2013-07-22 contrariancompliance.com: "Hidden Rules Could 'Kill' Irrevocability"

[juanbllanos]

http://contrariancompliance.com/2013/07/22/the-hidden-rule-that-could-kill-bitcoins-irrevocability/

[kjlimo]

Is this article trying to say the irrevocabiliy problem is only for the money transmitters, or the users of bitcoin as well?

I never knew that if I use a currency exchange that I could go back and reverse the transaction within 30 minutes, nor do I understand how my transaction is delayed.

[aigeezer]

I looked at this piece when it was first posted, noted the counterfactual structure of the lead-in and the narrow US focus and I decided not to bother assessing his individual arguments, figuring that others here would do that hard work for me.         

His lead-in goes "If federal anti-money laundering rules ‘killed’ Bitcoin’s anonymity, could consumer protection rules ‘kill’ its irrevocability?" which for me is equivalent to asking "if the moon is made of green cheese then might blah blah be true?"

He might well be onto something important, but I'll tune out unless I see something expressed more convincingly.

[odolvlobo]

He is wrong. He assumes that the money transmitting rules apply to all transactions, but he has neglected this paragraph:

A user who obtains convertible virtual currency and uses it to purchase real or virtual goods or services is not an MSB under FinCEN’s regulations. Such activity, in and of itself, does not fit within the definition of “money transmission services” and therefore is not subject to FinCEN’s registration, reporting, and recordkeeping regulations for MSBs.

[juanbllanos]

Is this article trying to say the irrevocabiliy problem is only for the money transmitters, or the users of bitcoin as well?

I never knew that if I use a currency exchange that I could go back and reverse the transaction within 30 minutes, nor do I understand how my transaction is delayed.

To clarify, I'm NOT talking about USERS.  This is all about the duties that all financial institutions in the US have with respect to their consumers of financial products and services.

[juanbllanos]

I looked at this piece when it was first posted, noted the counterfactual structure of the lead-in and the narrow US focus and I decided not to bother assessing his individual arguments, figuring that others here would do that hard work for me.         

His lead-in goes "If federal anti-money laundering rules ‘killed’ Bitcoin’s anonymity, could consumer protection rules ‘kill’ its irrevocability?" which for me is equivalent to asking "if the moon is made of green cheese then might blah blah be true?"

He might well be onto something important, but I'll tune out unless I see something expressed more convincingly.

Thanks, aigeezer, for giving me the benefit of the doubt and for your interest.  I shouldn't say it myself, but yes, I am onto something important -a new set of federal rules for consumer protection that will become effective in the US next October.  Financial institutions (including all virtual currency exchangers) MUST implement Regulation E, which involves the 'design' challenges I explain in my article.

[juanbllanos]

He is wrong. He assumes that the money transmitting rules apply to all transactions, but he has neglected this paragraph:

A user who obtains convertible virtual currency and uses it to purchase real or virtual goods or services is not an MSB under FinCEN’s regulations. Such activity, in and of itself, does not fit within the definition of “money transmission services” and therefore is not subject to FinCEN’s registration, reporting, and recordkeeping regulations for MSBs.

I would recommend you read the article again, odolvobo.  I don't think you understood my point(s).

[TangibleCryptography]

The article is interesting but you did yourself a disservice by using an inflammatory title.  It likely means 99% of replies will focus on that.  If Reg E is implemented as you describe it will create some challenges but those are managable, and actually are relatively mild compared to the regulatory burden imposed as a result on MT classification by FinCEN.

[TangibleCryptography]

Is this article trying to say the irrevocabiliy problem is only for the money transmitters, or the users of bitcoin as well?

I never knew that if I use a currency exchange that I could go back and reverse the transaction within 30 minutes, nor do I understand how my transaction is delayed.

To clarify, I'm NOT talking about USERS.  This is all about the duties that all financial institutions in the US have with respect to their consumers of financial products and services.

Then use a better title.  The rules can't kill irrevocability of the network, that is simply impossible.  A title like "Hidden Rules present unique challenges for virtual currency exchangers" would likely have gotten more responses dealing with the actual topic.

