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Proposal: Legal (Sept)

Discussion in 'Pre + Budget Proposal Discussions' started by Ryan Taylor, Aug 30, 2016.

  1. Ryan Taylor

    Ryan Taylor Well-known Member
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    This is a cross-post from www.dashcentral.org/p/legal-201609

    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

    Manually vote YES on this proposal:
    dash-cli mnbudget vote-many 11a29ec81d9fc607a12c60b1147087adcde00795b60e91b0da705119760d7beb yes
    OR from the qt console:
    mnbudget vote-many 11a29ec81d9fc607a12c60b1147087adcde00795b60e91b0da705119760d7beb yes

    Manually vote NO on this proposal:
    dash-cli mnbudget vote-many 11a29ec81d9fc607a12c60b1147087adcde00795b60e91b0da705119760d7beb no
    OR from the qt console:
    mnbudget vote-many 11a29ec81d9fc607a12c60b1147087adcde00795b60e91b0da705119760d7beb no
     
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  2. crowning

    crowning Official Dash Dev
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    For which jurisdiction?
    Doing it for the US only would left out half of the voters. Euro-countries need this as well.
     
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  3. alex-ru

    alex-ru Grizzled Member
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    Don't different states inside USA have different laws regarding crypto?
    If I am not wrong Shakepay (Crypto plastic card operator) mentioned this fact as the main problem and reason why many crypto-companies prefer not working with USA at all - too expensive for them to keep up-to-date with all US-state's different law requirements?
     
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  4. JZA

    JZA Active Member

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    It seems this will start requiring KYC and AML regulation in order to own new MN. If I am reading correctly.
     
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  5. demo

    demo Active Member

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    What the heck?

    THE INITIAL WORK SHOULD FOCUS INTERNATIONALLY, IN ORDER TO DISCOVER THE STATE(S) WHERE THE LAWS ARE MORE EASY FOR SOMEONE TO HOST A MASTERNODE.

    (For example you should definitely investigate the laws of Estonia that offers e-citizenship)

    I wonder, are the whales so unconcerned so that they will pay such a vast amount of dash to US Lawyers, in order to final discover that the best way for hosting their masternodes is outside US??? For sure, they will have to pay again a foreign Lawyer (of whatever else country is best suitable), because US seems not to have the best regulations worldwide.

    You should pay a lawyer that could give you a report and answer to your questions internationally. Or if there is not a lawyer with so vast expertise, then you should divide the total sum to different lawyers.
     
    #5 demo, Aug 30, 2016
    Last edited: Aug 30, 2016
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  6. nmarley

    nmarley Administrator
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  7. nmarley

    nmarley Administrator
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    That's a bit of a leap in logic! The opinion hasn't been done yet. Even if this one law firm believes that's the case, it's not binding on any MN operator.

    Even if the US/FinCEN declares this law, there's nothing to enforce KYC/AML in the code.
     
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  8. Ryan Taylor

    Ryan Taylor Well-known Member
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    I agree. We should seek to address these questions in major jurisdictions, which would help facilitate large and institutional investors entering. However, we can't afford to fund everything at once, so we need to prioritize. The U.S. is the largest single market and as noted in the proposal the concerns around these issues are most acute among US-based entities / investors. That's why we think the US is the best place to start.
     
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  9. Ryan Taylor

    Ryan Taylor Well-known Member
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    I don't think that's a likely outcome, nor would it be enforceable. Any KYC and AML regulations would likely only apply to the exchanges, and how they would need to operate to include Dash. For example, they may be required to treat daily limits or reporting differently for certain types of transactions that originate from PrivateSend inputs. Hopefully, not. Either way, knowing what they need to do differently with Dash is valuable to them and will help us gain acceptance. It would certainly eliminate one of the major concerns of major exchanges.
     
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  10. Ryan Taylor

    Ryan Taylor Well-known Member
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    Most don't directly address it at all and federal law dictates how they are treated in many states. There are exceptions like NY, that may have stricter regulations, but those would be addressed as well. Shake also has to deal with money transmitter laws, which ARE at the state level. That is probably what they were referring to at the state level.
     
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  11. TanteStefana

    TanteStefana Moderator
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    I wrote a long winded post about why such a proposal needed vision for the future, and then realized when I came here, that I haddn't read the whole thing. I always go too fast and missed the "expand" button. Really, I wish that "expand button" were not there on Dash Whale/ Dash Central because there should be no way for people to miss the whole proposal, the whole thing needs to be read.

    But if you read through my long winded post, you will see that it actually points out that the Foundation is doing this right.

    1. They've chosen a law firm that Dash can create a relationship with. Therefore these questions serve not only to get a professional opinion, but to build a relationship.
    2. The chosen firm is world wide and would be able to handle general Dash concerns.

    I'm not pleased that an important request like this is made 3 days before votes are tallied though.
     
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  12. TanteStefana

    TanteStefana Moderator
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    Unfortunately, even with duel citizenship, the USA only recognizes your US citizenship OR residency and those are the laws you must abide by. You can't escape them.

