Quintric White Paper
The World’s First Family of Precious Metal Legal Tender Cryptocurrencies
The Quintric monetary system combines the legitimacy, accountability and security of gold and silver (“specie”) legal tender with the transparency, flexibility and convenience of distributed, blockchain technology to create the world’s first authentic, interoperable family of specie legal tender cryptocurrencies. The Quintric system consists of five distinct, inter-dependent, specie-based tokens: Quint; QuintS; iQuint; iQuintS; and QuintX.
The system design and implementation represents the combined efforts of some of the core developers of the BitShares blockchain with leaders in monetary reform efforts to succeed where existing cryptocurrencies to date have failed—to create the first cryptocurrency that can actually function as a usable currency. Each of the five Quintric tokens constitutes a vital piece in completing that elusive crypto puzzle. With the advent of Quintric, the objective of a transparent, blockchain medium of exchange has moved from theory towards viable implementation.
This document summarizes the revolutionary, patent-pending program, which provides a workable plan for placing a fully functional currency into the cryptosphere. While public launch is currently slated for the latter half of 2018, early adopters can begin to access the power of Quintric starting now through this pre-launch offering.
The Quintric System addresses the pain felt by consumers and businesses due to troubling flaws in the international monetary system as well as issues in the cryptocurrency space. On the monetary front, these include: (1) unchecked inflation of fiat, debt-based money supplies spurred by marginally solvent governments and government-backed entities; (2) precarious fractional reserving practices of traditional financial institutions; (3) absence of ease and finality in completing monetary transactions; (4) diminishing financial privacy; and (5) a disappointing lack of transparency in both the financial and precious metal vaulting worlds. As to the cryptosphere, there exists: (1) wildly speculative volatility/instability in the crypto markets; (2) unwieldy, prolonged crypto settlement times, and (3) adverse tax treatment applicable to virtually all existing cryptocurrencies. The cumulative result of these problems has yielded severe financial crashes, underfunded pensions, inability to save for retirement, hidden inflation taxes, speculative bubbles, gambling and corruption on the rise, an alarming deterioration of public confidence in many traditional institutions, and widespread uncertainty regarding compliance with tax and securities laws and regulations.
The Quintric System addresses these issues by providing a stable, legal, global, inflation-resistant, and refreshingly transparent monetary system that individuals and entities can elect to embrace as their own personal gold standard. Essentially, Quintric provides a viable path towards true choice in currency—democratizing sound money worldwide through modern blockchain technology and other state of the art innovations.
For example, in order to curb the whipsaw gyrations in market valuations characteristic of most cryptocurrencies—driven primarily by rampant speculation—Quintric has committed to maintaining a consistent, constantly available, ask on the BitShares exchange pegged to the then current, published U.S. Mint retail price for gold and silver legal tender coinage. The same rates apply to both the U.S. and international Quintric tokens, insuring the one to one, reliable exchange rates essential to supporting vibrant economic activity. Moreover, thanks to BitShares’ industry-leading technologies, Quintric transactions settle within 3 seconds of execution, in stark contrast to the hours or days many cryptocurrencies normally require to clear. Thus, the Quintric monetary system clears away the impediments to true currency functionality inherent in virtually every other major cryptocurrency.
Moreover, because the Quintric pricing model rests on firm ties to the prevailing retail rates for specie legal tender coin, token holders can rest assured that the value of their withdrawal and redemption rights will always bear a consistent relationship to the actual purchasing power of the underlying specie legal tender outside the crypto economy.
Why Legal Tender?
While conceptually all cryptocurrencies can be exchanged for legal tender, and a handful are even loosely linked to a national currency, none actually are legal tender. By contrast the Quint functions like a deed to certify the bearer’s whole or partial ownership of a specified amount of real, nationally-issued money, held on deposit, payable to the token bearer on demand. In this respect, it acts like the U.S. Gold & Silver Certificates of yesteryear once did. This Quintric promise to pay rests firmly on 100% vaulted, insured, legal tender in tangible specie form—not on the the digital promise to pay on a virtual currency launched on a fiat paper system layered over a "print more when you need it" monetary policy.
a. Not Taxable Property
Legal tender is a special kind of personal property, constituting government authorized coins, currencies and bank notes legally approved to serve as a medium of exchange and for payment of public and private obligations. When used as a medium of exchange, legal tender is expressly exempt from taxation, per se. However, typical cryptocurrencies are not treated this way. On March 26, 2014 The United States Internal Revenue Service (“IRS”) released Notice 2014-21, IRS Virtual Currency Guidance. Notice 2014-21 first reaffirms that virtual currencies, such as Bitcoin do “not have legal tender status in any jurisdiction,” and then goes on to state that “[i]f the fair market value of property received in exchange for virtual currency exceeds the taxpayer’s adjusted basis of the virtual currency, the taxpayer has a taxable gain.” In other words, without legal tender status, the “means of the exchange” is regarded as a separate part of the trade and is also measured in transactions, regardless of whether the trading of other property might otherwise be tax neutral. A week after the IRS notice, it was no joke that on April Fool’s day of 2014, in an article and video interview published in Yahoo Finance, CNBC contributor Gina Sanchez lamented:
"It's a terrible thing," says Sanchez of Bitcoin's IRS categorization. "This is already a really negative story, in my opinion. What this says is every time you make a transaction, you basically have to keep track of your capital gains — every transaction."
She added in the interview portion, “That’s ridiculous. If you are using it to buy coffee, that’s ridiculous.” While property is often afforded preferential treatment in terms of long-term capital gains tax rates, short-term gains and losses are generally not granted these lower rates. Daily market value fluctuations in an actively used cryptocurrency can create an accounting nightmare, even if tax treatment itself is not adverse for a specific user. The writing is on the wall for virtual currency users. Since the release of that 2014 notice: (1) the federal judiciary has authorized the IRS to serve John Doe summons on Coinbase Inc., seeking information about U.S. taxpayers who conducted transactions in convertible virtual currency; (2) the U.S. Commodity Futures Trading Commission (CFTC) has declared that Bitcoin (like other virtual currencies) falls within the broad definition of a “commodity”; and (3) U.S. state banking regulators have signaled that financial regulatory requirements should extend to activity involving bitcoin and other virtual currencies.
