A New Model for a LEGAL US Bitcoin Exchange (Beanie Babies to the Rescue!)

[bitrebel]

We have a problem here in the US, in that currency exchanges like Bitfloor cannot operate without extensive regulation.
However, we need to have a way to make direct deposits in the US and buy bitcoins and sell them, the same day, and the ability to remove our funds at any time and get them deposited in our accounts in a very short time.

If the exchange receives dollars, they become a money transmitting service. Likewise, if they cash you out, it's the same thing.

Maybe what we need is a "legal" intermediary company. A company where someone buys "Beanie Babies" or beanie baby "Titles". A piece of paper that claims they have a stake in beanie babies that are real. And this can be a digital account, of course. but obviously, due to the nature of fraud, there would actually have to be some beanie babies somewhere in storage. (Of course, beanie babies are a hypothetical example, and anything may be substituted for beanie babies).

A beanie can be purchased for the current value of bitcoin. When the title is bought, it can now be transfered to a legally separate exchange that does nothing but trade in bitcoins and beanie baby titles. US dollars NEVER touch their accounts. The exchange makes money on trades, but in bitcoins only. now, if those operators of the US exchange want to cash out their own bitcoins, they can send them to Mt Gox or overseas to another exchange to sell them, and use their personal bank accounts to receive that profit.

The beanie baby company can make small increments of cash on every purchase in and out of titles to cash, but at no time would that company be trading in bitcoins.
The US beanie baby company would be completely legal and so would the US bitcoin exchange.

 

Is this a good idea? Please feel free to criticize and expand on the concept if possible.

[wormbog]

I believe this is the motivation behind using Dwolla as an intermediary between banks and exchanges.

[bitrebel]

I believe this is the motivation behind using Dwolla as an intermediary between banks and exchanges.

But Dwolla is not a US based exchange. We need the exchange to be able to operate legally. This is for solving the problem of no US exchanges, not the problem of getting the money to the exchange. Make sense?

[QuantPlus]

Anybody who's taken a course as simple and basic as Series 7...
(And there seem to be very few people here even on that intro level)...
Would understand why anything to do with money is loaded up with regulations.

It's to protect ordinary people from being RIPPED OFF by predators...
Just like the predators that have descended on the BTC universe.

So any trick and device to circumvent Financial Regulations...
Will be seen as precisely that... lawyers are not this stupid.

One has to view BTC as an alternative GLOBAL currency/commodity...
Which will have to find offshore homes to process...
Some country will eventually welcome Bitcoin and give the finger to the world...
But it's dead-in-the-water in the USA in it's present form.

The US bigshots from Paypal and Google talking about adopting BTC...
Actually want to subvert and destroy BTC.

[bitrebel]

Anybody who's taken a course as simple and basic as Series 7...
(And there seem to be very few people here even on that intro level)...
Would understand why anything to do with money is loaded up with regulations.

It's to protect ordinary people from being RIPPED OFF by predators...
Just like the predators that have descended on the BTC universe.

So any trick and device to circumvent Financial Regulations...
Will be seen as precisely that... lawyers are not this stupid.

One has to view BTC as an alternative GLOBAL currency/commodity...
Which will have to find offshore homes to process...
Some country will eventually welcome Bitcoin and give the finger to the world...
But it's dead-in-the-water in the USA in it's present form.

The US bigshots from Paypal and Google talking about adopting BTC...
Actually want to subvert and destroy BTC.

That makes sense to the average uneducated individual, but if you understand that bankers are the worst criminals EVER....
Then you might have already learned that banks are by nature, crooked. They print infinite amounts of credit paper that inflates the currency, and the regulations are in place ONLY to make sure that the ONLY banks in town are playing by the ONLY rules in town, which is "DO EXACTLY WHAT THE CENTRAL BANKERS WANT OR YOU'LL BE DESTROYED FINANCIALLY!"

Regulations are in place, NOT to protect you and I, but to protect the very bankers that rely on debt based forcible extraction currency.

[bitrebel]

The real problem with bitcoins right now seems to be the fact that we actually need to exchange it sometimes, for dollars.
If we had as much faith in bitcoins as we do in the dollar, we would not need to convert them to dollars at all.
It will be hard to replace the dollar, so there may have to be intermediary companies that trade contracts for bitcoins and allow trading to take place. Like perhaps Gold contracts, where gold is held in storage, and bitcoins are traded.

It appears the exchange must stay away from dollars in or out, in order to avoid the Money Exchange label and requirements.
The exchange has to accept something they can redeem for dollars if they need to.
It could even be another virtual currency but it only acts as a stable intermediary go between, for the dollars and the Bitcoins.

Make sense?

[DeathAndTaxes]

If we had as much faith in bitcoins as we do in the dollar, we would not need to convert them to dollars at all.

Can't eat faith.  Exchanges are necessary.  Period.  For Bitcoin to be anything more than a hobbyist pursuit people need places where they can liquidate BTC or acquire BTC.  This is not something "nice", it is absolutely essential.

Imagine if tomorrow Newegg accepted Bitcoins.  Sweet.  We have hit the motherload right.  Now imagine no exchanges existed.  Hmm.  So day 1 NewEgg sells $200M worth of goods and has 1M BTC.  How is NewEgg going to resupply?  Their vendors don't take BTC.  Lets say for the sake of argument some of them do, that still leaves those who don't.  Add to that NewEgg shipping accounts (FedEx, USPS, UPS, etc), their employees, their supplies, etc, don't take BTC as payment (or at least not all of them).  Unless NewEgg can supply everything in their operation (from CEO's bonus, to packing tape, to janitor's hourly wage) with BTC they will need to sell some coins to raise the funds in the currency they do need.

