Does any Bitcoin Hard-Fork - do Bitcoin Cash (BCH), Bitcoin Gold (BTG), Bitcoin Diamond (BCD), even Bitcoin Satoshi-Vision (BSV), or any other of the more obscure, random Forks - do any of them FAIL the Howey Test?
Truly, I doubt anyone knows.
Presently, the one thing we do know is Gary Gensler, the Chairman of the Securities and Exchange Commission (SEC) in the United States of America, is only willing to publicly label Bitcoin a commodity:
But what about cryptocurrencies that came from Bitcoin, that Bitcoin spawned? Logic suggests they would also be commodities - right? If your family's Italian, aren't your kids Italian too?
If only family and finance were that simple!
We don't know for certain how the SEC or the Commodities Futures Trading Commission (CFTC) plan to label and classify the coins derived from all these different Hard-Forks. But with the evidence available, we can make our best predictions.
Let's begin with arguably the most popular Hard-Fork - Bitcoin Cash (BCH).
In the summer of 2017, dissention arose among Bitcoin miners about the implementation of a new technology called "Segregated Witness" (SegWit). While initially created to modify transaction malleability, allowing for second-layer protocols like the Lightning Network and Smart Contracts, it was ultimately promoted as an effective method for doubling block size - from 1 MB to 2 MB - by reducing verifiable signature data in the input field of successive blocks; this would speed up transactions and increase scalability. However, a number of miners had reservations about the technology; they believed it didn't meaningfully address the scalability problem. So they banded together to create an entirely new cryptocurrency, literally forking off the original Bitcoin. It has its own Blockchain, with its own protocol. There's no reliance on SegWit; the maximum block size has been increased to 8 MB. And it was done with no pre-mined coins, and no Initial Coin Offering (ICO):
https://bitcointalk.org/index.php?topic=2040221.0
To be clear - as of March 2022, the maximum block size has actually quadrupled - it's now up to 32 MB. So Bitcoin Cash appears to be just a faster, cheaper version of Bitcoin, right?
Well, believe it or not - Gary Gensler seems to agree.
We've got an example of him saying it. At the 36:00 mark, he definitively says Bitcoin Cash is not a Security:
https://www.pscp.tv/w/1yoJMVyeVOWxQ
We've got an example of him writing it. On page 43 of the paper - page 65 of the document - he writes Bitcoin Cash does "not appear to trigger the US Howey test" :
But please keep in mind - this conference was held, and this paper was published, in 2018 - well before he was Chairman of the SEC. He wasn't the Big Boss then; he didn't set the rules, or direct policy. Legal precedents, political pressure, even external influence, may have changed his mind between then and now. We just don't know.
But unless he was lying, we can definitively say it.
Bitcoin Cash is not a Security.
What about Bitcoin Gold (BTG), Bitcoin Diamond (BCD), Bitcoin Satoshi-Vision (BSV), or anything else? Well, there doesn't seem to be such transparent statements defining them. What we do have is a Supreme Court decision in the United States called the Howey Test:
Using it, we can determine if a cryptocurrency PASSES the Test, so it's labeled a Security. The intention, of course, is to FAIL the Test; that's when it's treated like a commodity.
Basically, the Howey Test has four parts:
1) There must be an investment
2) In a common enterprise
3) With the expectation of profits
4) From the efforts of others - some third-party
The simple act of buying cryptocurrency normally satisfies the first three prongs of this Test. After all, only a liar, or a moron, would admit to not expecting any profit from an investment in such a common enterprise. Incidentally, stablecoins are generally not included here, because there's no expectation of profit. They're stable; they don't change. Furthermore, there's an argument stablecoins can be excluding because of something called the Reves Test:
https://lawcast.com/2014/11/25/what-is-a-security-the-howey-test-and-reves-test/
But the issue regarding stablecoins is far from over. There's many things yet to be decided. Here's Chairman Gensler saying stablecoins "may well be" Securities:
https://www.youtube.com/watch?v=K3HRyPxXtoo
In any event, it's normally the fourth prong - the "third-party" prong - that's the determining factor; it's where the rubber meets the road.
If you continue watching this video, at the 48:15 mark, Gensler answers a question by talking about a "central core group" having an "assymetrical advantage of information":
https://www.pscp.tv/w/1yoJMVyeVOWxQ
He then goes on to say if this central core group "went away", then the coin in question would not be a Security. So if there's some sort of Foundation, or a Board of Directors, or a Development Group, or even a simple Management Structure that has some sort of assymetrical advantage - if they can inflate the price of a coin by buying it with something else, if they can deflate the price by selling it, if they can increase supply, decrease supply, if they can freeze it, burn it, wrap or unwrap it - if they can do anything a normal invester can't, then the coin in question is a Security.
To be clear - Gensler didn't say all that - I did, but that's what I think he means.
So when we look at Bitcoin Gold, and skip to :57 of this instructional video, we'll see the Bitcoin Gold "Team" performed a "post-mine" of 100,000 coins:
https://www.youtube.com/watch?v=4TcecMFdC0Y&t=94s
Assymetical Advantage, anyone?
Bitcoin Gold is a Security.
What about Bitcoin Diamond? I couldn't find such a nice smoking gun, but when browsing the Whitepaper, I noticed various terms under the Financial Strategy section like "Development Team", "Full-Time Employees", and "Payment Ecosystem":
https://btcd.io/wp-content/uploads/2018/08/Bitcoin-Diamond-Whitepaper-1.pdf
There's even something called a BCD Ambassador Program:
https://www.bitcoindiamond.org/join-us/
Certainly sounds like a "central core group", a "third-party", even "others".
Bitcoin Diamond is a Security.
What about Bitcoin Satoshi-Vision? Well, I don't know much about Craig Wright, but I do know he's been involved in a bunch of lawsuits throughout the years. In this one, he's suing some developers of Bitcoin Satoshi-Vision for $4.5 billion worth of coins:
https://www.theregister.com/2022/01/19/craig_wright_bitcoin_sv_high_court_sueball/
He didn't win:
https://www.theregister.com/2022/01/19/craig_wright_bitcoin_sv_high_court_sueball/
But even the possibility of some third-party controlling $4.5 billion worth of coins is enough to convince me some sort of assymetric advantage exists for someone, somewhere.
Bitcoin Satoshi-Vision is a Security.
So what about everything else? This diagram might give you an idea just how complicated all these Hard-Forks truly are:
https://www.visualcapitalist.com/major-bitcoin-forks-subway-map/
Some of them are so obscure, I couldn't find any information about them. Some of them don't even exist anymore!
If there's something that suggests any of these Hard-Forks have sufficently decentralized Developement Teams with no assymetric advantage over the average investor, I haven't seen it.
But as I said before, I truly doubt anyone knows.
What I do know is Bitcoin Cash is the only Bitcoin Hard-Fork I could find with verifiable evidence it's not a Security.
That's what I think. What about you?
Jending
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