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Bitcoin Move Proves Craig Wright is a Liar

5/21/2020 04:50:00 AM 8

On May 20th, 2020 the industry speculated that a mysterious bitcoin transaction transferring 50 coins that originated on February 9th, 2009 as a mining reward, were that of creator Satoshi Nakamoto.

The bitcoin wallet address, 17XiVVooLcdCUCMf9s4t4jTExacxwFS5uh, was rewarded a 50 coin block reward in 2009 and for the past 11 years has remained dormant until yesterday when 10 coins were sent through an apparent mixer, while the remaining 40 coins ended up in change wallet.

The movement was quickly determined to be unlikely Satoshi Nakamoto's, although without Satoshi himself or the owner of wallet 17XiVVooLcdCUCMf9s4t4jTExacxwFS5uh to confirm, this cannot be proven either way.

Calling Dr. Wright

In 2016, Dr. Craig Wright made the claim that he was Satoshi Nakamoto, but has not been able to provide any proof to back it up.

The claim was quickly refuted by the community who demanded Wright prove his identity by simply executing small transaction from one of the known Satoshi wallets. As expected by many, Wright was, and has been, unable to accomplish this or provide a realistic reason as to why he cannot.

Wright has been active in the industry to the point of landing himself in legal trouble both in Australia and in the United States where he was sued by Ira Kleinman, as personal representative of the estate of David Kleinman, and W&K INFO DEFENSE RESEARCH, LLC in 2018.

The briefly outline that case, David Kleinman was an associate of Wrights who died in 2013, his estate claims that he and Wright mined Bitcoin together as a company under which Kleinman is entitled to 50% of the holdings, a claim that Wright denied stating the Kleinman transferred his share to Wright in exchange for interest holding in a now failed company.

As part of discovery Kleinman's estate request all Bitcoin related documents from Wright to which he objected and eventually the Judge required Wright to produce only a specific amount of data within a more realistically relevant period of time, one of which was a list of bitcoin wallets owned between the periods of 2009 and 2013.

Wright ultimately delivered this list but testified that whereas he is the true owner of these wallet addresses, all of which fall within the period of time plausible to support Satoshi Nakamoto ownership, however, he could not deliver the private keys stating that nobody has access to them.

Rather, Wright testified that the private keys were split into key slices under the Shamir scheme, that nobody had full access to since each member of a trust formed in 2011 as Tulip Trust, has a portion of the private keys and as such, all members are required to provide their key slice per public wallet address to access the wallet.

Ultimately, Judge Bruce Reinhart admitted there lacked conclusive proof of any intentional falsification of evidence by Wright, however, noted the lack of motive for intentional falsification of evidence by anyone other than Wright and felt that Wright's behavior was inconsistent with common sense.

In other words, the Judge didn't believe him.

The Wright List

Wright submitted a list of public bitcoin addresses he testified to have mined between 2009 and 2010 directly to Tulip Trust. On that list is none other than wallet address: 17XiVVooLcdCUCMf9s4t4jTExacxwFS5uh on line 3654.

Figure 1 - Wallet address submitted by Wright

The full list (PDF) submitted by Wright ca be located here: gov.uscourts.flsd.521536.266.1.pdf

Craig Wright Lies

When 50 bitcoin moved from the wallet in question yesterday, Wright's lies were also exposed.

According to Wright, he cannot access any of the bitcoin held in any wallet address listed on the court submission due to lacking a key slice forever lost with Kleinman when he passed away in 2014.

Which would mean, nobody else can either.

This is because all key slices are required to combine into a private key for access. However, as is evident with yesterday's transaction, somebody has the private key.

This means of of two things:

Craig Wright has access to this wallet and will have finally shown an ability to tell the truth; or,
Craig Wright is full of shit, lied to the court (again), and stole a dead man's bitcoin.

The former would be one of many steps to destroy us all as tweeted by Wright some time ago when he threatened to move all of his bitcoin and crash the market.

Notably, this time has come and gone and as expected by most, nothing moved anywhere and nobody did anything. At least not until the small transaction yesterday which we'll likely discover had nothing to do with Wright.

However, what it will do is cause Wright some more legal troubles, potentially accompanied with another contempt of court.

[accordion] [item title="Author and Credits"] Article by dinbits
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No, Satoshi Nakamoto Didn't Send Any Bitcoin Anywhere.

5/20/2020 12:49:00 PM 6

50 BTC which originated from a block 11 years ago on February 9th, 2009 made a move around noon today in block 631081.

10 BTC appear to run through a mixer being split into smaller units spread across many wallets, while the remaining 40 BTC ended up in wallet 1BzN95J72BLBafwgZiZZvM9s7Wj2bxzA6m

As a result, the industry is stirring with speculation that Satoshi Nakamoto may have just sent bitcoin from his not-so-secret stash of bitcoin estimated to be the size of a small mountain, or if patoshi research substantiates into reliable data, a large hill.

However, this does not appear to be consistent with probability and the 50 units of bitcoin are more plausibly the property of an early miner. This could and may well be Satoshi's, however, did not come from any of the known Satoshi wallets nor does it appear to be what would have been expected if Satoshi would decide to do such a thing.

The latter being one important fact. It is presumed that from block 0 (genesis block) through block 36288, a large portion of block rewards (50 bitcoin at the time) went to Satoshi himself since he would have been the only miner available at the time, however, this simply isn't accurate.

The problem with this assumption is that proof exists indicating that as early as January 3rd, 2009, there were others at least connected to the blockchain network, if not individually mining as well.

Figure 1 - January 3rd, 2009 bitcoin Screenshot

The above screenshot (Figure 1), bitcointalk.org user Deepceleron shows at least 3 connections on January 3rd, 2009, a number that has continued to grow non-stop ever since.

Probably Not Satoshi

Whereas anything is possible, the above data alone would equate to a 33% chance of the 50 bitcoins sent being those of Satoshi and a greater than 66% of them not being his and that was on January 3rd, 2009. The coins in question were actually mined on February 2nd, 2009 by which time many additional miners were connected to the blockchain network.

There's no telling how many people were actually mining at that point, but this author can verify that there were several and in 2009, there were no ASICs, there were no FPGAs, and there were no GPUs being used to mine bitcoin. One could mine bitcoin efficiently with nothing more than an old computer and an internet connection.

Whereas not provable either way without the aide of Satoshi himself, or themselves, the chances of the 50 bitcoins from block 3654 belonging to Satoshi are very low.

[accordion] [item title="Author and Credits"] Article by dinbits
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The FATF "Travel Rule" is Illegal

9/25/2019 07:42:00 AM 4

Look ... up in the sky ... it's a bird, it's a plane ... it's .. it's ... the FATF "Travel Rule"!

It's rather perplexing to see so much interest about the Financial Action Task Force's (FATF) travel rule that was a topic of the latest guidance from the intergovernmental organization. In the last couple months, dozens of companies have flooded the internet with ways to solve this "new problem".

Although ... it's not new by any stretch, nor is it a problem, US service providers have had to deal with this since the beginning of bitcoin time.

This went into effect in 1996 in the United States and over 10 years before bitcoin ever graced the land and most recently reinforced by the Financial Crimes Enforcement Network (FinCEN), with it's May release of virtual currency guidance document FIN_2019_G001.

However, that doesn't make it legal.

The Illegal Travel Rule

Under the "travel rule", which derives from the United States BSA (Bank Secrecy Act) 31 CFR 103.33(g), service providers are required to send specific identifying information about themselves and their customer along with the transaction. In other words, the expectation is to write data to the blockchain containing the identity of the exchange or service provider, name of the customer sending the bitcoin, and the account number of the customer.

Here's the problem.

This is about as silly as the flood of efforts to store PII (personal identifying information) and/or identification document attributes and information on the blockchain. The problem with this thinking is that it may be secure today, but it will not be secure tomorrow..

Sure, currently nothing can realistically crack SHA256 encryption given the fact that with current technology ... that would take about 6.4 quadrillion years.

However, it can and will be cracked. It's just a matter of time.

When it happens, bitcoin will adjust and implement the next 6.4 quadrillion year algorithm and that's fine. Nothing will be lost and no harm will be done, bitcoin will continue to chug along as it has for the past decade. At least that's the theory anyway, but then again, look at the block-size debate and the length of that fiasco.

Point being, its something already being worked on today and there will be a solution.

This doesn't solve the problem of storing personal data on the blockchain, encrypted or not. There are plenty of copies and backups of old blockchain data-stores all over the planet and that's all a fraudster need do, backup a copy and wait.

Once the encryption is broken, they merely need pull out the old copy and start cracking. Any personal or sensitive data, including that required by the... wait for it ... TRAVEL RULE is spread eagle and open to the world.

Every single transaction that complies with the travel rule would be exposed, 100% visible to the entire planet along with first name, last name, account number, transaction details, etc...

This violates GDPR, this violates US privacy laws, and this violates the regulations of half the countries in the world, if not more. These regulations clearly state, in some form or fashion, that no person shall knowingly put data in a position that could lead to any kind of disclosure.

If you know the above can happen and you follow the travel rule, it sounds rather illegal to follow this rule, yet, will soon be illegal not to. If that's not bad enough, given the immutable nature of bitcoins blockchain, once the data is there, you can't remove it ... ever.

FATF is essentially asking service providers to break the law because it's simply not possible to do this without risking disclosure and every solution that's floating around the internet shares this same dilemma.

Legal in the USA?

Now there's the trillion dollar question and the answer is, most likely, sort of, maybe not. Just to be crystal clear.

Privacy laws protect the people from the man (government) requiring warrants and red tape under specific guidelines to access just about anything when it comes to private data, in fact this is a common defense that often works when police grab more than they were supposed to under a court order. This very defense was used n the Silk Road case, although it didn't work too well for the defense.

Privacy laws are very strict regarding the illegal use of private data or anyone with data they are not entitled to. Identity theft, for example, can land one in prison for up to 20 years and just a 1st offence and aggravated identity theft has a mandatory term of no less than 2 years in prison.

However.... a business, and certainly a financial services company or bank, operates under the regulations in most jurisdictions that require a whopping "reasonable effort" to secure private data. That's it. Just a "reasonable effort" that is often not well defined if defined at all.

Just think about all of the Western Union and Money Gram wires sent over the last 20 years under this law.

The protection of personal data at these organizations is about as secure as a billboard, complete with the uber-secure method of maintaining records on paper, face-up, and well hidden in plain view under the maximum security of a giant thumbtack operated by a clerk who hates their job.

How s that for a "warm fuzzy"?

Notably, these "reasonable efforts" refer to internal networks secured by the company, or 3rd party company, and not slapped out on the blockchain for the world to start hacking at and given that, it's not so clear as to the legality.

The government may well elect to provide a "pass" or not charge anyone following federal regulations, but this doesn't stop a customer from filing a civil lawsuit or a class action against anyone who follows the travel rule. Short of a suspicious transaction accompanied with a SAR, there's also no safe harbor.

Next Steps

Regulators and FATF need to revisit the travel rule. These rules need to be updated for modern times as do all ancient regulations. Trying to stuff blockchain into the same carton that holds private networks is ridiculous. They are completely different and this is not going to go well.

In the meantime, there's plenty of ways to comply with the travel rule just as companies have been doing and nothing against all of these companies coming out of the woodwork with "solutions" to the travel rule, but ... the justification of spending a single dollar on anything right now is flat out unrealistic.

This is because the more likely scenario is that this backfires and nobody ever sends bitcoin, or any virtual currency, between service providers anymore. The "travel rule" will just completely defeat the entire purpose of its existence.

Which pretty much puts this article right up there with FATF's travel rule guidance ... a complete waste of time.

[accordion] [item title="Author and Credits"] Article by dinbits
Image Credits: Banner Image by dinbits.com staff

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Once again ... Microsoft sucks less!

