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Regulation doesn’t matter and if it does it shouldn’t

November 8, 2017

Let me start with a quote from Bertrand Russell talking about China in the 1920’s.

The corruption and anarchy in Chinese politics do much less harm than one would be inclined to expect. But for the predatory desires of the Great Powers —especially Japan—the harm would be much less than is done by our own “efficient” Governments.  Nine-tenths of the activities of a modern Government are harmful; therefore the worse they are performed, the better. In China, where the Government is lazy, corrupt, and stupid, there is a degree of individual liberty which has been wholly lost in the rest of the world. – Bertrand Russell – The Problem of China

One reason I have an extremely negative view of regulation is that I’m in the coffee business and I’m seeing how regulation is just destroying the farmers in Africa.

It turns out that in order to export coffee from Tanzania, you have to follow the following set of laws,_2003_sw.pdf

Which I find amusing and sad because in Hong Kong, I don’t have to do anything special to buy and sell coffee.  If I open a restaurant, there are some health and safety stuff, but those are pretty easy to follow.   Also you can show how this is killing innovation.  For example, it turns out that the coffee husk can be exported and sold for tea.  I was wondering why farmers didn’t do that, and the answer is simply that there’s no form to do that.  There’s no forms.  There’s no regulation.  It can’t be done.

And Tanzania is one of the better places.  In Kenya, the situation is 100x worse.

So I’m getting annoyed that people are trying to follow the same approach with ICO regulation.  I was at a panel, where someone mentioned that they had hired four law firms and they were paying them a total of more than USD 1 miilion for an ICO, and I was truly shocked.

The thing that annoys me is that pretty much every ICO has exactly the same sets of issues, and you could create a set of standard forms and disclaimers that every ICO that isn’t doing anything new and original can sign.  You’d need a lawyer to sign off on this, but it would cost USD 5000 and not USD 1 million.

The funny disclaimers don’t bother me.  What bothers me is that I haven’t seen an single ICO in which the founders have decided to go 100% transparent and make public all of their legal documentation.  The reason for this is that law firms do not want people to make legal documentation public because one thing that will become very obvious is that 99% of the legal documentation is exactly the same.  The problem with keeping all of this private is that the energy goes into filling out forms rather than addressing some of the fundamental legal issues.

What annoys me more is that people aren’t working on the fundamental legal issues of ICO’s.  Regulation is pretty easy.  In the end, you fill out the right forms.  We can argue over how many forms you fill out, but it’s just filling out forms and including stupid disclaimers.

No one is looking at the fundamental legal issues.  For example, some time in 2018 some person that put USD 10 million into an ICO will lose his phone.  Or they will get hit by a bus or have a divorce.  No one that I know of is looking into the legal ramifications of what happens in that situation.  So I predict that there will be some conference room in which people are yelling at each other, followed by some court room where an annoyed judge is trying to unscramble the egg.

Now you can have it either way.  You can have “you lose the coins, tough luck” or you can have “you lose the coins, here is a method of recovering the coins.”  It turns out that it is very, very hard under an English based system to disclaim all liability.  It’s easier to do it under Swiss law which is why a lot of ICO’s are set up as Swiss foundations, but if you have any assets in an place with English based law, you are setting up a legal fight.

It also turns out that most people probably *don’t* want a “you lose your coins, tough luck” model, and so people will have to come up with work arounds for that.


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