Plan for introducing Privacy (STEALTH) Mode feature asap

[luckybit]

One of the first and thorniest problems we tackled is the nasty fact of "Regulatory Risk". There exists a vocal contingent of Forum members who want very much that an FBA (fee based asset) be created to fund this feature upgrade to the BitShares blockchain. They want that everyone be thus enabled an opportunity to participate in the fee stream originating from future use of the feature by purchasing shares of a "STEALTH" asset.

The conundrum is that whoever creates the FBA and offers it to the public as a means of participation in a fee-based income stream is virtually certain to come under regulatory scrutiny if the project is a success (Satoshi Dice) or even if it is not a success (through some disgruntled investor complaining to a regulatory authority).

And you offer absolutely not statistical evidence of the "virtual certainty" of regulatory scrutiny except Satoshi Dice? Satoshi Dice wasn't a DAC and didn't get in trouble until it became a company.

Bitcoin company acquisitions begin: Gambling site SatoshiDice sells for $11.5 Million (126,315 BTC)
http://www.coindesk.com/bitcoin-company-acquisitions-begin-gambling-site-satoshidice-sells-for-11-5m-126315-btc/

An FBA isn't a company. The only company involved is CNX. The individual involved would be in no more risk from the SEC than any individual associated with any other asset. The risk isn't really from the SEC though.

The risks are that it's of questionable legality all the way around, and many national governments could decide to crack down on anonymity in general. In addition there is no way to know what politicians will think or how they'll react, how transparency activists will react, how the tax agencies will react, or law enforcement. The risk is based on the fact that the political consequences are unknown but the SEC in my opinion isn't likely to take exceptional interest in this feature unless anonymous crowd funded companies or something similar start to form behind this feature.

You are right that whomever issues this particular FBA is taking a risk which is why they should get the reward in exchange. The reward in exchange would pay for the legal fees associated with the risk.

My own guess is that the tax agencies will be most concerned about this. The fair thing to do is to have everyone be aware of the risks prior to their participation.

[fav]

  thank you onceuponatime!

[Stan]

Thanks for the proposal.  I like the name Privacy Mode.

I think the main concern I have is that the community was most likely going to vote this feature in within 6 months to 1yr anyways.  The $45,000 cost for the network was most likely not the biggest issue, it was just the feature's priority.  There are probably a handful of people that really want to implement this feature now and don't want to wait, but it does not mean that they should have access to 60% lifetime royalties when it was planned to be implemented anyways. 

If we have royalties capped at $67,500-$90,000 so investors get up to twice their investment that seems more appropriate.  The community could have an option to buy out the feature via worker proposal in 1yr or 2yrs at those amounts.  Also what about competing Privacy Modes?  If this is not exclusive, then the royalties would be less of an issue and at least the platform would be open to competition, innovation and lower cost privacy solutions.

My expectation was always that this would be a core feature, and so the cost to the Bitshares ecosystem is the opportunity cost of the revenue stream this feature would have generated.   

Note: I'm less concerned about other non-core features that people want to introduce and 'privatize'.  Stealth transactions was expected to be implemented at 2.0 or soon after. 

Note2: I don't think those that introduce the feature will be exposed to regulatory risk.  There may be more scrutiny if a private individual or company is making money out of it.  I was just thinking about that issue now with Privatized bitAssets.

Another way to look at it is:

1.  We should reserve worker funds for that which can't be funded some other way.  To turn down outside investment is penny wise and bitshare foolish.

2.  BitShares needs to grow its capabilities as quickly as possible.  Waiting for next year when we might be able to afford to build it ourselves is not a wise strategy.  Its first and foremost about network effect.  Grow the pie, don't fight over each slice.

Applying these two principles will do more for the wealth of BitShares holders than trying to take more upside away from entrepreneurs.  Entrepreneurs are scarce and hard to attract.  We want a thousand new features to bloom. Fee Backed Assets could become THE killer reason to use BitShares, but only if there are lots of them.

Imagine an "App Store" where you can invest and trade shares in the Apps.

[luckybit]

Note: I'm less concerned about other non-core features that people want to introduce and 'privatize'.  Stealth transactions was expected to be implemented at 2.0 or soon after. 

Note2: I don't think those that introduce the feature will be exposed to regulatory risk.  There may be more scrutiny if a private individual or company is making money out of it.  I was just thinking about that issue now with Privatized bitAssets.

There are risks no matter what. The question is whether everyone is aware of those risks, are they quantified? If people know the risks then they can choose to take the risks or not.

Regulatory risk isn't a big risk unless there is an actual company behind it. Tokens on a blockchain aren't securities and the SEC never has gone after that. The SEC has gone after Satoshi Dice because Satoshi Dice wasn't a virtual company or a blockchain entity, but was an actual business. So for companies then you do have regulatory risk but I see no evidence that privatized bitAssets are of much risk since if it were then Counterparty and a bunch of others would have faced crack down. I would say it's more that Cryptonomex would be the only company involved so the only risk would be on them getting sued by the SEC somehow if they issue CNX or something similar.

