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Author Topic: full picture on US MSB regs, state and federal  (Read 4660 times)
Zeke_Vermillion
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May 09, 2013, 09:07:44 PM
 #1

My law partner pointed me to this fairly good overview of US federal and state msb laws as applied to btc:
http://contrariancompliance.com/2013/04/14/is-us-regulation-the-single-biggest-threat-to-bitcoin/

Registering with FinCen is not the end of the story, by a long shot.
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May 10, 2013, 03:04:34 AM
 #2

My law partner pointed me to this fairly good overview of US federal and state msb laws as applied to btc:
http://contrariancompliance.com/2013/04/14/is-us-regulation-the-single-biggest-threat-to-bitcoin/

Registering with FinCen is not the end of the story, by a long shot.

Excellent post!

Bradley Jansen, editor, freebanking.org
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May 12, 2013, 04:37:32 AM
 #3

Yup, good read.

Quite a bit of legwork to get any sort of exchange up and running legally.

Anyone have a general idea of how long all of this would take to get processed/get filed to be ready for a launch?

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Zeke_Vermillion
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May 12, 2013, 02:50:34 PM
 #4

You really need a solid year and a few million bucks in the bank to approach this with any level of comfort. Legal budget is a relatively small component of that, however. Mostly talking about compliance personnel, state bond requirements, reserves required in your business.
MSantori
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May 15, 2013, 07:00:50 PM
 #5

That's certainly true for a lot of larger operations.  Remember that the state MT regs were written with big businesses in mind.  Smaller operations with no employees, no office space, etc., - largely in virtue of their diminutive size - can comply with a more modest layout of costs and resources.

As to legal fees, well, that depends on how nicely you treat your lawyer  Kiss

Oh, and yes, excellent article!

Marco Santori is a lawyer, but not your lawyer, and this is not legal advice.  If you do have specific questions, though, please don't hesitate to PM me.  We've learned this forum isn't 100% secure, so you might prefer to email me.  Maybe I can help!  Depending upon your jurisdiction, this post might be construed as attorney advertising, so: attorney advertising Smiley
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May 15, 2013, 07:21:14 PM
 #6

So anyone who sells coin for a living must have millions of dollars and an army of lawyers?
Zeke_Vermillion
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May 15, 2013, 07:37:11 PM
 #7

So anyone who sells coin for a living must have millions of dollars and an army of lawyers?

Yes. Unless you want to live as an outlaw. But if you're an outlaw, you'd better not be a half-assed outlaw.
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May 15, 2013, 08:48:40 PM
 #8

Truer words...

Marco Santori is a lawyer, but not your lawyer, and this is not legal advice.  If you do have specific questions, though, please don't hesitate to PM me.  We've learned this forum isn't 100% secure, so you might prefer to email me.  Maybe I can help!  Depending upon your jurisdiction, this post might be construed as attorney advertising, so: attorney advertising Smiley
hashman
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May 16, 2013, 04:42:09 AM
 #9

My law partner pointed me to this fairly good overview of US federal and state msb laws as applied to btc:
http://contrariancompliance.com/2013/04/14/is-us-regulation-the-single-biggest-threat-to-bitcoin/

Registering with FinCen is not the end of the story, by a long shot.


Well I'm not a lawyer either but this FinCen threat looks like it is NOT on solid ground.  Bear with me here while I try some pro bono work:  

Quote from: FinCen

This guidance addresses "convertible" virtual currency. This type of virtual currency either has an equivalent value in real currency, or acts as a substitute for real currency.


Well I guess we can stop reading here.

Bitcoin unequivocally does *not* have an equivalent value in real currency, *nor* does it act as a substitute for real currency  (using the term real currency here as it was defined in FinCen guidelines).

Coin as for example purchased by an individual from an exchange, is information - in particular information which is, or allows control of, a private key corresponding to published data (the block chain), and the sale of a coin is more akin to the sale of an ebook or a domain name than a legal tender equivalency vehicle (such as an amazoncoin).  There is NO guarantee by the seller of a coin to ANY quantity of real currency, let alone a conversion.          

