TNT-Bank Software: SEC Approach – Business Plan
By Joseph Mark Haykov
September 5, 2024
What is TNT-Bank Software?
TNT-Bank software is an enhanced and more advanced version of the original Bitcoin software—much like how the iPhone represents a "second generation" compared to the early, poorly conceived BlackBerry. While TNT offers smart contracts similar to those on Ethereum and other competing platforms, its primary function, like that of Bitcoin and other cryptocurrencies, is to manage a general ledger where transactions are stored as debit-credit pairs. These transactions collectively determine the balance of funds in TNT-Bank accounts, functioning similarly to how traditional banks manage balances and how Bitcoin software manages balances in Bitcoin wallets.
TNT-Bank funds—simply ledger entries in a database, also referred to as coins or tokens—can function as utility tokens when not backed by any asset, making them comparable to cryptocurrencies like Bitcoin, Ethereum, Cardano, Solana, and others. Alternatively, these digital entries can function as shares representing fractional ownership of assets, akin to initial coin offerings (ICOs). The SEC classifies ICOs as certificates of fractional ownership in underlying businesses, requiring them to be registered as securities. This is precisely why Bitcoin, Ethereum, and similar cryptocurrencies are exempt from registration, as they are considered utility tokens.
For a brief, illustrated introduction to TNT, followed by a detailed Q&A that explains exactly how TNT-Bank software operates, please visit Learn More About TNT. If you require a more technical explanation after viewing the presentation, please refer to our white paper available at TNT Whitepaper. For the purposes of discussing the TNT-Bank software business plan, the Q&A provides sufficient background. Additionally, a brief technical overview of TNT is provided below.
Technical Overview
Transparent Network Technology (TNT) is a patent-pending, open-source distributed software that runs on multiple servers simultaneously and, like Bitcoin, Ethereum, Cardano, Solana, Polkadot, Ripple, and other similar platforms, maintains a synchronized database across multiple redundant nodes of equal rank. The key distinction of TNT-Bank software lies in its use of batch processing as a consensus mechanism. This means that TNT peer-to-peer nodes do not need to trust each other, which is why TNT stands for True-No-Trust—or, equivalently, True-Node-Trust. The integrity of each node within the TNT network is independently verifiable by every other node and wallet. This is achieved through consistent and equal knowledge of all pending transactions and current account balances, ensuring symmetric information—a critical factor in achieving what is known in game theory as a Nash Equilibrium, where honesty becomes the dominant strategy and fraud, such as double spending, is rendered impossible both in mathematical game theory and in practice.
TNT maintains full transparency during payment processing by strictly prohibiting any database updates outside of batch processing. Payments in TNT are accepted by any peer-to-peer node, operating similarly to other systems like proof-of-work, proof-of-stake, and proof-of-history. However, the key difference with TNT is that no proof is needed. Instead, at scheduled times, all nodes stop accepting new payments and focus solely on processing existing ones. This occurs during what can be likened to an "overnight closing period," similar to those at traditional banks. During this period, all nodes reconcile and record all pending payments under fully symmetrical knowledge of current balances and transactions. TNT software ensures trust through transparency, leveraging its exclusive use of batch processing—hence the name Transparent Network Technology.
Business Overview
From a financial perspective, TNT-Bank software functions as a decentralized general ledger maintained across multiple peer-to-peer nodes. It fulfills the traditional role of banks by facilitating the trading and accurate recording of fractional ownership of underlying assets—or, in some cases, of nothing. In the latter scenario, fractional ownership of nothing effectively becomes digital money, indistinguishable in theory or practice from Bitcoin, Ethereum, the U.S. dollar, or any other fiat currency traded on the Forex market today. Historically, all bank money originated as fractional ownership of gold held in bank vaults—known as representative money—and eventually evolved into representations of "nothing" with a limited or controllable money supply. This is what fiat money is today: representative money convertible into nothing, as fiat currency is not backed by any physical asset, similar to Bitcoin or the Euro.
Financial institutions such as investment banks (e.g., Goldman Sachs), exchanges (e.g., NASDAQ and NYSE), clearing corporations (e.g., DTCC), brokers (e.g., Fidelity and E-Trade), and commercial banks (e.g., JP Morgan) collectively serve the same purpose as banks: maintaining precise records of fractional ownership of assets. These assets range from fiat dollar funds—represented by balances in brokerage, checking, or savings accounts, which are part of the immediately spendable on-demand M2 money supply ("medium of exchange" money in the U.S., as estimated by the Federal Reserve)—to shares in corporations like Ford and IBM, represented by the shares in your brokerage account.
Exchanges like the NYSE and NASDAQ facilitate the easy exchange of M2 U.S. dollar funds for publicly traded shares of corporations, which are essentially certificates of fractional ownership. Additionally, newer financial instruments, such as exchange-traded funds (ETFs), allow for fractional ownership and trading of not only corporate shares but also other assets, such as gold, commodities, and stock portfolios like the S&P 500. With the recent SEC approval of Bitcoin-backed ETFs, retail investors can now gain fractional ownership of Bitcoin by purchasing Bitcoin ETF shares in their brokerage accounts.
TNT-Bank software fulfills this essential banking function—the original purpose of banks and double-entry accounting—by enabling end users to accurately track and trade fractional ownership of real-world assets, intellectual property, or even "nothing" at all. When there is no underlying asset, TNT-Bank funds become a form of money—a currency similar to fiat U.S. dollars, Bitcoin, or any other digital currency where payments are recorded as debits and credits. TNT-Bank software thus provides the same functionality to end users as a broker offering only cash accounts without margin or a Reg D hedge fund administrator keeping track of which investors own how many shares of the fund. However, instead of a centralized entity, TNT-Bank software is collectively owned and operated by all "TNT-Bank clients," with the general ledger and smart contracts managed collectively by the peer-to-peer nodes running TNT-Bank’s open-source software.