5/15/2019 02:47:00 AM 5

Ironic it is, that an industry predominately full of those who dislike Microsoft, continues to receive some of the largest mainstream boosts from the software giant.

Whereas there may be some self-inflicted cause behind the hatred, after all Vista did happen, in the past decade Microsft has become a different breed of organization and one that has been in full support of the crypto/blockchain industry.

They were one of the first major companies who offered acceptance of bitcoin for payments. They were an early supporter of blockchain technology and introduced a blockchain as a service (BaaS) platform for companies to showcase their blockthings to the masses. They've also provided various blockchain related tools on their Azure platform and have been a big supporter of Ethereum.

Identity Overlay Network

None of the above efforts shine as much as their latest introduction of a decentralized digital identity solution built on the bitcoin blockchain called the Identity Overlay Network (ION).

First of all, rather than re-inventing the wheel with another blockchain effort in a sea of predominately worthless networks with little to no actual beneficial real-world use, Microsoft elected to use the bitcoin blockchain for this effort (although it could potentially be used for other networks).

ION is a public, permission-less, open network anyone can use to create Decentralized Identifiers, or DIDs, and manage their Public Key Infrastructure state and inherits the immutability and security supplied by bitcoins blockchain.

Current technologies for identification such as using Facebook or Google have issues according to Microsoft:

"Presently, most of our digital identity and personal data is controlled by a few central service providers. These providers, generally corporations, control our data, including having the ability to deny or revoke access to it." Alex Simons, Microsoft

With ION, the identity peg is to that of the blockchain rather than a centralized data source owned and operated by a corporation.

The result would ultimately be a digital credential network for secured access on a global scale for use with online accounts or electronic access to physical doorways.

This is nothing new in concept, several companies have been huddled around the backboard attempting to conceptualize a workable solution. Microsoft however, took the giant leap to make it a reality going so far as to create a foundation called the Decentralized Identity Foundation in support of an ecosystem.

Together with other DIF members, they worked to develop a blockchain-agnostic protocol for decentralized identifiers (DID) which ION implements. Fortunately ION runs on bitcoins blockchain, which is by far the most secure and safest place for this type of thing.

There would certainly be a different broadcast of headlines were this underpinned by CannibisCoin's blockchain or any of the multitude of predominantly low hash-rate networks.

Interesting to say the least ... and 1000 times better than anything the IBM cloudware crap has managed to pinch out behind the hidden curtain.

[accordion] [item title="Author and Credits"] Article by dinbits
Image Credits: Banner Image by dinbits.com staff

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Blockchain Technology

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Justice Department Indicts Two for Bank Fraud and Money Transmission

5/01/2019 05:45:00 AM 10

The U.S. Department of Justice announced two individuals have been indicted for bank fraud and money transmission in relation to cryptocurrency operations.

The Department claims that Reginald Fowler (Arizona) and Ravid Yosef (Israel) lied to multiple US Banks in stating the accounts they opened were for real estate investments while in reality they were for trading virtual currency.

According to court documents this took place way back in ... 2018.

Which is a bit unusual considering US Agencies who enforce the law regarding these types of offenses generally take time, as in years of time, to conduct their investigations. The time frame of which they investigated the two men concluded in October of 2018 spanning 8 months prior.

One could argue that the lengthy investigation periods could be due to the HSI (Homeland Security Investigations) manufacturing its own evidence where there otherwise isn't any and this might is a case of someone actually breaking a rule somewhere, however, there are no facts to support that other than the obvious.

"Reginald Fowler and Ravid Yosef allegedly ran a shadow bank that processed hundreds of millions of dollars of unregulated transactions on behalf of numerous cryptocurrency exchanges, their organization allegedly skirted the anti-money laundering safeguards required of licensed institutions that ensure the U.S. financial system is not used for criminal purposes, and did so through lies and deceit.” U.S. Attorney Geoffrey Berman

Fowler was charged with bank fraud, conspiracy to commit bank fraud, operating an unlicensed money transmission business, and conspiracy to operate an unlicensed money transmission business and Yosef was charged with bank fraud and conspiracy.

In a nutshell, lying to a bank or any FDIC insured financial institution is a recipe for disaster as is evident of these indictments. Banks ask each business account applicant what the nature of the business is as part of it's CDD/KYC procedures and additionally specifically asks if the business is a financial services firm or related business and specifically asks if the company is an MSB.

Stating otherwise when the truth and intent is to use the account for financial or related services is flat out illegal pursuant to 18 U.S.C. § 1001 which states that anyone who knowingly:

falsifies, conceals, or covers up by any trick, scheme, or device a material fact;
makes any materially false, fictitious, or fraudulent statement or representation; or
makes or uses any false writing or document knowing the same to contain any materially false, fictitious, or fraudulent statement or entry;

I breaking the law of which comes with potential penalties of up to 5 years in prison (8 years under certain circumstances).

This doesn't stop with business accounts either, lying on personal applications for credit or things like a home mortgage can also land an offender in the same hot water.

That said, nobody has to answer any question that any bank asks nor is one required to fill out an application in full. Those seeking these services in the United States certainly have the right to withhold any information they so choose to and "it's none of your damn business" is a perfectly legal response, however, this is unlikely to be of any assistance in opening a bank account.

Unless the intent is to commit fraud, there's really no sense for any of the above legal silliness. There are plenty of banks that welcome virtual currency businesses and whereas accounts at these banks may not be as easy to open (as easy as a national chain for example) and come with additional requirements as well as high monthly fees, they exist in the United States and all over the world for that matter.

Sure there as plenty of banks that shun the industry and those are predominantly in the headlines for that very activity, but they do not make up the banking industry as a whole and where one says no, another says yes.

Which makes the actions of these two men that led to these charges a bit ridiculous if they were just trading bitcoin. If they were up to other fraudulent activity which may well be the case, then that's another story, but regardless, illegal is illegal.

Perhaps the street corner guy was on to something all along with his "why lie? I need a beer" sign and honesty really is the best policy .... but in Fowler and Yosef's ... it was the law.

[accordion] [item title="Author and Credits"] Article by dinbits
Image Credits: Banner Image by dinbits.com staff

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Legal Regulation

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IBM Blockchain Patent for Self-Driving Cars

4/03/2019 08:24:00 PM 6

IBM continues in "Bank of America" fashion, madly filing patents on anything it can think of related to blockchain, this time a patent for self-driving vehicles. The patent was published by the United States Patent and Trademark Office on April 2.

I could almost bet money that this eventually has something to do with them selling more cloud subscriptions. Especially given the following statement from the patent:

“Observing, detecting, and sensing of the driver behavior data can be collected by the in-vehicle sensors of the driver's vehicle in real-time and uploaded onto a cloud data hub...” says the patent.

To explain the idea simply, the concept is to have cars watch other cars and report this to IBM's cloud so that other cars can read the information and act accordingly.

Am I the only one who sees disaster written all over this silliness?

The idea itself doesn't completely suck, for example, if this were relying on a network like bitcoin's blockchain where the tamper-free environment can be somewhat believable, then perhaps this would be an idea worth trusting the life of you and your family to.

However, trusting your car to rely on data from a database housed somewhere in IBM's data center to cart you around? Sounds more like suicide by IBM cloud.

IBM states the use of real-time analytics through this mechanism can provide utility to self-drivers and no doubt, it certainly could, so long as it's not tucked away somewhere under IBM's thumb.

Creating the Problem

IBM was late to the blockchain party, it wasn't until recently (about two years ago) that they would even give blockchain any recognition at all and originally called the technology "a design pattern made popular by bitcoin" insinuating they were some sort of master of ancient technology they set aside centuries ago.

The onslaught of patents and whitepapers over the last 24 months is proof alone they didn't have a damn clue and wish they would have been paying attention sooner.

Instead of paying attention, they basically laughed at the technology and now they are spending millions trying to convince people they've been here all along going so far as to call themselves the "pioneers" of blockchain.

Apparently, IBM has a dictionary that defines the word "pioneer" differently than the rest of the planet, instead of "... the first to apply ...", IBM's copy must say "... one of the last to apply..." or maybe it says "... the first, after 8 years of everyone else, to apply..." ... or more specifically "... when IBM finally notices and applies...".

But hey, at least they stopped laughing.

Back to the aforementioned copy-cat activity... here is the problem with this entire thing. This is a great idea that if implemented could better the world ... if it were a public service maintained by nobody and collectively contributed to by everyone. It could save lives, speed commute times, and a number of other things.

This technology already exists basically. The traffic system in the United States routinely broadcasts to the world what's going on and where, complete with traffic camera's and re-routing suggestions. Apps like Waves does exactly this.

This works well and it's free for all to use. Insert a commercial into the mix here and there to pay for the service and we're all good to go.

However, the difference is the current system(s) isn't on a blockchain and there are no self-driving cars to collect the data for consideration prior to making it's next decision.

Enter IBM. So let's take what works and not modify it for the good of mankind, instead, let's patent it and cause a problem for everyone.

This is an assumption of course, but by the very nature of this patent, it's clear that IBM intends to charge the shit out of automakers for access to such a system.

Eliminating the Problem

So now that IBM has created the problem, others will have to eliminate it. Patent or no patent, a group of folks can get together and build a network for this very thing and offer it to the public free of charge.

You know, basically do what IBM does, take someone else's idea and steal it for their own personal gain. The difference here of course is that this would benefit the world and not just IBM's bank account.

Hopefully something like this will be on a public blockchain free from authoritative manipulation or any requirement to trust it's security to an organization who managed to file a patent on something first.

I guess that's what you do when you're last, take that extra time and sit around thinking up other ways to call yourself first, or better yet .... just get a copy of IBM's dictionary.

[accordion] [item title="Author and Credits"] Article by dinbits
Image Credits: Banner Image by dinbits.com staff

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Blockchain

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United States Blockchain Safe Harbor Bill

10/02/2018 08:36:00 AM 86

The United States Congressional Blockchain Caucus has introduced a new bill that, if passed, would provide a safe harbor for blockchain service providers and developers who do not act as custodians.

Finally there's proof that somebody in Washington has some sense. They have taken a step in the right direction to make things the way they should be with the introduction of the bill.

State Regulation

State-by-state regulation of virtual currency (which is considered money transmission in several states) is ridiculously broad encompassing just about everything from cash to paper airplanes and whereas the Federal law is not much better, the individual state laws comes with a heavy requirement of obtaining a money transmitters license in each and every state that considers virtual currency transactions money transmission and those fees can pile up to over $5 million USD to obtain licensing nationwide.

State laws are inherently protective of consumers affairs while the federal laws target the prevention of money laundering (AML) and combating the funding of terrorism (CFT), however, when a states money transmission laws are violated, federal laws, see 18 USC § 1960(b)(1)(A), kick in and the penalty jumps from whatever state fines are imposed to up to 5 years in prison for a federal offense.

Which is absolutely ridiculous.

In 2017, there were a record number of arrests, convictions, and incarcerations of several individuals worldwide and while some may have been seemingly warranted, others like the case of United States Vs. Jason Klein were simply absurd.

In Klein's case, the HSI (Homeland Security Investigations) conducted most of the transactions that combined to raise the transaction volume high enough to file realistic charges going so far as to do a final transaction a year later with Klein to raise the volume into another classification of sentencing penalty.

The Bill

The Blockchain Regulatory Certainty Act aims to change some of that providing a safe harbor from these exact scenarios whereas a simple bitcoin trader exchanging an investment with another party for US dollars or startup software company using a blockchain to provide utility or services would be exempt from being treated as a money transmitter. The bill reads:

No blockchain developer or provider of a blockchain service shall be treated as a money transmitter, money services business, or or any other State or Federal legal designation requiring licensing or registration as a condition to acting as a blockchain developer or provider of a blockchain service, unless the developer or provider has, in the regular course of business, control over digital currency to which a user is entitled under the blockchain service or the software created, maintained, or disseminated by the blockchain developer.

