I submit this memorandum for public, private, SEC, CFTC, FINRA & FINCEN scrutiny, as to whether the BitcoinLatina cryptocurrency, which I helped create, is a “security” (as defined under the U.S. Securities Act of 1933 (the “1933 Act”)) and therefore subject to Securities and Exchange Commission (“SEC”) regulation. Over the last four years I’ve exchanged knowledge with many of the top attorneys in the security/cryptocurrency space, including council at firms like Cooley, K&L Gates, Pillsbury, Perkins Coie, Paul Hastings, and Hughes, Hubbard & Reed. I’ve conferred with brilliant legal minds, from a current deep bench of top retired US, DOJ & SEC Attorneys, to a retired SEC Commissioner, whom I consider a personal friend. I’ve had deep-dive discussions with pioneers of crypto like Nick Szabo who invented smart contracts and perhaps even Bitcoin, Jed McCaleb of Ripple & Stellar, Ned Scott of Steemit, Charles Hoskinson of BitShares, Ethereum, Ethereum Classic & Cardano, Ryan Taylor of Dash, Sergey Sholom of MobileGo & GameCredits, Zvonimir (PeerChemist) of PeerCoin and so many other brilliant minds, who literally pioneered crypto, many of whom with which I started the first self-regulating body in crypto, which I closed when I realized everything is already in the purview of the SEC, CFTC, FINRA & FINCEN. I invited and was delighted to welcome my friends of nearly a decade each, Idaho Senator Marv Hagedorn, Oregon Representative Sal Esquivel, Utah Representative Lee Perry and New Mexico Rep. Bill Rehm to the BitcoinLatina Community advisory board and they gladly accepted. Nevada and Wyoming are neighboring states to where we live, and there’s growing excitement in the U.S. about the potential of compliant crypto.
I believe I’ve formulated a precise way to create security tokens (stokens) and commodity tokens (crypto or cryptocurrency), which are both types of compliant “coins.”
LET ME STATE that I am NOT an attorney and this document is NOT legal advice. I am NOT a financial advisor and this document does not constitute financial advice. An investment or participation in any crypto venture is risky, as are all startup endeavors. In performing this analysis, I relied on past and current facts regarding the manner in which I created BitcoinLatina and the laws as I understand them regarding securities, commodities, exchanges, broker/dealers, venture capital, business types, contracts regarding investment and more. Should laws and/or political opinion change from those summarized in this paper or any of the foregoing, the analysis contained in this memorandum may be affected and invalidated. I must also rely upon further review and analysis of relevant statutes and case law and review of future commentary by regulators and subject matter experts such as the current/future Chairs of the SEC & CFTC, and any guidance their organizations provide.
I believe I am the foremost expert in the compliant coin space, having discussed the topic with more key people (many of the top founders & their/my attorneys) than anyone else. To understand where most/all of the potential legal landmines are located requires knowledge in securities, commodities, broker/dealers, money transfer agents, national exchanges, alternative trading systems and peer-to-peer exchange laws, Regulation A, D & F, and which version of each makes sense for a given situation, crowdfunding, proof-of-stake, proof-of-work, delegated-proof-of-stake, mining, elected witnesses, decentralized applications, foreign exchange and inflation, banking, remittance, know-your-customer/anti-money laundering, precious metals & diamonds, (and their mining, transport, storage & insurance), security to prevent fraud, laws in lands attempting to evade US laws (Switzerland, Singapore, Gibraltar…), and more. It requires knowing what you can do in Europe but need a license for in the United States and vice versa, such as broker/dealers and venture capital licensing requirements, for instance, or allowed success fees & commissions, etc., ad nauseam. Learning what I know required literally tens of thousands of hours. Completing the Rubik’s Cube, let alone having all the required pieces to snap together, requires “Compliance Kung Fu”. My mastery and compiling of these individual art forms was learned from masters of specific arts, and perhaps did make me the best in this space today, but this does NOT mean I’m correct about any of it, simply that I’ve found no attorney who can tell me that I’m certainly wrong, and it doesn’t mean if anyone tries to duplicate what I’ve done they will be successful without mastering all of the individual arts. I am not suggesting anyone try this and take no responsibility for anyone who does.
My challenge to readers is to tell me legally where I’m wrong.
If correct the crypto space in the U.S. could be made compliant by the CFTC applying the same laws to commodity cryptocurrency as applied to a public offering of securities under the JOBS Act (Reg. A+), requiring background checks on principles, issuers, marketers and sellers of cryptocurrency, audits & accountability of those individuals & organizations. The JOBS Act paves a compliant path for the safe creation of both security tokens (stokens), tradable amongst accredited and in some cases public investors on peer-to-peer exchanges as well as compliant commodity cryptocurrencies tradable by all, legally.
Thanks for sharing this document,
I. EXECUTIVE SUMMARY
The BitcoinLatina cryptocurrency (the “Coin” or “BTCL”) was created by John Gotts (“Founder”) and Timothy Mesker in November 2017. From inception BTCL was built with every attempt to be a compliant cryptocurrency, representing the work of volunteers, eventually if we could create a movement, and at the very least a blockchain hard-fork of our choice.
Separately, a for-profit benefit company in Nevada (the “Company”), owned 100% currently by the Founder, was created to promote the BitcoinLatina blockchain and invest and consult entrepreneurs who build decentralized applications on top of that blockchain. The Company intends to raise operating capital through the traditional sale of equity to accredited investors utilizing Regulation D, and/or through potential identified revenue channels, such as management and carry fees on family office-grade investment funds focused on Latin America. Following the Reg. D funding round, if raised, the Company intends to apply for a public offering to non-accredited investors utilizing Regulation A+, Title IV, Tier II of the JOBS Act, and Regulation F to include investors outside of the U.S. concurrently with the potential public equity sale.
