Proposal “bsdev-ATMCompliance1“ (Closed)Back

Title:Dash ATM Master Compliance Program - Phase I
Owner:babygiraffe
One-time payment: 749 DASH (70490 USD)
Completed payments: 1 totaling in 749 DASH (0 month remaining)
Payment start/end: 2016-09-05 / 2016-10-20 (added on 2016-08-21)
Final voting deadline: in passed
Votes: 1095 Yes / 280 No / 0 Abstain

Proposal description

This is a cross-post from the Dash Forum

As we have recently completed the development of Dash-compatible ATM software, we have been working hard on the next steps to a strategy to develop a large decentralized network of Dash Terminals (ATMs) that interface cash with the Dash network. We are calling them "terminals" to make a distinction as we expect them in the future to do more than just converting cash with Dash or Bitcoin. Most importantly, we are looking to do this in a way that can be decentralized and promote inclusion of small and independent operators.

What are the main barriers for independent crypto ATM operators entering the industry?

Independent operators desiring to run digital currency ATMs currently face one main obstacle; there is a great deal of legal and compliance hurdles to overcome, and they typically must address different regulations in each of the jurisdictions in which they operate. For
example, in the United States, the definition of money transmitters and the regulations with which operators must comply varies by state.

Needless to say, this regulatory burden is significant, especially for the small operators that would like to run one or two machines. Many people just shy away from dealing with the regulatory issues as is prohibitively costly for small operations. This results in only larger,
more formal and centralized companies being able to run machines and offer a cash entry into the crypto economy. The cost to maintain compliance is among the largest costs of any ATM operator, and this is one of the reasons digital currency ATMs must charge high fees (which average 6.85%). High fees in turn limit usage, which leads to fewer locations, reduced access, and a loss of convenience for consumers.

We believe that a compliance program designed to share the compliance burden across operators would add tremendous value to the operators themselves and at the same time benefit consumers through the evolution of lower fees and more locations over time. We also believe the only reason why something like this does not exist already is because Dash is the only blockchain that has the ability to create this sort of public infrastructure that can benefit everyone on the network.

How can Dash help, and what are the benefits?


We propose to create a global affiliate compliance program in which operators purchase and operate their own machines, and pay a portion of their fees to participate in the program. This would be similar to an affiliate program like Uber in which the operators would own their own businesses, but pay a portion of their fees for the benefits of participating in the affiliate program.

The Dash network would fund the initial program setup. Once established, the network would benefit in several ways:
  1. In order to participate, operators would be required to operate the official compliant version of ATM software, which would include support for Dash; this would encourage existing and new operators to add Dash support and allow us to capture a share of new operators entering the space
  2. Fees collected from ATM operators would be used to pay for the ongoing costs of maintaining the compliance program, and any profits would be returned to the network, or potentially allocated towards
    further investment in the program if the masternodes support it (e.g., expanding the program to new jurisdictions)
  3. We would become the first digital currency project to derive a revenue stream besides network fees and inflation, paving the way for the industry once again by creating a new paradigm for sustainability and relevance
  4. We believe this program will send a signal to potential Dash investors of higher future returns from operating a masternode, and increase the value of Dash accordingly
  5. Dash will have the unique position of controlling the software on the machines, meaning we will be able to deploy new Dash-specific features to the Terminal network at our discretion; this could include direct connections through to Evolution when it is deployed or
    rolling out additional services (e.g., partnerships for pre-paid phone top-ups, event ticket sales, etc)
How would such a program be created?

After much discussion and planning, we propose rolling out the program in phases. This will allow us to minimize upfront costs, incorporate findings from each phase of work toward planning the next, and enable us to eliminate funding if early results are poor.

We believe the value of a master compliance program would be greatest in the United States, where the potential market is large and compliance costs are the most significant for ATM operators. For this reason, we believe the United States would be the best place to start the program, as operators in the US would see the most to gain from participating.