Legally, transactions employing anything other than legal tender as a medium of exchange are treated as barter transactions, so what was previously a simple purchase of a good or service now requires a income gain or loss analysis under § 1001 of the Internal Revenue Code, which reads in part as follows:
(a) Computation of gain or loss.—The gain from the sale or other disposition of property shall be the excess of the amount realized therefrom over the adjusted basis …
(b) Amount realized.—The amount realized from the sale or other disposition of property shall be the sum of any money received plus the fair market value of the property (other than money) received. …
While daunting to contemplate compliance with these provisions, they nevertheless constitute the state of the law for U.S. citizens engaged in the use of cryptocurrencies.
b. Authorized for Payment of Debts
In stark contrast to the bookkeeping obstacles and complexities of barter transactions, which require tracking the taxpayer’s tax basis in the non-legal-tender medium of exchange, federal law simply provides:
United States coins and currency (including Federal reserve notes and circulating notes of Federal reserve banks and national banks) are legal tender for all debts, public charges, taxes, and dues.
U.S. precious metal minted coinage is expressly included within the definition of legal tender. Moreover, recent years have witnessed a growing trend among the several States to adopt legislation expressly recognizing U.S. minted precious metal coin as legal tender. Such action reinforces existing federal law while also constituting an exercise of each State’s reserved right under the United States Constitution which provides that “No State shall ... make anything but gold and silver coin a tender in payment of debts.”
For example, in 2011 the Utah legislature adopted the Specie Legal Tender Act by which it became the first State in more than a century to expressly recognize gold and silver coin as a legally authorized medium of exchange and to eliminate state capital gains taxes on the same. Amendments adopted in 2012 dealt with how to calculate and remit sales taxes on purchases consummated in specie legal tender. In 2014, Oklahoma adopted similar specie legal tender legislation. That same year Texas and Louisiana enacted elements of the foregoing, and Texas even authorized a state-run, gold repository. In 2017, Arizona likewise recognized specie legal tender and abolished state capital gains taxes on gold and silver. At present, five states have laws expressly recognizing gold and silver coin as legal tender, including two statutes that date from the 19th century.
The U.S. Supreme Court recognized in Lane County v. Oregon, 74 U. S. 71 (1868) that in the performance of its “essential functions” a State possesses broad powers to specify acceptable tender for the payment of taxes:
If, therefore, the condition of any State, in the judgment of its legislature, requires the collection of taxes in kind, that is to say, by the delivery to the proper officers of a certain proportion of products, or in gold and silver bullion, or in gold and silver coin, it is not easy to see upon what principle the national legislature can interfere with the exercise, to that end, of this power, original in the States, and never as yet surrendered.
Whether paying for goods, services or taxes, specie legal tender is an authorized medium of exchange.
c. Allows for Choice in Currency
Functionally, the United States today has five distinct legal tender currency standards—Gold, Silver, Platinum, and base metal coins, as well as the Federal Reserve Note ("paper") dollar, together with its derivatives. Although the U.S. Secretary of the Treasury is "to maintain the equal purchasing power of each kind of United States currency", he has largely neglected to do so. As a result the purchasing power of the various U.S. currencies currently in circulation, particularly that of specie legal tender in contrast to that of the fiat paper currency, has increasingly diverged over the past several decades, which creates hazards as well as opportunities for individuals, businesses, and governmental entities alike. Even so, according to the federal courts, legally “a dollar is a dollar regardless of the physical embodiment of the currency.” In the real world, however, the kind of currency exchanged carries enormous implications.
For example, the value minted on the face of a one-ounce U.S. gold coin (Gold Eagle and Gold Buffalo) is fifty ($50) dollars. So a Gold Dollar is 1/50th of a one troy ounce legal tender gold coin. The exchange rate between paper and gold dollars varies, but has recently averaged around $20 to $30 paper dollars for $1 gold dollar. A Gold Cent is a hundredth of that amount.
When the medium of exchange is separated from the forces affecting property values, huge distortions can occur, leading to phantom appreciation, phantom tax burdens, and a phantom sense of financial security. Citizens can elect whatever form of legal tender they would like to use to establish their basis in capital assets, but because of the value separation that occurred during the mintage moratorium, it has never been practicable for ordinary citizens to handle the thousands of coins needed to stay on a specie legal tender platform, leaving them exposed to taxes not based on actual capital appreciation but currency-driven inflation.
For example, the taxable gain on a rental house purchased in 1957 for $13,500 and sold in 2007 (fifty years later) would have been $0 under a silver dollar standard, because the purchasing power of a real silver dollar kept parity with the house value. Interestingly, gain on the sale of the house measured in brown eggs would be $0 as well, again because these values kept their parity. However, measured against the silver-backed paper dollar in 1957, the 2007 paper dollar did not keep parity with any of the other items and a sale transaction in paper currency would yield a paper-gain of $161,500. This underscores the effect of what some call the “inflation tax”, which noted economist John Maynard Keynes boasted “not one man in a million” could detect.
The Quintric system helps manage phantom inflationary influences and distortions. For similar reasons, and because precious metals find their price stability on a global level, rather than national, the system can help manage foreign exchange (“forex”) exposure in a way heretofore not readily available, including cost reductions in administration and overhead related to treasury functions, hedging transaction costs, etc. Because of the advantages in managing forex exposure, the Quintric system could become very popular among multinational businesses with significant cross-border money flows, including repatriation.
While the federal government has expressly withdrawn its consent to obligations requiring tender of a particular type of dollar (31 U.S.C. § 5118), (meaning that a holder of the $50 gold certificate—as in the illustration above—can no longer demand a $50 gold coin from the U.S. Treasury), since 1977, private parties contracting under U.S. law are not prohibited from designating the form of legal tender in transactions between them, even though they still cannot require the U.S. Government to use a “gold clause” in a contract requiring the government to pay in gold. For private party transactions, the introduction of the Quint eliminates practical barriers to designating payments in specie legal tender. This makes the beneficial use of gold clauses feasible for employment contracts, capital asset purchases, long-term loan agreements, and in a myriad of other contexts.
d. Reduces the National Debt
When asked why the Reagan Administration had worked so tirelessly to reinstate precious metal coin as legal tender options for the American people, Then Secretary of the Treasury, Donald Regan, simply replied "to reduce the national debt." Indeed, that landmark legislation expressly provides:
... Amounts received from the sale of gold shall be deposited by the Secretary in the general fund of the Treasury and shall be used for the sole purpose of reducing the national debt.
