pjbyrne

There is plenty of legal background for France (and Europe more broadly, eg the German NetzDG) there if you'd care to read the piece, including reference to numerous censorial provisions of French law which make France suboptimal vis a vis the U.S. for social media operations including Loi no. 2020-766 du 24 juin 2020, the EU DSA, and the applicable French aiding and abetting statute, the last of which would not have been usable against Durov in the U.S. absent specific intent to commit an unlawful act.

The conditional immunity under the DSA is also not as comprehensive as the broad immunity under Section 230, but that was out of scope so I didn't get into it. I do admit the piece assumes some familiarity on the part of the reader with the existing problems around the EU regulatory schemes relating to speech and content removal.

If you have any constructive suggestions I'll be happy to consider including them and giving you appropriate credit, just chuck them in the comment section. tl;dr though, in my view, France is not a great place to incorporate and run a social media company.

The article was written for the benefit of Americans with business operations in France, so understanding why America is way better than France to run a social media company is relevant information.

That the article wound up being circulated to a bunch of Europeans who thought it was an article about French law after someone posted it on HN is something of an accident; the article isn't for them (unless of course they're planning on starting a social media company, in which case leaving Europe and setting up shop in America on a permanent basis would be recommended). The very fact of his arrest is enough for Americans to know to steer clear of the EU going forward.

> The construction was specifically designed such that the person who figures out the hash collision is the owner... It's not a matter for courts to decide

Anything is a matter for the courts to decide. Look up Popov v. Hayashi, where the courts tried to sort out who owned the ball that was Barry Bonds' 73rd home run. 2 guys caught it at more or less the same time. There was a dispute. The courts applied equitable principles to determine how ownership should be divided. The day will come when someone needs to make a similar call in relation to BTC.

Bingo. This is the sort of scenario for which the courts don't currently have rules to decide to whom the coins (qua krypto-property) should belong.

Thanks!

Possibly, I don't know. The point of the post really was to show that the pre-sale process was amenable to a more forensic/scientific analysis than anything else.

I agree it's all debatable. This post deals only with the "common enterprise" prong as that appears to be the prong of the test that Coin Center and others are trying to challenge most assertively.

Centralization of holders makes it look like a more traditional scheme with a central promoter.

Well, it's either the ideal auction or it isn't. The question is how likely is it that a coin auction running for two weeks would produce a curve like that. I can't find any others in crypto so far, though I am open to being proven wrong if someone can show these are common and rule out promoter action as being the cause.

Making purchasers in multiple lots isn't nefarious at all, it just disguises how many purchasers there are, which is a relevant consideration for the _Howey_ analysis. If (arguendo) 85% of the tokens are in the hands of 1 person, that would militate against a finding that Ethereum is like Bitcoin and lacks the necessary degree of organization to constitute a scheme in which any one person shoulders personal civil or criminal liability.

If, again for sake of argument, they find that the largest hodler only holds 1% of the tokens, then that tends to make it more difficult to identify a central promoter and parallel investors (think: LPs without a partnership deed) which is usually required to bring enforcement.

I'm not making normative claims here, just saying that those three factors (common fund, repo, likely centralization of Ether holdings in few hands) tends to suggest the scheme is in the "regulated" bucket rather than the "unregulated" bucket.

Duly corrected.

Well it's not the regulators who make the decision and set the precedents, it's the judges. Regulators are currently trying to figure out, to the extent existing precedents are inadequate, how to extend by analogy the existing precedents to the new circumstances in such a way as to convince a judge to extend the precedent. This is how a common law system is designed to work.

I've updated the post to include a chart of the Tezos raise, which was both much larger than the Eth raise and I think illustrates my point rather well.

All of the pre-sale participants were BTC holders because that is the only currency the Foundation accepted for presale Eth.

The question is how many of those BTC holders there are and whether presales/ICOs usually follow that pattern. Most don't, they use all their powder in the beginning (there's no Indian summer surge of donations towards the end of the sale). Even when they do it is not as pronounced as here. That's what makes the curve weird.

You must not remember how small the Ethereum universe was in 2014. If you think that curve is the outcome of an organic market process, there's a bridge in Brooklyn I'd like to sell you.

It's called an analogy. I analogized the Bitcoin markets to a fractional reserve system, as the dollar value of Bitcoins in the Bitcoin market far exceeds the amount of dollars that have been spent chasing after them. The system is accordingly very vulnerable to liquidity shocks.

Re: liquidity facilities, I know for a fact certain exchanges have liquidity facilities from banks that they draw down in times of increased withdrawal demand. If market conditions deteriorate quickly enough those facilities will be withdrawn, which could result in the exchange getting caught with its pants down with a large, dollar-denominated obligation to its banks and no means to get the dollars to repay it. That is the stuff of which insolvency is made.

