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Author Topic: More info [on the legal requirements of a digital currency]  (Read 1292 times)
DGCmagazine
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April 21, 2011, 03:18:29 AM
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The act of exchanging a digital unit for monetary value would be considered the regulated action. The exchange agent would have to be an MSB and be licensed and report as a money transmitter. There is a WHOLE lot more to it than just getting a scan copy of a customer's ID. As an example of how complex this is, you know that for almost a decade we all heard that e-gold was not required to be registered Money Transmitter as they had no bank account and gold was not money etc.  We know how that turned out.  To really explain this point, here is the 19 page judge's opinion on that e-gold case carefully detailing why e-gold was required under law to be registered. http://www.dgcmagazine.com/JudgesOpinion.pdf Good luck understanding it.

I'm up to date on most all of the Treasuries legal stuff on digital currency, the proposed FinCEN reg changes, including the new ones regarding money transmitters both domestic and foreign. I would like to provide documents and assistance to you in your move to write a report and would be happy to clarify some legal details. email me anytime editor@dgcmagazine.com or skype me IM "digitalcurrency"  I also wrote a pretty cool paper on the Digital Currency Industry late last year which includes legal matters, industry changes, updates and even Bitcoin. http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1721076 It's free and you can download it there, sorry it's 56 pages. Or if you want to read it as a flash magazine (it's much faster) get it here: http://www.dgcmagazine.com/index.php/past-issues/2011-digital-gold-currency-magazine-special-industry-issue  The New Systems (including Bitcoin) start on page 48.

These discussions are excellent and I'm really happy to see stuff like this appearing for Bitcoin, we never had any info the past decade on e-gold or any others. However, it's REALLY important to note that even the most expensive law firms I know, that specialize in online payments don't understand 100% about digital currency...it's new:-) Whatever suggestions or opinions come out of this discussion don't take them to be law.

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April 21, 2011, 03:30:52 AM
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I updated your title (to include...more info haha).

Thanks for the post, this is very interesting. and if I'm correct we're it to be applied correctly for bitcoin, it would mean that each person actually running a bitcoin client (and transfering btc to other clients) would be required to be licenced and registerd as a MSB.

This being because all who have the bitcoin client are the ones conducting the transaction (as opposed to a central system such as e-gold)?

I don't know how new this legislation is but it's certainly been outdated by the changes brought on by bitcoin. This would effectively make running a bitcoin client illegal. Good luck with that.

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taykaypee
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April 21, 2011, 04:19:22 AM
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We are so on the same page. I'm currently writing an informative paper on Bitcoin, and I had your paper up as I entered this topic! I would love to chat on skype or something.
DGCmagazine
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April 22, 2011, 04:52:24 PM
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You can get me IM on Skype anytime "digitalcurrency"

Regarding each Bitcoin user registering :-), I don't know if that would be their solution and of course I'm with you, that will never happen. Bitcoin is a new problem for them to tackle so I'm not sure how they will attack it.

Here is a new quickie article for FinCEN.

Peer-2-Peer Digital Currency: The Long Road Ahead for FinCEN (Financial Crimes Enforcement Network)
http://www.associatedcontent.com/article/7992905/peer2peer_digital_currency_the_long.html?cat=3

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CaptainPicard
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April 23, 2011, 02:10:46 AM
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I don't see how the gov can think bitcoin is any sort of money transmission system.
e-gold is different, since the value is pegged to gold, which is regulated, egold also transmitted value (gold) between people.
Bitcoin buyers/sellers also do not transmit anything to any 3rd party, what the buyer does with his BTC after buying it isn't the responsibility of the seller.
The value of bitcoin is not pegged to anything, and there are no laws governing the use of bitcoin.

Bitcoins are not money, are not pegged to the value of any money, or anything else of value, and cannot be "converted" into money.
BTC is just an item (or commodity) like any other that can be bought and sold based on supply and demand.

Calling BTC a money transmission system seems as silly to me as calling oil,gas,food and any of the many other commodities a "money transmission system" because they can be bought and sold.

This is just my opinion anyway.
Does anyone know what the legal definition (in USA) of a "digital currency" or "money transmission system" is?

