Popping the ‘Satoshi’ Bubble.

Believing CCS Bitcoin isn't sinkable, impervious to all attacks, and unbreakable is as equally fatal as the faith in the RMS Titanic was more than one hundred and ten years ago.

It would be fairly easy to insert a bad Star Wars reference to illustrate the significance of April 11, 2022. But I don’t feel the need to pay a royalty fee to make a point. On that date, a little-known company gently pressed a pin against the thin shell of the Bitcoin balloon. The Company’s warning referenced IP issues tied to Craig Wright’s Southern District of Florida Federal Case. The Company condensed the issue to a very simple statement, “Bitcoin was created using stolen IP”. Mike Rogers, the Company spokesman stated, “determining who is Satoshi isn’t relevant”. That statement should send shivers down the spine of any person invested in Bitcoin or any cryptocurrency. Let me explain why.


1. First to File Patent Law.

On September 16, 2011, then-President Barack Obama signed the “America Invents Act” into law effectively switching the United States Patent System from “first to invent” to “first to file”. Under the America Invents Act (AIA), the United States became a first-to-file patent system effective March 16, 2013. The change to a “first to file” system is significant since a patent applicant who files their patent application first is entitled to the patent rights regardless of their date of invention. However, patents filed before March 16, 2013, are still governed by the first to invent rules and this brings us to a very serious issue. The “first to invent” system also provides for, as stated in the statute, “Continuation-in-Part (CIP) patent applications filed on March 16, 2013, or after that claim priority to a patent application filed” (meaning the company can file a priority claim as negating other patents that infringe on the first patents subject matter filed as a continuation in part patent application)!


Where Bitcoin and other cryptocurrencies have significant patent problems are areas tied directly to “subject matter” determinations. Patent applications written with a subject matter tied directly to processes, systems, and peer-to-peer networks filed prior to March 16, 2013, are lethal to all of the first to file patents for bitcoin and blockchain. The “first to invent” system also applies to patent applications filed after March 16, 2013, or after if (1) the application claims priority to a previous application filed before March 16, 2013, and (2) all claims in the patent or patent application include only subject matter disclosed in the prior patent application (i.e., not one claim can be directed towards new subject matter). Pegisai issued a warning stating, “the unlawful usage of company-owned intellectual property in the creation, exchange and retail usage of …”. Clearly, the Company’s press release also stated the issue was now a “regulatory issue”. Tying these two relatively cryptic messages together shows vulnerability within the exchange, operation, audit, transfer, and creation aspects of Bitcoin and similar cryptocurrencies products[1] on or using “peer-to-peer” networks.


The Company warned miners, exchanges, and publicly held companies engaged in bitcoin and other cryptocurrencies to be aware of their liability. That’s a warning to the systems and the creation/exchange system itself. Clearly, a buyer should also be aware of the risk of buying an unlawful product. But, at minimum, this warning adds a new dynamic to the risk evaluation equation a token buyer should consider.


2. Determining ‘who’s Satoshi isn’t relevant’.

The Company’s warning and commentary have targeted Wright’s alleged power within the Bitcoin space by quoting Wright’s attorney’s statement. The Company’s warning targeted “Satoshi’s usage of company intellectual property in implementing the original ‘Bitcoin Satoshi’s Vision (BSV)’” and the release targeted Wright’s conduct to influence the industry back to BSV. For years, the debate “who is Satoshi” has been the urban myth used to propagate the greater bitcoin fraud and this illusion has made IP enforcement difficult. Crypto advocates attack Wright, baiting him into litigation. But Wright’s efforts in the Florida Federal Court substantiated him to the point where the Federal Court system has accepted evidence and then placed it into the Federal Court Record; he is Satoshi.


This is where a shift in sea state has changed for people such as Vitalik Buterin who, for years, have attacked Wright. Now, in the near future, they will have to go to court to prove Wright isn’t Satoshi in order to propagate the “Satoshi illusion” while they fight to obtain licenses from Pegisai. Company spokesman Mike Roger’s statement, “determining who is Satoshi isn’t relevant” shows the Company’s IP rights predate the IP filings of Wright and other crypto-billionaires.


Obviously, the Company’s patent catalog includes subject matter which the Satoshi’s paper and writings directly cite. The writing is on the wall there and when the Company issued the warning, it signaled “usage of stolen IP” extending that warning to all cryptocurrencies in a manner sufficient to raise regulatory concern for tokens’ issue as securities. This shows vulnerability for tokens issued under SEC regulations and should start a flurry of licensing activity - if the Company intends to make licenses available for offending tokens.