If a litecoin or a private key to GPG pair are convertible currencies, then so must be the euro, a blog post, the new top level domains, and a 2 minute streaming video.  Clearly they are not, and so we have a proof by contradiction.

Bitcoin is not a convertible currency, and the FinCen guidance of March 18 FIN-2013-G001 thus clearly states that it does not address bitcoin.


    
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May 16, 2013, 04:46:06 AM
 #10

That's certainly true for a lot of larger operations.  Remember that the state MT regs were written with big businesses in mind.  Smaller operations with no employees, no office space, etc., - largely in virtue of their diminutive size - can comply with a more modest layout of costs and resources.

As to legal fees, well, that depends on how nicely you treat your lawyer  Kiss

Oh, and yes, excellent article!

hahaha.  good post!  it's also a view shared by our attorney.  Smiley
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May 16, 2013, 04:52:10 AM
 #11

....

Bitcoin is not a convertible currency, and the FinCen guidance of March 18 FIN-2013-G001 thus clearly states that it does not address bitcoin.

That is a dead-end street to go down. At a stroke of a pen they can just add "crypto-currency", "digital currency" or even "Bitcoin" to the guidance.

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May 16, 2013, 05:00:01 AM
 #12

....

Bitcoin is not a convertible currency, and the FinCen guidance of March 18 FIN-2013-G001 thus clearly states that it does not address bitcoin.

That is a dead-end street to go down. At a stroke of a pen they can just add "crypto-currency", "digital currency" or even "Bitcoin" to the guidance.


Well of course they could, but they make it quite clear here they aren't talking about bitcoin:

Quote

An administrator is a person engaged as a business in issuing (putting into circulation) a virtual currency, and who has the authority to redeem (to withdraw from circulation) such virtual currency.


Do you see any coins being redeemed or withdrawn from circulation?  I don't think even the so called destruction of blockchain assets (by sending to addresses without private keys) could be described as withdrawing them from circulation, and there is nothing like a redemption involved with using private keys to make signatures. 

 

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May 16, 2013, 05:03:34 AM
 #13

....

Bitcoin is not a convertible currency, and the FinCen guidance of March 18 FIN-2013-G001 thus clearly states that it does not address bitcoin.

That is a dead-end street to go down. At a stroke of a pen they can just add "crypto-currency", "digital currency" or even "Bitcoin" to the guidance.


The guidance specifically addresses decentralized cryptocurrencies. The question is, are you doing something that makes you an issuer or exchanger. But then, this is only guidance that says FinCen thinks virtual currency is already covered by existing laws, rules & regs. If people think they might be covered, they should actually read the applicable law themselves and not just rely on this one piece of guidance.
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May 16, 2013, 05:13:21 AM
 #14

....

Bitcoin is not a convertible currency, and the FinCen guidance of March 18 FIN-2013-G001 thus clearly states that it does not address bitcoin.

That is a dead-end street to go down. At a stroke of a pen they can just add "crypto-currency", "digital currency" or even "Bitcoin" to the guidance.


The guidance specifically addresses decentralized cryptocurrencies. The question is, are you doing something that makes you an issuer or exchanger. But then, this is only guidance that says FinCen thinks virtual currency is already covered by existing laws, rules & regs. If people think they might be covered, they should actually read the applicable law themselves and not just rely on this one piece of guidance.

Are you looking at the FinCen guidance of March 18 FIN-2013-G001?  This document does not contain the word "decentralized" nor the prefix "crypto".  It states very clearly that it addresses convertible virtual currencies. 
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May 16, 2013, 05:19:03 AM
 #15

Are you looking at the FinCen guidance of March 18 FIN-2013-G001?  This document does not contain the word "decentralized" nor the prefix "crypto".  It states very clearly that it addresses convertible virtual currencies. 



How could you possibly miss it.