The courts and the SEC historically have taken an extremely broad view that almost any potential investment document is a security. Moreover, the current regulatory environment reflects extreme caution on the part of the SEC and other regulators, particularly in connection with cryptocurrency. In a December 2017 statement, Chairman Clayton underscored that promoters of a cryptocurrency should either: (1) be able to demonstrate that the altcoins are not securities, or (2) comply with the applicable registration or exemption requirements of the federal securities laws, before launching the altcoins.
BitcoinLatina is like a digital orange, serving as a reward to volunteers in exchange for efforts in a digital orange grove, with the grove controlled by a Community of Volunteers (the “Community”) but owned by no person or organization, and with no guarantee that potential digital orange buyers/sellers will emerge, or that the digital oranges will be available for trade on a compliant exchange, or that volunteers will do meaningful work to add value so that volunteers find long-term reasons to continue caring for the orange grove.
BTCL cryptocurrency is provided only as a reward for volunteer efforts or given as a grant for projects that add value and help the Community reach goals. The Company has never sold or traded any form of coin to pay for operations and the Community has only provided coins as a reward to Volunteers. Too, any member of the Community could create a private company that promotes the use and adoption or invests in BitcoinLatina-related opportunities.
In its recent Report of Investigation finding that an offering of virtual tokens by the DAO (a virtual organization embodied in computer code and executed on a distributed ledger or blockchain) was a securities offering, the SEC expressed its general view that an offer or sale of virtual coins or tokens must be evaluated based on its facts and circumstances to determine if U.S. Securities laws apply. 
I observe that the circumstances here can be distinguished in a number of ways from the circumstances before the SEC in the DAO case, though there is no certainty that such differences will ultimately be of consequence. I also note that the regulatory treatment of Bitcoin, in which it has been viewed as a commodity and not a security, is instructive, because of certain similarities between Bitcoin and BTCL. For example, the creator of Bitcoin (an unknown individual, using the pen name of Satoshi Nakamoto) never conducted a pre-sale, or what is commonly referred to as an “initial coin offering” (“ICO”). Like Bitcoin, the Community provides its own managerial oversight and maintenance of any/all underlying blockchain/s.
Given the regulatory and judicial uncertainties related to blockchain and cryptocurrency generally, as well as the rapidly evolving regulatory perceptions in this area, it is difficult to predict with any degree of certainty how a court or agency would decide the issue of whether BTCL is a security. My review of the cases and regulatory guidance suggests there is substantial risk that courts and the SEC could conclude that BTCL cryptocurrency is a security. I believe, however, based on application of the relevant cases I’ve reviewed so far to the facts and circumstances of BTCL, there are creditable arguments that BTCL is distinguishable in important respects from other instruments that have been deemed securities.
BitcoinLatina cryptocurrency is a reward provided to volunteers in return for their gift of skill and talent provided to the Community. It is earned as a reward to students who learn online about blockchain technology and teach others, who also receive coins when they pass tests. Ultimately, BTCL is a reward to encourage volunteers to help shape the future of education and prosperity, as well as a Latin American-focused blockchain that is Spanish / Portuguese first, then in many languages, localized with BTCL Ambassadors in each country. To build that blockchain the Community has developed trusted relationships within the Community called “delegates” and/or “witnesses” interchangeably. These delegates/miners will earn coins for downloading software from 3rd party (EOS open source code from Block.One) vendors and connecting the delegate’s/miner’s computers together to form a decentralized network. This may add further value to BTCL when/if that occurs. Founder established the Company and contemplates future subsidiaries to launch business products, provide business consulting, and provide services addressing opportunities in the digital asset sector generally, and the Latin American sector specifically. The Company will not issue BTCL to raise capital for the Company nor Community, and has not and will not receive any BTCL from the Community or the Community Treasury.
In January 2018, the Founder and Tim Mesker, created a hard-fork (clone) of the Ethereum codebase. The Community, lead by the Founder, pre-mined this new Ethereum-based blockchain to produce one billion (the BCL “Beta Coins”), as a reward for its evolving community of Volunteers (i.e., persons performing services that may add value to the BTCL ecosystem, miners who downloaded software to connect computing power to earn Beta Coins). Founder and certain key advisors also received an allocation of Beta Coins for the services provided in establishing the blockchain and initially facilitating the efforts of the Volunteers.
In the second quarter of 2018, the Community identified weaknesses in the software structure, energy consumption and protocols of Ethereum, and of the facilities used to hold and trade Beta Coins. To remedy these problems, the Company: (a) caused the Beta Coins to stop being available; (b) developed a proposal for a new BTCL Coin to be launched at a future date on the EOS blockchain; and (c) informed Beta Coin holders that they had the option of returning and retiring their BCL Beta Coins and receiving new Community-based, and eventually perhaps an EOS-Based blockchain, Coins in lieu thereof.
Additionally, an undetermined number of BTCL Coins may be allocated for airdrop to the EOS Network (holders of the EOS token as of June 1st per the Block.One EOS White Paper) and/or other key partners. This giveaway to the EOS Network is in exchange for several benefits, including: the free use of the EOS blockchain, the global distribution of coins, providing governance with more inclusive voting and community controls, and strategic consulting.
