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Author Topic: September 27, 2011 U.S.Department of the Treasury might regulate BitCoin  (Read 5075 times)
Matthew N. Wright
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August 03, 2011, 10:47:33 AM
 #1

Bitcoin is not the focus, but is arguably certainly included in the ruling

Long before Bitcoin, stored value items have been traded between individuals across the internet, through gaming accounts or even sold online. Examples of the range from WoW Gold to Lockerz points being sold on eBay. As laws are passed daily on issues merely to give more clarification or to provide government accept classification of items, the final ruling should not be received as gloom and doom for Bitcoin, but rather a good starting place for us to pool our resources, learn these new regulations, find out how they affect us in our daily lives, and optionally, oppose them in the courts if we believe they invade our rights.

FinCEN Brings KYC Requirements To Bitcoin?

The U.S. Department of the Treasury (“FinCEN”) issued a Final Rule making non-bank providers of pre-paid financial instruments subject to comprehensive Bank Secrecy Act (BSA) regulations similar to depository institutions.

The regulations affecting “stored value” now use the term “prepaid access” which is more broad and technology-neutral.  Though FinCEN has not formally asserted that Bitcoin would fall under prepaid access regulations, earlier contact with the agency referred to bitcoins as a form of stored-value.  If correct, then Bitcoin sales to U.S. customers would likely be a regulated activity per this Final Rule.

The new regulations become effective on September 27, 2011, 60 days after its July 29, 2011 date of publication in the Federal Register.

To comply with the Final Rule, providers of prepaid access must register with FinCEN.  Because bitcoins are decentralized, it is uncertain who a provider would be.  Might every exchanger be considered a provider, for instance?

Also under the Final Rule, sellers of prepaid access must collect personal information from customers, maintain transaction records, file suspicious activity reports and comply with other requirements of money service businesses (MSB).  Last month FinCEN issued a ruling that was intended to clarify the definition of an MSB and includes the possibility that even businesses outside the U.S. conducting money transfer over the Internet could still be classified as U.S. MSBs.  Additionally, the definition no longer requires that an MSB be a business — any individual who receives funds in exchange for a stored value might be considered an MSB.

Though the ruling has exemptions to not impact the typical prepaid debit card found at grocery stores, for example, the exemptions would likely not apply to Bitcoin.  These exemptions give a pass to providers and sellers when the following conditions are met:

    The funds cannot be transmitted internationally.
    Funds cannot be transferred from one user to another.
    No additional funds can be loaded except from a depository source (e.g., from a bank).

There is no way to limit where bitcoins can be spent and the value is easily transferred from one person to another so Bitcoin will not likely be considered exempt from the AML regulations.

Following these regulations will be a serious burden to sellers. For instance, compliance requirements as specified in an article by Perkins Coie LLP include:

    Identifying information includes the customer’s name, date of birth, address and identification number. Sellers must retain this information for five years from the date of sale.

    The records must be easily accessible and retrievable upon request from FinCEN, law enforcement or judicial order.

The bigger impact of following AML may not necessarily be the cost of compliance but instead will be the likely result — to effectively de-anonymize Bitcoin.

Ironically, these new regulations may drive even faster Bitcoin adoption.  These restrictions may cause many retailers to discontinue offering the prepaid cards that can be used for purchases globally and at ATMs worldwide.  Since global redemption of stored value is a service that is legal to offer (assuming AML compliance, when required, is followed), is in huge demand (e.g., for travel) and is something that Bitcoin does well — using digital currency might become the more popular alternative.

A more immediate consequence will likely be the employment of lawyers to specifically consider how this Final Rule affects Bitcoin.


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The Bitcoin network protocol was designed to be extremely flexible. It can be used to create timed transactions, escrow transactions, multi-signature transactions, etc. The current features of the client only hint at what will be possible in the future.
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August 03, 2011, 10:54:36 AM
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So to pay with bitcoins I have to provide my name, date of birth, address and ID number? Paypal suddenly became more anonymous than bitcoin...
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August 03, 2011, 10:59:32 AM
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So to pay with bitcoins I have to provide my name, date of birth, address and ID number? Paypal suddenly became more anonymous than bitcoin...

*ding* Grin

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August 03, 2011, 11:00:41 AM
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So to pay with bitcoins I have to provide my name, date of birth, address and ID number? Paypal suddenly became more anonymous than bitcoin...
Only when buying and selling them with fiat money...

Bitcoin Core developer [PGP] Warning: For most, coin loss is a larger risk than coin theft. A disk can die any time. Regularly back up your wallet through FileBackup Wallet to an external storage or the (encrypted!) cloud. Use a separate offline wallet for storing larger amounts.
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August 03, 2011, 11:26:02 AM
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You do realize that, in your example, BitProxy cannot operate legally, right? If you take bitcoins from someone without knowing his/her personal details, you are doing an illegal trade.
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August 03, 2011, 11:35:32 AM
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I think this is a big problem for bitcoin.

And exactly what governments needed to do to avoid bitcoins becoming a real competition to their national cuccency.
... By making it so complicated that no normal person wants it anymore
I hope I am wrong...

