Comment by aazaa | Hacker News Reader

Comment by aazaa | Hacker News Reader

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The case revolves around the question of whether XRP is a security or not. The SEC has given the definitive guidance on the topic, which is based on the Howey case:

> The U.S. Supreme Court's Howey case and subsequent case law have found that an "investment contract" exists when there is the investment of money in a common enterprise with a reasonable expectation of profits to be derived from the efforts of others.[5] The so-called "Howey test" applies to any contract, scheme, or transaction, regardless of whether it has any of the characteristics of typical securities.[6] The focus of the Howey analysis is not only on the form and terms of the instrument itself (in this case, the digital asset) but also on the circumstances surrounding the digital asset and the manner in which it is offered, sold, or resold (which includes secondary market sales). Therefore, issuers and other persons and entities engaged in the marketing, offer, sale, resale, or distribution of any digital asset will need to analyze the relevant transactions to determine if the federal securities laws apply.

https://www.sec.gov/corpfin/framework-investment-contract-an...

Ripple (as distinct from the XRP token it created), currently holds a large block of uncirculated XRP created at the beginning of the network. This network does away with mining in favor of the Ripple Protocol Consensus Algorithm:

https://ripple.com/files/ripple_consensus_whitepaper.pdf

This protocol foregoes mining in favor of a system without proof-of-work. The tradeoff (or feature, depending on how you look at it) was that the distribution mechanism would involve Ripple itself giving away and selling XRP. This gave Ripple complete control of the money stock at the network's inception.

This is very different from how Bitcoin currency distribution works.

In layperson terms with Bitcoin you can’t sue the network. With ripple you can.

Bitcoin wasn’t sold by a company entity and xrp was.

Then so was Ethereum, yet they seem to be off the hook. And they are also moving to a distribution model where the owners gets to mint and sell too.

Thus far, it was said that it was sufficiently long ago for the initial distribution to not matter anymore. But all that is true for Ripple, too.

Not to defend Ripple or any one else project, but a casual observer could be forgiven to suspect more things have happened behind the scenes than what is being communicated.

Although, Ethereum's "genesis block" was mined using PoW.

Miners and node operators had to generate the data for the Genesis Block by themselves by scraping the Bitcoin chain which contained the crowdsale transaction data. The Ethereum Foundation only provided a script for scraping the Bitcoin chain. See here: https://blog.ethereum.org/2015/07/27/final-steps/

(The genesis block contains all the ETH token allocations for each crowdsale account)

Another technicality is that Ether was sold as a commodity, for the purpose of using it for "gas" to use for computational resources. Ripple on the other hand is not used for gas, you don't pay for computing resources. You only pay a tiny fee in XRP per transaction.

Ethereum transferred their funds to a Swiss foundation (a "Stiftung") if I remember correctly. And they are not moving to a distribution model where they can mint ether. They can still finance their operations from the initial 12 million ethers credited to the foundation - of which about 460k remain (that's currently about $280 mio: https://etherscan.io/address/0xde0b295669a9fd93d5f28d9ec85e4... )

>>And they are also moving to a distribution model where the owners gets to mint and sell too.

You're conflating the multitude of individual ETH owners, who now have the ability to stake ETH to get a right to become a validator and earn new ETH, with a singular entity in control of the vast majority of XRP.

I’m not a lawyer by any stretch but i thinks the underlying asset needs you decline in value as well.

This is definitely not a legal opinion.

No, offering an unregistered security to the general public is illegal, even if you make them money.

When did ethereum offer tokens for sale?

Ethereum's managers pre-mined 72 million coins, kept about 12 million to sell at later times, and sold many to the public (and also "sold" many to themselves personally, though we only know of the self-buys they chose to disclose-- the structure guarenteed more coins for insiders the more that they raised from the "public" so there was a big incentive for insiders to anonymously participate in the public sale).

