18

As seen in recent news, FinCEN has issued a statement on its classification of virtual currencies: http://www.fincen.gov/statutes_regs/guidance/html/FIN-2013-G001.html

Hypothetically suppose I mine BTC and sell it on MtGox for USD. Do I need to register with FinCEN as a Money Transmitter(MT)? My interpretation of the above document indicates yes, I do; but I could also see MtGox (which is registered with FinCEN) maintaining my regulatory compliance, via proxy.

  • 1
    I would assume that most IANAL disclaimers apply to the answers on this page. (IANAL means "I am not a lawyer") – Christopher Mar 19 '13 at 2:21
  • oh my. now I realize that I'm an exchanger without knowing it (from the 3 weeks of trading) and decided to stop trading bitcoins, would i still need to register as an MSB? please advise a noob like me. thanks much. – user9851 Dec 2 '13 at 3:12
10

No, the fincen guidance you posted has it in plain english that you do not. A miner is simply a user.

 c. De-Centralized Virtual Currencies

        A final type of convertible virtual currency activity involves a 
de-centralized convertible virtual currency (1) that has no central 
repository and no single administrator, and (2) that persons may obtain 
by their own computing or manufacturing effort.

        A person that creates units of this convertible virtual currency and 
uses it to purchase real or virtual goods and services is a user of the 
convertible virtual currency and not subject to regulation as a money transmitter. 
By contrast, a person that creates units of convertible virtual currency and sells
those units to another person for real currency or its equivalent is 
engaged in transmission to another location and is a money transmitter....

On the exchange you are buying/selling bitcoins. The exchange carries the burden of giving you legal tender or a different cryptocurrency. The exchange carries the burden of regulation, according to the FinCen regulations. In the US, the equivalent of real currency is only treasury bonds.

Also, Fincen regulations only take affect at certain dollar amounts, if you feel you need to be concerned about them.

You can also try to get even further clarification from the Treasury yourself, because on this matter it doesn't matter what kind of legal counsel you ask, nobody knows all the semantics until an issue comes up that is actually decided in the courts.

  • 2
    Thank you for the helpful answer. I will mark it as the accepted answer within a few days. As you alluded to, most miners are under the reporting minimums. I found the limits for FinCEN reporting to be 1,000$/day or 3,000$/day (per person) for MSBs: fincen.gov/financial_institutions/msb/materials/en/… – Streblo Mar 19 '13 at 2:19
  • 6
    -1 It says in your quote "A {miner} who uses the units to purchase real or virtual goods doesn't have to register". VS "A {miner} who sells those units to another person is a money transmitter". MtGox is just enabling the transaction. Each person is party to the transaction, so I think registration may be required – Christopher Mar 19 '13 at 3:37
  • 2
    @CQM I will call the hotline, but my conservative side makes me err on the side of caution, and need something in writing to that effect. I will share anything I find and will undo the -1 when I find otherwise. (aside: Personally I hope you're right!) – Christopher Mar 19 '13 at 3:42
  • 6
    UPDATE - I spoke to FinCEN at length today and they will get back to me with more information. The fact that a miner processes transaction fees is a sticky situation that requires further research. When I get more information I'll update – Christopher Mar 20 '13 at 15:14
  • 1
    @CQM makerofthings7 is correct. Read the law literally because as economy goes into toilet and govt becomes very aggressive at stealing (ahem digging for) money any way it can, every thing can and will be used against you. You must report and MtGox must report. If you depend on MtGox to report for you, you have not covered your arse. You will have no one to blame but yourself when other interpretations and verbal communications don't help you at the end game. – Shelby Moore III Mar 23 '13 at 20:32
2

Maybe - check with a lawyer

You don't have to register if

  • You use a website (MtGox or Coinlab) to buy coins

  • You use coins to buy "stuff" (Namecheap, alpaca socks, etc)

You might have to register if:

  • You run a wallet hosting company

The FINCen law requires people to register if they

  • Are a mixing service

  • Participate in the Bitcoin OTC market and issue one on one trades with people for cash (or cash substitute)

  • Run an online trading site (MtGox, or similar)

I suspect the same requirements apply for Money Orders:

  • Anyone who accepts Bitcoins for any software or service (over $1,000)

However, I do understand your concern in this sentence:

By contrast, a person that creates units of convertible virtual currency and sells those units to another person for real currency or its equivalent is engaged in transmission to another location and is a money transmitter

So what does a Bitcoin miner actually do?

  • It performs a service for the Bitcoin network and gets paid for it in the form of transaction fees.
    This value increases over time.

  • It is hardware that competes to solve a math problem and wins new coins for that block.
    This value decreases over time.

Here is an example of a Miner that probably MUST register: A solo miner is configured to not broadcast Tx to other hosts. The miner accepts a Tx with a huge fee. This money substitute in exchange for a service is covered not by the FinCEN note in the OP's post, but implied by this link.

I think it's a grey area that isn't well described, and we should look for more guidance.

Aside:

I don't like saying mining "creates units of this convertible virtual currency". I think the actual creation occurred in 2009 when the Bitcoin Protocol was launched. I would argue that the protocol "creates" the coins, and USA based miners are just claiming them.

