Bitcoin, Money and Funds: the Application of - Fordham Law

Playing with fire with FinCen and SEC, Binance may face a hefty penalty again after already losing 50 percent of its trading business

On 14 June, Binance announced that it “constantly reviews user accounts to improve (their) platform security and to comply with global compliance requirements”, mentioning that “Binance is unable to provide services to any U.S. person” in the latest “Binance Terms of Use” attached within the announcement.
According to the data from a third-party traffic statistics website, Alexa, users in the U.S. form the biggest user group of Binance, accounting for about 25% of the total visitor traffic.
In the forecast of Binance’s user scale compiled by The Block, the largest traffic is dominated by users in the U.S., surpassing the total of the ones from the second place to the fifth place.
Also, considering that the scale of digital asset trading for the users in the U.S. far exceeds that of the users of many other countries, it could mean that Binance may have already lost 50 % of the business income by losing users in the U.S. Apparently, such an announcement by Binance to stop providing services to users in the U.S. means Binance has no other alternative but “seek to live on.”
So, what are the specific requirements of the U.S. for digital asset exchanges and which of the regulatory red lines of the U.S. did Binance cross?
Compliance issues relating to operation permission of digital asset exchanges
In the U.S., the entry barrier for obtaining a business license to operate a digital asset exchange is not high. Apart from the special licencing requirements of individual states such as New York, most of the states generally grant licences to digital asset exchanges through the issuance of a “Money Transmitter License” (MTL).
Each state has different requirements for MTL applications. Some of the main common requirements are:
Filling out the application form, including business address, tax identification number, social security number and statement of net assets of the owneproprietor Paying the relevant fees for the licence application Meeting the minimum net assets requirements stipulated by the state Completing a background check Providing a form of guarantee, such as security bonds
It is worth noting that not all states are explicitly using MTL to handle the issues around operation permission of digital asset exchanges. For instance, New Hampshire passed a new law on 12 March 2017, announcing that trading parties of digital assets in that state would not be bound by MTL. Also, Montana has not yet set up MTL, keeping an open attitude towards the currency trading business.
On top of obtaining the MTL in each state, enterprises are also required to complete the registration of “Money Services Business” (MSB) on the federal level FinCEN (Financial Crimes Enforcement Network of the U.S. Treasury Department) issued the “Application of FinCEN’s Regulations to Persons Administering, Exchanging, or Using Virtual Currencies” on 18 March 2013. On the federal level, the guideline requires any enterprise involved in virtual currency services to complete the MSB registration and perform the corresponding compliance responsibilities. The main responsibility of a registered enterprise is to establish anti-money laundering procedures and reporting systems.
However, California is an exception. Enterprises in California would only need to complete the MSB registration on the federal level and they do not need to apply for the MTL in California.
Any enterprise operating in New York must obtain a virtual currency business license, Bitlicense, issued in New York
Early in July 2014, the New York State Department of Financial Services (NYSDFS) has specially designed and launched the BitLicense, stipulating that any institutions participating in a business relevant to virtual currency (virtual currency transfer, virtual currency trust, provision of virtual currency trading services, issuance or management of virtual currencies) must obtain a BitLicense.
To date, the NYSDFS has issued 19 Bitlicenses. Among them includes exchanges such as Coinbase (January 2017), BitFlyer (July 2017), Genesis Global Trading (May 2018) and Bitstamp (April 2019).
Solely from the perspective of operation permission, Binance has yet to complete the MSB registration of FinCEN (its partner, BAM Trading, has completed the MSB registration). This means that Binance is not eligible to operate a digital asset exchange in the U.S. FinCEN has the rights to prosecute Binance based on its failure to fulfil the relevant ‘anti-money laundering’ regulatory requirements.
Compliance issues relating to online assets
With the further development of the digital asset market, ICO has released loads of “digital assets” that have characteristics of a “security” into the trading markets. The Securities and Exchange Commission (SEC) has proposed more comprehensive compliance requirements for digital asset exchanges. The core of the requirements is reflected in the restrictions of offering digital assets trading service.
In the last two years, the SEC has reiterated on many occasions that digital assets that have characteristics of a security should not be traded on a digital asset exchange
In August 2017, when the development of ICO was at its peak, the SEC issued an investor bulletin “Investor Bulletin: Initial Coin Offerings” on its website and published an investigation report of the DAO. It determined that the DAO tokens were considered ‘marketable securities’, stressing that all digital assets considered ‘marketable securities’ would be incorporated into the SEC regulatory system, bound by the U.S. federal securities law. Soon after, the SEC also declared and stressed that “(if) a platform offers trading of digital assets that are securities and operates as an “exchange,” as defined by the federal securities laws, then the platform must register with the SEC as a national securities exchange or be exempt from registration.”
On 16 November 2018, the SEC issued a “Statement on Digital Asset Securities Issuance and Trading,” in which the SEC used five real case studies to conduct exemplary penalty rulings on the initial offers and sales of digital asset securities, including those issued in ICOs, relevant cryptocurrency exchanges, investment management tools, ICO platforms and so on. The statement further reiterates that exchanges cannot provide trading services for digital assets that have characteristics of a security.
On 3 April 2019, the SEC issued the “Framework for ‘Investment Contract’ Analysis of Digital Assets” to further elucidate the evaluation criteria for determining whether a digital asset is a security and providing guiding opinions on the compliance of the issuance, sales, holding procedures of digital assets.
As of now, only a small number of digital assets, such as BTC, ETH, etc. meet the SEC’s requirement of “non-securities assets.” The potentially “compliant” digital assets are less than 20.
Early in March 2014, the Inland Revenue Service (IRS) has stated that Bitcoin will be treated as a legal property and will be subject to taxes. In September 2015, the U.S. Commodity Futures Trading Commission (CFTC) stated that Bitcoin is a commodity and will be treated as a “property” by the IRS for tax purposes.
On 15 June 2018, William Hinman, Director of the Corporate Finance Division of the SEC, said at the Cryptocurrency Summit held in San Francisco that BTC and ETH are not securities. Nevertheless, many ICO tokens fall under the securities category.
So far, only BTC and ETH have received approval and recognition of the U.S. regulatory authority as a “non-securities asset.”
Since July 2018, the SEC has investigated more than ten types of digital assets, one after another, and ruled that they were securities and had to be incorporated into the SEC regulatory system. It prosecuted and punished those who had contravened the issuance and trading requirements of the securities laws.
Although there are still many digital assets that have yet to be characterised as “securities”, it is extremely difficult to be characterised as a “non-securities asset” based on the evaluation criteria announced by the SEC. As the SEC’s spokesperson has reiterated many times, they believe the majority of ICO tokens are securities.
Under the stipulated requirements of the SEC, Coinbase, a leading U.S. exchange, has withdrawn a batch of digital assets. The assets withdrawn included digital assets that had been characterised as “securities” as well as those that have high risks of being characterised as “securities.” However, it is worth noting that although the risk to be characterised as “securities” for more than ten types of digital assets, which have not been explicitly required by SEC to be withdrawn, is relatively small, they are not entirely safe. With the further escalation of the SEC’s investigations, they could still be characterised as securities and be held accountable for violating their responsibilities. However, this requires further guidance from the SEC.
*Coinbase’s 14 types of digital assets that have yet to be requested for withdrawal
Poloniex announced on 16 May that it would stop providing services for nine digital assets, including Ardor (ARDR), Bytecoin (BCN), etc. under the compliance guidelines of the SEC. On 7 June, Bittrex also announced that it would stop providing trading services to U.S. users for 32 digital assets. The action of the SEC on its regulatory guidance was further reinforced apparently.
In fact, it is not the first time that these two exchanges have withdrawn digital assets under regulatory requirements. Since the rapid development of digital assets driven by ICO in 2017, Poloniex and Bittrex were once leading exchanges for ICO tokens, providing comprehensive trading services for digital assets. However, after the SEC reiterated its compliance requirements, Poloniex and Bittrex have withdrawn a considerable amount of assets in the past year to meet the compliance requirements.
In conclusion, the takeaways that we have got are as follows: Under the existing U.S. regulatory requirements of digital assets, after obtaining the basic entry licences (MSB, MTL), exchanges could either choose the “compliant asset” solution of Coinbase and only list a small number of digital assets that do not have apparent characteristics of a security, and at all times prepare to withdraw any asset later characterised as “securities” by the SECs; or choose to be like OKEx and Huobi and make it clear they would “not provide services to any U.S. users” at the start.
Binance has been providing a large number of digital assets that have characteristics of a security to U.S users without a U.S. securities exchange licence, so it has already contravened the SEC regulatory requirements.
On top of that, it is also worth noting that the rapid development of Binance has been achieved precisely through the behaviours of “contrary to regulations” and “committing crimes.” Amid the blocking of several pioneering exchanges, such as OKCoin, Huobi, etc. providing services to Chinese users in the Chinese market under new laws from the regulatory authorities, Binance leapfrogged the competition and began to dominate the Chinese market. Similarly, Binance’s rapid growth in the U.S. market is mainly due to its domination of the traffic of digital assets withdrawn by Poloniex and Bittrex. One can say that Binance not only has weak awareness of compliance issues, but it is also indeed “playing with fire” with the U.S. regulators.
In April 2018, the New York State Office of Attorney General (OAG) requested 13 digital asset exchanges, including Binance, to prepare for investigations, indicating it would initiate an investigation in relations to company ownership, leadership, operating conditions, service terms, trading volume, relationships with financial institutions, etc. Many exchanges, including Gemini, Bittrex, Poloniex, BitFlyer, Bitfinex, and so on, proactively acknowledged and replied in the first instance upon receipt of the investigation notice. However, Binance had hardly any action.
Binance has been illegally operating in the U.S. for almost two years. It has not yet fulfilled the FinCEN and MSB registration requirements. Moreover, it has also neglected the SEC announcements and OAG investigation summons on several occasions. The ultimate announcement of exiting the U.S. market may be due to the tremendous pressure imposed by the U.S. regulators.
In fact, the SEC executives have recently stressed that “exchanges of IEO in the U.S. market are facing legal risks and the SEC would soon crack down on these illegal activities” on numerous occasions. These were clear indications of imposing pressure on Binance.
Regarding the SEC’s rulings on illegal digital asset exchanges, EtherDelta and investment management platform, Crypto Asset Management, it may not be easy for Binance to “fully exit” from the U.S. market. It may be faced with a hefty penalty. Once there are any compensation claims by the U.S. users for losses incurred in the trading of assets at Binance, it would be dragged into a difficult compensation dilemma. It would undoubtedly be a double blow for Binance that has just been held accountable for the losses incurred in a theft of 7,000 BTC.
Coincidentally, Binance was tossed out of Japan because of compliance issues. In March 2018, the Financial Services Agency of Japan officially issued a stern warning to Binance, which was boldly providing services to Japanese users without registering for a digital asset exchange licence in Japan. Binance was forced to relocate to Malta instead. Binance may have to bear hefty penalties arising from challenging the compliance requirements after it had lost important markets due to consecutive compliance issues.
The rise of Binance was attributed to its bold and valiant style, grasping the opportunity created in the vacuum period of government regulation, breaking compliance requirements and rapidly dominating the market to obtain user traffic. For a while, it gained considerable advantages in the early, barbaric growth stage of the industry. Nonetheless, under the increasingly comprehensive regulatory compliance system for global digital asset markets, Binance, which has constantly been “evading regulation” and “resisting supervision” would undoubtedly face enormous survival challenges, notwithstanding that it would lose far more than 50 per cent of the market share.
https://www.asiacryptotoday.com/playing-with-fire-with-fincen-and-sec-binance-may-face-a-hefty-penalty-again-after-already-losing-50-percent-of-its-trading-business/
submitted by Fun_Judgment to CryptoCurrencyTrading [link] [comments]