The law also requires that the U.S. Secretary of the Treasury is to produce enough silver and gold American Eagles "sufficient to meet public demand." Thus, Reagan's legacy was to place firmly in the hands of the people an effective tool for federal debt reduction. That leaves a restoration of true choice in currency up to each American to do their part in electing to exchange paper dollars for gold ones and then to use them for the purchase of goods and services.
3. Why Gold & Silver?
Two forces erode a currency’s purchasing power: inflation and rising debt burdens. Gold and silver guard against both of these. Consequently, throughout history adherence to some form of a gold standard has reliably delivered real economic growth.
A. Hedge Against Inflation
Former Federal Reserve Chairman Alan Greenspan has observed that the abandonment of the gold standard made it possible for the welfare statists to use the banking system as a means to an unlimited expansion of credit. In the absence of a gold standard, it can be extremely difficult to protect savings from confiscation through inflation. Deficit spending in the end becomes a hidden confiscation of wealth. Accordingly, he concludes: “Gold stands in the way of this insidious process. It stands as a protector of property rights."
As quoted in Fortune magazine in February, 2012, Warren Buffett warned that currency-based investments, thought of as "safe," in truth are among the most dangerous of assets, having destroyed purchasing power in many countries even as investors continued to receive timely payments of interest and principal.
Prior to the adoption of the United States Constitution each State enjoyed sovereign authority to issue its own currency. Having witnessed first hand the ravages that purely fiat currencies wreaked on American society with inflation rates approaching 5,000% before, during and after the American Revolution, delegates to the Constitutional Convention were strongly inclined towards restricting emissions of paper currencies in America.
Accordingly, under article 1 § 8 of the Constitution, Congress is granted power to "coin money, regulate the value thereof and of foreign coin". Section 10 of the same article prohibits states from "coining money or making anything but gold and silver coin a tender for payment of debts." As an exception to a prohibition, specie monetization (recognizing gold and silver coin as legal money) constitutes a reserved state power.
Over the past century sovereign debt has soared on the back of purely fiat, paper currencies. Central banks have forced interest rates to near zero in order to make the massive debt service loads even remotely possible. Modern governments’ penchant for cheap money has spread to the citizenry worldwide. Accordingly, because no one really earns significant interest on money any more, we have become a world full of debtors, not savers.
Ultimately, only gold and silver coinage has ever proven to be a truly reliable extinguisher of debt. All other currency is debt. The exercise of exchanging fiat currencies amounts to nothing more than swapping one form of IOU for another.
Power Economic Growth
With the notable exceptions of the War of 1812 and the Civil War era, Congress adhered to a pure metallic monetary standard throughout the 19th century. Economic historian Dr. Brian Domitrovic has commented on the remarkable performance of the American economy under the gold standard, not only during the 19th century, but also during periods in the 20th century when monetary policy keyed off the price of gold:
The achievement of simultaneous price stability and economic growth was so outsized that we hardly recognize this kind of heady economic performance as even possible today. Yet this is the real economic record of the gold standard.
These observations underscore the essential role of a precious metal monetary option. Quintric makes that option truly viable.
U.S. Quintric Monetary Tokens
The Quint and the QuintS (“US tokens”) are specifically designed to allow U.S. citizens to reap the full benefits of their country’s legal tender laws, although others from around the world are welcome to make use of them as well. One thousand gold or twenty silver US tokens may be surrendered for either a one-ounce U.S. minted gold or silver legal tender coin, respectively, which are vaulted and insured at a 100% reserve ratio, payable to the token bearer on demand.
Each Quint token certifies five U.S. gold cents held on deposit by The Quintric Corporation payable to the bearer on demand in one-ounce U.S. American Eagle or Buffalo gold coinage (at 1,000 tokens per coin). Because U.S. one-ounce gold coins are stamped with a fifty-dollar face value, each contains 5,000 gold cents or 1,000 Quint. Thus, each token represents one thousandth of a troy ounce of U.S. legal tender gold. No cap applies to this token. So, the only limitation on its issuance is the supply of U.S. gold coin, which by law the U.S. Treasury is to produce in quantities “sufficient to meet public demand”. The cost to convert U.S. paper dollars to Quint is determined by dividing the retail proof coin price published by the U.S government on usmint.gov by one thousand. Each token is subject to a 100% reserve ratio that meets the highest standards of vaulting accountability.
Each QuintS token certifies five U.S. silver cents held on deposit payable to the bearer on demand in one-ounce, U.S. American Eagle silver coinage, at 20 tokens per coin. This means that each QuintS token represents one twentieth of a silver dollar—the coin’s face value. Like Quint, the supply of this token is uncapped, subject only to the U.S. Treasury minting “sufficient to meet public demand”. The cost of conversion from paper dollars is calculated by dividing the retail proof coin price published by the U.S. government on usmint.gov by twenty. Each token is subject to a 100% reserve ratio that meets the highest standards of vaulting accountability.
International Quintric Monetary Tokens.
The system supports international commerce by means of the iQuint and iQuintS (collectively the “iQ tokens”), backed 100% by gold and silver insured holdings. One thousand gold or twenty silver iQ tokens may be redeemed for any one of the five existing, one-ounce, specie legal tender coins denominated in each of the issuing countries’ respective currencies, other than the U.S. Dollar. Alternatively, iQ tokens may be redeemed in amounts as little as one iQ token in the form of the official coin of the realm issued by the Royal Court of Breifne, Ireland’s Ancient Middle Kingdom. Efforts are already underway to develop QuintCard and QuintCoin for this very purpose.
