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Comment by palakchokshi | Hacker News Reader

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.

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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?

> 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.

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.

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.

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. ?

> if you consider ETH to be a currency

That's a huge "if".

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