Surety As a Blockchain Progenitor

Fascinating article about the Surety service, which incorporated several ideas similar to blockchain tech as far back as 1995:

As Haber and Stornetta realized, timestamping a digital document would require solving two problems. First, the data itself would have to be time stamped “so that it is impossible to change even one bit of the document without the change being apparent.” Second, it would have to be impossible to change the timestamp itself.

. . . .

Clients use Surety’s AbsoluteProof software to create a hash of a digital document, which is then sent to Surety’s servers where it is timestamped to create a seal. This seal is a cryptographically secure unique identifier that is then returned to the software program to be stored for the customer.

At the same time, a copy of that seal and every other seal created by Surety’s customers is sent to the AbsoluteProof “universal registry database,” which is a “hash-chain” composed entirely of Surety customer seals. This creates an immutable record of all the Surety seals ever produced, so that it is impossible for the company or any malicious actor to modify a seal. But it leaves out an important part of the blockchain equation: Trustlessness. How can anyone trust that Surety’s internal records are legit?

Instead of posting customer hashes to a public digital ledger, Surety creates a unique hash value of all the new seals added to the database each week and publishes this hash value in the New York Times. The hash is placed in a small ad in the Times classified section under the heading “Notices & Lost and Found” and has appeared once a week since 1995.

https://motherboard.vice.com/en_us/article/j5nzx4/what-was-the-first-blockchain?utm_medium=email&utm_source=digg

Venezuela

Pressing ahead with adopting the Petro:

Venezuela is facing hyperinflation and international sanctions that have brought the economy and its people to their knees. In response, President Nicolás Maduro recently mandated that his Petro crypto will become the nation’s second official currency starting tomorrow, August 20.

But it would be interesting to see a study demonstrating how much of the Venezuelan economy has moved to barter and non-Petro crypto as the bolivar deteriorates.

Blockchain Bill Fails in Colorado

Unfortunate that Colorado is not following states like Wyoming and opening up their state to innovation:

HB 1426, a piece of state legislation that would have created guidelines for identifying “open blockchain tokens” as securities, was voted down in the Colorado state Senate on May 9, according to public records.

https://cointelegraph.com/news/colorado-blockchain-bill-voted-down-in-state-senate

Crypto Regulation in New York

If New York were looking to give crypto companies even more reason to move to Wyoming or Arizona, they just succeeded.  My Penn Law classmate Jon Sorkowitz has this post at Law360 about the NY AG investigating already-licensed crypto firms:

The office of the New York State Attorney General has opened a second regulatory front for cryptocurrency firms doing business in New York. On April 17, the attorney general’s office sent letters to 13 leading crypto exchanges requesting wide-ranging disclosures about their business practices, asserting the AG’s authority to protect investors, investigate, and sue over deceptive and unfair practices.

https://www.law360.com/securities/articles/1041513/a-new-regulatory-avenue-for-ny-cryptocurrency-exchanges

This is regulation gone overboard.  The BitLicense already includes an extremely rigorous review and monitoring process.  For those unfamiliar with its burdens, Coindesk has an excellent article on the subject: https://www.coindesk.com/contortions-compliance-life-new-yorks-bitlicense/.  Subjecting those who obtain it to yet more oversight just encourages them to leave New York entirely.

Centra

is providing a lesson in how to go to jail for fraud:

104. “Michael Edwards” was listed as the Chief Executive Officer and Co-Founder of Centra. Edwards’s LinkedIn profile stated that he had an M.B.A. from Harvard University and an extensive career in banking, first as a Financial Analyst at Bank of America, then as a VP of Business Banking at Chase Bank, and most recently as a Senior VP at Wells Fargo.

105. “Jessica Robinson” was listed as the Chief Financial Officer, and she had purportedly served most recently as the CFO at Johnson Communications for nearly five years.

106. Neither Edwards nor Robinson is a real person. A photo of Edwards used in earlier iterations on Centra’s website and in a published White Paper was that of a Canadian professor with no relationship to the company. The picture of Robinson in early iterations on the website and in a published White Paper appears to be a stock photograph, i.e., of an actor. Centra also created fake LinkedIn profiles for Edwards and Robinson, both of which were deleted after an online blogger raised questions regarding the two executives and whether they existed.

. . . .

109. That same day, Sharma sent Trapani another message that he “had one girl
contact me lol [and] said take my picture off your site.” Sharma then sent Trapani the picture of “Edwards” used in the early White Papers and website and asked: “U know anyone [t]hat looks like this guy . . . I need someone who kinda looks like him[.] I can’t just change him now People are gonna be like wtf.” Later that same day, Sharma reiterated to Trapani that he “need[ed] to find someone who looks like Michael” for the “[t]eam photos.” Soon after, he described the team members on the website to Trapani: “Everyone real Except Jessica And Mike.” Several hours later, Sharma asked Trapani: “Who do we know looks like Jessica Robinson”? Later that evening, Sharma said to Trapani: “Gonna kill both Ceo and her[.] Gonna say they were married and got into an accident.”

https://www.sec.gov/litigation/complaints/2018/comp-pr2018-70.pdf

Crypto Like-Kind Exchanges

As April 15th rapidly approaches, articles covering the many nuances of crypto tax treatment become more and more important:

One important exception to the general rule that exchanges of property are immediately taxable is the “like-kind” exchange rule under Section 1031 of the Code.

Under Section 1031, no gain or loss is recognized if property held for investment (or for productive use in a trade or business) is exchanged solely for property of like kind.

For crypto traders, the ability to use like-kind exchange rules to avoid U.S. tax on their trades is a bit of a “good news/bad news” story.

First, the bad news. Buried deep in the massive tax bill enacted at the end of 2017 was a provision that limits like-kind exchanges to real estate transactions, effective after December 31, 2017.

As a result, there seems to be zero ability for crypto traders to claim that their coin trades undertaken after 2017 qualify as Section 1031 like-kind exchanges.

Trades before 2018

Crypto traders still may be able to argue that their transactions undertaken in 2017 and prior years were not taxable under the Section 1031 like-kind exchange rules. But, the application of the like-kind exchange rules to crypto transactions is far from certain.

https://www.coindesk.com/owe-irs-crypto-crypto-trades/