This certainly wouldn't change anything over at Coinbase or Gemini as the bill is very specific to exclude custodial services, but for developers and small bitcoin companies operating in the OTC space, this may have a major impact if passed.

The chances of passing are likely not as strong as most of us would hope as there is likely going to be allot of opposition to the bill, but with growing blockchain support in congress, there is exactly that ... hope.

[accordion] [item title="Author and Credits"] Article by dinbits
Image Credits: Banner Image by dinbits.com staff

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Legal Regulation

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SEC Charges Bitcoin-Funded Securities Dealer and CEO

9/27/2018 03:01:00 PM 42

The Securities and Exchange Commission today filed charges against an international securities dealer and its Austria-based CEO for allegedly violating the federal securities laws in connection with security-based swaps funded with bitcoins.

According to the SEC’s complaint, 1pool Ltd. a/k/a 1Broker, registered in the Republic of the Marshall Islands, and its CEO Patrick Brunner solicited investors from the United States and around the world to buy and sell security-based swaps. Investors could open accounts by simply providing an email address and a user name – no additional information was required – and could only fund their account using bitcoins. The SEC alleges that a Special Agent with the Federal Bureau of Investigation, acting in an undercover capacity, successfully purchased several security-based swaps on 1Broker’s platform from the U.S. despite not meeting the discretionary investment thresholds required by the federal securities laws. The SEC also alleges that Brunner and 1Broker failed to transact its security-based swaps on a registered national exchange, and failed to properly register as a security-based swaps dealer.

“The SEC protects U.S. investors across a variety of platforms, regardless of the type of currency used in their transactions,” said Shamoil T. Shipchandler, Director of the SEC’s Fort Worth Regional Office. “International companies that transact with U.S. investors cannot circumvent compliance with the federal securities laws by using cryptocurrency.”

The SEC’s complaint, filed in U.S. District Court for the District of Columbia, seeks permanent injunctions, disgorgement plus interest, and penalties. In a parallel action, the Commodity Futures Trading Commission (CFTC) announced charges against 1Broker arising from similar conduct.

The SEC’s investigation was conducted by David Hirsch and Morgan Ward Doran, and supervised by Scott Mascianica and Eric R. Werner of the SEC’s Fort Worth Regional Office. The SEC’s litigation will be led by Chris Davis and supervised by B. David Fraser. The Enforcement Division’s Cyber Unit assisted in the investigation. The SEC appreciates the assistance of the U.S. Attorney’s Office for the District of Columbia, Department of Justice, Federal Bureau of Investigation, and the CFTC.

[accordion] [item title="Author and Credits"] Press Release by SEC
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Press Release Regulation

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GAW Miners CEO Heads Sentenced 21 Months Prison

9/14/2018 03:14:00 AM 5

Former CEO of the smoldering ashes that was once GAW miners has been sentenced to 21 months prison time for defrauding customer out of nearly $10 million dollars.

21 months? Really? That's it?

I mean it's about fucking time but seriously, the sentence seems a bit light to those of us who contributed to that $10 million with a zero to less-than-zero percent chance of ever seeing those funds back.

This guy will likely walk out of jail in about a year and a half with whatever assets he managed to hide in tact (minus some hearty fines) and go on about his business like it was never a thing.

What's worse, is that having "done the time" for these crimes, he'll likely try to weasel his way back into the good graces of the court of opinion in the industry or worse, assume a different identity under another organization.

Mind boggling to say the least, but nearly 2 years in prison is no picnic either, so there is that.

It's probable that we haven't heard the last from this guy.

[accordion] [item title="Author and Credits"] Article by dinbits
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State of Virtual Currency Regulation 2018 in the United States

6/12/2018 06:51:00 AM

The world’s largest economy was active in the regulatory space in 2017 as the United States experienced its most eventful year to date regarding the regulation of virtual currency and blockchain technology.

Several jurisdictions issued guidance on the application of state regulation, amend existing law to include virtual currency and/or blockchain technology, or sponsored other actions that affected the industry and its regulatory status.

Notably, Montana issued a grant to encourage virtual currency mining in its state in hopes to subsequently create new jobs in the state. This did not specifically affect regulation in the United States or Montana, however it did reinforce the state’s current position on virtual currency and on money transmission in general whereas it remains the only state in the US that does not further regulate the activity on the state level.

The landscape looks considerably different than it did just a year ago (below).

As we outlined in the 2017 State of Regulation report, quite a few states had taken action but the landscape in general was still pretty barren. That is no longer, 2018 clearly shows a heavy movement on regulation both friendly and hostile.

Enforcement

2018 will be a continuation of the busiest year (2017) involving the enforcement of regulations governing the industry.

United States based law enforcement agencies conducted several arrests in 2017 resulting in over 17 cases[1] involving the enforcement of virtual currency regulation, money laundering prevention, and other industry related criminal activity.

This included arrests beyond the jurisdiction of the United States.

The Securities Exchange Commission (SEC) and the Internal Revenue Service (IRS) added further enforcement of regulations or in response to violations. Many defendants have been found guilty by conviction or plea bargain and sentenced with probation, fines, and incarcerations of various severity.

The following legal cases have been collected and monitored over the course of 2017 and into 2018 from public district court records and other sources.

2017/2018 Legal Cases

#	Defendant	Case	Charge(s)	Status
1	COIN.MX	US Vs. COIN.MX	Money Laundering	Disposed
2	Coinbase	IRS Vs. Coinbase	Order to Release	Ordered
3	Anthony Murgio	US Vs. COIN.MX	Fraud/Operating Unlicensed MTS	Convicted
4	Trevon Gross	US Vs. COIN.MX	Bribery/Consp. Operating MTS	Convicted
5	Michael J. Murgio	US Vs. COIN.MX	False Statement(s)	Guilty Plea
6	Ricardo Hill	US Vs. COIN.MX	Fraud	Guilty Plea
7	Jose M. Freundt	US Vs. COIN.MX	Operating Unlicensed MTS	Guilty Plea
8	Yuri Lebedev	US Vs. COIN.MX	Fraud/Obstruction	Convicted
9	Sal Mansy	US Vs. Manzy/TVTOYZ	Operating Unlicensed MTS	Guilty Plea
10	Kevin Klein	US Vs. Kevin Klien	Operating Unlicensed MTS	Guilty Plea
11	Mario Costanzo	US Vs. Costanzo	Operating Unlicensed MTS	Ongoing
12	Peter Steinmetz	US Vs. Steinmetz	Operating Unlicensed MTS	Dismissed
13	BTC-E	US Vs. BTC-E	Money Laundering	Ongoing
14	Alexander Vinnik	US Vs. BTC-E	Money Laundering	Ongoing
15	Randall Lord	US Vs. LORDS	Operating Unlicensed MTS	Guilty Plea
16	Michael Lord	US Vs. LORDS	Operating Unlicensed MTS	Guilty Plea
17	Richard Petix	US Vs. PETIX	Operating Unlicensed MTS	Guilty Plea
18	Josh Garza	SEC Vs. GAW/GARZA	Fraud	Guilty Plea
19	Daniel Mercede	US Vs. MERCEDE	Fraud/Operating Unlicensed MTS	Guilty Plea
20	Gal Vallerius	US Vs. GAL VALLERIUS	Conspiracy to Possess/Dist. Narcotics	Ongoing
20	Morgan Rockcoons	US Vs. M. ROCKCOONS	Operating Unlicensed MTS	Ongoing

Coinbase

California based (San Francisco) Coinbase, Inc., a popular wallet service and operators of the GDAX virtual currency exchange, fought the IRS ultimately losing when the agency succeeded in convincing a federal judge to allow them access to private information of over 19,000 Coinbase users from a timeframe spanning before the IRS published any guidance on the tax treatment of virtual currency.

The court order[2] result enforces an IRS request that demands access to personal and private user information and activity from year 2013 through 2015 in their entirety, however, despite requests from taxpayers asking for the agency’s assistance, the IRS issued absolutely no guidance regarding the tax treatment of virtual currency until March of 2014.

The IRS request and ultimate court victory to obtain the information appears to violate both US law[3] governing federal agency activity and the Taxpayer Bill of Rights[4] (TABOR) which contradicts the agency’s claim of adherence to the constitutional measure.

Notably, the IRS promotes its “adoption” of the measure on an additional website[5] the agency operates.

U.S. Federal Regulation

In addition to regulatory enforcement, the United States federal government has been active in proposing new acts in support of both further regulating virtual currency and blockchain technology including Tax Code amendments from the IRS and congress and a virtual currency threat assessment overseen by the Department of Homeland Security.

In addition to ongoing US Treasury efforts through its branch FinCEN (Financial Crimes Enforcement Network), regarding AML/CFT reporting and enforcement thereof, the CFTC (Commodity Futures Trading Commission), SEC, HSI, USPS (United States Postal Service), IRS, and other agencies have been involved in the investigations of potential criminal activity and arrests.

State by State Regulation

2017

⬤ ALABAMA

Alabama money services were governed by the 56-year-old Sale of Checks Act of 1961 until recently in August 2017 when the Money Transmission Act went effect.

Under the Alabama Monetary Transmission Act §§ 8-7A-1 to 8-7A-27, virtual currency transactions are considered money transmission by the state.

Section 8-7A-2 lists virtual currency under the definition of monetary value.

(8) MONETARY VALUE. A medium of exchange, including virtual or fiat currencies, whether or not redeemable in money.

The Act further includes virtual currency defined as "money transmission" and as a "payment instrument".

(10) MONEY TRANSMISSION. Selling or issuing payment instruments, stored value, or receiving money or monetary value for transmission. The term does not include the provision solely of delivery, online or telecommunications services, or network access.

(11) PAYMENT INSTRUMENT. A check, draft, money order, traveler’s check, or other means utilized for the transmission or payment of money or monetary value, whether or not negotiable. The term does not include a credit voucher, letter of credit, or instrument that is redeemable by the issuer in goods and services.

Whereas the argument could be made stating that virtual currency OTC (over-the-counter) sales would not be money transmission as money transmission is defined as “receiving money or monetary value for transmission" it is irrelevant since "selling payment instruments" is considered money transmission under the Act which defines virtual currency as a "payment instrument".

This puts Alabama in the "bitcoin hostile" category and appears to prohibit bitcoin ATM's, even those operating simple machine-to-consumer models since any non-exempt "selling" of "payment instruments" is prohibited in Alabama without a license.

That said, there is one exemption that would potentially affect virtual currency businesses operating under the Federal Commodities Act.

(5) A board of trade designated as a contract market under the federal Commodity Exchange Act, 7 U.S.C. Sections 1-25 (1994), or a person that, in the ordinary course of business, provides clearance and settlement services for a board of trade to the extent of its operation as or for such a board.

(6) A registered futures commission merchant under the federal commodities laws to the extent of its operation as such a merchant.

Certain entities registered with the Commodity Futures Trading Commission (CFTC) would be exempt under the Act's exclusions in § 8-7A-3(5) as would payment settlement providers under § 8-7A-3(6), payment processors or settlement or clearance providers under §§ 8-7A-4(1)-(2), or entities registered as brokers with the Securities Exchange Commission (SEC) under § 8-7A-4(3).

(1) A person that provides clearance or settlement services pursuant to a registration as a clearing agency or an exemption from such registration granted under the federal securities laws.

(2) An operator of a payment system to the extent that it provides processing, clearing, or settlement services, between or among persons excluded by this section, in connection with wire transfers, credit card transactions, debit card transactions, stored-value transactions, automated clearing house transfers, or similar funds transfers.

