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I was wondering if Bitcoin faucets were illegal in the USA? What about a paid bitcoin faucet where you pay in other coins to get a few cents worth of BTC?

  • I don't think so due to small amounts involved. – Felipe Aug 7 '14 at 22:08
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The trade of cryptocurrencies for other cryptocurrencies is not regulated in the United States under FinCEN guidance or IRS guidance, as of August 12th, 2014

Cryptocurrencies are designated as property under IRS guidance, and property generally enjoys like-kind treatment to defer capital gains until that property is exchanged for US Dollars (or other fiat currency) and kept in US Dollars for a certain period of time. These are property regulations and a consequence of designating cryptocurrency as property.

As such a 'paid' faucet would not be money transmitting, or incur a tax event. And there are no other prohibitions on cryptocurrencies in the United States (from a federal standpoint, state and municipal governments may have leeway to make up something else).

A free faucet, on the other hand, may incur a tax event of some type (income?), but the amount is typically very small and sanctions against amounts that small are an afterthought.

Not advice.

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There are several groups which may be able to impose regulatory control of the Bitcoin economy. Bitcoin can be subject to regulations from several branches of government:

IRS - Considers bitcoin property and does not require reporting for spending sums under $600. http://online.wsj.com/news/articles/SB10001424052702303949704579461502538024502

FinCEN - Generally requires the same MSB or Money Transmitter regulations which it does for WesternUnion, MoneyGram, Banks, PayPal, etc which is to report large and/or suspicious transactions and also possibly require client information. However, with coins this might not even be a consideration as coinstar does not require your ID to turn your coins into Amazon gift cards.. http://en.wikipedia.org/wiki/Know_your_customer

State - Each state has it's own finance laws, and can have Bitcoin specific laws. New York, for example BitLicense being developed. For now you could run either a free or paid faucet but you would have to file for a license within 45 days of it being legislated. http://www.dfs.ny.gov/about/press2014/pr1407171-vc.pdf

There are several more organizations which might be able to impose regulations on Bitcoin, CoinDesk wrote a nice article on this. http://www.coindesk.com/information/is-bitcoin-legal/

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