3. Simply put, “public companies must avoid fraud”.

Perhaps the Saylor Academy, in 2012, stated it best in Chapter 24 of the Foundations of Business Law and the Legal Environment by saying, “The Securities Act of 1933 and the Securities Exchange Act of 1934 are two federal statutes that are vitally important, having virtually refashioned the law governing corporations during the past half-century. In fact, it is not too much to say that although they deal with securities, they have become the general federal law of corporations. This body of federal law has assumed special importance in recent years as the states have engaged in a race to the bottom in attempting to compete with Delaware’s permissive corporation law.” Comprehending the Company’s statement, “this is now a regulatory issue” shows the previous tactics used by the industry has been effectively flanked.


Factually, the Securities and Exchange Commission has determined Bitcoin and Ethereum are not securities partly on the grounds that they are decentralized with no person or company in control of the cryptocurrencies. This determination previously also paralleled the legal issues with IP enforcement. However, Wright’s filings in the Federal Case and his influence to “reinstate the BSV” show a level of control of the industry itself. This portion of control shows the industry, meaning the miners, creators, and exchanges have a level of control over the cryptocurrencies themselves.


Regulatorily speaking, this means the exchange system itself is vulnerable to the violation of IP attacks. Logically, most people would state “well, sue the exchanges”. But that isn’t how those previously mentioned federal laws work. The regulations work in a manner to prevent the conduct, or to stop the conduct while it is determined to be unlawful or not. At this point, publicly traded exchanges should be scrambling to see if they can meet compliance issues and should be searching for their IP violations diligently.


4. The Problematic Marketing of Crypto.

In 2021, the SEC ruled Bitcoin and Ethereum aren’t a security. However, case law shows this determination is now flawed. When someone invests their money based upon the efforts of a third party, that investment can become security. Once again quoting the Saylor Academy, “an investment may not be a security even though it is so labeled, and it may actually be a security even though it is called something else.” The test for these very simple and current marketing tactics of Crypto-promoters is questionable in the promotion of crypto “going up in value” and being “superior to money”. These promotions cryptically transmit the message, “buy low” and the efforts of the promoters who push to sell crypto drive the price up in the minds of the investor. The Supreme Court in Securities & Exchange Commission v. W. J. Howey Co. Securities & Exchange Commission v. W. J. Howey Co., 328 U.S. 293 (1946) said the test for this conduct is “the person invests his money in a common enterprise and is led to expect profits solely from the efforts of the promoter or a third party.”


This brings into question the marketing of every fiat-created NFT including Bitcoin and Ethereum which thrive on this “gold rush” form of unethical marketing. The end profiteers of this type of marketing are, of course, the exchanges and the third-party promoters. This element of the total equation is ripe for regulatory oversight.


5. Public companies engaged in exchange or payment acceptance conduct have to worry.

For publicly traded Crypto-Exchanges that exchange “crypto” products, or publicly traded companies that accept crypto as payment, there is a sizeable issue. The public company has an obligation and duty to assure the crypto is not engaged in unlawful conduct. Further, they have to assure they are not engaged in the conduct of business with crypto that does not violate patent law. If not, the revenue streams of the public company are as equally tainted as the cryptocurrency it is derived from. Add this to the problematic marketing of third parties marketing crypto on YouTube and every other email that hits an investor’s email box today. All of this brings forth classic “fraudulent acts and practices” reviews by the Securities and Exchange Commission. For companies who have unlicensed crypto within their balance sheets, this also brings a “carrying out of a securities business while insolvent” investigation.


From these two investigations’ paths come three punitive outcomes when the SEC believes a violation has occurred in any manner. 1) the SEC refers the individual case to the Justice Department with a recommendation for criminal prosecution in cases of fraud or other willful violation of the law. 2) The SEC seeks a civil injunction against further violations which, in the extreme, would mean the closure of exchanges engaged in unlicensed conduct of business. Or, 3) proceed administratively to impose a variety of sanctions: suspend or expel members of exchanges; deny, suspend, or revoke the registrations of broker-dealers; censure individuals for misconduct and bar censured individuals (temporarily or permanently) from employment with a registered firm. The 1990 securities law amendments allow the SEC to impose civil fines similar to court-imposed fines.


Securities laws also authorize the SEC to order individuals to cease and desist from violating securities law. The Company’s press release and 2021 annual review letter stated the Company had been working with regulators for years to aid regulators in their efforts to reign in the crypto industry.


Adding up all the parts.

Craig Wright’s defense in the Florida Case is catastrophic for not just Bitcoin but, for the entire cryptocurrency industry. Wright’s defense team put forth evidence stating Wright was Satoshi. This defense included witness statements and written evidence. In total, both sides in the case added other components including all of the writings of Satoshi. Effectively, while the court did not rule Wright was Satoshi, its ruling should be considered logically. Wright’s defense team convinced the court to accept he was Satoshi. Further, Wright’s attorney’s statement pertaining to Wright’s ability to influence the industry shows elements of control of Bitcoin and the blockchain technologies. This “control” aspect will likely reverse the SEC’s prior statements on Bitcoin and Ethereum. The Company’s patents are internationally enforceable and the SEC should see its duty to prohibit IP infringement within the securities space.