(3) A person registered as a securities broker-dealer under federal or state securities laws to the extent of its operation as such a broker-dealer.

This does not include entities registered with FinCEN which provides exemption in other states (North Carolina for example).

⬤ ALASKA

Alaska (AK) proposed House Bill 180[41]. If passed, Section 58. AS 06.55.990(15) includes the definition of “virtual currency” under what constitutes “money transmission”.

The bill, HB180, proposes amendment Sec. 06.55.855. that defines virtual currency as:

“Virtual currency”. In this chapter, a reference to virtual currency shall be broadly construed to cover digital units of exchange that
(1) have a centralized repository; in this paragraph, "centralized repository" means a single third-party administrating authority that controls the system, issues the currency, establishes the rules for the currency's use, maintains a central payment ledger, and has authority to redeem the currency or withdraw the currency from circulation;
(2) are decentralized, distributive, open-source, math-based, peer-to-peer virtual currency with no central administrating authority and no central monitoring or oversight; in this paragraph,
(A) "distributive" means validated through distribution among a network of participants who run an algorithm to validate the transaction;
(B) "open-source" means available through software that can be downloaded for free from an Internet website to send, receive, and store virtual currency; or
(3) may be created or obtained by computing or manufacturing effort.

If enacted, money transmission will specifically include virtual currency[42]

(15) "money transmission" means ...
(C) conducting the following types of activity in this state or involving a resident of this state:
(i) receiving virtual currency for transmission;
(ii) transmitting virtual currency;
(iii) securing, storing, holding, or maintaining custody or control of virtual currency on behalf of others;
(iv) buying and selling virtual currency as or through a third party;
(v) performing retail conversion services, including the conversion or exchange of fiat currency or other value into virtual currency, the conversion or exchange of virtual currency into fiat currency or other value, or the conversion or exchange of one form of
virtual currency into another form of virtual currency; or
(vi) controlling, administering, or issuing virtual currency;

⬤ ARIZONA

Arizona is technically a grey area, however, with recent arrests and vague regulation, Arizona is one state to be careful with when transacting with virtual currency, especially for businesses.

Blockchain technology however is one area where Arizona exceeds most states whereas it recognizes blockchain transaction legally.Arizona is technically a grey area, however, with recent arrests and vague regulation, Arizona is one state to be careful with when transacting with virtual currency, especially for businesses.

Officially Arizona has no position specific to virtual currency other than "they're looking into it".

Current Arizona regulation governing money services states that transmission of “money” by “any means”:

"Transmitting money" means the transmission of money by any means including transmissions within this country or to or from locations abroad by payment instrument, wire, facsimile, internet or any other electronic transfer, courier or otherwise.[43]

However, virtual currency does not appear to meet the definition of “money”.

"Money" means a medium of exchange that is authorized or adopted by a domestic or foreign government as a part of its currency and that is customarily used and accepted as a medium of exchange in the country of issuance. [44]

"Payment instrument" means a check, draft, money order, traveler's check or other instrument or order for the transmission or payment of money sold to one or more persons whether or not that instrument or order is negotiable. Payment instrument does not include an instrument that is redeemable by the issuer in merchandise or service, a credit card voucher or a letter of credit.[45]

"Money transmitter" means a person who is located or doing business in this state, including a check casher and a foreign money exchanger, and who does any of the following:

(b) Engages in the business of receiving money for the transmission of or transmitting money.

(c) Engages in the business of exchanging payment instruments or money into any form of money or payment instrument...[46]

Which appears to state that blockchain transactions may qualify as an “electronic transfer” under the definition of "Payment Instruments", however, the business or individual would need to be engaged in the “business of transmission or exchange” of the “instrument” to be considered a “money transmitter”.

This paired with recent arrests in the state regarding this activity pace Arizona in the cautionary category and some business models would likely fit the definition of a money transmitter.[47]

Additionally, Arizona Statute § 13-3122 prohibits tracking firearms electronically which would include blockchain technology. [48]

⬤ ARKANSAS

Arkansas is currently[49] a grey area with no specific blockchain or virtual currency regulation pending or enacted.

Notably, an Arkansas sheriff’s office, Benton County Sheriff Department, launched a bitcoin mining program under its Cyber-Crimes Division with the goal to use the mined bitcoin to help investigators in future crimes on the dark web.Arkansas is currently[49] a grey area with no specific blockchain or virtual currency regulation pending or enacted.

The attempt was to mine bitcoin on a standard office desktop computer, however, in what way does this help the Arkansas Sheriff’s department is unknown and subject to speculation even among its own workforce.

⬤ CALIFORNIA

The state of California has been active regarding the regulation of virtual currency and blockchain technology.

California lacks specific regulation on business activity for the most part, however, it has attempted several versions of regulation, the latest and current versions being active in 2017. The state has also prohibited certain purchases that cannot be paid for using virtual currency.

Timeline of Regulatory Events (CA)

YEAR	EVENT
2017	Recently in 2017, California proposed Assembly Bill 1123 as the “Virtual Currency Act” which, if enacted, would require a “virtual currency license” in the state to engage in activity falling under its definition of a digital currency business (DCB). Notably, this would not allow a DCB to engage in “money transmission” activity without converting the license to a traditional “money transmission” license.
2016	In 2016, California enacted regulation[50] making it unlawful to sell raffle tickets for digital currency.
2015	In 2015, Assembly Bill 132[51] was introduced proposing licensure but failed to pass. However, it was amended and re-introduced in 2016 proposing a program called the “Digital Currency Business Enrollment Program” that would require all organizations that store, transmit, exchange, or issue virtual currency to qualify as "digital currency businesses" and require a non-refundable $5,000 fee (the original bill also required a $5,000 license application fee).
2014	In 2014 Assembly Bill 129[52] repealed Section 107 of the Corporations code that prohibited a corporation from circulating anything other than “lawful money” indirectly legalizing bitcoin in the state.
2013	In 2013 California's Department of Financial Institutions famously issued a “cease and desist” letter to the Bitcoin Foundation regarding compliance with its money transmission laws clearly indicating a lack of understanding of the technology at the time.

AB-1123 and the fading AB-1326 are still alive in California indicating that lawmakers may be set on regulating the industry.

That said, opinions vary on this. Joe Ciccolo of BitAML says that his firm holds the opinion that California may be unlikely to make another attempt in 2018 beyond the bill.

Despite its annual effort to regulate, or rather overregulate, virtual currency, via a "separate but equal" money transmitter regulatory regime, there's nothing that leads us to believe California lawmakers have the will or interest to move forward in 2018. The bill in questions, AB-1123, has remained stalled in committee since April 2017. There seems to be very little interest among lawmakers in tech-heavy California.” Joe Ciccolo – President, BitAML, Inc.

This contributes to the reasons California is not included in the “hostile” category.

However, with a history of regulatory activity and currently pending regulatory proposals still present, California does remain in cautionary status.

⬤ COLORADO

Colorado does not currently have regulation specific to virtual currency or blockchain technology pending or enacted.

However, in November of 2017 the Colorado “Committee on Colorado Commission on Uniform State Laws” (CCUL), reviewed and tabled[53] the ULC’s “Regulation of Virtual Currency Businesses Act” until “next year” in 2018. If approved the Act could be introduced in 2019.

Colorado has strict requirements for money transmission licensing requiring one of the highest net-worth requirements in the United States of $1 million dollars in addition to high surety bond requirements.

With the looming ULC Act consideration (Colorado adopted 2 ULC Acts in 2017) and notably strict money transmission laws, Colorado gains cautionary status for 2018.

⬤ CONNECTICUT

In 2017 the Connecticut 2016 House Bill 7141[54] went into effect requiring a license for virtual currency transactions and one of the strictest in the country to date.

"Each licensee that engages in the business of money transmission in this state by receiving, transmitting, storing or maintaining custody or control of virtual currency on behalf of another person shall at all times hold virtual currency of the same type and amount owed or obligated to such other person."

The bill defines virtual currency as "any type of digital unit that is used as a medium of exchange or a form of digitally stored value or that is incorporated into payment system technology."

⬤ DELAWARE

Corporate stock trades are permissible on blockchain technology (defined as “distributed ledgers” or a “blockchain”) under three conditions that the ledger is used:Delaware enacted SB69 in July 2017 that allows Delaware corporations to use blockchain technology to maintain corporate records.

(1) It must enable the corporation to prepare the list of stockholders

(2) it must record the information, and;

(3) it must record transfers of stock

Delaware has no specific laws governing virtual currency and remains a grey area in that regard, however many companies such as Coinbase, Paxful, Kraken, and others in the industry are organized as legal entities in Delaware.

⬤ FLORIDA

Until May of 2017, Florida was considered a grey but cautionary area regarding virtual currency and blockchain technology.

In May of 2017, House Bill 1379[55] was introduced defining virtual currency as a "monetary instrument".

This is a similar path[56] to that initially taken by New Hampshire (New Hampshire now exempts [57] some businesses) and under this definition Florida becomes a hostile state regarding virtual currency transactions.

HB 1379 was passed into law on July 23rd, 2017. The bill added "virtual currency" to the definition of a monetary instrument, Section 896.101 (f)[58] reads:

"Monetary instruments" means coin or currency of 191 the United States or of any other country, virtual currency, 192 travelers' checks, personal checks, bank checks, money orders, 193 investment securities in bearer form or otherwise in such form 194 that title thereto passes upon delivery, and negotiable 195 instruments in bearer form or otherwise in such form that title 196 thereto passes upon delivery.[59]

Virtual currency is defined as:

“Virtual currency” means a medium of exchange in electronic or digital format that is not a coin or currency of the United States or any other country. [60]

The change in the statues puts virtual currency under the money services business and money transmitter laws of Florida. This also activates the prohibition of money transmitting under federal law.

This has been said to be a result of regulators “tightening” money transmission regulations due to the outcome of the Espinoza case[61].

Both Michel Espinoza and Pascal Reid[62] were charged with operating as an “Unauthorized Money Transmitter” in violation of Florida Statute 560.125(5)(A).

Pascal Reid received probation, however, Michel Espinoza was found not guilty on the grounds of bitcoin not being backed by any government or bank, not considered “tangible wealth”, and “cannot be hidden under a mattress like cash and gold bars.” as described by judge Teresa Mary Pooler and the charges were dismissed.

Notably, Florida is one of the more “affordable” states to obtain a money transmission license in. The state has lower net worth, application fee, and surety bond requirements than many other states those requirements being a net-worth[63] of $100,000, applications fees in two parts totaling to around $600 ($375 for part 1 and $188 for part 2), and a surety bond of at least $50,000.

⬤ GEORGIA

Georgia issued consumer guidance in 2014 outlining various cautions but also noted anyone that "accepts and transmits a convertible virtual currency or buys or sells convertible virtual currency for any reason is a money transmitter" giving a clear understanding of where they were heading.

Georgia (GA) House Bill No. 811 Amended Code Section 7-1-680 adding a definition of “Virtual Currency”.

It also revised Code Section 7-1-690, authorizing the Department of Banking and Finance "to enact rules and regulations that apply to persons engaged in money transmission or the sale of payment instruments involving virtual currency."

Georgia “virtual currency” Definition

...a digital representation of monetary value that does not have legal tender status as recognized by the United States government. The term does not include the software or protocols governing the transfer of the digital representation of monetary value. The term also does not include units of value that are issued in an affinity or rewards program and that cannot be redeemed for money or virtual currencies. Neither does the term include units of value that can be redeemed for goods, services, discounts, or purchases as part of an affinity or rewards program with the issuer or a defined merchant."

Which exempts users (as defined by FinCEN[64]) from paying for things and software. Users are people who buy bitcoin for personal use and purchases.