The airdrop to Beta Coin owners and the EOS Network is expected to occur on or before September 22nd 2018, and will be provided to a cryptocurrency wallet (A graphical representation of a balance on a blockchain), as EOS, ERC20 or potentially similar tokens, the combined value of all types of BTCL crypto representing the Community’s 500,000,000 issuable and auditable new BTCL Coins. Fair markets consisting of buyers and sellers on compliant peer-to-peer exchanges in the United States and globally will ultimately dictate what value is placed on the work of the Community and later the blockchain managed by that Community if/when it installs and manages that blockchain. Note that the Community is blockchain agnostic as the value of the BTCL Coin is the Community in the early days before a decentralized network has been built; organizations utilize the network and useful applications run on top of it.
The BitcoinLatina White Paper (“the Whitepaper”) provides that the Company will not retain any BTCL. The Company did not receive any consideration for the Beta Coins currently outstanding. BTCL will be distributed in several ways:
- BTCL will be distributed on a one-to-one basis to holders of Beta Coin who retire their Beta Coin, as described above.
- Coins will be given to the Volunteers, as well as to students over 18 years old who are enrolled in secondary college and graduate programs in Latin America or of Latin American descent, in accordance with guidelines/protocols established by the community of Volunteers for BTCL.
- BTCL will be mined by delegates and individual miners, who will be voted into this trusted position by the BTCL community, and will receive BTCL based on the number of transactions they confirm on the blockchain.
- BTCL will be earned by Volunteers and elected managers who receive BTCL for performing services related to the development and maintenance of BTCL, such as creating logos and other artwork, web design, website creation and maintenance, marketing, advertising, management of people, and many other daily tasks.
- EOS protocol provides that a certain percentage of all altcoins (determined by the issuer of any new altcoins built on a soft/hard-fork of the EOS platform) are delivered without consideration to all holders of EOS of record June 1, 2018. This airdrop of BTCL to holders of EOS is to take place when any new altcoins are issued to new altcoin owners, as will be the case when BTCL cryptocurrency is issued (which is expected to occur no later than September 2018).
The White Paper acknowledges that the success and evolution of BTCL will depend on the development of a decentralized external community of Volunteers and users interested in an altcoin for Latin America, and dedicated to maintaining the BTCL mission and developing practical applications that essentially “sit on top” of that decentralized computer network.
The White Paper and Community’s website, https://bitcoinlatina.org, contain express warnings of significant risk that such a community and/or blockchain will not develop, and that BTCL will not become a viable and useful blockchain currency as a result. Apart from the initial genesis block, mining and software development for the BTCL framework, the Company will not control or manage BTCL, or do ongoing maintenance of the blockchain.
In summary, I believe the following facts supporting a conclusion that BTCL is not a security include, but are not limited to, the following:
- There was never a sale or pre-sale of any BTCL to raise capital or value for establishing and operating the blockchain network for BTCL or to finance any undertaking proposed to enhance the value of BTCL of the Company.
- After creation by Founder, the underlying BTCL blockchain and cryptocurrency may or may not be supported by a community of Volunteers, and may or may not continue to be operational depending upon (among other things) the efforts of these Volunteers.
- No company or particular individual(s), such as the Founder, has the responsibility or obligation to complete or maintain the BTCL blockchain development, or to support the community of Volunteers committed to maintaining and developing BTCL.
- A community of Volunteers, in their judgment and pursuant to protocols set by the Community, will determine who will receive Coins as a reward for perceived valuable service provided in connection with the development of the BTCL blockchain.
- Commercial activities by the Founder will be conducted in a traditional manner through the Company and its subsidiaries, separate and apart from the BTCL Community and any blockchain it utilizes and manages.
- The Company (and its affiliates) will raise capital as necessary to support its commercial endeavors by conducting traditional offerings in accordance with securities laws.
III. IS BTCL A SECURITY?
- Definition of “Security” and the Howey Test
The definition of a “security” under Section 2(a)(1) of the Securities Act of 1933 includes a number of “commonly known documents traded for speculation or investment” (such as notes, bonds, debentures, and stock), as well as “‘securities’ of a more variable character” (such as investment contracts). BTCL is not one of the “commonly known” investment instruments listed in Section 2(a)(1). In the DAO Report, the SEC analyzed whether the DAO Tokens were investment contracts, and that is the appropriate inquiry here.
In determining whether an instrument is an investment contract, courts apply the well- settled test set out by the U.S. Supreme Court in SEC v. Howey. In Howey, the Court established that “an investment contract for purposes of the Securities Act means a contract, transaction or scheme whereby a person  invests his money  in a common enterprise and  is led to expect profits solely from the efforts of the promoter or a third party.”
Aside from a strict interpretation of the so-called Howey factors, any assessment of whether the SEC or a court is likely to deem BTCL a security should be conducted against the backdrop of what the SEC has publicly stated about other types of cryptocurrency. Chairman Clayton, for example, recently asserted his view that “[t]okens and offerings that incorporate features and marketing efforts that emphasize the potential for profits based on the entrepreneurial or managerial efforts of others continue to contain the hallmarks of a security under U.S. law.”
While these and other similar statements or analyses by regulators (such as the SEC’s DAO Report and the Munchee case discussed above) certainly are not binding on a court, they signal factors that will draw the SEC’s attention to an altcoin issuance, and possibly attract an investigation or enforcement referral.
With this in mind, let’s analyze below each of the Howey factors as they apply to BTCL. As I will explain, application of these factors suggests there are creditable arguments that BTCL is not a security, although there remains a substantial risk that the SEC or a court could come out the other way, particularly given the fungible nature of the Howey factors and the absence of settled case law applying these factors to cryptocurrencies.
