Subject: [Ledger] Regulatory Considerations running an ILP node (Re: Bootstrapping Interledger)

From: Adrian Hope-Bailie <[email-masked]>
Date: Wed, 9 Nov 2016 23:00:07 +0200

As I mention in the wiki, the goal is to test the capabilities of the
protocol by bootstrapping a real network of ILP nodes (not create an
unregulated payment network).

I think it's important for this to be a network moving real value otherwise
it's difficult to motivate people testing things built on top of the
protocol to even consider ILP. We're only going to test this properly when
there is some skin in the game, we just need to make sure nobody stands to
lose more than they can afford to risk.

As I have also said in the wiki, we have the advantage of a number highly
valued crypto-currencies that offer us "permission-less innovation" and the
opportunity to move real value without (in most cases) breaking any laws.
If your particular situation prohibits you from running an ILP node for
fiat currencies but you can transmit and exchange crypto legally then
that's the way you can move real value.

Obviously, every person that chooses to run an ILP node should evaluate
their own situation and not do anything illegal. For some, that might mean
sticking to fake money initially or developing a community currency system
between small groups of peers.

Most importantly though, we should continue to only move small amounts both
because we don't want anyone to risk more than they can afford to lose in
helping to bootstrap this project (which is still under heavy development)
but also because we don't want to raise the ire of regulators when our
immediate goal is to test the protocol not become an unregulated payment
network.

Finally, and this may be obvious, but I want to be clear, that by running a
node and exchanging real value using this immature protocol, you are taking
a risk. I (and I think I speak for everyone else involved in the project)
take no responsibility for any losses anyone incurs, whether direct or
indirect, in being a part of this. We are being pioneers and there are
risks.

Be responsible, only exchange small amounts and make sure you understand
the applicable regulations for your specific case before you proceed.

On 9 November 2016 at 21:59, Tony Arcieri <[email-masked]> wrote:

> On Wed, Nov 9, 2016 at 11:42 AM, Andrew Bransford Brown <
> [email-masked]> wrote:
>
>> I'd suggest a State exchange to avoid SEC regulations while building the
>> market.  Once you cross state lines, then pass the SEC regs.
>>
>
> It's a little more complicated than that. Individual states within the US
> have their own money transmitter laws, which often apply to money transfers
> within the state in addition to transfers between states or countries.
>
> Setting up a test network with a fake currency that has no actual value
> sounds ok, but if you are moving real money, even within a single state
> (state laws providing), you'll want to have a money transmitter license
> before you do so. For transmitting money between states, you'll need
> licenses for every state you plan on operating in.
>
> --
> Tony Arcieri
>
> _______________________________________________
> Ledger mailing list
> [email-masked]
> https://www.ietf.org/mailman/listinfo/ledger
>
>

---

From: Andrew Bransford Brown <[email-masked]>
Date: Wed, 9 Nov 2016 16:39:11 -0500

My suggestion is that if you start getting into "credit units" of some
kind, you're on the wrong track.  I say this from an accounting and trading
perspective.

The value being traded exists somewhere at all times and its location and
owner must be known at every step in the transaction.

Andrew B. Brown
(512) 947-8282
http://KidsCourtyard.com

On Wed, Nov 9, 2016 at 4:00 PM, Adrian Hope-Bailie <[email-masked]>
wrote:

> I think it's important for this to be a network moving real value
> otherwise it's difficult to motivate people testing things built on top of
> the protocol to even consider ILP. We're only going to test this properly
> when there is some skin in the game, we just need to make sure nobody
> stands to lose more than they can afford to risk.
>
> Most importantly though, we should continue to only move small amounts
> both because we don't want anyone to risk more than they can afford to lose
> in helping to bootstrap this project (which is still under heavy
> development) but also because we don't want to raise the ire of regulators
> when our immediate goal is to test the protocol not become an unregulated
> payment network.
>
> Finally, and this may be obvious, but I want to be clear, that by running
> a node and exchanging real value using this immature protocol, you are
> taking a risk. I (and I think I speak for everyone else involved in the
> project) take no responsibility for any losses anyone incurs, whether
> direct or indirect, in being a part of this. We are being pioneers and
> there are risks.
>

---

From: Andrew Bransford Brown <[email-masked]>
Date: Thu, 10 Nov 2016 16:56:19 -0500

If it's designed right, you won't have any regulatory concerns.

I offer $10
My terms 1 OSTK
You offer $8
I offer $9
You agree
I deliver $9
You deliver 1 OSTK
End transaction.

Time stamps on each "event".  That has sufficient granularity to describe
any transaction (currency, stock, bonds, grocery store transactions).  It's
a real-time system, and provides its own audit trail.  Algorithms monitor
for status.

Andrew B. Brown
(512) 947-8282
http://KidsCourtyard.com

On Thu, Nov 10, 2016 at 3:43 PM, Jacob Pratt <[email-masked]> wrote:

> Sorry, I'm a bit confused by this email. Will the testing for ILP be done
> using actual currency or dummy currency? Initially you say dummy currency,
> which is what I think would make more sense, but later you are speaking of
> the risk and potential losses, which would only be affiliated with actual
> currency.
>
> Jacob H. Pratt
>
> On Wed, Nov 9, 2016 at 4:39 PM, Andrew Bransford Brown <[email-masked]
> > wrote:
>
>> On Wed, Nov 9, 2016 at 4:00 PM, Adrian Hope-Bailie <[email-masked]
>> > wrote:
>>
>>> As I have also said in the wiki, we have the advantage of a number
>>> highly valued crypto-currencies that offer us "permission-less innovation"
>>> and the opportunity to move real value without (in most cases) breaking any
>>> laws. If your particular situation prohibits you from running an ILP node
>>> for fiat currencies but you can transmit and exchange crypto legally then
>>> Finally, and this may be obvious, but I want to be clear, that by
>>> running a node and exchanging real value using this immature protocol, you
>>> are taking a risk. I (and I think I speak for everyone else involved in the
>>>>> I'd suggest a State exchange to avoid SEC regulations while building
>>>>> the market.  Once you cross state lines, then pass the SEC regs.
>>>>>
>>>>
>>>> It's a little more complicated than that. Individual states within the
>>>> US have their own money transmitter laws, which often apply to money
>>>> transfers within the state in addition to transfers between states or
>>>> countries.
>>>>

---

From: Jacob Pratt <[email-masked]>
Date: Thu, 10 Nov 2016 15:43:01 -0500

Jacob H. Pratt

---

From: Adrian Hope-Bailie <[email-masked]>
Date: Sun, 13 Nov 2016 23:16:35 +0200

We've been testing with dummy currency for quite a while already.

The plan for the next phase is for anyone willing, to run an instance of
ilp-kit (an Interledger node effectively) and set up relationships with
other nodes to exchange "real" value.

By that I mean, it's not made up money but we don't restrict it to fiat
currency. In fact, we think the best thing to do initially is use
crypto-currencies like Bitcoin, XRP, Ether etc.

These currencies have value, so there is an incentive to use the network
and also break it (which will help us ensure we can prevent that), but they
are also not regulated in the same way as fiat so we have some wiggle room
to test the network legally where we may be less free using USD or the like.

I want to re-emphasize that the goal is testing the network so we should
stick to very small amounts