Uniform Commercial Code and Bitcoin
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The year is and the place is Lake County, Florida, a town just outside of Orlando with a population of about 30, The investment-like nature of Howey's sales eventually landed the company before tillit blockchain stocks United States Supreme Court and resulted in a decision that still has important ramifications for securities law practice. Fast forward to the present.
Cryptocurrency technologies of the sort underlying Bitcoin are beginning to be used to sell software services and access to decentralized ledger platforms. These types of so-called "cryptoequity" have the potential to change how businesses operate, from raising funds to using automated contracts to giving stakeholders a unique voice.
Another platform, Swarm, is selling tokens that allow entrepreneurs to use its decentralized crowdfunding technology to raise funds with their own programmable cryptoequities. Because of their tillit blockchain stocks and somewhat malleable nature, cryptoequities are also operating in a legal gray area. The Tillit blockchain stocks test is broad and captures a wide v a riety of interests not commonly understood to be securities. If cryptoequity is treated by the law as securities, the organizations that obtained funds by selling them would have to register with the SEC and comply with its disclosure requirements and broader regulatory regime.
Under Howeyit doesn't matter whether the investment capital comes in the form of legal tender, digital currency, or some othe r valuable asset. While cryptoequity in the form of software rights and memberships may fall in value, it would be difficult to characterize them as regulated investment contracts without also including a wide variety of other non-financial, commercial agreements and ordinary product sales.
However, Ethereum's continued platform development after its token pre-sale makes the sale at least somewhat tillit blockchain stocks a regulated offering. Cryptoequity may not meet the common enterprise requirement, either. Courts have interpreted a common enterprise to exist when an investor's gain is tied directly tillit blockchain stocks the success of the promoter or a tillit blockchain stocks partyor at least generally dependent on the promoter's efforts.
Individual developers and entrepreneurs may fail using an otherwise successful platform. The converse may be true as well. Tokens may be interoperable so that holders can use them on multiple platforms, or export their underlying applications or projects to other platforms.
The fact that Ethereum's platform was recreated on the Bitcoin platform suggests that very little intrinsic relationship exists between the success of a token holder and any particular platform, and certainly not something like a passive investor's relationship to a single company's management. And depending on how they develop their applications, individual token holders may find their purchase to be worthwhile or a waste of money. Likewise, what cryptoequity holders actually purchase with their funds may undermine the sale from being classified as a securities offering.
This is why crowdfunding platforms like Kickstarter are not subject to federal regulation. The active involvement of cryptoequity holders--either as developers or entrepreneurs--may limit the applicability of federal law as well.
Tillit blockchain stocks parties that rely on managers to generate a profit are the hallmark of securities investors. On the opposite extreme are partners that equally manage a business: This is because a partner, as opposed to a mere investor, does not rely on the efforts of others and does not need to be protected by the securities laws in doing so.
Finally, based on the Supreme Court case of Reves v. The commercial nature of cryptoequity tokens in providing access to software and fundraising platforms may lead a court to hold the same. Securities regulation is not meant to guard all types of agreements against fraud and manipulative behavior. Posted by Houman Shadab on November 12, at Reblog 0 Tillit blockchain stocks This. Products being developed for large, sophisticated players is usually a sign of a maturing market. And the Bitcoin market is no different.
But recent months have witnessed the development of two types of derivatives contracts that are suitable for institutional investors and large merchants. Derivatives are contracts whose value changes based on the value of some underlying security, currency, commodity, or price index. Derivatives can be used to hedge risk, speculate, or take an investment position in the underlying asset or price index. But the new institutional-grade Bitcoin derivatives take forms that are less common.
The first Bitcoin derivative for sophisticated parties to come to market was the TeraExchange Tera Bitcoin forward. The Tera contract works in the following way: First, on the initial trade date, the buyer and seller enter into a contract for a certain amount expressed in U. Then, on the contract's settlement date, the buyer pays the seller in cash if the price of Bitcoin in U. The amount the buyer has to pay the seller is based on the size of the contract and how much the price of Bitcoin has appreciated since the trade date.
On the other hand, if the value of Bitcoin decreases after the initial trade date, the seller tillit blockchain stocks the cash payment to the buyer. The platform provides prices and matches up parties, but does not clear the trade or otherwise assume any risk related to the parties not paying each other.
The Bitcoin swap is uncleared, meaning that the buyer and tillit blockchain stocks assume the risk that the trade will not properly settle. Using collateral reduces counterparty risk. A second type of Bitcoin derivative is under development by SolidX partners. A total return swap enables a buyer to get investment exposure to an underlying asset--including its gains and losses--without having to actually tillit blockchain stocks the asset or necessarily even pay any money upfront.
A total return swap is structured the following way: If the underlying asset produces a gain from interest income or market appreciation, the total return swap tillit blockchain stocks gets paid tillit blockchain stocks amount. If the underlying asset suffers a loss, the the buyer must pay tillit blockchain stocks swap seller the amount of the loss in addition to the set rate.
