Bryce Weiner, CEO and Co-founder of AltMarket and the founder of the TAO network spoke at New York Blockchain & Digital Assets Summit, held at New York City Bar Association.

Other notable panelists of this event included:

- Robert A. Cohen, Chief of the Cyber Unit, Division of Enforcement at the SEC

- Andrew Ceresney, Partner, Debevoise & Plimpton; former Director of Enforcement at the SEC

- Haime Workie, Senior Director and head of Office of Emerging Regulatory Issues, FINRA

This is a transcript of the Q&A panel held with Bryce, moderated by Carlos Roa, CEO of Deus Ex Machina Capital. Full video recording of the Q&A session can be found on YouTube.

Carlos introduces Bryce

Bryce: I don’t speak in public very much. My background is I’ve been in technology since my early 20s; You can tell I’m a little grey in the beard compared to most folks in this industry. I’m one of the few that is over 40. I’ve worked for Thomson Reuters, Lockheed Martin; Two of the largest companies in the world.

I’ve worked for small businesses, medium sized firms, pretty much the entire gambit. Like most folks, discovered Bitcoin and I actually operated a pretty large mining farm. I had a 10 Terahash mining farm, which nowadays, you can fit them on this desk. However, back in those days, I ran a small warehouse in order to mine Bitcoin.

In 2013, I launched my own cryptocurrency and I have launched hundreds of cryptocurrencies. Not securites. Not tokens. Cryptocurrencies.

These are independently operating blockchains, fully formed from the first moment they are lauched. In all of this time, I’ve ever only done one Initial Coin Offering (ICO): TAO Network, which is the current network I have now.

There is a technological and economic reason to do ICOs, based on the kind of technologies you implement in your network. Proof-of-Work (PoW) mining, for instance what Bitcoin uses, monetizes the network before its traded. When you launch a cryptocurrency and miners come to mine your network, they are expending electricity and quite frankly, could be mining someone else’s coin instead of yours. That speculative process begins with the act of crypto-mining.

If you remove PoW mining, for instance in the TAO network where we use Proof-of-State (PoS), you have to replace that initial monetization incentive as well as create an initial distribution. In this sense, an ICO is actually the perfect example. However, we did things a little different than most folks.

We ran our ICO for 30 days, we did limited advertising and we actually capped the ICO at a hundred thousand dollars.

Carlos: Why $100k?

Bryce: Well, two reasons. Number one, it wasn’t really necessarily to monetize any larger than that. It was not a corporate cash-grab, capital formation or anything like that. Number two, that is the line for the JOBS act. When you go over a $100k, then you start to catch the interest of the SEC.

Quite frankly, a cryptocurrency is not a security. In fact, thank you Chairman Clayton for finally saying that. When he says Bitcoin is not a security, the next question we can ask is, why? And what is it about Bitcoin that is unique compared to these other networks? Myself and other cryptocurrency developers in the space, which likely number around a hundred worldwide, that actually create and launch cryptocurrencies. We all know what those differences are. We’ve known them for years. That’s why none of us are in jail.

We don’t monetize our network for personal wealth or personal gain. You might see a couple cryptocurrency developers walking around with watches that costs 800k USD. That… might be a security.

Carlos: What is TAO network and what is your plan for the music and blockchain industry?

Bryce: One of the things that is really important about the music industry is that it was virtually unregulated for most of the 20th Century. Oddly enough, a lot of the things that we are currently dealing with in the cryptocurrency space, the music industry has already dealt with. Things like Payola, Bunco and mafias investing in an album, only to buy a million copies to launder money and then dumping the albums in the desert; That sounds like a pump and dump ICO to me.

We’ve seen a lot of this before and things like revenue sharing, for instance, music royalties have very well-defined legal pathways. When you look at things like the sharing of rights, or then the tokenization of those rights, those laws do not go away; Those legal precedents don’t disappear. Taking a look at what some of these blockchain projects in music are actually attempting to do, what the music industry sees is actually different from what the crypto industry sees. What the music industry sees is all of the terrible things that they got away from in the last 100 years, to make the music industry something that actually resembles an industry, as opposed to a bunch of mobsters. I make these jokes because everybody knows it; Like this is old hat in the music industry. Nobody talks about it because it is not like that anymore and it is not how it works anymore, but that was the bad old days.

The amount of similarity between the bad old days of the music industry and what I absolutely believe is a crypto bubble, is shocking.

When you put on top of that, the experience of also living through the dotcom bubble, which most of my peers in this industry were in 6th grade, that really puts a perspective on the things that are going on, which from my perspective is drastically different from most folks.

What we’ve done, is because I’m from cryptocurrencies and not securities, smart contracts or any of that craziness, we have in fact created commodities.

Tradable, branded, licensed tokens. These are tokens that bear the image and likeness of a celebrity.

Carlos: So, like Coinye in 2014 before the lawyers shut it down?

