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Author Topic: Proof of same customer?  (Read 1356 times)
rjcesq
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December 22, 2013, 02:24:52 PM
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Many of the financial regulations stem around whether or not you're transmitting money (or stored value) to someone other than the original party. This appeared to be the basis of the Casascius coin letter (see http://rjcesq.com/?p=26). 

The FinCen regulations, for instance, define the term "money transmission services" as "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."  The burden then is on you to validate to prove that you're not transmitting the money to another person.

Though this is pure legal speculation, I'd like to suggest the possibility that proof of the private key of a bitcoin address might be sufficient to prove your sending it to your customer and not acting as a conduit to transmit from your customer (who is paying fiat currency) to someone else. This could be done by having your customer transmit an odd amount from the recipient address or (?) signing a message with the private key.

[I do have a technical question about the latter. Can a bitcoin private key be used to sign a generic text message that can be validated using the public address? If not, ignore my second idea and focus on the first.]
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bitpop
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December 22, 2013, 09:21:51 PM
 #2

Yes you can sign definitely

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December 23, 2013, 08:44:08 PM
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The analysis probably swings on whether bitcoin is a substitute for currency.  Given that this is bitcoins stated intention I can see why the letters have gone out.  This all comes out of 911.
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January 01, 2014, 05:42:33 AM
 #4

You can definitely use the private key of a bitcoin address to sign something, but I don't see how signing something could prove that the coins were mailed to the same person that bought them.

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Bob Derber
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January 01, 2014, 06:31:18 PM
 #5

And to add to your comment odolblobo, I suspect an encrypted match identification of the individual who purchased and to whom Caldwell sent the coin to would not meet the customer identification requirement for FinCEN.  Their regulations specify a good deal of data that is necessary for "know your customer" and the "customer identification (CID)" program requirements if you are classified as a money transmitter.

I suspect there are several mechanisms Caldwell can implement to avoid being the individual who 'accepts' or 'transmits' the bitcoin key(s), and no doubt that will be explored by his counsel and him. 

He may choose to make the 'funding' process independent of the purchase.  Remember, you can verify the balance of any address with just the public key.  You don't need to know who.  It would take less than a minute to determine the balance that exists at the public address right from the block-chain itself.

So what if Caldwell supplied the key but never did the funding.  Rather, he just witheld the mailing until there was a proof of funds behind the coin?  Now Caldwell has neither 'accepted' or 'transmitted' funds.  FinCEN may suggest the coin purchase was his 'agent' in funding the coin, any interpretation that a transaction that is really more in the nature of a 'deposit' to one's own account is going to put them at odds for much of their other areas of interest - like banks, prepaid issuers etc.

Caldwell could remove himself from the process a step further by allowing one of the escrow companies generate the public/private key pair and staying entirely independent of it.  Biggest issue here is that this community trusts Caldwell and one would have to find an escrow setup that had his credibility.

BTW until he shares the FinCEN request, we really have no idea where their interest lies.  Also, since he is also a miner, we may not know the foundation of any determination FinCEN makes, if any.
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January 01, 2014, 08:03:08 PM
 #6

I believe that FinCEN is ultimately interested in traceability. The transfer of bitcoins is completely traceable, but the transfer of bitcoin addresses (which is what Casascius coins facilitate) is not.

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Bob Derber
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January 01, 2014, 08:16:14 PM
 #7

Agreed - but after you receive your coin from Caldwell - if you give it to another I doubt you are a transmitter in most casual instances.  Do you think Caldwell will have no options to structure his operations to avoid being considered a transmitter or any other category of MSB?

Let's pretend I give a coin valued under 10k to a non-US individual.  I may have 'transmitted' currency within the regulatory sense as deemed by FinCEN, but if it were an occasional event (make it my nephew's birthday present) or unrelated to an 'acceptance' that can logically be tied to the transfer I am not sure I will be a transmitter or an MSB.