The first phase would consist of the following:
  • Establish the Principal Compliance program (the compliance program of a legal entity running the service)
  • Establish the Agent Compliance program (the compliance program the affiliate ATM operators would need to implement)
  • Create Operator Agreement documents to establish the Agent / Principal relationship
  • Banking packages which would allow operators to apply for bank accounts in an orderly fashion while meeting all bank documentation requirements
  • Creation of a compliance education and training program for the agents
  • Assessment of risks and potential mitigation steps
  • Planning for Phase II of the program
Once the legal frameworks, agreements, and training programs are established, Phase II will be to run a small scale pilot (of ~20 machines), to gather real-world data on usage and revenue generation, and to test and refine the compliance program. The pilot program would take place within a small number of states, but would be open to a limited number of community members living in those states. The deliverables at the end of Phase II would include published results from the pilot (e.g., usage, revenue, maintenance costs, cash handling costs, hours spent on compliance reporting, etc.).

Phase III of the program would establish additional states within the program and scale the program. It would also include marketing the services to existing operators, and onboarding them.

What are the details for Phase I?

We have been consulting with a law firm out of D.C., called Cogent Law Group, LLC regarding this potential program. We started talking to them while in San Francisco during the d10e conference and are impressed with their depth of experience in the crypto KYC / AML space. They are among a handful of firms with customers running an ATM network and have established digital gold programs. After many interactions with them since last month, we feel confident in their expertise and are confident recommending them for the work.

Cogent Law Group also hosts a startup program called the Early-to-Mid-Stage Initiative (EMS Initiative) in which they provide discounted, deferred fee, capped fee, and even free legal consulting to entities accepted into the program. We are delighted that they have accepted our application to the program, and have benefitted immensely from their advice and research up to this point, all free of charge. They also have assisted us with smaller requests free of charge, such as providing NDAs.

As part of our participation in the EMS Initiative, Cogent Law Group has agreed to conduct Phase I of the program at a discount and subject to a fee cap. This proposal would fund Phase I by providing a $10,000 retainer, which would represent the maximum fees for creating the materials already described for Phase I. Any residual funds can be deployed toward Phase II.

Included in this fee, we will also establish processes with a third-party compliance officer recommended by Cogent. A third party compliance officer is a requirement for the program. BitAML – the recommended partner – is a firm that specializes in Bitcoin compliance,
Bitcoin AML, and Bitcoin ATM Regulation.

Further, volunteer operators when we get to Phase II that want to order hardware directly from Lamassu may do so. We would coordinate the ordering of the machines, which will be flashed with the Dash software stack so machines will be fully compliant with the program as shipped from the the factory floor, without the need for modification. We will also explore other hardware options when the time comes.

How long will the program take to create?

Once funded, it should take approximately 3-4 weeks to create all the legal, training, and banking packages required. We will also receive a more detailed plan for Phase II.

How much will this cost in total across all three phases?

The costs beyond Phase I are dependent on the research which will be conducted as part of the work. Because a master compliance program has never been set up before, and the exact functioning of the program will depend on feedback and guidance the states provide us on their requirements, it is impossible to know with certainty the costs of running a sub-scale Phase II pilot. Informally, we expect Phase II will cost no more than $30,000 to conduct, including the services from BitAML. Please remember even at the pilot stage the machines are an income generating service.

How much fees could this program generate?

A typical digital currency ATM volume really varies a lot and depends on the location some can do $100K/month some can do $10K/month, examples of profitability can be found here. In reality we feel that the high fees make a lot of people not use them. If we can offer more competitive fees by decentralizing operations and sharing costs they can become a better alternative to easily buy coins like Dash and Bitcoin. If we take a 1% share of transaction fees for the network depending on volume direct return to the network could be substantial and still leave space for operators to make good returns and be competitive. We will get a more concrete idea of the revenue and profit potential after Phase II is complete.

Summary:

We view this compliance program as a critical first step in researching the expansion of our ecosystem, both in terms of facilitating greater fiat access for users, and in terms of generating new income sources for the network. Additionally, by making it easier for ATM operators to address compliance issues at a lower cost, we can accelerate the deployment of Dash ATMs without the need to directly subsidize machine purchases. The investment is modest and well within the capacity of the network. It also creates a new investment option for community members looking to help the Dash network to expand. Lastly, it will allow us to deploy new ATM-based services faster than any competing networks, and to offer a consistent user experience across the machines of a distributed set of operators.

We look forward to your questions and comments.

Requested funding is as follows for the September 4th budget cycle:
Total: 748.99 Dash

Note: Any unused budget will be applied toward other business development expenses

Show full description ...