They forbid US persons from purchasing in their sale, which might be part of the reason the SEC never took action even though many people ignore the prohibition. You might assume that fact that they've subsequently lied and dissembled about the massive premine, or multiple times reduced the issuance rate of mined coins to prop up the price as they sold their own premined positions might count against them, but apparently not.

>>You might assume that fact that they've subsequently lied and dissembled about the massive premine,

Who's "they". No one has lied about the premine. The crowdsale is well-documented by Ethereum-based information resources and there has been absolutely no effort to conceal or mislead about it.

>> or multiple times reduced the issuance rate of mined coins to prop up the price as they sold their own premined positions might count against them

You're conflating the community, which is the amorphous entity that has reduced the issuance rate, in accordance with a long-standing plan to adjust it to balance the need for security, and the need for token store-of-value functionality, and the Ethereum Foundation, which has no say in the hard forks that the community choose to support or not support.

> Who's "they". No one has lied about the premine. The crowdsale is well-documented by Ethereum-based information resources and there has been absolutely no effort to conceal or mislead about it.

The founders and managers of Ethereum, who repeatability lie and claim that the premine was ~10% or that it wasn't substantially premined https://twitter.com/VitalikButerin/status/120847121595601305...

In that tweet Buterin claims that the stake of the founders, including the non-profit Ethereum Foundation, was 11%. They're defining "premine" in a way to exclude "crowdsale", which is perfectly reasonable.

Buterin elaborates on that here:

https://twitter.com/VitalikButerin/status/120909416365814988...

It is absolutely unreasonable. Buterin is willingly committing fraud and you should be ashamed of yourself for defending it. He has a past history of fraud, so it's unsurprising-- it's less clear to me what you get out of it.

A pre-mine doesn't stop being a pre-mine after you've sold it and lined your pockets with the proceeds. When they eventually finish[1] dumping the rest of their coins on misguided members of the public will the pre-mine be 0%? Obviously not.

Moreover, the self same people made purchases in the "crowdsale" and then immediately paid those funds back to themselves. E.g. Hoskinson extracted a million dollars the day the presale closed.

> the stake of the founders, including the non-profit Ethereum Foundation, was 11%

Check your math because 12 million out of 72 million isn't 11%... nor does that include the additional funds 'purchased' in their share offerings (in scare-quotes because it's not really correct to call something a purchase when it was paid back).

Ethereum was 100% pre-mined. They then sold about ~80% of the pre-mine to the public (and to themselves, with no known upper-bound on percentage of the self-sales) and pocketed the proceeds. After that they issued additional coins via mining to the public and diluted their positions but later substantially cut the supply of mining off when the price kept falling. The plan now is to soon eliminate the mining and award the coins that would have been mined to existing large position holders (parties with more than $20k worth of ethereum).

When this transition is complete the issuance will be extremely similar to ripple's -- e.g. a huge amount created by the system's operator, a large portion sold by that operator to the public over time, and a portion given away as lotteries. The primary difference is that in ethereum the lottery part was conducted directly by the system through diluting the operators shares rather than being handed out in airdrops as Ripple did, and -- of course-- the relative amounts of these groups. Ripple has been a lot greedier about it.

[1] Technically they'll never finish, because of the more recent plans to continue to award these massive pre-mine holders with additional coins in perpetuity in exchange for taking them out of circulation, they'll be able to largely preserve their position while continuing to dump on the public.

>>Buterin is willingly committing fraud and you should be ashamed of yourself for defending it.

You should be ashamed of yourself for willfully spreading disinformation.

It's a perfectly reasonable argument, and only someone acting in bad faith would characterize it in such a baseless and inflammatory way, as "willingly committing fraud".

The tweet:

>>That includes the presale. Those coins were assigned in an open process anyone could participate in, like mining. It's arguably more accurate to say those coins were mined, the mining algorithm was just sending BTC to 36PrZ1KHYMpqSyAQXSG8VwbUiq2EogxLo2

The expanation found in the tweet stands.

>>Check your math because 12 million out of 72 million isn't 11%...

