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U.S. Regulators Battle Bitcoin Businesses for Control

Last Updated April 21, 2023 5:37 AM
Evander Smart
Last Updated April 21, 2023 5:37 AM

the emblem of the united states of americaWhen you are a government as large, powerful, and desperate as the one that controls the United States, things many of us take for granted like freedom, ethics, and privacy can be easily crushed underfoot in an ongoing quest for control. Freedom and control are strange bedfellows, and rarely the two shall meet. Governments are all about control: control of their populace. Recently, the U.S. government has created many arms of regulatory government to gain more control of an evermore complicated world and its citizens.

We’ll leave their military exploits to another time and place for discussion. Let’s focus on something more subtle, but almost as insidious. The control of money, and even the control of that which is a substitute for money.

Also read: Bitcoin Taxation Revives an Ancient Debate about Money

U.S. Regulators Battle Bitcoin Businesses

Bitcoin has never been considered “legal tender” by the U.S. Government for tax purposes (The State of California does, however,) and labels it “property”. Yet, the U.S. Court System does consider Bitcoin to be money or currency, and it has been deemed as such in multiple trials against those accused of running “Ponzi schemes” while using Bitcoin. So maybe the U.S. Government can have it both ways? It is not money for tax purposes, but it is money for legal purposes. It would appear that would give government regulators even more ability to legislate it if they can play both sides of that fence, at their convenience.

This back story is important in the context of how companies like Coinbase and Brawker look to offer new and innovative services  designed to keep Bitcoin transactions free from centralized regulation. Keeping their own business model from falling under the ever increasing tentacles of The State is another benefit. It’s a constant battle of centralized regulation versus a decentralized currency, and these Bitcoin businesses stand on the front lines of this ever escalation war of attrition.


Following similar forms of management popularized by companies like Uber, Brawker works to match Bitcoin users with credit card users to make purchase at merchants that don’t accept Bitcoin, so they act as a middleman. The credit card user buys the product, then gives it to the Bitcoin user in exchange for the equivalent amount of digital currency. The rub is to not run the transactions through the traditional banking finance model, therefore avoiding massive regulations specifically designed to protect consumers. A less publicized but just as real implication is that regulations are protecting the large banks from innovative new competitors, through massive upfront costs for licensing as a money services business (MSB), or money transmitter, at least in the United States. So Brawker plans to work around the codes as they are currently written, but which are always subject to change.

“Usually exchanges rely on banking services in order to function…we piggyback on the e-commerce infrastructure,” said Cyril Houri, co-founder and CEO of Brawker. “”We’re making it possible now for someone who’s going to receive bitcoin to be confident that they’ll be able to spend it on anything they want,” said Houri.

The downside of that is they are trying to hit a moving target. Centralized governments have many strengths and weaknesses. Perhaps their greatest strength is the ability to change the rules of any financial game with the stroke of a pen, and/or create an agency out of thin air, much like they create dollars, and many other things as well, out of thin air. All can be done under the guise of “protecting the consumer,” but protecting a constantly debased currency and major banking and corporate interests from any potential losses due to new competition and innovation is also a very key motivating factor. Ok, these are the key determinants, but the average consumer may actually see a small benefit, so that’s the spin that works best.

Brawker claims to work outside the Financial Crimes Enforcement Network’s (Fin-CEN) money service business rules. Since Brawker fails to hold funds in escrow shortly (Currently, they hold 1% of Bitcoin users’ funds in escrow, but will change to a separate fee on the transaction only), this practice would be fully compliant with all Fin-CEN regulations and response letters, for non-MSB’s, up to this point. According to Fin-CEN, not so much. Fin-CEN has made some revisions to their pervue just within the last few days. One of the two newest Fin-CEN response letter FIN-2014-R011 , states the following:

“A person that accepts currency, funds, or any value that substitutes for currency, with the intent and/or effect of transmitting currency, funds or any value that substitutes for currency to another person or location if a certain predetermined condition established by the transmitter is met, is a money transmitter under Fincen’s regulations.”

The fine line drawn by Fin-CEN can get very squiggly. In other words, Fin-CEN claims jurisdiction over your transactions whether you handle U.S. currency directly, or not, as well as “any value that substitutes for currency,” with the intent and/or effect of transmitting currency?” That is as wide of a net as they can caste, and good luck beating them in any U.S. court. No wonder many corporations are bailing out of the U.S. altogether, and are setting up shop in the Cayman Islands, Ireland, and anywhere else where excessive taxation and/or regulation haven’t run amuck.

Russia is preparing to ban Bitcoin outright going forward, but the U.S. looks to be more surreptitious about its approach to Bitcoin. They may not ban Bitcoin outright, but will over-regulate the companies at fiat currency touch points and look to squeeze out this potential competition through the back door. And any holes in their game can be filled with a stroke of a pen and conjured-up agency within a year’s time. What was legal last year can easily be made illegal the next.

Coinbase and BitPay run their business model similar to merchant account services company like First Data does for common credit card transactions, except that BitPay does not hold consumer funds, which should absolve them. Alas, Fin-CEN is ready to change the rules to the game for them as well. Response letter FIN-2014-R012 , states:

“If a consumer purchases a merchant good with a credit card and that payment goes to a third party, which then transfers the equivalent amount of Bitcoin to the merchant, that service is also considered money transmission.”

The point being that getting the world to transition from the dying U.S. Dollar to a decentralized interpersonal digital currency like Bitcoin will be very difficult to make happen in the real world. Being idealistic is never an easy path to take. The world should be many things, but there are many people who have a vested interest in keeping things exactly the way they are. Improving on a broken financial system just to improve it and make it better is not nearly enough. It will take millions of people working together to bring about change that is sorely needed in the economic system designed to protect the few, and fleece the many. It is economic warfare, even if it is not politically correct to just state the truth so bluntly. The path the U.S. economy is on is destined for ruin, but getting this train-to-nowhere onto another track that isn’t controlled by the inept stewardship at present will be a slow process, measured in degrees of change.

If you tell a friend about Bitcoin, and another Bitcoin company moves overseas, that will do more for global economic growth than any pen held by a beaurocrat has done in decades. True change comes from grassroots efforts, and word-of-mouth, just like what made The Internet grow over two decades ago.

The Ruling Class making up onerous rules that put us in the position we are in today. Innovation, fairness, and privacy are removed from the economic equation, and are fading from society as a whole. The People can make Bitcoin happen tomorrow. Personal, decentralized, and free, just like The Internet it is based upon. This battle for economic freedom will wage on.

Who is right in this battle for control of your transactions?  Would you trade freedom for security?  Do you trust an expanding government to protect you, or do you trust the free market to give you freedom and recourse?  Share above and comment below.

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