Proposal “legal-201609“ (Closed)Back

Title:Legal (Sept)
Owner:babygiraffe
One-time payment: 1498 DASH (455607 USD)
Completed payments: 1 totaling in 1498 DASH (0 month remaining)
Payment start/end: 2016-09-05 / 2016-10-20 (added on 2016-08-30)
Final voting deadline: in passed
Votes: 1308 Yes / 454 No / 0 Abstain

Proposal description

This is a cross-post from the Dash Forum

This proposal requests funding a defined set of legal questions we feel is critical to address as we seek to expand the Dash ecosystem and make Dash more accessible to investors. Last month, we submitted a proposal to donate the remaining budget to the Dash Foundation to provide funding for legal support. The proposal technically passed with 11% net votes, but was not funded in the finalized budget (most likely because the command to finalize the budget was run prior to 24 hours before the superblock, by which time the 11% support was achieved).

Knowing support exists to fund these legal costs, we have proceeded to obtain formal quotes for portions of the work. The first set of question we would like to address consists of the following questions on masternode investing and liabilities:

1) Legal opinion on the treatment of masternode block rewards under the Internal Revenue Code
  a. Whether they are treated similarly to mining rewards, interest, or other tax treatment
  b. Tax treatment of the initial collateral “investment”​

2) Liability of masternode owners for the transactions they facilitate
  a. Whether masternode owners may be responsible for criminal activities connected with transactions they facilitate
  b. If so, under what circumstances
  c. Whether participation in “mixing” services might give rise to criminal liability
  d. If so, under what circumstances​

3) Liability of exchanges that support Dash transactions and guidelines on meeting existing compliance
  a. Whether an exchange might be held liable for criminal activity associated with PrivateSend transactions​

We are aware of several major exchanges and / or investors for which Dash’s enhanced privacy features are a concern, particularly as we seek to integrate with platforms that service institutional investors. We believe that addressing these specific legal questions – by offering a formal legal opinion from a reputable firm known within the digital currency industry – would enable us to overcome these barriers. We also believe the act of resolving these legal questions for our ecosystem and potential partners would continue to signal to the market the level of professionalism and seriousness of Dash.

The initial work would focus primarily on the applicable laws and regulations in the United States for three reasons. First, regulation concerns are the most acute among potential partners in the United States. Second, other countries frequently follow the precedence set by U.S. law when forming their own regulations. Third, the U.S. is a large share of the market that we can address with a single set of opinions.

We have selected a firm to conduct the work, one whose reputation is particularly strong in the digital currency industry. Pillsbury Winthrop Shaw Pittman, LLP (Pillsbury) is one of the leading law firms in the space and has a dedicated “Digital Currency and Blockchain Technology” practice. They have been advising companies on these topics since 2012, when the law surrounding the technology was in its infancy. They have also been a key player in shaping regulation, and are frequently called on by federal and state regulators for legal analysis and opinions. The practice covers a wide range of specialized legal areas including federal and state money service laws, tax treatment, privacy, data security, public policy, and a variety of other specialized areas.

Marco Santori will be leading the effort. Mr. Santori is a partner in Pillsbury’s New York office, and leads the Digital Currency and Blockchain Technology practice. Marco is widely recognized within the Bitcoin business community and is a frequent sponsor and presenter at
Bitcoin conferences including the last Latin American Bitcoin Conference last November, and The North American Bitcoin Conference in Miami in January. Mr. Santori’s full bio can be found here: http://www.pillsburylaw.com/marco-santori

The cost of the above scope of work is estimated to total $35,000 to $45,000. Once initiated, it will take 6-8 weeks to complete. An initial retainer of $20,000 is needed to start work, and the remaining funding can be completed next month. This proposal seeks the likely remaining balance after forecasted-to-pass community proposals now on the system are taken into account. Therefore, the funding will be a bit shy of the $20,000 needed to start work, but with some price appreciation or even a small amount next month, we should be able to initiate work within the next five weeks.

Dash would only need to appreciate about ½ of one US cent to offset the dilution of $40,000 of coins, and we think the potential impact of addressing large investor and exchange concerns could be large. For these reasons, we believe this expense will be very worthwhile.

Requested funding is as follows for the September 4th budget cycle:
Total: 1497.51 Dash

Note: Any unused budget will be applied toward other legal expenses

Show full description ...

Discussion: Should we fund this proposal?

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5 points,1 year ago
I just want to emphasize what I wrote before - this proposal is a complete waste of money and its dangerous on top. No lawyer is able to predict court decisions in an unknown field time ahead. On top the rules will change.

