Donate a milliBitcoin to Milly Bitcoin!


BTC

FinCEN Ruling Requested for Bitcoin Mining

By Milly Bitcoin – June 2, 2013

Atlantic City Bitcoin has requested an administrative ruling for Bitcoin mining.  The US Treasury, Financial Crimes Enforcement Network (FinCEN) issued guidance on virtual currencies a few months ago.  FinCEN also recently seized bank accounts of a company owned by Mt. Gox, the largest Bitcoin exchange.

Previously FinCEN responded to e-mail questions with a description of the administrative process:

You have requested clarification on a number of issues relating to FinCEN’s recently published guidance concerning the regulatory treatment of
virtual currencies.  See http://www.fincen.gov/statutes_regs/guidance/pdf/FIN-2013-G001.pdf/.   FinCEN makes available a number of resources to answer questions about its regulations and their applicability in specific circumstances, including a press office and a regulatory helpline (for more information, see http://www.fincen.gov/hotTopics.html), in addition to the text of the Bank Secrecy Act, FinCEN’s regulations, guidance documents of the kind that prompted your request for clarification, frequently asked questions about a variety of pertinent topics, and administrative rulings responding to requests about the applicability of FinCEN regulations in specific factual circumstances.  If the more general resources that FinCEN has made available don’t adequately answer your questions in this case, you may wish to consider requesting an administrative ruling.  An explanation of the process for making such a request and of the legal significance of such a ruling can be found in FinCEN’s regulations at 31 CFR Part 1010, Subpart G (http://www.ecfr.gov/cgi-bin/text-idx?c=ecfr&SID=2440152cb966a4be2bab5b29ecedb5cc&rgn=div5&view=text&node=31:3.1.6.1.2&idno=31#31:3.1.6.1.2.7).

The problem with Bitcoin  mining comes in with the FinCEN guidance that claims:

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.

But the rules that govern FinCEN state:

The term “money transmission services” 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. …

Since the coins were created during mining it is not possible to have accepted them from another person.

Also see:

Buying a Bitcoin Miner – The Long Journey is Almost Over
Avalon ASICs Bitcoin Miner Operation
Bitcoin Mining – What’s it all About?
What is Bitcoin Mining Doing?
Electricity Usage of Bitcoin Mining
Bitcoin Mining Profitability Calculator
Bitcoin Mining Profitability – An Example

Below is the full request.  Note that if you are starting a business or are involved in a situation where clarifications could involve large sums of money an attorney should file a much more detailed legal argument than this.  Normally they would review the previous clarification responses and court decision and provide a detailed legal argument.


Request for administrative ruling pursuant to 31 CFR Part 1010, Subpart G:

(1) A complete description of the situation for which the ruling is requested,

I operate a company, Atlantic City Bitcoin, LLC.  Bitcoin mining machines were purchased and are now operating “mining” Bitcoins. I am seeking clarification to determine if these activities are exempt from registration as a Money Services Business (MSB)

These activities are further described at:

 http://cointext.com/bitcoin-mining-profitability-an-example/

(2) A complete statement of all material facts related to the subject transaction:

Bitcoins have been mined by Atlantic City Bitcoin, LLC but not yet used or transferred.  They may be used to purchase goods and services, used to convert to US Dollars, or transferred to an individual owning the business.

Bitcoin mining involve creating but Bitcoin miners do not have the ability to redeem (to withdraw from circulation) bitcoins.

(3) A concise and unambiguous questions to be answered,

Is Atlantic City Bitcoin required to register as an MSB as a result of the mining activities described above:

-If the mined Bitcoins are used to purchase goods or services?

-If the mined Bitcoins are converted to US dollars and spent on goods, services?

-If the mined Bitcoins are transferred to the owner of the business?

(Note that converting to US Dollars means transferring to a Bitcoin exchange that is a registered MSB, having the bitcoins converted to US Dollars, and having those funds transferred to a bank account)

(4) A statement certifying, to the best of the requestor’s knowledge and belief, that the question to be answered is not applicable to any ongoing state or Federal investigation, litigation, grand jury proceeding, or proceeding before any other governmental body involving either the requestor, any other party to the subject transaction, or any other party with whom the requestor has an agency relationship,

I certify, to the best of my knowledge and belief, that the question to be answered is not applicable to any ongoing state or Federal investigation, litigation, grand jury proceeding, or proceeding before any other governmental body involving either the requestor, any other party to the subject transaction, or any other party with whom the requestor has an agency relationship.

(5) A statement identifying any information in the request that the requestor considers to be exempt from disclosure under the Freedom of Information Act, 5 U.S.C. 552, and the reason therefor,

None

(6) If the subject situation is hypothetical, a statement justifying why the particular situation described warrants the issuance of a ruling,

The issue of disposing of the Bitcoins is hypothetical at this point. However, since Bitcoins have already been mined they will be disposed of in one or more the methods described.   Clarification is needed to ensure compliance with the various rules.

(7) The signature of the person making the request, or

See Below

(8) If an agent makes the request, the signature of the agent and a statement certifying the authority under which the request is made.

N/A

(8)(b) A request filed by a corporation shall be signed by a corporate officer and a request filed by a partnership shall be signed by a partner.

Requestor is the owner of the business.  Signature below.

(8)(c) A request may advocate a particular proposed interpretation and may set forth the legal and factual basis for that interpretation.

31 CFR § 1010.100(ff)(5)(i)(A) states in part:

The term “money transmission services” 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. …

However FIN-2013-G001 states:

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 FIN-2013-G001 is incorrect because when bitcoins are mined (created) and then transferred to an exchange bitcoins are not accepted from one person and transmitted to another location or person [emphasis added].  Since the coins were created during mining it is not possible to have accepted them from another person.

Further, Bitcoin miners are not defined as “administrators” in FIN-2013-G001 since Bitcoin miners do not have the ability to remove bitcoins from circulation, only to add bitcoins.  Since Bitcoin miners are not Administrators or Exchangers the only other possible definition left is “User.” Therefore, Bitcoin miners are exempt from registering as an MSB.

 


 

bitcoinmilly1

 

Leave a Reply

  

  

  

You can use these HTML tags

<a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <strike> <strong>