FinCEN Ruling Requested for Bitcoin Mining

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1715583495

[1715583495]

1715583495

[MSantori]

Glad to hear it!  FinCEN's recent guidance seems to give a clear answer on this, but there's no reason not to get something more specific.  I'm interested in the result.

[MSantori]

Glad to hear it!  FinCEN's recent guidance seems to give a clear answer on this, but there's no reason not to get something more specific.  I'm interested in the result.

I don't understand what you mean by saying FinCEN gave a clear answer.  Where is that clear answer?  There is a statement claiming miners are money transmitters but I don't see where they reconcile this claim with the actual definition of a money transmitter which says money transmission is:   person A >> Monet Transmitter >> person B

FinCEN's answer was clear, as you noted: miners are money transmitters.  Also as you noted, its definition of money transmitter doesn't seem to comport with the typical definition of a money transmitter.  That's precisely why I'd be glad to hear their specific reasoning.

[btceic]

Subscribed

[btceic]

Glad to hear it!  FinCEN's recent guidance seems to give a clear answer on this, but there's no reason not to get something more specific.  I'm interested in the result.

I don't understand what you mean by saying FinCEN gave a clear answer.  Where is that clear answer?  There is a statement claiming miners are money transmitters but I don't see where they reconcile this claim with the actual definition of a money transmitter which says money transmission is:   person A >> Monet Transmitter >> person B

FinCEN's answer was clear, as you noted: miners are money transmitters.  Also as you noted, its definition of money transmitter doesn't seem to comport with the typical definition of a money transmitter.  That's precisely why I'd be glad to hear their specific reasoning.

Someone commented on the blog that they think that provision was aimed at Bitcoin developers. 

Sounds to me like they are aiming at miners and trying to cut this thing off at the throat as it were, they want their tax dollars!

[btceic]

To me they are saying:

a) the creation of AND THEN the transmission of virtual currency.
AND
b) the acceptance of virtual currency.

Therefore (to me at least), no one will be able to accept a payment in BTC* nor will they be able to send BTC* as a payment without having a money transmission lic.

The problem with Bitcoin  mining comes in with the FinCEN guidance that claims:

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.

But the rules that govern FinCEN state:

… The term “money transmission services” means the acceptance of currency, funds, or other value that substitutes for currency from one person and the transmission of currency, funds, or other value that substitutes for currency to another location or person by any means. …

* or any other virtual currency for that matter.

[dwolfman]

I filed a request for an administrative ruling on Bitcoin mining now that I have some Avalons:

http://cointext.com/fincen-ruling-requested-for-bitcoin-mining/

I think I just realized one minor flaw in what some people are thinking about mining Bitcoins and the FinCEN guidance.

Depending on how the coins are mined (as part of a pool, solo mined, etc), part (and eventually all) of the coins were not created because the transaction fees paid by others may be included in the coins received by the miner.

I know with some pools, the pool keeps the transaction fees, so the wording you used in the request would fit perfectly because the miner only got created coins.

But when the reward is gone in a few decades and only transaction fees are what makes up the mined coins?  Or if one is solo mining or on a pool that includes transaction fees in what they pay out?  In that case the miner would be receiving coins from someone else and then transmitting them to another if they then send them elsewhere.

I do agree, that guidance is about as clear as mud and we need clarification.  However, might want to include more detail in the request if it's allowed to amend what you've already sent.

And a disclaimer: IANAL, but this just seemed like common sense stuff to me. 

[Jazkal]

Glad to hear it!  FinCEN's recent guidance seems to give a clear answer on this, but there's no reason not to get something more specific.  I'm interested in the result.

I don't understand what you mean by saying FinCEN gave a clear answer.  Where is that clear answer?  There is a statement claiming miners are money transmitters but I don't see where they reconcile this claim with the actual definition of a money transmitter which says money transmission is:   person A >> Monet Transmitter >> person B

FinCEN's answer was clear, as you noted: miners are money transmitters.  Also as you noted, its definition of money transmitter doesn't seem to comport with the typical definition of a money transmitter.  That's precisely why I'd be glad to hear their specific reasoning.

