[SEC] Regulations may require to create a light-client for US citizens

[xeroc]

Is your feature request related to a problem? Please describe. Given recent public statements of the SEC, the bitshares development community in general as well as the bitshares-ui team in particular should take additional steps to prevent SEC enforcement from going after developers.

Describe the solution you'd like Given that the frontend is independent of the backend (ofc), there is no way we can prevent users to connect any program to a backend and thus have the exchange exposed to U.S. citizens (which is what bothers the SEC).

My first thought would be to release two versions of the software:

• for US-citizens (does not come with the exchange route)
• non-US-citizens (full shebang)

additional infomation

SEC public statement

[startailcoon]

There are many parts of this statement that would affect us. Here are a few, quick, fragments with parts of it, that would relate to us as an "Exchange". The full statement has much more.

Platforms colloquially referred to as "decentralized" trading platforms, for example, combine traditional technology (such as web-based systems that accept and display orders and servers that store orders) with new technology (such as smart contracts run on a blockchain that contain coded protocols to execute the terms of the contract). These technologies provide the means for investors and market participants to find counterparties, discover prices, and trade a variety of digital asset securities.

A platform that offers trading in digital asset securities and operates as an "exchange" (as defined by the federal securities laws) must register with the Commission as a national securities exchange or be exempt from registration.

According to the Commission's order, EtherDelta—which was not registered with the Commission in any capacity [....] EtherDelta's smart contract was coded to, among other things, validate order messages, confirm the terms and conditions of orders, execute paired orders, and direct the distributed ledger [....] EtherDelta's activities clearly fell within the definition of an exchange and that EtherDelta's founder caused the platform’s failure either to register as a national securities exchange [...]

Especially this

Any entity[14]that provides a marketplace for bringing together buyers and sellers of securities, regardless of the applied technology, must determine whether its activities meet the definition of an exchange under the federal securities laws [...] An entity that meets the definition of an exchange must register with the Commission as a national securities exchange or be exempt from registration, such as by operating as an alternative trading system ("ATS") in compliance with Regulation ATS.

Conclusion

The Divisions encourage and support innovation and the application of beneficial technologies in our securities markets. However, the Divisions recommend that those employing new technologies consult with legal counsel concerning the application of the federal securities laws and contact Commission staff, as necessary, for assistance. For further information, and to contact Commission staff for assistance, please visit the Commission's new FinHub page.

First Thoughts

My first thoughs about this would, as xeroc, be to release one US and one non-US version. However, until we can do this, I would probably recommend that we state that the application is not allowed to be used within the borders of the United States of America as it may not comply with the U.S. Securities and Exchange Commission Statement on Digital Asset Securities Issuance and Trading

[clockworkgr]

disclaimer on releases / l;icense

ip ban on hosted version?

[abitmore]

BTW should we stop running API nodes in US, even stop using VPS and etc provided by US companies?

[clockworkgr]

BTW should we stop running API nodes in US, even stop using VPS and etc provided by US companies?

my understanding is that backend and core are not in jeopardy...it's the exchange interface that makes the difference....def need to keep an eye out though

[wmbutler]

The article indicates that the SEC went after the founder so I guess @bytemaster should look out :) @xeroc I'm trying to understand how SEC action might affect this. Let's say the went after me just for argument sake because I help facilitate software development.

I am powerless to take down the witness, the frontend code, the middleware code, etc. I'm definitely better off not running a witness node but it would do the SEC very little good to go after me.

They could go after the foundation, but it has no ability to destroy or alter the chain either. So, what event are you trying to safeguard against? I think it might be interesting to run some doomsday scenarios to look for vulnerabilities to attack in this way. I have no contractual ties to the blockchain and I have no expectations. Further there is nobody at the top responsible for delivering on any implied promise to me.

[wmbutler]

BTW should we stop running API nodes in US, even stop using VPS and etc provided by US companies?

I think each node would just run at their own risk. It's really not up to any of us to decide who runs a node.

[xeroc]

I think each node would just run at their own risk. It's really not up to any of us to decide who runs a node.

I am actually not concerned about backend APIs but about the offer for a light-wallet as a downloadable file that does offer what the SEC charges EtherDelta for: Namely order book presentation and facilities to trade securities (for instance OPEN.* assets).

I would go the pro-active route and at least offer a US download without an exchange and let the user take on the responsibility for using anything else. Additionally, it may make sense to strip down the default markets to the bare minimum to reduce risk.

[nutelina]

There are many parts of this statement that would affect us. Here are a few, quick, fragments with parts of it, that would relate to us as an "Exchange". The full statement has much more.

Platforms colloquially referred to as "decentralized" trading platforms, for example, combine traditional technology (such as web-based systems that accept and display orders and servers that store orders) with new technology (such as smart contracts run on a blockchain that contain coded protocols to execute the terms of the contract). These technologies provide the means for investors and market participants to find counterparties, discover prices, and trade a variety of digital asset securities.

