Wyoming Division of Banking Spooks CoinBase!

[MicroGuy]

San Francisco-based bitcoin company Coinbase has suspended operations in Wyoming until further notice.

A company blog post cited the Wyoming Division of Banking's recent regulatory legislation as a decisive factor for ceasing business in the western US state, noting it would render continued operations impractical.

"We understand that the Wyoming Division of Banking interprets the Wyoming Money Transmitter Act to require licensure of entities which offer hosted bitcoin wallet services, and that as a condition of such licensure, licensees must maintain dedicated fiat currency reserves in amount equal to aggregate face value of all bitcoin held on behalf of customers," noted the post.

Coinbase said it would be impractical, costly and inefficient for the company to establish a redundant reserve of fiat currency in equivalent value.

"We understand this suspension will inconvenience our Wyoming customers and we apologise that we cannot currently project if or when our services may be restored," it concluded.

Full Story: http://www.coindesk.com/coinbase-suspends-operations-in-wyoming/

[vm_mpn]

San Francisco-based bitcoin company Coinbase has suspended operations in Wyoming until further notice.

A company blog post cited the Wyoming Division of Banking's recent regulatory legislation as a decisive factor for ceasing business in the western US state, noting it would render continued operations impractical.

"We understand that the Wyoming Division of Banking interprets the Wyoming Money Transmitter Act to require licensure of entities which offer hosted bitcoin wallet services, and that as a condition of such licensure, licensees must maintain dedicated fiat currency reserves in amount equal to aggregate face value of all bitcoin held on behalf of customers," noted the post.

Coinbase said it would be impractical, costly and inefficient for the company to establish a redundant reserve of fiat currency in equivalent value.

"We understand this suspension will inconvenience our Wyoming customers and we apologise that we cannot currently project if or when our services may be restored," it concluded.

Full Story: http://www.coindesk.com/coinbase-suspends-operations-in-wyoming/

Here we go... And we are worrying about NY BitLicense when the real threat lays outside sophisticated financial regions.

[tvbcof]

Coinbase better figure out some way to allow their customers to put up the fiat in some sort of a bond or some such.  Seems unlikely that this trend will stop at Wyoming.

(Even though it makes negative logical sense given the stated goal of the regulations...) I would put up, say, $25k to do $25k worth of activity since the need would be transient and the $25k would be the 'bandwidth' rather than some sort of a total.  Nobody (should have) ever expected the interface between cyrpto and mainstream to be easy, cheap, or counter-party-risk free since mainstream financial systems themselves fail on all three counts.

Obviously I'd want some way to be reasonably sure I get my money back.  The mainstream financial system lacks the kinds of mathematical guarantees that are possible with crypto where I could have much better confidence that a bond would be returned since it could not be appropriated indefinitely.  Not that Coinbase seems very interested in developing these crypto technologies, but they are possible and will be selling points to future off-chain providers.

[JackRipper]

Coinbase better figure out some way to allow their customers to put up the fiat in some sort of a bond or some such.  Seems unlikely that this trend will stop at Wyoming.

(Even though it makes negative logical sense given the stated goal of the regulations...) I would put up, say, $25k to do $25k worth of activity since the need would be transient and the $25k would be the 'bandwidth' rather than some sort of a total.  Nobody (should have) ever expected the interface between cyrpto and mainstream to be easy, cheap, or counter-party-risk free since mainstream financial systems themselves fail on all three counts.

Obviously I'd want some way to be reasonably sure I get my money back.  The mainstream financial system lacks the kinds of mathematical guarantees that are possible with crypto where I could have much better confidence that a bond would be returned since it could not be appropriated indefinitely.  Not that Coinbase seems very interested in developing these crypto technologies, but they are possible and will be selling points to future off-chain providers.

I think that most states will be patterning their laws after states like New York and California rather than Wyoming. As long as New York and California don't start requiring similar bonds, I doubt many other states will either.

[tvbcof]

Coinbase better figure out some way to allow their customers to put up the fiat in some sort of a bond or some such.  Seems unlikely that this trend will stop at Wyoming.

(Even though it makes negative logical sense given the stated goal of the regulations...) I would put up, say, $25k to do $25k worth of activity since the need would be transient and the $25k would be the 'bandwidth' rather than some sort of a total.  Nobody (should have) ever expected the interface between cyrpto and mainstream to be easy, cheap, or counter-party-risk free since mainstream financial systems themselves fail on all three counts.

Obviously I'd want some way to be reasonably sure I get my money back.  The mainstream financial system lacks the kinds of mathematical guarantees that are possible with crypto where I could have much better confidence that a bond would be returned since it could not be appropriated indefinitely.  Not that Coinbase seems very interested in developing these crypto technologies, but they are possible and will be selling points to future off-chain providers.

