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Comment by tw04 | Hacker News Reader

His analogy is pretty poor IMO. A more realistic analogy is: imagine if a group of people got together and bought a plot of land to mine gold. Then imagine these people told all of their friends that they had a gold mine and were willing to split the output of the gold mine with all of their friends for just $10k/piece.

Now imagine the government said: hey, you don't even know if there's gold on that land, but you're promising your investors that there is. And not only are they telling us we can't sell part of our non-existent gold to our friends, we can't sell it to people ANYWHERE.

Sound completely unfair? Government overstep? We aren't allowed to sell people something that doesn't exist?

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You're describing "prospecting", or (less charitably) "wildcatting", which is a legitimate business.

> We aren't allowed to sell people something that doesn't exist?

You're allowed to sell rights to things that might exist in the future.

If someone puts a ton of money into something stupid that's pretty clearly not going to pay off proportional to the expense, that's on them.

> you're promising your investors [a return]

This is somewhat different from your first paragraph. Overselling your confidence in the financial outcome of a bet is (usually obvious) fraud, but that's a different problem from selling a stake in a risky endeavor.

Not defending Telegram's stupid shitcoin, but trying to get the Government to stop this (whatever your probably loosely-held idea of "this" is) is probably not a good idea.

https://en.wikipedia.org/wiki/Bre-X

And now we have come full circle. The government does indeed permit wildcatting or prospecting, but it requires that all investors are accredited. The same is true for TON and other bitcoins -- the govt is not trying to forbid them, but merely require the normal level of investor vetting that is in place across the rest of the economy.

“Other bitcoins” doesn’t parse - did you mean “other shitcoins”? Bitcoin is a specific product, and shitcoins are a disjoint category.

The government only requires people to be accredited for "ICO"s, not currency/utility "coins" like Bitcoin or Ethereum.

As an aside, I believe the “accredited investor” category is mostly a subsidy of rich people. Exclude peasants from investing in the good high-return stuff and you can demand higher capital premiums.

Kleenex is a specific product too, but is often used as a generic term. “Bitcoin” might not be commonly used that way but it parses just fine to me.

Buggy parser; you wouldn't call paper towels or wet wipes Kleenex, right? Because that's what you're insinuating by calling other cryptocurrencies 'Bitcoin'.

Yes. And I call my vaccum a hoover and my adhesive sticky-backed plastic Sellotape.

If someone told me to pass the Kleenex where only paper towels are, my hypothetical self with hypothetical knowledge about the intricacies of paper products, I would probably roll my eyes and internally go “those aren’t Kleenex at all, they’re not even tissues, don’t they know the difference between long fiber and short fiber cellulose based paper products GAWD!” But in an effort to not seem insufferable, and because I know exactly what they meant, I would just pass the paper towel.

Your logic is flawed. Just because you can find an example of a specific product name being used as a generic term does not prove that a different specific product can be used that way.

In the case of Bitcoin, it most certainly will create confusion if attempt to refer to a generic group cryptocurrencies as Bitcoin.

lol, soooo what was wrong with this comment? Downvoters, you think that someone will know you mean the generic class of cryptocurrency if you refer specifically to Bitcoin??

Bait: cryptocurrencies should be allowed just like wildcatting, a "legitimate business".

Switch: securities regulation is unjust.

Those are both true, but unrelated. It's not a "bait and switch" when the comment thread changes tack.

No, you didn't even acknowledge the existence of securities regulation in your original comment, even though the whole premise of it was that things like Grams are, like "wildcatting", legitimate businesses. Only after you were challenged about the existence of securities regulation did you reveal your real position, which is that you believe those regulations lack validity.

That latter argument is, of course, your real point. You could have made it directly. Why didn't you? Why did you instead pretend that it was obvious that Grams should be lawful, because "wildcatting" is?

I was responding to the analogy about gold mining in my original comment. Why would I randomly bring up securities regulation? I think you might have lost the thread a bit.

The legislature is in place after the wild decades portrayed in the movie "The Wolf of Wall Street". In an indiscriminate freewheeling environment very few peasants got the good high-return stuff, but many had their savings wiped out by slick salesmen with promises of quick riches.

> the wild decades portrayed in the movie "The Wolf of Wall Street"

Basing your legal theory on fiction movies is not a great move.

