't even seem close to the ETH situation.

For federal tax purposes, virtual currency is treated as property: https://www.irs.gov/pub/irs-drop/n-14-21.pdf

You seem to be misinterpreting what the IRS means by "property". It is equivalent to "asset", not to "land". It can mean land, but can also mean a stock, bond, capital good, etc. that you own. See [1] for example usage.

[1] https://www.irs.gov/taxtopics/tc703

In fact, if I was an investor I'd tell them to pay me back in USD, not some coin.

Typically courts will void the contract if there's a material misrepresentation or fraud in a contract:

https://thebusinessprofessor.com/knowledge-base/voidable-con...

In cases of fraud, the deceived party may also bring a tort, which is awarded in USD. But as for the actual contract, the court would rule that it never occurred, and so in the eyes of the law ownership of the ETH never changed hands.

It gets a little complicated with cryptocurrencies in that they effectively setup a separate ownership structure enforced by cryptography and independent of the laws of any one nation. So the court may rule that the Ethereum never changed hands and so still belongs to the original owner - but the blockchain says otherwise, and good luck convincing 51% of miners (many of whom are not U.S. citizens) that they should mine a transaction just to resolve this one case.

Courts know how to deal with cases where change of ownership (or another tort) is not reversible. It's as simple as if I promised you to pay you $100 for the dinner in your restaurant, ate the dinner and then never paid because I had no money. Obviously I was perpetuating fraud - I knew I have no money and still ate. But I can't return you the ownership of the food I ate. So the court would just assign just compensation (via various mechanisms) for fraud in that case, and maybe something on top to punish me for what I did. The only problem would be collecting it may prove impossible in this case.

I would be interested to see the case law that backs your claim.

As an example, if I give a broker stock and then ask for it back, they have to give me the stock back, not the cash value at the time I handed it to them.

Also, I'd like to see what law you have in mind when you say ETH is not a currency. Is there some special legal recognition for "real" currencies? If so, what law specifically distinguishes them?

Gotta disagree with you on this one, since in your example, 'candies' corresponds with USD in the real situation, while USD corresponds with ETH, which is quite distinctly not a real currency.

Not exactly an apt comparison.

I was considering ETH to be a commodity like candies. That might not be technically a fair comparison. Replace candies with another currency. GBP or Euro.

If you were considering ETH a commodity like candies then in your example the person would've been paid $1000 back, which was the currency, in which case there's no point to the comparison.

And if you consider ETH to be a currency, then you will of course pay tax on your gains when refunded in ETH, right?

Or is it "all privilege, no responsibility"?

The gains only come if they exchange the ETH for USD for a profit. If they hold on to the ETH there is no gain hence no tax to be paid. Again it seems the more I read about this discussion the more all of these "cryptocurrencies" sound like securities than currencies.

Whether you consider it a currency or not, if you paid 10 ETH, and received a 10 ETH refund, you haven't made a gain.

I'm speaking to those people who have preconceptions. "Oh, that's not how it works (in existing markets)", but are also wanting the brave new world.

As in - how many people are making gains declarations when they liquidate cryptocurrencies? Wanting protections of a system but refusing to participate in some aspects of it is much like having your cake and eating it too.

> if you consider ETH to be a currency and payment was made in that currency then repayment is expected in that currency

Nope. "Legal tender" means just that. If you want to be repaid in something other than a jurisdiction's legal tender, you have to specify that in the contract.

Disclaimer: I am not a lawyer. This is not legal advice.

> payment was made in that currency then repayment is expected in that currency.

The term you are looking for is "legal tender". That's the thing that has the property that if you pay your debt with it, the debt is considered settled. US$ is legal tender, but ETH is not. Of course, one could try to sue for fraud and lost profits and stuff, and may even win if by some weird chance the contract specified refunds in ETH, but then good luck collecting on that judgement. More likely, contract didn't, and then tough luck.

Well said. Legal tender is the difference here, USD comparisons are apples and oranges IMO.

as ETH is a volatile cryptocurrency and not US legal tender at all, while USD is the exact opposite: a fiat currency considered legal tender not only in the US but worldwide.

Legal tender has a specific legal meaning. I can assure you that the USD is not legal tender almost everywhere in the world.

> if you consider ETH to be a currency

That's a huge "if".

Let's take it back to currencies.

You lend me 1,000 USD and then demand it back 12 months later. Can I give you 1,000 euro or 1,000 swiss francs instead? I doubt it. You'll want 1,000 USD back, or at least the equivalent to what $1,000 USD is worth now.

So they should have provided ETH back, but didn't because it went up in value. Super dodgy and very convenient. I bet they would have provided it back in ETH had the value per coin fallen.

> You lend me 1,000 USD and then demand it back 12 months later. Can I give you 1,000 euro or 1,000 swiss francs instead? I doubt it.

Both EUR and CHF are currently worth more than USD, so that might not be the ideal example to make your point.

So I have a startup in France, and you think my FooBars will make a mint, so you invest. I get $1000 from you, and convert that to Euros to do business. Turns out my FooBars are not good, and I can't get a business license in France... so after a years effort we call it off, and you want your money back.

Assuming the euro gained 10% value in the interim, are you claiming as an investor before the investment vehicle was realized that you are rightfully owed $1100? Or the corollary, had the Euro tanked to 10% of value, would you accept $100 back without complaint?

I think you are conflating investment and ownership.

That grown value in Euros is value grown inside a corporation and either you own some of it, in which case you will get dividends, or you made an investment with some limited risk in which case it's your investment value that is relevant. I believe if someone lost your money without completing the terms of investment you would have legal recourse.