TNT-Bank Funds: Disintermediation and Decentralized Security
TNT-Bank software – like any other double-entry accounting system – records transactions as debit-credit pairs in a general ledger. However, TNT-Bank software distinguishes itself by streamlining and enhancing the global financial system through the removal of unnecessary intermediaries in maintaining the general ledger where fractional ownership records are kept and freely exchanged. This disintermediation not only simplifies the process of keeping track of fractional ownership but, more importantly, makes trading fractional ownership shares significantly safer, cheaper, and more efficient by drastically reducing counterparty risk. By eliminating intermediaries who could introduce fraud or other complications, TNT-Bank software ensures a more secure and trustworthy financial environment. In this regard, TNT-Bank funds mirror the counterparty risk mitigation abilities of Bitcoin, whose general ledger is also maintained by multiple custodians—not only Bitcoin miners but also peer-to-peer nodes to which wallet applications directly connect.
This decentralized structure—where the custody of funds is spread across multiple independent entities—is why Bitcoin carries almost no counterparty risk. For example, despite the failure of the FTX exchange, individual Bitcoin owners with wallets were unaffected—even those affiliated with FTX—and could indeed continue to trade their Bitcoins on competing exchanges like Binance or Coinbase. In contrast, when First Republic and Silicon Valley banks recently failed, depositors lost all access to their M2 dollar funds while the banks were being restructured. Worse still, were it not for the intervention of Janet Yellen, funds exceeding $250,000 could have been permanently lost. Like Bitcoin, TNT-Bank funds are fully protected because the general ledger is maintained by multiple, independently owned, operated, and geographically diversified peer-to-peer nodes.
The Limits of Disintermediation: TNT-Bank is Just Software
Not every intermediary can be eliminated, especially by a computer program. For instance, fractional ownership of apartment buildings, such as through a Real Estate Investment Trust (REIT), requires a custodian to collect rent, maintain properties by hiring service providers like plumbers and electricians, and distribute income to owners in the form of dividends. However, the fewer unnecessary intermediaries—such as brokers—the lower the overall counterparty risk. This reduction in risk becomes particularly crucial during periods of financial instability, which we may be approaching given current political uncertainties, wars, and other global challenges.
The financial industry, beyond enabling clients to trade and maintain fractional ownership of assets, provides many additional services, including lending (on margin by brokers and commercial banks), borrowing (e.g., shares to sell short), and advisory services (e.g., mutual funds, hedge funds, private equity). These services do not lend themselves to disintermediation by software. Just as you cannot eliminate a custodian responsible for distributing dividends, someone must perform duties such as Anti-Money Laundering (AML) checks, Know Your Customer (KYC) verifications, assessing loan repayment likelihood, and assuming the risk of default. TNT-Bank software, being a computer program focused solely on disintermediation, cannot provide these additional services.
Another crucial reason why providing such financial services is neither safe nor advisable—besides the fact that they cannot be performed by software—is that these activities inevitably introduce counterparty risk and can lead to bank failures due to non-performing loans, changes in interest rates, and other factors. Moreover, they incur substantial legal risks, as demonstrated by the legal troubles faced by Sam Bankman-Fried. Even if it were possible, we choose not to engage in such high-risk businesses, regardless of how lucrative or potentially profitable they may seem.
TNT-Bank software fulfills its core function by enabling anyone to track and trade fractional ownership. Unlike some competitors, TNT-Bank software neither offers nor supports leverage. The only type of account available at TNT-Bank is a cash account. It is not possible to borrow or lend money or borrow and lend stock shares to sell short directly through TNT-Bank software. To engage in such activities, you will require a margin account—a service provided by firms like Fidelity, Schwab, E-Trade, Goldman Sachs, JP Morgan, Robinhood, or, in the case of TNT-Bank software, by individual other TNT-Bank end-users or clients. However, TNT-Bank software itself does not (and cannot) offer these options. With TNT, there are no margin calls and no counterparty risk because no lending or borrowing is allowed—though end users of the software can lend and borrow among themselves, and register such loans as smart contracts. TNT may appear singularly straightforward, but that’s precisely why it is safe, and we prefer it that way. When there is no underlying asset, TNT-Bank funds function as a currency—similar to fiat U.S. dollars or Bitcoin. By only allowing cash accounts, TNT-Bank software cannot fail, either in theory or in reality, as its sole function is to keep track of fractional asset ownership and facilitate trading—nothing more.
Why TNT?
What makes TNT-Bank software unique is its patent-pending Transparent Network Technology (TNT), which surpasses all competing payment processing systems, including proof of work, proof of stake, proof of history, and other proof-based methods. TNT requires no such proofs because it eliminates the need for trust in any payment processor node. In True-Node-Trust (TNT), the honesty of each node is independently verifiable by any wallet or node. This "trust-but-verify" approach ensures integrity, making TNT-Bank funds a fully fraud-free cryptocurrency. TNTcoin not only offers greater security than Bitcoin—while maintaining an equally stable money supply—but also matches the low cost and high speed of credit card transactions. TNT's superior technology is precisely what sets it apart from any other cryptocurrency, digital currency, or physical money.
While it may be simple to implement a double-entry accounting system on a centrally administered database that tracks fractional ownership—such as how many coins or shares you own—what makes TNT-Bank funds unique is that its general ledger is recorded across numerous independent peer-to-peer nodes, all of which monitor each other. This structure ensures that any attempt to cheat is immediately visible to everyone else, keeping all peer-to-peer nodes equally informed of any attempted fraud, thereby preventing it. This transparency is enabled by the inherent information symmetry in the batch processing of payments. This is the essence of TNT-Bank software—the "True-Node-Trust means True-No-Trust" principle—which ensures that attempted fraud is easily detectable and therefore preventable before it is ever permanently recorded in the database by any honest peer-to-peer node. Consequently, any and all attempts at fraud become both unprofitable and pointless. Symmetric information is the key to achieving a stable real-world Nash Equilibrium within TNT, where honesty becomes the dominant strategy and fraud is rendered non-viable.
For those familiar with the writings of Ilf and Petrov, the situation of Viacheslav Lahankin stealing meat from the soup cooked by others in the communal kitchen in their novel The Golden Calf serves as a perfect illustration of the concept behind TNT. Imagine if the soup in the kitchen were monitored 24/7 by multiple cameras directly connected to the iPhones of each resident, immediately warning them of any unauthorized attempts to access the soup, with video evidence provided. In such a situation, theft by Lahankin would be absolutely impossible, both in theory and in practice. Transparency precludes fraud, which is why there is no need to trust anyone in TNT.