I think that most states will be patterning their laws after states like New York and California rather than Wyoming. As long as New York and California don't start requiring similar bonds, I doubt many other states will either.

Whether they do or not, it's yet one more Sword of Damocles hanging over the head of anyone who wants to play ball.  Justification for such a construct is relatively strong and would resonate with most Joe Sixpack citizens who don't use Bitcoin and don't care much about it.  Any customer loss event could justify a shift to 100% fiat backing requirements at any time.  In the mean time any outfits who choose to try to do business (e.g., Coinbase) are going to do anything requested under such a threat.  Honoring blacklists or whitelists would probably be among the first requests.

Bitcoin in a fiat dominated society with a powerful financial sector is like oil in water.  At least in an form resembling the original Bitcoin.  Bitcoiners are eventually going to be asking themselves 'what the fuck were we thinking' for believing that TPTB were going to give us a break.  It just doesn't make long term sense (though there have been and probably will be plenty of opportunities to make hay while the sun shines...I'm grateful to Coinbase for offering me a good opportunity to capitalize on my speculation.)

[JackRipper]

Coinbase better figure out some way to allow their customers to put up the fiat in some sort of a bond or some such.  Seems unlikely that this trend will stop at Wyoming.

(Even though it makes negative logical sense given the stated goal of the regulations...) I would put up, say, $25k to do $25k worth of activity since the need would be transient and the $25k would be the 'bandwidth' rather than some sort of a total.  Nobody (should have) ever expected the interface between cyrpto and mainstream to be easy, cheap, or counter-party-risk free since mainstream financial systems themselves fail on all three counts.

Obviously I'd want some way to be reasonably sure I get my money back.  The mainstream financial system lacks the kinds of mathematical guarantees that are possible with crypto where I could have much better confidence that a bond would be returned since it could not be appropriated indefinitely.  Not that Coinbase seems very interested in developing these crypto technologies, but they are possible and will be selling points to future off-chain providers.

I think that most states will be patterning their laws after states like New York and California rather than Wyoming. As long as New York and California don't start requiring similar bonds, I doubt many other states will either.

Whether they do or not, it's yet one more Sword of Damocles hanging over the head of anyone who wants to play ball.  Justification for such a construct is relatively strong and would resonate with most Joe Sixpack citizens who don't use Bitcoin and don't care much about it.  Any customer loss event could justify a shift to 100% fiat backing requirements at any time.  In the mean time any outfits who choose to try to do business (e.g., Coinbase) are going to do anything requested under such a threat.  Honoring blacklists or whitelists would probably be among the first requests.

Bitcoin in a fiat dominated society with a powerful financial sector is like oil in water.  At least in an form resembling the original Bitcoin.  Bitcoiners are eventually going to be asking themselves 'what the fuck were we thinking' for believing that TPTB were going to give us a break.  It just doesn't make long term sense (though there have been and probably will be plenty of opportunities to make hay while the sun shines...I'm grateful to Coinbase for offering me a good opportunity to capitalize on my speculation.)

The problem with Wyoming (and probably other states and/or countries) is that they are trying to fit Bitcoin into their existing laws. At least New York recognizes that it's something completely different than anything that they've encountered before.

I hate the idea of the state trying to control Bitcoin by enacting laws and regulations, but sometimes it's even worse to try apply existing law. We seem to get the short end either way. I'm digressing though. You make some very valid points. I wish I had the answer.

[grendel25]

If campaign donations are protected by the constitution then so is just about any transaction using bitcoin.  Besides, how would Wyoming "block" coinbase customers from using their service? Or are they just saying that it is illegal and that they can be prosecuted for doing so?  Is that a state felony?  That would be really messed up.  But if it's an actual service blockage based on IP they customers could still use a VPN to access the coinbase service. 

But this raises all sorts of other questions about the internet.  How can my data that originates from a proxied location that isn't where I really am be considered to be the legal jurisdiction of one state or another?  Good luck with that, Wyoming.

[tvbcof]

If campaign donations are protected by the constitution then so is just about any transaction using bitcoin.  Besides, how would Wyoming "block" coinbase customers from using their service? Or are they just saying that it is illegal and that they can be prosecuted for doing so?  Is that a state felony?  That would be really messed up.  But if it's an actual service blockage based on IP they customers could still use a VPN to access the coinbase service. 

But this raises all sorts of other questions about the internet.  How can my data that originates from a proxied location that isn't where I really am be considered to be the legal jurisdiction of one state or another?  Good luck with that, Wyoming.

I'm not sure if you have set up a Coinbase account, but they were pretty demanding about meeting their KYC requirements when I did so.  I'd guess that homeless street-persons are going to have a hard time signing up with them.

I'm also not quite sure what you mean by 'state felony'.  It almost seems like you are typing gibberish.