The International Gold Quint or iQuint is an uncapped cryptocurrency backed by Briefne’s coin of the realm together with a basket of five other legal tender gold coins, consisting of the Canadian Maple Leaf, the Austrian Philharmonic, the Chinese Panda, the British Britannia, and the Australian Kangaroo. iQuint may be redeemed by the token holder in any one of these forms by tendering one thousand tokens per government-issued, one-ounce coin, or as little as one token for a Breifne QuintCard, which will be available in one, five and twenty-five iQuint denominations. Like Quint itself, an iQuint token represents one thousandth of an ounce of gold legal tender. The conversion rates are the same for both Quint and iQuint, so they are directly interchangeable through the Quintric escrow. The gold holdings vaulted as backing for iQuint will contain at least five percent of each sovereign coin offered as a redemption option, with the remainder in Breifne coin of the realm. The iQuint is subject to the same meticulous vaulting and auditing procedures as the U.S. Gold Quint.
The International Silver Quint or iQuintS is an uncapped cryptocurrency backed by Briefne’s coin of the realm together with a basket of five other legal tender silver coins, consisting of the Chinese Panda, the British Britannia, the Austrian Philharmonic, the Canadian Maple, and the Australian Kangaroo. iQuintS may be redeemed by the token holder in any one of these forms by tendering twenty tokens per government-issued, one-ounce coin, or as little as one token for Breifne QuintCoin which will be available in one and five iQuintS denominations. Like QuintS itself, an iQuintS token represents one twentieth of an ounce of silver legal tender. The conversion rates are the same for both QuintS and iQuintS, so they are directly interchangeable through the Quintric escrow. The silver holdings vaulted as backing for iQuintS contain at least five percent of each sovereign coin offered as a redemption option, with the remainder in Breifne coin of the realm. The iQuintS is subject to the same meticulous vaulting and auditing procedures as the U.S. Silver QuintS.
The QuintX token differs markedly from the US and iQ Monetary Tokens. A QuintX token represents a proportionate share of the QuintCache—a trust fund maintained by Quintric to hold small transaction fees assessed in Monetary Tokens. Specifically, a half percent fee is deposited in the QuintCache each time a transaction occurs. A half percent escrow fee applies as well, for a total one percent charge per transaction, not to exceed 5 Monetary Tokens per transaction. This means that on a 50,000 Quint transfer only a 5 Quint charge would be incurred, while a 50 Quint transfer would result in a 0.50 Quint fee.
QuintX tokens emerge as a by-product of the creation of Quintric Monetary Tokens through the deposit of legal tender into the system coupled with the generation of an accompanying crypto token as a receipt. Monetary Token creators who qualify as accredited investors may be awarded QuintX tokens directly. For non-accredited investors, such tokens may be placed into a donor-advised fund, over which the token holder may exercise advisory rights regarding the ultimate disposition of any value generated thereby for qualified charitable purposes. Because the proportion of minted QuintX tokens awarded for newly created Monetary Tokens declines sharply over time, early adopters receive a significant advantage. One QuintX token will be held by Quintric for business development purposes, for each four gifted tokens.
Quintric issues periodic dividends to QuintX token holders from the cache in the form of Monetary Tokens. As the Monetary Token circulation velocity increases, the value and frequency of QuintX dividends rise as well. The market’s perception of the QuintX dividend trend line will also drive rising valuations as the Quintric system becomes more widely adopted.
The QuintCache is the aggregated gold and silver fund that receives iQ tokens from Quintric system transaction fees, excess QuinTrust profits, and potentially revenue from future projects. The QuintCache is primarily made up of iQuint but also includes iQuintS from silver-based transactions within the QuintS and iQuintS networks.
Beginning one year following the public launch of QuintX, token holders will receive their first dividends in the form of their proportionate share of the iQ tokens held in the cache. Quintric anticipates that the frequency and amount of dividends issued to QuintX holders out of the QuintCache will increase over time. Ultimately, the goal is to achieve monthly dividend issuances. In addition, the ratio of QuintX tokens issued for the creation of Monetary Tokens will decrease so that the market value of these gifted tokens does not eclipse the value of the newly created Monetary Tokens. This steady decline in the creation of QuintX tokens will tend to enhance the market value of QuintX in the hands of existing token holders.
The QuinTrust fund is designed to ensure that resources necessary for vaulting and insuring all holdings within the Quintric system will be available in perpetuity. QuinTrust is to be managed by the Quintric board, which will designate a portion of the monetary token sales and escrow fee receipts during the prior quarter be placed in the fund. QuinTrust assets are to be invested in precious metal leases, mining operations and other promising ventures as directed by the board, which may also designate an amount of excess earnings to be added to the QuintCache to enhance QuintX dividend issuances. The status of the fund will be reported no less than quarterly on the Quintric website.
Based on current projections of vaulting and insurance costs as well as anticipated returns, the QuinTrust is funded by 30% of the premiums from gold token sales as well as 50% of the premiums from silver token sales.
The rise of Bitcoin, cryptocurrencies, and blockchain technology has ushered in a new era of cryptographically sound and secure digital value. The value of cryptocurrencies come from a few factors but the two major ones are ease of use and security. While cryptocurrencies are getting easier to use every day and security is very strong, the leap to daily use has, so far, been hard for the mainstream public. The intrinsic value of gold and silver backed up by cryptography and blockchain tech aims to solve these issues.
Solving the “Double-Spending Problem”
In the wake of the 2008 financial crisis, the mysterious Satoshi Nakamoto published a whitepaper titled 'Bitcoin: A Peer-to-Peer Electronic Cash System'. The paper outlined a workable framework for creating functional and decentralized, digital currency, or 'money on computers'. The problem with this idea prior to Bitcoin is obvious, it is too easy to make perfect copies of a digital file. If you email a friend a picture, you keep a copy on your computer, and send your friend a copy, allowing both of them to have exact replicas of the same digital asset. This is referred to as the ‘double spending problem’. Digital currency creators have been working for decades in an attempt to make sure a dollar doesn’t get spent twice at the same time in separate transactions. Satoshi Nakamoto solved this problem with the invention of the blockchain.