The Legal and Environmental Advantages of TNT
From a legal perspective, the advantage of using batch processing in TNT-Bank software is that it enables the easy collection of two digital signatures—not just a single signature from the spending wallet authorizing the debit, as is the case with existing cryptocurrencies like Bitcoin, but also a second, credit-approval digital signature from the receiving wallet, authorizing the incoming credit. Without dual signatures from both the spender and the recipient—typically the buyer and seller in an asset sale—no transaction in TNT is considered valid. The collection of these dual digital signatures makes TNT share transfers fully non-repudiable and legally binding. Similarly, TNT smart contracts, which require signatures from both counterparties, also become legally binding—a key advantage of dual-approval, another feature unique to TNT.
But the ultimate advantage of using TNT-Bank funds is that TNTcoins do not rely on proof of anything. As a result, fund transfers are not only far more secure but also infinitely faster and less costly. More importantly, by eliminating the need for Bitcoin mining, TNT-Bank software helps save the environment by reducing unnecessary, wasted electricity consumption associated with mining. TNT-Bank money is not only safe and fraud-resistant but also environmentally friendly. What better way to represent fractional ownership of carbon sinks—like forests—that produce carbon credits convertible to dollar dividends? We refer to these as “green coins.”
TNT-Wrapped Bitcoin and Other Use Cases
While "green coins" represent just one specific use case, TNT-Bank software can be applied in any scenario where trading and maintaining fractional ownership is costly using existing technologies. For example, TNT-Bank shares could be used to track fractional ownership in a Regulation D registered hedge fund, effectively replacing a fund administrator in some cases. With TNT, any asset can be efficiently and economically fractionalized as TNT-Bank shares, provided the underlying asset is properly registered (under S1 regulations) or exempt from registration, such as Bitcoin. One promising idea we are exploring is using Bitcoin as the underlying asset to reduce wasted electricity. The concept of mining is simply the result of Dogma-Induced-Blindness Impeding Literacy (DIBIL) in Bitcoin’s original design. Our goal is to stop Bitcoin mining by trading TNT-wrapped Bitcoins directly on the TNT network, bypassing traditional exchanges like pink sheets or the NYSE, which inherently involve additional counterparty risk. This counterparty risk—introduced by exchanges, the DTCC, brokers like Fidelity, and other intermediaries involved in trading and storing fractional ownership records—can negatively impact liquidity. A historical example of this is the NYSE shutting down for an extended period at the start of World War II. TNT eliminates such unnecessary counterparty risk, ensuring a secure and efficient trading environment.
TNT-wrapped Bitcoins could represent fractional ownership of an underlying asset: a Bitcoin wallet. In this scenario, the presence of a custodian would not increase the counterparty risk of owning the underlying asset, provided that the asset itself is independently verifiable. For example, if a Bitcoin wallet is pledged as the underlying asset, the number of coins in that wallet backs the TNT-wrapped Bitcoins trading on the TNT network, much like how Bitcoin-backed ETFs function or how Cardano, Solana, and Ethereum-wrapped Bitcoins operate. Barring direct theft, the counterparty risk is negligible. Should a custodian become insolvent, a new custodian can be appointed, and the old custodian can transfer the Bitcoins to a new wallet with a new private key, effectively transferring the backing asset. A custodian is always necessary in any asset-backed coin, including TNT, because TNT-wrapped Bitcoin holders can always convert their shares into the underlying asset on demand; this is the assurance provided by TNT asset backing.
Another possibility we are carefully exploring is developing a "water coin" that offers fractional ownership in a natural spring water source in New Hampshire. This water source, currently licensed by the state of New Hampshire to produce up to 360,000 gallons of pure, tested glacier water per day—barring natural disasters such as drought—provides a sustainable income stream. The income generated from this water source would be distributed to TNT-Bank "spring water" shareholders based on the number of water coins held in their TNT-Bank accounts or wallets, with dividends paid in U.S. dollars. Additionally, holders of the "spring water coin" would have the option to reinvest their dividends by purchasing additional water coins through a designated custodian of the water source, with specific details to be finalized. This initiative represents the fractional ownership of this regulated, income-producing water source, akin to a REIT but traded on the TNT network instead of the NYSE or pink sheets. We are currently uncertain about the type of regulatory approval this requires—or how it could be accomplished, possibly as an ADR.
Even though we are merely a software provider, the introduction of a TNT-wrapped Bitcoin—no different in any way, shape, or form from existing Ethereum-wrapped Bitcoin—requires SEC approval, despite the fact that Ethereum, Cardano, and Solana-wrapped Bitcoins already exist and are actively trading without such approval. We are committed to not offering any financial products in the U.S. without first securing a no-action letter from the SEC for any such products. Currently, the no-action letter we are seeking is to gain approval for TNTcoin, a utility token designed to compete directly with other cryptocurrencies, including Bitcoin and Ethereum, both of which are already considered utility tokens. Below is an outline of our approach and business model.
TNTcoin Utility Token: What is the Use Value of Bitcoin?
The dual nature of goods, characterized by both use value and exchange value, has long been recognized by economists, from Aristotle to Adam Smith. This concept reflects the clear distinction between a product's utility for a consumer and its price in the market. Karl Marx expanded on this idea in Das Kapital, highlighting the subjective use value of a product, such as a winter coat providing warmth to its wearer, versus its exchange value, determined by its market price.
In this context, consider William Stanley Jevons' 1874 definition of money as a medium of exchange, essential for overcoming the inefficiencies of barter economies. In a barter system, trade is constrained by the need for a "double coincidence of wants"—where both parties must have exactly what the other desires. Money removes this obstacle by serving as a common denominator in transactions, enabling trade to occur when the expected use value exceeds the exchange value, as measured by market prices. This concept—known as consumer surplus—is central to the Arrow-Debreu model of economic equilibrium, where a perfectly competitive market leads to Pareto-efficient outcomes, with money acting as a unit of account—the "common denominator" that facilitates the pricing and comparison of goods, services, and income.
In modern mathematical economics, the use-exchange value duality is crucial for measuring consumer surplus—the difference between the maximum price a consumer is willing to pay (use value) and the market price they actually pay (exchange value). This principle is a cornerstone of modern economic theory.