[grendel25]

If campaign donations are protected by the constitution then so is just about any transaction using bitcoin.  Besides, how would Wyoming "block" coinbase customers from using their service? Or are they just saying that it is illegal and that they can be prosecuted for doing so?  Is that a state felony?  That would be really messed up.  But if it's an actual service blockage based on IP they customers could still use a VPN to access the coinbase service.  

But this raises all sorts of other questions about the internet.  How can my data that originates from a proxied location that isn't where I really am be considered to be the legal jurisdiction of one state or another?  Good luck with that, Wyoming.

I'm not sure if you have set up a Coinbase account, but they were pretty demanding about meeting their KYC requirements when I did so.  I'd guess that homeless street-persons are going to have a hard time signing up with them.

I'm also not quite sure what you mean by 'state felony'.  It almost seems like you are typing gibberish.

States pass legislation and when people break the law the state can charge criminals with a felony (if it's classified as a felony offense).  In this instance, it appears that Wyoming has legislation against bitcoin or they are trying to make existing legislation fit and apply to bitcoin which is ludicrous from my point of view.  I don't see how that sounds like gibberish unless you mean it's gibberish for Wyoming to prosecute such a law in which case I think we agree.  

[ArticMine]

It is a terrible law because it effectively forces the exchange or wallet provider to hold reserves in USD to cover an XBT liability effectively shorting XBT. If XBT spikes then the exchange will fail. Coinbase did the only reasonable thing. This kind of law this is why it is so important to raise the 1MB blocksize limit since it demonstrates very well how off chain transactions using a system such as Coinbase are not a replacement for on chain transactions.

Edit 1: I would be very interesting if an exchange or wallet provider that does business in Wyoming were to fail and a client who had losses were to sue the state of Wyoming on the grounds that by requiring the exchange or wallet provider to hold reserves in USD rather the the currency the exchange or wallet provider was liable for they caused the failure of the exchange or wallet provider.

Edit 2: Just imagine if Japan had done something like that to MTGox.

[tvbcof]

It is a terrible law because it effectively forces the exchange or wallet provider to hold reserves in USD to cover an XBT liability effectively shorting XBT. If XBT spikes then the exchange will fail.

No!  Really!?!  I'm sure that that breaks the heart of those politicians (who, in case you didn't notice, are generally installed by the likes of the existing financial sector and paid off by lobbying from the same.)

Coinbase did the only reasonable thing. This kind of this is why it is so important to raise the 1MB blocksize limit since it demonstrates very well how off chain transactions using a system such as Coinbase are not a replacement for on chain transactions.

Actually, it's a good reason to have a CoinbaseIncCoin sidechain so everyone who wished to could play these silly games and Coinbase would have more flexibility to be in more full compliance (since they manage the properties of their own coin.)

Of course the actual Bitcoin settlements would occur somewhere else.  Actually probably a million somewhere elses scattered around the world on any machine which could process 4 to 7 TPS, and there would be no way to do individual analyze through the settlement layers.  Even more importantly, operating this network upon which base settlements happen would be performed mechanically mainly by a small fraction of individuals who know what they are doing vis-a-vis security and privacy.  Not just any jackass who can run a windows installer.

The only recourse would be to outlaw anything which has the hooks needed to settle on or through the Bitcoin blockchain or directly with other sidechains.  That would be difficult to sustain in anything but a blatantly totalitarian regime which we here in the U.S. do not have quite yet, and outlawing Bitcoin across the board would would probably explode the interest in it.  Especially in times of economic disruption.  That's probably why the U.S. strategists have been smart enough not to try.

[moriartybitcoin]

more bullshit regulation intended to drive bitcoin companies out of business ..

[anderson00673]

Coinbase better figure out some way to allow their customers to put up the fiat in some sort of a bond or some such.  Seems unlikely that this trend will stop at Wyoming.

(Even though it makes negative logical sense given the stated goal of the regulations...) I would put up, say, $25k to do $25k worth of activity since the need would be transient and the $25k would be the 'bandwidth' rather than some sort of a total.  Nobody (should have) ever expected the interface between cyrpto and mainstream to be easy, cheap, or counter-party-risk free since mainstream financial systems themselves fail on all three counts.

Obviously I'd want some way to be reasonably sure I get my money back.  The mainstream financial system lacks the kinds of mathematical guarantees that are possible with crypto where I could have much better confidence that a bond would be returned since it could not be appropriated indefinitely.  Not that Coinbase seems very interested in developing these crypto technologies, but they are possible and will be selling points to future off-chain providers.

I am not sure it matters if the trend continues.  Where will the people in Wyoming go now?  Why to competitors that are not based in the usa.  The difference between Coinbase and traditional banks is that the banks have fractional reserves.  AFAIK none of the online exchanges/wallets do this.  So you might have a lot more security with coinbase versus a traditional bank.