Ticking time bomb?

Most of the regulatory discussion around “miners” (an unfortunate term not used in the Bitcoin whitepaper except as analogy) discusses their introduction of bitcoin value into the market and whether their acceptance of payment for that constitutes an exchanger (exchanging virtual currency value for fiat currency value).

FinCen recently said that “so long as the user is undertaking the transaction solely for the user’s own purposes and not as a business service performed for the benefit of another”, miners selling their newly minted bitcoin value need not register as MSBs.

However, little discussion has surround the other activity of “miners,” namely the signing of blocks of transactions thus officiating them into blockchain (the public ledger that identifies all transactions in the Bitcoin network).

§1010.100(ff)(5)B states that “Any other person engaged in the transfer of funds” is a money transmitter and therefore a money services business regulated as an MSB. Arguably, a miner who  signs a set of transactions, in effect, facilitates the transfer of funds from one person (or location) to another. Without the activity of miners, the stored value contained in one bitcoin address could not be transferred to another. This begs the question as to whether an aggressive regulator could make the argument that all miners were in essence money transmitters subject to regulation. This could spell the end of mining in the affected jurisdiction.

One saving grace is that regulators don’t generally understand bitcoin, are not technically sophisticated and make not make the connection. Specifically because of the minomered “miner” they may only consider the initial bitcoin value creation and ignore the important transaction validation function.