In any economy, money functions in three essential ways: as a medium of exchange, a unit of account, and a store of value. These roles are interdependent. As a medium of exchange, money is accepted as payment and concurrently serves as a unit of account, allowing the value of goods and services to be related to wages. Wages, in turn, limit our purchasing power, which makes money an effective store of value—an evidence-based and well-established concept in economic reality.
As explained by the St. Louis Federal Reserve, in every real-world economy, both historical and contemporary money inevitably serves three roles, that of a unit of account, a medium of exchange, and a store of value, every time. Regarding the use-exchange value duality, money provides a framework for comparing and measuring the exchange value of products based on their use value.
While exchange values of all goods and services available for sale are determined by relative prices and wages, all expressed in monetary terms, one fundamental principle remains: ceteris paribus (all else being equal), the higher the use value of a good or service, the higher its exchange value. For example, a doctor earns more than a fast-food worker due to the higher use value of medical services. Similarly, a car is more expensive than a bicycle because it offers greater utility in transportation, and an airplane is priced even higher for its unmatched speed and convenience.
Of course, the principle of ceteris paribus rarely holds true in practice. In reality, use value is not the only factor influencing exchange value. As Adam Smith demonstrated in the diamond-water paradox, monetizing a good depends on the producer's ability to exclude non-paying consumers from accessing its benefits. Water, despite its essential use value, is inexpensive due to its abundance, whereas diamonds—despite their limited utility—have high exchange value because they are scarce, and producers can control access to them.
Exclusion, then, plays a significant role in determining exchange value. However, in the cryptocurrency market, where access is open to all via the internet, the exchange value of a cryptocurrency like Bitcoin is primarily influenced by its use value in performing the three core functions of money: as a unit of account, medium of exchange, and store of value.
Bitcoin's use value lies in its ability to act as a decentralized currency—facilitating transactions without intermediaries, providing a means to measure value globally, and serving as a store of wealth. This utility underpins Bitcoin's value as a utility token, driven by its use as money. Its decentralized nature and widespread adoption enhance its exchange value, even without the physical exclusion mechanisms that govern traditional goods.
For a more detailed analysis of how these principles apply to TNTcoin, please refer to the TNT white paper.
Why TNTcoin Is a True Utility Token, Like Bitcoin, and Not Another Ponzi Scheme Like Dogecoin
When comparing Bitcoin and Ethereum based solely on their capabilities and extent of usage, it might seem logical to assume that Ethereum—with its ability to handle smart contracts and its widespread adoption—should be more valuable than Bitcoin. However, Bitcoin's market value remains significantly higher. While some might argue that Bitcoin's value is higher simply because it was the first cryptocurrency, this claim doesn't hold up under scrutiny. For example, while BlackBerry was the first smartphone, it ultimately lost out to the better-designed iPhone. Similarly, Bitcoin's early emergence alone cannot possibly fully explain its current market capitalization.
The primary reason for Bitcoin’s trillion-dollar valuation is that it serves as a far more secure store of value, both in theory and practice, than any alternative competing cryptocurrency, including Ethereum. This security makes Bitcoin more valuable than any competitor, despite lacking smart contract functionality and other features, as detailed in the TNT white paper. For instance, Ethereum is vulnerable to coin theft due to potential collusion among validators tasked with processing payments. In contrast, Bitcoin’s immense electricity consumption makes theft and collusion more costly compared to competing cryptocurrencies that use fewer resources for mining. The more resources invested in mining, the safer the cryptocurrency becomes. It is precisely this electricity consumption that makes Bitcoin secure and sustains its market value, which exceeds $1 trillion.
TNTcoin is not only more secure than Bitcoin but also functions effectively as a medium of exchange. Unlike Dogecoin—which is merely a copy of Bitcoin’s software with no additional features and is therefore relatively easier to steal due to the lower resources spent on mining—TNTcoin offers genuine utility as a currency. Its design goes beyond mere replication, providing added value through enhanced security and practical use in transactions. When we sell TNTcoins to willing buyers, we are offering valuable utility tokens. These tokens derive their value from our proprietary software, enabling end users to use them as a secure and functional form of money.
To clarify this further, the “utility” that utility tokens such as Bitcoin provide represents the three essential functions of money: a unit of account, a store of value, and a medium of exchange. Let us compare the amount of “utility” a TNTcoin provides as money versus Bitcoin as a competitor.
Unit of Account: In terms of serving as a unit of account, all cryptocurrencies are equivalent, each having a predetermined money supply defined by the underlying software. This uniformity allows for consistent accounting across different currencies. In this case, there is no difference at all.
Store of Value: As a store of value, Bitcoin is currently the safest cryptocurrency available. However, TNTcoin is provably safer due to its proprietary "True-No-Trust Blockchain," as explained in the white paper. TNTcoin's batch processing allows all wallets to verify the cryptographic signatures of each update, resulting in a blockchain that is more secure and fraud-resistant—both in theory and in practice—than any competing alternative. This makes TNTcoin far more secure than Bitcoin, which is currently the most secure of the available cryptocurrencies.
Medium of Exchange: As a medium of exchange, TNTcoin surpasses all competitors by being as fast and cost-effective as traditional payment systems like Visa and MasterCard. There is no competing alternative cryptocurrency that is as secure as TNTcoin, that costs nothing to transact in. This utility is further enhanced by its patent-pending software, solidifying TNTcoin as a true utility token.
Supreme Court: SEC v. W.J. Howey
Request for No-Action Letter: TNTcoin Classification Under the Howey Test
The Supreme Court’s decision in SEC v. W.J. Howey Co., 328 U.S. 293 (1946), established the "Howey Test" to determine whether an investment qualifies as a security under the Securities Act of 1933. According to the Court, an investment contract—and thus a security—exists if the following conditions are met:
An investment of money;
In a common enterprise;
With an expectation of profits;
Derived solely from the efforts of others.