Discussion: Should we fund this proposal?

Submit comment
 
0 points,8 months ago
ATMs.... how many people here have actually gone out to find a crypto ATM? Anyone? If you knew one was located close, wouldn't you just buy crypto over the internet?
Reply
0 points,7 months ago
o/
Many times.

If I knew one was close I would finally be able to stop using the legacy bank/VISA/Mastercard systems to convert my fiat to crypt and happily start using the ATM instead.
Reply
0 points,8 months ago
How exactly do people use the Dash ATMs, if their iOS phone doesn't have a Dash wallet? But hey - at least then we know the lawyers will then say the ATMs are being compliant!
Reply
2 points,8 months ago
The main barrier with ATMs is the local regulations. There is no way that I can see this being useful with constantly changing laws.

The only way to get around an ATM owner doing the KYC/AML paperwork is if they don't own it. So buy the machines, lease them, and hire employees.

Any profits from this that do go to masternodes can also prove liablity for a mistake in the documentation. This could potentially expose all masternode IPs and their owners. Money transmitter regulations are dangerous enough that we don't need the network to be involved.
Reply
1 point,8 months ago
Am I wrong in understanding that this proposal will investigate what is needed and how to protect MN and network from liability while making KYC type laws easy to "sign up for"? I mean, in a nutshell?
Reply
0 points,7 months ago
It won't address anything having to do with the network itself. ATM operators must comply with the law, or they risk fines and other penalties. Needless to say, they must find a way to comply, which today the only option is to hire lawyers directly. By creating a program for them to follow, we are making operating an ATM business less burdensome, thus encouraging operators to use our program (which requires the integration of Dash). So "in a nutshell" this is a way to encourage the adoption of Dash at the ATM with a very modest investment vs. other schemes (like supplementing the machine purchase costs).
Reply
-1 point,8 months ago
I'd like to quote camosoul:
"Who needs a "terminal" when they already have a smartphone? It's the same thing as having a computer in your car. It's pointless and stupid. You already have one in your pocket that goes everywhere... The only reason there is a perceived "need" for this ATM stuff, is because of the seemingly willful failure (refusal) to do the cheap, simple route that doesn't require any of this crap. It's already been a year of soaking up money for no useful purpose, when you could get to the point with something truly useful in about 4 days..."

I vote against.
Reply
2 points,8 months ago
I think the answer to that question is that a smartphone will not dispense or accept cash, print event tickets, or refill things like meal cards, arcade cards, laundromat cards, etc. The fact is that consumers use Bitcoin ATMs, and they use them a lot, despite the current environment of high fees. They value the ability to deposit or dispense cash from a machine. And there is much more we could do with terminals beyond providing 24/7 interface with cash.
Reply
3 points,8 months ago
Also - nearest I can tell, there are 47 Lamassu ATMs in the USA. However, there are 71,363 people using LocalBitcoin.com in the USA. That is more than 1,500 times the number of locations, all with zero hardware costs, and far easier to scale.
Reply
-1 point,8 months ago
Very true. But that is a different service, with many issues:
1) It is not available at the customer's convenience... you have to arrange a place and time for both parties
2) Depending on the amount you wish to transact, you may need to make several arrangements
3) You may have to meet a stranger in a parking lot somewhere... with cash. Many consumers will never do this, especially women
4) In the US, transacting over $1,000 per day makes you a money transmitter, which means the model won't scale to meet the needs of a large population of users
5) You can't offer other services, or even a consistent consumer experience on a site like localbitcoins
6) Pricing is often outrageously high

All this doesn't mean that a site like localbitcoins.com doesn't provide the consumer with value... it does for many users. And this project shouldn't stop the creation of a similar service for Dash. However, many consumers in a world with both options available prefer to use an ATM. They are heavily used in the Bitcoin ecosystem to convert between cash and Bitcoin, and we should seek to offer services that consumers want to use and do use.
Reply
0 points,8 months ago
D'oh. Typo. www.LocalBitcoins.com
Reply
-1 point,8 months ago
Re: "that a smartphone will not dispense or accept cash".