The Blockchain is a cryptographically sound, decentralized, digital ledger that prevents double spending through requiring consensus amongst its entire network. Once a transaction takes place, that transaction is ‘announced’ to the whole network, and once verified, is accepted and forever stored in the digital ledger as having occurred. The majority of the network must confirm for a transaction to be recorded as true. This trustworthy, transparent, and decentralized ledger, called the Blockchain, has solved the double-spending problem and has led to the exponential growth of Bitcoin and other blockchain inspired ventures. A new age of entrepreneurism is likely upon us.
As powerful and revolutionary as cryptocurrency is, its inherent material value consists of ephemeral ones and zeros powered by electricity. It is hard to hold those things in your hand. The average person needs a lot of education to understand how something, which exists solely in a digital landscape, has a value of worth in the material world. But what if you could, just like you could before our dollars turned fiat, exchange your digital cash in for precious metals? What if every coin on a network like Bitcoin had a guaranteed supply of real gold and silver to back it, redeemable and exchangeable on the classic common market, ensuring a base value to a digital asset?
At present, there are three types of consensus algorithms powering blockchains. Bitcoin uses a method referred to as Proof Of Work (PoW), and was the first known blockchain. PoW was a breakthrough and fostered decentralization in the early days, but the nature of PoW resource requirements (ASICs and energy) strongly incentivized centralization of mining and control, a problem that Proof Of Stake (PoS) and Delegated Proof Of Stake (DPoS) address.
The type of work being conducted in order to mine and power the network is a complex set of math problems where the probability of mining a block is dependent on how much work is done by the miner. Miners compete for blocks with ever increasing difficulty, and have to upgrade constantly to newer, faster hardware in order to continue to mine. Because of this, each Bitcoin transaction today uses as much electricity as it would take to power a U.S. Household for an entire week. This method is not economically or ecologically sound, and requires massive scale that exacerbates the problem. In recent research, experts argued that bitcoin transactions may consume as much if not more electricity as Denmark by 2020.
PoW has also proven to be not as decentralized as other consensus models. Due to the inherent reward system based on computational power, miners typically pool together into mining pools in order to compete for block rewards. This has created a centralized hierarchy within Bitcoin, with only three or four mining groups controlling the majority of block production. Because of this, the miners themselves are a source of centralization.
Bitcoin also suffers from congestion problems due to the PoW reward system, and is now processing maximum transactional capability with a long queue of transactions in an overflow. This causes delayed transactions and results in much higher fees for transaction transmission.
Another consensus algorithm is known as Proof Of Stake (PoS). Unlike the proof-of-Work, where the algorithm rewards miners who solve mathematical problems with the goal of validating transactions and creating new blocks, with the proof of stake, the creator of a new block is chosen in a deterministic way, depending on its wealth, also defined as stake.
In PoS, there is no block reward, the miners instead take transaction fees, and are referred to as forgers, and the forgers are always those who own the coins minted. As with Bitcoin, PoS also has massive problems with network congestion and rising fees associated with increased usage and adoption. A perfect example is the CryptoKitties smart-contract that launched on the Ethereum network in the winter of 2017. In December, CryptoKitties was responsible for over 20% of the total traffic on the Ethereum network, and caused network congestion to reach unprecedented levels. Fees also rose massively with congestion, with several companies and exchanges having to freeze operations until the congestion subsided to manageable levels. Ethereum network currently sits at one hundred percent utilization of its transactional capabilities, with transactions also in an overflow queue. With increased adoption, one can surmise that this problem will continue.
As with PoW, centralization also appears to be the case with a majority of forging being pooled into a few entities. At present only two to three pools control well over the majority of computational power on the Ethereum network.
The Quintric Approach
Quintric has chosen to use the consensus model called Delegated Proof of Stake (DPoS). DPoS was created by Daniel Larimer after experimenting with PoW in the early days of Bitcoin. Daniel was quick to realize that the transactional speed of Bitcoin was inadequate for industrial and commercial applications, as well as the required energy costs becoming unsustainable as well as wasteful. Daniel also recognized that PoW mining would become more centralized in the future, with large mining pools controlling a majority of the PoW network.
In order to match the needs of business in a real-time environment, Daniel Larimer decided to invent and build a new consensus algorithm that requires little energy to use and run, something very secure, but also able to transact at the lightning fast speed of business. This resulted in the creation of Delegated Proof Of Stake.
DPoS is more efficient than Proof of Stake all together, and does provide more decentralisation than Proof of Work and Proof of Stake when it comes to rewarding block signing. It also provides much faster confirmed transactions on networks and for businesses that implement this technology.
Delegated Proof of Stake uses a type of reputation system and real time voting system to achieve consensus. What is different about this technology versus other consensus technologies is that a panel of trusted parties is established, and all members of that group are eligible to create blocks and prevent other non-trusted parties from doing so. These trusted parties are referred to as delegates, and are responsible for creating blocks on the network, however they are unable to change transaction details. A witness could prevent specific transactions from being included in a block; however, if a transaction is not included in a block, the next network block will be twice the size and will only slightly delay the transaction or block.
If any witness were to behave as a bad actor in that way or in other ways, their behavior would be exposed. Stakeholders on the network can then vote to remove that particular delegate, and choose another block producer to take its place.
The amount of delegates required to run the network can be increased or decreased depending on needs and scalability, however all parties signing blocks in the network are of equal stake. This means it would require more than half of all block signers to collude in order to take over the network, however network stakeholders can remove those parties at any time, which makes it much more difficult to cheat the system or to take over the system through centralization of power.
Power usage to run the DPoS network is minimal, with each transaction using less than one second of laptop battery power versus an entire household for a week, as with PoW. This is environmentally friendly and allows the network to run without the use of expensive ASIC processors as well as massive energy and cooling costs.
DPoS was tested by the BitShares network in a stress test in March 2017 on geographically distributed nodes with peak processing rates of 3,328 transactions PER SECOND (199,680 transactions per minute) more than 10x the Waves (LPoS) stress test results. From these results, it was estimated that DPoS could be capable of up to 180,000 transactions per second if the network hardware used in the test were to be scaled to meet transactional demand. By comparison, VISA network is capable of handling 24,000 transactions per second, NASDAQ with recent system improvements increased its capability to a little more than 10,000 per second, and MasterCard comes in at 38,000 per second.
