FinCEN Publishes Two Rulings on Virtual Currency Miners and Investors

[knight22]

http://www.fincen.gov/news_room/nr/pdf/20140130.pdf


Someone on reddit summerized it that way:

This ruling clarifies the guidance and says if you are mining for your own benefit you are not a money transmitter.

The second ruling is a bit more involved, but basically says if you are a business you can purchase/speculate/use bitcoin as part of your business as long as the purchase/speculation is not your business.

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[Peter R]

WASHINGTON, D.C. – The Financial Crimes Enforcement Network (FinCEN) today published two administrative rulings, providing additional information on whether a person’s conduct related to convertible virtual currency brings them within the Bank Secrecy Act’s (BSA) definition of a money transmitter. The first ruling states that, to the extent a user creates or “mines” a convertible virtual currency solely for a user’s own purposes, the user is not a money transmitter under the BSA. The second states that a company purchasing and selling convertible virtual currency as an investment exclusively for the company’s benefit is not a money transmitter.


Good news.  Miners and presumably "hashers" are not money transmitters.

How does this forum interpret this as applied to operators of mining pools?

[acoindr]

Someone on reddit summerized it that way:

This ruling clarifies the guidance and says if you are mining for your own benefit you are not a money transmitter.

The second ruling is a bit more involved, but basically says if you are a business you can purchase/speculate/use bitcoin as part of your business as long as the purchase/speculation is not your business.

No, that's not how I interpret that. The purchase/speculation can be your business, however it can only be your business, ie, it can't involve speculation/purchase on behalf of clients.

This is VERY positive overall, I believe. So far there doesn't seem to be momentum toward a fight/standoff between govt and virtual currency users. Maybe the U.S. is not quite as bad as Russia yet?  

Nice job FinCEN.

[acoindr]

How does this forum interpret this as applied to operators of mining pools?

Well, I'd say a pool fits the same description as a miner. When you mine in a pool you're only pooling work to have greater chance of making something, even if you must split the reward with others. The first ruling states:

to the extent a user creates or “mines” a convertible virtual currency solely for a user’s own purposes, the user is not a money transmitter under the BSA.

I don't see how mining in a pool would make your activity not for your own purposes. It still is, just as mining actual gold in a group would be.

EDIT: an example of what could be a money transmitter I believe are miners that sell shares in their operation like CipherMine did.

[bitcoinmiami]

Would this be allowed without being considerd an msb and therefore not under the purview of FINcen:
1. Buy Btc from A for 1$
2. Sell BTC to B for 2$.

If it matters, consider that B is an exchange that is registered with FinCen.


As I read the new guidance released today, it seems that the answer is that such scenario would not put you under the purview of FinCen . Am I correct?

[neutralist]

It looks like BTCGuild may need to be registered

[Uthere]

Hello 

[Ridicuss]

It looks like BTCGuild may need to be registered

I'm not sure I agree with you. Could you explain your position please?

I mine for my own purposes. So if I build a pool to mine for my own purposes and attract users that mine for their own purposes, that increase the odds of all of us getting some BTC. I pay the miners their share of the BTC mined and keep a portion for upkeep etc. How is this not for my own purposes.

I am probably missing the boat here and really want to understand it, not argue about it.

Regards

[Jeezy911]

I just stumbled upon this looking into Scharmbeck and was going to post it. Looks like im late to the party. This is great news. Mine and horde all you want.

[reanor]

It looks like BTCGuild may need to be registered

I'm not sure I agree with you. Could you explain your position please?

I mine for my own purposes. So if I build a pool to mine for my own purposes and attract users that mine for their own purposes, that increase the odds of all of us getting some BTC. I pay the miners their share of the BTC mined and keep a portion for upkeep etc. How is this not for my own purposes.

I am probably missing the boat here and really want to understand it, not argue about it.

Regards

If you are running a pool I think that its still ok, but you can't make money from their mining results, in other words I don't believe you can charge any %. Just my thoughts.

[speicher]

I don’t think mining pool fees have any affect on the FINCEN ruling.

If you look at the basic functions of Bitcoin Mining the FINCIN makes logical sense.

As I understand the so called "Bitcoin Mining" process the purpose of mining is to verify and record/document (in the Block Chain) Bitcoin transactions, which is an accounting/bookkeeping function.

So basically a "Miner" is really an account/bookkeeper and there are two types of accountants "aka Miners", Independent Accountants (Solo Miners) and Accounting firms (Mining Pools).

An Independent Accountant (Solo Miner) runs his own firm (mining software) and gets paid directly.

