The Bitcoin community has been up in arms again the past few weeks, but I’m not convinced that it’s for a good reason. The agency of the U.S. Treasury Department charged with organizing the fight against financial crime and money laundering, the Financial Crimes Enforcement Network (FinCEN), released a “guidance” on March 18th, targeting virtual currencies. Clearly this guidance is aimed at Bitcoin. While there have been outcries on various comment boards from people enamoured of Bitcoin and inherently suspicious of anything with the word “government” attached, this guidance may well be the best thing to happen to Bitcoin in a long time.
The mark of any early disruptive technology has to be the moment when the government perks up its ears and begins to take action to bring the technology under its supervision. You can learn a lot about the future of that technology by how the government goes about this. A technology that sees the government seriously limit or ban its use will live a different life than one where the government takes a light touch. Despite the panic of the more libertarian wing of the bitcoin movement, FinCEN’s guidance seems like it is firmly in the latter category. Indeed, as Timothy Lee mentions in a piece on Forbes, government regulation may be a good sign for Bitcoin.
The new guidance spells out who in the Bitcoin community will be bound by federal laws that require “money transmitters” to collect certain information about their customers, for the purposes of fighting money laundering. (By the way, if the topic of money transmitters interests you, Ali wrote about Square’s regulatory issues a few weeks ago.) The good news is that FinCEN stated the obvious and said that in virtual currencies, just as in real currencies, average users who buy things with the currency are not subject to FinCEN’s regulations. Just as obviously, the guidance states that individuals or companies that exchange bitcoins for non-virtual currency are money transmitters in the same way as banks that deal with converting non-virtual currencies are.
More to the point, the guidance places Bitcoin on the same range as non-virtual currencies. If I sell my friend 5 BTC, FinCEN isn’t going to get involved anymore than if I sold him the leftover €5 I had from my trip last week. These sorts of low level private exchanges, while they may be technically under the rule, aren’t what concerns FinCEN.
As a quick aside, the new guidelines are not specific to Bitcoin and claim to sweep in all virtual currencies. It will be interesting to see how, if at all, these regulations apply to the virtual currencies that are used in video games. Particularly in some of the larger massively multiplayer games, the in-game currency is broadly used to buy goods (if only virtual ones), and at least in the case of the currency ISK from CCP’s game Eve Online, the company tacitly allows transfers into and out of the currency from real world money through a somewhat convoluted system.
The big question left from the FinCEN guidance concerns the “miners” that do the work that powers the Bitcoin network and are rewarded by receiving newly minted bitcoins. As it stands in the recently received guidance, miners in the system are considered money transmitters only insofar as they sell the bitcoins they mine. If they keep those bitcoins to be used as their own, they are not. This part of the regulation I’m less comfortable with, but again a lot will depend on how it is implemented in the real world.
Just a few days ago Reuters ran an article on Bitcoin, entitled “Bitcoins Need More than Fear and Love to Thrive” in which the author argues that jolts to the stability of Bitcoin are coming about because fear and love are the forces driving it. The author ends the article by saying that “Bitcoin’s success depends on it becoming more of a bore.” I can’t think of anything more boring than FinCEN regulation.