Lightning Network Will Likely Fail Due To Several Possible Reasons

ECONOMIC CASE IS ABSENT FOR MANY TRANSACTIONS
The median Bitcoin (BTC) fee is $14.41 currently. This has gone parabolic in the past few days. So, let’s use a number before this parabolic rise, which was $3.80. Using this number, opening and closing a Lightning Network (LN) channel means that you will pay $7.60 in fees. Most likely, the fee will be much higher for two reasons:
  1. BTC fees have been trending higher all year and will be higher by the time LN is ready
  2. When you are in the shoe store or restaurant, you will likely pay a higher fee so that you are not waiting there for one or more hours for confirmation.
Let’s say hypothetically that Visa or Paypal charges $1 per transaction. This means that Alice and Carol would need to do 8 or more LN transactions, otherwise it would be cheaper to use Visa or Paypal.
But it gets worse. Visa doesn’t charge the customer. To you, Visa and Cash are free. You would have no economic incentive to use BTC and LN.
Also, Visa does not charge $1 per transaction. They charge 3%, which is 60 cents on a $20 widget. Let’s say that merchants discount their widgets by 60 cents for non-Visa purchases, to pass the savings onto the customer. Nevertheless, no one is going to use BTC and LN to buy the widget unless 2 things happen:
  1. they buy more than 13 widgets from the same store ($7.60 divided by 60 cents)
  2. they know ahead of time that they will do this with that same store
This means that if you’re traveling, or want to tip content producers on the internet, you will likely not use BTC and LN. If you and your spouse want to try out a new restaurant, you will not use BTC and LN. If you buy shoes, you will not use BTC and LN.
ROAD BLOCKS FROM INSUFFICIENT FUNDS
Some argue that you do not need to open a channel to everyone, if there’s a route to that merchant. This article explains that if LN is a like a distributed mesh network, then another problem exists:
"third party needs to possess the necessary capital to process the transaction. If Alice and Bob do not have an open channel, and Alice wants to send Bob .5 BTC, they'll both need to be connected to a third party (or a series of 3rd parties). Say if Charles (the third party) only possesses .4 BTC in his respective payment channels with the other users, the transaction will not be able to go through that route. The longer the route, the more likely that a third party does not possess the requisite amount of BTC, thereby making it a useless connection.”
CENTRALIZATION
According to this visualization of LN on testnet, LN will be centralized around major hubs. It might be even more centralized than this visualization if the following are true:
  1. Users will want to connect to large hubs to minimize the number of times they need to open/close channels, which incur fees
  2. LN’s security and usability relies on 100% uptime of relaying parties
  3. Only large hubs with a lot of liquidity will be able to make money
  4. Hubs or intermediary nodes will need to be licensed as money transmitters, centralizing LN to exchanges and banks as large hubs
What will the impact be on censorship-resistance, trust-less and permission-less?
NEED TO BE LICENSED AS MONEY TRANSMITTER
Advocates for LN seem to talk a lot about the technology, but ignore the legalities.
FinCEN defines money transmitters. LN hubs and intermediary nodes seem to satisfy this definition.
Application of FinCEN's Regulations to Persons Administering, Exchanging, or Using Virtual Currencies
“…applicability of the regulations … to persons creating, obtaining, distributing, exchanging, accepting, or transmitting virtual currencies.”
“…an administrator or exchanger is an MSB under FinCEN's regulations, specifically, a money transmitter…”
"An administrator or exchanger that (1) accepts and transmits a convertible virtual currency or (2) buys or sells convertible virtual currency for any reason is a money transmitter under FinCEN's regulations…”
"FinCEN's regulations define the term "money transmitter" as a person that provides money transmission services, or any other person engaged in the transfer of funds. The term "money transmission services" means "the acceptance of currency, funds, or other value that substitutes for currency from one person and the transmission of currency, funds, or other value that substitutes for currency to another location or person by any means.””
"The definition of a money transmitter does not differentiate between real currencies and convertible virtual currencies.”
FinCEN’s regulations for IVTS:
"An “informal value transfer system” refers to any system, mechanism, or network of people that receives money for the purpose of making the funds or an equivalent value payable to a third party in another geographic location, whether or not in the same form.”
“…IVTS… must comply with all BSA registration, recordkeeping, reporting and AML program requirements.
“Money transmitting” occurs when funds are transferred on behalf of the public by any and all means including, but not limited to, transfers within the United States or to locations abroad…regulations require all money transmitting businesses…to register with FinCEN."
Mike Caldwell used to accept and mail bitcoins. Customers sent him bitcoins and he mailed physical bitcoins back or to a designated recipient. There is no exchange from one type of currency to another. FinCEN told him that he needed to be licensed as money transmitter, after which Caldwell stopped mailing out bitcoins.
ARGUMENTS AGAINST NEED FOR LICENSING
Some have argued that LN does not transfer BTC until the channel is closed on the blockchain. This is not a defence, since channels will close on the blockchain.
Some have argued that LN nodes do not take ownership of funds. Is this really true? Is this argument based on a technicality or hoping for a loophole? It seems intuitive that a good prosecutor can easily defeat this argument. Even if this loophole exists, can we count on the government to never close this loophole?
So, will LN hubs and intermediary nodes need to be licensed as money transmitters? If so, then Bob, who is the intermediary between Alice and Carol, will need a license. But Bob won’t have the money nor qualifications. Money transmitters need to pay $25,000 to $1 million, maintain capital levels and are subject to KYC/AML regulations1. In which case, LN will have mainly large hubs, run by financial firms, such as banks and exchanges.
Will the banks want this? Likely. Will they lobby the government to get it? Likely.
Some may be wondering about miners. FinCEN has declared that miners are not money transmitters:
https://coincenter.org/entry/aml-kyc-tokens :
"Subsequent administrative rulings clarified several remaining ambiguities: miners are not money transmitters…"
FinCEN Declares Bitcoin Miners, Investors Aren't Money Transmitters
Some argue that LN nodes will go through Tor and be anonymous. For this to work, will all of the nodes connecting to it, need to run Tor? If so, then how likely will this happen and will all of these people need to run Tor on every device (laptop, phone and tablet)? Furthermore, everyone of these people will be need to be sufficiently tech savvy to download, install and set up Tor. Will the common person be able to do this? Also, will law-abiding nodes, such as retailers or banks, risk their own livelihood by connecting to an illegal node? What is the likelihood of this?
Some argue that unlicensed LN hubs can run in foreign countries. Not true. According to FinCEN: "“Money transmitting” occurs when funds are…transfers within the United States or to locations abroad…” Also, foreign companies are not immune from the laws of other countries which have extradition agreements. The U.S. government has sued European banks over the LIBOR scandal. The U.S. government has charged foreign banks for money laundering and two of those banks pleaded guilty. Furthermore, most countries have similar laws. It is no coincidence that European exchanges comply with KYC/AML.
Will licensed, regulated LN hubs connect to LN nodes behind Tor or in foreign countries? Unlikely. Will Amazon or eBay connect to LN nodes behind Tor or in foreign countries? Unlikely. If you want to buy from Amazon, you’ll likely need to register yourself at a licensed, regulated LN hub, which means you’ll need to provide your identification photo.
Say goodbye to a censorship-resistant, trust-less and permission-less coin.
For a preview of what LN will probably look like, look at Coinbase or other large exchanges. It’s a centralized, regulated and censored hub. Coinbase allows users to send to each other off-chain. Coinbase provides user data to the IRS and disallows users from certain countries to sell BTC. You need to trust that no rogue employee in the exchange will steal your funds, or that a bank will not confiscate your funds as banks did in Cyprus. What if the government provides a list of users, who are late with their tax returns, to Coinbase and tells Coinbase to block those users from making transactions? You need Coinbase’s permission.
This would be the antithesis of why Satoshi created Bitcoin.
NEED TO REPORT TO IRS
The IRS has a definition for “third party settlement organization” and these need to report transactions to the IRS.
Though we do not know for sure yet, it can be argued that LN hubs satisfies this definition. If this is the case, who will be willing to be LN hubs, other than banks and exchanges?
To read about the discussion, go to:
Lightning Hubs Will Need To Report To IRS
COMPLEXITY
All cryptocurrencies are complicated for the common person. You may be tech savvy enough to find a secure wallet and use cryptocurrencies, but the masses are not as tech savvy as you.
LN adds a very complicated and convoluted layer to cryptocurrencies. It is bound to have bugs for years to come and it’s complicated to use. This article provides a good explanation of the complexity. Just from the screenshot of the app, the user now needs to learn additional terms and commands:
“On Chain”
“In Channels”
“In Limbo”
“Your Channel”
“Create Channel”
“CID”
“OPENING”
“PENDING-OPEN”
“Available to Receive”
“PENDING-FORCE-CLOSE”
There are also other things to learn, such as how funds need to be allocated to channels and time locks. Compare this to using your current wallet.
Recently, LN became even more complicated and convoluted. It needs a 3rd layer as well:
Scaling Bitcoin Might Require A Whole 'Nother Layer
How many additional steps does a user need to learn?
ALL COINS PLANNING OFF-CHAIN SCALING ARE AT RISK
Bitcoin Segwit, Litecoin, Vertcoin and possibly others (including Bitcoin Cash) are planning to implement LN or layer 2 scaling. Ethereum is planning to use Raiden Network, which is very similar to LN. If the above is true about LN, then the scaling roadmap for these coins is questionable at best, nullified at worst.
BLOCKSTREAM'S GAME PLAN IS ON TRACK
Blockstream employs several of the lead Bitcoin Core developers. Blockstream has said repeatedly that they want high fees. Quotes and source links can be found here.
Why is Blockstream so adamant on small blocks, high fees and off-chain scaling?
Small blocks, high fees and slow confirmations create demand for off-chain solutions, such as Liquid. Blockstream sells Liquid to exchanges to move Bitcoin quickly on a side-chain. LN will create liquidity hubs, such as exchanges, which will generate traffic and fees for exchanges. With this, exchanges will have a higher need for Liquid. This will be the main way that Blockstream will generate revenue for its investors, who invested $76 million. Otherwise, they can go bankrupt and die.
One of Blockstream’s investors/owners is AXA. AXA’s CEO and Chairman until 2016 was also the Chairman of Bilderberg Group. The Bilderberg Group is run by bankers and politicians (former prime ministers and nation leaders). According to GlobalResearch, Bilderberg Group wants “a One World Government (World Company) with a single, global marketplace…and financially regulated by one ‘World (Central) Bank’ using one global currency.” LN helps Bilderberg Group get one step closer to its goal.
Luke-Jr is one of the lead BTC developers in Core/Blockstream. Regulation of BTC is in-line with his beliefs. He is a big believer in the government, as he believes that the government should tax you and the “State has authority from God”. In fact, he has other radical beliefs as well:
So, having only large, regulated LN hubs is not a failure for Blockstream/Bilderberg. It’s a success. The title of this article should be changed to: "Lightning Will Fail Or Succeed, Depending On Whether You Are Satoshi Or Blockstream/Bilderberg".
SIGNIFICANT ADVANCEMENTS WITH ON-CHAIN SCALING
Meanwhile, some coins such as Ethereum and Bitcoin Cash are pushing ahead with on-chain scaling. Both are looking at Sharding.
Visa handles 2,000 transactions per second on average. Blockstream said that on-chain scaling will not work. The development teams for Bitcoin Cash have shown significant on-chain scaling:
1 GB block running on testnet demonstrates over 10,000 transactions per second:
"we are not going from 1MB to 1GB tomorrow — The purpose of going so high is to prove that it can be done — no second layer is necessary”
"Preliminary Findings Demonstrate Over 10,000 Transactions Per Second"
"Gigablock testnet initiative will likely be implemented first on Bitcoin Cash”
Peter Rizun, Andrew Stone -- 1 GB Block Tests -- Scaling Bitcoin Stanford At 13:55 in this video, Rizun said that he thinks that Visa level can be achieved with a 4-core/16GB machine with better implementations (modifying the code to take advantage of parallelization.)
Bitcoin Cash plans to fix malleability and enable layer 2 solutions:
The Future of “Bitcoin Cash:” An Interview with Bitcoin ABC lead developer Amaury Séchet:
"fixing malleability and enabling Layer 2 solutions will happen”
However, it is questionable if layer 2 will work or is needed.
GOING FORWARD
The four year scaling debate and in-fighting is what caused small blockers (Blockstream) to fork Bitcoin by adding Segwit and big blockers to fork Bitcoin into Bitcoin Cash. Read:
Bitcoin Divorce - Bitcoin [Legacy] vs Bitcoin Cash Explained
It will be interesting to see how they scale going forward.
Scaling will be instrumental in getting network effect and to be widely adopted as a currency. Whichever Coin Has The Most Network Effect Will Take All (Or Most) (BTC has little network effect, and it's shrinking.)
The ability to scale will be key to the long term success of any coin.
submitted by curt00 to btc [link] [comments]

/u/jdkeith on Cypherpunks be like...