An Accounting firm (Mining Pool) has subcontractors (Pool Miners) to process the work the pool hands to them. The result (Block rewards + transaction fees) of any work performed by the subcontractors is paid to the Accounting firm (Mining Pool) and then the Accounting firm pays the subcontractors (Pool Miners) a fee based on an agreed fee structure. There are various fee structures (PPS, PPLNS, etc.) and methods of paying the fees to the subcontractors by the different Accounting firms (Mining Pools).

The fees paid to the Independent Account (Solo Miner) or Accounting firm (Mining Pool) are transaction fees from individual Bitcoin users and Block awards (currently 25 BTC). The Block awards will eventually be phased out.

So in the FINCEN ruling, they have indicated that the Bitcoin Accountants (Solo Miners or Pool Operators) are not money transmitters.

Logically, it would follow that the subcontractors (Pool Miners) are also not classified as money transmitters as they only perform work supplied by and on behalf of the Accounting firm (Mining Pool).

If you follow the above structure an Accountant or Accounting Firm would not be a money transmitter as they only keep the records on what is happening, nothing more.

In short Independent Accountants (Solo Miners) and Accounting Firms (Bitcoin Mining Pools) are paid fees (Block rewards + transaction fees) by Bitcoin users. Subcontractors (Bitcoin Pool Miners/Hashers) are paid fees by the Accounting Firm (Bitcoin Mining Pool).

The only Bitcoin Mining Pool that muddies the waters is P2POOL, which is more of a CO-OP of Independent Accountants (Solo Miners), as there is no single entity that holds the fees prior to distribution to the CO-OP members.

In my view the FINCEN ruling makes logical sense.

[smith88]

This is very good news for Bitcoin.
Seeing as Bitcoin value/earnings as a whole are a drop in the bucket compared to many other big money ventures in the US, it is a growing community and does reflect positive attributes to contributing to a healthier, stronger economy.

[nitehawk]

I wonder if this has anything to with the current behavior of banks lately

[prophetx]

cool seems reasonable right?

at least with bitcoin we can tell who the commies and wanna be autocrats are in the system

time to start campaigning against some people soon, let democracy reign down on them...

[Nagle]

Right. The key issue for US regulators is "are you handling other people's money?" If you're risking your own money, that's fine.

[D05GTO]

Hmm, so brokers are MSB's now?  That'll bring in the KYC stuff..ugg. So much for discreet transactions.

[First.Bitcoins]

How would this ruling impact someone who buys and sells bitcoin in the US, using localbitcoins.com?

--------------------------------------------------------------------------------------------------------
WASHINGTON, D.C. – The Financial Crimes Enforcement Network (FinCEN) today
published two administrative rulings, providing additional information on whether a person’s
conduct related to convertible virtual currency brings them within the Bank Secrecy Act’s (BSA)
definition of a money transmitter. The first ruling states that, to the extent a user creates or
“mines” a convertible virtual currency solely for a user’s own purposes, the user is not a money
transmitter under the BSA. The second states that a company purchasing and selling convertible
virtual currency as an investment exclusively for the company’s benefit is not a money
transmitter
---------------------------------------------------------------------------------------------------------


It would seem that this second phrase would apply?

So if I buy and sell bitcoins in an attempt to make a profit, using localbitcoins.com (or a similar service), then that activity is not considered to be a money transmitter, subject to the federal and state laws?

[nitehawk]

I'd question that in practice... If the US gov had the manpower to go after EVERYONE in the us who owns bitcoin i'd be very very surprised....
however the below quote makes me wonder sometimes

“Let me issue and control a nation’s money and I care not who writes the laws.” Mayer Amschel Rothschild

[smith88]

I wonder if this has anything to with the current behavior of banks lately

Good point.  And I would bet- yes.  Who do I think is responsible for the massive ddos?  Well JPMorgan comes to mind.

[smith88]

How would this ruling impact someone who buys and sells bitcoin in the US, using localbitcoins.com?

--------------------------------------------------------------------------------------------------------
WASHINGTON, D.C. – The Financial Crimes Enforcement Network (FinCEN) today
published two administrative rulings, providing additional information on whether a person’s
conduct related to convertible virtual currency brings them within the Bank Secrecy Act’s (BSA)
definition of a money transmitter. The first ruling states that, to the extent a user creates or
“mines” a convertible virtual currency solely for a user’s own purposes, the user is not a money
transmitter under the BSA. The second states that a company purchasing and selling convertible
virtual currency as an investment exclusively for the company’s benefit is not a money
transmitter
---------------------------------------------------------------------------------------------------------


It would seem that this second phrase would apply?

So if I buy and sell bitcoins in an attempt to make a profit, using localbitcoins.com (or a similar service), then that activity is not considered to be a money transmitter, subject to the federal and state laws?

In my experience every thing we do here is subject to one law or another.  Even taking a sh!t.  Maybe a gross overstatement but may not be.

You've got to pay if you want to play, in the USA.  (don't quote me, I am thinking that is a song verse)