7-1-690(b) gives its financial department full power over virtual currency companies. It states:

The department is authorized to enact rules and regulations that apply solely to persons engaged in any virtual currency business. The department shall enact such rules and regulations it finds necessary to: [various broadly stated reasons] 7-1-690(b)

The regulation is broad giving the Georgia Department of Banking and Finance the right to impose anything it wishes on anyone doing anything with virtual currency, which includes money services registration requirements, money transmission licensing requirements, or any other requirements for regulatory compliance as it sees fit.

Many viewed the Peach State as a hub or even the unofficial capital of virtual currency in the U.S. with the growth of payment processor, BitPay; several virtual currency kiosks, which now number over 100; flourishing bitcoin Meetup groups; and, its status as a mecca for the legacy payments industry.[65]

Prior to 2016 Georgia was considered a gray area, but the state now prohibits virtual currency activity without a license which is unaffordable to many small start-up companies place Georgia in the hostile category.

⬤ HAWAII

Hawaii has been back and forth on the topic of virtual currency and its legality in the state being firm on its stance that its existing money transmission laws cover virtual currency.

In 2016 Coinbase halted services to Hawaii.

The Hawaii Division of Financial Institutions (DFI) has stated that digital currency businesses operating in Hawaii are required to be licensed under the state’s Money Transmission Act. Coinbase has no objection to this policy. In fact, Coinbase is currently licensed to engage in money transmission in thirty-eight U.S. jurisdictions and we submitted a comprehensive application for licensure in Hawaii way back in 2014.
Juan Suarez, Coinbase Legal

This being due to DFI stating that digital currency companies would be required to maintain cash reserves (or similar, liquid assets referred to as “permissible investments”) in an amount equal to the aggregate face value of digital currency funds held on behalf of customers.[66]

In March 2017, the Hawaiian Senate introduced Senate Bill 949[67], which passed, and amends the existing money transmitters law to cover “payment obligations” rather than the previously defined term of ““payment instruments”.

Hawaii Senate Bill 949

SECTION 1. Section 489D-4, Hawaii Revised Statutes, is amended as follows:

1. By amending the definition of "outstanding payment instrument" to read:

""Outstanding payment [~~instrument~~"] obligation" means [any]:

⬤ IDAHO

The Idaho Money Transmitters Act ("Act") governs transactions that include virtual currency, noted as digital currency by the state, however the Act itself contains no specific reference to virtual currency.

Idaho does however, publish various opinion and no-action position response issued to organizations when properly requested. These publications cover the application of its Act to virtual currency as presented in various business models in detail.

Moreover, it does this for stored value and tradition money transmission as well covering additional model fused with the use of virtual currency.

Based on these publications Idaho is "bitcoin friendly" in that it provides clarity for these business models and which ones are and are not subject to regulatory requirements and/or state licensing.

Merely trading virtual currency, both on online exchanges and P2P trades, or mining are not considered money transmission so long as the entity does not act as a custodian beyond nominal amounts for transaction periods of time. They define an "Exchanger" (FinCEN terminology) that buys/sells its own inventory is not considered a money transmitter under the Act.

Exchangers of this type under FinCEN guidance are considered money transmitters.

⬤ ILLINOIS

This coming after years of concern and seemingly grey area which led to at least one conviction for operating an unlicensed money transmission business (United States vs. John Powell).In 2017 Illinois introduced guidance on the application of its state regulation to virtual currency.

Illinois now move from caution status to "bitcoin friendly".

In 2017, the Illinois Department of Financial and Professional Regulation issued its guidance and interpretation of its Money Transmitters Act ("TOMA")[68] as applicable to virtual currency.

Precisely, the department explains that bitcoin and other virtual currency do not meet TOMA's definition of money which must be recognized as such and be generally excepted as a medium of exchange. There is no "or" as the law states the money is:

[A] medium of exchange that is authorized or adopted by a domestic or foreign government as a part of its currency and that is customarily used and accepted as a medium of exchange in the country of issuance.

This would eliminate other things like gift cards, precious metals (which is regulated in other ways, but not as money transmission) and historic currency as well.

The guidance outlines two scenarios where activity is money transmission. Exchanges acting as custodians, and ATM's that pull from 3rd party sources. This is much like Texas, Kansas, Tennessee, etc. however, differs from Texas whereas Texas does not require a license for Exchanges that reside in the states of Texas.

Activities Generally Qualifying as Money Transmission

Exchange involving both digital currency and money through a third-party exchanger is generally considered to be money transmission. For example, some digital currency exchange sites facilitate exchanges by acting as an escrow-like intermediary. In a typical transaction, the buyer of digital currency sends money to the exchanger who holds the funds until it determines that the terms of the sale have been satisfied before transmitting the funds to the seller. Irrespective of its handling of the digital currency, the exchanger conducts money transmission by receiving the buyer's money in exchange for a promise to make it available to the seller.

Exchange of digital currency for money through an automated machine is generally considered to be money transmission. For example, several companies have begun selling automated machines commonly called “Bitcoin ATMs” that facilitate contemporaneous exchanges of digital currency for money. Most such machines currently available, when operating in their default mode act as an intermediary between a buyer and seller, typically connecting through one of the established exchange sites. When a customer buys or sells digital currency through a machine configured this way, the operator of the machine receives the buyer's money and is engaging in the “business of receiving money for transmission or transmitting money.”

Some digital currency ATMs, however, can be configured to conduct transactions only between the customer and the machine's operator, with no third parties involved. If the machine never involves a third party, and only facilitates a sale or purchase of digital currency by the machine's operator directly with the customer, there is no money transmission because at no time is money received and neither party is engaging in the “business of receiving money for transmission or transmitting money.”

The latter being the exception to the rule covering ATM units exempting operators from money transmission regulation. Simply put, if the unit self-contains or pulls from operator owned virtual currency then the activity is not money transmission.

Not Money Transmission

Exchange of digital currency for money directly between two parties does not qualify as money transmission. This is essentially a sale of goods between two parties. The seller gives units of digital currency to the buyer, who pays the seller directly with money. The seller does not receive money with the intent to transmit it to another entity or “engage in the business of exchanging, for compensation, money of the United States Government or a foreign government to or from money of another government.”

Transfer of digital currency by itself is not transmitting money. Because digital currency is not money, the receipt of it with the intent to transmit it to another entity is not “transmitting money.” This includes intermediaries who receive digital currency for transfer to a third party, and entities who, akin to depositories (commonly referred to as wallets), hold digital currency on behalf of customers and can either unilaterally execute or prevent a digital currency transaction.

Exchange of one digital currency for another digital currency is not money transmission.A merchant who accepts digital currency as payment for goods or services or an individual who pays for goods or services with digital currency are commonly referred to as “users” of digital currency. Regardless of how many parties are involved, no money is involved at any point in this transaction, so “transmitting money” does not occur.

The guidance exempts small business and individual models engaged in P2P trading, predominately the leading cause of arrest and prosecution in the United States regarding virtual currency. Users, merchants, and some ATM operators are additionally exempt.

⬤ INDIANA

Indiana is a grey area with no blockchain or convertible virtual currency specific regulations enacted or pending.

⬤ IOWA

Iowa is currently a grey area with no specific guidance published on existing regulations or regulation pending or enacted blockchain or convertible virtual currency.

⬤ KANSAS

The Office of the State Bank Commissioner in Kansas issued guidance on the application of the Kansas Money Transmitter Act (KMTA) to virtual currency business activity in 2014.

Much of this document is modeled after guidance issued by the Texas Department of Banking in Supervisory Memorandum 1037 and we thank them for allowing the OSBC to adapt it for use in Kansas.

Kansas followed three months after Texas issued its memorandum 1037 with similar guidance[1] pertaining to the application of its Money Transmitters Act (KMTA)[2], to virtual currency. Kansas thanks Texas in footnote (2) of the guidance document stating:

Exchange of cryptocurrency for sovereign currency between two parties is not money transmission under the KMTA. This is essentially a sale of goods between two parties. The seller gives units of cryptocurrency to the buyer, who pays the seller directly with sovereign currency. The seller does not receive the sovereign currency with the intent to transmit to another entity.

Exchange of one cryptocurrency for another cryptocurrency is not money transmission. Regardless of how many parties are involved, since cryptocurrency is not considered “money” under the KMTA, no money transmission occurs.

Transfer of cryptocurrency by itself is not money transmission. Because cryptocurrency is not money or monetary value, the receipt of it with the intent to transmit it to another entity is not money transmission. This includes intermediaries who receive cryptocurrency for transfer to a third party, and entities that, akin to depositories, hold cryptocurrencies on behalf of customers.

Like Texas, in Kansas, virtual currency is not considered money or money transmission when sent from one person to another. It goes on to say that bitcoin automated teller machines (ATMs) may not be money transmission, although in some cases can be considered as such.

Exchange of cryptocurrency for sovereign currency through an automated machine may or may not be money transmission depending on the facts and circumstances of its operation and the flow of funds between the operator of the automated machine and the customer.

Kansas offers example of a money transmission configurations:

"For example, several companies have begun selling automated machines commonly called “Bitcoin ATMs” that facilitate contemporaneous exchanges of bitcoins for sovereign currency. Most such machines currently available, when operating in their default mode, act as an intermediary between a buyer and a seller, typically connecting through one of the established exchange sites. When a customer buys or sells bitcoins through a machine configured in this way, the operator of the machine receives the buyer’s sovereign currency with the intent to transfer it to the seller. This would be considered money transmission under the KMTA and would require licensure."

The guidance also covers when an ATM would not be considered money transmission:

However, at least some Bitcoin ATMs can be configured to conduct transactions only between the customer and the operator or owner of the machine, with no third parties involved. If the machine never involves a third party, and only facilitates a sale or purchase of bitcoins by the machine’s operator directly with the customer, there is no money transmission because at no time is sovereign money received by the owner or operator of the machine with the intent to transfer it to another entity.

In 2017, The Kansas Governmental Ethics Commission decided that bitcoin is too secretive and untraceable to be allowed as a form of campaign contributions in state and local elections.

⬤ KENTUCKY

Kentucky is currently a grey area with no specific guidance published on existing regulations or regulation pending or enacted blockchain or virtual currency.

⬤ LOUISIANA

Louisiana is currently a grey area with no specific guidance published on existing regulations or regulation pending or enacted blockchain or convertible virtual currency, however, is moved to cuationary status due to apparent interpretations on it's definition of monetary value resulting in criminal arrests.

That said, there is in at least one case[3] the existing regulation was applied to virtual currency regarding the activity money transmission. Randall and Michael Lord were sentenced collectively to over 12 years (46 months and 106 months respectively) in federal prison for violating of both state and federal law governing the activity.

The Lords also failed to report the receipt of over $31,000 in cash to FinCEN pursuant to BSA reporting laws[4].

⬤ MAINE

Maine has no blockchain or virtual currency specific regulations enacted, however, existing regulation appears to cover virtual currency business transactions.

However, Sal Mansy was sentenced[5] to 1 year and 1 day in prison for operating a money transmission business in the state in violation of federal and state law. Additionally, three years’ probation, and over $100,000 in fines was included in the sentence.

Financial transactions and sales are governed by the Maine Department of Professional and Financial Regulation under Chapter 80 of the Public Laws of Maine. More specifically Subchapter I which is MRSA c. 80 sub-c. I §§ 6101-6145.

§ 6102(10) defines money transmission as:

"....the business of selling or issuing payment instruments or the business of receiving money for transmission or transmitting money within the United States or to locations abroad by any means, including, but not limited to, payment instrument, wire, facsimile or electronic transfer."

The words "electronic transfer" may include bitcoin.

Notably, Maine also killed a promising blockchain bill that would have promoted the technology indicating the jurisdiction is not ready for blockchain or bitcoin.