It seems to me that the question here is if a person who's business is buying/selling bitcoin in the USA has to register with the government.
Can someone point me to a law that says he does?
DGCmagazine
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April 23, 2011, 03:03:29 PM
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"no laws governing the use of bitcoin" that is not what the Treasury says, apparently from the story about BitcoinUSA the Treasury is calling it a digital currency, which is now labeled a prepaid or stored value product. Issuers of prepaid products and buyers/sellers who exchange them for money are regulated.

"On June 28, 2010, FinCEN issued proposed rule addressing prepaid cards and stored-value. FinCEN is seeking to amend its regulations, which implement the BSA relating to MSBs in an effort to bring non-bank entities in the prepaid sector under regulatory treatment that is more consistent with traditional financial institutions."


Look, I have a friend in Dubai, he says go see Ahmed in the NY restaurant down on Grant street he's going to give you some money. I go in, Ahmed gives me $5000. My friend in Dubai gave $5040 to his associate locally in UAE, that guy picked up the phone, called Ahmed and gave him instructions to pay me $5000. So suddenly some guy named Ahmed gives me $5000 he had in cash in his pocket and he's supposed to follow AML guidelines and reporting requirements? Yes. This is a Hawala, its the oldest type of money transmitter and currently transactions are regulated. The gov says it's illegal for Ahmed to give me money without reporting it.(LOL)

The case of GoldAge, the Secret Service deposited cash and in exchange got e-gold. That's exchange services so what-- right? No, because the next day or even later that day the customer sold the e-gold and directed GoldAge where to send a wire. They sandwiched the transactions together (the quick e-gold buy and sell) and charged them with operating a money transmission service. The gov said, GoldAge received cash and soon after wired it out(minus fees) on behalf of the customer. The customer gave them cash and told them where to wire it, the rest of the e-gold exchanges and fees were simply part of the money transmission transaction.

My point here is that when it comes to Bitcoin or any other new digital currency product you can call it what you like but if they don't want you operating in the U.S. they will find a way for one or two exchange agents to complete a transaction or two and they will label it whatever they want an MSB, Money Transmitter, Money Launder, Criminal Enterprise because it circumvents the intent or spirit of their law as they see it. They will say, "the laws are in place to regulate this type of activity, our agents have shown this type of activity takes place, it is required to be regulated and it's illegal when it's not".

Look at e-bullion, they received funds for customers and deposited the e-bullion in exchange for the incoming funds. That is what their business was, give us money, receive e-bullion. However, since a big ponzi scam the gov was prosecuting used e-bullion bank accounts to accept incoming deposits, e-bullion was labeled by the FBI as the actual ponzi. FBI agent in charge at the press conference, no less, stood up and outright called e-bullion the ponzi, NOT a company processing funds for gold, the operator of a ponzi. But e-bullion was NOT operating any ponzi, we all know what a ponzi it and they were not, but because some transactions moved through them they were labeled the actual "ponzi".

You can say what you like here on this board, and I agree with you, but sooner or later they will complete some transaction and show what they want, right or wrong in our eyes they will label it whatever they need to to close things down and attack it. They will find one guy selling stolen credit card info and label Bitcoin, or one guy selling "china white" and the DEA will call it a drug dealers method of payment. It doesn't matter, and I know this from experience, if you have 10,000 honest merchants and 3 bad ones, the 3 will make the headlines. You can't win over the long haul in the U.S. Now it may take them a week, a year or ten years but they will stop it somehow and good people will get hurt in the process.

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DGCmagazine
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April 24, 2011, 04:39:32 PM
 #7

Sorry I didn't mean to be so negative. The best defense to this kind of reality, is more customers. The more people using these type of systems, the better it is over the long haul. The more likely the program will stick around that go global. I think you guys are doing an excellent job here, so keep it up.

If anyone's reading this I'd like to know why there aren't more Bitcoin systems? If there were 10 more Bitcoin type systems in operation, this would be a HUGE help also for the long term success. A Twitcoin, a Bytecoin, Goldycoin  etc. Every new open source project operating online, increases the business exponentially. Two systems operating is not twice as good for the "industry" is 10 times the success and customers.

Skype "digitalcurrency"
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