- An investment of money
The first factor of the Howey test focuses on whether there is an investment of money by investors. The test is whether investors “chose to give up a specific consideration in return for a separable financial interest with the characteristics of a security.” In analyzing this factor, courts have interpreted the term “money” broadly, to include all types of consideration, not only fiat currency. For example, goods and services may be sufficient to satisfy this factor. In one recent case involving Bitcoin, a court looked to whether the cryptocurrency was a “currency or form of money,” such that it could “be used to purchase goods or services” or “be exchanged for conventional currencies, such as the U.S. dollar, Euro, Yen, and Yuan.” Applying this test, the court found that when the investors used Bitcoin, they “provided an investment of money.”
In the case of BTCL, there was no initial offering by the Company or the Community for operating a blockchain, staff or any other purpose. There was no process that involved the sale of Coins for cash or other cryptocurrency. And with BTCL, no original owner will have paid consideration in cash, cryptocurrency, or any other tangible or intangible asset. Given these facts, the SEC’s or a court’s analysis of this first factor of the Howey test may turn on whether Volunteers or others obtaining Coin in return for services to the BTCL ecosystem (i.e., services that add value to that ecosystem, as explained above) would constitute “an investment of money” under the relevant case law. Given that I’ve not yet found a case that is directly on point, and that courts generally apply this factor of Howey liberally, there is a risk that a court would find that the services Volunteers offer in return for BTCL (which is one of the hallmarks of the BTCL ecosystem) are an “investment of money” for purposes of the Howey analysis.
A person place[s] a wager or a bet in the U.S. when “they stake or risk something of value upon the outcome of a contest of others, a sporting event, or a game subject to chance, upon an agreement or understanding that the person or another person will receive something of value in the event of a certain outcome.” However, the U.S. Code states it does not count the “personal efforts of the participants in playing the game or contest or obtaining access to the Internet” as an investment of money, or game contestants would have no way to obtain a free game piece.
Therefore, U.S. Code, Title 31, Subtitle IV, Chapter 53 § 5362 requires that the Monopoly Game provide a way for an individual to receive free game pieces. To that end, the Game’s website states that an individual desiring a free game piece “can request a Game Piece without buying a food item at a participating McDonald’s restaurant by mailing a legibly handwritten, self-addressed, stamped envelope (“SASE”) with sufficient postage and a return address, including first and last name, street address, city, state, and ZIP code.” I argue this still requires purchase of a stamp, envelope, paper, writing instrument and potentially gas to the post office, and in Vermont it doesn’t require the returned stamped envelope to that end perhaps, but it still takes human effort (see work) to accomplish the tasks required to receive the reward. Thus, human effort is not considered an investment of money or the Monopoly Game at McDonald’s could be considered an illegal gaming operation in the U.S.
Receiving fiat currency (money) as an earned wage is not considered the purchase of a security in an employer’s enterprise. Rather, the fruit of one’s labor is what is earned for effort, and like money earned it can be saved or spent on a good, service, commodity or security, so long as rules, regulations and applicable laws are obeyed. BitcoinLatina is a cryptocurrency received as the fruit of one’s labor and is not an investment of money.
Studying for and passing a test or teaching someone else to learn in return for a reward does not seem to obviously constitute the purchase or ownership of a security nor would it necessarily entitle the BTCL Coin holder to automatically have rights to anything beyond that Coin. Earning BitcoinLatina for teaching or passing a test is not an investment of money.
If mining Bitcoin is not considered buying a security, through donation of hardware, electricity, Internet connection, time & expertise, why would donating hardware, electricity, Internet connection, time & expertise to create a logo, edit a website, start/moderate a chat group or other volunteer effort be different?
- Common Enterprise
In determining whether there is a common enterprise, courts have applied one of three criteria: (a) horizontal commonality; (b) broad vertical commonality; or (c) strict vertical commonality. The law relating to the “common enterprise” factor of the Howey test is still
developing; in fact, one court noted that the state of the law with respect to this factor is “in disarray.” As a result, how a court would approach analyzing this factor would depend on which court was hearing the case. This, of course, infuses uncertainty into our analysis-
a. Horizontal Commonality
Under the horizontal commonality approach adopted by some courts, a common enterprise exists if there is a “pooling of assets from multiple investors so that all share in the profits and risks of the enterprise.” For example, in the DAO Report, the SEC found “[t]he ETH was pooled and available to the DAO to fund projects… DAO Token holders stood to share in potential profits from the [projects].”
In the case of BTCL, although Volunteers’ individual efforts may grow and improve the BTCL Community and blockchain as a whole, there is no pooling of investment in a single enterprise as the BTCL blockchain is an instrument of exchange and not a project or enterprise with specifiable commercial activity whose potential profits Volunteers can expect to share.
Some courts have concluded that horizontal commonality does not exist when the seller of an instrument does not maintain an obligation to act for the benefit of (or does not undertake to manage the assets of) a group of purchasers. Cases involving the purchase of real estate in a common development are instructive. Indeed, certain courts reviewing these cases have rejected the argument that the purchase of plots of land in a common development is an investment contract, even though the value of each purchaser’s property was tied to the success of the common development, because the developers in these cases did not “make a commitment to manage, develop or otherwise service the plaintiff’s property in a common enterprise.”
