Untangling Some of the Complexity around Tokenization
- Possession vs Ownership
- Conclusion: If you don’t have possession or custody of the asset, it may be expensive proving it is yours in court.
- Comparison to Cryptocurrency
- Conclusion: You have self-evident proof of ownership and control with crypto keys ONLY IF you don’t use a hosted wallet.
- Hosted vs Unhosted Wallets
- Conclusion: Some governments require institutions to collect information in some cases about unhosted wallets so you can get blocked, penalized, and extra hoops to jump through.
- When the Internet Fails
- Conclusion: Without a mesh or redundant network in place, blockchain networks are vulnerable to government, ISP, and natural disaster internet outages. You can’t prove you own it if you can’t access >50% of the network.
Questions:
- Do you believe most people to keep their crypto in a hosted wallet out of connivence?
- Do you believe corporate interests and their unelected deep state puppets are in more control of financial and crypto regulation than our elected officials?
- Do you trust the government or ISP will never turn off the internet?
Possession vs Ownership
The phrase “possession is nine-tenths of the law” suggests that physical possession of an item gives the possessor a stronger legal claim to it than someone who merely asserts ownership without possession. This expression is not a literal legal principle but rather highlights the practical advantage of holding an item when ownership is disputed. It implies that in the absence of compelling evidence to the contrary, the person in possession is presumed to be the rightful owner[1][2][3].
Origins
The phrase is believed to have originated from a Scottish proverb: “possession is eleven points in the law, and they say they are but twelve.” The earliest recorded use of a similar expression dates back to 1616 in Thomas Draxe’s Bibliotheca Scholastica, where it was noted as “possession is nine points of the Law.” This historical context suggests that possession was considered a significant factor in establishing ownership, satisfying nine out of eleven points needed to prove ownership at the time[2][6].
Application in Law
Although the phrase is commonly used, it is not an actual legal doctrine. Instead, it serves as a guideline to illustrate the importance of possession in legal disputes, particularly in property law. In property disputes, the person with physical possession often has a prima facie claim to ownership, meaning the other party must provide evidence to refute this claim[3][4]. This principle is also reflected in legal doctrines like adverse possession, where continuous possession can eventually lead to legal ownership under certain conditions[5].
Limitations
Despite its common usage, the phrase does not mean that possession alone guarantees ownership or legal rights. Legal documents and further evidence are often necessary to establish rightful ownership, especially when legal disputes arise. Therefore, while possession can provide a strong presumption of ownership, it is not definitive, and legal processes may require more substantial proof[3][6].
Citations
[1] https://en.wikipedia.org/wiki/Possession_is_nine-tenths_of_the_law [2] https://fresnocriminallawyer.com/what-does-possession-is-9-10-of-the-law-mean/ [3] https://scottbentleylaw.com/blog/possession-is-9-10-of-the-law-learn-about-law.html [4] https://theluxlawfirm.com/what-does-possession-is-nine-tenths-of-the-law-mean/ [5] https://www.fredlaw.com/alert-is-possession-really-nine-tenths-of-the-law [6] https://www.bookbrowse.com/expressions/detail/index.cfm/expression_number/295/possession-is-nine-points-of-the-law
Comparison to Cryptocurrency
The phrase “possession is nine-tenths of the law” and the crypto adage “not your keys, not your coins” both emphasize the importance of control in determining ownership, but they apply to different contexts and have distinct implications.
Comparison
| Aspect | Possession is Nine-Tenths of the Law | Not Your Keys, Not Your Coins |
|---|---|---|
| Context | Traditional legal and property disputes | Cryptocurrency and digital asset management |
| Meaning | Physical possession provides a strong presumption of ownership | Control over private keys is essential for true ownership of cryptocurrency |
| Implication | Possession can influence legal outcomes in disputes over physical property | Without private keys, you rely on third parties and may not have full control over your digital assets |
Explanation
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Possession is Nine-Tenths of the Law: This phrase suggests that having physical control or possession of an item gives the possessor a significant advantage in legal disputes over ownership. It highlights the practical importance of possession in resolving property disputes, though it is not a formal legal principle.
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Not Your Keys, Not Your Coins: In the cryptocurrency world, this phrase underscores the critical role of private keys in maintaining control over digital assets. If you do not control the private keys to your cryptocurrency wallet, you effectively do not control the assets within it. This is because private keys are necessary to authorize transactions and prove ownership on the blockchain[1][4][5]. The phrase warns against storing cryptocurrency on exchanges or platforms where you do not have access to the private keys, as this can expose you to risks like hacks or the platform’s insolvency[6][7].
Conclusion
While both phrases emphasize the importance of control in establishing ownership, “possession is nine-tenths of the law” pertains to physical possession in legal contexts, whereas “not your keys, not your coins” relates to digital ownership and the security of cryptocurrency assets. The latter stresses the importance of self-custody and the risks associated with relying on third-party custodians for managing digital assets.
Citations
[1] https://sgt.markets/understanding-the-importance-of-private-and-public-keys-in-cryptocurrency/ [2] https://financialsource.co/private-key-2/ [3] https://komodoplatform.com/en/academy/bitcoin-private-key/ [4] https://www.cultofmoney.com/not-your-keys-not-your-coins/ [5] https://www.ledger.com/academy/not-your-keys-not-your-coins-why-it-matters [6] https://www.reddit.com/r/ledgerwallet/comments/1b1bi6n/not_your_keys_not_your_coins_pros_and_cons/ [7] https://money.yahoo.com/not-keys-not-crypto-know-142532592.html?guccounter=1 [8] https://buybitcoinworldwide.com/glossary/not-your-keys-not-your-coins/
Hosted vs Unhosted Wallets
In the United States, the regulatory approach to hosted and unhosted cryptocurrency wallets reflects concerns about security, privacy, and the potential for illicit activities.
