Washington D.C., 4/29/14, the Financial Crimes Enforcement Network (FinCEN), the enforcement arm of the United States Treasury Department, has issued its most recent ruling related to Bitcoin. A concerned American miner sent a letter to FinCEN on 2/26/14 asking whether or not the rental of computer systems for mining virtual currency would make his company an “administrator” of virtual currency or a money transmitter under the Bank Secrecy Act (BSA). The FinCEN ruling states that selling hashing power in timed contracts, which has become increasingly popular a la CEX.io, does not a money transmitter make. That is, as long as all virtual currency mined by the third party remains the third party’s property.
[dropcap size=small]F[/dropcap]inCEN, for the purpose of guidances related to virtual currencies, forms three distinct categories to help identify who is and who isn’t a money transmitter.
An “exchanger” is a person engaged as a business in the exchange of virtual currency for real currency, funds, or other virtual currency. An “administrator” is a person engaged as a business in issuing (putting into circulation) a virtual currency, and who has the authority to redeem (to withdraw from circulation) such virtual currency. A “user” is a person that obtains virtual currency to purchase goods or services on the user’s own behalf.
FinCEN’s rulings were criticized for being too ambiguous by the Bitcoin community over the last year. Since the first March 2013 guidance, to the January 2014 guidance, FinCEN has always chosen its wording intentionally. That is because FinCEN guidance was formed around centralized virtual currencies first, and applied to decentralized virtual currencies as an afterthought. Even as recently as 2013, Bitcoin was not at all on the US government’s immediate radar. Centralized virtual currencies, such as Liberty Reserve, have very clear administrators; on the other hand, Bitcoin does not have an administrator. Bitcoin exchanges and services do have administrators that would be classified as “exchangers,” though, that the book can still be thrown at.
Back in January, FinCEN clarified that “users” of virtual currencies are not money transmitters. Furthermore they explicitly stated:
How a user obtains a virtual currency may be described using any number of other terms, such as “earning,” “harvesting,” “mining,” “creating,” “auto-generating,” “manufacturing,” or “purchasing,” depending on the details of the specific virtual currency model involved. The label applied to a particular process of obtaining a virtual currency is not material to the legal characterization under the BSA of the process or of the person engaging in the process to send that virtual currency or its equivalent value to any other person or place. What is material to the conclusion that a person is not an MSB is not the mechanism by which a person obtains the convertible virtual currency, but what the person uses the convertible virtual currency for, and for whose benefit.
FinCEN also reminded Bitcoiners that:
The regulations specifically exempt from money transmitter status a person that only provides the delivery, communication, or network data access services used by a money transmitter to supply money transmission services.
This means that multi-signature transaction based escrow services, like CoSign Coin or Bitrated, are not money transmitters. It is refreshing to see the United States government respond to personal inquiries from the public in a way that is mutually beneficial for the regulators and the regulated. Though it has been over a year since FinCEN’s first mention of Bitcoin and virtual currencies, the attention is growing from all corners of US government. Concerned Bitcoiners and regulators alike have since turned their attention towards changing the IRS Virtual Currency Guidance which treats Bitcoin as property, not money.