As one subject matter expert analyzing these cases recently noted, “[i]n the absence of such an ongoing commitment, the venture to which the purchasers pay the purchase price is not a venture in which to implement or purchase. However, no such enterprise may ever arise and no Volunteer has a right by virtue of owning BTCL to participate in the profits of any such enterprise… the purchasers share with each other a common risk of profit and loss.” Instead, the purchasers “are paying a seller that is engaged in its own distinct venture and that will not directly generate profits and losses for the group of purchasers.” There are certain similarities between the purchase of real estate from developers in these cases and the circumstances of BTCL that suggest BTCL would not be deemed a security under this analysis. There can be no assurance, however, that a court would not resist this analogy based on the principal distinction, which is that real estate is unique, tangible property and BTCL is a fungible, intangible asset.
As in the cases addressing common real estate developments discussed above, I understand that neither the Company nor the Founder agreed to manage, develop, or otherwise service the community, to obtain its goals and/or mission, to maintain or enhance any blockchain and BTCL cryptocurrency representing the Community and its efforts, and in fact expressly stated as much in a White Paper, stating that any such management and development would fall to the Volunteer Community. In the same way, Volunteer Coin holders who sell secondarily, as well as those Coin holders who do not sell, are not committed in any way to provide further services or support the development of the blockchain. These circumstances support an argument that there is no “horizontal commonality” under the BTCL facts.
There is some risk that the SEC or a court could focus on the fact that the Founder allocated himself and other early key individuals BTCL Coin, and that we therefore have a significant stake in BTCL’s development and success. However, I do not believe this should change the analysis, because the Founder’s interest in BTCL’s success, and any role in developing and managing BTCL and ensuring its success, will be no different than the interests and roles of anyone else who holds BTCL (including the community of Volunteers). In other words, just as a developer of a common development who gives up her management role but retains a parcel of land in the development does not necessarily render the development a common enterprise, the Founder’s retention of BTCL does not necessarily render BTCL a common enterprise. The cases I’ve reviewed and discussed with council make clear that the key to the analysis is whether the Founder makes a commitment to manage and develop the BTCL Community and/or any potential blockchain. The Founder will not, nor will any key individual, make any such commitment unless it is a Volunteer Agreement for earned BTCL Coins over time, and at the will of the Community.
b. Broad Vertical Commonality
In determining whether a common enterprise exists, courts applying the broad vertical commonality approach evaluate whether the “well-being of all investors” depends on the promoter’s expertise. In the case of BTCL, neither the Founder nor the Company will apply expertise to the maintenance and completion of a blockchain. As is the case with other decentralized cryptocurrency such as Bitcoin, the value of BTCL does not depend on the expertise of the Founder or the Company, because neither is holding himself or itself out as being committed to that role. Once launched, all progress and future developments, if any, will arise from efforts and decisions of the BTCL Community, by virtue of governance and distribution protocols designed to benefit the Community’s value, represented in the BTCL Coins. The Founder and the Company, though they may have intentions to create profitable endeavors related to the BitcoinLatina Community and its potential blockchain, have absolutely no obligation to use their expertise to improve or create the value of BTCL. Based on these facts, I believe it is unlikely that a court would find “broad vertical commonality” as a characteristic of BTCL.[37
c. Strict Vertical Commonality
Courts applying the strict vertical commonality analyze whether investors’ fortunes are “interwoven with and dependent upon the efforts and success of those seeking the investment or of third parties.” “[A] common enterprise exists if a direct correlation has been established between success or failure of [the promoter’s] efforts and success or failure of the investment.” There is no requirement, however, that investors’ funds are pooled.
In the case of BTCL, as previously stated, the Founder and the Company will not induce or solicit current and future BTCL holders with any promises or structure that would “interweave” their fortunes with those of the Founder or the Company. The Founder and the Company have not asserted, and will not assert, that it is their intent to maintain or complete the development of the BTCL blockchain or the Community represented by the BTCL Coin. The White Paper and Volunteer Handbooks similarly make clear that the success or failure of the BTCL blockchain and currency depends solely upon the efforts of the Community and not the Founder or the Company.
After the launch of the genesis block, the Founder and the Company maintain that they will step away and focus on the separate commercial business of the Company, in whose profits (or losses) the BTCL holders do not share.
- Expectation of Profits Solely From Efforts of the Promoter
Finally, Howey instructs that an instrument is a security only if the investor is “led to expect profits solely from the efforts of the promoter or a third party.” “The touchstone is the presence of an investment in a common venture premised on a reasonable expectation of profits to be derived from the entrepreneurial or managerial efforts of other.” For this requirement to be satisfied, some courts have determined that the promoter or third party’s efforts must be “significant ones” (i.e., “those essential managerial efforts which affect the failure or success of the enterprise”). BTCL appears to pass this final requirement of the Howey test. The White Paper asserts that there is no entrepreneurial or managerial efforts from the Founder or the Company (or any other centralized entity) on which other current or future Coin holders should rely. To the contrary, the BTCL blockchain was established by Block.One and provided as free code, which can further be developed and built, if at all, by decentralized Volunteers who might cooperate (or not) with each other, and might (or might not) be successful in creating a useful blockchain. The Community, its momentum and growth of its Volunteers is what truly creates the BTCL perceived Coin value currently. When/if the EOS-based blockchain is deployed by Volunteers it may or may not provide additional value, and it may take more time than expected for users of the blockchain to emerge that would make the blockchain valuable as a needed utility. In the meantime, and as with any coin representing the work of volunteers, it requires buyers of the coin to support their efforts, because the movement has more value in the nascent days than the early decentralized network and the future promises it may hold. The Community is its own promoter, regardless of any effort or lack of effort by the Founder or the Company.