The interesting part of conspiracy law is that not all of the parties engaged in the “greater” conspiracy need to have knowledge of the lesser conspiracy or sideline conspiracies that are in play in the commission of the underlying crimes. Clearly, the Company has signaled the creation of bitcoin and other cryptocurrencies, as well as the processes used in mining, exchange, transacting, processing, clearing, and payment process used in the business of cryptocurrency infringe on the Company’s patent inventory. Wright signaled he and the entire crypto industry from mining to exchanging Bitcoin, have control over the currency itself when they reenacted the “Satoshi vision”. The Company stated that the Satoshi writings literally quoted the titles and elements of the Company’s patent’s subject matter verbatim. This shows the industry actively, knowingly and willingly worked jointly to attempt to circumvent intellectual property rights. Propagating the Satoshi illusion, while doing unlawful conduct, such as theft of intellectual property is the first act of fraud.


Falsely stating publicly Bitcoin and other cryptocurrencies aren’t under personal control isn’t factual. While some might attempt to argue it’s not under individual control, factually, all are under the control of the operating collective of exchanges and miners who promote the “satoshi” illusion. Persons who then market the fiat currency that has no intrinsic value and is highly speculative in nature as “the perfect currency” to unsuspecting token buyers is an intellectual “reach”. Doing so with the knowledge there is no value in the blockchain other than its use to create the unlicensed intellectual property violating products is the second act of fraud. Profiting from this false narrative and conspiratorial illusion is, well, participating in a “get-rich-quick” scheme which can be interpreted as various criminal acts themselves.


Token holders and the media should ignore propaganda against the Company.

While people might attempt to tag Pegisai as the “bad guy”, factually, Wright’s efforts to protect his profits from the Kleiman family using the Satoshi illusion exposed the darkest parts of the creation of crypto itself. Wright’s efforts and filings proved the creation of all crypto, as well as placing the product into the marketplace, required intellectual property licensing. While stroking his ego to protect his early mined Bitcoin, he made a series of judgment mistakes that exposed the creation of crypto and violated the intellectual property rights of persons other than himself. His conduct in filing “bitcoin and blockchain-related patents” stacked his “first to file” patents against the “first to invent” patents of the Company. His revelation in court showed Satoshi’s conduct and then admission he is “satoshi” when Satoshi directly quoted patent titles and patented processes used in peer-to-peer networks as a portion of the Company’s subject matter, he admitted Satoshi was an intellectual property thief. The Company’s ability to submit CIP patent extensions on its own subject matter likely negates every patent held in the cryptocurrency space, even ones not held by Wright.


When persons fail to obtain intellectual property rights and then profit from the unlawful use of those third-party-owned rights, it’s called theft. No one should brand Pegisai as a bad actor. Pegisai has developed the AIDM token and transactional system based on its own intellectual properties. AIDM is insured, asset-backed and guaranteed. It also operates within existing securities laws and does not try to circumvent them. Its creation model is truly decentralized and its operations are conducted in a regulated environment required for all instruments of trust. Pegisai isn’t a bad actor bringing the party to an end. Factually, it’s a group of property owners that took control of their hard work and built a better product in order to benefit the world in ways the thieves promised and never delivered on.


Take heed of the warning.

Many people who read April 11, 2022, press release likely just giggled and moved on without any more consideration than passengers on the Titanic did shortly after the ship shuddered against the iceberg on April 15, 1912. Believing CCS Bitcoin isn’t sinkable, impervious to all attacks, and unbreakable is as equally fatal as the faith in the RMS Titanic was more than one hundred and ten years ago. Pegisai stated it held a “considerable IP inventory” and issued a very specific warning related to processes, usage, creation, exchange and mining efforts. It cautioned people relating to their conduct in support of bitcoin and other cryptocurrencies.


While some, on the 11th of April, might consider Pegisai to be the mouse that roared, in time, the laughing jackals and hyenas may just regret that lapse of judgement. A functional attack on exchanges and companies engaged in the transaction of crypto is the most logical strategic attack any party who owns the underlying intellectual property could use. Positioning that attack into a regulatory directive, while deploying a superior product based upon the original invention under the pre-2013 patent law, is truly brilliant. Stay tuned.


Links:

America Invents Act: https://www.congress.gov/112/plaws/publ29/PLAW-112publ29.pdf

1933 Securities’ Act: https://www.law.cornell.edu/wex/securities_act_of_1933

1934 Securities’ Act: https://www.law.cornell.edu/wex/securities_exchange_act_of_1934

[1] Most cryptocurrencies are marketed as “unique investment products” hence my usage of the term product for conversation’s sake.