A few days ago, I awoke to a collection of frantic emails, Slacks, Telegrams and tweets, all asking me the same question: “Can I go to jail for supporting the wrong version of bitcoin?”
The fear, uncertainty and doubt wrapped up in this question were palpable.
Do software developers contributing code to blockchain projects need to lawyer up? Could those contributions subject them to money services business (MSB) regulations under US law? Are we going to see developers go to jail for failing to get the proper licenses?
These were just some of the questions I received, and the answer to all of them is: of course not.
It does, however, mean to address the recent concerns over developer contributions to and support of particular versions of free and open-source software.
The scaling issue is a technological issue, not a legal one.
Are software developers regulated under the money services laws?
Of course not. There is no legal authority for the claim that contributions to a decentralized virtual currency software project create liability under the money services laws in any US jurisdiction.
You can read here about the kinds of things that might actually bring you under those laws. The Financial Crimes Enforcement Network (FinCEN), the federal regulator of such matters, has spoken directly on this issue.
It said that mere software development can’t be money transmission:
“The production and distribution of software, in and of itself, does not constitute acceptance and transmission of value, even if the purpose of the software is to facilitate the sale of virtual currency.”
FinCEN isn’t alone in proactively clarifying its position on this matter. The New York State Department of Financial Services (NYDFS), which famously published the world’s first digital currency-specific licensing framework, expressly exempts software developers from its regulations.
Suggesting that FinCEN or state regulators intend to burden software developers with the yoke of financial services regulation is misleading.
Are ‘creators’ of digital currency software systems regulated?
Of course not.
This idea, though – that the creators of the wrong version of bitcoin are risking jail time – had to come from somewhere. Administrators of certain virtual currency systems might be regulated, but only under some fairly specific circumstances.
Administrators of a digital currency system are only regulated MSBs if they can both (i) issue and (ii) redeem that currency. That is to say, if you can put the currency into circulation and also remove it from circulation you could be an MSB.
So liability under the money services laws has nothing to do with being a “creator”, it has to do with being an administrator.
That’s why operators of centralized systems are often MSBs, but operators of decentralized systems are not.
The BitLicense framework incorporates a similar exemption, and steers quite clear of any use of the “creator” concept.
Could miners risk liability for mining a particular chain?
Of course not. Civil liability typically requires some duty to another person.
Criminal liability typically requires some culpable mental state, like knowingly or recklessly doing an act.
Yet, some of the most important characteristics of bitcoin transaction processing are, in no particular order, that network validators (the miners) typically:
- Aren’t parties to the transaction
- Aren’t required for the transaction to occur (some other miner will mine the block if one doesn’t)
- Don’t have contracts with the parties to the transaction
- Don’t know the details of the transactions they are processing.
Simply mining a block containing a transaction does not create a duty to any of the parties to a transaction, let alone a duty that arose because of the chain that was mined or the software that miner chooses to run on its machines.
The parties’ expectations of how their transactions will be mined would probably not be upset by any particular miner mining a different chain (whether shorter or longer), nor would the parties’ expectations give rise to any “duty to mine” on the part of any particular miner.
Without knowledge – or reason to know – of the transaction details, criminal liability is difficult to contemplate.
So, what is the proper role of the law in the bitcoin scaling debate? Dispute resolution, perhaps. Mediation. De-escalation. Besides those limited cases, though, I’m not sure it has one.
Hot water image via Shutterstock