In light of the current regulatory environment, in which the SEC has signaled that it will take an aggressive approach to the regulation of cryptocurrency, there is risk that the SEC could seek to assert jurisdiction over BTCL, despite the distinctions I have noted between BTCL and either traditional securities or other altcoins, the offering of which the agency has already sought to deter. Notwithstanding this landscape, I note there are several ostensible similarities between Bitcoin and BTCL that support my position that BTCL Coins are commodities and therefore represent compliant cryptocurrency, which may be sold to retail clients of accredited or non-accredited means. As discussed, it is possible that a court of competent jurisdiction considering these similarities under Howey would find that BTCL crypto coins are therefore not securities.
People discuss zebras, while crypto is just a new breed of horse.
The crypto space in the U.S. could be made compliant by the CFTC applying the same laws to commodity cryptocurrency as applied to a public offering of securities under the JOBS Act (Reg. A+), requiring background checks on principles, issuers, marketers and sellers of cryptocurrency, audits & accountability of those individuals & organizations. The JOBS Act paves a compliant path for the safe creation of both security tokens (stokens), tradable amongst accredited and in some cases public investors on peer-to-peer exchanges as well as compliant commodity cryptocurrencies tradable by all, legally. This single act would make crypto safer for U.S. and global investors, where treaties hold that whomever has the strictest set of rules typically already covers the laws of any person domiciled outside the nation with the strictest laws. Thus, holding everyone globally (buyers/sellers/holders/earners) to the standards of the U.S. regulating bodies regarding securities, commodities, exchanges and broker/dealer/traders, could via treaties cover the rules, regulations & laws globally, I think. Challenge me. Prove me wrong; that is the scientific method. I now put up this challenge to all legal scholars, and others, to try and figure out where there is a grain of madness to my method. Thank you.
Separately, to review and/or invest in stokens & cryptocurrency coins: https://stokens.com
 See John Reed Stark, Ten Crypto-Financing Caveats, HARVARD LAW SCHOOL FORUM ON CORPORATE GOVERNANCE AND FINANCIAL REGULATION (Apr. 18, 2018), https://corpgov.law.harvard.edu/2018/04/18/ten-crypto-financing-caveats
 Jay Clayton, Chairman, U.S. Sec. & Exch. Comm’n, Statement on Cryptocurrencies and Initial Coin Offerings (Dec. 11, 2017), https://www.sec.gov/news/public-statement/statement-clayton-2017-12-11 (hereinafter Clayton Cryptocurrencies and ICO Statement).
 According to the SEC, “The DAO was created . . . with the objective of operating as a for-profit entity that would create and hold a corpus of assets though the sale of DAO Tokens to investors, which assets would then be used to fund ‘projects’.” Report of Investigation Pursuant to Section 21(a) of the Securities Exchange Act of 1934: The DAO, SEC Release No. 81207, at 1 (July 25, 2017), https://www.sec.gov/litigation/investreport/34- 81207.pdf (hereinafter “DAO Report”). Additionally, “[t]he holders of DAO Tokens stood to share in the anticipated earnings from these projects as a return on their investment in DAO Tokens,” and they “could monetize their investments in DAO Tokens by re-selling DAO Tokens on a number of web-based platforms . . . that supported secondary trading in the DAO Tokens.” Id.
 See id. at 10, 17-18. In the DAO Report, the SEC analyzed a token sale by the DAO. The SEC’s analysis focused principally on whether investors in the DAO Tokens relied on “others” to manage and affect the failure or success of the enterprise. The SEC concluded that the “curators” of the DAO played this managerial role, by holding themselves out as experts in blockchain protocol and deciding which projects DAO Token holders would vote on. Id. at 12-15.
 The U.S. Commodity Futures Trading Commission (“CFTC”) has asserted since 2015 that cryptocurrencies are properly defined as commodities. See CFTC, A CFTC Primer on Virtual Currencies, at 11 (Oct. 17, 2017), https://www.cftc.gov/sites/default/files/idc/groups/public/documents/file/labcftc_primercurrencies100417.pdf (noting “CFTC first found that Bitcoin and  virtual currencies are properly defined as commodities in 2015”); see also CFTC v. Coinflip, Inc., d/b/a Derivabit, CFTC Release No. 7231-15 (Sept. 17, 2015).
 I similarly believe the circumstances here can be distinguished from the recent administrative proceeding before the SEC involving Munchee, Inc. See In re Munchee Inc., Securities Act of 1933 Release No. 10445, Administrative Proceeding File No. 3-18304 (Dec. 11, 2017), https://www.sec.gov/litigation/admin/2017/33- 10445.pdf. Munchee, a business that created an iPhone app for people to review restaurants, offered and then sold digital tokens to be issued on a blockchain or distributed ledger. Id. at 1. Specifically, Munchee conducted the offering of its tokens to raise $15 million in capital, so that the company could improve its app and recruit users to buy advertisements and write reviews on the app. Id. In its offering, Munchee explained why it believed the tokens would increase in value as a result of the Company’s efforts. Id. at 1-2. In finding that these tokens were securities under the Howey test, the SEC relied on (among other things) the facts that (1) Munchee offered and sold the tokens in a general solicitation that included potential investors, and investors paid either Bitcoin or Ether in return for the tokens, (2) the proceeds of the offering were intended to be used by the company to “build an ‘ecosystem’ that would create demand for [the] tokens and make [the] tokens more valuable,” (3) “[investors’ profits] were to be derived from the significant entrepreneurial and managerial efforts of others – significantly Munchee and its agents,” and (4) “token purchasers had a reasonable expectation of profits from their investment in the Munchee enterprise.” Id. at 8-9. As I explain below, in the case of BTCL, there was no initial offering by the Company, and neither the Company nor the Founder agreed to manage, develop, or otherwise service the blockchain and BTCL cryptocurrency. Additionally, the White Paper that the Company has published expressly warn that there is a significant risk that BTCL will be an unprofitable venture. As with the DAO case, however, it is not possible to be certain that these differences between BTCL and the Munchee case will be of consequence to either the SEC or a court.
