Miners and Developers are not Subject to FinCEN Regulations According to FinCEN Regulations

16.02.2016

The recent post by American lawyer Daniel Friedberg launched an extended discussion in the community, with mostly negative stance towards its basic idea.

As a reminder, Friedberg stated that in case Bitcoin goes through a hard-fork, one of two resulting currencies will be different from the initial Bitcoin; and as names of the originators of a new currency are well-known, they may be subject to complying with FinCEN regulations imposed on money services businesses. In addition, he suggested that the hard-fork might raise confusion with the miners, who technically may provide not the coins an end user might reasonably expect to receive.

The post garnered generally negative feedback in the crypto-community, varying from characterizing it as a ‘techtarded’ to assuming that it was a viral propaganda from a well-known cryptocurrency company.

Following the publication, numerous serious posts popped up to disprove its basic provisions.

Summarizing their arguments, there is a post at Coin Center stating nothing in 2013 FinCEN guidance may be considered a resonable justification for the basic idea of Friedberg’s post. In terms of FinCEN regulation in its current state, decentralized virtual currencies have no administrators, contrary to Friedberg’s assumption. For that reason, no developers will have to register as a money services business, unless they have some other, and possibly personal, reasons to do so. The idea is that FinCEN cannot force them to do so under the threat of penalties or even imprisonment.

The reasoning for the position is basically legal. The regulation draft in question does not assume that hard-forked Bitcoin constitutes a new kind of currency. According to the definition found in a relevant document, money services businesses include, among others, dealers in foreign exchange, check cashers, issuers and sellers of traveler’s checks, money transmitters, and prepaid access sellers and providers. Virtual currency, however, is defined as money transmittance in the 2013 Virtual Currency Guidance. The term “money transmittance service”, according to the paper, means “the acceptance of currency, funds, or other value that substitutes for currency from one person and the transmission of currency, funds, or other value that substitutes for currency to another location or person by any means.”

Administering and exchanging activities are included as sub-items in the term ‘money transmission’. However, neither miners, nor developers fall into that category. As described by FinCEN itself, mining involves “neither ‘acceptance’ nor ‘transmission’ of the convertible virtual currency”, and thus is “not the transmossion of funds within the meaning of the Rule.”

This exempts miners and developers from the definition of money services businesses, which, in its turn, excludes both of them from FinCEN’s jurisdiction, and none of its regulations are applicable in that case.
However, as the post points out, while the regulator cannot do anything now, it still may change the rules in the future. However, as those possible future regulations are beyond anyone’s knowledge, no speculations in this regard seem reasonable so far.

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Tags: FinCEN, hardfork, regulation