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@ p2p fiat
2023-04-10 16:58:01Policy considerations
[I am going to write this consideration step by step - partly because blogstack doesn't allow to save drafts - and partly because what follows here will be a huge effort. ]
The SEC chair Gary Gensler has argued since a while that bitcoin is a commodity and other digital tokens risk being unregistered securities. This consideration benchmarks various digital tokens - based on a set of properties which can provide insight into their nature as protocol or unregistered security.
First, following properties may indicate the difference between a decentralised protocol and a company issuing unregistered securities:
To which parties were tokens allocated during the launch phase?
Fair distribution of tokens seems a prerequisite for a protocol. Is tempore non suspecto required to achieve a fair token distribution? Pre-mining is a clear indication of unfair token distribution. The existence of a foundation or company holding a significant share of the tokens equally indicates a centralised token distribution.
Does the initiative have a CEO or team? Who pays that team?
Having a CEO or team indicates centralisation and potentially causes the initiative to be permissioned, not permissionless - not permissionless is not trustless - if someone can take away permission, you have to trust that party.
Does token ownership give protocol governance rights?
If token ownership gives protocol governance rights, there is a risk that the protocol ends up benefiting large token holders more - rather than benefiting all participants in a similar way.
Does the token obtain yield from consensus mechanism?
If the token obtains yield from the consensus mechanism - in the very long term - the token holdings of large holders will increase - results in a plutocratic world.
Do token holders get new issuance awards?
Indicates that the token has conventional investment security properties (yield / dividend).
How many nodes does the network have?
More nodes ensure higher probability of decentralisation, which in turn increase p2p nature - few nodes drive risk of trusted or permissioned structure (and then the benefit of a cryptologic solution over a conventional database is limited)
What is the governance process for protocol evolutions?
The more decentralised the governance, the more the protocol users are protected from malicious or centralising forces.
bitcoin
To which parties were tokens allocated during the launch phase?
The global digital p2p value transfer protocol was developed in tempore non suspecto. In 2011, three years after the genesis block, the total token market cap was less than USD 35m - very immaterial. While River Financial research indicates that the protocol inventor, with pseudonym Satoshi Nakamoto still holds about 1.1m btc in 22000 addresses - or about 5% of total supply - these tokens have never moved so far. Beyond that, no hodlers with a holding of more than 100 000 btc - or 0.5% of supply - have been identified so far.
This implies a distribution that is as ‘fair’ as it gets - comparing to other cryptologic tokens. If anything, the bitcoin protocol token allocation is not perfect. The bitcoin token allocation is the least convincing of all protocol properties - and could eventually be considered being an argument that even bitcoin is not a protocol.
This being said, no foundation or company backs bitcoin - bitcoin has no marketing budget.
Does the initiative have a CEO or team? Who pays that team?
Bitcoin doesn't have a CEO or a dedicated team. The bitcoin core development team consists of about 50 developers - more info can be found in this NYDIG report - Coinmarketcap provides insight in who funds the team.
Does token ownership give protocol governance rights?
No, while the BIP process has some level of governance among the core team, the node operators decide which software version they adopt and use - and ultimately decide on which evolutions of the protocol they want to use. In that context, some have for example created a proof of stake version of Bitcoin - it has not seen broad adoption.
Governance by node operators is the ultimate global democracy. Many people can be node operator - it does not require holding the respective token - it does not require a powerful computer (200 EUR should get you all the hardware required to run a bitcoin node) - it even does not require exceptional computing skills. Governance is not driven by miners or token holders.
Does the bitcoin token obtain yield from consensus mechanism?
No, the consensus mechanism issues new btc tokens and distributes transactions fees. These new tokens and transaction fees are 'won' by miners - bitcoin token ownership does not help getting additional btc tokens.
Do token holders get new issuance awards?
No, new issuance is distributed among proof of work miners, who have to invest in computers and electricity to power these computers (soon miners will be paid to consume such electricity, as ample excess electricity will be produced).
How many nodes does the network have?
The website Bitnode reports about 17500 reachable nodes and estimates some 47k total nodes - including nodes behind firewalls or NAT.
What is the governance process for protocol evolutions?
Already described above, eventually every user of the protocol decides which version or fork that users would like to use.
Cardano
To which parties were tokens allocated during the launch phase?
Does the initiative have a CEO or team? Who pays that team?
Does token ownership give protocol governance rights?
Does the token obtain yield from consensus mechanism?
Who funds the consensus mechanism?
Do token holders get new issuance awards?
How many nodes does the network have?
What is the governance process for protocol evolutions?
| Head | Head | Head | Head | Head | Head | | --- | --- | --- | --- | --- | --- | | Data | Data | Data | Data | Data | Data | | Data | Data | Data | Data | Data | Data | | Data | Data | Data | Data | Data | Data | | Data | Data | Data | Data | Data | Data |
| | btc | eth | bnb | xrp | ada | doge | matic | dot | dot | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | Pre-mine | ? | Data | Data | Data | Data | | CEO | ✓ | Data | Data | Data | Data | | Governance | ✓ | Data | Data | Data | Data | | Token yield | ✓ | Data | Data | Data | Data | | Consensus funding | ✓ | Data | Data | Data | Data | | New issuance | ✓ | Data | Data | Data | Data | | Network (# nodes) | 17k+ | Data | Data | Data | Data | | Protocol evolutions | ✓ | Data | Data | Data | Data |