Clearly you mean fiat, and not cash, because DASH stands for Digital Cash, and cell phones most certainly can send and receive DASH. Further, cell phones do not walk around by themselves. They always belong to a person, who always has some fiat in his/her pocket or can access their bank account form that same phone. As such, your statement is intellectually dishonest, or ignorant, or at best extremely misleading.

Now, what if you could scale quickly, with ZERO hardware expense, and no 'Compliance Program' to have people buying/selling Dash "... in 13254 cities and 249 countries including Canada."?

Or wait. Someone already thought of that idea. www.LocalBitcoins.com
Reply
1 point,8 months ago
^^^ Nice ad for "double u double u double u dot local bitcoins dot com". Some people are not comfortable using that service. They value their safety, don't want to be ensnared by the feds for money laundering, and simply prefer using an ATM to make the exchange.
Reply
2 points,8 months ago
This ^^^^ is the reason. My sister, my mom, my cousins and their children will never move to cryptocurrencies until it's on the "up and up" Dash, even when Evan first started this project, was always supposed to be for legal purposes and for the masses. Remember the agreements we used to have to accept? In the old wallets? Not to use Darkcoin for illegal purposes? Even the name Darkcoin, Evan thought it meant that it goes dark, as in private, and never intended the connotation that it should be used for illegal purposes.

The vision was always to go mainstream. Other people, like Verto, etc... were upset when Dash didn't service the dark net. But Evan has always had his name and face on this project, would you start a project exposing your name and face, that mostly serviced the dark-net? Anyone who was hoping Dash/Darkcoin would was deluding themselves. It was never ever intended for illegal activities. Like cash, Dash can't control what people do with it, but legal compliance is definitely part of the Dash vision.

So why spend so much time and effort on things like this? Because Evan has always envisioned Dash/Darkcoin as being fully mainstream where everyone would use it - like Visa, only cheaper and better. He's said so so many times.

You can think I'm insane, but Visa's market cap is currently at about 173 billion dollars. If that were Dash, a single Dash would be worth nearly 25 thousand dollars. But this is an apples and oranges comparison. Visa transfers money, they don't own any of it per say. Crypto currencies are a different animal all together. They are the Federal Reserve AND Visa combined.

No... Dash's vision is NOT limited. Dash will be the Fed AND Visa of the world 20 years from now. THAT is the crazy insane vision, and I'm the only loony to actually say it out loud to you all of limited vision.

Now ask, why compliance. And call me a loon. But that is why!
Reply
2 points,8 months ago
How does someone get involved in hosting/buying a terminal in his or her hometown?
Reply
1 point,8 months ago
You go to www.TigoCTM.com, and fill out their contact form. Then you wait for a reply, and you never get one. I am serious.
Reply
0 points,7 months ago
They are slow to reply, but I did finally get a response this week. They only have a small supply left of one-way machines, but they are upgradeable. TigoCTM also told me yesterday that you can order the machines directly from Lamassau as long as you are willing to upgrade the software yourself to Tigo's version. That saves a few bucks and you can still sign up for TigoCTM's services.
Reply
1 point,8 months ago
Does this compliance program mean that the compliance risks of each ATM operator are shifted to Dash? If so - that would mean there will be a single point of failure for Dash, that a government could easily exploit. Just sue all the ATM owners, and Dash is dead. Basically, a "Master Compliance Program" by definition is a centralizing effort. Especially when you have something like this; "Dash will have the unique position of controlling the software on the machines".

I hope I have this wrong. Please clarify that Dash will NOT be accepting any additional risk by doing this.
Reply
1 point,8 months ago
Daniel ask me to cross-post this reply from the Dash Forum, since he is traveling:

Daniel:
Hi Dash Advocate, no it does not mean that the risk is spread. Each independent operator would be a separate entity completely independent from each other and liability is limited to each independent operator.

Also Dash is a blockchain not the entity running any program so no there is no exposure from the network at all. About the software what we mean is operators have an incentive to run the same software to participate on the program, not an obligation.

Thanks for the questions, our plan is to gather questions and feedback and do a podcast with the lawyers and compliance experts that will be helping create it to explain further.
Reply
0 points,8 months ago
"Also Dash is a blockchain not the entity running any program so no there is no exposure from the network at all. "

Not sure what you are trying to say there, but the Dash blockchain is not what is going to tell the the ATM owners they are compliant. It is someone at the Dash organization.