[luckybit]

Are the private accounts fully multisig? Can there for example be "private corporations", where you have a hierarchy of multi-sig private accounts? Does it produce anonymous corporations like described here:

https://www.ted.com/talks/charmian_gooch_my_wish_to_launch_a_new_era_of_openness_in_business?language=en
https://www.youtube.com/watch?v=FyOVMqAIFw8

I think there needs to be an explanation for what exactly this technology can do. I think there are both risks and opportunities. Be aware that there are organized political groups on both sides and fully explore both the risks and opportunities in these discussions.

[merivercap]

I think technologically it might be a bit more complicated to deal with.  Someone can create an innovative solution from scratch and that is fine.  However people can also improve/simplify/innovate or simply copy an existing design & code base based off a fork.  That would create redundancy and would also be disadvantageous to you and the FBA creators.   An option to purchase the feature is probably the better direction.

[onceuponatime]

Thanks for the proposal.  I like the name Privacy Mode.

I think the main concern I have is that the community was most likely going to vote this feature in within 6 months to 1yr anyways.  The $45,000 cost for the network was most likely not the biggest issue, it was just the feature's priority.  There are probably a handful of people that really want to implement this feature now and don't want to wait, but it does not mean that they should have access to 60% lifetime royalties when it was planned to be implemented anyways. 

If we have royalties capped at $67,500-$90,000 so investors get up to twice their investment that seems more appropriate.  The community could have an option to buy out the feature via worker proposal in 1yr or 2yrs at those amounts. Also what about competing Privacy Modes?  If this is not exclusive, then the royalties would be less of an issue and at least the platform would be open to competition, innovation and lower cost privacy solutions.

My expectation was always that this would be a core feature, and so the cost to the Bitshares ecosystem is the opportunity cost of the revenue stream this feature would have generated.   

Note: I'm less concerned about other non-core features that people want to introduce and 'privatize'.  Stealth transactions was expected to be implemented at 2.0 or soon after. 

Note2: I don't think those that introduce the feature will be exposed to regulatory risk.  There may be more scrutiny if a private individual or company is making money out of it.  I was just thinking about that issue now with Privatized bitAssets.

I don't see anything in my proposal that precludes competition. Go for it!

[merivercap]

Thanks for the proposal.  I like the name Privacy Mode.

I think the main concern I have is that the community was most likely going to vote this feature in within 6 months to 1yr anyways.  The $45,000 cost for the network was most likely not the biggest issue, it was just the feature's priority.  There are probably a handful of people that really want to implement this feature now and don't want to wait, but it does not mean that they should have access to 60% lifetime royalties when it was planned to be implemented anyways. 

If we have royalties capped at $67,500-$90,000 so investors get up to twice their investment that seems more appropriate.  The community could have an option to buy out the feature via worker proposal in 1yr or 2yrs at those amounts.  Also what about competing Privacy Modes?  If this is not exclusive, then the royalties would be less of an issue and at least the platform would be open to competition, innovation and lower cost privacy solutions.

My expectation was always that this would be a core feature, and so the cost to the Bitshares ecosystem is the opportunity cost of the revenue stream this feature would have generated.   

Note: I'm less concerned about other non-core features that people want to introduce and 'privatize'.  Stealth transactions was expected to be implemented at 2.0 or soon after. 

Note2: I don't think those that introduce the feature will be exposed to regulatory risk.  There may be more scrutiny if a private individual or company is making money out of it.  I was just thinking about that issue now with Privatized bitAssets. 

[onceuponatime]

Thanks to luckybit's suggestion here:
 
https://github.com/cryptonomex/graphene/issues/452
"It might be a better idea from a marketing perspective to rename it to "invisible transactions" and call it "invisible mode" or "incognito" mode. Stealth transfers is something which some people might think is quirky. It also has a more militant sound to it.",

I propose changing the name of a Stealth Feature to "Privacy Mode".

I propose that I fund the development and implementation of this feature in full as a private investor and at zero cost to BitShares holders.

************************************************************************************************************************

There has already been preliminary discussion of this by the Community in two threads:

Fee Backed Assets (FBA)
« on: November 27, 2015, 01:44:04 AM »
https://bitsharestalk.org/index.php/topic,20286.0.html

and

Stealth Transfers Worker Proposal
« on: November 19, 2015, 12:48:16 AM »
https://bitsharestalk.org/index.php/topic,20104.0.html

Much consultation with Stan of Cryptonomex and with several prominent and trusted members of our BitShares Community (rgcrypto, Thom, Riverhead, Xeroc) has lead me to some preliminary conclusions as to how a "Privacy Mode"  feature could best be implemented and  used in a safe and timely fashion and at no risk to the BitShares Community.

One of the first and thorniest problems we tackled is the nasty fact of "Regulatory Risk". There exists a vocal contingent of Forum members who want very much that an FBA (fee based asset) be created to fund this feature upgrade to the BitShares blockchain. They want that everyone be thus enabled an opportunity to participate in the fee stream originating from future use of the feature by purchasing shares of a "STEALTH" asset.