DPoS technology is currently responsible for processing more than half of all daily transactions in the entire blockchain industry, and is capable of processing every transaction on the blockchain daily with no congestion or overflow. DPoS blockchains have also been operational for several years, currently hold the record for most processed transactions per day, the longest blockchain, and are the fastest confirmed secure transactions available.
Vaulting & Insurance
Quintric currently operates a state-of-the-art precious metals vault in Utah, USA. In addition, the company enjoys strong relationships with other well-established vaulting service providers. Ultimately, Quintric anticipates developing a network of vaulting locations not only in Utah, but also in other gold-friendly jurisdictions throughout the world.
Holders of at least 250,000 Quintric monetary tokens may apply to observe an audit conducted at any one of these current or future locations. It is anticipated that such audits with participation by third-party observers will be livestreamed and viewable on the Quintric YouTube channel.
Quintric aspires to develop an integrated vaulting system that is just as transparent as the blockchain accompanying it in order to establish a high degree of confidence among token holders. By using 21st century technology, Quintric holdings will be visible not only on the blockchain ledger, but in the vault as well to anyone, anytime, anywhere. Quintric is actively exploring robotics, automated auditing, non-destructive assay, and distributed remote surveillance systems for further implementation into existing and planned vaulting facilities.
All precious metal holdings within the Quintric system are fully insured against loss or damage. Certificates of insurance are available upon request. To ensure adequate resources for both vaulting and insurance, as noted above, currently 30% of the premium on gold token sales and 50% of the premium on silver token sales will be deposited in QuinTrust for this purpose. In addition, Quintric will earmark a portion of its QuintX holdings as a back-up reserve as well.
Peer to Peer Lending
Quintric anticipates offering new products and services as its network expands and gains traction. One such enhancement under consideration is peer to peer lending. Existing, non-legal tender cryptocurrencies, whose value is driven primarily by scarcity and speculation, are entirely unsuited for lending, as their market value is so unstable. Imagine taking out a loan denominated in Bitcoin in 2013. The debt burden today of such an obligation would be ruinous. One of the key characteristics of an actual currency is the ability to support credit relationships. As real, legal tender money, Quint meets that test.
Several peer to peer lending platforms already exist for paper dollars. Quintric would simply look at extending that proven model to specie legal tender. Token holders could extend credit to businesses, governments, or simply other individuals for varying interest rates. A portion of the proceeds realized by Quintric for this service would be contributed to the QuintCache for the benefit of all QuintX token holders. The success of a Peer to Peer lending platform will allow Quint holders to not only save and spend, but to earn interest as well.
U.S. Tax Implications
As the Supreme Court recognized long ago in McCullough v. Maryland, 17 U.S. 316 (1819), taxing money renders it useless as money. This fact alone greatly impedes the use of any non-legal tender cryptocurrency as a medium of exchange. With respect to U.S. specie legal tender, the exchange of paper dollars for specie dollars is generally recognized as a non-taxable event, although about a dozen and a half states have yet to explicitly exempt such exchanges from local sales tax.
In part for this reason, all specie legal tender held in the Quintric program is vaulted at present in "state of the art" secure facilities in the State of Utah, which arguably has the most favorable specie legal tender laws in the nation. Likewise, all Quintric transactions pass through escrow governed by Utah law.
The purchase of goods and services using specie legal tender is uncontroversial as well, especially in light of federal black letter law on the topic. Of course, local sales taxes would apply to any such transaction, just as they would to purchases using paper dollars.
The most thorny tax issues arise with respect to either the conversion of specie legal tender to paper dollars or treating the two as legal equivalents for tax purposes under an “earn gold/pay taxes in paper” exploit. Three major developments have muddied the waters in these areas: (1) the U.S. Secretary of the Treasury’s failure to fulfill his statutory duty "to maintain the equal purchasing power of each kind of United States currency"; (2) long-standing judicial authority for the proposition that all dollar types are legal equivalents; and (3) case law developed during the “mintage moratorium” uncritically followed during the current era of specie re-monetization. Each of these is explored in more detail below.
Different Dollar Standards
Notwithstanding the growing disparity in the purchasing power of the various kinds of dollars in circulation today, federal law continues to draw no legal distinction between specie and paper dollars. As the 5th Circuit recently observed, “a dollar is a dollar regardless of the physical embodiment of the currency.” Notably, that Court simply followed long-standing Supreme Court precedent:
A coin dollar is worth no more for the purposes of tender in payment of an ordinary debt than a note dollar. The law has not made the note a standard of value any more than coin. … The law knows no difference between them.
This judicial treatment equating a $50 dollar gold coin with $50 in Federal Reserve notes, while perhaps consistent with the letter of the law for some purposes, is economically nonsensical in most contexts. In recognition of this, item 13 of Internal Revenue Bulletin 2010-17 identifies the following as a "frivolous" tax position:
(13) In a transaction using gold and silver coins, the value of the coins is excluded from income or the amount realized in the transaction is the face value of the coins and not their fair market value for purposes of determining taxable income.
While this position may be intended to curtail perceived abuses, as noted below it appears to rely largely upon language drawn from legal precedents articulated during the mintage moratorium in addressing certain abusive transactions but without providing guidance about how non-abusive transactions involving a specie legal tender platform might look. Indeed, in response to a 2015 Freedom of Information Act inquiry, the IRS only identified two cases handed down during the “mintage moratorium”, discussed below, and an order relying on such case law as the basis for its categorization of this position as frivolous. Even so, the anomaly created by the general government’s failure to maintain the equal purchasing power of each kind of currency, coupled with the absence of any legal distinction between them for most purposes, creates uncertainty. Accordingly, Quintric intends to support lobbying efforts for clarifying legislation as resources become available to do so.