Central to this analysis is the phrase "solely from the efforts of others," which distinguishes situations where investors rely on external parties to generate profits from those where they manage the investments themselves, such as renting out a property through Airbnb. This reliance on third-party agents introduces what economists Jensen and Meckling termed "agency costs" in their Theory of the Firm. Agency costs refer to the losses borne by principals (investors and beneficial owners of the firm) when agents, acting on behalf of investors, engage in misconduct or fail to meet their fiduciary duties, such as through mismanagement. These risks justify regulatory frameworks like the SEC’s oversight, aimed at mitigating fraud and maintaining market integrity.
The SEC’s regulatory role is cruical in preventing market failures and promoting economic efficiency by addressing agency risks. These risks arise when external agents—such as management teams or promoters—control investor assets, increasing the potential for unethical practices like insider trading, financial misreporting, or corruption. High-profile cases of fraud, such as the Theranos scandal, illustrate the need for regulatory oversight to investigate and prosecute such misconduct.
Given the U.S. founding fathers’ strong emphasis on protecting the innocent in a jury trial, what entitles the U.S. government to imprison individuals for crimes like insider trading under the same legal doctrine? The answer lies in the harmful effects of unearned wealth extraction by fraudsters, as demonstrated by insider traders who profit from trading on non-public information. This unearned gain, akin to finding $100 on the street, allows the perpetrator to consume goods and services produced by others without contributing to their production. This aligns with the concept of "economic rents" in public choice theory, which have been shown to reduce Pareto efficiency, both theoretically and practically. Since the U.S. Constitution tasks the government with promoting the general welfare, and Pareto efficiency maximizes welfare, insider trading and similar market inefficiencies undermine overall welfare. Consequently, actions such as breaking up monopolies and imposing long-term prison sentences for insider trading are fully justified under existing U.S. law, as outlined by the U.S. Constitution.
However, when profits are not dependent on "the efforts of others," as defined by the Howey Test, the risk of agency-related fraud is eliminated, as no agents are involved. Investments where individuals retain direct control over their assets—such as owning and managing property—do not present the same agency risks as those managed by agents, making SEC regulation unnecessary.
For example, fractional ownership of a building in the form of a condominium is not considered a security because profits (e.g., property appreciation or rental income) are not derived from the efforts of external agents. The owner directly manages the asset, eliminating the need for SEC oversight. In contrast, fractional ownership of the same building through a Real Estate Investment Trust (REIT) is classified as a security because it depends on a management company’s efforts to generate profits, necessitating SEC regulation to protect investors from potential misconduct by agents.
This principle, used to classify all investments under the Howey Test, equally applies to cryptocurrencies like Bitcoin. The classification of a digital asset as a security hinges on the level of reliance on third-party efforts. Cryptocurrencies like Bitcoin and Ethereum are generally considered utility tokens, not securities, because they are designed for transactional use or as platforms for decentralized applications. Their value is derived from their utility within a decentralized network rather than from the efforts of a specific management team or promoter.
Bitcoin’s value stems from its adoption as a decentralized digital currency, independent of the efforts of miners or developers. While contributors like Satoshi Nakamoto and miners support the network’s functionality, their efforts do not satisfy the Howey Test’s requirement that profits be "derived solely from the efforts of others." Bitcoin’s value arises from its use as a currency, similar to commodities like gold, rather than from the actions of a specific entity. This decentralized nature explains why Bitcoin is not classified as a security and why entities like BlackRock can legally offer Bitcoin-backed ETFs, even though the underlying asset is unregistered.
Similarly, TNTcoin operates as a decentralized digital currency and smart contract facilitator, much like Bitcoin and Ethereum. Its value is not dependent on the efforts of a centralized management team but is instead driven by its utility within the blockchain network. TNTcoin’s decentralized structure and utility-driven value align with the classification of Bitcoin and Ethereum as utility tokens. Additionally, TNTcoin offers unique advantages, including enhanced security features, lower operational costs, and faster transaction processing, with significantly less reliance on "the efforts of others" compared to competing platforms. For instance, TNTcoin does not require miners.
TNTcoin’s decentralized nature and independence from any specific entity’s efforts reinforce the argument that it should be classified as a utility token, not a security. The SEC has previously recognized that cryptocurrencies like Bitcoin and Ethereum are not securities due to their decentralized frameworks and transactional functionality. TNTcoin shares these characteristics and, in many respects, offers greater utility than existing cryptocurrencies. For example, TNTcoin supports Anti-Money Laundering (AML) compliance and is backed by patent-pending technology, further distinguishing it from other cryptocurrencies as a valuable utility token with functional use as a currency. These factors strengthen the case for issuing a no-action letter, confirming that the SEC will not treat TNTcoin as a security. Unlike Dogecoin, which is based on the same software as Bitcoin but offers no additional utility beyond what Bitcoin provides, TNT-Bank software offers significant functionality that is not available in competing cryptocurrencies.
The reason TNTcoin’s application is fundamentally different from yet another proof-of-work Bitcoin copy lies in its software, which provides substantial advantages. Denying this request for a no-action letter would effectively create a regulatory monopoly favoring inferior but established cryptocurrencies like Bitcoin and Ethereum, which have already been exempted from securities regulation. Given that TNTcoin’s value is driven by its decentralized nature and innovative technology—not by the efforts of any specific group—there is no legitimate basis for denying this request. TNTcoin's ability to facilitate regulatory compliance, particularly with potential AML regulations, further justifies its classification as a utility token. This is especially relevant to our intended use case: tracking fractional ownership of commodities such as carbon credits using “green coins.”
Carbon Credits as Commodities
Carbon credits represent CO2 captured in trees or other carbon sinks. Their value is not tied to the efforts of any individual but rather to a property owner's commitment to preserve the carbon sink by signing an easement, which requires no additional effort from the seller. This is similar to the structure of mineral rights. Carbon credits can be traded on existing exchanges or privately, as they are widely accepted as emissions offsets and valued in the marketplace, especially due to regulatory requirements for net-zero emissions—much like commodities such as oil, lithium, coal, ethanol, and clean water.
Regulation of Fractional Ownership of Commodities
Issue:
Whether fractional ownership of a commodity, such as mineral rights or carbon credits, is subject to regulation by the Commodity Futures Trading Commission (CFTC) or the Securities and Exchange Commission (SEC), particularly when no future obligations or efforts by others are involved.
