The US Financial Crimes Enforcement Network (FinCEN) published two new rulings on 30th January that aim to bring clarity as to which players in the virtual currency space will fall under the Bank Secrecy Act’s (BSA) definition of a money transmitter.
FinCEN said that miners who mine virtual currency for their own use, as well as companies that purchase and sell convertible virtual currency solely as an investment aren’t subject to this law.
“The first ruling states that, to the extent a user creates or “mines” a convertible virtual currency solely for a user’s own purposes, the user is not a money transmitter under the BSA. The second states that a company purchasing and selling convertible virtual currency as an investment exclusively for the company’s benefit is not a money transmitter,” the release states.
The announcement sought to bring clarity to the organization’s March 2013 announcement that money services businesses were responsible for complying with anti-money laundering, recordkeeping and reporting requirements under FinCEN regulation.
Reddit commentators greeted the news positively, with some going so far as to call the announcement “a huge victory” for the virtual currency community, removing a potentially large burdens from the mining and investment communities.
Members of the mining business community also greeted the news with favor:
“We’re happy that FinCEN has clarified what we believe was their intention all along and that Bitcoin miners can now continue mining confidently,” Jeff Ownby, vice president of marketing at Butterfly Labs, told CoinDesk.
However, while some were optimistic, others implied that this is just the latest development in legal grounds that are likely to shift as more government bodies seek clarity on the matter and await guidance from higher authorities.
Impact on mining
While FinCEN’s declaration will be welcomed by bitcoiners, it may be of little importance to individual miners who never viewed themselves as money transmitters in the first place. However, the statements may not be the last word on how bitcoin miners are regulated.
Bitcoin mining is becoming an increasingly institutionalized pursuit that takes places in Hong Kong shipping containers and geothermal-powered Icelandic caves, driven by multimillion-dollar mining businesses. Such operations are definitely not mining for their own personal use.
Because of these changes, bitcoin developer Jeff Garzik suggested that more clarity will be needed from FinCEN:
“I hope to see future additional clarity from FinCEN and IRS vis-a-vis mining pools vs. miners. Most ‘miners’ today do not have any power to select or validate bitcoin transactions. Miners today provide a computing service to the mining pools, in exchange for a difficulty-based revenue stream.”
Impact on regulation
Notably, the FinCEN guidance will prevent regulations in states such as New York from implementing strong oversight on the mining community. At this week’s New York Department of Financial Services (NYDFS) hearings, general counsel Daniel Alter seemed to express the most interest in putting controls on this sector of the industry, as he suggested miners may have the ability to “destabilize” bitcoin.
“Mining strikes me as a systemic threat. I think from our perspective we are concerned about systemic issues,” Alter said.
Judith Rinearson, partner at Bryan Cave, argued against these suggestions and for a measure most like the one FinCEN provided.
“Unless a miner is actually mining and selling or exchanging, I wouldn’t require anything, especially those who are mining for their own use,” Rinearson said.
Jeremy Liew, of Lightspeed Venture Partners, expressed satisfaction with the ruling. The investor directed many of his comments at the NYDFS hearings to attempting to limit regulation on the virtual currency industry.
“These are good common sense clarifications that reflect FinCEN’s growing understanding of the way that digital currencies work,” Liew said.
To read the full release, click here.
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