Is anyone delusional enough to think NewEgg is going to make an account on this forum and post in the currency exchange subform trying to manually sell millions of BTC, or maybe they will hand some low paid employees a quarter million dollars in BTC and have them drive around from starbucks to starbucks trying to finds buyers using localbitcoins?

No exchanges = no significant commerce in BTC.  Period.

[monsterer]

No exchanges = no significant commerce in BTC.  Period.

If I could up-vote a post on these forums, this would get all my clicks.

[joesmoe2012]

This would solve nothing. Whomever sold the stakes in beane babies would require licenses as a msb.

[monsterer]

I'm surprised no one has found backing from a serious investor to do this the right way, with full legal and governmental certification and regulation. The value a fully legal and regulated US bitcoin exchange would have to an investor would be very substantial. Not to mention the benefit to bitcoin in general.

[joesmoe2012]

I'm surprised no one has found backing from a serious investor to do this the right way, with full legal and governmental certification and regulation. The value a fully legal and regulated US bitcoin exchange would have to an investor would be very substantial. Not to mention the benefit to bitcoin in general.

Gox tried. They claim to hav spent 25 mil becoming fully financially compliant within the us.

So dhs goes after their unlicensed shell company.

[ruggedman_dan]

No exchanges = no significant commerce in BTC.  Period.

If we had as much faith in bitcoins as we do in the dollar, we would not need to convert them to dollars at all.

My heart wants to agree with bitrebel. In a perfect world, Bitcoin is as widely accepted as the dollar or euro and we have no need to cash out.

But my brain tells me that DeathAndTaxes is right on. The above may never happen (or not in our lifetimes) and there will always be the need to cash out.

Then, the bigger issue is how does one even obtain BTC without exchanging for fiat? You could mine, but that's really only for a niche group of people. Earl Bud-Light-Six-Pack isn't going to fire up the ol' mining rig and wait for coins to be generated so he can pay his child support in coins.

In the end, an exchange may ALWAYS be necessary.

[monsterer]

Gox tried. They claim to hav spent 25 mil becoming fully financially compliant within the us.

So dhs goes after their unlicensed shell company.

As I understand it, this whole thing was due to 'Gox not being licensed and registered as a 'money transmitter' in the US?

[ISAWHIM]

The solution is to use bitcoins themselves, as the currency. However, even getting goods and services, you are entitled (in the USA) to pay taxes on the "value in dollars", for any "barter". Which is what the use of a bitcoin is. (Or paypal or imvu-credits or lindens.)

However, there is nothing that says, "This fund was for a service". As far as they know, you just moved credits from one account to another, of money you already paid taxes for. (That is why paypal now asks, "is this for PAYMENT of..." as opposed to being a "donation" or a "transfer of your other accounts". EG, transferring $1,000,000 USD from your account A to account B can be confirmed as a transfer, and not a $1,000,000 taxable income, at a bank. However, without that "proof", they actually just assume all transactions are income.)

This is what "governments" want from a bank. This is the "regulations" they are asking money-distributers to record and hand-over. Those who can not, are shut-down. Those who can, continue to operate and are fined if they are not "registered" and "insured".

Yes, mowing lawns and babysitting is illegal for a kid under 18 to do, without paying taxes. (The parents have to claim that income as their own.) So is selling/trading/giving-away beanie-babies-titles. They have to be valued, and you have to pay taxes on the value THEY think they are at, not what the value was, that you actually got/paid. (They do that with cars too. You pay taxes on $600,000 for a race-car, even if it was "given" to you or sold for $1.00)

The only LEGAL model, is the existing LEGAL model...

Now they can actually charge you for value, because of the "value" stated in the "charts"...

[joesmoe2012]

You don't pay taxes until you make a profit. Just holding something that increases in value over time is not taxable. You first must find someone else willing to buy it at that higher price.

If today you sold all of your BTC to me for 1 penny, you likely would owe no tax at all since the value of the asset was one cent.

[halfawake]

There's a way around this if bitcoiners don't mind taking another step before they can get dollars.  Want to get currency without having to worry about the feds?  Don't trade in US Dollars.

If I were to operate a currency this way, I would pick the Icelandic króna.  Anyone who has been paying attention to the news knows that they're already fairly hostile to banks in Iceland. 

Steps to get to the dollar this way:

1) Exchange from bitcoin to króna.
2) Exchange from króna to USD into your own bank account.

There are, of course, two problems with this technique.  One is that this is a pretty major sacrifice in ease of use.  Beginners won't like this - they'll be asking, why can't I just go directly into the USD?  But it's a way around the problem. 

The second problem is that with this technique, you have two exchange rates to worry about, not one: the exchange from bitcoin to króna, and the exchange from króna to USD.  Presumably this technique would also require having two separate bank accounts, one denominated in USD, the other in króna.  Still, some bitcoiners might even see this as an advantage since it'd diversify your fiat currency holdings as well as virtual currency holdings.

[film2240]

We need this kind of thing mirrored in the UK as I can't find a reliable BTC exchange without taking excessive risks from trading with individuals (much more likely to steal and scam from me) rather than more established changes like Intersango (no longer the place I can rely on seeing how the banks won't give it the ability to trade GBP)