Facts:
Fractional ownership of commodities involves dividing ownership interests in a physical commodity. These transactions do not involve future obligations (i.e., no delivery at a later date) or expectations of profits generated by others, as ownership is direct and immediate.
Applicable Law:
Howey Test for Securities: As previously discussed in detail.
CFTC Jurisdiction: The Commodity Futures Trading Commission regulates futures contracts, options on futures, and swaps under the Commodity Exchange Act (CEA).
Analysis:
Under the Howey Test, fractional ownership of a commodity does not meet the definition of a security if profits are not derived from the efforts of others. This is why mineral rights are not regulated by the SEC. Direct ownership of a commodity, without the need for management or pooling of resources to generate profits, does not satisfy the "efforts of others" criterion. Therefore, such ownership is not classified as a security and does not require SEC regulation. This is similar to direct fractional ownership of a building, such as a condominium, or mineral rights—neither of which are regulated by the SEC, as there is no legal basis for such regulation under the U.S. Constitution. In these cases, the value of fractional ownership shares is not influenced by the efforts of others, as there are no third-party agents involved. Consequently, there is no risk of the type of fraud the SEC is designed to prevent, and thus, no legal basis for regulatory oversight.
The CFTC’s regulatory authority extends to futures contracts and derivatives. If fractional ownership does not involve future delivery obligations or speculation on future prices, it falls outside the CFTC’s jurisdiction. Therefore, fractional ownership of commodities, such as carbon credits or mineral deposits, would not be subject to regulation by either the SEC or the CFTC. Even in a hypothetical scenario where regulation might apply, it would fall under CFTC oversight as long as the underlying assets are commodities—such as mineral rights or carbon credits—that do not require any maintenance and therefore do not rely on the efforts of others to maintain their value.
Conclusion:
Fractional ownership of a commodity, such as mineral rights, raw land, or carbon credits, without future delivery obligations or profits derived from the efforts of others, does not meet the definition of a security under the Howey Test. Additionally, because no futures contracts or derivatives are involved, the Commodity Futures Trading Commission (CFTC) would not have jurisdiction. Therefore, these transactions are not subject to regulation by either the SEC or the CFTC.
TNTcoin as a Utility Token
TNTcoin should be classified as a utility token under the Howey Test, similar to Bitcoin and Ethereum. As a decentralized and efficient alternative to Bitcoin, TNTcoin avoids the excessive energy consumption associated with proof-of-work mining. Its specific use cases, such as "green coin" applications, further enhance its utility by accurately tracking fractional ownership of commodities like mineral rights, which are not classified as securities. Using a proof-of-work cryptocurrency to represent carbon credits would be counterproductive to environmental goals, making TNTcoin’s super-efficient blockchain a perfect fit for these applications.
TNTcoin’s decentralized structure, functional value, and independence from third-party efforts to generate profits clearly distinguish it from traditional securities. Moreover, TNTcoin addresses significant environmental concerns by eliminating the energy waste associated with proof-of-work mining, which, in the past year, consumed as much electricity as entire countries. In contrast, TNTcoin’s energy-efficient design aligns with global initiatives to reduce unnecessary energy consumption.
It would be unfortunate if the SEC impeded this innovative technology from reaching the market, especially given its clear environmental benefits and the fact that it falls outside the SEC's regulatory scope. Refusing to issue a no-action letter in this case would, in effect, establish a regulatory monopoly that favors less efficient and environmentally harmful competitors like Bitcoin, thereby perpetuating significant environmental damage and resource waste.
Accordingly, we respectfully request that the SEC issue a no-action letter confirming that TNTcoin will not be subject to securities regulation under the Securities Act of 1933.
Is Ethereum (or TNT) Wrapped Bitcoin a Security?
While cryptocurrencies like Bitcoin and Ethereum generally do not qualify as securities under the 1946 Howey Test, it is important to also consider the regulatory implications of trading registered securities on the TNT blockchain. For example, fractional ownership in a real estate investment trust (REIT), represented by REIT-xyz-TNTcoin, would be classified as a security under the SEC’s S-1 registration process. Now, consider a scenario where the fractional ownership involves Bitcoin, resulting in TNT-wrapped Bitcoin. We believe that this "utility-token-wrapped-utility-token" remains a utility token under the Howey Test. However, the ultimate decision rests with the SEC.
Unlike other blockchain platforms like Ethereum, Cardano, or Solana, TNT-wrapped Bitcoin is designed to meet all regulatory requirements, including full AML compliance, through custodial oversight to block invalid transactions. However, one key question remains: What regulations govern trading TNT-wrapped Bitcoin on the TNT platform? Specifically, we need clarity from the SEC on whether TNT-wrapped Bitcoin, similar to other wrapped Bitcoin products, is considered a utility token or must be registered as a security, like REIT shares.
Comparing Asset Classes: Wrapped Bitcoin vs. Securities
There are significant differences between TNT-wrapped Bitcoin and registered securities, such as shares of a real enterprise traded on the TNT blockchain. TNT-wrapped Bitcoin represents Bitcoin, a decentralized digital currency classified as a utility token rather than a security. Its primary functions are facilitating transactions and serving as a store of value. In contrast, shares in a real enterprise, such as REIT-xyz-TNTcoin, represent ownership in a tangible asset or business and are registered as securities under the SEC’s S-1 registration process. Under U.S. law, such investment contracts are subject to securities regulations.
Since Bitcoin itself is not considered a security, a wrapped version of Bitcoin on the TNT blockchain would likely retain this classification, akin to fractional ownership of mineral rights, assuming it retains the same functionality. However, the SEC holds the final authority on this determination. Conversely, shares of a real enterprise are clearly classified as securities, requiring full SEC compliance, including registration, reporting, and disclosure. Should the SEC classify TNT-wrapped Bitcoin as a security, it would have broad implications for other wrapped Bitcoin products like Ethereum-wrapped Bitcoin, requiring their registration as well.