Quote
         c.   De-Centralized Virtual Currencies

            A final type of convertible virtual currency activity involves a de-centralized convertible virtual currency (1) that has no central repository and no single administrator, and (2) that persons may obtain by their own computing or manufacturing effort.

            A person that creates units of this convertible virtual currency and uses it to purchase real or virtual goods and services is a user of the convertible virtual currency and not subject to regulation as a money transmitter. By contrast, a person that creates units of convertible virtual currency and sells those units to another person for real currency or its equivalent is engaged in transmission to another location and is a money transmitter. In addition, a person is an exchanger and a money transmitter if the person accepts such de-centralized convertible virtual currency from one person and transmits it to another person as part of the acceptance and transfer of currency, funds, or other value that substitutes for currency.
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May 16, 2013, 12:23:58 PM
 #16

My law partner pointed me to this fairly good overview of US federal and state msb laws as applied to btc:
http://contrariancompliance.com/2013/04/14/is-us-regulation-the-single-biggest-threat-to-bitcoin/

Registering with FinCen is not the end of the story, by a long shot.


Well I'm not a lawyer either but this FinCen threat looks like it is NOT on solid ground.  Bear with me here while I try some pro bono work:  

Quote from: FinCen

This guidance addresses "convertible" virtual currency. This type of virtual currency either has an equivalent value in real currency, or acts as a substitute for real currency.


Well I guess we can stop reading here.

Bitcoin unequivocally does *not* have an equivalent value in real currency, *nor* does it act as a substitute for real currency  (using the term real currency here as it was defined in FinCen guidelines).

Coin as for example purchased by an individual from an exchange, is information - in particular information which is, or allows control of, a private key corresponding to published data (the block chain), and the sale of a coin is more akin to the sale of an ebook or a domain name than a legal tender equivalency vehicle (such as an amazoncoin).  There is NO guarantee by the seller of a coin to ANY quantity of real currency, let alone a conversion.          

If a litecoin or a private key to GPG pair are convertible currencies, then so must be the euro, a blog post, the new top level domains, and a 2 minute streaming video.  Clearly they are not, and so we have a proof by contradiction.

Bitcoin is not a convertible currency, and the FinCen guidance of March 18 FIN-2013-G001 thus clearly states that it does not address bitcoin.


    

I don't understand your proof by contradiction. Can you clarify how bitcoin does not act as a substitute for real currency? Also, if it does not act as a substitute for real currency, what exactly does it act as?

http://www.fincen.gov/statutes_regs/guidance/html/FIN-2013-G001.html

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hashman
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May 16, 2013, 01:08:08 PM
 #17

My law partner pointed me to this fairly good overview of US federal and state msb laws as applied to btc:
http://contrariancompliance.com/2013/04/14/is-us-regulation-the-single-biggest-threat-to-bitcoin/

Registering with FinCen is not the end of the story, by a long shot.


Well I'm not a lawyer either but this FinCen threat looks like it is NOT on solid ground.  Bear with me here while I try some pro bono work:  

Quote from: FinCen

This guidance addresses "convertible" virtual currency. This type of virtual currency either has an equivalent value in real currency, or acts as a substitute for real currency.


Well I guess we can stop reading here.

Bitcoin unequivocally does *not* have an equivalent value in real currency, *nor* does it act as a substitute for real currency  (using the term real currency here as it was defined in FinCen guidelines).

Coin as for example purchased by an individual from an exchange, is information - in particular information which is, or allows control of, a private key corresponding to published data (the block chain), and the sale of a coin is more akin to the sale of an ebook or a domain name than a legal tender equivalency vehicle (such as an amazoncoin).  There is NO guarantee by the seller of a coin to ANY quantity of real currency, let alone a conversion.          

If a litecoin or a private key to GPG pair are convertible currencies, then so must be the euro, a blog post, the new top level domains, and a 2 minute streaming video.  Clearly they are not, and so we have a proof by contradiction.

Bitcoin is not a convertible currency, and the FinCen guidance of March 18 FIN-2013-G001 thus clearly states that it does not address bitcoin.