I agree FinCEN is interested in tracability - and that without identity tracability gets them nowhere.  But lack of tracability is not the test of whether or not you are a money transmitter under the regulations.

thoughts?
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January 01, 2014, 08:34:43 PM
 #8

I agree with your idea that in order to avoid being classified as a money transmitter, Caldwell could sell the coin unfunded and then let the buyer fund the coin, but I believe that eventually there will be an effort to remove that "loophole".

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Bob Derber
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January 01, 2014, 09:26:58 PM
 #9

But a direct fund by the customer might not make sense, as I doin't think an owner of the coin is to be able to access the value without breaking the seal to get access to the private key.

If I understand what is being accomplished, no one knows the private key, not even the owner of the coin, until the seal is broken.  That way you are assured of value in the piece and this is not dependent on the integrity of the individual who had the coin created.  Even they can not access the value without destroying the seal Caldwell created.....

Therefore, a few steps are necessary to make this happen, but it is not rocket science....

yes?
odolvlobo
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January 01, 2014, 09:34:58 PM
 #10

But a direct fund by the customer might not make sense, as I doin't think an owner of the coin is to be able to access the value without breaking the seal to get access to the private key.
If I understand what is being accomplished, no one knows the private key, not even the owner of the coin, until the seal is broken.  That way you are assured of value in the piece and this is not dependent on the integrity of the individual who had the coin created.  Even they can not access the value without destroying the seal Caldwell created.....

You are correct about the private key, but the bitcoin address is displayed on the coin (or more accurately, enough to determine the entire address). Knowing the bitcoin address, anyone can fund the coin directly.

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Bob Derber
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January 01, 2014, 09:56:51 PM
 #11

understood, but they can not access funds once allocated.......

how would you structure it to allow a coin sale, insure it was funded and finally insure the private key was unknown to anyone absent breaking the seal on the coin...... without being a transmitter?

You know the arena, and all suggestions would be helpful.  As I recall there were multiple FinCEN letters sent.

bob
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January 03, 2014, 03:19:57 AM
 #12

I believe that FinCEN is ultimately interested in traceability. The transfer of bitcoins is completely traceable, but the transfer of bitcoin addresses (which is what Casascius coins facilitate) is not.


The KYC facility covers both functions; tracability as well as transfer to the direct customer.
It would be an interesting test case as to whether it could be shown that the buyer is the one receiving it but without the tracability.
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rjcesq
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January 06, 2014, 08:59:06 PM
 #13

understood, but they can not access funds once allocated.......

how would you structure it to allow a coin sale, insure it was funded and finally insure the private key was unknown to anyone absent breaking the seal on the coin...... without being a transmitter?

You know the arena, and all suggestions would be helpful.  As I recall there were multiple FinCEN letters sent.

bob

So this thread brings up an interesting concept. One could create "blanks" so to speak that had the private address concealed behind a hologram and the public address revealed. The purchaser of the blank could then fund the wallet with the face value. Then the produced is only selling a product, the blanks, and not engaged in a money services business. Of course, at every transaction, the recipient should probably validate the funds exist in the wallet to assure that it was originally funded. This is kind of reminiscent of the old days when gold and silver coins needed to be weighed to identify debasement (http://en.wikipedia.org/wiki/Methods_of_coin_debasement).

Anyway, while this is an interesting intellectual exercise and physical coins have become the face of every news article on bitcoin, the actual benefit of physical bitcoin is limited.
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January 07, 2014, 08:45:59 PM
 #14

So one could create and send an unfunded coin..... the purchaser can transfer funds with the external public key - they can not withdraw funds without the sealed private key, and a subsequent holder of the coin can confirms the BTC balance with the public key, and accesses the BTC with the private key if they want to break the seal....

Works structurally - but is there some accomplice theory here that might be brought to bear on this?  Is there some way you cold be held accountable as a facilitator even though you have no participation, or even knowledge, of whether or not the coin was funded?
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