The SolidX Bitcoin total return swap will give its buyer the same gains and losses it would have as if it purchased bitcoins outright minus the fixed rate it pays to SolidX. The following diagram shows some basic structural differences between the Tera and the SolidX bitcoin swaps. Both instruments permit parties to effectively invest in bitcoins without actually owning any. The benefit of doing so is that it allows merchants and financial institutions to gain exposure to Bitcoin without having to deal with anti-money laundering issues and other regulatory concerns that could arise from directly holding bitcoins.
There are some important tillit blockchain stocks between the Bitcoin forward and the swap, however. Only the Tera Bitcoin forward offers parties the ability to "short" the Bitcoin market and gain from a Bitcoin price decline. Merchants, investors, tillit blockchain stocks others that hold bitcoins can benefit from Tera's forward giving them the ability to hedge their Bitcoin price exposure.
Another major difference is the source of counterparty risk. With a Tera Bitcoin forward, the other party to the trade will be the source of counterparty risk. The ability of SolidX to make good on its end of the bargain will depend on how well it translates Bitcoin price gains into an income stream for the buyer.
Gaining exposure to Bitoin may have different accounting and cash-management consequences with each instrument as well. The Tera Bitcoin forward only triggers the primary payment obligation on the settlement date.
By contrast, the SolidX swap may require a tillit blockchain stocks frequent exchange of cash flows. As a result, the SolidX product would tillit blockchain stocks a more direct impact on earnings and liquidity.
On the other hand, the buyer of the SolidX swap may not have to post collateral or any cash upfront, which may make the instrument more attractive than an equivalent Tera Bitcoin forward. Ultimately, differences between the Tera Bitcoin forward and the SolidX Bitcoin swap will depend on the particularities of the terms of the trade and counterparties involved.
With the advent of these two products, and likely many more on the way, the Bitcoin economy will attract a wider range of commercial and financial market participants. Posted by Houman Shadab on November 06, at One of the great promises of cryptocurrency networks such as those underlying Bitcoin and Ripple is that they will allow for the creation of a wide variety of economic applications that go far beyond transferring tillit blockchain stocks money.
The "internet of money" refers to the capability of decentralized ledger networks to create unique types of transactions not involving banks, courts, and other traditional players.
Smart contracts are a potentially revolutionary type of application using decentralized ledger networks. The idea underlying smart contracts is that software can automate much tillit blockchain stocks the contracting process.
This could allow for the performance and enforcement of contractual promises without human involvement. Parties may also be able to more tillit blockchain stocks structure their relationships. For example, automatic verification of an employee's work could allow them to be paid more quickly and avoid unnecessary "face time" in the office.
The potential to greatly reduce or even eliminate the need for litigation and courts may be the most attractive feature of smart contracts. By using a smart contract, tillit blockchain stocks are committing themselves to be bound by its rules and processes.
Doing so in principle removes the potential for parties to have a dispute. Both are held to the whatever outcome the smart contract determines.
Smart contracts could therefore reduce the need for litigators, judges, and arbitrators. However, by requiring parties to strictly commit to decisions of a smart contract, the need for transactional attorneys and others to program smart contracts may increase. Parties would most likely want to specify a more detailed range of contingencies and outcomes ahead of time before committing themselves to abide by the decisions of a software-driven contract. Today, a wave of companies and organizations are developing smart contract platforms and applications.
Bithalofor example, appears to be nearly complete with a platform that uses a joint account system whereby the contracting parties deposit funds or work product into an account that cannot be accessed unless both parties consent. Tillit is another company developing a platform for executing business transactions over a decentralized ledger.
Swarm tillit blockchain stocks, which uses the Counterparty platform, allows a company to crowdsource capital using "cryptoequity" contracts that give holders a variety of tillit blockchain stocks rights such as those relating to voting, sharing in profits, controlling executive decisions, and making further investments as the company reaches certain milestones.
Certain features have come to typify smart contracts. One is the use of multi-signatures or "multi-sig" to improve performance. With a multi-sig feature, two or more parties are required to approve a transaction before funds can be released or some other aspect of the contract can move forward. Another is the use of an "oracle" to monitor prices, performance, or some other aspect of the real world.
A smart employment contract may, for example, be automatically tillit blockchain stocks once an oracle obtains information that an employee or independent contractor has completed providing a service. A fundamental issue currently dividing tillit blockchain stocks contract developers is whether to build on tillit blockchain stocks of the Bitcoin blockchain or to use a different tillit blockchain stocks protocol.
Using its own blockchain allows Ethereum to implement a wider variety of smart contracts, according to its founding white paper. The Clearhinghouse blockchain likewise considers not using Bitcoin to be a major advantage that enables faster transactions and no risk of being held up by choices made by Bitcoin developers.
But in the real world, things aren't so simple. Contracts often end up being ambiguous and imprecise. This is because what happens after parties strike a deal is often tillit blockchain stocks. Parties also don't have the time or interest in attempting to detail every possible eventuality up front.
Parties tillit blockchain stocks want some level of flexibility and seek to avoid locking themselves into rigid commitments and outcomes.