 The SEC has not yet formally determined whether Bitcoin itself is, or is not, a security. In recent testimony before the House Appropriations Committee, SEC Chairman Clayton stated, “Bitcoin, as a replacement for currency, has been determined by most people to not be a security.” He also said that “tokens, which are used to finance projects” are securities, and “to the extent that something is a security, we should regulate it as a security.” Coin Center, Rep. Stewart asks SEC’s Clayton about cryptocurrencies, YOUTUBE (Apr. 27, 2018), https://www.youtube.com/watch?v=7P6q6AjUKCc.
 The White Paper included several statements distancing the fate of the Coins from the fate and the efforts of the Company. For example, The White Paper stated: (a) “The BTCL cryptocurrency. . . represents only the value of the underlying BTCL blockchain, based on it presumed prospects and work accomplished, size of the network, total number of holders, the number and nature of the Apps & services being built on the BTCL protocol and the daily work of volunteers earning the Coin”; (b) “The BTCL cryptocurrency, and the plans expressed for it in this white paper, is [sic] not meant to generate profits for any shareholders or private owners, nor does ownership of the BTCL cryptocurrency provide a dividend, revenue sharing model”; (c) “As the BitcoinLatina network matures we will see useful applications and services emerge for consumers, businesses, universities and governments, which could increase the perceived value of the network represent [sic] by the BTCL cryptocurrency. Likewise, if BitcoinLatina fails to materialize or there is not interest from the community the value of the BTCL cryptocurrency will likely fall in perceived value”; and (d) “Purchasers of the BTCL cryptocurrency should not expect a profit from the ownership or resale of the cryptocurrency and should understand that its value is entirely speculative by nature as it trades on peer-to-peer exchanges.”
 I do note, however, Company’s role in (a) providing the Treasury wallet until volunteers/community vote for replacement utility; (b) making third party community governance apps available to BTCL community until volunteers/community vote for replacement utility; and (c) maintaining a (non-exclusive) website identified with the BitcoinLatina name. Founder represents that neither he nor Company will control community voting, directly or indirectly.
 As described in more detail below, our understanding is that the Founder intends to operate a separate and distinct business of consulting software entrepreneurs and infrastructure projects for Latin America.
 SEC v. Howey, 328 U.S. 293, 297 (1946).
 See supra note 3 and accompanying text; see also Munchee, supra note 6, at 8-9 (SEC determines that MUN tokens are investment contracts).
 See also SEC v. Shavers, No.4:13-CV-416, 2013 US. Dist. LEXIS 110018, at *4-6 (E.D. Tex. Aug. 6, 2013) (finding that shares of digital hedge fund Bitcoin Savings and Trust were “investment contracts” and therefore securities). The court in Shavers limited its holding to whether shares of the hedge fund were investment contracts; it did not decide whether Bitcoin itself constitutes an investment contract. Id. at *6.
 328 U.S. 293 (1946).
 Id. at 298-99.
 Clayton Cryptocurrencies and ICO Statement, supra note 2. “By and large, the structures of initial coin offerings that I have seen promoted involve the offer and sale of securities and directly implicate the securities registration requirements and other investor protection provisions of our federal securities laws.” Id. See also DAO Report, supra note 3.
 Int’l Broth. of Teamsters, Chauffeurs, Warehousemen and Helpers of Am. v. Daniel, 439 U.S. 551, 559 (1979).
 Id. at 560, n. 2.
 Shavers, supra note 14, at *5.
 Compare In re Munchee Inc., supra note 6, at 8-9.
 I note that BTCL appears to be distinguishable from some of the cases I’ve reviewed, analyzing whether the performance of services satisfies the first factor of the Howey test. I believe, for example, that the circumstances of BTCL are distinguishable from the case in which a court held that an agreement by non-salaried workers to perform services in return for a share of the profits made from their employer’s mining operations was an investment contract, because Volunteers are not entitled to a share of any profits of the company or otherwise simply by performing services for BTCL. See SEC v. Int’l Heritage Inc., 4 Supp. 2d 1378, 1382-83 (N.D. Ga. 1998) (discussing SEC v. Addison, 194 F. Supp. 709 (N.D. Tex. 1961)).
 SEC v. SG Ltd., 265 F.3d 42, 49 (1st Cir. 2001) (“Courts are in some disarray as to the legal rules associated with the ascertainment of a common enterprise …. Many courts require a showing of horizontal commonality …. Other courts have modeled the concept of a common enterprise around fact patterns in which an investor’s fortunes are tied to the promoter’s success rather than to the fortunes of his or her fellow investors. This doctrine, known as vertical commonality, has two variants[:] . . . [b]road vertical commonality … [and] … narrow vertical commonality.”) (internal citations omitted).
 Id. (citations omitted). See also Wals v. Fox Hills Dev. Corp., 24 F.3d 1016, 1019 (7th Cir. 1994) (noting that a “pooling of profits” is “essential to horizontal commonality.”).