  • What? "The FINCen law requires people to register if they: Accept Bitcoins for any software or service". They specifically say you can be a user (purchase goods or services) and not be a money transmitter. – Stephen Gornick Mar 19 '13 at 5:59
  • 1
    @StephenGornick No, you're conflating three different things. A user vs the server (Namecheap for example) vs a MtGox. In other words a user may have a wallet and use Bitcoins with no worries. Thats what your quote is about. A MtGox and a "mixer" is a money transmitter (period). If a server "accepts" coins for a service they provide (Namecheap) then that isn't mentioned in that particular FINCen note, but regular money order restrictions may apply. – Christopher Mar 19 '13 at 11:52
  • 1
    Here is an example of a Miner that probably MUST register: A solo miner is configured to not broadcast Tx to other hosts. The miner accepts a Tx with a huge fee. This money substitute in exchange for a service is covered not by the FinCEN note in the OP's post, but implied by the link I just posted regarding money orders. – Christopher Mar 19 '13 at 11:56
  • Does "You use a website (MtGox or Coinlab) to buy coins" include "You use a website (MtGox or Coinlab) to sell coins"? – Streblo Mar 31 '13 at 21:35
1

"A person that creates units of this convertible virtual currency and uses it to purchase real or virtual goods and services is a user of the convertible virtual currency and not subject to regulation as a money transmitter. By contrast, a person that creates units of convertible virtual currency and sells those units to another person for real currency or its equivalent is engaged in transmission to another location and is a money transmitter. In addition, a person is an exchanger and a money transmitter if the person accepts such de-centralized convertible virtual currency from one person and transmits it to another person as part of the acceptance and transfer of currency, funds, or other value that substitutes for currency."

A person is defined as this, even if they are an MSB:

"FinCEN’s regulations define “person” as “an individual, a corporation, a partnership, a trust or estate, a joint stock company, an association, a syndicate, joint venture, or other unincorporated organization or group, an Indian Tribe (as that term is defined in the Indian Gaming Regulatory Act), and all entities cognizable as legal personalities.”

So, yes, you have to register as a money transmitter if you sell your bitcoins after you have mined them. There is no designated threshold for money transmitters.

1

I think the case of mining as part of a pool is, in reality a very special case of providing a cloud based server farm service. Essentially, those operating such a server farm are having its use contracted to the pool for an hourly (or shift) fee. The fact that the payment for the service is done in bitcoin does not make the server farm operator a miner, nor do they actually create any currency.

Even the pool itself is not creating a real currency, instead they are creating (or locating) a commodity which other people believe has a particular value. This is no different than pumping oil out of the ground or mining for silver or gold. No one would claim that a gold or silver miner or a farmer selling their crops is actually an MSB when they take their product to market would they? No, they are simply selling their commodity at the market price. What difference does it make whether they use a drill, a tractor or a computer to prepare the commodity for the market?

That said, it will be interesting to see what happens if/when any of the assumptions here are challenged in a court case. My supposition is that it will first happen with a true criminal enterprise (drugs or gangs for instance) since that will blur the distinctions and allow the case to set a supposed precedent and cause more confusion which is the best way to discourage general use by the under-educated majority.

FMI on bitcoins as a commodity : http://blog.bitcointitan.com/post/17789738826/what-u-s-regulations-apply-to-bitcoins-as-commodities

0

I would argue that mining pool participants don't have to worry, because they are not actually mining (creating Bitcoins) - only performing a computational service as a subcontractor to the mining pool operator, namely computing hashes. (This is illustrated by the fact that a pool participant gets paid for their shares regardless of whether their own computer actually found a nonce whose hash had sufficient 0's to qualify as a new block at the current difficulty.) The only entity which could be said to be "creating Bitcoins" would be the mining pool operator, since they are the only entity that knows the private key needed to claim the actual block reward on the newly mined blocks. Then they just distribute a "contracting fee" or payout to the pool participants, in exchange for their help producing hashes. Thus, a pool participant is not creating Bitcoin, only being paid for a computational service.

Caveats: IANAL and I'm not currently mining myself (neither solo nor pool).

  • My reading of the law is that you need to file Form 107 with fincen if you mine bitcoins, and then sell them for dollars. I don't know whether a pool would need to register if they didn't also offer an exchange. – Nick ODell Mar 23 '13 at 5:30
  • @NickODell for once I can agree with you. And I think this incentivizes a new design that gets millions to become small miners and then they need to spend the generated coins on goods and services to avoid the hassle of filing. I have thought this design out from many more angles than you realize yet. – Shelby Moore III Mar 23 '13 at 20:37
-1

The bottom line is that if you mine BTC and sell them, you are a money transmitter and will be required to register with FinCEN and seek appropriate licenses in your state.

-2

Why do you think all this volatility happened? NSA is watching and all you who traded BTC for Dollars are in a heap of crap. You have to file and get a Money Transmitter license at a cost of around 1 million dollars in California. If you try to license in all the states it is around 10 million dollars for the licenses. It's the same licensing Visa or Mastercard needs to transmit money in America. I predict all mining will go off shore to avoid this taxation. They are serious about cleaning up this industry and they will come after Dwolla and a host of others that don't have the proper licenses. Fincen has a list of all the unlicensed brokers that it is going to go after on it's site. They will do anything to slow this effort down. They don't want free banking, this is a capitalist society and everyone wants to make a profit on everything.

  • This is a rant, not an answer. -1 – Nate Eldredge Jan 3 '14 at 20:27

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service, privacy policy and cookie policy

Not the answer you're looking for? Browse other questions tagged or ask your own question.