Well, I wouldn't say it was 'clear'. But they did break it down to three use cases.

http://www.fincen.gov/statutes_regs/guidance/pdf/FIN-2013-G001.pdf
See page 5, section 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.

{1} 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.

{2} 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.

{3} 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.

Still clear as mud. But they do break it down into at least three categories, the first two are the ones I'm interested in. #1 says as long as I go from Mined BTC to purchase real or virtual goods, then I'm not under regulation. #2 says if I take my mined BTC and sell it on an exchange for US Dollars, then I am under regulation and need to report.

Am I reading this wrong?

Some things to think about...

Example One:
If I mine AltCoins, and sell those for BTC, and then Sell those BTC for US Dollars, does that make me a user or a transmitter?

Example Two:
If I mine BTC, and sell that on one exchange for LTC, and then back again to BTC, can I then sell those for US Dollars without being a transmitter? Or is that considered laundering?

Example Three:
What if I was playing the market with my mined BTC, exchanging them for LTC and WDC and back to BTC?

[minternj]

Some things to think about...

Example One:
If I mine AltCoins, and sell those for BTC, and then Sell those BTC for US Dollars, does that make me a user or a transmitter?

Example Two:
If I mine BTC, and sell that on one exchange for LTC, and then back again to BTC, can I then sell those for US Dollars without being a transmitter? Or is that considered laundering?

Example Three:
What if I was playing the market with my mined BTC, exchanging them for LTC and WDC and back to BTC?

Jazkal, all cryotocoins would be treated the same. So to fincen theres no distinction between btc and ltc.

[Jazkal]

Jazkal, all cryotocoins would be treated the same. So to fincen theres no distinction between btc and ltc.

I didn't see anything like that in the doc, nor any quotes from them on this topic.

They say:

uses it to purchase real or virtual goods and services

I see trading mined BTC for LTC as purchase of virtual goods. The LTC held in this manner, were not mined by me, they were purchased with my mined BTC.

What do you think they classify "virtual goods" as? Anyone know if they have defined this?

And I'm not saying you are wrong, just that I don't see anywhere where they state it that way. You could be right, that's why I'm asking. Hoping other people who have looked into this more maybe have some definitive answers.

[jjiimm_64]

Did you ever get a ruling on this?

[DeathAndTaxes]

He filed it June 2nd.  These things move at the speed of government.   Bookmark it and check back in 60-90 days.  30 days for a response would be an a amazing feat of hyper efficiency for a regulator.

[TheButterZone]

Delay, deter, deny. It's how government works (against humanity).

At the end of the delay period, the "ruling" will deter (chill) economic liberty, and those who cannot afford to pay millions of dollars in legal and government fees will effectively be denied.

[EndTheFed321]

Indeed 

[Micky25]

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.

{1} 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.

{2} 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.

{3} 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.

....cut

Example One:
If I mine AltCoins, and sell those for BTC, and then Sell those BTC for US Dollars, does that make me a user or a transmitter?

Example Two:
If I mine BTC, and sell that on one exchange for LTC, and then back again to BTC, can I then sell those for US Dollars without being a transmitter? Or is that considered laundering?

Example Three:
What if I was playing the market with my mined BTC, exchanging them for LTC and WDC and back to BTC?

1. Transmitter / regulated

2. Transmitter / regulated

3. User / not regulated

When crypto currency changes to real currency or the other way round, they want to know about it {2}.
Any business that accepts crypto currency for goods or services is by their definition an exchanger and transmitter {3}.
No small business will be able to comply and by this, they try to break the neck of crypto currencies and leave it as a kind of monopoly money for nerds {1}.

[Stampbit]

So this should make bitcoin mining illegal then for 99% of miners.

[Micky25]

I don't believe they will make mining illegal, because they just don't care about it. They only need to cut the ropes to cashout (whats already happening at the moment).