I'm assuming he's referring to the amount allocated to the Ethereum Foundation and founders as a share of the total amount issued at the time he posted the tweet.

But the primary point is, he's making a case that an amount allocated for an open presale is not a premine.

>>nor does that include the additional funds 'purchased' in their share offerings

The BTC spent went to a non-profit foundation, so not accessible to the founders for personal reimbursement, absent complex fraud.

Your conspiracy theories notwithstanding, the founders were on equal footing with every one else in the crowdsale.

> The point is, he's making a case that an amount allocated for an open presale is not a premine.

Simply repeating a lie does not make it true. The creators of ethereum created 72 million ether. They sold 60 million of it to themselves and others and they benefited from the sale. This is precisely what a premine is, and it is almost identical in structure to other premined altcoins.

They subsequently paid the funds received from the presale to themselves in their entirety. The foundation's current funds come from selling a large portion ($100 million USD) of the pre-mined coins at around Ethereum's all time high in 2018. ( https://www.trustnodes.com/2019/12/13/ethereum-foundation-so... ).

> Your conspiracy theories notwithstanding, the founders were on equal footing with every one else in the crowdsale.

100% percent of the funds in the pre-sale were eventually paid back to the founders and their employees starting with a million dollar payment to their CEO the literal day the presale closed (and a few days before he left the org). Anyone who stood to be repaid from their own payments was in a substantially advantaged position.

The earliest presale participants also participated at significantly reduced prices.

"Salting" the tip jar by participating in presales at reduced rates or with rebates was an established fraudulent practice in cryptocurrency prior to Ethereum's creation, one that Ethereum's CEO previously also engaged in prior altcoins.

Moreover, the terms of their presale expressly prohibited the participation of US persons. There is no way in which you can claim there was a broadly equal playing field here.

Even if the presale had been an equal playing field that wouldn't have changed the fact that the issuers of ethereum conducted a security sale which directly enriched themselves to the tune of millions of dollars before the system was even running, and has subsequently benefited them to the tune of hundreds of millions of dollars.

>>Simply repeating a lie does not make it true. The creators of ethereum created 72 million ether.

Once again: a distribution established by a process with open access, with all parties on equal footing, can be reasonably considered to not be a premine.

Calling it a lie, and spouting other inflammatory accusations, doesn't change that.

>>100% percent of the funds in the pre-sale were eventually paid back to the founders and their employees starting with a million dollar payment to their CEO the literal day the presale closed (and a few days before he left the org).

I don't believe word you say. If you're claiming a massive embezzlement of the BTC funds, go ahead and prove it. The BTC address is known so you should be able to track every transaction.

Thus far you've exposed yourself as engaged in little more than a disinfo campaign.

>>Even if the presale had been an equal playing field that wouldn't have changed the fact that the issuers of ethereum conducted a security sale

The SEC has already said that since the pre-sale happened before the 2017 ICO bulletin they issued, it was exempt from enforcement action.

Maybe you could start helping crypto adoption instead trying to lord over people by claiming you know better than them what market options they should utilize, and that it's for their own good for those market options to be shut down and disrupted by government agencies.

lol, what? This is not how things work in Ethereum. The foundation has the authority to do anything it wants, despite the community's wishes. The DAO bailout hard fork showed that very well.

The Ethereum Classic community wants to have a word with you.

The foundation has no authority over the protocol. It's purely a R&D grant issuer. The protocol is completely consensus based. The foundation doesn't even have its own full node client implementation. You're blatantly trying to deceive people.

> Who's "they".

ETH Cofounders got to keep 10% of the premined pool; Ethereum Foundation also got 10% of the premined pool. I'd presume these are "they".

When did ETH cofounders lie about the premine?

In late 2013, with expected delivery December 2014.

I was poor, in college, and turned $70 of Bitcoin during the presale into $40,000 of Ethereum when I sold in late 2017.

Do I get to call myself an angel investor now? ;)

Not until you get at least one more zero

2014

Thank you for your great writeup and sources.

Reply on news.ycombinator.com