The common theme these days for blockchain applications, and particularly early stage blockchain software startups, is to leverage an existing public network. Most often, this is Ethereum, and potentially will extend into EOS once their mainnet goes live.

The advantages of launching atop a public network is pretty obvious – mostly because launching a hardened public blockchain infrastructure is… well… hard.

And… it’s expensive to maintain the network infrastructure with security and redundancy for an enterprise grade system. All the consensus infrastructure is accommodated by miners and witnesses writing to the blockchain in a public protocol.

While this may be advantageous for some, we realized the hidden dangers lurking underneath. These risks were far too great to overcome for us.

Network Latency & Resource Planning

First of all, there’s no ability to manage any sort of meaningful load balancing and throughput availability with a public network. You’re totally at the mercy of the mining availability, the block size, production rate, and subject to bursts of activity completely unrelated to your own application ecosystem. Even if you’re running your own mining infrastructure, you’re unlikely going to increase any sort of throughput against the entirety of the network as a whole.

Public Airdrops

When you’re running on a public network, you’ll eventually be graced with the appearance of garbage token airdrops for things like Toiletcoin or Boobiecoin. Any idiot with an IDE can hack up an ERC-20 token at will, including those that would likely constitute an “unregistered security”. You awaken some morning as the proud new owner of .0002 Shitcoin through no involvement of your own other than you happened to have a public Ether wallet address.

This doesn’t bode well for the future of public chain ecosystems already plagued with the legalities of various securities and commodities landmines waiting to detonate.

Convertible Virtual Currency

Early in the life of Bitcoin, there was a series of opinion letters and publications from US government agencies, which discussed various aspects of the law – and ultimately clarified the assertion from the regulators of what does and doesn’t constitute a “convertible virtual currency”. Having since been further classified as a commodity, there’s a body of publication that sets forth the attributes of what makes Bitcoin “legal” as an electronic currency vs. being a security – or in the case of a currency, when a particular use case requires licensure as a money transmitter.

Suffice it to say, without diving deeply into the detailed complexities, there’s a clear path towards creating a utility token that doesn’t constitute a security. But ultimately it requires a startup to essentially establish an entire blockchain infrastructure dedicated to that use case vs. layering the application on top of something like Ethereum as an ERC-20 token extension.

The other issue is that of “pre-mining”, which means that you cannot create all of the tokens and allocate them to yourself in advance to be sold to buyers. This butts up against FinCEN’s definitions of money transmitter, which means aside from likely being a security, the token use case constitutes the need for ICO issuers to also be a money transmitter. The SEC is bad, but they’re all up on the civil side.


They have guns.

They will kick down your door and shoot your dog.

Big, huge, hairy problems across the entire ecosystem such that I expect the regulatory scourge to deepen over time. Remember kids, the thing about immutability of the blockchain is that everything is there for eventual retroactive enforcement.

Our Private Idaho

All of these factors combined pointed to the obvious – we needed to create our own ledger and chain infrastructure. In doing so, we’re able to ensure that we can better plan and control our network resources.

Our users won’t be spammed with shitcoins simply by existing on our network (user experience matters – especially when attracting new, non-blockchain enthusiast, casual users to use case-specific applications).

And most of all, it provides us with the necessary framework to create an unquestionable utility token that doesn’t run afoul of regulatory inquisition.

Sure, right now we’re pretty centralized. We control the network. However, in the beginning of Bitcoin, it was pretty centralized. Then more people joined in. We already have a decentralization strategy baked into our business development model that will eventually involve hundreds and thousands of stakeholders to provide a transparent, democratic, decentralized ecosystem.

The choice for us was obvious.

Don’t just create your own “coin”, build your own blockchain infrastructure.

We can help.

About Michael Hiles

Founder CEO of 10XTS. Developing enterprise software and information architecture since 1979. Managing director of Founder Institute Cincinnati. Bourbon, coffee, Legos, things that explode. Husband & daddy.

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