A platform that offers trading in digital asset securities and operates as an "exchange" (as defined by the federal securities laws) must register with the Commission as a national securities exchange or be exempt from registration.

According to the Commission's order, EtherDelta—which was not registered with the Commission in any capacity [....] EtherDelta's smart contract was coded to, among other things, validate order messages, confirm the terms and conditions of orders, execute paired orders, and direct the distributed ledger [....] EtherDelta's activities clearly fell within the definition of an exchange and that EtherDelta's founder caused the platform’s failure either to register as a national securities exchange [...]

Especially this

Any entity[14]that provides a marketplace for bringing together buyers and sellers of securities, regardless of the applied technology, must determine whether its activities meet the definition of an exchange under the federal securities laws [...] An entity that meets the definition of an exchange must register with the Commission as a national securities exchange or be exempt from registration, such as by operating as an alternative trading system ("ATS") in compliance with Regulation ATS.

Conclusion

The Divisions encourage and support innovation and the application of beneficial technologies in our securities markets. However, the Divisions recommend that those employing new technologies consult with legal counsel concerning the application of the federal securities laws and contact Commission staff, as necessary, for assistance. For further information, and to contact Commission staff for assistance, please visit the Commission's new FinHub page.

First Thoughts

My first thoughs about this would, as xeroc, be to release one US and one non-US version. However, until we can do this, I would probably recommend that we state that the application is not allowed to be used within the borders of the United States of America as it may not comply with the U.S. Securities and Exchange Commission Statement on Digital Asset Securities Issuance and Trading

The "United States" is a separate and foreign nation with respect to American State Nationals that has two forms of citizenship. If you are born in the District of Columbia, Guam, Puerto Rico or one of the other Insular States or Territories, you can, at your option, claim to be a United States Citizen. If you are operating as a federal corporation franchise, a federal civilian or military employee, a welfare recipient, political asylum seeker, or happen to be African American, you are stuck with being classed as a "citizen of the United States" under the provisions of the 14th Amendment.

Neither of these classes of citizens--- Big "C" or Little "c"--- are what Americans mean when they call themselves "United States Citizens". United States Citizens live under a constitutional democracy, not a republic. They are guaranteed "equal civil rights", not their Natural and Unalienable Rights. They have to pay federal taxes on every cent they earn, because they are---- guess what?----Federal United States Citizens, whereas the vast majority of American State Nationals and their business enterprises are naturally exempt.

Source: http://annavonreitz.com/uscitizenship.pdf

[cloud-8]

This has no place in a decentralised project like Bitshares, if individuals would like to create a fork thats up to them.

It is illegal for Chinese citizens to engage cryptocurrency exchanges and send >$50000 outside the country, perhaps we need a Chinese client? It is illegal for non-government sanctioned media distribution entities to target Vietnamese citizens so the 'News' section in Bitshares-UI is illegal for them, do we need a Vietnamese client? It is Illegal for Bangladesh citizens to use any cryptocurrency at all, perhaps we need a Bangladesh version. The list goes on but the point should be clear....a decentralised project is decentralised and the US is no more important than any other locale.

[xeroc]

This has no place in a decentralised project like Bitshares, if individuals would like to create a fork thats up to them.

This is the bitshares-ui repo. Hence, the opening post means to extend the reference wallet to allow easier deployment in U.S. territory/juristiction. Of course, the Blockchain is unaffected!

[litepresence]

regarding ether delta; coburn ran a website and collected fees.

"all orders are stored in EtherDelta’s order book, which resides on a centralized server maintained by EtherDelta and not on the Ethereum Blockchain"

bitshares UI does not store an orderbook on a centralized server, it displays an orderbook maintained on the bitshares blockchain.

the website had maker-taker fees for usage:

Takers, on the other hand, were charged 0.3% of a transaction’s trade volume.

https://www.sec.gov/litigation/admin/2018/34-84553.pdf

that is a far cry from offering open source user interface software to connect to a distributed exchange network

the Bitshares-UI, like the microDEX UI neither "provides", "maintains", or "constitutes" an exchange because they provide no "place or facility". These utilities simply enable users to view and manipulate blockchain data without intermediary.

additional resources:

https://www.law.cornell.edu/cfr/text/17/240.3b-16 https://www.law.cornell.edu/uscode/text/15/78c#a_1

page 70847 here: https://www.govinfo.gov/content/pkg/FR-1998-12-22/html/98-33299.htm https://www.govinfo.gov/content/pkg/FR-1998-12-22/pdf/FR-1998-12-22.pdf

regarding ether delta https://www.sec.gov/news/press-release/2018-258