Regulatory Compliance Considerations
The regulatory requirements for trading TNT-wrapped Bitcoin on the TNT blockchain are expected to differ significantly from those governing securities trading. While wrapped Bitcoin must comply with AML/KYC regulations, it would not require registration as a security or the need to be traded on a registered securities exchange. On the other hand, trading securities such as shares of a real enterprise would require the TNT platform to operate as a registered Alternative Trading System (ATS) or exchange, adhering to SEC rules, including broker-dealer registration and ongoing disclosure obligations. There would also need to be mechanisms for detecting insider trading and other regulatory requirements.
Custodianship and Asset Control
The custodial requirements for these assets also differ. While custodianship is optional for non-securities like TNT-wrapped Bitcoin, having a qualified custodian could enhance security and build trust among users. However, for securities like shares of a real enterprise, custodianship is legally mandated. A qualified custodian must manage and safeguard the assets to ensure compliance with SEC regulations.
Strategic Approach and Potential Outcomes
Assuming the legal interpretations presented here are accurate, the next logical step is to seek a no-action letter from the SEC to confirm TNTcoin’s status as a utility token. This should be relatively straightforward. Afterward, we can pursue a similar no-action letter for TNT-wrapped Bitcoin. Timeliness is key here; even a negative response from the SEC would provide much-needed regulatory clarity.
If the SEC classifies TNT-wrapped Bitcoin as a security, it would disrupt the broader market for Bitcoin-wrapped products, elevating alternatives like BlackRock’s Bitcoin ETFs. This could ironically increase counterparty risk by shifting dominance to traditional financial institutions like BlackRock, contradicting cryptocurrency’s original goal of mitigating such risks. In this scenario, marketing TNTcoin as a direct utility token may become easier. However, if the SEC does not classify TNT-wrapped Bitcoin as a security, we could move forward with offering it for sale, advancing our mission to reduce the energy wasted in Bitcoin mining.
Conclusion
The central issue is whether the SEC will classify TNT-wrapped Bitcoin as a utility token or a security. Based on the current regulatory framework, we believe it should be classified as a utility token, but the final decision rests with the SEC. Ultimately, our priority is obtaining a clear answer from the SEC—regardless of the outcome—so we can ensure compliance and continue working toward our goal of making TNTcoin a viable and efficient digital currency.
TNT: A Hybrid Blockchain Combining Permissioned and Permissionless Features
TNT is a hybrid, "all-purpose" blockchain that integrates both permissioned and permissionless functionalities, addressing the needs of decentralized environments while accommodating the regulatory requirements of traditional systems within the same framework. A common misconception about permissionless blockchains, like Bitcoin, is that their openness is primarily due to the ease of creating wallets. However, this view oversimplifies the concept. The true essence of permissionlessness lies in the unrestricted ability to participate in the network, especially the freedom to execute transactions without central oversight or interference. Wallet creation is just one component, but the defining characteristic is the ability to transfer and manage assets autonomously, without relying on any centralized authority. TNT-Bank software’s hybrid approach not only preserves this permissionless nature but also integrates the regulatory safeguards of permissioned systems, making it a versatile and robust solution for both decentralized and regulated ecosystems.
For example, Bitcoin enhances network security by recording public keys to prevent key reuse, effectively creating a database of unfunded wallets as a security measure. While this feature contributes to wallet security and integrity, it is not central to the permissionless nature of Bitcoin. The core principle of permissionless blockchains lies in the absence of centralized control over asset transfers, allowing anyone to engage in the network autonomously, executing transactions and managing assets without relying on intermediaries or seeking permission from central authorities. The true permissionless nature is defined by the freedom to interact with the network without barriers, rather than the technicalities of wallet creation or security features.
TNT adheres to the decentralized ethos in its permissionless mode, allowing users to transfer coins to any wallet—just like Bitcoin. However, TNT introduces a significant security enhancement: not only must the spending wallet approve debits, but in True-No-Trust TNT, the receiving wallet must also approve all incoming credits, ensuring that transactions are neither fraudulent nor unwanted. This extra layer of security requires the receiving wallet's digital signature to match the credit-approval public key associated with that wallet. Without this signature, the transaction is deemed invalid and will not proceed. This mechanism allows TNT to maintain the decentralized functionality of Bitcoin while introducing an additional safeguard. By giving recipients full control over which transactions they accept, but allowing them to reject any unwanted payments, TNT significantly reduces the risk of fraudulent or unwanted transfers, adding a layer of transactional security without compromising the system's decentralized nature.
This feature aligns with TNT’s dual-approval approach, adding a layer of security beyond traditional blockchains while preserving decentralization. Unlike conventional systems that rely on intermediaries, TNT limits involvement to the transaction counterparties, granting the recipient exclusive authority to decline a transfer. This innovation distinguishes TNT from other blockchains by preserving the openness and autonomy of permissionless systems while giving users greater control over their transactions. In TNT, both debit and credit approvals are required, with each side confirmed by matching digital signatures, significantly enhancing transactional security. Crucially, this added security does not compromise the platform’s decentralized nature, ensuring that TNT maintains its integrity as a permissionless system while offering a heightened level of protection against unauthorized or unwanted transfers.
This additional “dual-approval” security layer permeates the entire TNT-Bank software system. TNT-Bank requires two signatures not only for fund transfers but also for the creation of new TNT-Bank accounts or wallets. Creating a new wallet must be digitally signed by both the private key associated with the new wallet's debit (spending) key and a private key that matches the credit-approval public key from any TNTcoin-seeded wallet. Users can maintain TNT’s fully permissionless nature by depositing a single TNTcoin and making their credit-approval private key public while keeping the debit-approval key private. This approach ensures that the coin remains securely in the wallet, allowing for public wallet creation without the need for external interference.
As a result, TNT’s permissionless mode continues to function similarly to Bitcoin or Ethereum, offering broad accessibility while incorporating optional security enhancements. The dual digital signature validation adds a crucial layer of protection, requiring additional confirmation for both transactions and wallet creation, thereby reducing the risk of unauthorized transfers. Simultaneously, the system preserves its decentralized and open nature, giving users the flexibility to opt for stronger safeguards or retain the traditional simplicity of permissionless blockchains, depending on their preferences and needs.
In TNT's permissioned mode, wallet creation and management are under the strict control of authorized custodians, such as banks like JP Morgan or the European Central Bank, which exclusively hold TNTcoin-seeded wallets. These custodians have the sole authority to authorize the creation of new wallets, exerting centralized control over wallet issuance through their credit-approval keys. Other types of coins may circulate within the system, but only TNTcoin holders can authorize new wallets, enforcing a structured level of control over network participation.