In fact, the legal precedence for our token, is the lawsuit Kanye West levied against the cryptocurrency network for creating a cryptocurrency that bore his image and likeness without his permission. A court served them with an injuction that they had to stop; which they most certainly did. So, these things can be enforced and when people say you can’t enforce law on the blockchain, I would beg to differ. My entire business model is derived from it.

Carlos: You talk about artist-backed coins and naturally, part of me is skeptical towards this; Although this is the same industry where Dogecoin reached a market capitalisation of $2 billion and two weeks ago, a RarePepe trading card sold for $12k.

Yes, and we’ve all heard of CryptoKitties. In the industry, things such as CryptoKitties and Rare Pepes are referred to as non-fungible, because they are unique, and they can’t actually be used as a currency; Hence, they are non-fungible collectibles. In our sense, we are more like baseball cards or The Franklin Mint, where these are collectible commodities that is more efficient in peer-to-peer trading than putting it up on eBay, which is essentially how these things are traded now.

Carlos: Let’s run through the process of how one of these IAO would be created. Say, I’m a music artist, where do I go first?

At the moment, we will be starting off with large celebrities because that will generate the most draw, of course. The intent is to develop this toward a more Patreon-like system. Looking from that bigger goal, the first is of course, to verify that someone is in fact an artist. This paradigm actually allows us to do things in the name of regulatory compliance, that the record industry used to do; Like sending out talent scouts and agents to dive bars looking for new talent. Now, we actually have to do that in order to do AML/KYC validation, to verify that these people are in fact an artist and they are playing in bars, just looking to buy new guitars or what not. On a larger scale, for a celebrity, the first thing is always a rights assignment.

For every celebrity that we represent, and we have a growing number, of which the first two we have announced are Digital Underground and Ol’ Dirty Bastard (ODB) from Wu Tang Clan.

We actually have rights assignment letters for their intellectual property. We have exclusive use to render their intellectual property within the cryptocurrency space. To the music industry, these look like T-shirts. It’s one more merchandising arm that an artist can now employ in their quiver of revenue streams.

There’s nothing new under the sun going on here, except for the transmission medium itself, is a cryptographic token.

For this, we run Counterparty, where TAO network is a Bitcoin compatible blockchain, with a Counterparty fork. The technology is very low hanging fruit, nothing complex and having been in the wild for years. We are simply implementing it for this new purpose. So we create the token, we have a captive network and not just anybody can create these celebrity tokens. It has to be us, AltMarket, in order to satisfy the legal protections involved.

Then, the question will be, does the use of TAO network make XTO token, a security? In our lawyer’s opinion, no. We actually went and talked to the SEC, whom which we have a continuing dialogue with.

In fact, we were in the SEC’s office in Washington D.C. two weeks ago and the conversations were fantastic — Absolutely amazing.

I’ve sat here this entire afternoon and listened to some of the other speakers and boy, oh boy, some of the things I’ve heard here today are a little disturbing compared to the things I actually heard coming from the SEC’s mouth. I wouldn’t point fingers, however, I think it’s fair to say that there is a curve as far as the dissemination of information, as far as what’s important and what isn’t. Being able to create these celebrity tokens as commodities, of course the first hurdle we have to cross is, it cannot be a security.

I’ve been a FinCen licensed MSB since 2014, so I issued all my virtual currencies as an actual money transmitter.

So, you have FinCen’s definition from 2014 and you have the SEC coming down this way squeezing from the top. There’s this very narrow space where we can see commodities and cryptocurrencies going to exist. These do not look like and operate anything like securities; They are not launched the same, they are not implemented the same, they are not executed the same, they are not monetized the same.

Initial Artist Offerings (IAO) is in fact an ICO, we are not trying to fool anybody.

Instead, we are attempting to establish, by calling it an IAO, that there is absolutely a different regulatory pathway being employed. Since securities have simply dominated the ICO space, it’s really just bad branding for us to use it at this point. Or one could call it, Initial Commodity Offerings.

Carlos: What is AltMarket?

Now, you have these celebrity branded tokens and you could technically have them traded on any exchange in existence. However, when you look across the space and as I was looking at my phone just now, CoinDesk just released news saying the SEC are underwhelmed by the response from exchanges. When you think about an artist’s brand and their name, where their name is the value of their product once they have established themselves, you will not authorise some exchange that could potentially run afoul with the SEC to trade, essentially your name and likeness.

In order to render these currencies on the market, we actually had to build an exchange from scratch, because no lawyer would ever sign off a celebrity-branded cryptocurrency to being traded on Bittrex.

They just wouldn’t. It is what it is. These are US markets and there is very few of them, where the liability and risk is simply too high; They exist in a legal grey area too extreme to be able to handle this level of intellectual property. That being said, we engaged directly with the CFTC and the SEC from the very first day, in an attempt to build that regulatory pathway. I love everytime Chairman Clayton opens his mouth and says the word ‘cryptocurrencies’, I cheer because they are not a new asset class. They are a specific kind of asset that is not securitized.

