Is Google an Illegal Money Transmitter and Securities Exchange?
It’s the year 2025. Alice and Bob form a company and issue themselves 1000 shares which they document using Google Sheets. They then proceed to sell shares to the public in exchange for shares of another company which also managed their cap table in a Google Sheet. Everyone has some permission to edit the spreadsheet to transfer their shares from one person to another person.
The only difference between this example and real Google Sheets is that this story is set in the year 2025 after Google moved the backend of Google Sheets to a blockchain.
Today, thousands of less-sophisticated companies manage their shareholder cap tables on Google Sheets. These Google Sheets even log the edit history just like a blockchain. Does the fact that they use Google Sheets instead of Apple’s Numbers or Microsoft’s Excel change the legal nature of the Google Sheets service? Is Google now an issuer, custodian, administrator, and/or money transmitter?
Blockchain as a Public Spreadsheet
A blockchain could be viewed as a spreadsheet and each cell may contain a value or an equation. Each equation could be viewed as a smart contract which has the ability to read other cells and update itself. The only difference between traditional spreadsheets and this blockchain spreadsheet is the cell-level permission management.
Paid Service Provider
Google requires that companies pay for commercial use of Google Sheets. This payment is typically in the form of a monthly payment of dollars on a per-user basis. Generally, Google also provides the service free-of-charge for non-commercial use. It is clear that Google has great flexibility in choosing if and how to charge for its service. Based upon this, it is also reasonable for future Google to accept shares of private entities in exchange for service.
Does the idea that, in the year 2025, Google accepts payment-in-kind (shares of the businesses they serve) in exchange for the use of their Google Sheets service make Google the issuer of the shares they receive or money transmitters when they sell said shares?
Ability to Export Spreadsheet
As a service provider Google does not lock users into their service. The data in every Google Sheet can be exported and evaluated in other spreadsheet platforms such as Apple’s Numbers or Microsoft Excel or even other online service providers such as Microsoft Office365. This means that Google Sheets does not own nor control the data; it is merely a service provider acting on behalf of its users rather than an fiduciary responsible to shareholders.
Multiple Service Providers
In order to prevent vendor lock-in, and in order to obtain competitive rates, Alice and Bob periodically vote to switch service providers. One week they use Google, the next Microsoft, and the next Apple. As Alice and Bob are the owners of their company they can use whatever provider gives them the best service for their money (or property-in-kind) and they do not have to get permission from the service provider(s) to switch to another.
Trust in Service Provider
As Alice and Bob move from service provider to service provider they are trusting each provider to enforce the permissions defined the spreadsheet. Each provider has the ability to deny or delay service to users wishing to login and edit the spreadsheet. If any provider interferes with the editing process then Alice and Bob can simply move to a new provider. If any provider attempts to allow unauthorized edits then Alice and Bob can reject the edit and go with a new provider.
Does the fact that Google has the ability to freeze a shareholder’s account by preventing them from making an edit does make Google the custodian of the shares nor an intermediary between two shareholders attempting to buy/sell their shares in like-kind exchanges?
In the particular case of a corporate account, Google is not creating an account for Alice and Bob but rather for their company, AB Co. The authorization for the account creation and share issuance to pay Google comes from the AB Co. shareholder agreement and votes cast by the AB Co shareholders. The decision to hire Google vs Apple is made by the vote of AB CO. shareholders and therefore Google or Apple know they have a properly authorized service contract.
Illegal Public Offering of Shares
Suppose AB Co. issued shares in violation of applicable securities regulations. Google is not the party who offered the shares and it is doubtful any reasonable court or regulator would find Google guilty of operating an illegal money transmission business, failing to follow know-your-customer regulations, or illegal securities issuance just for having provided spreadsheet services.
In this case the only law broken was the illegal public offering of shares by Alice and Bob.
What if Tokens are not Securities?
So far we have assumed that Alice and Bob sold securities (shares in their company) and tracked those shares in a spreadsheet. For a “share” to be a security they must be someone’s liability. If instead Alice and Bob sold monopoly money for which they made no promise to buy back or pay dividends, then this monopoly money is not a security. Instead, the spreadsheet is simply being used to play a game.
Google may choose to accept game-tokens as payment just like they could choose to accept nothing as payment. These game tokens may even be highly valuable to those who care about the game. The market value of the tokens is based upon supply and demand and not on the ability to enforce a liability on Alice and Bob.
Does Google give the Tokens Value?
Over time Google increases the performance of their service and enables larger spreadsheets, higher performance, and lower costs. These performance/cost improvements benefit all users of the spreadsheet service which may indirectly make some game tokens more valuable. Some people may even buy tokens speculating that Google will increase performance and make the tokens more valuable. Google may even promise to increase performance if Alice and Bob pick them as a service provider.
These facts are no different than any other business promising to provide better service if you switch to them. The promise to improve the service of Google Sheets does not make Google liable for the token’s market value.
The mere existence of a token does not create a security nor a liability. The provision of computation-as-a-service does not make one a money transmitter or securities exchange. Paying service providers-in-kind does not make the service providers issuers nor money transmitters.
In the future, Google’s cloud based document editing and storage application services may be powered by a blockchain and people will be able to implement currencies, ICOs, and everything else that Etheruem does, on a spreadsheet powered by the open source EOSIO software created by block.one.
I hope that this interpretation will help regulators understand how to interpret the relationship between block producers, miners, and users. A blockchain is simply a public database-as-a-service. The operators of this service do so with greater transparency and integrity than every other unregulated computation-as-service provider.
If there must be regulation on the issuing of securities and money transmission then it is the users who are liable for issuing the securities rather than the internet service providers, power companies, computer manufactures, and other parties that the foundation upon which digital issuance depends.
This blog post presents a hypothetical scenario intended to demonstrate the difference between a software service and the potentially regulated use of a software service. This post in no way constitutes a direct or indirect endorsement of any of the posts expressed ideas or contents by Google, Inc., Microsoft, Inc., Apple, Inc., or any of their affiliates, subsidiaries or parent companies. All statements regarding Google, Apple, or Microsoft are hypothetical and should not be interpreted as indicating their past, present or future plans with respect to blockchain technology, block.one, or eosio.
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