This system functions similarly to a “vouching” process, where a custodian wallet with TNTcoins—like a “made” mafia member—must vouch for the creation of any new wallet, ensuring all participants are vetted by a trusted entity. All wallets, including those that do not hold TNTcoins are monitored by custodian banks, ensuring that oversight and regulatory compliance are maintained throughout the network. This governance structure enables TNT to balance decentralization with institutional control, making it suitable for use in highly regulated environments while still allowing the flexibility of blockchain technology.
In permissioned mode, TNT-Bank software's omnipresent dual-approval security system facilitates comprehensive regulatory oversight across the entire network. For example, when a custodian bank like JP Morgan creates a new wallet, the wallet’s credit-approval key is integrated into the bank’s dual-approval mechanism. This configuration enables the bank to actively monitor and block transactions that are suspicious or illegal, thereby enforcing Anti-Money Laundering (AML) protocols and other regulatory requirements. By withholding credit approval for questionable transactions, the bank ensures that such transfers are never recorded on the blockchain, preventing unauthorized or illicit activities. This system allows custodian banks to guarantee full regulatory compliance by flagging unauthorized funds as "dirty" and isolating them from legitimate, regulated accounts, thus maintaining the integrity of the network while upholding legal standards.
This governance mirrors traditional banking systems' oversight mechanisms, ensuring that blockchain transactions remain transparent and legally compliant. Custodian banks play a pivotal role in preventing illicit activities by controlling which transactions receive approval, thereby maintaining the blockchain’s integrity while complying with financial regulations. TNT's dual-approval system seamlessly combines the decentralized infrastructure of blockchain with centralized control layers, allowing custodians to enforce regulatory adherence such as Anti-Money Laundering (AML) and Know Your Customer (KYC) requirements. This hybrid approach ensures that while users benefit from blockchain’s decentralized features, there is still a mechanism in place to safeguard against illegal or unauthorized transactions, preserving the balance between openness and regulatory oversight.
Indeed, TNT stands for "True-NO-Trust" for this very reason: despite the regulatory mechanisms in place, wallet owners retain full control over their funds through their debit-approval private key, ensuring no dilution of assets and maintaining a stable money supply. This key allows users to spend or transfer assets freely, independent of a custodian's control over credit approvals. The primary risk posed by a fraudulent or uncooperative custodian is the refusal to approve a legitimate payment. However, TNT effectively mitigates this risk with its "True-NO-Trust" system, where wallet owners can easily appoint a new custodian by updating their credit-approval public key using their debit-approval private key. This mechanism eliminates the reliance on a single custodian, enabling users to switch custodians whenever necessary, thereby maintaining both autonomy and security in asset management. The system empowers users with control, ensuring that their assets remain safe regardless of the custodian’s behavior.
At the same time, if transactions are linked to illicit activities, custodian banks in TNT’s permissioned mode can block incoming credits, isolating "dirty" or suspicious funds in unmonitored wallets—such as those that self-custody their credit-approval private keys instead of entrusting them to a custodian like JP Morgan. This capability allows TNT to serve as a robust bridge between traditional financial regulations, such as Know Your Customer (KYC) and Anti-Money Laundering (AML) protocols, and decentralized blockchain technology.
Custodians in TNT-Bank ensure that only compliant transactions are approved. For example, if a non-qualified investor attempts to purchase shares in a restricted Regulation D (Reg D) hedge fund, the custodian can block the transaction by withholding credit approval, preventing unauthorized investments. By refusing credit approval in such instances, custodian banks enforce regulatory compliance without disrupting TNT's decentralized nature. This ability to isolate funds while maintaining a decentralized infrastructure enables TNT to meet the rigorous standards of regulated financial systems while capitalizing on blockchain’s inherent transparency and security.
By merging the decentralized nature of permissionless blockchains with the controlled environment of permissioned systems, TNT-Bank software offers an innovative hybrid solution that skillfully balances flexibility and security. This unique structure makes TNT-Bank software a singularly versatile platform, capable of accommodating users across a wide range of regulatory landscapes.
TNT facilitates decentralized transactions while ensuring full compliance with financial regulations when required. TNT exemplifies the idea that blockchains don’t need to be strictly permissioned or permissionless. Its open-source TNT-Bank software allows its end users to customize their experience, providing the freedom to operate in either mode without rigid constraints. This adaptability ensures that TNT meets the demands of a broad array of use cases, from decentralized finance (DeFi) to fully regulated financial ecosystems. Users can leverage blockchain's inherent benefits—such as transparency, security, and decentralization—while avoiding the limitations typically imposed by traditional blockchain architectures. TNT’s hybrid approach is an ideal solution for navigating both open and regulated environments, providing users with the right balance of autonomy and regulatory compliance, precisely to the extent necessary for each use case.
TNT-Bank software is fundamentally designed to enable clients to record and trade fractional asset ownership while safeguarding all parties against fraud—not only from fellow investors, who are fractional holders of the same asset, but also from custodians responsible for regulatory oversight, such as KYC and AML. TNT's batch processing mechanism ensures constant information symmetry, meaning that any fraudulent attempts—whether by clients issuing payments or nodes processing transactions—are instantly detectable by all other TNT peer nodes. This level of transparency establishes a "trustless" system, even in a permissioned environment, because the private key linked to the debit authorization public key is securely stored on the user's device (e.g., an iPhone) and is never disclosed.
The system's permissioned nature is reinforced by a dual credit-approval process, which allows appointed custodians to block illegal payments and prevent incidents such as flooding BlackRock's Ethereum wallet with illicit funds. This mechanism empowers recipients to reject payments by simply refusing to sign transactions with their credit approval key, thereby upholding the integrity of the permissioned environment. Furthermore, clients have the flexibility to transfer custody to their own node, providing an additional layer of security that enables them to "fork off" fraudulent custodians from the TNT blockchain. This capability not only strengthens the system's trustless and decentralized framework but also eliminates counterparty risk, ensuring that no participant needs to rely on a single entity for trust and security.