When you think about it, cryptocurrencies are not launched by companies. They are just launched by people, guys like me, in our basements and garages.

We post them up somewhere and a bunch of people start to like our idea and they think we’re neat; That is how a community is formed. When you start to talk about manafacturing communities, that’s one of the things where the SEC starts to look and ask, ‘What are you really doing?’ This is because, when you start to try and encourage communities, you are literally starting to encourage value to enter that network, which is essentially marketing. And if you’re marketing to unaccredited investors a securitized product, that’s a no-no.

Carlos: So AltMarket will trade IAO tokens and I assume other types of cryptocurrencies?

A wide range. Of course, at the beginning we will be like everyone else, we are going to pursue Broker-Dealer and Alternative Trading Systems status, because it’s a regulatory umbrella. That is your safe harbour right there, you become a Broker-Dealer.

Carlos: How about fiat on-ramp?

Absolutely. In fact, we are looking to become a regulated swaps market with the CFTC. However, even the swap rules for the CFTC at an in-depth level regarding commodities and futures, they could require a little bit of modification. What cryptocurrency exchanges may run into, in fact, it’s one of the things we’re running into, is if we avail ourselves to the existing regulatory pathways through the CFTC, we actually agree to things we can never fulfil, because cryptocurrencies do not work like gold, or pork bellies.

For instance, there is no clearing house, it’s just the exchange. So then, all of the reporting requirements between the FCM, the clearing house and the liquiditiy provider, it’s all one-stop shop, which means we’re reporting to… ourselves? It really makes no sense. When you break down what that looks like, this actually creates a potential for fraud and abuse, if you follow the rules that are laid out.

We are going to start to work with the CFTC in helping mature some of these regulations.

Honestly, I would like to see a new set of exams for cryptocurrencies. I’ve taken the series 65 and I’m on the schedule for the series 32, I would like to see a cryptocurrency-specific exam, at least for developers. I think to prove a developer has a minimum amount of understanding of economic and regulatory knowledge is not out of the question. Afterall, these exams cost a trivial amount of money.

Carlos: To summarize, you are launching compliant, US-based consumer facing exchange?

Oh, absolutely. I mean, we are not going to sell ODB coins to private investors; This is definitely a mass market product.

Carlos: Fiat on-ramp and I assume, US banking?

Yes, in fact JP Morgan Chase is our bank.

Carlos: Despite, Jamie Dimon saying all these things about Bitcoin?

Money is money.

Carlos: What about expansion plans abroad?

Yes, we actually have an international arm that is incorporated in Malta, because Malta is the spot to interface with the EU. I know that Switerzland is everybody’s big fan, because they have the regulations already set. However, I am kind of a guy that likes to go in and help them make the regulations. Malta is one of those areas right now.

Carlos: Maltese Banking?

Bank of Valletta

Carlos: Already? Binance just announced theirs yesterday

We’ve had it for a month.It’s the difference between doing things the right way and needing to make a lot of noise because you’re afraid that someone is going to come and shut you down. When you just walk through things, then you don’t have to make a big splash, because when you turn on the spigot, you can actually advertise to everybody else on the planet.

We are absolutely planning on television ads, because, we can.

It’s a commodity. Pork is the other white meat, everybody has got milk. You can do this with commodities.

Carlos: Okay, so AltMarket is Coinbase 2.0, with your own exclusive coin launches?

As opposed to venture capital attached to venture capital funds which create an obvious conflict of interest.

Carlos: Will you be getting a cut of all of these through trading fees and the launch of IAO tokens as well?

Alt Market actually makes a portion of the IAO sale. This is for the purpose of implementation of the technology, ongoing brand protection, we actually do gain a portion of the proceeds from the initial sale. But our trading fees are simply to prevent wash trading. It’s not intended to be punitive or profit-centered.

One of the problems the SEC has with this space, is in fact people like me. That is why I personally wanted to lobby and engage Congress and regulatory bodies directly on behalf of all cryptocurrency developers, even the ones I don’t like. Because, we are the people that create the networks that the entire world trades.

If done correctly, this is the American dream reborn.

You can literally have entreprenuers creating cryptocurrency networks in their garages, monetize them for as much money as they can get, borrowing from their friends and family, and setting up a business. Is that a security? Or is that the American dream?

There is a balance here that needs to be struck and I think we are getting closer and closer and closer to that balance in a very positive way.

I don’t see anything that is going on in the regulatory space as negative, not even people going overseas. Quite frankly, if you go overseas to escape US regulations, it is what it is. You kind of look like you’re trying to get away with something. I’m not one who believes in regulatory arbitrage. If you have a legitimate, honest product, there should be no problem launching in the United States.

In fact, it should become the gold standard for legitimate, honest products.

Carlos: Last question, when does Alt Market launch?

It is very much under active development right now. Our platform will go live towards the end of July, which is under 60 days.

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Disclosure: The author owns XTO tokens

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