Airline Reward Points

[optimator]

Why aren't airline reward points considered a centrally issued virtual currency?

FinCEN States:

In contrast to real currency, "virtual" currency is a medium of exchange that operates like a currency in some environments, but does not have all the attributes of real currency. In particular, virtual currency does not have legal tender status in any jurisdiction. 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.

It seems to me airline rewards have an equivalent value in real currency and clearly act as a substitute for real currency.

[joesmoe2012]

      They are not exchangeable to fiat. Buying/Selling miles for fiat is stictly prohibited by all airelines TOS.   

[NewLiberty]

      They are not exchangeable to fiat. Buying/Selling miles for fiat is stictly prohibited by all airelines TOS.   

But buying and selling for BTC isn't?

[joesmoe2012]

     Technically trading of any capacity is prohibited by the airlines TOS, in the past they have been known to forfeit large mileage balances when they find this sort of activity to be taking place.     

[NewLiberty]

Why aren't airline reward points considered a centrally issued virtual currency?

FinCEN States:

In contrast to real currency, "virtual" currency is a medium of exchange that operates like a currency in some environments, but does not have all the attributes of real currency. In particular, virtual currency does not have legal tender status in any jurisdiction. 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.

It seems to me airline rewards have an equivalent value in real currency and clearly act as a substitute for real currency.

For FinCEN, to be a "real currency" it has to have "Legal Tender" status.

Legal Tender laws are not what makes a currency except in the mind of FinCEN.

If we are making up definitions, we might as well say that USD do not have all the attributes of a "real currency" because they are not cryptographically secure, can be inflated, and have no meaningful specie (a one ounce silver for US$1 that sells for $30 does not count as meaningful).

[optimator]

      They are not exchangeable to fiat. Buying/Selling miles for fiat is stictly prohibited by all airelines TOS.   

Hummm. I see what you are saying.... but I can convert airline miles to American Express points and vise versa. Once on American Express I can buy things.

Perhaps, not being able to convert them to USD is the key???

[URSAY]

     They are not exchangeable to fiat. Buying/Selling miles for fiat is stictly prohibited by all airelines TOS.  

Hummm. I see what you are saying.... but I can convert airline miles to American Express points and vise versa. Once on American Express I can buy things.

Perhaps, not being able to convert them to USD is the key???

Forget buying things.  You can convert AMEX points into "cash" which pays your CC bill.

[cparsley]

      They are not exchangeable to fiat. Buying/Selling miles for fiat is stictly prohibited by all airelines TOS.   

Hummm. I see what you are saying.... but I can convert airline miles to American Express points and vise versa. Once on American Express I can buy things.

Perhaps, not being able to convert them to USD is the key???

Forget buying things.  You can convert AMEX points into cash which pays your CC bill.

But then wouldn't that provide the link between airline reward points and FIAT, making the OP question valid?

[NewLiberty]

      They are not exchangeable to fiat. Buying/Selling miles for fiat is stictly prohibited by all airelines TOS.   

Hummm. I see what you are saying.... but I can convert airline miles to American Express points and vise versa. Once on American Express I can buy things.

Perhaps, not being able to convert them to USD is the key???

Forget buying things.  You can convert AMEX points into cash which pays your CC bill.

But then wouldn't that provide the link between airline reward points and FIAT, making the OP question valid?

Yes, but CC use KYC making them FinCEN complaint.

[optimator]

      They are not exchangeable to fiat. Buying/Selling miles for fiat is stictly prohibited by all airelines TOS.   

Hummm. I see what you are saying.... but I can convert airline miles to American Express points and vise versa. Once on American Express I can buy things.

Perhaps, not being able to convert them to USD is the key???

Forget buying things.  You can convert AMEX points into cash which pays your CC bill.

But then wouldn't that provide the link between airline reward points and FIAT, making the OP question valid?

Yes, but CC use KYC making them FinCEN complaint.

But doesn't that make the airline the issuer and AmEx merely the "exchange"?

[NewLiberty]

Yes, but CC use KYC making them FinCEN complaint.

But doesn't that make the airline the issuer and AmEx merely the "exchange"?

Arguably so under definition 3 if "miles" constitute "stored value".
http://www.fincen.gov/financial_institutions/msb/definitions/msb.html

...but I am not making that argument.

Also arguably, if I make a coupon and issue more than US$1000 worth of them...

The rule is non-functional, non-enforceable and probably nonsensical in that it does not achieve its policy objective and does more harm than good.
Ultimately I'd doubt it will catch any money launderers and will push otherwise taxable revenue outside the taxable jurisdiction, but I suspect that lesson will be learned the hard way.
With a total market cap of just over a billion, Bitcoin remains way to small for any serious money laundering anyway.... and it leaves more trails to follow than Hansel and Gretel and much easier to follow than crumbs of bread.