    

I don't understand your proof by contradiction. Can you clarify how bitcoin does not act as a substitute for real currency? Also, if it does not act as a substitute for real currency, what exactly does it act as?

http://www.fincen.gov/statutes_regs/guidance/html/FIN-2013-G001.html


Maybe it would be more clear if we looked at an example of convertible virtual currencies.  One example is the Liberty Reserve dollar.  A single unit of this acts as a substitute for a single US dollar.  It can be converted (there is a fixed ratio) by the manufacturer.  Another example is a MtGox USD code (which no longer exist AFAIK).  These can be converted at a fixed conversion rate to real currency (legal tender, in this case federal reserve notes).  I believe BTC-E creates such convertible virtual currency as well now.  At the moment of redemption (conversion to real currency) they are removed from circulation (destroyed).     

A bitcoin on the other hand does not act as anything other than what it is (a number), there are no guarantees for any convertible value in any real currency.  Note that e-books in circulation probably have created more real currency revenue for publishers than bitcoins have for miners.  Note further that domain names (DNS entries) in circulation have create more real currency revenue for registrars than bitcoins have for miners.  Like bitcoin, these things can be sold for real money or traded for goods and services.  They are not convertible virtual currencies, because no fixed conversion rate exists. 

The nature of the bitcoin as information (which is valuable in virtue of its use in reference to published data known as the block chain) makes the most obviously relevant legal precedent the domain name (which is valuable in virtue of its use in reference to published DNS tables). 
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May 16, 2013, 01:17:43 PM
 #18

Are you looking at the FinCen guidance of March 18 FIN-2013-G001?  This document does not contain the word "decentralized" nor the prefix "crypto".  It states very clearly that it addresses convertible virtual currencies. 



How could you possibly miss it.

Quote
         c.   De-Centralized Virtual Currencies

            A final type of convertible virtual currency activity involves a de-centralized convertible virtual currency (1) that has no central repository and no single administrator, and (2) that persons may obtain by their own computing or manufacturing effort.

            A person that creates units of this convertible virtual currency and uses it to purchase real or virtual goods and services is a user of the convertible virtual currency and not subject to regulation as a money transmitter. By contrast, a person that creates units of convertible virtual currency and sells those units to another person for real currency or its equivalent is engaged in transmission to another location and is a money transmitter. In addition, a person is an exchanger and a money transmitter if the person accepts such de-centralized convertible virtual currency from one person and transmits it to another person as part of the acceptance and transfer of currency, funds, or other value that substitutes for currency.

Lol, thank you.  I thought I read that but then on search I forgot the hyphen! 

Note however that they are quite clearly still talking about convertible currency here.  Again, bitcoin has no guarantee or contract of convertibility at any rate into any real currency. 

It is interesting that point (2) seems to refer to something like bitcoin mining.  I am unaware of any convertible currency which is created in such a manner.   

 
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May 16, 2013, 02:23:26 PM
 #19

That's it, I give up. Hashman, why don't you go test this by setting up a Mt Gox replacement and see what happens.
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Gerald Davis


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May 16, 2013, 02:31:12 PM
 #20

It is interesting that point (2) seems to refer to something like bitcoin mining.  I am unaware of any convertible currency which is created in such a manner.  

Well that probably is because "convertible" doesn't mean what you think it means.  Still I do agree that it was horribly bad form for FinCEN to use the word "convertible" without providing a definition.  Still you are making an assumption that "convertible" means "a fixed 1:1 exchange rate" which is quite a leap not supported by other datapoints (presentations by FinCEN, responses given on FinCEN hotline, DHS action, etc).

However if you still aren't convinced request an administrative ruling from FinCEN demanding clarification of the term "convertible" and asking for examples of both convertible and non-convertible virtual currency.

http://www.ecfr.gov/cgi-bin/text-idx?c=ecfr&SID=9cd941ce33a75e80167579c14e862a5a&rgn=div6&view=text&node=31:3.1.6.1.2.7&idno=31
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