Ever since the Coinage Act of 1965, by which President Johnson dispensed with the Constitutional silver dollar standard that had served the country’s economy for 173 years (with rare exceptions during wartime), tax courts have struggled with the tax implications of the ever widening specie/paper purchasing power gap. During the 20-year moratorium (1965 to 1985) on the mintage of U.S. specie legal tender, the courts developed the judicially-crafted rule of non-circulating and/or numismatic specie legal tender being treated as taxable “property other than money” pursuant to 26 U.S.C. § 1001(b). These cases involved tax years which occurred within the mintage moratorium, and specie coin was not technically “circulating,” as legal tender at that time.
Following the Liberty Coin and Gold Bullion Coin Acts of 1985, the mintage of specie legal tender resumed. Some courts have, however, continued to uncritically extend the rule developed during the moratorium into the new era of specie legal tender circulation. Notably, none of the cases which have embraced the “non-circulating” rationale in any way acknowledge the Supreme Court precedent, which draws into question their applicability to varying fact patterns.
One important factor in determining the tax treatment of a particular transaction in precious metals appears to be taxpayer intent. In Thorne and Wilson, Inc. v. Utah State Tax Commission, 681 P.2nd 1237 (1984), the Utah Supreme Court considered the applicability of sales tax to the purchase of precious metal coinage. Following the holding in Michigan National Bank v. Department of Treasury, 339 N.W.2d 515 (1983), the court in Thorne determined that:
[W]here Krugerrands are transferred as a medium of exchange ... the coins remain intangible personal property, not subject to tax. But where ... they are transferred as an investment commodity, they become tangible personal property within the meaning of the General Sales Tax Act."
The Thorne court expanded on the Michigan National Bank holding applying it to both "United States and foreign coins, when they are not used as currency or a medium of exchange". Significantly, Thorne was handed down during the specie legal tender mintage moratorium. Even then, the court found that whether specie is used as money or as investment property is determinative of its tax treatment.
More recently, an Ohio federal district court ruled that where coins are “not used as legal tender, but instead … traded and converted based on their intrinsic or tangible metallurgical value”, such lose their monetary status. U.S. ex rel. Holbrook v. Brink's Co., 2015 WL 196424 (S.D. Ohio Jan. 15, 2015). Thus, intent becomes paramount.
Obviously, actual use of gold and silver legal tender as a currency for the purchase of goods and services would be highly supportive of characterization of government minted coin as legal tender. Consistency of purpose and use becomes of the utmost importance, just as it does with other tax areas such as electing to be treated as a cash versus accrual method taxpayer.
When dealing with emerging tax issues, prudence dictates consultation with a qualified tax advisor. Professional ethics preclude an advisor from opining on, and would thus similarly preclude a taxpayer from relying upon, a specific tax treatment of any transaction through a general analysis in a white paper of this kind, because any such advice needs to be provided in the context of the taxpayer’s specific facts and circumstances.
Any person who submits a tax return or other specified submission based on positions that are the same as or similar to positions identified as "frivolous" may be subject to a $5,000 penalty, if the submission is not withdrawn within 30 days of receipt of an IRS notice that the position has been identified as "frivolous". Accordingly, proceed with caution when pushing the boundaries of established IRS positions.
Defensible tax positions with regard to using a mix of legal tender forms will not be possible from simply picking favorite sound-bites or choice phrases from various statutes, regulations and case law. A well-reasoned, well-researched, consistent approach places the taxpayer in good stead.
That said, the impracticality of dealing with value differentials is reduced greatly through the Quintric system. Token holders may find a new range of possible ways of transacting through specie legal tender that do not have some of the artificially triggered tax consequences that have existed in flipping back and forth between legal tender forms, and the anomalous opinions that grew out of numismatic transactions.
Quintric Directors & Advisors
Mr. Taggart is President of Cryptonomex, the company that authored the Graphene blockchain, originally developed as the foundation of Bitshares, and maintains an MIT license for usage. As a long time evangelist for Graphene technology and the BitShares platform, Mr. Taggart travels the world educating businesses, students, and government officials on the capabilities and use cases Graphene currently powers. As a digital marketing veteran, Mr. Taggart is responsible for several millions of dollars in sales of educational material, and SaaS platform products. Mr. Taggart is a serial entrepreneur, public speaker, and internet marketing strategist who has advised tens of thousands of small businesses and individuals on the topic of digital marketing; with an overall emphasis on helping companies develop successful online business strategies.
Mr. Larimer, affectionately known as "The Godfather of Bitshares", has in recent years focused his attention on the emerging industry of smart cryptocurrencies and other decentralized financial services. He currently serves as CEO of Cryptonomex Inc., a U.S. software development firm whose engineers have built what is touted as one the “most advanced blockchain architectures” and platforms on the market. The Graphene ecosystem, which was created by the father-son team of Stan and Dan Larimer, powers several major blockchain ventures including OpenLedger, Steemit and PeerPlays. The system is capable of processing over 100,000 transactions per second (more than Visa, NASDAQ and MasterCard combined) with an average transaction time approaching one second. And, while confirmations can take many seconds—by contrast on Bitcoin it can take an hour or more.
Mr. Larimer is a 40-year veteran of the American aerospace industry. He has extensive experience in software, hardware, and systems engineering, program management, business development and even teaching rocket science at the U.S. Air Force Academy. He has been a major contributor on 17 different R&D programs for air, ground, sea and space systems, serving with Boeing, Lockheed Martin, Northrop Grumman, and SAIC as a consultant, tech lead, program manager and/or corporate officer.
Lawrence D. Hilton, Esq.
Beginning in 2009, Mr. Hilton conceptualized, drafted and then shepherded through the Utah Legislature the Specie Legal Tender Act, which was passed into law in 2011, with important amendments adopted during the 2012 session. By that statute, Utah became the first state in more than one hundred years to formally recognize gold and silver coinage as legal tender. Since then he has actively championed monetary reform measures in Idaho, Nevada, Wyoming, Arizona, Oklahoma and Texas—with the latter three states having adopted meaningful specie legal tender legislation.
Mr. Hilton formed Citizens for Sound Money in 2010, and the Utah Monetary Summit in 2011, which in its first year was attended by participants from more than a dozen U.S. states and half a dozen countries. In 2013, he co-founded the United Precious Metals Association (UPMA) to promote the commercial framework necessary to implement Utah's new monetary system. He also serves on the Gold Standard Now advisory board of American Principles in Action, a Washington D.C. based public policy think tank, as UPMA General Counsel, and as the Exchequer of the Royal Court of Breifne.