Thing is, for honest money, it is really pretty awesome.  FinCEN is really missing the boat.

[joesmoe2012]

    You cannot transfer miles from an airline to a credit card and then get cash from them, it only works the other way around.

The exchanging back and fourth to fiat is the key.

     

[prophetx]

    You cannot transfer miles from an airline to a credit card and then get cash from them, it only works the other way around.

The exchanging back and fourth to fiat is the key.

     

I dont see how this is any different then mtgox, it also does not allow you to cash out 

[joesmoe2012]

    You cannot transfer miles from an airline to a credit card and then get cash from them, it only works the other way around.

The exchanging back and fourth to fiat is the key.

     

I dont see how this is any different then mtgox, it also does not allow you to cash out 

hahahaha ... So yeah I guess your right gox isn't breaking the law, they don't exchange btc for fiat.

[MSantori]

I'll depart from my usual legal analysis and put on my pragmatist's hat.  Remember that FinCEN is concerned with detecting, preventing and punishing money laundering.  That is something that they have stated publicly in the past, and it is precisely what they told us when we went to visit them in person in Washington. 

Seriously, let that sink in for a moment.

Because they are concerned with money laundering, their primary concern is the tools of money laundering.  As such, if something is not even arguably an efficient tool for money laundering, then they aren't especially concerned with it.  Airline miles aren't a very efficient tool for money laundering.  They might be a nice use for dirty money, but so is a fancy car.

One of the points we try to emphasize in Washington and with other government officials is that Bitcoin is a terrible tool for money laundering.  That was borne out by the Liberty Reserve.  The last thing money launderers want is a public blockchain telegraphing their efforts to the world at large.  So, instead of using Bitcoin, a decentralized convertible digital currency, they flocked to Liberty Reserve Dollars, a centralized convertible digital currency.  There is still, to this day, no evidence of any major money laundering activity using Bitcoin.

I think it's a strong argument.  It needs to get made more often.

[Nagle]

Here's the IRS position on airline miles.. They're generally non-taxable.

There have been some more recent issues with "airline miles" rewarded for things other than purchases. If you can "win" airline miles, they're income, like a sweepstakes win. Some issuers of "airline miles" issue 1099 forms at the end of the year, reporting miscellaneous income.

[polarhei]

Why aren't airline reward points considered a centrally issued virtual currency?

FinCEN States:

In contrast to real currency, "virtual" currency is a medium of exchange that operates like a currency in some environments, but does not have all the attributes of real currency. In particular, virtual currency does not have legal tender status in any jurisdiction. 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.

It seems to me airline rewards have an equivalent value in real currency and clearly act as a substitute for real currency.

No, airline rewards are for specific use, also with no bounds. However the FinCEN mentions the general use. Which is crypto we know,

It has its bounds, having tender status, having rules to follow up,general use being, can be monitored by everyone while the alirline rewards are not.

I think, bitcoin cares a lot as people playing with fiat,which is dual-direction, can be problem which FinCEN cares while the airline reward is a single-way as you cannot use the reward to turn into fiat.

[tagbond]

I've had to research the topic or rewards and legal status for the last 9 months, since I have a startup specifically centered around rewards. Initially, the idea was to create a universal rewards currency, but as soon as you allow people to transfer to each other, it has a value and is considered a currency which if transferred, needs licensing in one way or another, especially in the USA. We've had this problem in the Philippines where we are based, and we have to become a licensed Money Issuer to handle the problem (not cheap at $2.5m USD paid in capital, but cheaper than USA).

As far as I know, Canadian Tire Money (CTM) and Green Shield stamps in the UK were the first real rewards "currency", but with Bitcoin and our own rewards altcoin we will attempt to create a true universal rewards system that can spread a lot further and be used a lot more. I think this is the fastest way to help crypto currencies be used as currency rather than a speculative commodity. Not being based in the USA, although registered with Fincen, Tagbond might be able to push ahead without being hamstrung by the MTL laws of each state...time will tell..

[NewLiberty]

Nice, I wish you good fortune with your project.

[maynardB]

There are lots of reward credit cards that allow cardholders to earn valuable points, miles, and cash back. How can you earn a free airline flight on a rewards card without delving into frequent flier miles? One way is to use the American Express Blue Sky credit card. Cash back and a variety of other benefits make Blue Sky more valuable, as some of the rewards can be used to book a flight at any time. Advance reservations and shorter-distance trips give AMEX holders real value for their dollars. Article resource: Airline Rewards.