" .... liability is limited to each independent operator."

Great! So when they all get sued by the government, and the Dash organization told them they were compliant, how is it that the Dash organization is not liable?

Maybe get the ATM owners to sign something that says; "Hey - we know we told you that you don't need to get your own legal counsel if you are approved by our compliance program, but you can't sue us if we are wrong."
Reply
0 points,8 months ago
ATM operators have to comply with money transmitter regulations now. This just makes it less costly for them to comply. Each operator would be responsible for conducting their own compliance (same as they do today) and any needed reporting (they would remain their own legal entities... just as they are today).

The master compliance program would provide them with the training, processes, legal documents, banking packages, auditing services... everything they need to operate within the law. And a third-party would be auditing them for adherence to the program and flagging any non-compliant participants.

A new legal entity would be formed with limited liability to run the master compliance program.

So, if an operator failed to adhere to the program and got in trouble, the operator would be in trouble with the legal system, not the master program.

If the program itself was flawed (say it failed to address new regulation) and an operator was non-compliant as a result and wanted to sue the legal entity for failure to deliver a quality program, then sure, that legal entity could be sued. But they couldn't sue the investors (in this case the network) in a limited liability entity. I'm not sure how they could even theoretically sue the network anyway - which is nothing but a bunch of software running all over the globe. Even if someone managed to win a court case against such an "entity", in order to pay out the funds from the network would require the masternodes voting for the distribution, which I don't see happening given most are anonymous.

This is the purpose of hiring a law firm knowledgeable in the space... to figure the compliance program out in such a way that the liability is limited to operators, the legal entity isn't liable for their actions, and limiting the legal exposure from operator lawsuits should anything go wrong. In any case, the network itself would not be exposed to any incremental regulation or liability.
Reply
0 points,8 months ago
Just thinking... this could be set up as an LLP or corporation, isolating it from the network. I would expect this proposal to have an acceptable solution before phase two is offered.
Reply
0 points,8 months ago
Correct, all execution steps would be included in Phase II, including setting up an appropriate legal entity to administer the program. However, each operator would be liable for compliance in the jurisdictions in which they operated.
Reply
1 point,8 months ago
So, we basically tell them; "Hey - we know we told you that you don't need to get your own legal counsel if you are approved by our compliance program, but you can't sue us if we are wrong." That means the compliance program is useless. They still have the burden of "a great deal of legal and compliance hurdles to overcome" which renders the entire compliance program worthless to them, and extremely expensive for us. Only the lawyers win .... and we all know that is true.
Reply
0 points,8 months ago
It provides the training, legal documents, processes, banking packages, audits, and everything else required to operate, but provides it at a much lower cost than they incur today (or worse operate without because they can't afford all of these things on their own). I believe anyone operating these businesses will tell you, that would be very useful indeed.

I encourage you to go to any operator and ask them what their biggest challenge is in operating a digital currency ATM business, technology, cash handling, maintenance, legal compliance, or something else. I promise you, compliance is the answer every time. They need help with this, and it would create a huge incentive to start accepting Dash.
Reply
0 points,7 months ago
Who would be running the software that's operating the ATM?
Reply
1 point,8 months ago
If this proposal does not get enough yes votes my I suggest you do an interview with Amanda on Dash Detailed to better convey the benefits of the project and address the concerns of voters more effectively. Lets face it more people will probably watch that interview than take the time to read the entire proposal.
Reply
0 points,8 months ago
Just to be clear, you're talking about ATM operators, not MN operators :)
Reply
-1 point,8 months ago
Correct. The entity created to oversee the program would be entirely separate from the Dash network AND the ATM operators.
Reply
-2 points,8 months ago
Voting = YES

Compliance programs like this are very useful and extremely beneficial.

Compliance of the law is mandatory and what a better way to get assistance than this....

Oh - and to the folks that own a business or want to own a business, "If you fail to get your own legal counsel, you will fail at business." Get an Attorney to review what your considering, before you do it. Failure to do your own due diligence will get you, at best, quickly out-of-business - at worst, prison and a huge fine"

You decide.



I believe that this is very good insight by the forward thinking DEV team(s).
Reply
-2 points,8 months ago
Amen, i agree it shows forward thinking and it also shows dev-team is operating on a corporate level
Reply