Also laws really need to be consistent. Casascius stopped sales of physical bitcoins because FinCen said that minting physical bitcoins qualifies him as a money transmitter business. Well, which is it? Is Bitcoin money or is it property. They don't get to have it both ways.
jdkeith
submitted by highhighhopes101 to TalkativePeople [link] [comments]

[Manipulation] Notes on the transparency of Tether and Bitcoin market manipulation

I would like to share some alarming signs of Bitcoin price manipulation.
Bitcoin price is about 10 times of what it was a year ago. The exchange that decisively sets Bitcoin price is Bitfinex, a secretive institution with unknown beneficiary structure and place of organization.
https://pbs.twimg.com/media/Cs0oGXQWAAAqMRZ.jpg
Bitfinex had its wire services suspended by Wells Fargo in April. To resume trading, Bitfinex enlisted the help of Tether, another company with unknown beneficiary structure and place of organisation, but based on announcements is likely under common share holder control with Bitfinex. Tether sells crypto-tokens known as USD Tethers, or USDTs, that are purportedly backed by an equal number of US dollars. In other words, each USDT is a digital good priced at USD 1.00.
Despite the promise of "100% reserve" and the vague reference to "24×7 access to your funds" on Tether’s website, there is no contractual right, either tacit or express, for one USDT to be redeemed for one US dollar. It is probably through this legal construct that Tether hopes to characterise its USDTs as digital goods and not "convertible" virtual currency covered by FinCEN regulations.
The invention of USDTs led to the proliferation of numerous crypto-currency exchanges. Examples include Bitfinex, Binance, HitBTC, KKex, Poloniex, and YoBit. Instead of providing crypto-to-fiat trading pairs, these "coin-to-coin" exchanges offer crypto-to-tether trading exclusively. Therefore, USDTs not only help these exchanges remove the need for formal banking arrangement, but also enables these exchanges to organise in lesser known jurisdictions (e.g., the Republic of Seychelles) and operate outside of the regulation and supervision of major economies. Most of these exchanges claim to screen-off visitors from the United States and other countries with laws on coin-to-coin trading, but the screen-off is often perfunctory. In almost all cases, the screen can be defeated with a simple mouse click.
It is doubtful that these exchanges perform meaningful due diligence beyond identity verification to combat money laundering, financing of terrorism, and corruption of politically exposes persons. Bitfinex, for example, requires no identity verification at all for most trading activities and imposes no trading amount limits on unverified accounts. The enablement of these exchanges where rampant money laundering is possible is outside of the scope of this note. Instead, I would like to bring to your attention the distinct possibility that Bitfinex, as the likely controller of Tether, is a bad actor.
Strong circumstantial evidence suggests that Bitfinex is creating USDTs out of thin air to prop up Bitcoin prices. Namely, Bitfinex is likely acting as a central bank that issues a fiat money called USDTs. The sole mandate of this central bank is to enrich itself through market manipulation.
https://i.imgur.com/b1Pdsq9.jpg
The first image (above) illustrates how mysterious amounts of USDTs were minted and injected into Bitfinex at precise moments when a crash seemed imminent.
https://i.imgur.com/jAyPlF8.jpg
The second image (above) illustrates a strong correlation (but admittedly not causation) between the total amount of USDTs in circulation and Bitcoin price.
Bitfinex released an internal memo in September to allay concerns that USDTs might have been created at will. The memo purportedly shows that Tether maintained sufficient US dollars to match all USDTs in circulation as of a day in September. The memo, however, is of no probative value. Among other strange things, the author of the memo didn’t verify with banks (names redacted) that account balances from Tethers were in fact correct, couldn’t promise that the balances weren’t overnight borrowings for purposes of producing the memo, and couldn’t promise that Tether indeed had access to those funds.
I therefore urge you to consider the possibility that the current price of Bitcoin is the result of Bitfinex’s manipulation and may collapse when regulators take action.
For example, Tether is almost certainly an administrator of virtual currency — it centrally puts into and withdraws from circulation USDTs, a virtual currency squarely intended as a substitute for real currency as admitted by Tether in the internal memo.
Tether has nominally registered as a money transmitter with FinCEN, but it is unclear if they fulfill any of the BSA filing requirements (e.g., filing SARs).2 As a company, Tether’s USDTs enables large crypto-currency exchanges (including US-based exchanges like Poloniex) to exist and powers trades thereon in the amount of millions every day. So it wouldn’t be surprising if FinCEN eventually decides to enforce its rules against Tether as it did against Liberty Reserve.
Further, CFTC approved recently various swap execution facilities, designated contract markets and derivative clearing organizations with Bitcoin flavor. And the Chicago Mercantile Exchange is expected to launch cash-settled futures on Bitcoin soon. Manipulation of Bitcoin prices referenced by these entities is prosecutable by the CFTC, an agency with broad statutory authority to prosecute manipulation of commodity prices under the Commodity Exchange Act (including Section 753 as amended by the Dodd-Frank Act.).
Although none of these CFTC-registered entities are currently including Bitfinex in the calculation of their Bitcoin reference rates (CME used to), it is well understood and could be easily established (partially because of the transparency of Bitcoin blockchain) that Bitfinex-initiated price movements ripple through all exchanges via manual and automated trading.3 CFTC could then have grounds to investigate Bitfinex’s possible manipulation of Bitcoin price via Tether.
If you are considering investing into Bitcoin at this time, please look closer at the exchanges involved in price discovery and give it a second thought.
submitted by Yanlii to Buttcoin [link] [comments]

Lightning Network Will Likely Fail Due To Several Possible Reasons

ECONOMIC CASE IS ABSENT FOR MANY TRANSACTIONS
The median Bitcoin (BTC) fee is $14.41 currently. This has gone parabolic in the past few days. So, let’s use a number before this parabolic rise, which was $3.80. Using this number, opening and closing a Lightning Network (LN) channel means that you will pay $7.60 in fees. Most likely, the fee will be much higher for two reasons:
  1. BTC fees have been trending higher all year and will be higher by the time LN is ready
  2. When you are in the shoe store or restaurant, you will likely pay a higher fee so that you are not waiting there for one or more hours for confirmation.
Let’s say hypothetically that Visa or Paypal charges $1 per transaction. This means that Alice and Carol would need to do 8 or more LN transactions, otherwise it would be cheaper to use Visa or Paypal.
But it gets worse. Visa doesn’t charge the customer. To you, Visa and Cash are free. You would have no economic incentive to use BTC and LN.
Also, Visa does not charge $1 per transaction. They charge 3%, which is 60 cents on a $20 widget. Let’s say that merchants discount their widgets by 60 cents for non-Visa purchases, to pass the savings onto the customer. Nevertheless, no one is going to use BTC and LN to buy the widget unless 2 things happen:
  1. they buy more than 13 widgets from the same store ($7.60 divided by 60 cents)
  2. they know ahead of time that they will do this with that same store
This means that if you’re traveling, or want to tip content producers on the internet, you will likely not use BTC and LN. If you and your spouse want to try out a new restaurant, you will not use BTC and LN. If you buy shoes, you will not use BTC and LN.
ROAD BLOCKS FROM INSUFFICIENT FUNDS
Some argue that you do not need to open a channel to everyone, if there’s a route to that merchant. This article explains that if LN is like a distributed mesh network, then another problem exists:
"third party needs to possess the necessary capital to process the transaction. If Alice and Bob do not have an open channel, and Alice wants to send Bob .5 BTC, they'll both need to be connected to a third party (or a series of 3rd parties). Say if Charles (the third party) only possesses .4 BTC in his respective payment channels with the other users, the transaction will not be able to go through that route. The longer the route, the more likely that a third party does not possess the requisite amount of BTC, thereby making it a useless connection.”
CENTRALIZATION
According to this visualization of LN on testnet, LN will be centralized around major hubs. It might be even more centralized than this visualization if the following are true:
  1. Users will want to connect to large hubs to minimize the number of times they need to open/close channels, which incur fees
  2. LN’s security and usability relies on 100% uptime of relaying parties
  3. Only large hubs with a lot of liquidity will be able to make money
  4. Hubs or intermediary nodes will need to be licensed as money transmitters, centralizing LN to exchanges and banks as large hubs
What will the impact be on censorship-resistance, trust-less and permission-less?
NEED TO BE LICENSED AS MONEY TRANSMITTER
Advocates for LN seem to talk a lot about the technology, but ignore the legalities.
FinCEN defines money transmitters. LN hubs and intermediary nodes seem to satisfy this definition.
Application of FinCEN's Regulations to Persons Administering, Exchanging, or Using Virtual Currencies
“…applicability of the regulations … to persons creating, obtaining, distributing, exchanging, accepting, or transmitting virtual currencies.”
“…an administrator or exchanger is an MSB under FinCEN's regulations, specifically, a money transmitter…”
"An administrator or exchanger that (1) accepts and transmits a convertible virtual currency or (2) buys or sells convertible virtual currency for any reason is a money transmitter under FinCEN's regulations…”
"FinCEN's regulations define the term "money transmitter" as a person that provides money transmission services, or any other person engaged in the transfer of funds. The term "money transmission services" means "the acceptance of currency, funds, or other value that substitutes for currency from one person and the transmission of currency, funds, or other value that substitutes for currency to another location or person by any means.””
"The definition of a money transmitter does not differentiate between real currencies and convertible virtual currencies.”
FinCEN’s regulations for IVTS:
"An “informal value transfer system” refers to any system, mechanism, or network of people that receives money for the purpose of making the funds or an equivalent value payable to a third party in another geographic location, whether or not in the same form.”
“…IVTS… must comply with all BSA registration, recordkeeping, reporting and AML program requirements.
“Money transmitting” occurs when funds are transferred on behalf of the public by any and all means including, but not limited to, transfers within the United States or to locations abroad…regulations require all money transmitting businesses…to register with FinCEN."
Mike Caldwell used to accept and mail bitcoins. Customers sent him bitcoins and he mailed physical bitcoins back or to a designated recipient. There is no exchange from one type of currency to another. FinCEN told him that he needed to be licensed as money transmitter, after which Caldwell stopped mailing out bitcoins.
ARGUMENTS AGAINST NEED FOR LICENSING
Some have argued that LN does not transfer BTC until the channel is closed on the blockchain. This is not a defence, since channels will close on the blockchain.
Some have argued that LN nodes do not take ownership of funds. Is this really true? Is this argument based on a technicality or hoping for a loophole? It seems intuitive that a good prosecutor can easily defeat this argument. Even if this loophole exists, can we count on the government to never close this loophole?
So, will LN hubs and intermediary nodes need to be licensed as money transmitters? If so, then Bob, who is the intermediary between Alice and Carol, will need a license. But Bob won’t have the money nor qualifications. Money transmitters need to pay $25,000 to $1 million, maintain capital levels and are subject to KYC/AML regulations1. In which case, LN will have mainly large hubs, run by financial firms, such as banks and exchanges.
Will the banks want this? Likely. Will they lobby the government to get it? Likely.
Some may be wondering about miners. FinCEN has declared that miners are not money transmitters:
https://coincenter.org/entry/aml-kyc-tokens :
"Subsequent administrative rulings clarified several remaining ambiguities: miners are not money transmitters…"
FinCEN Declares Bitcoin Miners, Investors Aren't Money Transmitters
Some argue that LN nodes will go through Tor and be anonymous. For this to work, will all of the nodes connecting to it, need to run Tor? If so, then how likely will this happen and will all of these people need to run Tor on every device (laptop, phone and tablet)? Furthermore, everyone of these people will be need to be sufficiently tech savvy to download, install and set up Tor. Will the common person be able to do this? Also, will law-abiding nodes, such as retailers or banks, risk their own livelihood by connecting to an illegal node? What is the likelihood of this?
Some argue that unlicensed LN hubs can run in foreign countries. Not true. According to FinCEN: "“Money transmitting” occurs when funds are…transfers within the United States or to locations abroad…” Also, foreign companies are not immune from the laws of other countries which have extradition agreements. The U.S. government has sued European banks over the LIBOR scandal. The U.S. government has charged foreign banks for money laundering and two of those banks pleaded guilty. Furthermore, most countries have similar laws. It is no coincidence that European exchanges comply with KYC/AML.
Will licensed, regulated LN hubs connect to LN nodes behind Tor or in foreign countries? Unlikely. Will Amazon or eBay connect to LN nodes behind Tor or in foreign countries? Unlikely. If you want to buy from Amazon, you’ll likely need to register yourself at a licensed, regulated LN hub, which means you’ll need to provide your identification photo.
Say goodbye to a censorship-resistant, trust-less and permission-less coin.
For a preview of what LN will probably look like, look at Coinbase or other large exchanges. It’s a centralized, regulated and censored hub. Coinbase allows users to send to each other off-chain. Coinbase provides user data to the IRS and disallows users from certain countries to sell BTC. You need to trust that no rogue employee in the exchange will steal your funds, or that a bank will not confiscate your funds as banks did in Cyprus. What if the government provides a list of users, who are late with their tax returns, to Coinbase and tells Coinbase to block those users from making transactions? You need Coinbase’s permission.
This would be the antithesis of why Satoshi created Bitcoin.
NEED TO REPORT TO IRS
The IRS has a definition for “third party settlement organization” and these need to report transactions to the IRS.
Though we do not know for sure yet, it can be argued that LN hubs satisfies this definition. If this is the case, who will be willing to be LN hubs, other than banks and exchanges?
To read about the discussion, go to:
Lightning Hubs Will Need To Report To IRS
COMPLEXITY
All cryptocurrencies are complicated for the common person. You may be tech savvy enough to find a secure wallet and use cryptocurrencies, but the masses are not as tech savvy as you.
LN adds a very complicated and convoluted layer to cryptocurrencies. It is bound to have bugs for years to come and it’s complicated to use. This article provides a good explanation of the complexity. Just from the screenshot of the app, the user now needs to learn additional terms and commands:
“On Chain”
“In Channels”
“In Limbo”
“Your Channel”
“Create Channel”
“CID”
“OPENING”
“PENDING-OPEN”
“Available to Receive”
“PENDING-FORCE-CLOSE”
There are also other things to learn, such as how funds need to be allocated to channels and time locks. Compare this to using your current wallet.
Recently, LN became even more complicated and convoluted. It needs a 3rd layer as well:
Scaling Bitcoin Might Require A Whole 'Nother Layer
How many additional steps does a user need to learn?
ALL COINS PLANNING OFF-CHAIN SCALING ARE AT RISK
Bitcoin Segwit, Litecoin, Vertcoin and possibly others (including Bitcoin Cash) are planning to implement LN or layer 2 scaling. Ethereum is planning to use Raiden Network, which is very similar to LN. If the above is true about LN, then the scaling roadmap for these coins is questionable at best, nullified at worst.
BLOCKSTREAM'S GAME PLAN IS ON TRACK
Blockstream employs several of the lead Bitcoin Core developers. Blockstream has said repeatedly that they want high fees. Quotes and source links can be found here.
Why is Blockstream so adamant on small blocks, high fees and off-chain scaling?
Small blocks, high fees and slow confirmations create demand for off-chain solutions, such as Liquid. Blockstream sells Liquid to exchanges to move Bitcoin quickly on a side-chain. LN will create liquidity hubs, such as exchanges, which will generate traffic and fees for exchanges. With this, exchanges will have a higher need for Liquid. This will be the main way that Blockstream will generate revenue for its investors, who invested $76 million. Otherwise, they can go bankrupt and die.
One of Blockstream’s investors/owners is AXA. AXA’s CEO and Chairman until 2016 was also the Chairman of Bilderberg Group. The Bilderberg Group is run by bankers and politicians (former prime ministers and nation leaders). According to GlobalResearch, Bilderberg Group wants “a One World Government (World Company) with a single, global marketplace…and financially regulated by one ‘World (Central) Bank’ using one global currency.” LN helps Bilderberg Group get one step closer to its goal.
Luke-Jr is one of the lead BTC developers in Core/Blockstream. Regulation of BTC is in-line with his beliefs. He is a big believer in the government, as he believes that the government should tax you and the “State has authority from God”. In fact, he has other radical beliefs as well:
So, having only large, regulated LN hubs is not a failure for Blockstream/Bilderberg. It’s a success. The title of this article should be changed to: "Lightning Will Fail Or Succeed, Depending On Whether You Are Satoshi Or Blockstream/Bilderberg".
SIGNIFICANT ADVANCEMENTS WITH ON-CHAIN SCALING
Meanwhile, some coins such as Ethereum and Bitcoin Cash are pushing ahead with on-chain scaling. Both are looking at Sharding.
Visa handles 2,000 transactions per second on average. Blockstream said that on-chain scaling will not work. The development teams for Bitcoin Cash have shown significant on-chain scaling:
1 GB block running on testnet demonstrates over 10,000 transactions per second:
"we are not going from 1MB to 1GB tomorrow — The purpose of going so high is to prove that it can be done — no second layer is necessary”
"Preliminary Findings Demonstrate Over 10,000 Transactions Per Second"
"Gigablock testnet initiative will likely be implemented first on Bitcoin Cash”
Peter Rizun, Andrew Stone -- 1 GB Block Tests -- Scaling Bitcoin Stanford At 13:55 in this video, Rizun said that he thinks that Visa level can be achieved with a 4-core/16GB machine with better implementations (modifying the code to take advantage of parallelization.)
Bitcoin Cash plans to fix malleability and enable layer 2 solutions:
The Future of “Bitcoin Cash:” An Interview with Bitcoin ABC lead developer Amaury Séchet:
"fixing malleability and enabling Layer 2 solutions will happen”
However, it is questionable if layer 2 will work or is needed.
GOING FORWARD
The four year scaling debate and in-fighting is what caused small blockers (Blockstream) to fork Bitcoin by adding Segwit and big blockers to fork Bitcoin into Bitcoin Cash. Read:
Bitcoin Divorce - Bitcoin [Legacy] vs Bitcoin Cash Explained
It will be interesting to see how they scale going forward.
Scaling will be instrumental in getting network effect and to be widely adopted as a currency. Whichever Coin Has The Most Network Effect Will Take All (Or Most) (BTC has little network effect, and it's shrinking.)
The ability to scale will be key to the long term success of any coin.
submitted by curt00 to Bitcoincash [link] [comments]