In a worst case this proposal can turn into disaster if eg. the answer for this question:
"Liability of exchanges that support Dash transactions ..."
would be:
"Everybody participating in potentially anonymous cryptocurrency may be held responsible for participating into crimes financed with it"

This would just be a snapshot in time opinion of a single lawyer who maybe has no experience with cryptocurrencies and needs to train himself. Anyways - the consequence would be a ban in many market places and a drop of the DASH price.
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-1 point,1 year ago
The firm we are using is highly specialized in blockchain-related law. This isn't some random lawyer off the street.

Let's say that, worst-case-scenario, the result is what you suggested--highly unfavorable to Dash. Would you rather find out now, with no penalties attached, or wait until the police show up?
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0 points,1 year ago
ok that clears the question of the lawyer qualification. (is there a reference or name of the firm?). But even a highly specialized in blockchain-related law firm cannot forecast the legal situation in three years.

Secondly - in case of an unfavorable output this will doubtless wake up sleeping dogs. As I stated the rules change over time. I do not want to go into details of possible consequences - but this proposal has a very high risk of destruction. If someone would have asked any law firm about the legality of Bitcoin in 2009 the feedback would have been very negative - but now we have Bitcoin simply because nobody did.
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0 points,1 year ago
Yes, if you read the proposal, the name of the firm and the name of the lawyer leading the work are included. I also included a link to the same. I'm sure you will find his credentials quite impressive.

The "off the cuff" answer from the law firm is that a heavily unfavorable opinion is unlikely. For example, similar to the tor network, it's likely that (because masternode mixing can be used for either legal or illegal activity), as long as the MN operator is unaware of any illegal activity taking place through his masternode, the owner would not be liable for that activity. However, if an acquaintance came to you and said "Hey, I'm selling drugs on this darkweb website and want to mix my coins, but I want to ensure I use nodes I trust don't belong to the government. What masternode is yours?" And you then give them your IP address... I suspect now you are exposing yourself to criminal liability. The guidance is likely to be in that vein.

I respectfully disagree that we have Bitcoin today because nobody asked a law firm about it. In fact, our soon-to-be lawyer was instrumental in the 2011-2012 timeframe in legitimizing Bitcoin and establishing legal frameworks that enabled Bitcoin businesses to flourish. Without those frameworks, venture capital would not have flooded into the space at nearly the same pace.
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0 points,1 year ago
Edit: the second paragraph was quote from babyg on Forum by the way.
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1 point,1 year ago
Slowly gaining more "No" votes, looks like people are finally waking up to how much of a waste of time & money this is.
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1 point,1 year ago
I agree with many of the negative comments below (guarantees from lawyers, liability, limited to the US, snapshot in time, not a court but a lawyer, etc, etc).

But, having a respected law firm give an expert opinion is vital. You may not be impressed, but there are many, many, people who will be. This is good for Dash.
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2 points,1 year ago
I have read the proposal description and many of the comments, and I would like to say that this proposal needs more details on where the money will go and once spent what we will have to show for it. This proposal does little for those outside the USA, in my opinion.
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3 points,1 year ago
1. What guarantee can the lawyers give us?
2. What liability do they accept for their advice?
3. How long will their advice be correct?
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-1 point,1 year ago
Xposting from the Dash forums:

I think some people are thinking that we are just asking these lawyers for their advise and hoping for the best. What you may not realize is that a "legal opinion letter" is actually a formal document and is heavily relied on in business transactions. See: http://businesslaw.calbar.ca.gov/Pu...usinessTransactions/DefinitionandPurpose.aspx

A legal opinion letter shows investors, regulators, and courts that you did your due diligence. This can be a powerful mitigating factor in any future legal case, because you can demonstrate that you did your best to answer these questions of law and comply with them. Organizations often seek similar letters from reputable accounting firms. If the IRS later finds the organization to have used improper accounting, a formal opinion will go a long way in mitigating any penalties. The tax will still be owed, but the IRS and the court will see that there was no wilful tax avoidance (the kind that can land you in prison).

This is not some ambulance chasing attorney; this is a widely recognized law firm specializing in cryptocurrency/blockchain technology. Seeking a formal opinion from them will carry a great deal of weight in the event of future dealings with courts or regulators. In turn, this will help satisfy exchanges, major investors, and business partners.