The conundrum is that whoever creates the FBA and offers it to the public as a means of participation in a fee-based income stream faces a risk of coming under regulatory scrutiny if the project is a success (Satoshi Dice) or even if it is not a success (through some disgruntled investor complaining to a regulatory authority).

For a more in depth look in to Regulatory Risk please see:  http://www.cuttingedgecapital.com/what-is-a-security-and-why-does-it-matter/

"What is a security and why does it matter?

If something falls within the definition of a security under applicable law, it will be governed by extensive rules and regulations that can be quite complex and expensive to comply with."

And subject the issuer to a large fine/other penalties if not complied with!!!!

As CoinHoarder has said in this thread:

https://bitsharestalk.org/index.php/topic,20431.msg263638.html#msg263638
"I can think of a ton of things that fit one or a few categories but not all, so I will only list things that I think mostly apply to all categories:

Cryptocurrency IPOs
Unregistered securities (operating one or offering an exchange service)
Unregistered money service businesses
Gambling"


***************************************************************************************************************************

Once a "Privacy Mode" feature has been implemented on the blockchain, but not before, it would then be possible for future investor entrepreneurs to create FBAs and crowd fund new features by having a Private Mode account issue the FBA from an unknown jurisdiction that is presumably not subject to securities concerns. Several exist in this world of ours  .

As a matter of fact, once the "Private Mode" feature has been implemented on the blockchain and is proven to work........

and once there is a visible and growing fee-based income stream coming from use of the feature...........

I have been informed that there are investors who would be interested in purchasing that fee stream from me and they might then create an FBA and offer shares for sale on the DEX as a way for the Community to participate in that fee stream.

These investors are private and unknown to either me or Cryptonomex. I would simply be selling them the keys to the income stream and then she/they can create an FBA if they so wish. It is beyond the control of myself or Cryptonomex. But they have indicated that this is what they intend.

*************************************************************************************************************************

Here follows a potential contract between myself (onceuponatime) and Cryptonomex:



Stealth "Privacy Mode" feature and Fee Based Assets
Cryptonomex Statement of Work

The purpose of this contract is to develop a Privacy Mode feature, Privacy Mode fee accumulation account, Maintenance Account, Initialization Package, and GUI interface for BitShares scoped for a firm fixed price of $45K.  The following requirements apply:

1.   The Privacy Mode feature shall be implemented as proposed in https://github.com/cryptonomex/graphene/issues/452 (as amended).

2.   It shall provide the following fee based services:
       o   Transfer from public account to their own private balance
       o   Transfer from one of their private accounts to one of their private contacts
       o    Transfer from one of their private accounts to any public account
       o    Register a new account using a private balance.
       o     Receive a private transfer from a 3rd party given a transfer receipt.

3.   Each of these services shall charge a fee initially set at 3x the standard transfer fee, but which may be adjusted from time to time by the owner(s) of the Privacy Mode fees account

4.   Fees shall be automatically distributed by the blockchain to the following accounts:
        o   20% to the BitShares network.
        o   20% to a Maintenance Account.
        o   60% to holder(s) of the Privacy Mode Fees accumulation account

5.   The Maintenance Account shall be controlled by five specified manager accounts in  a 3 of 5 multisig configuration.  These managers will control the allocation of this fund to future maintenance and upgrade tasks.

6.   The Initialization Package shall modify the blockchain to make the Privacy Mode feature available to users.

7.     The Initialization Package shall make provision for the creation of generic Fee Based Assets (FBA) and set the fee for such

8.   A GUI shall be provided in the OpenLedger and Light wallets to allow ordinary users to easily use the Privacy Mode features.

9.     Documentation of the Privacy Mode feature and Maintenance and Fee Accumulation account shall be provided on the appropriate reference web sites.

10.   Resulting software patch to the Graphene library shall have the same license as the rest of Graphene subject to the condition that the results of the Initialization package and fee distribution mechanisms are not modified.


*******************************************************************************************************************

Road Map:

- Feedback and discussion of this thread: December 8 to December 10, 2015

- Presentation of an amended Cryptonomex Worker Proposal: Dec 11, 2015
   This worker proposal should include Milestones of what is intended to be
     accomplished by the end of week 1, week 2, week 3, week 4 and week 5 so that the
     Community can follow progress in the github.

- Voting for Worker Proposal: Dec 11 to January 1, 2016

- onceuponatime forwards $45,000 to Cryptonomex: Jan.2, 2016

_ Cryptonomex does the development and testing of the feature: (4 to 6 weeks)

- Hard fork for implementation of the feature:  Monday Feb, 15th (Louis Riel Day)

************************************************************************************************************************

What can YOU (BitShares holders) do?

-    over the next two days please discuss any insight you may have as to potential weaknesses or missed opportunities in the plan as outlined. Post your comments in this thread.

-    when the Worker Proposal comes out in a couple of days, PLEASE VOTE!!
      My offer to fund the development of a Privacy Mode feature is contingent upon the
       Worker Proposal having been voted in by January 1st, 2016 (preferably much sooner!).