How do we comply with FinCEN and Title 31 laws/ regulations?

I would like to begin trading on LocalBitcoins and similar fiat-to-crypto peer-to-peer exchanges. I am trying to find all the rules I have to follow to do this legally but from the articles I've read about people being arrested for trading on LBC, it doesn't appear to be black and white. While some of these guys were clearly breaking the law, there are some instances where a trader is arrested for "running an unlicensed money transmission business" with not much detail on exactly why or what specifically what rules were broken.
Here are just a few:
I'm sure there are plenty more.
So far, I've summed up to morals of these stories up to the following:
Currently I'm attempting to read through the FinCEN website and Title 31 itself but they're not exactly written for laymen. Does anyone have any insight there can share on this topic? Any help or guidance at all is appreciated.
submitted by cohen5250 to BitcoinMarkets [link] [comments]

[Manipulation] Notes on the transparency of Tether and Bitcoin market manipulation

I would like to share some alarming signs of Bitcoin price manipulation.
Bitcoin price is about 10 times of what it was a year ago. The exchange that decisively sets Bitcoin price is Bitfinex, a secretive institution with unknown beneficiary structure and place of organization.
https://pbs.twimg.com/media/Cs0oGXQWAAAqMRZ.jpg
Bitfinex had its wire services suspended by Wells Fargo in April. To resume trading, Bitfinex enlisted the help of Tether, another company with unknown beneficiary structure and place of organisation, but based on announcements is likely under common share holder control with Bitfinex. Tether sells crypto-tokens known as USD Tethers, or USDTs, that are purportedly backed by an equal number of US dollars. In other words, each USDT is a digital good priced at USD 1.00.
Despite the promise of "100% reserve" and the vague reference to "24×7 access to your funds" on Tether’s website, there is no contractual right, either tacit or express, for one USDT to be redeemed for one US dollar. It is probably through this legal construct that Tether hopes to characterise its USDTs as digital goods and not "convertible" virtual currency covered by FinCEN regulations.
The invention of USDTs led to the proliferation of numerous crypto-currency exchanges. Examples include Bitfinex, Binance, HitBTC, KKex, Poloniex, and YoBit. Instead of providing crypto-to-fiat trading pairs, these "coin-to-coin" exchanges offer crypto-to-tether trading exclusively. Therefore, USDTs not only help these exchanges remove the need for formal banking arrangement, but also enables these exchanges to organise in lesser known jurisdictions (e.g., the Republic of Seychelles) and operate outside of the regulation and supervision of major economies. Most of these exchanges claim to screen-off visitors from the United States and other countries with laws on coin-to-coin trading, but the screen-off is often perfunctory. In almost all cases, the screen can be defeated with a simple mouse click.
It is doubtful that these exchanges perform meaningful due diligence beyond identity verification to combat money laundering, financing of terrorism, and corruption of politically exposes persons. Bitfinex, for example, requires no identity verification at all for most trading activities and imposes no trading amount limits on unverified accounts. The enablement of these exchanges where rampant money laundering is possible is outside of the scope of this note. Instead, I would like to bring to your attention the distinct possibility that Bitfinex, as the likely controller of Tether, is a bad actor.
Strong circumstantial evidence suggests that Bitfinex is creating USDTs out of thin air to prop up Bitcoin prices. Namely, Bitfinex is likely acting as a central bank that issues a fiat money called USDTs. The sole mandate of this central bank is to enrich itself through market manipulation.
https://i.imgur.com/b1Pdsq9.jpg
The first image (above) illustrates how mysterious amounts of USDTs were minted and injected into Bitfinex at precise moments when a crash seemed imminent.
https://i.imgur.com/jAyPlF8.jpg
The second image (above) illustrates a strong correlation (but admittedly not causation) between the total amount of USDTs in circulation and Bitcoin price.
Bitfinex released an internal memo in September to allay concerns that USDTs might have been created at will. The memo purportedly shows that Tether maintained sufficient US dollars to match all USDTs in circulation as of a day in September. The memo, however, is of no probative value. Among other strange things, the author of the memo didn’t verify with banks (names redacted) that account balances from Tethers were in fact correct, couldn’t promise that the balances weren’t overnight borrowings for purposes of producing the memo, and couldn’t promise that Tether indeed had access to those funds.
I therefore urge you to consider the possibility that the current price of Bitcoin is the result of Bitfinex’s manipulation and may collapse when regulators take action.
For example, Tether is almost certainly an administrator of virtual currency — it centrally puts into and withdraws from circulation USDTs, a virtual currency squarely intended as a substitute for real currency as admitted by Tether in the internal memo.
Tether has nominally registered as a money transmitter with FinCEN, but it is unclear if they fulfill any of the BSA filing requirements (e.g., filing SARs).2 As a company, Tether’s USDTs enables large crypto-currency exchanges (including US-based exchanges like Poloniex) to exist and powers trades thereon in the amount of millions every day. So it wouldn’t be surprising if FinCEN eventually decides to enforce its rules against Tether as it did against Liberty Reserve.
Further, CFTC approved recently various swap execution facilities, designated contract markets and derivative clearing organizations with Bitcoin flavor. And the Chicago Mercantile Exchange is expected to launch cash-settled futures on Bitcoin soon. Manipulation of Bitcoin prices referenced by these entities is prosecutable by the CFTC, an agency with broad statutory authority to prosecute manipulation of commodity prices under the Commodity Exchange Act (including Section 753 as amended by the Dodd-Frank Act.).
Although none of these CFTC-registered entities are currently including Bitfinex in the calculation of their Bitcoin reference rates (CME used to), it is well understood and could be easily established (partially because of the transparency of Bitcoin blockchain) that Bitfinex-initiated price movements ripple through all exchanges via manual and automated trading.3 CFTC could then have grounds to investigate Bitfinex’s possible manipulation of Bitcoin price via Tether.
If you are considering investing into Bitcoin at this time, please look closer at the exchanges involved in price discovery and give it a second thought.
submitted by Yanlii to btc [link] [comments]

Adam S. Tracy Breaks Down FINCEN’s Regulation of Cryptocurrency

https://www.youtube.com/watch?v=8qbUG05jKPY
Cryptocurrency attorney Adam S. Tracy discusses FINCEN’s regulation of cryptocurrency and the impact on traders, cryptocurrency exchanges, and OTC bitcoin dealers. Email: [email protected]
— —
A former competitive rugby player, serial entrepreneur and, trader attorney, Adam S. Tracy offers over 17 years of progressive legal and compliance experience in the areas of corporate, commodities, cryptocurrency, litigation, payments and securities law. Adam’s experience ranges from commodities trader for oil giant BP, initial public offerings, M&A, to initial coin offerings, having represented both startups to NASDAQ-listed entities. As an early Bitcoin adapter, Adam has promoted growth of cryptocurrency and offers a unique approach to representing crypto-clients. Based in Chicago, IL, Adam graduated from the University of Notre Dame with dual degrees in Finance and Computer Applications and would later obtain his J.D. and M.B.A. from DePaul University. Adam lives outside Chicago with his six animals, which is illegal where he lives.
Email me: [email protected]
Primary website: http://www.tracyfirm.com
Twitter: https://twitter.com/TracyFirm
Youtube: https://www.youtube.com/channel/UCVOa...
Linkedin: https://www.linkedin.com/in/adamtracy/
Facebook: https://www.facebook.com/thetracyfirm/
Instagram: @adamtracyattorney
Telegram: @adam_tracy
Skype: @adamtracyesq
Email me: [email protected]
TRANSCRIPTION:
Obviously, there’s a huge emphasis on compliance from a cryptocurrency standpoint with respect to the SEC and to a lesser extent to the CFTC. But the one government agency that’s really put forth the most guidance, if you will, would be FinCEN. And we’ve talked about money service business registration in past, and FinCEN is the government agency that is dealt with enacting the tenants of the Bank Secrecy Act and overseeing money service businesses. And so FinCEN has put out guidance that sort of defines the players in the cryptocurrency market. And those three players are: users, administrators, and exchangers.
And so user is someone who uses virtual currency or cryptocurrency to buy and sell goods. FinCEN has come out directly and said that a user is not a money transmitter and hence not a money service business. An exchanger is one who deals in the exchange of cryptocurrency — the buying and selling of cryptocurrency in exchange for real or other virtual currencies. And in most cases FinCEN and has found that a exchanger is a money transmitter and thus a money service business, and subject to registration as a money service business. Then finally, an administrator, which is the interesting sort element here, is a party that issues virtual currency and has the ability to redeem that virtual currency. And in most cases FinCEN has found that an administrator is, in fact, a money transmitter and thus a money service, and is required to register as a money service business. And it’s a weird implication, or important implication, for ICO companies because they are obviously issuing cryptocurrency, but the caveat or sort of the tenant where I think most ICO companies fall out of the definition of an administrator is that most ICO companies don’t have the ability to redeem their cryptocurrency, right? They issue it, but they don’t redeem it. So therefore they wouldn’t fall into that definition of a money transmitter. So, you know, it’s a very strange implication because there are some ICOs out there that, you know, have this innate ability to redeem whether through conversion or some other mechanism the cryptocurrency that they’ve issued and sold. And technically by the book, according to FinCEN, you are the money transmitter and you need to register as a money service business or face severe fines, penalties, and the like. That’s sort of point one that people, I think, overlook.
Point two is, you know, how do you, sort of, fall outside the ambit of this, if you are a speculator, right? Let’s say I’m an individual who engages in the buying and selling of cryptocurrency or the arbitrage of different cryptocurrencies for my own account. FinCEN has come out with a decision that actually exempts such activity from the definition an exchanger, which across the board is almost always a money transmitter and thus required to register as a money service business. So, you know, there’s a great emphasis on the SEC, and where the SEC is going to fall, and to some extent the CFTC. And that’s valid. That’s super valid, because ultimately that’s cryptocurrency and the large part is a function of an ICO and raising capital for businesses, right? And so the question becomes are we engaging in offerings of securities? And that’s another discussion for another time. But what is codified, what is real, what people overlook, in my opinion my humble opinion for it’s worth, is FinCEN, and their money service business registration and the money transmitter laws that are associated there with. So, it’s definitely something to consider and definitely something to check out, you know, depending on what player you are within the the ecosphere of cryptocurrency. So check me out — TracyFirm.com.
submitted by bitattorney to u/bitattorney [link] [comments]

