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Comment by dangero | Hacker News Reader

Another related issue is that tokens are bearer instruments controlled by whoever holds the right private keys.

Most investments regulated in the US cannot legally be bearer instruments. This means there must be a ledger listing who owns what with real names attached. For public companies they must use a registered transfer agent to keep these ownership records. Private companies can keep their own records, but in most cases cannot use bearer instruments. What happens if I transfer you the token if there is a master ownership ledger with names and addresses? Nothing happens. The token record becomes out of sync with reality is the only thing that happens.

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Isn't onchain here a transfer agent? Bearer is more appliable to cash, because it's physical. A token movement is still recorded onchain, i.e. there is a set of transfer agents and consensus among them. It can be tuned to support some regulation.

Bearer has nothing to do with physicality.

Anything controlled by a private key is a bearer instrument by definition because the person bearing the private key has custody of the asset.

You're making up your own definition of transfer agent, not the one used by the SEC. They have specific requirements and responsibilities.

An account is controlled by a key AND the validators who choose to record their transaction. One cannot just share the key with others. First, they need to record it with ledger keepers. How is it not like transfer agent?

Yes, the transfer agent can ask for a key signing before moving funds, but they also need to be able to transfer WITHOUT the key. Examples would be a key loss or transfer of ownership due to court order. I don't know what the key is doing since it's optional and highly fallible proof of transfer intent.

At best the key signing is providing a partial audit trail with no case law to support any liability transfer created by its use. Typically transfer agents take very little liability by requiring a medallion signature before allowing a transfer.

In a custom blockchain it can be configured to have admin method to transfer without a signature. But the question is why.. Why assets cannot be bearer?

Bearer instruments are linked to money laundering and we largely outlawed in the US in the 80s in relationship to securities.

well they don’t have to be... tokens are just code running on the blockchain, so you can apply anything you like to them... you can block a transfer until the recipient is in a whitelisted KYC list so that real world identities are known, and then you have your ledger

worried that loses the “trustless” of blockchain? hash the KYC entry and store it on chain so you make certain that the off-chain real world ownership information hasn’t been tampered with

What happens when someone steals someones private keys and transfers the tokens to their account?

What happens when someone loses their private keys? The asset by US law is tied to them as a person, not a bearer instrument like a private key.

stealing private keys is the same thing as forging an identity in that case. someone can always forge documents to make a transfer of the asset

Yes of course but how do you resolve that discrepancy on the immutable ledger records?

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