The parent referenced a time period. They did not base a legal theory on a work of fiction.

Requiring accreditation has always seemed like a well intentioned policy that mostly locks in inequality, so I guess I'm opposed to the government's ruling whichever way you slice it here.

There’s a piece by Matt Levine of Bloomberg’s “Money Stuff” on this. You might find it interesting: https://www.bloomberg.com/opinion/articles/2018-09-24/earnin...

The "anywhere" thing is weird though as these people don't live in the United States, so the analogy is that you are a Russian citizen living in Europe and you buy a plot of land; now, the US government tells you you aren't allowed to tell people in Europe that you maybe have a gold mine and maybe they should invest in shares of your gold, because, in the case that you do find gold, someone in the United States might one day buy some of it, which is actually kind of ridiculous on not just one but two levels: that the US has jurisdiction over your behavior at all when you aren't yourself a US citizen, you don't live in the US, and you aren't even dealing with other US citizens, because theoretically the people you deal with might one day themselves deal with US citizens (which is an analysis I am just believing from this article: I haven't read the actual complaints from the SEC); but also the very idea that the US thinks that the shares of future gold that may or may not exist might still be a security even after you find the gold (assuming you map it out and know how much exists after you find it, which I think is a reasonable analogy for a post-launch distributed protocol project) because of this weird theory that they sometimes have that "once a security always a security" (which is based on some context I have outside of this article).

That's not quite right. Imagine you're a Russian citizen living in Russia proper, and you want to sell prospective stakes. Russia rules that you can't do this because you're not accredited, and you're asking people to buy a kind of security.

You then ask if you can sell your security to people in the UK. Russia repeats itself, more slowly this time: No, you're not accredited and you're trying to sell a security - stop it.

So then you explain, "but this isn't just a security, it's a decentralized open security based on cryptographic principles and new technologies and there's computers involved!"

And then Russia repeats itself once more, "No, you're not accredited, it's still a security, what part of this is hard to understand?"

I feel like our disagreement here is based on a different understanding of a fact that I might legitimately have wrong: my understanding is that the owners of Telegram are literally Russian citizens living in Europe; are they actually US citizens? (FWIW, a quick re-check of Wikipedia to verify my memory here is definitely making it sound like the Durov brothers are Russian nationals, but maybe they have now become official citizens of an island in the Caribbean as part of their "self-exile"? I don't think that Saint Kitts and Nevis is a US territory, though.)

As far as I understand it, they're doing this under the Telgram brand, but it's effectively whatever organization "owns" the TON effort and where they are incorporated.

It looks like there are at least two "Telegram" orgs, one located in the UK (according to the Bloomgberg profile), and I'm not clear if this other one is in the US or somewhere in the EU.

There's an issue if they're offering a security (which they basically are). They could make that security available through a foreign regulated market legally, but they can't allow "the world" to buy it. If they could restrict purchasing with a legal framework then they may be able to resist the judge's orders that forces them to never sell it.

But yes, US anti-money laundering law is some very intense stuff.

Except they didn't want to sell to Russia or Europe. They ALREADY sold to institutional investors in the US and wanted more. But they were attempting to not be subject to the SEC. Not gonna happen.

https://www.reuters.com/article/legal-us-otc-telegram-idUSKB...

> The developers spent $405 million, according to Judge Castel, to develop the new open-source blockchain

O.o

That's not quite right - they did say in the original offering that they would be spending investors' money on Telegram Messenger's daily operations. The judge's words are:

> Telegram subsequently report ed that, from January 2018 to January 2020, it spent $405 million, about 24% of the proceeds from the offering of Grams, on the development of the TON Blockchain and the operations of Messenger.

https://www.courtlistener.com/recap/gov.uscourts.nysd.524448...

I agree that the situation you describe seems like an overreach, but the US likes to throw its weight around. For that matter so does the EU (ex GDPR), China, and really any other country. My impression is that most countries will happily ignore jurisdiction, pass laws that they claim apply to the entire world, and then do their best to find creative means of enforcing them on outsiders. See the ongoing Toshiba nonsense for a flagrant example of such. (https://reut.rs/2RDFjMz) (https://www.bloomberg.com/opinion/articles/2019-06-26/everyt...)