[odolvlobo]

He is wrong. He assumes that the money transmitting rules apply to all transactions, but he has neglected this paragraph:

A user who obtains convertible virtual currency and uses it to purchase real or virtual goods or services is not an MSB under FinCEN’s regulations. Such activity, in and of itself, does not fit within the definition of “money transmission services” and therefore is not subject to FinCEN’s registration, reporting, and recordkeeping regulations for MSBs.

I would recommend you read the article again, odolvobo.  I don't think you understood my point(s).

Yes, I did misunderstand you. However, I have some questions.

Regulation E applies to the Remittance Transfer Rule, which regulates how money transmitters can send money (in this case Bitcoins, I suppose) from customers in the U.S. to customers outside of the U.S. In what scenarios do you see this applying? The only case I can think of is international currency exchanges.

[juanbllanos]

Is this article trying to say the irrevocabiliy problem is only for the money transmitters, or the users of bitcoin as well?

I never knew that if I use a currency exchange that I could go back and reverse the transaction within 30 minutes, nor do I understand how my transaction is delayed.

To clarify, I'm NOT talking about USERS.  This is all about the duties that all financial institutions in the US have with respect to their consumers of financial products and services.

Then use a better title.  The rules can't kill irrevocability of the network, that is simply impossible.  A title like "Hidden Rules present unique challenges for virtual currency exchangers" would likely have gotten more responses dealing with the actual topic.

You're probably right, TangibleCryptography.  I appreciate the feedback!

[juanbllanos]

He is wrong. He assumes that the money transmitting rules apply to all transactions, but he has neglected this paragraph:

A user who obtains convertible virtual currency and uses it to purchase real or virtual goods or services is not an MSB under FinCEN’s regulations. Such activity, in and of itself, does not fit within the definition of “money transmission services” and therefore is not subject to FinCEN’s registration, reporting, and recordkeeping regulations for MSBs.

I would recommend you read the article again, odolvobo.  I don't think you understood my point(s).

Yes, I did misunderstand you. However, I have some questions.

Regulation E applies to the Remittance Transfer Rule, which regulates how money transmitters can send money (in this case Bitcoins, I suppose) from customers in the U.S. to customers outside of the U.S. In what scenarios do you see this applying?  The only case I can think of is international currency exchanges.

As long as virtual currency exchangers and operators are considered financial institutions by the U.S. government, it will apply to any product servicing U.S. consumers from the U.S.  Not sure if it will apply to foreign companies servicing U.S. customers anywhere in the world.  I will research that.   Here's a of the rule: http://files.consumerfinance.gov/f/201305_cfpb_remittance-transfer-rule_summary.pdf

[odolvlobo]

As long as virtual currency exchangers and operators are considered financial institutions by the U.S. government, it will apply to any product servicing U.S. consumers from the U.S.  Not sure if it will apply to foreign companies servicing U.S. customers anywhere in the world.  I will research that.   Here's a of the rule: http://files.consumerfinance.gov/f/201305_cfpb_remittance-transfer-rule_summary.pdf

My point is that this does not apply to transfers within the U.S. It only applies to institutions transferring bitcoins out of the U.S.

The Consumer Financial Protection Bureau has issued rules to protect consumers who send money electronically to foreign countries. ... A “remittance transfer” is an electronic transfer of money from a consumer in the United States to a person or business in a foreign country.

The likely result is that any bitcoins that a U.S. consumer sends out of the U.S. through a money transmitter will be delayed for 30 minutes by the money transmitter, but I can't think of an scenario where this would happen since anyone can send bitcoins to anyone anywhere in the world directly without going through a third party.

[juanbllanos]

... I can't think of an scenario where this would happen since anyone can send bitcoins to anyone anywhere in the world directly without going through a third party.

That was precisely the concern or lack of understanding on my part that prompted me to write the article.  Others have said it's a non-issue (http://www.reddit.com/r/Bitcoin/comments/1itiz3/the_hidden_rule_that_could_kill_bitcoins/) because the technical solutions are trivial.  My goal was to raise awareness of the issue, and also understand how the problem was going to be solved technically.  I now understand.  Thanks, odolvlobo!