> the Basecoin will first go to the Bond holders

Only if the price is below $1. You have to read the next paragraph of the blog post to get to that.

The difference being that USD doesn't pretend to be pegged to anything. My point about MakerDAO is that the development team is claiming the impossible is possible.

> They are claiming that over a sufficient period of time the coin will trend towards its target

This is not what the MakerDAO team, nor any other stablecoin shill, is claiming. They are claiming the system "ensures" that the stablecoin is "a money that will always maintain its purchasing power."

"Ensure" and 'always' don't mean "trend towards over time." They mean always, as in all the time. If their intention is to sell a different product, I can only suggest they make more representations which are a little harder to falsify.

Call me back after the bubble crashes and we can have a discussion about where the dollars ran off to in the middle of it.

Nobody thinks of BTC in BTC terms. They think of it in USD terms, and right now the notional amount of BTC is higher than the amount of USD that will be available to meet it in the event of a very sharp correction.

At least, that's my view. We'll see if there's a flight to liquidity when the bubble in Bitcoin's price finally pops.

You just proved my point. For this to keep working you need Charlie to show up with $1,000,000 new dollars.

In a panic, you need to flip this scenario on its head. Charlie is not going to show up and Diana, who got into Bitcoin in 2009 and hasn't done anything since, decides to take her profits on 1,000 BTC. So this system has $1,001 to meet $2,000,000 in deposit demand, assuming neither Alice nor Bob has withdrawn their USD and some Bitcoin hodlers pile in.

Particularly popular liquidity pools eg BitPesa or Coinbase may then be put under pressure to either cease operations, draw down liquidity facilities to buy BTC, or start selling their own assets in order meet demand of BTC holders who want to get out. Those are not good choices.

Bitcoin itself is a fractional reserve system.

You're still missing the point. If the exchange is providing a fiat on/offramp, then it will have to manage the possibility that the amount of USD deposits is massively exceeded by the amount of Bitcoin deposits which may one day call on the USD deposits to be redeemed.

For example. If I bought $1000 for 1 BTC from Coinbase on January 1st 2017 and try to exit that position on Jan 1 2018, once I sell that $10,000 bitcoin to Coinbase I'll be withdrawing $9000 more than I put in. Coinbase has to get the $9000 from somewhere, whether that be from other deposits which are more recent than mine, or from its own trading operations.

If you have a large number of people trying to withdraw a large number of dollars at the same time, your offramp could run out of dollars or, in the alternative, be required to (a) draw down a facility with a bank or (b) sell assets. In an environment where the asset price is falling rapidly it may not be able to avail itself of either option.

As occurred in 2008, with dire consequences.

No, they aren't, because the price of BTC is growing exponentially without necessarily having dollar deposits grow at the same time. Here's a worked example.

In a closed system:

Day 1: $1 buys 1000 Marmotcoin

Day 2: $1000 buys 1 Marmotcoin

Day 3: 1000 Marmotcoin attempts to sell for $1,000,000

That's what the initial phases of a liquidity shock will look like. I can almost guarantee you that retail operations all have bank liquidity facilities to deal with sudden upswings in withdrawal demand, otherwise they have to commit house money to cover it.

Hi, author here. A liquidity crunch is not the same thing as a fall in Bitcoin's price. A liquidity crunch implies that the people who provide the dollars to this market (banks, I'm informed) cease doing so because they don't have confidence that the money they lend to provide USD liquidity to fiat on/offramps will be able to be repaid by their counterparties during whatever the maturity period is of the facility. As a result, companies like those on/offramps run out of dollars, and Bitcoin cannot be shifted through those platforms for any price.

This happened to the London interbank lending market during the week of 15 September 2008, when LIBOR jumped to 8% and the banks simply stopped providing loans to each other. The reason? Because they weren't sure the assets their counterparties (other banks) were sitting on were worth anything (resi mortgages) and they didn't want to find themselves an unsecured creditor.

Mortgages during the subprime crisis didn't fall in price so much as they were impossible to price. This made the credit risk of bank borrowers impossible to price. So funding headed for the doors.

Change up the parties a bit and the banks --> offramps, mortgages ---> Bitcoin, and liquidity --> fiat, as in 2008.

There is simply no way that, as Bitcoin goes parabolic, the on/offramps are prepared to handle a change in the weather which results in a huge influx of withdrawals unless their own bank balances rise significantly. My informed supposition is that most such entities should have high-cost liquidity facilities with commercial banks that can step in and address some of that withdrawal demand.

As then, a liquidity shock (availability of dollars) could break the system without needing a precipitous drop in the market price of Bitcoin.