That being said, it seems Telegram's situation is far more complicated; I asked about the same thing when it came up previously (https://news.ycombinator.com/item?id=22394276). They are likely operating out of a jurisdiction which is explicitly subject via treaty to at least some US laws. They were also initially selling to US investors, and I suspect that many of their hypothetical overseas investors would have ultimately had to comply with US securities laws for their own reasons at the end of the day.

My take on the situation at this point is that violating laws in a jurisdiction with an extradition agreement to the country in question is generally a bad idea. Moreover, ignoring US securities regulations makes for a poor business plan since it means neither you nor your customers can realistically be located in such a jurisdiction (ie most of them).

The US nexus was established pretty firmly early on in the case: they knowingly sold over $1B USD in "private placements" to US investors, and used US banks. Later, in March-April, after failing to stop the injunction, they attempted to pivot to overseas sales only. But the instruments they're selling are, of course, designed to be liquid and (asymptotically approaching) anonymous; not only that, but the original contracts they had built the offering on might not even have allowed them to fence off US investors even if the capability existed.

The "we'll just sell grams overseas" bit was a Hail Mary pass, performed after they'd already lost the core of their case.

> And not only are they telling us we can't sell part of our non-existent gold to our friends, we can't sell it to people ANYWHERE.

well they could, they'd just have to register with the government.

but in this case, registering with the government isn't so simple because that "opts in" to a ton of other regulations which are usually okay, if the group of people weren't also trying to tie membership into their nightclub with whoever currently bears the right to own a piece of the gold mine. Now the regulations for investments are completely incompatible with general merchant services, regulations for consumer goods.

The various governments have a chance to create a framework that works for both, but chooses to rely on the regulator for investments exclusively, or making it too expensive and irreconcilable to ask for clarification.

What you just described is pretty much what nearly every startup in Silicon Valley does. Probably what 95% of startups anywhere do (very rarely, there's a startup where the "gold" is tangibly there, but it's a rare case).

Of course, if they issue securities, they have to comply with securities laws. If that's what Telegram is upset about, then I don't think they have much of a leg to stand on.

> Sound completely unfair? Government overstep?

Yes, if I want to try to create a thing I reasonably believe will have value, and I'm honest about it, there should be little regulatory issue. Considering how many other cryptocurrencies there are, I REALLY don't understand at all why SEC cared about this one. There are far more shadier ones around than TON.

> We aren't allowed to sell people something that doesn't exist?

We do that every day. Commodities futures and stock options. Speculative investments in oil, gas, wind, tech, medicine, cars, etc. SOFTWARE. Not only that, we allow people to pay other people with promises they have the right to buy a thing that doesn't exist at a price we set today (unvested non-voting stock options), because we THINK it might be worth more later, although we fully acknowledge it may cease to exist, or even never exist at all (unvested options in a company that never goes public, or sells, and your shares vanish).

> I REALLY don't understand at all why SEC cared about this one. There are far more shadier ones around than TON.

I guess it's because they believed that TON had the potential to actually become wide spread by it's Telegram integration.

Which makes the regulators sound quite evil. But you can reformulate that as it having potential to cause large, wide spread amounts of damages. ;=)

The SEC is not preventing blockchain companies from selling securities, but only requiring that the same rules be followed that would allow me to sell shares of my gold mining outfit to the public. The problem isn't risk at all, like you said, plenty of securities sold to the public carry enormous risk. The regulations are in place not to prevent failed businesses but to ensure shareholders get their fair due when a business succeeds and have a basic set of facts when considering investments.

Overstock, for instance, has been able to offer their securities on a blockchain. Their application is different from TON but it shows there is a path to doing this if you follow the rules.

It is called the futures and promises market.

Which has established rules and contracts guaranteeing and enforcing the rights of buyers and obligations of sellers.

> We aren't allowed to sell people something that doesn't exist?

Seems reasonable to me

So kickstarter is a place for whom?

The regulatory hypocrisy is clear.

Kickatarter interests are not re-sellable or transferable. So they don't meet the Howey test.

I have no doubt that the law is crystal clear, but does it make sense?

Yet another venue to sell people dreams. How many kickstarters actually succeed?