In the future (2 years?) you will mine 2 months and get 10.000 BTC, because 99% of the miners quit mining. These 10.000 BTC can be exchanged against a cool, unique Sheldon-T-Shirt during checkout of your next purchase at Amazon. Or 5% discount when you buy a new AMD graphic card. Or a WOW "Mithril tuning fork of the winds", which distracts your enemy for 2 seconds and can be used once every 3 hours. Or other cool stuff like that.

[MSantori]

To ACB: Are you working with a local attorney?  I think it's great that you are trying to influence the rulemaking process.  It's civic participation at its finest; you are rocking the boat, and that's the only way change is made in this country.  That said, it looks to me like you are flying solo.  Most people who do this don't fly solo.  They do it with legal counsel.  Without a knowledgeable lawyer at your side, you risk rocking the boat in the wrong direction.  As a bitcoiner myself, that concerns me.

In sum, you seem to be lobbying to affect the regulation of an entire industry without someone who knows how the regulations truly work.  There must be a local attorney that you can work with in New Jersey that can guide you through this process, help you focus your communications, and aid you in representing the industry in a more effective manner.

[btceic]

To ACB: Are you working with a local attorney?  I think it's great that you are trying to influence the rulemaking process.  It's civic participation at its finest; you are rocking the boat, and that's the only way change is made in this country.  That said, it looks to me like you are flying solo.  Most people who do this don't fly solo.  They do it with legal counsel.  Without a knowledgeable lawyer at your side, you risk rocking the boat in the wrong direction.  As a bitcoiner myself, that concerns me.

In sum, you seem to be lobbying to affect the regulation of an entire industry without someone who knows how the regulations truly work.  There must be an attorney that you can work with in New Jersey that can guide you through this process, help you focus your communications, and aid you in representing the industry in a more effective manner.

@MSantori,
Can you point us in the right direction for whom might be the best lawyer for this type of work?
I realize that this industry does not have any precedent, (or does it?)

[MSantori]

To ACB: Are you working with a local attorney?  I think it's great that you are trying to influence the rulemaking process.  It's civic participation at its finest; you are rocking the boat, and that's the only way change is made in this country.  That said, it looks to me like you are flying solo.  Most people who do this don't fly solo.  They do it with legal counsel.  Without a knowledgeable lawyer at your side, you risk rocking the boat in the wrong direction.  As a bitcoiner myself, that concerns me.

In sum, you seem to be lobbying to affect the regulation of an entire industry without someone who knows how the regulations truly work.  There must be a local attorney that you can work with in New Jersey that can guide you through this process, help you focus your communications, and aid you in representing the industry in a more effective manner.

I recommended in my original post that if you have a high-stakes issue then definitely get an attorney familiar with Money Services Business/FinCEN issues.  In my case it is not high enough stakes to get an attorney.  They issued a clarification about mining.  I contacted them to explain it informally and they directed me to the formal process so I filed it.  I don't claim to represent any industry and I only asked about stuff that involves me (mining and the effect of FinCEN activities on the Bitcoin exchange price).  If some else wants to get involved in the issue they are free to send in their own comments, etc.  If I am granted a conference and someone else wants to take part and attend I won't object to that.  Actually there are other people who would be better at this than me so maybe it will spur others to get involved but without a central authority I am not sure who would do this sort of thing.

I know Bitinstant spent a lot on legal fees and they had posted awhile back that they would share information.  I would think that some sort of collaborative approach to reduce legal fees would be the way to go.  To do this properly you need someone familiar with FinCEN staff and how they approach things as well as the rules, administrative decisions, and court cases.  You would probably need a 6-figure retainer to a DC law firm just to get started.

It's a tough spot, I know.  A six-figure retainer is probably overstating it a bit, but you're right: regulatory attorneys aren't cheap.  The Bitcoin industry needs a well-funded industry group that can engage the proper legal counsel so that competing individual interests don't sink the whole ship.  In any event, good luck!