It seems that FinCEN has finally decided to opine on Bitcoin, without naming it specifically. This US pronouncement spells death to all “compliant” US Bitcoin companies that choose to remain based in the USA.
There is one thing you absolutely must bear in mind; nothing that FinCEN unilaterally declares has any force outside of the USA. If you do not base your business there, their bespoke rulings, “guidance”, that is not even law in the US, has no effect on you or your business. This is a problem for Americans only, and no one else.
Here is the relevant passage:
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. 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.
The first thing you will notice about this is that if you are a Bitcoin miner, FinCEN says that what you are doing does not fall under their jurisdiction. This means you can be a Bitcoin miner, with the biggest mining rig in the world, and then take your mined BTC and buy whatever you want without the threat of any interference from them. Even though you must transmit your mined Bitcoin to make a purchase, you are not a “money transmitter”. Its crazy talk.
If however you pay someone to mine for you, and then receive the Bitcoin, all of a sudden, the situation is somehow different, and you are committing an act that they are claiming they have jurisdiction over. Its utter nonsense of course; Bitcoin is no different to Monopoly Money, which presumably FinCEN does not think is worthy of their attention. And if not, why not? How is Milton Bradley’s Monoply Money different from Bitcoin, and why is it not regulated? These are questions that no one asks, like, “why is the Emperor naked?” If the purpose of FinCEN is to stop people “misusing money” whatever that means, surely if the Bitcoin is mined or paid for is completely irrelevant. The thinking behind this is pure illogic on stilts.
You will note also that FinCEN does not name Bitcoin specifically, but instead generates an arbitrary ruling on an entire class of software technology. This means that you will not, if you are an American, be able to claim that Litecoin is different to Bitcoin, “because FinCEN doesn’t mention Litecoin”.
This unconstitutional and arbitrary guidance has grave implications not only for American Bitcoin companies and users, but for the First Amendment of the Constitution of the United States.
Bitcoin, if it is read out or printed onto paper, is protected speech under the Constitution. Americans had this debate many years ago, where people tattooed RSA code on their bodies and read it out in public in exercise of their first amendment rights. PGP was exported out of America, legally, when its source was printed on paper (First Amendment protected act) and then read back in by OCR in the free world.
All of this precedent applies to Bitcoin, but now, instead of a single book of source code, you will have millions of people printing out Bitcoin and transferring it everywhere, storing it, exporting it, and there is nothing that anyone can do about this.
As more and more money disappears into Bitcoin we are going to see an escalation in the reach, scope, fines and penalties meted out to Bitcoin users and businesses who in the future will no longer be distinguished from each other, once (for example) services like Local Bitcoins comes into the radar of FinCEN.
Bitcoin is going to be the new Internet Poker, which funnily enough, has started to accept Bitcoin as an alternative to money because Bitcoin is not money.
Clearly, a Supreme Court challenge is in the future over this, and I suspect a coalition of Poker companies, real Americans and sensible people are going to join forces to stop the insanity.
What we can also expect is an attack from the Crony Capitalists who want Bitcoin regulation arbitrary licenses and fees levied by the state and policed by FinCEN to stifle competition and keep out agile upstarts. It will not work.
Like Suprnova, MiniNova, the Pirate Bay, Kickass Torrents and finally MEGA, it will be impossible for America based, FinCEN crippled Crony Capitalists to stop a huge, popular easy to use Bitcoin business from sucking up all the US Bitcoin business and eventually bankrupting them.
This is what these Crony Capitalists have asked for; a noose around their necks to end their own lives. If you want to see what this looks like in real life, as it has actually happened, you need look no further than the case of Think Computer Corporation and the arbitrary crony capitalist written California Money Transmission Act that caused that company to shut down. Every Bitcoin startup basing itself in California will be subject to this; and most extraordinarily, the license fee applied to corporations operating there is not set. The amount payable for a license is arbitrary, and calculated and levied on a case by case basis. I suggest you research this case. It is astonishing. How a Bitcoin company can know this and decide to move to California is frankly, baffling.
Finally it must be repeated; this document is guidance only. It is not new law, and as a matter of fact, you are free to ignore their guidance and do what ever you want, if you are an American of that vanishing breed. Guidance is not Law, it is guidance; a suggestion of practices, and nothing more.
We are still a long way from a true legal attack on Bitcoin, but you can be sure that it is coming, and you can be just as sure that its effect will be precisely ZERO, just as it has been with Bittorrent recently and Warez for decades. The best they can do is make an example of the high visibility, high earning Bitcoin businesses, but for the billions and billions of transactions taking place daily between iPhones, iPads, Droids and desktops FinCEN will be absolutely powerless and impotent.
Warehouse banking, Hawala, and all the other private, person to person money transacting services are going to become more powerful and efficient by many orders of magnitude, thanks to Bitcoin and its frictionless, massless ability to move money anywhere in the world in the blink of an eye.
Finally, this is a great opportunity for a country to cause Bitcoin startups to congregate in their territory. A 150 year moratorium on any law that touches anything to do with Bitcoin / Blockchain technology would create a new Hong Kong island of super prosperity, as it becomes the world’s hub for all Bitcoin business, and the trillions of dollars in Bitcoin flowing through it, leaving the pitiful democracies in the dust.