Hosted vs. Unhosted Wallets
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Hosted Wallets: These are custodial wallets managed by third-party service providers, such as cryptocurrency exchanges. The provider holds the private keys, meaning users do not have direct control over their assets. Hosted wallets are subject to regulatory oversight, including Know Your Customer (KYC) and Anti-Money Laundering (AML) requirements[4][6].
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Unhosted Wallets: Also known as self-hosted or non-custodial wallets, these allow users to control their private keys and, thus, their assets. Unhosted wallets are not managed by third-party providers, which means they do not inherently require KYC or AML compliance[4][6].
Regulatory Treatment
The U.S. Treasury and the Financial Crimes Enforcement Network (FinCEN) have expressed concerns over unhosted wallets due to their potential use in illicit activities, given their anonymity and lack of regulatory oversight. In December 2020, FinCEN proposed rules requiring financial institutions to collect and report information on transactions involving unhosted wallets exceeding certain thresholds. Specifically, they proposed that transactions over 3,000[1][3][5].
However, these proposals have faced significant pushback from the cryptocurrency industry, which argues that such requirements are burdensome and infringe on privacy. Consequently, the proposed rules have been stalled and remain under consideration[3][5].
Challenges and Considerations
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Privacy vs. Security: Unhosted wallets offer greater privacy and control for users, aligning with the ethos of decentralization in cryptocurrency. However, this also makes them attractive for illicit activities, prompting regulatory scrutiny[2][3].
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Compliance: The lack of intermediary oversight in unhosted wallets complicates compliance with AML and Countering the Financing of Terrorism (CFT) standards, as these wallets do not naturally undergo KYC processes[3][6].
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International Influence: The Financial Action Task Force (FATF) has also provided guidelines suggesting that countries assess and mitigate risks associated with unhosted wallets, influencing U.S. regulatory approaches[3][5].
In summary, while unhosted wallets provide users with more control and privacy, they also present challenges for regulators concerned with preventing illicit financial activities. The U.S. continues to explore regulatory measures that balance these concerns with the need to protect user privacy and innovation in the cryptocurrency space.
Citations
[1] https://www.chainalysis.com/blog/treasury-department-nprm-unhosted-wallets-2020/ [2] https://www.coincenter.org/how-i-learned-to-stop-worrying-and-love-unhosted-wallets/ [3] https://www.elliptic.co/blog/analysis/unhosted-wallets-crypto-s-biggest-compliance-conundrum [4] https://www.finextra.com/blogposting/24106/if-you-are-a-casp-or-own-unhosted-crypto-wallet---you-should-read-this [5] https://crystalintelligence.com/crypto-regulations/the-travel-rule-hosted-vs-unhosted-crypto-wallets/ [6] https://www.scorechain.com/blog/unhosted-wallets-compliance [7] https://www.ledger.com/academy/not-your-keys-not-your-coins-why-it-matters
When the Internet Fails
The threat of being blocked from the internet or experiencing an internet outage poses several challenges to blockchain networks, including Bitcoin. Here are the primary concerns and potential impacts:
Impact on Blockchain Operations
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Transaction Processing: Blockchain networks rely heavily on internet connectivity for the validation and propagation of transactions. If the internet goes down, transactions cannot be processed, leading to a temporary standstill in the network’s operations[3][4].
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Delayed Confirmations: Internet outages can cause delays in transaction confirmations. For instance, Bitcoin transactions typically take about 10 minutes to confirm, but an outage can extend this timeframe significantly, causing frustration among users[3].
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Network Synchronization: The decentralized nature of blockchain means that nodes must communicate to maintain a consistent ledger. Internet outages can disrupt this communication, potentially leading to issues with network synchronization and data consistency[4].
Resilience of Blockchain Networks
Despite these challenges, blockchain networks like Bitcoin and Ethereum have inherent resilience due to their decentralized structure:
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Decentralization: The decentralized nature of blockchain networks means that not all nodes need to be online simultaneously for the network to function. Transactions can still be validated by nodes with internet access, minimizing the impact of localized outages[4].
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Redundant Systems: There are efforts to develop redundant systems, such as mesh networks and satellite-based communication, to ensure that blockchain networks can continue to operate during internet disruptions[3].
Mitigation Strategies
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Offline Transactions: Bitcoin and other cryptocurrencies can utilize “cold storage” solutions, where transactions are signed offline and later broadcasted when internet access is restored. This ensures that funds remain secure even during prolonged outages[3].
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Alternative Communication Channels: Developing alternative communication methods, such as satellite internet or mesh networking, can provide additional resilience against internet outages[3].
In summary, while internet outages can disrupt blockchain operations by delaying transactions and affecting network synchronization, the decentralized and resilient nature of these networks helps mitigate the impact. Additionally, ongoing efforts to develop redundant systems and offline transaction capabilities further enhance their robustness against such disruptions.
Citations: [1] https://www.icaew.com/technical/technology/blockchain-and-cryptoassets/blockchain-articles/blockchain-case-studies [2] http://www.jatit.org/volumes/Vol102No4/24Vol102No4.pdf [3] https://plasbit.com/crypto-advanced/what-happens-to-bitcoin-if-the-internet-goes-down [4] https://cointelegraph.com/news/can-internet-outages-really-disrupt-crypto-networks [5] https://www.cryptotimes.io/2024/07/20/crypto-space-reacts-to-crowdstrike-it-outage-as-blockchains-stay-unaffected/ [6] https://www.forbes.com/sites/bernardmarr/2023/04/14/the-5-biggest-problems-with-blockchain-technology-everyone-must-know-about/ [7] https://bitcompare.net/post/what-is-bitcoin-51-attack