[Manipulation] Notes on the transparency of Tether and Bitcoin market manipulation

I would like to share some alarming signs of Bitcoin price manipulation.
Bitcoin price is about 10 times of what it was a year ago. The exchange that decisively sets Bitcoin price is Bitfinex, a secretive institution with unknown beneficiary structure and place of organization.
https://pbs.twimg.com/media/Cs0oGXQWAAAqMRZ.jpg
Bitfinex had its wire services suspended by Wells Fargo in April. To resume trading, Bitfinex enlisted the help of Tether, another company with unknown beneficiary structure and place of organisation, but based on announcements is likely under common share holder control with Bitfinex. Tether sells crypto-tokens known as USD Tethers, or USDTs, that are purportedly backed by an equal number of US dollars. In other words, each USDT is a digital good priced at USD 1.00.
Despite the promise of "100% reserve" and the vague reference to "24×7 access to your funds" on Tether’s website, there is no contractual right, either tacit or express, for one USDT to be redeemed for one US dollar. It is probably through this legal construct that Tether hopes to characterise its USDTs as digital goods and not "convertible" virtual currency covered by FinCEN regulations.
The invention of USDTs led to the proliferation of numerous crypto-currency exchanges. Examples include Bitfinex, Binance, HitBTC, KKex, Poloniex, and YoBit. Instead of providing crypto-to-fiat trading pairs, these "coin-to-coin" exchanges offer crypto-to-tether trading exclusively. Therefore, USDTs not only help these exchanges remove the need for formal banking arrangement, but also enables these exchanges to organise in lesser known jurisdictions (e.g., the Republic of Seychelles) and operate outside of the regulation and supervision of major economies. Most of these exchanges claim to screen-off visitors from the United States and other countries with laws on coin-to-coin trading, but the screen-off is often perfunctory. In almost all cases, the screen can be defeated with a simple mouse click.
It is doubtful that these exchanges perform meaningful due diligence beyond identity verification to combat money laundering, financing of terrorism, and corruption of politically exposes persons. Bitfinex, for example, requires no identity verification at all for most trading activities and imposes no trading amount limits on unverified accounts. The enablement of these exchanges where rampant money laundering is possible is outside of the scope of this note. Instead, I would like to bring to your attention the distinct possibility that Bitfinex, as the likely controller of Tether, is a bad actor.
Strong circumstantial evidence suggests that Bitfinex is creating USDTs out of thin air to prop up Bitcoin prices. Namely, Bitfinex is likely acting as a central bank that issues a fiat money called USDTs. The sole mandate of this central bank is to enrich itself through market manipulation.
https://i.imgur.com/b1Pdsq9.jpg
The first image (above) illustrates how mysterious amounts of USDTs were minted and injected into Bitfinex at precise moments when a crash seemed imminent.
https://i.imgur.com/jAyPlF8.jpg
The second image (above) illustrates a strong correlation (but admittedly not causation) between the total amount of USDTs in circulation and Bitcoin price.
Bitfinex released an internal memo in September to allay concerns that USDTs might have been created at will. The memo purportedly shows that Tether maintained sufficient US dollars to match all USDTs in circulation as of a day in September. The memo, however, is of no probative value. Among other strange things, the author of the memo didn’t verify with banks (names redacted) that account balances from Tethers were in fact correct, couldn’t promise that the balances weren’t overnight borrowings for purposes of producing the memo, and couldn’t promise that Tether indeed had access to those funds.
I therefore urge you to consider the possibility that the current price of Bitcoin is the result of Bitfinex’s manipulation and may collapse when regulators take action.
For example, Tether is almost certainly an administrator of virtual currency — it centrally puts into and withdraws from circulation USDTs, a virtual currency squarely intended as a substitute for real currency as admitted by Tether in the internal memo.
Tether has nominally registered as a money transmitter with FinCEN, but it is unclear if they fulfill any of the BSA filing requirements (e.g., filing SARs).2 As a company, Tether’s USDTs enables large crypto-currency exchanges (including US-based exchanges like Poloniex) to exist and powers trades thereon in the amount of millions every day. So it wouldn’t be surprising if FinCEN eventually decides to enforce its rules against Tether as it did against Liberty Reserve.
Further, CFTC approved recently various swap execution facilities, designated contract markets and derivative clearing organizations with Bitcoin flavor. And the Chicago Mercantile Exchange is expected to launch cash-settled futures on Bitcoin soon. Manipulation of Bitcoin prices referenced by these entities is prosecutable by the CFTC, an agency with broad statutory authority to prosecute manipulation of commodity prices under the Commodity Exchange Act (including Section 753 as amended by the Dodd-Frank Act.).
Although none of these CFTC-registered entities are currently including Bitfinex in the calculation of their Bitcoin reference rates (CME used to), it is well understood and could be easily established (partially because of the transparency of Bitcoin blockchain) that Bitfinex-initiated price movements ripple through all exchanges via manual and automated trading.3 CFTC could then have grounds to investigate Bitfinex’s possible manipulation of Bitcoin price via Tether.
If you are considering investing into Bitcoin at this time, please look closer at the exchanges involved in price discovery and give it a second thought.
submitted by Yanlii to Tether [link] [comments]

[Manipulation] Notes on the transparency of Tether and Bitcoin market manipulation

I would like to share some alarming signs of Bitcoin price manipulation.
Bitcoin price is about 10 times of what it was a year ago. The exchange that decisively sets Bitcoin price is Bitfinex, a secretive institution with unknown beneficiary structure and place of organization.
https://pbs.twimg.com/media/Cs0oGXQWAAAqMRZ.jpg
Bitfinex had its wire services suspended by Wells Fargo in April. To resume trading, Bitfinex enlisted the help of Tether, another company with unknown beneficiary structure and place of organisation, but based on announcements is likely under common share holder control with Bitfinex. Tether sells crypto-tokens known as USD Tethers, or USDTs, that are purportedly backed by an equal number of US dollars. In other words, each USDT is a digital good priced at USD 1.00.
Despite the promise of "100% reserve" and the vague reference to "24×7 access to your funds" on Tether’s website, there is no contractual right, either tacit or express, for one USDT to be redeemed for one US dollar. It is probably through this legal construct that Tether hopes to characterise its USDTs as digital goods and not "convertible" virtual currency covered by FinCEN regulations.
The invention of USDTs led to the proliferation of numerous crypto-currency exchanges. Examples include Bitfinex, Binance, HitBTC, KKex, Poloniex, and YoBit. Instead of providing crypto-to-fiat trading pairs, these "coin-to-coin" exchanges offer crypto-to-tether trading exclusively. Therefore, USDTs not only help these exchanges remove the need for formal banking arrangement, but also enables these exchanges to organise in lesser known jurisdictions (e.g., the Republic of Seychelles) and operate outside of the regulation and supervision of major economies. Most of these exchanges claim to screen-off visitors from the United States and other countries with laws on coin-to-coin trading, but the screen-off is often perfunctory. In almost all cases, the screen can be defeated with a simple mouse click.
It is doubtful that these exchanges perform meaningful due diligence beyond identity verification to combat money laundering, financing of terrorism, and corruption of politically exposes persons. Bitfinex, for example, requires no identity verification at all for most trading activities and imposes no trading amount limits on unverified accounts. The enablement of these exchanges where rampant money laundering is possible is outside of the scope of this note. Instead, I would like to bring to your attention the distinct possibility that Bitfinex, as the likely controller of Tether, is a bad actor.
Strong circumstantial evidence suggests that Bitfinex is creating USDTs out of thin air to prop up Bitcoin prices. Namely, Bitfinex is likely acting as a central bank that issues a fiat money called USDTs. The sole mandate of this central bank is to enrich itself through market manipulation.
https://i.imgur.com/b1Pdsq9.jpg
The first image (above) illustrates how mysterious amounts of USDTs were minted and injected into Bitfinex at precise moments when a crash seemed imminent.
https://i.imgur.com/jAyPlF8.jpg
The second image (above) illustrates a strong correlation (but admittedly not causation) between the total amount of USDTs in circulation and Bitcoin price.
Bitfinex released an internal memo in September to allay concerns that USDTs might have been created at will. The memo purportedly shows that Tether maintained sufficient US dollars to match all USDTs in circulation as of a day in September. The memo, however, is of no probative value. Among other strange things, the author of the memo didn’t verify with banks (names redacted) that account balances from Tethers were in fact correct, couldn’t promise that the balances weren’t overnight borrowings for purposes of producing the memo, and couldn’t promise that Tether indeed had access to those funds.
I therefore urge you to consider the possibility that the current price of Bitcoin is the result of Bitfinex’s manipulation and may collapse when regulators take action.
For example, Tether is almost certainly an administrator of virtual currency — it centrally puts into and withdraws from circulation USDTs, a virtual currency squarely intended as a substitute for real currency as admitted by Tether in the internal memo.
Tether has nominally registered as a money transmitter with FinCEN, but it is unclear if they fulfill any of the BSA filing requirements (e.g., filing SARs).2 As a company, Tether’s USDTs enables large crypto-currency exchanges (including US-based exchanges like Poloniex) to exist and powers trades thereon in the amount of millions every day. So it wouldn’t be surprising if FinCEN eventually decides to enforce its rules against Tether as it did against Liberty Reserve.
Further, CFTC approved recently various swap execution facilities, designated contract markets and derivative clearing organizations with Bitcoin flavor. And the Chicago Mercantile Exchange is expected to launch cash-settled futures on Bitcoin soon. Manipulation of Bitcoin prices referenced by these entities is prosecutable by the CFTC, an agency with broad statutory authority to prosecute manipulation of commodity prices under the Commodity Exchange Act (including Section 753 as amended by the Dodd-Frank Act.).
Although none of these CFTC-registered entities are currently including Bitfinex in the calculation of their Bitcoin reference rates (CME used to), it is well understood and could be easily established (partially because of the transparency of Bitcoin blockchain) that Bitfinex-initiated price movements ripple through all exchanges via manual and automated trading.3 CFTC could then have grounds to investigate Bitfinex’s possible manipulation of Bitcoin price via Tether.
If you are considering investing into Bitcoin at this time, please look closer at the exchanges involved in price discovery and give it a second thought.
submitted by Yanlii to CryptoMarkets [link] [comments]

US Bitcoin traders who identify as users are under siege. Do you have the same issue in your country?