⬤ MARYLAND

Maryland is currently a grey area with no specific guidance published on existing regulations or regulation pending or enacted blockchain or virtual currency.

Maryland has however, issued an advisory[6] on convertible virtual currency for consumers.

⬤ MASSACHUSETTS

Massachusetts is currently a grey area with no specific guidance published on existing regulations or regulation pending or enacted blockchain or virtual currency.

The Office of Consumer Affairs and Business Regulation has provided guidance in several Opinion Letters that Bitcoin ATMs are not "Financial Institutions" or “Electronic Branches” as defined by Chapter 167B of the Massachusetts General Laws.

However, recently in 2017 the Office issued on Opinion Letter stating, “further review” of the business model (virtual currency ATM’s) would require further analysis.

⬤ MICHIGAN

Michigan remains a grey area. There are no blockchain or virtual currency specific regulations enacted or pending and current regulations do not appear to cover bitcoin or any virtual currency.

However, Bradley Anthony Stetkiw was arrested[7] and charged with operating an unlicensed money transmitting business in 2017 and the case is pending.

This activity is governed by the Michigan “Money Transmission Services Act” (“ACT”) 1, Act 250 of 2006 § 487.1001 - 487.1047.

"Virtual currency” is not recognized as currency in the United States or any other government and is not considered money by the state of Michigan pursuant to § 487.1003(b) of the ACT.

As defined at 487.1003(b), "Money" is “means a medium of exchange authorized or adopted by the United States or a foreign government as a part of its currency” and “Money Transmission Services” as defined at 487.1003(c) means:

“...selling or issuing payment instruments or stored value devices or receiving money or monetary value for transmission. The term does not include the provision solely of delivery, online, or telecommunications services or network access.”

If a business or individual is not selling payment instruments (as defined) and virtual currency does not meet the definition of a “payment instrument” or an “outstanding payment instrument” as defined at § 487.1003(d)-(e) of the ACT and virtual currency is not sold for a specific fee or to one individual or entity with the intention of sending that value to another individual or entity, then it would appear as if virtual currency is not money transmission in Michigan.

The Michigan Department of Treasury issued guidance defining virtual currency and explaining tax treatments[8] when is used. The guidance states:

Michigan Guidance
The General Sales Tax Act and the Use Tax Act impose tax at a rate of 6% on the value of consideration given in exchange for tangible personal property.
Taxpayers are required to remit sales and use tax liabilities based on the dollar value of the consideration exchanged for taxable property. If the consideration given in exchange for the property is not USD the taxpayer must convert the value of the consideration to USD as of the date and at the time of the transaction; this requirement includes convertible virtual currency exchanged for taxable property.
Therefore, a taxpayer accepting virtual currency in a retail sale transaction must convert the value of the virtual currency to USD as of the day and the exact time of the transaction.
The taxpayer accepting virtual currency must also maintain documentation demonstrating the value of the virtual currency on the day and at the exact time of the transaction.
The General Sales Tax Act and the Use Tax Act impose tax at a rate of 6% on the value of consideration given in exchange for tangible personal property.

Buying virtual currency itself however, would not be taxable since virtual currency is not tangible property and thus, convertible virtual currency purchases are not subject to sales tax.

⬤ MINNESOTA

Minnesota is a grey area with no specific blockchain or convertible virtual currency regulations enacted or pending and existing regulation does not appear to cover either.

⬤ MISSISSIPPI

Mississippi is a grey area state without specific blockchain or convertible virtual currency regulations enacted or pending.

⬤ MISSOURI

Missouri is a borderline hostile, but not quite "misery" just yet and currently in a “caution” status with no specific blockchain or convertible virtual currency regulations enacted or pending.

Missouri Department of Revenue ruled[9] that an ATM provider is not required to collect sales or use tax when transmitting bitcoins through an ATM since sales and use taxes are imposed solely on items of tangible personal property.

The Office of the Secretary of State issued a cease and desist order in June 2014, stating that that offering and/or selling shares of stock in Bitcoin constituted "transacting business as an agent" in the state of Missouri.

In 2015 it was ordered that Virtual Mining Corporation (BTC Mining Corporation) and Kenneth Slaughter sold unregistered, non-exempt securities in violation of Missouri law[10] and fined over $32,000 in civil penalties.

In 2017, bitcoin trader, Jason Klein, who advertised on the Localbitcoins.com platform was arrested and sentenced to 3 years of probation for operating an unlicensed money services business.[11]

⬤ MONTANA

Montana is the only state left without money transmission regulations and has no blockchain or virtual currency specific regulations enacted or pending related to business operations.

However, Montana enacted laws regarding political contributions reporting.[12]

Montana also granted Project Spokane, LLC $416,000 for mining operations in the state.

This paired with the favorable money transmission law easily places Montana in a “bitcoin friendly” status.

⬤ NEVADA

Despite the Nebraska Department of Revenue having previously stated in an administrative release that the term "currency" does not include Bitcoin or other virtual currency, Nebraska has put two new bills on the table, neither one of which is friendly to bitcoin or other virtual currencies.

On January 8th, 2018, the "Nebraska Virtual Currency Money Laundering Act" (VCMLA) was introduced and then just 3 days later an additional proposal to adopt the Uniform Law Commission's (ULC) "Uniform Regulation of Virtual-Currency Businesses Act" (URVCBA).

Legislature Bill LB691 proposes the VCMLA and would make the use of virtual currency a felony if a transaction is used in a financial crime. If enacted the bill will amend:

"...sections 8-2701 and 8-2715, Revised Statutes Cumulative Supplement, 2016, and section 28-101, Revised Statutes Supplement, 2017; to adopt the Nebraska Virtual Currency Money Laundering Act; to provide penalties; to define and redefine terms under the Nebraska Money Transmitters Act; to harmonize provisions; and to repeal the original sections."

For example, the ULC "Money Services Act" is adopted by only 11 jurisdictions.Bill LB987 proposes the adopt the URVCBA drafted and approved by the ULC, a commission of attorneys and regulators who draft regulations for unified adoption by all states. However, this is never the case as it is up to individual states to adopt or not adopt any ULC draft regulation.

Nebraska was previously a friendly state for virtual currency, however with the new bills, Nebraska moves to cautionary. This coming after the busiest year to date for state regulation of blockchain and convertible virtual currency.

⬤ NEVADA

Nevada became is convertible virtual currency and blockchain friendly in several ways. First, the state has banned government taxation on use of blockchain technology.

Secondly, Nevada enacted law[13] that makes a blockchain ledger record a legally acceptable document of “electronic record” admissible in judicial proceedings.

However, Nevada’s definition of a blockchain as “…one or more computers…” falls short of what many would argue safely constitutes an immutable record, thus some further attention to the definition mat be required.

Nevada’s money transmission laws do not specifically cover virtual currency nor is virtual currency defined in any financial regulation.

Nevada has not been without legal issue regarding virtual currency, in 2018, Morgan Rockcoons was arrested on charges relating to trading bitcoin on Localbitcoins.com and it would appear, as with most states, peer-to-peer (P2P) cash sales trades (cash in exchange for virtual currency) would be covered by Nevada’s existing money transmission laws.

These types of trades are certainly covered by federal anti-money laundering laws.

However, purposely transmitting money or transmitting money due to inadvertent transactions are to be expected as regulated regardless of state law so for this reason paired with the positive regulation on blockchain technology, Nevada moves from grey to friendly.

⬤ NEW HAMPSHIRE (⬤ Exchange or Custodian ⬤ Developer or Startup ⬤ Trader or User)

New Hampshire has undergone a roller coaster ride in changes in the regulation governing virtual currency transaction in the state.

After previously making its money transmission laws fully applicable to virtual currency, House Bill 436 was passed and went into effect August 1st, 2017 providing exceptions for certain businesses.

Money Transmitters; Licenses; Exemptions. Amend RSA 399-G:3, VII to read as follows: VII. Persons conducting business using transactions conducted in whole or in part in virtual currency.

Due the exemption, New Hampshire moves from hostile to cautionary.Which still leaves some gaping holes but an improvement over the previous amendment. However, it only covers some models and other models fall under the original amendment which still exists stating that monetary instruments include virtual currency.

A company doing remittance with virtual currency, for example, would not be exempt and would be required to obtain a money transmitters license.

New Hampshire gets one of only two purple dots with mixed regulations ranging from hostile to friendly.

⬤ NEW JERSEY

The Uniform Fiduciary Access to Digital Assets Act[16] was introduced in 2018 that would authorize estate executors under certain circumstances to manage digital assets of a decedent.New Jersey has been active in addressing blockchain or virtual currency, however to date there are no specific regulations enacted.

New Jersey issued guidance[17] in 2015 on tax treatments of virtual currency which states virtual currency is “intangible property” and subject to sales tax.

⬤ NEW MEXICO

On January 1^st, 2017 New Mexico’s Money Services Act[18] went into effect ending its status as one of the only 3 states left in the United States without regulation of money transmission leaving only Montana and South Carolina as the last 2 unregulated money transmission states.New Mexico offered consumer guidance in 2014, but remained a grey area up until January 1^st, 2017 when any type of entity dealing with virtual currency.

In additional to wording in their regulations that seems to indicate virtual currency is regulated in New Mexico, the Regulation & Licensing Department clearly states[19] their position:

…pursuant to the definitions of “money”, “monetary value”, “money transmission”, ”payment instrument”, “stored value” and “internet-based money services business” as contained within the Uniform Money Services Act §58-32-102 NMSA 1978, it is the position of the New Mexico Financial Institutions Division that any entity engaged in the business of providing the exchange of virtual currency for money or any other form of monetary value or stored value to persons located in the State of New Mexico must be licensed by the FID as a money transmitter.

In 2017 New Mexico was downgraded from Grey to Hostile and remains in 2018.

⬤ NEW YORK

The state of New York is considered a "bitcoin hostile" state. It is currently the only state that has a specific "virtual currency" license in addition to its own money transmitters license.

Blockchain technology itself is not regulated with the exception its token which is considered virtual currency and thus, regulated.

The virtual currency license, also known as the BitLicense, regulates any business conducting transactions with virtual currency regardless if the company is in the business of transmitting money and regardless of the medium of exchange which even includes other virtual currencies.

History

On August 9th, 2015, the 45-day grace period for non-exempt organizations to prepare and file for a virtual currency license in New York ended and any company who had not, or has not, filed an application with the Department of Financial Services (DFS) became in violation of 23 NYCRR 200 and not compliant with state law. This in turn enables federal law[20]which states that violating any state's money transmission laws, of which the BitLicense is a lesser form of, is a federal offense punishable by up to multiple years in prison.

Circle, a former "bitcoin company” which no longer transacts or sells virtual currency at all, was ironically the first to receive a BitLicense, followed by Ripple, and Coinbase, the GDAX exchange operator and wallet service, was third. However, a large portion of the organizations operating in the industry space exited the jurisdiction physically or ceased offering services to New York in what was called the “bit-Exodus”[21]. This included major players in the industry such as Kraken, Localbitcoins, Paxful, Bitfinex and many others.

Virtual Currency Application

The application itself, which was the subject of one of the most popular articles published here on the process, is a 31-page application that requires copious amounts of intrusive information on any beneficiary be that an owner, shareholder, or immediate family or other beneficiary of that beneficiary.

One of the most popular articles on dinbits of all time is in regards to the New York Bitlicense, whereas the article is an opinion piece and intentionally sarcastic, the information is actually factual and is a good starting point for any upcoming hurdles should a company choose to apply, click the link below for more infomration:

Article: The Top 10 Most Ridiculous Gotcha's in the New York Bitlicense Application

⬤ NORTH CAROLINA

North Carolina passed House Bill 229 in June of 2016 expanding the state's Money Transmitters Act to cover virtual currency.

