Bitcoin miners and the Financial Crimes Enforcement Network (FinCEN)
FinCEN recently issued a letter in which they clarified some of the requirements for Bitcoin miners. The full text of the administrative ruling is available at http://cointext.com/fincen-issues-bitcoin-friendly-ruling-for-miners/ and concerns the activity of Atlantic City Bitcoin LLC. The Twitterverse has been very active but much of the pronouncements have been of the form “FinCEN says miners don’t need to register.” This is not what they said.
To be sure the ruling is clear as mud, as these things usually are. From the letter:
“The guidance makes clear that an administrator or exchanger of convertible virtual currencies that (1) accepts and transmits a convertible virtual currency or (2) buys or sells convertible virtual currency in exchange for currency of legal tender or another convertible virtual currency for any reason [Emphasis added] (including when intermediating between a user and a seller of goods or services the user is purchasing on the user’s behalf) is a money transmitter under FinCEN’s regulations, unless a limitation to or exemption from the definition applies to the person.”
In response to the letter, FinCEN said that it was okay to exchange convertible virtual currency (aka #bitcoin) into legal tender currency (aka USD) “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.”
In other words, if you mine bitcoin and then sell it on an exchange to buy a Ferrari (because you can only buy a Lamborghini with bitcoin), then you’re golden. So, at what point are you performing a business service and not selling the bitcoin for your “own purpose?” After all, any business has expenses to pay and dividends to distribute to the owners of the business. Would selling all your bitcoin and then paying all your vendors and owners in USD mean your performing a business service or mean your doing it for your own purposes?” I would take this to mean that if you mine bitcoin and turn around and regularly sell those bitcoin to a third party or parties for legal tender currency, you’re probably operating it as a business service. Clear right?
Again from the guidance it says “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.”
The bottom line is the hobbyist miner who spends his bitcoin for goods or services is probably in the clear, whereas a large enterprise (as most mining operations are moving towards) that is earning so much bitcoin every day that it has to sell them wholesale is probably an MSB.
Interestingly enough, FinCEN has NOT addressed the other function of miners and something that will be prevalent after 2140 when the last bitcoin is mine and that is signing transactions on the blockchain. In essence they are vouching that the transaction from address 1 to address 2 is a valid transaction and should be acknowledge in the collective bitcoin blockchain. They are (potentially) facilitating the transfer of value from one person (or location) to another. I don’t think this falls within the letter of the regulatory structure, but it is certainly something that will receive closer scrutiny and could be addressed in future changes to the laws and regulations.