As a bitcoin trader myself, I follow all the news of us trader arrests. These fall into two categories. First, the user did something otherwise unlawful such as trafficking drugs or committing money laundering and was charged with "operating an unlicensed money servicing business" and "conspiracy for agreeing to distribute controlled dangerous substances". In these types of cases I agree that the user should be punished for conspiracy to distribute drugs and money laundering. The second type of case that is becoming far more prevalent now is where the bitcoin user has simply made sales and purchases of bitcoin for his or her own account. These users are still charged with "Operating an unlicensed money services business."
This I do not agree with at all because FIN-2008-G008 declared that "When a broker or dealer in currency or other commodities accepts and transmits funds solely for the purpose of effecting a bona fide purchase or sale of currency or other commodities for or with a customer, such person is not engaged as a business in the transfer of funds, and is not acting as a money transmitter as that term is defined in our regulations.8 In such circumstances, the transmission of funds is a fundamental element of the actual transaction necessary to execute the contract for the purchase or sale of the currency or the other commodity. The transmission of funds is not a separate and discrete service provided in addition to the underlying transaction. It is a necessary and integral part of the transaction."
This determination was reiterated in subsequent guidance FIN-2013-G001 & response FIN-2014-R002. Simply put a bitcoin user who only purchases or sells bitcoin of his own account to or from a customer is not a money transmitter.
Most simple bitcoin traders operate under this guidance and are simply flabbergasted when confronted with charges for operating an "unlicensed money services business" or "operating an unlicensed bitcoin exchange". When the government makes their case the conveniently only quote the portion of the rule that states " An exchanger is a person engaged as a business in theexchange of virtual currency for real currency, funds, or other virtual currency". [FIN-2013-G001] Except that it is clearly explained in FIN-2008-G008 that "When a broker or dealer in currency or other commodities accepts and transmits funds solely for the purpose of effecting a bona fide purchase or sale of currency or other commodities for or with a customer, such person is not engaged as a business in the transfer of funds, and is not acting as a money transmitter as that term is defined in our regulations." This is carried forward and reiterated in FIN-2013-G001 where it states "In 2008, FinCEN issued guidance stating that as long as a broker or dealer in real currency or other commodities accepts and transmits funds solely for the purpose of effecting a bona fide purchase or sale of the real currency or other commodities for or with a customer, such person is not acting as a money transmitter under the regulations. However, if the broker or dealer transfers funds between a customer and a third party that is not part of the currency or commodity transaction, such transmission of funds is no longer a fundamental element of the actual transaction necessary to execute the contract for the purchase or sale of the currency or the other commodity. This scenario is, therefore, money transmission. Examples include, in part, (1) the transfer of funds between a customer and a third party by permitting a third party to fund a customer’s account; (2) the transfer of value from a customer’s currency or commodity position to the account of another customer; or (3) the closing out of a customer’s currency or commodity position, with a transfer of proceeds to a third party. Since the definition of a money transmitter does not differentiate between real currencies and convertible virtual currencies, the same rules apply to brokers and dealers of e-currency and e-precious metals.
A simple way to think about the definition of a money transmitter is that a money transmitter typically collects funds from one customer and transmits those funds to another customer via its agents in a remote location. So A western Union agent for example collects $100 from Bob Smith in Iowa and deposits this money into its Bank of America Account. Peggy Sue in Ohio goes to a western union agent where the agent prints out a check from western union or gets an ach credit into its business checking account from Bank of America and pays out a portion of the received funds to Peggy Sue. Western Union is transmitting money by accepting it from agent A and transmitting it to agent B for further credit to Peggy Sue. So let's think about this in terms of bitcoin. Bitcoin is a centralized ledger of funds for each public key or "account". If I have 0.05 bitcoin in account 1001 and I want to pay my landlord 0.05 bitcoin rent,I send the bitcoin to account 1002. All this does is make a notation on the blockchain that account 1001 now has 0 bitcoin and account 1002 now has 0.05 bitcoin. This is simplified a bit so you programmers out there don't cringe over the details of constructing a bitcoin transaction, inputs, and outputs. Suffice it to say, that sending my landlord who is standing next to me, 0.05 bitcoin, does not make me a money transmitter any more than paying him with my VISA card. In fact in both cases we could consider VISA or bitcoin a money transmitter since they take funds from person A and transmit them to person B via their agents. In VISA's case the party's banks are the agents, while in bitcoin's example the agents could be the wallet program on each phone or computer that reads the person's wallet or account balance.
Circle back to our friendly traders under siege. No, not the criminals slinging drugs, they knowingly committed their actions. I'm speaking about the bitcoin users, only selling or purchasing bitcoins from their own account to or from a customer. These traders haven't committed an offenses at all according to fincen's directions. What does the government do? Do they engage in a public information campaign to inform these traders of their rights and responsibilities? Do they create a new MSB category for digital currency and define rules and responsibilities for a virtual currency trader? No, instead they try to mislead traders in these cases where a secondary offense such as drug trafficking hasn't been committed. "You have got to be kidding me. Right?" No, I'm really not. If you start reading into these cases you'll find literally hundreds of examples of agents encouraging traders to send bitcoin to a trader in Africa for example so that trader can disburse local currency to a friend. Agents buying bitcoin for less than $10,000 USD without ID and considering this illegal behavior in the indictment! Remember a user doesn't need to report any transaction unless it exceeds $10,000 USD if it is part of his trade or business. If an auto worker who is a casual user that only trades bitcoin 3 times a year sold his for Christmas money to a friend, he wouldn't even need to report the $15,000 sale. But most traders who trade on a daily basis or do it for a living will need to file either an IRS 8300 or a Fincen CTR. Such agents who approach these casual traders entice them with inflated rates and use such phrases as "I'm going to make you rich!'". And they often ask questions about limits and regulations that don't apply to the bitcoin user. They consider all responses as violations of the money transmitter regulations that aren't supposed to apply.
So what is a trader to do? You have two choices. You can follow the law literally as most have done and have countless agents come and test you...and then worry about being arrested on charges that don't even apply to you except when acting unlawfully when strongly encouraged or even elicited under duress in some cases by government agents. Or you can falsely claim you are a money transmitter and follow those rules.
On my own personal journey I decided in October of 2014 to register with Fincen because I saw that one of my suppliers had done so on his website. I asked him about it and he said it was a precautionary measure. I asked around and I was told by many that I had to select money transmitter and other and write in bitcoin trader because there was no selection for bitcoin trader. This in spite of not being a money transmitter. After I had registered I received a call from a man in "Internal Revenue" in Boston about my registration. He asked me about my bitcoin trading and then he said he had to consult with a supervisor. About 15 minutes later he returned my call and told me, "You are not a money transmitter, so I don't need anything from you." A couple months after that, I received a call from Key Bank's compliance office in Cleveland. They had detected my registration as a money transmitter with Fincen and wanted to ask me a few questions. After questioning me, the lady told me that she previously worked for fincen and that I was not an MSB. Key bank had me sign an affidavit that I wouldn't perform any money services businesses activities such as cashing checks for profit, transmitting money, issue money orders, or create gift cards. This compliance officer understood that I was not an exchange in any way and that I only purchased and sold bitcoin of my own account. She understood I didn't hold funds for customers to trade with each other of their own accord like Bitstamp, Kraken, or Gemini.
In the years that would follow, I would have many bank accounts shut down due to this registration as a money transmitter. Most banks simply looked and said, you are a money transmitter. After all, you registered as one. I called Ficen and asked if I could un-register. "No, you cannot". The banks wouldn't even listen to the facts and make a decision. The only other business to actually study my investment model and grant me user status was Gemini. They also agreed I was a user. I think years later they came under pressure to terminate all localbitcoins accounts because many were terminated and at the end of those, mine was too. Was it a coincidence? Or could one of my customers have sabotaged me? It is possible for a user to lie about his wallet address and give out one belonging to a site such as Alphabay. I had one customer do this to me when I was selling him coin from Alphabay. Coinbase questioned me about the transaction and I informed them that someone I was sending money give that wallet out as his own. They reinstated my account since I had years of history with them and it was only one transaction. After that I was careful not to send to customer wallets directly from coinbase. I guess my point is here, if you don't register as a money transmitter they want to harass and prosecute you; but if you do register as a money transmitter they still want to harass and shut down your business. I have recently been engaged in conversations with Fincen by email and by phone and other traders. I haven't been able to speak with many compliance people who are knowledgeable about bitcoin. When I do, for example I've spoken with BitAML on this subject, they agree with me about being a user as a trader. Other compliance people won't even answer my emails or call me back. Now I'm on the verge of either retiring or going the whole money transmitter route and even following the $3,000 ID requirement that only applies to money orders, traveler's checks, and money transfers, but not virtual currency. So my question to you is, do you have the same kinds of problems in your country? Is it better, or worse where you are? Tell me your stories. From my perspective now at least, it seems like the USA has the most malfeasance and harassment of the simple bitcoin traders, excluding those who commit crimes.
Thanks for reading
submitted by scottemick to Bitcoin [link] [comments]

Banking & Finance law: How "insured" are FDIC insured cryptocurrency exchanges?

My attempts are proving futile to find concrete answers to my concern about the claim made by cryptocurrency exchanges that customer USD balances are fully backed by the FDIC.
Please see this post about the subject: https://www.reddit.com/personalfinance/comments/7h276w/fdic_insurance_do_crypto_exchanges_really_have_it/?st=japofflj&sh=090e68ce
Basically, three big cryptocurrency exchanges claim that customer USD balances are fully backed by the FDIC. For those unfamiliar, the exchanges are named Coinbase, Gemini, and ItBit. Information provided in this article provides evidence that the exchanges my be engaging in deceptive marketing. Important to note that the three exchanges raised and spent substantial capital to obtain FinCen and Money Transmitter Licenses, they are by no means bucket shops run out of a virtual office in Taiwan.
The most pertinent section of the article is quoted below:
"To obtain the charter, itBit had to meet the very strict requirements of ordinary New York chartered commercial banks and subject itself to ongoing oversight.
However, itBit is not required to obtain insurance from the Federal Deposit Insurance Corporation (FDIC), and it is subject to a much lower level of minimum capital – $2m – versus at least $50m for a commercial bank.
Despite being organized under New York's banking law, itBit is not a bank in the ordinary sense and it not regulated by any federal banking authority such as the Federal Reserve or the FDIC. Being regulated as a bank would be too expensive and require a level of regulation and oversight ill-suited for a digital currency exchange.
ItBit does, however, indirectly provide FDIC insurance to its clients' dollars by holding them at a separate FDIC-insured bank. It might be subject to some degree of FDIC oversight or compliance obligations indirectly, but that depends on how closely itBit and its banking partner work together. Bitcoin firms Coinbase and Circle similarly provide FDIC insurance to their customers' dollar accounts."
submitted by cacamalaca to legaladvice [link] [comments]

We have at least several more years of regulatory hell ahead of us

Fincen says it's a currency. So we have to register as a money services business and do KYC/AML whenever we exchange it. Oh, and two people in a room exchanging one digital currency for another digital currency is "money transmission" so you need 40+ money transmitter licenses for that. Oh, and the CFTC says it's a commodity so they can make you get a commodities trading license. The IRS says it's a commodity for tax purposes because, of course, if it were a currency, you'd pay less in taxes. Oh, you thought bitcoin-denominated shares and colored coins were revolutionary? Wait until you hear what the SEC thinks. Ask Voorhees. And now we have the pleasure of waiting for 40+ more states to pass their own bitcoin licenses.
I wish we had a smart federal judge who could interpret these laws and tell the federal government what bitcoin actually is and what laws apply to it. Several cases have come to light which would have given a judge an opportunity to do so. But because the defendants were facing such heavy fines and jailtime, they all agreed to plea guilty for deals instead of going to trial. Can't blame them.
Another option is for the federal government to pass a federal framework (trumping state laws) that say how bitcoin must be treated. Fat chance of that happening any time soon. It would take years.
Another option might be for one of these bitcoin businesses to try to get a declaratory judgment from the American courts. They would essentially say that they are experiencing a harm in the form of regulatory interference with their businesses because the CFTC, Fincen, Etc. are all defining bitcoin as different things and the exchange wants the courts to say exactly what it is and what regulations apply to it. That would probably take at least a year or two.
Conclusion: There's at minimum a 2 year window of time ahead of us where various government agencies and jurisdictions (like Lawsky's NYDFS) are going to have free reign to basically pile on and suck the blood from bitcoin. This will make running any bitcoin business or using bitcoin in any way a semi-legal affair.
tl;dr we're fucked in the short-term on the regulation front
submitted by slowmoon to Bitcoin [link] [comments]

How do we comply with FinCEN and Title 31 laws/ regulations?