With respect to Apple's recent demand that Jaxx remove Dash from their wallet...how do you think Apple might respond if we could forward them a legal opinion letter from a highly respected and reputable legal firm? Firms that don't understand Dash may not wish to take any chances with respect to the legality of PrivateSend, etc., and a formal legal opinion can help significantly in that regard.

tl;dr No, a legal opinion letter is not a guarantee of how a court or regulator might rule, but it is an important formal document that carries a great deal of weight. The law is a highly specialized field, and providing all the relevant case law in a formal document can go a long way toward informing and persuading a judge.
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1 point,1 year ago
In the current state this will be a big waste of money - why:
1. It will cover at most the US legal system - but even then the situation is different in every state
2. A legal evaluation is a snapshot in time - tomorrow the situation may have changed fundamentally
3. A lawyer statement is just his personal opinion but courts may judge different - on top every case is individual - and the lawyer is not responsible for the outcome of a wrong evaluation
4. Some points are clear as of now - eg. miner reward is not different to Masternode reward - its a waste of money topay a lawyer for what is well known
So what would be the profit of this investment? I do not see any. Its a clear 'No' vote.
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5 points,1 year ago
I know what everyone is thinking. The libertarian in you is screaming no. I hate lawyers too.
We can either deny that Dash operates in the real world and 'turn the picture to the wall'. Or we can face the fact that masternodes are a legitimate source of income, an income that could go substantially higher in the future. As masternode owners we should already be seeking tax advice. We need a plan to deal with this, and simply not declaring your income is not a good long term answer. We are professional masternode operators. One day we'll be buying and selling masternode shares like expensive real estate. This one is a no brainer to fund because it puts us on the path to legitimacy.

I'm voting yes because 1) we will get much better adoption by keeping everything above board and 2) we will sleep better at night knowing that we didn't take any shortcuts. Besides, the libertarian/reptilian side of the brain can still keep this thought: if things get really ugly, you can still brainwallet your Dash, leave the country, and set up shop somewhere in the Caribbean.
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0 points,1 year ago
Lawyers are the biggest waste of money ever. They never accept liability, and therefore are never accountable for their mistakes. Their advice can easily change from one month to the next, as the 'landscape' changes. There is absolutely nothing stopping a MNO from declaring their income right now if they want to, and the IRS/CRA will advise on how that income is to be treated. Further, regardless of the outcome of any legal advice or government direction, there is also nothing stopping someone from NOT declaring the income. This proposal achieves nothing.
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0 points,1 year ago
Glad to see you guys are really rallying the troops for this one, must be one you can't afford to get told no to...
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3 points,1 year ago
If this has an impact that could potentially get us onto the major exchanges and services then I am all for it.
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0 points,1 year ago
Dashcentral bug?
"Votes: 802 Yes / 393 No
Will be funded: No. This proposal needs additional 0 Yes votes to become funded."
0 additional Yes votes?…
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0 points,1 year ago
It isn't consider "to be paid" until it's been up for at least 72 hours. Assuming the votes remain above the threshold, it will show is "Yes" in a little over two days.
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3 points,1 year ago
voting no, not only does this budget proposal with a high budget amount get introduced 5 days before voting ends (way too late for such a high budget amount), it also seem thinks it can reach US conformity with regards to liability when in fact each US state has a different compliance policy. Frankly this proposal deserves more discussion and its not given that.
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0 points,1 year ago
When was he supposed to submit it? Core Team has announced that they will leave open 20% of the budget space for community proposals, and only submit "catch all" proposals in the event that no community proposals fill that budget space. By definition, that involves submitting last minute proposals.

Would you rather $28,000 of Dash never get created and never go to serve any legitimate use?

While each state has different money transmission laws, there is only one federal income tax code. Clarification on how to pay taxes on MN payments would be very helpful, particularly when MN payments start becoming some people's full time job!
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2 points,1 year ago
I agree the short time frame is not helping here. "They have also been a key player in shaping regulation, and are frequently called on by federal and state regulators for legal analysis and opinions. " We need some clarification from babygiraffe on state compliance. The firm appears capable of providing a state by state breakdown of the rules, and we should make sure the proposal buys this level of detail.
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2 points,1 year ago
State by state regulatory opinions would cost an incredible amount of money. There are certain locations like NY and CA that have particularly strict rules, but most of the benefit can be derived from a much smaller investment. We are trying to 80/20 this.
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1 point,1 year ago
this
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0 points,1 year ago
Even if this funds MN operators should probably hire their own accountant, I don't see how this provides value for DASH holders.
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1 point,1 year ago
Chances are, the accountant won't have a clue how to give MN income the most favorable tax treatment. You will need to tell the accountant how to treat the income, but at least you can furnish him or her with the professional legal advice that comes from this proposal.
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1 point,1 year ago
The problem here is that:

1. this only answers questions for the USA. Also,
2. nothing a law firm can tell us can be guaranteed; it is only their opinion. and
3. This is only good if you choose a well established in this type of law, law firm. And would be best if we could also keep them on retainer.