 DAO Report, supra note 3, at 12.
 White Paper envisions that students and other entrepreneurs focused on Latin American region opportunities may be inspired by the existence of BTCL to invent applications, products, and services that BTCL may be used to implement or purchase. However, no such enterprise may ever arise and no Volunteer has a right by virtue of owning BTCL to participate in the profits of any such enterprise.
 See Jeffrey E. Alberts & Bertrand Fry, Is Bitcoin a Security?, 21 B.U. J. SCI. & TECH. L. 1, 17-18 (2015) (discussing cases); see also Rolo v. City Investing Co. Liquidating Trust, 845 F. Supp. 182, 236 (D.N.J. 1993). Although the Rolo case provides a good window into how a court or agency might consider circumstances similar to those presented by BTCL, I would caution against any reliance on this case in a court proceeding or before the SEC, because the Third Circuit vacated the district court’s decision without any explanation. The Third Circuit did not specifically rule that the district court’s analysis related to the definition of a security was invalid.
 Rolo, 845 F. Supp. at 236. The court in Rolo discussed a number of other federal cases that support this proposition. See Rodriguez v. Banco Cent. Corp., 990 F.2d 7, 10 (1st Cir. 1993) (“[O]ne who buys raw land or even a building, hoping to profit from rents or the natural increase in the value of property, is not under normal circumstances treated as purchasing a ‘security’, and “[c]onventional incidentals, such as the seller’s promise to install a road or electricity, is similarly not enough to elevate an ordinary real estate transaction to the status of a security.”) (citation omitted); Aldrich v. McCulloch Properties, Inc. 627 F.2d 1036, 1040 (10th Cir. 1980) (“[I]f the benefit to the purchasers of the amenities promised by defendants was largely in their own use and enjoyment, the necessary expectation of profit is missing. . . . [T]he obligation to perform minimal managerial functions or to provide basic improvements does not transform a real estate sale into a securities transaction.”); Woodward v. Terracor, 574 F.2d 1023, 1025 (10th Cir. 1978) (“Unlike Howey, [the developer] was not under any collateral management contract with the purchasers of its land. In short, the record in the instant case simply shows the purchase by the plaintiffs of lots in a real estate development.”); Davis v. Rio Rancho Estates, Inc., 401 F. Supp. 1045, 1050 (S.D.N.Y. 1975) (The developers “did not promise to run the development and distribute profits to the plaintiff, as did the operators of the orange groves in Howey. There was no management contract between plaintiff and defendants, nor were defendants obligated by the Purchase agreement to perform any such services. . . . [T]he expectation of a profit on resale is insufficient to transform what is essentially a sale of real property into the sale of an investment contract[.]”)
 Alberts & Fry, supra note 28, at 18 (citing Rolo, 845 F. Supp. at 236).
 Id. (citing Brodt v. Bache & Co., Inc., 595 F.2d 459, 462 (9th Cir. 1978)).
 As discussed, the Founder intends to operate a separate and distinct business of consulting software entrepreneurs and infrastructure projects for Latin America.
 SG Ltd., 265 F.3d at 49 (noting “[b]road vertical commonality requires that the well-being of all investors be dependent upon the promoter’s expertise.”).
 See Alberts & Fry, supra note 28, at 18. Compare Shavers, supra note 14, at *5 (“[T]he investors here were dependent on Shavers’ expertise in Bitcoin markets and his local connections,” and “Shavers allegedly promised a substantial return on their investments as a result of his trading and exchanging Bitcoin.”).
 Cases involving developers who sell real estate in unfinished common developments are also instructive in the context of applying the broad vertical commonality test to the circumstances of BTCL. See, e.g., Rodriguez, 990 F.2d at 11-12 (buyers of undeveloped real estate were not part of common venture with developer, because “apart from the promise of an existing lodge or a new country club, the evidence did not show that the promoter or any other obligated person or entity was promising the buyers to build or provide anything”); Woodward, 574 F.2d at 1025 (buyer of real estate from a developer did not form a “common venture or common enterprise” with the developer because the developer “was under no contractual obligation to the plaintiffs other than deliver title once the purchase terms were met” and had no “collateral management contract with the purchasers”); see also Alberts & Fry, supra note 28, at 18-19 (“Courts have repeatedly adopted similar logic in instances where a developer sells plots of land based on representations that the developer will finish a land development, but will not continue to manage it after initial development is complete.”). Here, the Founder of BTCL, like the developer selling plots of land, stated clearly (and made no commitment and entered no agreement) that the Company would continue to manage the blockchain after the initial development was complete.
 SG Ltd., 265 F.3d at 49 (quoting SEC v. Glenn W. Turner Enters., 474 F.2d 476, 482 n.7 (9th Cir. 1973)).
 SEC v. Eurobond Exch. Ltd., 13 F.3d 1334, 1339 (9th Cir. 1994).
 To the extent a court were to adopt the “strict vertical commonality” approach, there is some risk that it could focus on the fact that the Founder has allocated himself Coin and will therefore retain a significant interest in BTCL’s development and success. The Company and Founder may plausibly argue that their interest as holders of BTCL are no different (or are pari passu) to any other holder. The argument is bolstered if these parties factually refrain from managing the BTCL blockchain, and pursue their business without regard to changes in value in BTCL.
 Howey, 328 U.S. at 299.
 United Housing Foundation, Inc. v. Forman, 421 U.S. 837, 852 (1975).
 See, e.g., Glenn W. Turner Enters., 474 F.2d at 482.