At least they promise something material, which is more than one can say about this TON shitcoin

Our little conversation amounts, to me, to "we allow people to sell dreams as long as these dreams are allowed to sell by us". I cannot see how you resolve your allowance for regularly failing kickstarters and your allowance-not for TON.

I see the value in TON beyond material. Compare it to Libra, to give you another point to discuss.

For me, at the very least, TON could be a viable alternative to Libra - it is architecturally about the same PBFT (with useful twists) and, frankly, it does not possess Facebook-or-Libra-associated flaws.

I don't think particularly highly of Kickstarter

What are people actually buying with all these shitcoins? Who are they out there benefiting, en masse, other than crypto nerds and wealthy finance types?

Here's an idea.... channel all that mining power into conjuring money to fix the environmental damage being done from all the power they consume

Nobody allocates any part of their retirement savings to a Kickstarter for a new board game. Try to start a Kickstarter for an investment instrument and see how far you get.

> We aren't allowed to sell people something that doesn't exist?

Have you heard of this thing called Kickstarter?

I think we can ethically sell things that don't exist to "sophisticated" investors - which is hard to define but probably based on net worth. Maybe limit the $ amount you can invest per person from "poor" investors to $1000 or something. But the question is, is it a scheme or an investment?

That said people buying crazy options on sites like /r/wallstreetbets, or just betting on sports are in the same boat, so where to draw the line? I think it is better to err on the side of controlling such investment schemes though rather than let them run loose.

The solution to the US controlling everything is to set up truly decentralised currencies like Bitcoin and keep a brand or controller out of that. Someone in the world can do this anonymously and it would be hard to shut down. Has anyone shut Bitcoin down yet?

The US already has a system for this: accredited investors. I believe the thresholds are $200k/yr income for several years or at least $1m in assets.

This makes me wonder if TON ran afoul of the SEC somehow.

They did, as you can read in great detail in the SEC complaint.

When did they outlaw speculation? The stock market? Selling people a future possibility, however likely or unlikely, has never been a crime.

https://en.wikipedia.org/wiki/Ponzi_scheme

You should study a little history before making wild claims regarding 'always' or 'never'.

You should know enough about the topic at hand to realize the difference between it and a Ponzi scheme.

>> you don't even know if there's gold on that land, but you're promising your investors that there is

I think it's very clear in this case that there was definitely gold on that land. The only thing which was unclear was how much gold... But is there such a thing as an enterprise without uncertainty?

The only enterprise that exists without uncertainty in the US is ironically the Federal Reserve Bank. It is the only institution in the world which can print as much money as it wants and give it to whoever it wants. Who is running the real fraud?

This argument makes no sense at all. They never offered to sell the gold. It's more like they offered to sell a share of the gold mining venture. Where the token represents a share of the business.

By that logic we should shut down every company in existence on the basis that there is uncertainty in their future. Especially now with the COVID-19, every airline company's survival is pure speculation; does that mean it should be illegal to buy shares of airline companies now?

I don't care at all about TON at all. But in the context of corporate America, this is completely arbitrary.

All of those companies that you’re talking about “Shutting down” are registered with the SEC, and follow SEC rules and guidelines for selling their securities. If telegram had done that with tan, this would not be an issue.

The SEC is wrong and so is the notion of an accredited investor - The founding fathers would have been appalled at these ideas; they're twisted beyond what they could possibly have imagined at the time.

These laws sound totally anti-constitutional. Doesn't resonate at all with the "Land of the free" idea.

People are not free to start certain enterprises. They are not free to invest in certain enterprises. The only thing they are free to do is accept the fiat money which was printed out of thin air by their corporate masters.

If you live in the US and you're not an accredited investor, I would recommend that you leave the country ASAP before the government puts chains on you.

> founding fathers would have been appalled at these ideas

Look at export-import licensing norms, and the limits on incorporation, in the time of the founding fathers. Enterprise is, on average, far freer today.

> laws sound totally anti-constitutional

They’re not. Congress has vast Constitutional powers to regulate interstate commerce. It used these laws to curtail securities fraud in the 1930s. Those are the laws being violated here.

I have trouble believing the "founding fathers" had much of an opinion on anything like the finical systems of today, let alone how we got there. I'd be surprised if they were able to observe things over time if they felt there should be no limitations on something like TON.

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