Who are you choosing to answer these questions? I think, we have an excellent chance to retain a world leading law firm, such as Baker Botts (http://www.bakerbotts.com/services/industries/banking--finance-industry) because:

1. We can put them on retainer (though it will be expensive, granted)
2. We would have a good chance of being accepted by them, because we would represent a new industry they could become the leading law firm and body of knowledge in. This is an up and coming industry, they would likely want to have a finger in, and would possibly charge us a little less, and put one of their younger, more technically inclined lawyers on it.
3. This would cover Dash investors/workers in legal needs as well as pretty much cover Dash's lobbying needs in the future.

I don't know if it's time for this yet, but if you are doing this, choose the firm wisely, because it's wasted money if we can't use them in the future for more important needs. Spending more now, to get such answers from a top tier world renowned law firm will make it easier to negotiate a retainer and give them a chance to get to know us. We would be a young up and coming lawyer's DREAM, believe me!!! A smart one of course!

So, ugh, I'm not sure I can vote for this as it is written now..... even so I'm VERY interested in involving a law firm. The plan isn't really going anywhere the way I see it here. Anyway, these questions can't be answered definitively anyway, they never can. You can only build up case law, and take issues to court, then have those decisions tried until you get to the supreme court, and even then those decisions can be overturned.

I know you want a Lawyer's opinion, and I'm beating a dead horse here, but for the money, getting this opinion ought to be done with a vision for a future relationship with a law firm. It's a great way for them to get to know us, and we should therefore choose VERY carefully. I only keep using Baker Botts because I know of them, as they are one of the top Law firms in the world. And being worldwide (but based in USA) I find them a fascinating fit for a top notch worldwide currency.
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0 points,1 year ago
God Damnit, I can't delete what I wrote above, which was written before I realized I needed to EXPAND the stupid proposal section. UGH, YOU HAVE THOUGHT ABOUT ALL OF THIS! I'm sorry, if anyone can delete my comments, I'd appreciate it!
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0 points,1 year ago
LOL. Thanks for the laugh. It looked like you were on to something new there.

The better option would be to get bids from both law offices and see which comes back with the better deal, if this is even worth pursuing.
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0 points,1 year ago
Let's eliminate this language in all future proposals. It is sad that this argument is even used to get votes.
"Dash would only need to appreciate about ½ of one US cent to offset ..."

The Wall of Coins proposal could be a huge benefit for the unbanked getting into Dash along with those wanting to remain anonymous to purchase Dash. Hopefully, others will see something like this proposal as a benefit too.
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1 point,1 year ago
The Wall of Coins proposal suggests that we give $80,000 to a brand new user. Does that sound smart?

In order for WoC to pass, it would have to bump the following already approved proposals:

Legal (this one) with 393 net votes
Community Outreach with 406 net votes
Dash to Adoption with 420 net votes
Slack Tipbot with 534 net votes
Evolution Development Subcontractors with 541 net votes
PR Fall Campaign with 641 net votes

That means Wall of Coins would have to achieve 641 net votes to pass, in only three days. Wall of Coins is not going to pass this month, so you're presenting a false choice. It isn't "this proposal or Wall of Coins, you pick"...it's "this proposal or the Dash just doesn't get created" (which is wasteful IMO, resulting in a fraction of a penny in appreciation).
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0 points,1 year ago
I made a typo. I should have said:

In order for WoC to pass, it would have to bump the following already unapproved proposals:

Legal (this one) with 393 net votes
Community Outreach with 406 net votes

It would also have to bump the following APPROVED proposals:

Dash to Adoption with 420 net votes
Slack Tipbot with 534 net votes
Evolution Development Subcontractors with 541 net votes
PR Fall Campaign with 641 net votes
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1 point,1 year ago
I am just proving a point that something that expands the Dash ecosystem like WOC would benefit dash vs paying for a non-binding opinion. And if you don't like WOC, let's pay 500 people to hold up Dash signs for a day and hand out flyers. Almost anything is better than this.
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1 point,1 year ago
This is fantastic. Thank you for continuing to move Dash forward in a professional manner.
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0 points,1 year ago
Damn it, I forget that these proposals need to be expanded to read the whole thing, which actually covered all my concerns below. But I can not delete my comments. Now my only complaint is why this proposal is submitted with only 4 days to vote (probably less than 3 days in actual time)???
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0 points,1 year ago
Since when did we run so far away so fast from fungibility, privacy and community being important pieces of Dash?
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