However non-custodial companies with federal registrations in good standing can transact with NC residents without a state license.

Miners are also provided an exemption. Exchanges, some ATM operator models, and custodial related services require a money transmitters license.

The law also imposes insurance requirements for "cybersecurity risks.".[22]

The clear exemption guidance moves North Carolina from hostile to cautionary.

⬤ NORTH DAKOTA

Notably, a bill[23] to determine whether a virtual currency license should be required for companies operating in the space was introduced but failed to pass a vote. North Dakota is a grey area with no blockchain or virtual currency specific regulations enacted or pending.

⬤ OHIO

Ohio is a cautionary jurisdiction, however, not due to business activity under which it has no specific regulation for virtual currency or blockchain technology. Rather, Ohio prohibits the purchase of alcohol with virtual currency.

Ohio’s alcohol control division cautioned vendors on accepting virtual currency for alcohol stating that it may violate Ohio law since it is not actual “money” going so far as to state “Bitcoin cannot be used to purchase alcohol”.

Although Ohio definitions[24] are extremely broad appear to possibly cover virtual currency, however, they contain no mention of “virtual currency” nor is it defined as money or any type of monetary value.

The State of Ohio currently has a “no-stance” position in that is has not taken official position on virtual currency as applicable to existing regulation6. This was stated by both Eric Wolf[25] of Ohio’s Investigative Unit and by Anna Vitale[26], Associate General Counsel of the Ohio Department of Public Safety.

Regulation seemingly applicable to virtual currency, a “no-position”, and a ban on alcohol purchases in Ohio puts the state in cautionary status.

⬤ OKLAHOMA (⬤ Transmission ⬤ Vendor Use)

Oklahoma took a position that virtual currency is not free of a security interest when accepted as payment. In an official comment to a statute Oklahoma regulation[27] states:

As of 2015, the use of so called ‘bitcoins’ and the like have gained traction as a form of “currency,” i.e., as a payment method. Some sellers of goods or services are willing and able to accept bitcoins in payment. If that payment instead were made in cash, or by a check or other transfer out of a deposit account, any security interest in that, e.g., as proceeds of the deposit account based on the claim of a secured party that has a security interest in inventory, would not impair the payment to the seller or other transfers to a third party. See section 1-9-332 and section 1-9-315(a)(2), (c) and (d). This is a consistent policy under UCC Article 9—see, for example, sections 1-9-320 and section 1-9-321, and is particularly strong with respect to ‘currency.’ However, section 1-9-332 cannot be construed to protect the receiver of bitcoins.

The difference being that traditional money transmission would be free of an existing security interest. This appears to state that money transmission laws in Oklahoma may not be applicable to virtual currency transactions, however state that a seller accepting bitcoin would not be taking that payment free of a security risk.

For this reason, Oklahoma receives one of only two purple dots on the list, which refers to a "mixed" state of regulation where the state is in a cautionary status for vendor use and gray area status for transmission since this appears to loosen the noose regarding money transmission, although not a friendly status since it does not specifically declare it so.

⬤ OREGON

Oregon is a grey area with no current regulation specific to the blockchain and virtual currency industry. However, Oregon regulations likely cover virtual currency under its definition of monetary value and certainly cover cash and cash-like trades covered by federal regulation.

Oregon handles this determination on a case-by-case basis after reviewing a company's operating model and funds flow.

⬤ PENNSYLVANIA

Pennsylvania introduced a bill[28] which would amend its money transmitter laws to include virtual currencies under the regulations definition of "monetary value".

However, the effort has not moved forward and appears to be stalled permanently in its current state.

With the stalled bill and no further regulation pending or enacted, Pennsylvania moves from its previous hostile status, to cautionary.

⬤ RHODE ISLAND

Rhode Island is a grey area with no blockchain or virtual currency specific regulations.

⬤ SOUTH CAROLINA

South Carolina, like New Mexico, become one of the last 3 states to enact[29] its money transmission law leaving only Montana without regulations governing the activity.

South Carolina adopted the ULC MSA[30] with has been interpreted in different ways.

For example, the Texas guidance[31] outlines how it’s version of the MSA does not pertain to virtual currency in most cases, a position with has adopted by multiple state regulators and its guidance used as a model for regulatory guidance issued by other states.

Washington, on the other hand, is an example of another interpretation of the MSA where regulators state that virtual currency is covered by their existing laws and the state has additionally amended its version of the MSA to specifically cover virtual currency.

South Carolina has issues no guidance its current version of the MSA and has no regulation pending or enacted specific to virtual currency or blockchain technology.

For this reason, South Carolina loses its friendly status, however, unlike New Mexico (hostile), the state moves only to cautionary status.

⬤ SOUTH DAKOTA

South Dakota is a grey area with no current virtual currency or blockchain specific regulations enacted or pending.

⬤ TENNESSEE

The Tennessee Money Transmitters Act[32] does not include virtual currency and virtual currency is not considered money. Likewise, for net worth purposes virtual currency is not allowed as part of that calculation.

This is pursuant with Memo 2015-12-16 titled "Regulatory Treatment of Virtual Currencies under the Tennessee Money Transmitter Act" issued the Tennessee Department of Finance Institutions (DFI) which in modeling appears very much like guidance from Texas and Kansas.

Their statement of policy reads:

Automated Teller Machine treatment is much like TX and KS as well.

Exchange of cryptocurrency for sovereign currency through an automated machine is usually but not always money transmission. For example, several companies have begun selling automated machines commonly called “Bitcoin ATMs” that facilitate contemporaneous exchanges of bitcoins for sovereign currency. Most such machines, when operating in their default mode act as an intermediary between a buyer and seller, typically connecting through one of the established exchange sites. When a customer buys or sells bitcoins through a machine configured this way, the operator of the machine receives the buyer's sovereign currency in exchange for a promise to make it available to the seller. However it is worth noting that at least some Bitcoin ATMs can be configured to conduct transactions only between the customer and the machine's operator, with no third parties involved. If the machine never involves a third party, and only facilitates a sale or purchase of Bitcoins by the machine's operator directly with the customer, there is no money transmission because at no time is money received in exchange for a promise to make it available at a later time or different location.

⬤ TEXAS

Texas was the first state in the United States to formally address virtual currency regulation. On April 3rd, 2014 the state of Texas issued guidance in the form of Supervisory Memorandum 1037 which was titled "Regulatory Treatment of Virtual Currencies Under the Texas Money Services Act".

Then governor Rick Perry was said in response to inquires about the states position on bitcoin stating bitcoin "helps create jobs".

As a result, Texas has been one of the most bitcoin friendly states in the United States since 2014.

Notably Texas the publication states specifically that:

	Guidance
1	Exchange of cryptocurrency for sovereign currency between two parties is not money transmission. This is essentially a sale of goods between two parties. The seller gives units of cryptocurrency to the buyer, who pays the seller directly with sovereign currency. The seller does not receive the sovereign currency in exchange for a promise to make it available at a later time or different location.
2	Exchange of one cryptocurrency for another cryptocurrency is not money transmission. Regardless of how many parties are involved, there is no receipt of money, and therefore no money transmission occurs.
3	Transfer of cryptocurrency by itself is not money transmission. Because cryptocurrency is not money or monetary value, the receipt of it in exchange for a promise to make it available at a later time or different location is not money transmission. This includes intermediaries who receive cryptocurrency for transfer to a third party, and entities who, akin to depositories, hold cryptocurrency on behalf of customers.

Further stating that only exchanges such as Mt Gox, sometimes, or certain ATM configuration could be considered money transmission by the state. (specifically when the ATM is sourced by another party on behalf of the owner when a customer makes purchase)

Recent Events (2017)

In 2017 Texas Representative Matt Schaefer, proposed a Bill[33] that will make owning bitcoin a constitutional right. The bill would alter Article I of the Texas state structure to enshrine the correct to use any “mutually agreed upon medium of exchange”.

“ARTICLE I, TEXAS CONSTITUTION, IS AMENDED BY ADDING…THE RIGHT OF THE PEOPLE TO OWN, HOLD, AND USE A MUTUALLY AGREED UPON MEDIUM OF EXCHANGE, INCLUDING CASH, COIN, BULLION, DIGITAL CURRENCY, OR SCRIP, WHEN TRADING AND CONTRACTING FOR GOODS AND SERVICES SHALL NOT BE INFRINGED. NO GOVERNMENT SHALL PROHIBIT OR ENCUMBER THE OWNERSHIP OR HOLDING OF ANY FORM OR AMOUNT OF MONEY OR OTHER CURRENCY.”

If passed, this would prevent authorities from preventing or interfering with use, ownership, or the acquisition of any digital currency.

⬤ UTAH

Utah enacted a 2015 bill[34] allowing residents to pay taxes with virtual currencies.

The state has no virtual currency or blockchain specific regulations in regard to virtual currency business models or pertaining to money transmission and pair with the tax allowance, Utah is “bitcoin friendly”.

Notably, Overstock.com, a large supporter of virtual currency, bitcoin, and blockchain technology resides in Utah.

⬤ VERMONT

Neighboring New Hampshire took similar action in 2015, however have since provided exemptions for some business models. Vermont hasn't gone as far as provide exemptions for virtual currency models, but did make bitcoin a "permissible investment" meaning that a company’s value in bitcoin is acceptable as proof of asset holdings value and net worth.

Vermont claims virtual currency has always been covered by their state laws, even though there is no mention to virtual currency anywhere in any of their laws prior to 2017. However, in 2014 they went after a local bitcoin ATM operator and have since made it official. As of May 2017, virtual currency is included in their definitions as "stored value" making any dealer, broker, or merchant selling bitcoin a money transmitter.[35]

Vermont also enacted bill 868 in 2016 which recognizes records stored with blockchain technology a legally verifiable record in court proceedings.[36]

⬤ VIRGINIA

Virginia is a “bitcoin hostile” state. Virginia’s Bureau of Financial Institutions requires[37] a money transmission license be obtained by any company dealing with virtual currency to legally operate in the state.

⬤ WASHINGTON

Washington is arguably the most bitcoin hostile state next to New York.

In July 2017, the state passed a bill[39] which puts virtual currency exchange operators under the state's money transmitter laws and requires them to comply with the licensing requirements as traditional transmitters.Along with New York, Washington has emerged as one of the most heavily regulated states for the virtual currency industry. The state includes virtual currency within its definition of money transmission in its Uniform Money Services Act[38].

Digital currency is included in the definition of “Money Transmission” in the Uniform Money Services Act (UMSA), chapter 19.230 RCW.

19.230 RCW previously stated that “Money transmission” means receiving money or its equivalent value to transmit, deliver, or instruct to be delivered the money or its equivalent value to another location, inside or outside the United States, by any means including but not limited to by wire, facsimile, or electronic transfer.

Washington has claimed this covered virtual currency since 2015, however, the revision passed in 2017 is now much stricter.

(18) "Money transmission" means receiving money or its equivalent value (equivalent value includes virtual currency) to transmit, deliver, or instruct to be delivered to another location, inside or outside the United States, by any means including but not limited to by wire, facsimile, or electronic transfer. "Money transmission" includes selling, issuing, or acting as an intermediary for open loop prepaid access and payment instruments, but not closed loop prepaid access. "Money transmission" does not include: The provision solely of connection services to the internet, telecommunications services, or network access; units of value that are issued in affinity or rewards programs that cannot be redeemed for either money or virtual currencies; and units of value that are used solely within online gaming platforms that have no market or application outside of the gaming platforms.

(19) "Money transmitter" means a person that is engaged in money transmission

Arguments and Notes

Example A
If you go to a bitcoin ATM and pull out $20 worth of bitcoin and then pay for a cup of coffee. Did you just transmit money? Apparently not, the regulation later states that facilitating payment for goods or services (with the exception of money transmission) is exempt.