Mr. Hilton holds both Juris Doctorate and Masters of Business Administration degrees from Brigham Young University. Admitted to both the Utah and California bar associations, he has practiced in the areas of insurance coverage and defense, commercial litigation, business formation, bankruptcy and Constitutional law for more than 30 years. He currently holds insurance licenses in all 50 states and is a tribunalized cover holder with Lloyd's of London.
Rep. Mark Finchem
Representative Finchem has been a member of the Arizona House of Representatives representing District 11 since January 5, 2015. He has sponsored specie legal tender legislation each session he has been in office, and was selected by his peers to chair Arizona’s Ad Hoc Committee on Gold Bonds. In 2017, he successfully ran legislation that resulted in Arizona’s formal recognition of specie legal tender and the elimination of the capital gains taxation of gold and silver. Representative Finchem also serves on the United Precious Metals Association board of directors.
Before moving from Michigan to Arizona, Representative Finchem worked for the Kalamazoo Department of Public Safety for 21 years, retiring in 1999. Subsequently in Tucson, Arizona he worked for a software manufacturer advancing to senior management before becoming a real estate broker in 2008.
Paul K. Savage, Esq.
A graduate of Columbia Law School, Fulbright Scholar, and member of both the New York and Utah Bar Associations, Mr. Savage’s varied career, whether at KPMG, Kirton McConkie or presently with EquityLaw PLLC, the non-profit, multidisciplinary law firm he founded in Alpine Utah, has focused on tax controversy, complex commercial transactions, corporate organization and governance, privacy rights, intellectual property (IP) licensing and litigation, as well as estate and business planning. Internationally, he has advised Fortune 100 companies in the areas of multinational tax compliance, market entry, cross-border licensing, IP development and protection, business organization, board governance, privacy issues, structuring commercial transactions, tax exempt entities, risk management, dispute resolution, transfer pricing, SaaS and media matters.
Mr. Savage also served for many years on the board of the World Trade Center Utah, a licensed and certified member of the World Trade Centers Association headquartered in New York City, as well as an adjunct professor at Seattle University School of Law.
Lord Martin O’Reilly
Lord Martin, Prince of the House of Breifne and Guardian of the Ancient Middle Kingdom, as an authorized heir to the throne under Brehon Law leads the Royal Court of Breifne in its efforts to restore, honor, preserve and protect the Kingdom. As a young man, he lived on the Hill of Tara, the seat of the ancient high kings, several of whom had been Kings O’Reilly of Breifne. In addition to being a senior member of the royal family O’Reilly of Breifne (Bréifné ua Ráighaíllaígh), Lord Martin is an approved member of several royal/noble courts around the world. After a much varied career, he worked as a psychologist until his retirement. Since then he has been working tirelessly to restore the ancient kingdom for the benefit of the native people of his homeland and has declared the iQuint the official coin of the realm.
Mr. Chapman is a seasoned entrepreneur and respected visionary within the precious metals and physical commodities industries. With 20 years of international business development experience, he has consulted industry leaders from the top 200 world companies and completed over 10 billion in commodity and precious metal transactions globally.
He is on the advisory council at Cryptonomex where he facilitates business development and relationship management in the areas of digital asset technologies & development, commodity and precious metals integration within the global financial digital marketplace, and fintech solutions powered by the graphene blockchain technology.
Prior to business, Mr. Chapman graduated from UCSB with a B.A. in Psychology and a minor in Exercise, Health and Science. He was an NCAA collegiate volleyball All-American at UCSB, and member of the U.S. National beach volleyball team, with over 300 professional International tournaments in 7 consecutive years from 1996-2003.
In 2015 after having written a viral article about the services being offered through the United Precious Metals Association, Mr. Cordon was recruited to assist with promoting the Association to a broader audience. A passionate activist, and advocate of monetary reform, Mr. Cordon graduated from the University of Utah with a B.A in Political Science in 2014. At age 27, Mr. Cordon belongs to the rising generation of libertarians, and is, by far, the youngest member on the board. Mr. Cordon has worked at the managerial level of Legal Tender Services PLLC since 2015 and has been a key player in developing the business models used for both the United Precious Metals Association as well as the Quintric system itself. Mr. Cordon has also been instrumental in raising capital to support the Quintric project.
Mr. Day is Co-Founder of United Precious Metals Association which was created in 2013 to help serve people who want to transact in gold and silver legal tender. He is currently serving as the association’s Chairman of the Board of Directors. Mr. Day’s desire to utilize blockchain technology to facilitate the exchange of goods and services for gold and silver backed cryptocurrencies has been a creative driving force behind the creation of Quintric.
Twelve years ago, Mr. Day founded, and currently serves as CEO of, Attraction Studios, LLC, a full design, 3D and animation art studio which creates software, 3D applications, animations, and 3D Virtual/Augmented Reality applications and design for customers such as Sony, Paramount, Dreamworks, Microsoft and Evermore.
The Quintric monetary system aims to enable citizens around the world to exercise true choice in currency, thus reaping economic, tax, and cultural benefits for themselves and their communities. A number of jurisdictions have enacted legal tender laws reflecting a public policy highly supportive of the circulation of specie legal tender as a complement to the predominant, debt-based, paper currency.
In the U.S., for example, such policies include the requirement that "amounts received from the sale of gold shall be deposited by the Secretary in the general fund of the Treasury and shall be used for the sole purpose of reducing the national debt." In addition, as a measure clearly designed to benefit the U.S. economy, federal law directs the Secretary of the Treasury to mint enough gold dollars "to meet public demand" and to do so "by purchase from the natural deposits of the United States."
Until the advent of Quintric, workable solutions for accessing the power of the diverse, yet universal, sound money that gold has always been, seemed beyond grasp of most individuals and entities. Quintric makes the use of specie legal tender not only a viable, but a highly attractive option as well. People can now save and spend real money offering a whole host of societal and personal benefits, not the least of which is meaningful participation through QuintX in the abundance bound to result ultimately from these new Quintric monetary options.