I would like to begin trading on LocalBitcoins, LocalEthereum and similar fiat-to-crypto peer-to-peer exchanges. I am trying to find all the rules I have to follow to do this legally but from the articles I've read about people being arrested for trading on LBC, it doesn't appear to be black and white. While some of these guys were clearly breaking the law, there are some instances where a trader is arrested for "running an unlicensed money transmission business" with not much detail on exactly why or what specifically what rules were broken.
Here are just a few:
I'm sure there are plenty more.
So far, I've summed the morals of these stories up to the following:
Currently I'm attempting to read through the FinCEN website and Title 31 itself but they're not exactly written for laymen. Does anyone have any insight there can share on this topic? Any help or guidance at all is appreciated.
submitted by cohen5250 to ethereum [link] [comments]

[Manipulation] Notes on the transparency of Tether and Bitcoin market manipulation

I would like to share some alarming signs of Bitcoin price manipulation.
Bitcoin price is about 10 times of what it was a year ago. The exchange that decisively sets Bitcoin price is Bitfinex, a secretive institution with unknown beneficiary structure and place of organization.
https://pbs.twimg.com/media/Cs0oGXQWAAAqMRZ.jpg
Bitfinex had its wire services suspended by Wells Fargo in April. To resume trading, Bitfinex enlisted the help of Tether, another company with unknown beneficiary structure and place of organisation, but based on announcements is likely under common share holder control with Bitfinex. Tether sells crypto-tokens known as USD Tethers, or USDTs, that are purportedly backed by an equal number of US dollars. In other words, each USDT is a digital good priced at USD 1.00.
Despite the promise of "100% reserve" and the vague reference to "24×7 access to your funds" on Tether’s website, there is no contractual right, either tacit or express, for one USDT to be redeemed for one US dollar. It is probably through this legal construct that Tether hopes to characterise its USDTs as digital goods and not "convertible" virtual currency covered by FinCEN regulations.
The invention of USDTs led to the proliferation of numerous crypto-currency exchanges. Examples include Bitfinex, Binance, HitBTC, KKex, Poloniex, and YoBit. Instead of providing crypto-to-fiat trading pairs, these "coin-to-coin" exchanges offer crypto-to-tether trading exclusively. Therefore, USDTs not only help these exchanges remove the need for formal banking arrangement, but also enables these exchanges to organise in lesser known jurisdictions (e.g., the Republic of Seychelles) and operate outside of the regulation and supervision of major economies. Most of these exchanges claim to screen-off visitors from the United States and other countries with laws on coin-to-coin trading, but the screen-off is often perfunctory. In almost all cases, the screen can be defeated with a simple mouse click.
It is doubtful that these exchanges perform meaningful due diligence beyond identity verification to combat money laundering, financing of terrorism, and corruption of politically exposes persons. Bitfinex, for example, requires no identity verification at all for most trading activities and imposes no trading amount limits on unverified accounts. The enablement of these exchanges where rampant money laundering is possible is outside of the scope of this note. Instead, I would like to bring to your attention the distinct possibility that Bitfinex, as the likely controller of Tether, is a bad actor.
Strong circumstantial evidence suggests that Bitfinex is creating USDTs out of thin air to prop up Bitcoin prices. Namely, Bitfinex is likely acting as a central bank that issues a fiat money called USDTs. The sole mandate of this central bank is to enrich itself through market manipulation.
https://i.imgur.com/b1Pdsq9.jpg
The first image (above) illustrates how mysterious amounts of USDTs were minted and injected into Bitfinex at precise moments when a crash seemed imminent.
https://i.imgur.com/jAyPlF8.jpg
The second image (above) illustrates a strong correlation (but admittedly not causation) between the total amount of USDTs in circulation and Bitcoin price.
Bitfinex released an internal memo in September to allay concerns that USDTs might have been created at will. The memo purportedly shows that Tether maintained sufficient US dollars to match all USDTs in circulation as of a day in September. The memo, however, is of no probative value. Among other strange things, the author of the memo didn’t verify with banks (names redacted) that account balances from Tethers were in fact correct, couldn’t promise that the balances weren’t overnight borrowings for purposes of producing the memo, and couldn’t promise that Tether indeed had access to those funds.
I therefore urge you to consider the possibility that the current price of Bitcoin is the result of Bitfinex’s manipulation and may collapse when regulators take action.
For example, Tether is almost certainly an administrator of virtual currency — it centrally puts into and withdraws from circulation USDTs, a virtual currency squarely intended as a substitute for real currency as admitted by Tether in the internal memo.
Tether has nominally registered as a money transmitter with FinCEN, but it is unclear if they fulfill any of the BSA filing requirements (e.g., filing SARs).2 As a company, Tether’s USDTs enables large crypto-currency exchanges (including US-based exchanges like Poloniex) to exist and powers trades thereon in the amount of millions every day. So it wouldn’t be surprising if FinCEN eventually decides to enforce its rules against Tether as it did against Liberty Reserve.
Further, CFTC approved recently various swap execution facilities, designated contract markets and derivative clearing organizations with Bitcoin flavor. And the Chicago Mercantile Exchange is expected to launch cash-settled futures on Bitcoin soon. Manipulation of Bitcoin prices referenced by these entities is prosecutable by the CFTC, an agency with broad statutory authority to prosecute manipulation of commodity prices under the Commodity Exchange Act (including Section 753 as amended by the Dodd-Frank Act.).
Although none of these CFTC-registered entities are currently including Bitfinex in the calculation of their Bitcoin reference rates (CME used to), it is well understood and could be easily established (partially because of the transparency of Bitcoin blockchain) that Bitfinex-initiated price movements ripple through all exchanges via manual and automated trading.3 CFTC could then have grounds to investigate Bitfinex’s possible manipulation of Bitcoin price via Tether.
If you are considering investing into Bitcoin at this time, please look closer at the exchanges involved in price discovery and give it a second thought.
submitted by Yanlii to BitcoinMarkets [link] [comments]

The ticking time bomb of crypto exchanges and compliance

I believe the next "black swan" event for bitcoin is when the US comes down hard on almost all the exchanges out there which are brazenly flouting the regulations.
Some common fallacies:
Fallacy 1: Exchange is based in [some remote country], so they don't have to worry about US laws.
Fact 1. Most people don't realise, it's not sufficient to be based outside of the US to be free of their jurisdiction. If an exchange is serving US citizens they must comply with the regulations, regardless of which country their exchange is based in.
Fallacy 2: Exchange XYZ doesn't accept fiat and it's crypto to crypto only. Therefore it doesn't need a money transmission license.
Fact 2. Fincen has issued multiple statements very clearly stating that a business which exchanges a virtual currency in exchange for another virtual currency is a money transmitter and thus requires a money transmission licence. Similarly for fiat to crypto. Some sources: (http://fincen.gov/statutes_regs/guidance/html/FIN-2013-G001.html http://globalcryptonews.com/fincen-ruling-on-cryptocurrency-exchanges-explained-part-1-definition-of-money-transmitter-and-msb/). Here fincen publishes a redacted letter to a crypto exchange telling them they are a money transmitter: http://www.fincen.gov/news_room/rp/rulings/pdf/FIN-2014-R011.pdf
Fallacy 3: Exchange XYZ is a money service business and is therefore compliant
Fact 3. It's actually a piece of piss to get registered as a money service business and I wish people wouldn't look at it as a symbol of authenticity. If the exchange doesn't have the money transmission licenses and is serving customers in most states of america it's only a matter of time until they get a knock on the door.
Fallacy 4: Most other exchanges aren't compliant so we have safety in numbers.
Fact 4. That is not a robust legal defense.
Exchanges which aren't compliant and therefore are NOT safe places to leave your money at:
And probably almost all of the others! I've listed the above as they are exchanges which qualify as money transmitters and are operating without the correct licenses. An exchange I am fairly certain has no licenses is:
If someone can prove me wrong, let me know.
Exchanges that are doing things by the book:
tldr: Use Coinbase or Kraken if you don't want to run the risk of an exchanges funds being seized.
submitted by blackcoinprophet to Bitcoin [link] [comments]

The Bitcoin Lightning Network is intended to work like a digital Hawala network; have we solved the regulation problem?

Reference: https://en.wikipedia.org/wiki/Hawala
The idea is that once channels have been set up between entities in the network, value can be moved through these channels from one node to another. This allows two individuals to use the network to route payments.
While I have no problem with that in the slightest, I have not seen a discussion about how businesses can participate given the regulations around Money Service Businesses and Money Transmission Businesses. After all, each node along the route must be willing to transfer value from one party to another.
Hawala networks were banned in many places for this reason, though like Bitcoin they are distributed and autonomous, so effectiveness of such bans is pretty hard to determine. The Lightning Network though must recruit a wide range of participants to work as a decentralized autonomous agent for Bitcoin transactions.
I am a big fan of lightning networks. But I can't be the only one that is a little worried about the potential for a regulation problem. Hopefully there is an easy answer.
EDIT 1 Reference to FinCEN rule in the US
31 CFR § 1010.100(ff)(5)(i)(A) states:
(5) Money transmitter—
(i) In general.
(A) A person that provides money transmission services. The term “money transmission services” means the acceptance of currency, funds, or other value that substitutes for currency from one person and the transmission of currency, funds, or other value that substitutes for currency to another location or person by any means. “Any means” includes, but is not limited to, through a financial agency or institution; a Federal Reserve Bank or other facility of one or more Federal Reserve Banks, the Board of Governors of the Federal Reserve System, or both; an electronic funds transfer network; or an informal value transfer system; or
(B) Any other person engaged in the transfer of funds.
submitted by PaulSnow to Bitcoin [link] [comments]

How do we comply with FinCEN and Title 31 laws/ regulations?

I would like to begin trading on LocalBitcoins and similar fiat-to-crypto peer-to-peer exchanges. I am trying to find all the rules I have to follow to do this legally but from the articles I've read about people being arrested for trading on LBC, it doesn't appear to be black and white. While some of these guys were clearly breaking the law, there are some instances where a trader is arrested for "running an unlicensed money transmission business" with not much detail on exactly why or what specifically what rules were broken.
Here are just a few:
I'm sure there are plenty more.
So far, I've summed up the morals of these stories to the following:
Currently I'm attempting to read through the FinCEN website and Title 31 itself but they're not exactly written for laymen. Does anyone have any insight there can share on this topic? Any help or guidance at all is appreciated.
submitted by cohen5250 to CryptoCurrency [link] [comments]

How do we comply with FinCEN and Title 31 laws/ regulations?

I would like to begin trading on LocalBitcoins and similar fiat-to-crypto peer-to-peer exchanges. I am trying to find all the rules I have to follow to do this legally but from the articles I've read about people being arrested for trading on LBC, it doesn't appear to be black and white. While some of these guys were clearly breaking the law, there are some instances where a trader is arrested for "running an unlicensed money transmission business" with not much detail on exactly why or what specifically what rules were broken.
Here are just a few:
I'm sure there are plenty more.
So far, I've summed up to morals of these stories up to the following:
Currently I'm attempting to read through the FinCEN website and Title 31 itself but they're not exactly written for laymen. Does anyone have any insight there can share on this topic? Any help or guidance at all is appreciated.
submitted by cohen5250 to CryptoMarkets [link] [comments]

Marco Santori (Reg Affairs Committee Chair at the Bitcoin Foundation) breaks down the BitLicense

Note: This is NOT the Foundation's official response, just Marco's gut reactions...
http://two-bit-idiot.tumblr.com/post/92075292699/todays-bit-marco-santori-on-the-bitlicense
"Breaking Down the BitLicense" | Marco Santori, Regulatory Affairs Committee Chairman, The Bitcoin Foundation
Hi everyone. I’m Marco Santori. For those of you who don’t know me, I’m a lawyer here in New York City. About 90% of my practice is digital currency clients. My team represents some of the biggest names in crypto, and even more of the littlest names I hope you’ll all have to learn one day. I am also Chairman of the Bitcoin Foundation’s Regulatory Affairs Committee, but the thoughts in this post are my own, not those of the Foundation. Believe me, those are forthcoming.
You’ve likely felt the shockwaves of today’s seismic news: New York’s Department of Financial Services (DFS) has released proposed “BitLicense” regulations. Here is a quick rundown of some of the more interesting terms, along with my gut reactions – in no particular order and with very little filter.
Definition of Virtual Currency: “Virtual Currency” seems to include bitcoin and other convertible currencies, but specifically exclude WOW [World of Warcraft] gold and customer affinity points. Expectedly, there is no carve-out for coins used to track digital assets and there is no specific treatment of branded coins that are quasi-convertible.
Who Requires a License: Surprise! Everyone does. Direct purchasers and sellers, multi-sig wallet providers, merchant payment processors, custodial exchanges, hell, even local wallet software providers probably need one. Payment processors and payment networks all need licenses. Anyone who receives or transmits crypto as a business needs one. This is because the BitLicense language is even broader than the federal language, which only regulates those receiving and transmitting funds.
Identity Verification: If a BitLicense holder “opens an account” for a customer, then that firm must collect and retain the customer’s name and address, check the names against the OFAC SDN lists and retain that information for ten years. It’s difficult to know what “opens an account” means. Even if we figured that out, this is more than even traditional money transmitters are required to do.
Crypto is not a “Permissible Investment”: A BitLicense holder can only invest its earnings in: government securities, money market funds, insured CDs. No investing in Bitcoin. Strange – Moneygram is permitted to invest in dollars…
Full Reserve: A BitLicense holder may not lend or spend bitcoins that it is holding on its customers’ behalf. Those bitcoin “banks” out there promising returns on your “deposits” are going to be “felons”.
State-level AML Reporting: I’ve saved the best for last. NY is taking the first steps to create yet another anti-money laundering program. FinCEN – the federal regulator - already requires reporting cash transactions over $10k. Now, NY is requiring reporting to it for any crypto transactions over $10k. BitLicense holders must also file state Suspicious Activity Reports with NY, not just the ones required to file with FinCEN. I wonder how the boys at FinCEN feel about this.
There will be a 45-day comment period beginning on July 23rd. If you disagree with any of these proposals, you should submit comments. If there is anything you agree with, and are happy to see, you should submit comments. If there is anything you don’t understand, and so aren’t sure if you agree or disagree, guess what? You should submit comments. DFS is giving the industry an opportunity to engage in a dialogue that never existed when FinCEN and IRS published their famous virtual currency guidance. We should not ignore that opportunity.
If you’re looking for assistance or just want to talk crypto law, you can reach me at [email protected].
(Back to TBI)
There is much work to be done with this BitLicense proposal. It will be a defining bit of regulation for the industry, which means that the amount of constructive feedback and proactive effort needed from everyone in this industry must be nothing short of herculean if bitcoin is to evolve unencumbered in the US. This proposal simply cannot survive as is. So if you are an entrepreneur, investor or just general enthusiast, you better step up this summer. If we can make our case effectively, we should be able to keep the sane, legitimizing parts and scrap the stifling, unnecessary parts of the proposal.
Many more of my organized thoughts tomorrow…
Cheers, TBI
eepurl.com/JgGy5
submitted by twobitidiot to Bitcoin [link] [comments]