Example B
Many night clubs will not accept credit cards, they insist on cash only. Same wording would almost apply to a person pulling $20 from and handed it to the bartender. Did you just transmit money? Likely not, there is no part of this section which includes person-to-person transfers of which that would be.

Money transmission means "means receiving money or its equivalent value (equivalent value includes virtual currency) to transmit, deliver, or instruct to be delivered to another location" and that is rather vague. Specifically, the wording "to transmit, deliver, or instruct to be delivered to another location." which is very broad and could include just about anything for any reason. Buying a cup of coffee would be covered with that statement.

Virtual currency, however, is transferred electronically and thus would obviously fit within this regulation and there is no "investment" or "property" type exceptions in any section other than a licensed "broker". Sec. 2(10)

⬤ WEST VIRGINIA

West Virginia passed House Bill 2585 (HB2585) on April 8th, 2017 enacting regulation covering bitcoin and other virtual currency.

West Virginia, unlike every other state in the United States, opted the use of the term "cryptocurrency" instead of "virtual currency" which could arguably not include virtual currencies not secured by cryptography since the common understanding of the term "cryptocurrency" involves a token secured by cryptography.

HB2585 amended the Code and West Virginia Sections 61-15-1, 61-15-2, 61-15-3 and 61-15-4 to include a definition of virtual currency as "cryptocurrency" in § 61-15-1(3) which reads:

“Cryptocurrency” means digital currency in which encryption techniques are used to regulate the generation of units of currency and verify the transfer of funds, and which operate independently of a central bank.

The definition is under felony provisions of its articles 8(a), 8(c), and 14. The amendment further defines monetary instruments as:

“Monetary instruments" means coin or currency of the United States or of any other country, travelers’ checks, personal checks, bank checks, gift cards, prepaid credit cards, money orders, cryptocurrency, investment securities in bearer form or otherwise in such form that title thereto passes upon delivery, and negotiable instruments in bearer form or otherwise in such form that title thereto passes upon delivery.

✔ Some relief of liability is provided in 61-15-2(a) stating that:

It is unlawful for any person to conduct or attempt to conduct a financial transaction involving the proceeds of criminal activity knowing that the property involved in the financial transaction represents the proceeds of, or is derived directly or indirectly from the proceeds of, criminal activity:

Unlike related federal law which prohibits any kind of money transmission regardless of knowledge of the legality of any transaction. Federal law has separate enforcement for money laundering or knowingly laundering money.

That said, the amendments are not in the money transmission laws, however they place the definition of "cryptocurrency" under the definition monetary instruments of which also defines violations included in the amended article[40], which governs the activity under West Virginia law.

“Felony violations of article two of this chapter”

This includes virtual currency under prohibition of money laundering where an operator gains knowledge of funds from any illicit activity being used in any transaction which would include money transmission and further enforced[41].

⬤ WISCONSIN

Wisconsin is a grey area with no blockchain or virtual currency specific regulations enacted or pending.

The state will not issue a money transmitter license to virtual currency businesses and has asked money transmitter license holders that deal in virtual currency to sign an agreement that the company will not use virtual currency to transmit money using the license.

Additionally, the state will not take a position of no-action regarding any virtual currency business.

⬤ WYOMING

In 2016 Wyoming attempted to pass bitcoin friendly legislature which failed. However, in 2018 two bills passed that put Wyoming in “bitcoin friendly” status.

“Open Blockchain tokens” offered through an Initial Coin Offerings (ICO) are exempted from regulation providing the token hasn’t been marketed “as an investment” and is used as a payment method or other exemptible asset.

On March 5, the state passed House Bill 19 exempting virtual currencies from the Wyoming Money Transmitter Act.

Summary

In summary, the United States is getting serious about virtual currency regulation and its enforcement as is evident of the record number of arrests in 2017.

Unfortunately some of these arrests were targeting unknowing individuals and small business of whom had no intention or desire to do anything illegal, but the current law in the United States is a bit unfair in this area and it states that even if you do not know that you are violating any states money transmission laws, you will still be prosecuted and that defense is not viable.

It's very difficult for a small business or independant to cover the high price or compliance with federal and state regulations which can costs millions to setup and thousands monthly.

Note, for the most part, this does not apply to trading on regulated exchanges such as Gemini or Coinbase.

Stay safe.

[accordion] [item title="Author and Credits"] Article by dinbits
Image Credits: Banner Image by dinbits.com staff

[1] Guidance Document MT 2014-01, Regulatory Treatment of Virtual Currencies Under the Kansas Money Transmitter Act, (June 6, 2014)

[2] KS Stat § 9-508 (2016)

[3] United States of Am. v. MICHAEL A. LORD & RANDALL B. LORD, (W.D. La. 2017).

[4] 31 C.F.R. § 1020.315(c) (2000).

[5] 17-3056-01-CR-MDH United States vs. Sal Mansy

[6] Office of the Commissioner of Financial Regulation - "Virtual Currencies: Risks for Buying, Selling, Transacting, and Investing" - Advisory Notice 14-01

[7] United States v. Bradley Stetkiw, Case: 17-30566, N.W.2d (Mich. Dist. Ct. Oct. 25, 2017).

[8] Tax Policy Division of the Michigan Dept. of Treasury, Treasury Update, Vol. 1, Issue 1

[9] MO. Dep’t of Rev. LR 7411 (Sept. 12, 2014).

[10] § § 409.3-301, 409.4-402(a); 409.4-402(d); or 409.5-501, RSMo. (Cum. Supp.) 2013.

[11] United States v. Jason Klein, Case: 6:17-cr-03056-MDH Doc. 2, S.W.3d (2017).

[12] Montana Admin. R. § 44.11.408.

[13] Nev. Rev. Stat. SB 398, § 6.

[14] N.H. House Bill No. 666 (2015)

[15] D. (2015, December 08). Monday Alarms Free Staters With New Hampshire's Blindside on Bitcoin (A. Gei, Ed.). Retrieved March 10, 2018, from https://news.dinbits.com/2015/12/monday-alarmed-free-staters-with-new.html, Pub. (Dinbits, Inc. d/b/a dinbits media)

[16] 2016 NJ A.B. 3433

[17] Technical Advisory Memorandum, N.J. Division of Taxation, Convertible Virtual Currency (TAM– 2015–1) July 28, 2015

[18] Uniform Money Services Act §58-32-102 NMSA 1978

[19] FAQ's, Rld.state.nm.us (2018), http://www.rld.state.nm.us/financialinstitutions/faq-s.aspx (last visited Mar 14, 2018).

[20] Prohibition of Unlicensed Money Transmitting Businesses, 18 U.S.C. § 1960 (2001).

[21] “Localbitcoins.com Join Bit-Exodus…” published 8/12/2015. https://news.dinbits.com/2015/08/localbitcoincom-joins-exodus.html

[22] North Carolina Laws S.L. 2017-102 (HB 229)

[23] ND S.B. 2100 65th Leg. Assembly, January 13^th, 2017

[24] ORC § 1315.01

[25] Eric Wolf, Ohio Investigative Unit in response to legality of accepting bitcoin for alcohol sales. (614) 728-1369

[26] Anne Vitale in response to inquiry pertaining to the sale of alcohol and accepting bitcoin as payment. July 17th, 2014

[27] Okla. Stat. Ann. § 1-9¬332.

[28] H.B. 850 2015 Gen. Assemb., Reg. Sess. (P.A. 2015)

[29] A266 2016 Gen. Assemb., 121st Sess. (S.C. 2016)

[30] Uniform Law Code, Money Services Act

[31] Texas Dept. of Banking, Memorandum 1037

[32] Tenn. Code Ann. § 45-7-205

[33] H.J.R 89, 85th Leg., Reg. Sess. (Tx. 2017).

[34] H.C.R. 6, 2015 Leg., Gen. Sess. (Utah 2015).

[35] H.B. 182, 2017 Gen. Assemb., Reg. Sess. (Vt. 2017)

[36] H.B. 868, 2016 Gen. Assemb., Reg. Sess. (Vt. 2016)

[37] VA Code Ann. § 6.2-1900

[38] H.B. 1327, 63rd Leg., Reg. Sess. (Wash. 2013)

[39] S.B. 5031, 65th Leg., Reg. Sess. (Wash. 2017).

[40] W. Va. Code § 61-15-1(2)(c) (2017).

[41] W. Va. Code § 61-15-1(11) (2017).

[41] H.B. 180, 30th Leg., 1st Sess. (Alaska 2017).

[42] H.B. 180, Section 58. AS 06.55.990(15)(ii)

[43] Ariz. Rev. Stat. Ann. § 6-1201.17

[44]Ariz. Rev. Stat. Ann. § 6-1201.9

[45] Ariz. Rev. Stat. Ann. § 6-1201.13

[46] Ariz. Rev. Stat. Ann. § 6-1201.11

[47] H.B. 2417, 53d Leg., 1st Reg. Sess. (Ariz. 2017).

[48] H.B. 2216, 53d Leg., 1st Reg. Sess. (Ariz. 2017).

[49] For the purposes of this section “currently” refers to the time of this writing, February 2018

[50] Cal. Stat. § 320.6

[51] CA AB 1326 Reg. Sess. (Cal. 2017)

[52] CA AB-129 Reg. Sess. (Cal. 2017)

[53] Commissioner Gardner (CCUL) moved that the commission table the “Regulation of Virtual Currency Businesses Act” until next year. Commissioner Wist seconded and the motion passed without objection. Nov. 3rd, 2017 CCUL Loc. SCR 352. 71st Gen. Assembly. (Colorado 2017)

[54] H.B. 7141, 2017 Leg., 2017 Jan. Reg. Sess. Gen. Assembly (Conn. 2017).

[55] FL H.B. 1379, 119th Reg. Sess. (Fla. 2017)

[56] NH H.B. 666 Amending RSA §§ 399-G:1, 399-G:3 enacted and effective January 1st, 2016

[57] NH H.B. 436 enacted and effective August 1st, 2017

[58] Previously Fla. Stat. 996.101(e)

[59] Fla. Stat. 996.101 (f)

[60] Fla. Stat. 996.101 (j)

[61] Case F14-2923 Florida Vs. Michel A. Espinoza

[62] Case No. F14-2935 State of Florida Vs. Pascal Reid

[63] There is an additional $10,000 of net-worth required per Agent location.

[64] FinCEN publication FIN_2013_G001 defines “users” as “a person that obtains virtual currency to purchase goods or services.”

[65] Joe Ciccolo, President, BitAML, Inc. (Jan 2018)

[66] Juan Suarez, Coinbase Legal, How Bad Policy Harms Coinbase Customers in Hawaii – The Coinbase Blog The Coinbase Blog, https://blog.coinbase.com/how-bad-policy-harms-coinbase-customers-in-hawaii-ac9970d49b34 (last visited Feb 11, 2018)

[67] HI S.B. 949, 29^th Reg. Sess. (HI 2017)

[68] Illinois Compiled Statutes (205 ILCS 657/1, et seq.).
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State by State Regulation

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Timeline of Regulatory Events (CA)

⬤ COLORADO

⬤ CONNECTICUT

⬤ DELAWARE

⬤ FLORIDA

⬤ GEORGIA

⬤ HAWAII

⬤ IDAHO

⬤ ILLINOIS

Not Money Transmission

⬤ INDIANA

⬤ IOWA

⬤ KANSAS

⬤ KENTUCKY

⬤ LOUISIANA

⬤ MAINE

⬤ MARYLAND

⬤ MASSACHUSETTS

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⬤ NEVADA

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History

Virtual Currency Application

⬤ NORTH CAROLINA

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⬤ PENNSYLVANIA

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Arguments and Notes

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⬤ WISCONSIN

⬤ WYOMING

Summary