    None of these questions can be actually answered. By retaining a lawyer or law firm, you are getting their advice, not a guarantee. It's impossible to guarantee what a court will rule. The way I see it, we're starting a relationship with this law firm. We want to see what they can do for us, and allow them to get to know our particular needs and structure. Eventually, the Foundation will likely retain this law firm, and hopefully this one will be the right fit and a good choice, so that our relationship can grow from here. This firm does do international work, so I don't see a problem there. If this helps exchanges running in the US or Canada accept Dash, all the better, but I even doubt that is what holds any exchange back. I suspect we don't have the volume to be attractive. So the actual questions aren't as important to me as finding a good law firm to represent us for the future.
     
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  13. TanteStefana

    TanteStefana Moderator
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    Still, what you're trying to do here doesn't "Answer" any questions here. The only thing you can HOPE to achieve is to get a good law firm willing to partner with Dash when we start hitting brick walls and need to fight to establish a case, then we begin the process of 1. winning cases to establish case law, and 2. lobbying for actual laws in congress to clear the way for use, or knocking down bad bills being proposed by the dickheads in congress or knocking out laws they pass. Same for every country that has a democratic system.

    But this takes years in a relationship with a law firm to create a full foundation of understanding where we stand with current law, current case law that might be applicable, and to build our unique cases, IF we want to be prepared for an attack - and WIN!

    So even so this proposal, proposes to get "answers" I can guarantee you'll get no definitive answers, only guidance from a law firm, and that law firm will in turn be prepared to fight our case on the grounds they explain to us. That's what we'll get.

    Plus the most important thing, IMO, a relationship, where they've invested time to understand us and our unique needs.
     
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  14. camosoul

    camosoul Well-known Member

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    This isn't even sensibly granular. What's unacceptable in Floriduh (Open Carry) is perfectly legal 30 miles away in Georgia. I can Open Carry my knife in Indian River Country, but not in Broward... "Jurisdiction" is much more granular with all kinds of government all over the place...

    Frankly, a bunch of legal opinions are waste of time. I've had lawyers tell me that it' best not to own any gun ever because [insert political agenda/old wive's tales here]. None of it binding, and it won't save you if the guv comes anyway. Also realizing that the law has being pretty fluid due to the extremes of corruption that have become the norm. The law means whatever they want it to mean, and they may or may not even prosecute even with evidence in hand. Or they'll invent false evidence, re-interpret laws to mean the complete opposite of what is written, etc...

    With government in the condition that it is, this is meaningless. FinCEN and the IRS are already putting forth "opinions" of their own which are contradictory.

    You will get nothing definitive and nothing that will help you.

    You can indict a ham sandwich... You can be charged with anything, no evidence needed. You can be prosecuted for rape, right now, with no evidence, no victim, no claim that anything ever happened or that you were even in country at the made-up time. It's all about being able to afford a defense. If you can't defend yourself from the prosecutor, they can throw you in prison for anything they want with no evidence at all.
     
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  15. demo

    demo Active Member

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    So what is the solution on this?

    You physically host your masternode in (lets say) Estonia were the laws are not strict (and I mean physical hosting, just having an Estonia IP address is not enough), you gain your dash profit, you sell your dash to bitcoins or to the local currency, then exchange the bitcoins or the local currency to US dollars, then you import the dollars to US (nobody in US will ever ask you how you got those US dollars when you import them in US, they only ask for taxes). So you finally buy your ham sandwitch and eat. I already gave you the correct legal advice. And trust me, I am right. This is the legal-safe procedure, no need to pay 1500 dash to another to tell you the same thing! If you liked my legal advice, just give your tip to the universal dividend foundation.

    Thats why I think the most important issue is to discover in what country the laws are the more easy for hosting masternode services.

    So you need a DAO of lawyers funded by the budget, that can collaborate eachother and that they will write their legal report in their native language (do not trust english speaking lawyers explaining the laws of Estonia!). Then you need a DAO of translators of legal terminology (this is yet another budget proposal)
     
    #15 demo, Aug 31, 2016
    Last edited: Aug 31, 2016
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  16. GrandMasterDash

    GrandMasterDash Well-known Member
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    I once mocked there should be a MNO Compliance Program ... proposals like this just re-enforce my believe this will eventually happen. The master plan is to turn dash into a type of cooperative bank, Evan has pretty much said so. In the video with ABJ he talks about physical offices / branches. How's that going to happen unless all MNOs are known and compliant? With compliance also comes blocking of MNs that are not compliant.

    Mock me now but you can later reflect on what I said.
     
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  17. demo

    demo Active Member

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    You should put your opinion in a vote, and track down the votes.
    They may mock you now, but if the voting history is kept, you will mock them later on.
    This is one of the (many) reasons I always keep the history of a vote, and the nicknames who voted.
    The voting history will prove in the future who was the troll, and who was not.
    He who mocks last, mocks best.
     