[Manipulation] Notes on the transparency of Tether and Bitcoin market manipulation

I would like to share some alarming signs of Bitcoin price manipulation.
Bitcoin price is about 10 times of what it was a year ago. The exchange that decisively sets Bitcoin price is Bitfinex, a secretive institution with unknown beneficiary structure and place of organization.
https://pbs.twimg.com/media/Cs0oGXQWAAAqMRZ.jpg
Bitfinex had its wire services suspended by Wells Fargo in April. To resume trading, Bitfinex enlisted the help of Tether, another company with unknown beneficiary structure and place of organisation, but based on announcements is likely under common share holder control with Bitfinex. Tether sells crypto-tokens known as USD Tethers, or USDTs, that are purportedly backed by an equal number of US dollars. In other words, each USDT is a digital good priced at USD 1.00.
Despite the promise of "100% reserve" and the vague reference to "24×7 access to your funds" on Tether’s website, there is no contractual right, either tacit or express, for one USDT to be redeemed for one US dollar. It is probably through this legal construct that Tether hopes to characterise its USDTs as digital goods and not "convertible" virtual currency covered by FinCEN regulations.
The invention of USDTs led to the proliferation of numerous crypto-currency exchanges. Examples include Bitfinex, Binance, HitBTC, KKex, Poloniex, and YoBit. Instead of providing crypto-to-fiat trading pairs, these "coin-to-coin" exchanges offer crypto-to-tether trading exclusively. Therefore, USDTs not only help these exchanges remove the need for formal banking arrangement, but also enables these exchanges to organise in lesser known jurisdictions (e.g., the Republic of Seychelles) and operate outside of the regulation and supervision of major economies. Most of these exchanges claim to screen-off visitors from the United States and other countries with laws on coin-to-coin trading, but the screen-off is often perfunctory. In almost all cases, the screen can be defeated with a simple mouse click.
It is doubtful that these exchanges perform meaningful due diligence beyond identity verification to combat money laundering, financing of terrorism, and corruption of politically exposes persons. Bitfinex, for example, requires no identity verification at all for most trading activities and imposes no trading amount limits on unverified accounts. The enablement of these exchanges where rampant money laundering is possible is outside of the scope of this note. Instead, I would like to bring to your attention the distinct possibility that Bitfinex, as the likely controller of Tether, is a bad actor.
Strong circumstantial evidence suggests that Bitfinex is creating USDTs out of thin air to prop up Bitcoin prices. Namely, Bitfinex is likely acting as a central bank that issues a fiat money called USDTs. The sole mandate of this central bank is to enrich itself through market manipulation.
https://i.imgur.com/b1Pdsq9.jpg
The first image (above) illustrates how mysterious amounts of USDTs were minted and injected into Bitfinex at precise moments when a crash seemed imminent.
https://i.imgur.com/jAyPlF8.jpg
The second image (above) illustrates a strong correlation (but admittedly not causation) between the total amount of USDTs in circulation and Bitcoin price.
Bitfinex released an internal memo in September to allay concerns that USDTs might have been created at will. The memo purportedly shows that Tether maintained sufficient US dollars to match all USDTs in circulation as of a day in September. The memo, however, is of no probative value. Among other strange things, the author of the memo didn’t verify with banks (names redacted) that account balances from Tethers were in fact correct, couldn’t promise that the balances weren’t overnight borrowings for purposes of producing the memo, and couldn’t promise that Tether indeed had access to those funds.
I therefore urge you to consider the possibility that the current price of Bitcoin is the result of Bitfinex’s manipulation and may collapse when regulators take action.
For example, Tether is almost certainly an administrator of virtual currency — it centrally puts into and withdraws from circulation USDTs, a virtual currency squarely intended as a substitute for real currency as admitted by Tether in the internal memo.
Tether has nominally registered as a money transmitter with FinCEN, but it is unclear if they fulfill any of the BSA filing requirements (e.g., filing SARs).2 As a company, Tether’s USDTs enables large crypto-currency exchanges (including US-based exchanges like Poloniex) to exist and powers trades thereon in the amount of millions every day. So it wouldn’t be surprising if FinCEN eventually decides to enforce its rules against Tether as it did against Liberty Reserve.
Further, CFTC approved recently various swap execution facilities, designated contract markets and derivative clearing organizations with Bitcoin flavor. And the Chicago Mercantile Exchange is expected to launch cash-settled futures on Bitcoin soon. Manipulation of Bitcoin prices referenced by these entities is prosecutable by the CFTC, an agency with broad statutory authority to prosecute manipulation of commodity prices under the Commodity Exchange Act (including Section 753 as amended by the Dodd-Frank Act.).
Although none of these CFTC-registered entities are currently including Bitfinex in the calculation of their Bitcoin reference rates (CME used to), it is well understood and could be easily established (partially because of the transparency of Bitcoin blockchain) that Bitfinex-initiated price movements ripple through all exchanges via manual and automated trading.3 CFTC could then have grounds to investigate Bitfinex’s possible manipulation of Bitcoin price via Tether.
If you are considering investing into Bitcoin at this time, please look closer at the exchanges involved in price discovery and give it a second thought.
submitted by Yanlii to bitfinex [link] [comments]

Money Service Business Registration Explained

https://youtu.be/-I26zU8XPqI

Cryptocurrency and payments attorney Adam S. Tracy explains money service business registrations and the requirements of FINCEN money service businesses.

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A former competitive rugby player, serial entrepreneur and, trader attorney, Adam S. Tracy offers over 17 years of progressive legal and compliance experience in the areas of corporate, commodities, cryptocurrency, litigation, payments and securities law. Adam's experience ranges from commodities trader for oil giant BP, initial public offerings, M&A, to initial coin offerings, having represented both startups to NASDAQ-listed entities. As an early Bitcoin adapter, Adam has promoted growth of cryptocurrency and offers a unique approach to representing crypto-clients. Based in Chicago, IL, Adam graduated from the University of Notre Dame with dual degrees in Finance and Computer Applications and would later obtain his J.D. and M.B.A. from DePaul University. Adam lives outside Chicago with his six animals, which is illegal where he lives.
Bitcoin website: http://www.bitcoin-lawyer.org
Primary website: http://www.tracyfirm.com
Twitter: https://twitter.com/TracyFirm
Youtube: https://www.youtube.com/channel/UCVOa8Iy_RIkmRPwuQliPKfw
Linkedin: https://www.linkedin.com/in/adamtracy/
Facebook: https://www.facebook.com/thetracyfirm/
Instagram: @adamtracyattorney
Telegram: @adam_tracy
Skype: @adamtracyesq
Email me: [[email protected]](mailto:[email protected])

TRANSCRIPTION:

Hey am I a money service business? I get that question about like three or four times a week. Okay. So let's read this, all right? Money transmitter includes any person who engages as a business in accepting currency or funds denominated in currency, and transmits the currency or funds or the value of the currency or funds by any means through financial agency institution, or any other person engaged as a business in the transfer of funds. So right off the bat, okay, your money transmitters, right, which are your exchanges are money service businesses, right? And that includes Bittrex. Okay a lot of questions - well, if I don't accept Fiat, do I have to get a license. Bittrex has all their licenses. Just because they don't accept USD, doesn't mean that they don't need the license because they're engaged in the transfer of funds denominated in currency, right? So they denominate things in Bitcoin and they denominated as a like a quotient of $1.00. Right? So, you know, out of an abundance of caution, and you can make the arguments that Bittrex started out not having the license - you can make the argument that you don't need the license, but out of an abundance of caution, like poorly-dressed lawyers and bad tweet suits will tell you like when you're writing a will or something like that, you need the license. You need the license, and that's not me trying to help the, you know, community of lawyers with fees. It's just the best route to go, especially in this environment. And, I think clearly the money service business aspect of it denominates that you are money service business, and if you sort of look at it transitively then you are, in fact, acting as a money transmitter and we need the state level license.

Now, if you're providing some sort of service with respect to going in and out of a particular coin, that may be a different dog altogether. So, let's say you develop tokens for your platform, and people can go in and out of that token for purposes of utilizing that platform like, think of a ICO utility token, that wouldn't be a money service business, right? That wouldn't be money service business, because you're not engaged in the transfer those funds - that's just an antecedent to what you're trying to do with your particular platform, right, whether it's a mobile app or software game or whatever it is. You're actively engaged, right, when those transfer from Fiat to token and back are antecedent or connected with the transferred money between individuals, right, even if you're using just the token as a medium of exchange, then you are a money service business. You may not be a money transmitter because you may not be charging a fee for it, right? You may not be actively engaged in that, but if you're providing that service where people are able to effectively transfer money through you, right, and whether you're using token or using USD to do it, then I believe you are a money service business, and the process for registering as money service business isn't inherently complex. Right? It's a registration. It's not necessarily an application, right? Your money transmitter applications, if you wanted to get in all 50 states, may cost you about $85,000 right? There's 48 jurisdictions, when you include the District of Columbia, that have some sort of money transmitter sale of checks type license, right? And so you need to be wary of that cost.

But, you know, when it comes to registering as a money service business, the process itself isn't terribly difficult. You don't necessarily need assistance to even do it, you know, through an attorney - you can probably do it yourself. What the key implication is, obviously, then you have to embrace and develop a pretty robust AML/KYC program for who you're dealing with, which, you know, there's a lot of misconception amongst regulators as to whether that's possible in crypto. Of course it is possible, right? If you know anything about crypto, it's very possible to do KYC/AML, and there's a lot of good third parties, myself included, that do that service and provide that service to third parties.

So, as it relates to money service businesses, obviously, if you're an exchange accepting fiat currency, absolutely, you are money service business. If you're adopting the Bittrex license, and you're still doing dollar-denominated business, then I believe you're still a money service business. If you are, you know, a singular token or a de facto currency and you're allowing for transmission, then I think, you know, you start to look like a money service business, and I think you have to consider the implication of not being a money service business, which can be criminal. And you see that example in all the cases brought against users of local bitcoins, right? So, something to definitely consider. Check me out Bitcoin lawyer (bitcoin-lawyer.org) if you have any questions. I'll talk to you later. Thanks.
submitted by bitattorney to u/bitattorney [link] [comments]

Bitcoins bounce around after Chinese trading crackdown - economy ZEC: Higher Degree of Trend Target of $2,349 BITCOIN’s 2017 ATH Of $20K Will LOOK TINY COMPARED BTC ... How does money laundering work? - Delena D. Spann Money Laundering a Hypothetical Guide Part 1: The Basics

It appears FinCEN doesn’t quite accurately grasp the fact that a DEX is a type of DApp. In the document, the financial crimes watchdog says DApps can qualify as money transmitters, if: the DApp performs money transmission, the definition of money transmitter will apply to the DApp, the owners/operators of the DApp, or both. Montana might also fall under Category One, even though it did not amend its money transmitter statute to exclude cryptocurrency, for the simple fact that Montana is now the only state in the Union that does not have a money transmission law. The Financial Crimes Enforcement Network (FinCEN) has released new guidance for custodial bitcoin exchanges and payment processors, ruling that such companies may be considered money services FinCEN previously issued a finding under Section 311 of the USA PATRIOT Act that identified Liberty Reserve as a financial institution of primary money laundering concern. BTC-e has conducted over $296 million in transactions of bitcoin alone and tens of thousands of transactions in other convertible virtual currencies. Bitcoin as a novel currency has also caught everyone’s attention. This article discusses the invention of Bitcoin, elaborating on its technicalities and relevant statistics and highlights the legal issues associated with the use of Bitcoin. List of Abbreviations

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Bitcoins bounce around after Chinese trading crackdown - economy

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