Had the ICO people given worthless ETH back they could have been sued for the difference, investment terms willing, IMO as a non-lawyer.

That's very sharp but why do we want to apply the rules of Fiat currency onto BC? Why can't we do transaction and have handshake to return the same "value" later or some percentage of the prevailing value like interest. ?

They should return the currency you used to invest with, though, right? I mean, if I invest 100 US dollar in something, I expect 100 US dollars back if it is returned. You can't say "Well, when you invested, $100 was worth 100 euro, but now you can buy 100 euro for only $10, so here is $10. Look, you can still buy the same amount of euros, so the value is the same!"

If they invested 1 eth token, give them back 1 eth token.

That's a drastic overstatement on the value of eth as a currency.

> They should return the currency you used to invest with, though, right?

Depends on the contract potentially. It's why most larger business arrangements that could even possibly include such a refund (as part of the contract), will have specifications covering that. I'm curious what was in their agreement, if anything. For example, if it had a clause that allows for returning the dollar invested sum.

A court will usually find against you if you repay in a debased currency or similar however. If I tried to repay a loan, with no contract, in Venezuelan bolivars based on their former value on the date of the origination of the loan five years ago, that wouldn't get anywhere in a court of law, you'd lose easily.

Except in the US these are not currencies officially.

All indications are that they're going to view these as securities.

Every ico is a scam at this point and I have no expectations that will change. ICO has the reputation of ponzi

> Yeah, that's bullshit. They owe you your money back, they don't owe you the gains that you would have gotten if you had speculated in Ethereum instead.

Consider the equivalent situation in ForEx terms: you pay a Mexican company $10 USD for a product, and then, six months later—when the value of USD/MXN has gone up—you ask for a refund. You'd expect back $10 USD, right? Not some amount of USD equivalent to the amount of MXN $10USD would have bought six months ago.

In this case, they paid in in ETH. So you'd expect that ETH in at point-of-sale, would equal ETH out at point-of-refund. That would be giving the investor their money back—money denominated in ETH.

Depends on where you are. If all the described events happened in Mexico then you'd get back pesos. If all that stuff happened in the US you'd get back dollars. If you had a contract that specified different and it was legally sound then that's what you'd do.

That's how this works. You can call things currencies but that doesn't make it so, the legal system is an arm of he state, and states have one kind of currency, they get to decide what it is, and the they have guns and jails if you don't like it.

> If all the described events happened in Mexico then you'd get back pesos. If all that stuff happened in the US you'd get back dollars.

Say I'm dealing with a subsidiary of a Mexican corporation that operates in the US. They ask for payment in MXN, but both they and I know they're going to send it to their parent corporation, converting it to MXN in the process. They and I also know that, to get the refund, they'll have to pull MXN out of their treasury and convert it back to USD. But I still did pay USD to the subsidiary—my card didn't automatically convert USD to MXN to pay them or anything.

I would expect, in this case, that my refund should happen from the subsidiary, and should be the original USD I transferred, even if that now costs them more to convert back than it was worth going in.

However, I would also expect that if the corporation entered bankruptcy, and was unwinding its debt obligations, then I, as a creditor, would probably only see the current MXN value of the parent corporation's liability to me. (Or rather, the subsidiary—who owes me the money—would unwind with no assets held to pay out, so I would then sue the parent corporation for said assets, and end up with MXN.)

Well, they’re making the argument that if they ‘invested’ ethereum that they should get the same amount of ethereum back, not dollars.

Yeah, that's bullshit. They owe you your money back, they don't owe you the gains that you would have gotten if you had speculated in Ethereum instead.

I agree. If it had gone down instead of up, he'd have kept his trap shut on this matter instead of being upset.

The fun thing is, everyone here is calling this a scam, and while its clearly not what the investors intended, being able to park crypto funds in a way that is indexed to a specific USD amount is a legitimate service that has value: see the idea (but not the execution) behind Tether.

If he had just come out and said 'give me Ethereum and I'll give it back in 6 months at the same USD exchange rate' there are a non-zero number of people who would have taken him up on that, maybe even paid for the service.

> I consider every ICO to be a scam

I agree. I wonder if the average take of each new ICOs is decreasing as awareness of then generally being scams increases?

Last I checked AWS doesn't accept crypto. You can't eat crypto can you? So how was this person expected to build anything using literally only Ethereum(in compensation and in expenses)?

You exchange Ethereum for fiat currency.

What gains? 1 eth is 1th, there are no gains there. They took something like 1 eth from this person, and gave back .3 eth. That's stealing. (numbers not to scale)

What was the price tag in? If the price tag was $1, they owe $1. If the price tag was 1 eth, they owe 1 eth.

[edit: I've changed my mind. They bought an asset for $x in USD, they are owed $x in USD]

Apparently this is an ERC-20 token on the Ethereum blockchain, which means it is (probably) purchased using ETH.

"Purchased using" is not the same as "price tag in". If I'm in the US, and I buy something from the UK, I would have paid GBP. My refund would be expected in GBP and they are not responsible for the currency fluctuations in between.

It was in eth, which is the problem. They invested one eth, and got back .3 eth.

If that's the case, then yeah, they got ripped off, and they can and should go to court to get it back.

Do you know where this was posted? I'd love to read the wording.

Why can't etherium just be used for each new application instead instead of creating a new ICO for every new application?

Because the new token is part of the scheme (scam?). It's a core componetent of the inducement, people think/hope they're getting in extremely low on the next moonshot.

In that case, I would trust new coin apps more if they just used etherium.

Yep you get your money back. Denominated in Zimbabwe dollars.

I intend to prove you wrong... next week

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