    #17 demo, Aug 31, 2016
    Last edited: Aug 31, 2016
  18. Narroway

    Narroway New Member

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    Ryan,
    Just a thought, as US govt becomes progressively more Orwellian(plan on it), wouldn't it make a ton of sense to push aside all this and simply locate operations(?) in some friendlier locale?
    I can't see that it could have a negative impact more so than splitting the block reward did temporarily. Americans would still buy and sell via electronic systems. Dash as a whole may be set free.
    How does this seem to you?
     
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  19. Narroway

    Narroway New Member

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    Ryan,
    I am a very reasonable older man. Hopefully someone you would respect if you knew me. I feel I need to tell you that I trust and respect you just based on the interview with Amanda. That out of the way I feel very uncomfortable with your vision of becoming a alt-bank. Sure it's a great dreamy idea but you will entangle us all in a sea of legality which I don't believe the community would have a tolerance for if they knew what it entailed. The US gov and it banker handlers are not your friend. Sorry. I doubt it is workable as you state it. Dash will not be allowed or accepted because we threaten the staus quo.
    Better to strategically relocate the center of the Dash world at the expense of the US holder and save the future of the coin. The us holder, of which I am one, will find their own way to navigate.

    Put aside the rabbit hole lawyer proposal and find a way to spend that value somewhere else
     
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  20. FungibilityMan

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    Lawyers + Crypto? Oh geez. This will be one crazy ride me thinks... maybe it's time to start more darksend rounds for me lol. Best of luck to you guys I guess but this is concerning to say the least..

    :eek::mad:
     
  21. demo

    demo Active Member

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    yes they are!
     
    #21 demo, Sep 1, 2016
    Last edited: Sep 1, 2016
  22. camosoul

    camosoul Well-known Member

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    Such as developing a layer of protection for MNOs so that they don't have to navigate this mess. Failure to do so will result in this legal fishing expedition doing nothing more than coming up with a long list of reasons to shut down masternodes and implement these same features into a 1-tier system... IX and DS can be done without MNs... Protect MNOs before it comes to that.
     
  23. demo

    demo Active Member

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    Then why dont you add a proposal to the budget, about anonymizing MN and hide their IPs?
     
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  24. GrandMasterDash

    GrandMasterDash Well-known Member
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  25. Dworf

    Dworf Member

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    Copy from my statement on dashcentral.org:
    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.
     
  26. David

    David Well-known Member
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    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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  27. GrandMasterDash

    GrandMasterDash Well-known Member
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    What happens if the overall legal response is not very healthy / positive? We will adapt, right? How will we adapt? - we will comply or we will rebel? And so this is the problem; MNOs have been voting for projects but we've never been asked about the overall strategic goals.. do we want a compliant system that works with government, or will we accept to break rules so that we can re-imagine money? The answer to that question would help us enormously in deciding for this proposal and the other related proposals e.g. ATM Master Compliance Program etc. We are potentially sleepwalking into danger by doing this one proposal at a time.

    On a related note, I am concerned that a small number of MNOs are effectively pooling their votes to push these things through. If that is true (or can be imagined as true in the future), then I think we need to move to a MNO registration scheme and reject any nodes not registered against a MNO. I wouldn't want that but how else can we stop a select few from controlling a significant share of the votes?
     
  28. David

    David Well-known Member
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    The system is designed so that 1 masternode = 1 vote. It's not intended to be democratic (1 person = 1 vote). That's the way Proof of Work consensus functions as well, in that 1 hash essentially equates to 1 vote.

    Let me give you an example: let's say that that budget system was somehow changed to be 1 person = 1 vote. Those who operate large numbers of masternodes could simply refuse to upgrade to that new version of dashd, which would prevent such a change from going into effect.
     
    #28 David, Sep 1, 2016
    Last edited: Sep 1, 2016
  29. demo

    demo Active Member

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    Yes of course, the system is designed like that. But the design can change, if the masternodes decide about it.

    You have to set the maximum number of votes a unique person should have, to avoid sybil attacks. This of course requires also a web of trust, or any other individuality check scheme.

    What is the solution to this? Vote with numbers of course, what else? Currently you have set the maximum votes a unique person is allowed to have to the total number of masternodes. This is a hardcoded magic number, and hardcoded magic numbers should always be voted. So you need a vote asking about the maximum number of votes someone should be allowed to have. Everybody should cast a number vote inbetween 1 and the number of all masternodes (the number of masternodes varies of course, so you may vote from 0 to 1 and all the inbetween numbers, where 0 corresponds to 1 vote and 1 corresponds to the number of all masternodes). And then calculate the result as an average.
     
    #29 demo, Sep 1, 2016
    Last edited: Sep 1, 2016
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  30. GrandMasterDash

    GrandMasterDash Well-known Member
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    Sorry, I probably didn't explain well enough. I wasn't thinking one person one vote... I was thinking more of a sliding scale, that a person with 100% of nodes would have zero votes and a person with one node would have one equal vote. Thus, MNOs would be forced to choose between profits or politics (provided we could determine unique humans).

    I say this because the last I looked (a very long time ago), Evan had well over 300 nodes and, in theory, a compounding of nodes (profits generating new nodes), would eventually lead to domination.
     

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