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August 03, 2011, 11:44:36 AM
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I'm pretty sure that even a lawyer bad enough to get stuck working as a judge can see that bitcoin is very clearly neither a way to store USD, nor a way to prepay for anything.

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August 03, 2011, 12:04:22 PM
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Quote
Prepaid access. Access to funds or the value of funds that have been paid in advance and can be retrieved or transferred at some point in the future through an electronic device or vehicle, such as a card, code, electronic serial number, mobile identification number, or personal identification number.
Bitcoins are not, in any sense, "paid in advance'.

I am an employee of Ripple.
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August 03, 2011, 12:14:14 PM
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Bitcoins are not, in any sense, "paid in advance'.

they consider phone cards (e.g., 120 minutes of long distance) and transit cards (e.g., good for N day passes) as stored value.  they specifcally specify "electronic serial number" as one of the "card" types.
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August 03, 2011, 12:19:06 PM
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Bitcoins are not, in any sense, "paid in advance'.

they consider phone cards (e.g., 120 minutes of long distance) and transit cards (e.g., good for N day passes) as stored value.  they specifcally specify "electronic serial number" as one of the "card" types.
Right, in those cases, you really are paying for something in advance. Bitcoins are a commodity, like gold. You can buy and sell gold, but if you buy gold and then trade it for a hamburger, your buying the gold wasn't paying for the hamburger.

I am an employee of Ripple.
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August 03, 2011, 12:32:11 PM
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This wont apply to Bitcoin. These are just updated rules in regards to the established industry. There is no mentioning of Bitcoin anywhere. of course this would apply to exchangers, but exchanging into Bitcoin or not Bitcoin wont matter.

Imagine the impact of mentioning Bitcoin - they want to avoid that. Attacking Bitcoin or the opposite would put Bitcoin on the currency map big time. Bitcoin stays the same, the system is impossible to regulate and for now everyone in office is scratching their tiny heads on what to do to control the beast.

<helo> funny that this proposal grows the maximum block size to 8GB, and is seen as a compromise
<helo> oh, you don't like a 20x increase? well how about 8192x increase?
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August 03, 2011, 12:42:53 PM
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Whats with this bitcoinmoney website you are quoting this article from? it's a blog full of bitcoin haterade. comparing bitcoins to stored value cards? it's apples and oranges. just seems like fear mongering to me.
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August 03, 2011, 12:46:49 PM
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Very against this UABCI

It is a scam.  I feel sorry for all who fall prey to your posts.

This is not a joke post.

Sadly, I believe Matthew N. Wright and whoever his cohorts are, really think they might be doing good (well not all of them, one of them must know the scam).  Will not comment further at the moment.  Bitcoin is the most amusing soap opera ever.

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August 03, 2011, 12:48:35 PM
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I can see where alot of people would freak out about this.  Anonymity is obviously a huge deal w\ bitcoin and alot of people hold that to be one of the top reasons to use bitcoin.

However, such regulation could be good for bitcoin.  It could help with security and curb hacking and scamming in the community. 
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August 03, 2011, 01:55:02 PM
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However, such regulation could be good for bitcoin.  It could help with security and curb hacking and scamming in the community. 

I agree.

It is inevitable that the flow of Bitcoins will be transparent to the TLAs. It might get more inconvenient to do business on mtgox/others soon, but overall the system will be more mature.
I don't think Bitcoin will continue to be used "like cash".
Note that Germany has passed a similar law, which might also apply to Bitcoin.

In any case I think we should get the help of a lawyer to assess how exactly the law applies to Bitcoin. Maybe we can get a written statement. If there is a pledge fund for this, I would join.
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August 03, 2011, 01:59:34 PM
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i can understand major stores and outlets being required, if they are going to deal in large volumes of BTC.. however individual transfers should be treated as cash, small venders, who make a low volume of transfers.. all anonymous.

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August 03, 2011, 02:05:31 PM
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I think this quote applies:

'Yes, make sure you get permission from your masters..."
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August 03, 2011, 02:22:12 PM
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According to this new ruling, companies, organizations as well as individuals must register in order to legally transact with any parties, providing quite privacy invasive contact information on each individual transacted with as well as keep those records for 5 years.

What do you think would be a good way to insure that this ruling does not apply to Bitcoin?

The use of bitcoin is an exercise of free speech and as such is protected by the 1st amendment to the US constitution.  Any law that would interfere with the use of bitcoin is in direct contradiction to this amendment.

(gasteve on IRC) Does your website accept cash? https://bitpay.com
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August 03, 2011, 02:28:13 PM
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The use of bitcoin is an exercise of free speech and as such is protected by the 1st amendment to the US constitution.  Any law that would interfere with the use of bitcoin is in direct contradiction to this amendment.

this is something i would love to see proven in court! however the outcome is, it would help the project.
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August 03, 2011, 02:53:06 PM
 #20

Forgive me for getting a little off topic, but it is because of a preponderance of regulations such as this that the U.S. economy will remain in a recession for the foreseeable future.  Who wants to bother starting a business (or engaging in any commerce, really) when you have to comply with myriad regulations and have to be continually leery of missteps that can land you in prison?  It's much easier to just stay at home and collect a check from the government.

"A small body of determined spirits fired by an unquenchable faith in their mission can alter the course of history." --Gandhi
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