U.S. government regulations for virtual currencies

by on March 21, 2013 at 12:32 pm in Current Affairs, Law | Permalink

Here is part of one summary:

The major boon from the document for Bitcoin is this: users get off lightly. In fact, FINCEN does not intend to touch mere users of virtual currency at all; the document states, “a user who obtains convertible virtual currency and uses it to purchase real or virtual goods or services is not an MSB under FinCEN’s regulations. Such activity, in and of itself, does not fit within the definition of “money transmission services” and therefore is not subject to FinCEN’s registration, reporting, and recordkeeping regulations for MSBs.” The document also offers protection from “prepaid access” laws that regulate gift cards and the like, saying that “a person’s acceptance and/or transmission of convertible virtual currency cannot be characterized as providing or selling prepaid access because prepaid access is limited to real currencies.” Finally, even exchanges are safe from “foreign exchange” regulation, the set of rules governing businesses that offer exchange between two or more national currencies.

The regulations are here, and the pointer is from Jeff Garzik.  On the topic, there is a very good short essay by Eli Dourado.

prior_approval March 21, 2013 at 1:37 pm

It has been a half hour, and no one has mentioned the regulatory framework for fictional currencies like quatloos?

RPLong March 21, 2013 at 1:45 pm

Part of me wonders if the reason they are protecting users is because the US gov’t itself conducts covert transactions using Bitcoin. I have actually often wondered to what degree the US gov’t is using Bitcoins.

prior_approval March 21, 2013 at 1:56 pm

‘I have actually often wondered to what degree the US gov’t is using Bitcoins’

Or ‘minting’ them – I’m pretty sure the NSA could crank out a lot of Bitcoins if it wished.

Yancey Ward March 21, 2013 at 2:01 pm

But not unlimited.

prior_approval March 21, 2013 at 2:09 pm

Nope, it’s true, Bitcoin does have a hard limit. Which makes Bitcoin something of a bit player actually.

But how good would the NSA be at counterfeiting Bitcoin?

Which then leads to the idea that maybe the U.S. doesn’t care all that much about Bitcoin because it already possesses the technical ability to spike the Bitcoin well with the appropriate digital countermeasures.

Rahul March 21, 2013 at 2:13 pm

But how good would the NSA be at counterfeiting Bitcoin?

Not very. AFAIK it is cryptographically secure.

Unless a single person had malicious control over more than 50% of all Bitcoin hosts I think fraud is impossible.

bluto March 21, 2013 at 2:42 pm

It’s generally presumed by most in the encryption community that no crypto security can withstand the NSA, they simply don’t play the game on the same scale as everyone else.

F. Lynx Pardinus March 21, 2013 at 3:07 pm

bluto: “It’s generally presumed by most in the encryption community that no crypto security can withstand the NSA, ”

Well, there’s at least 3 definitions of “not withstanding.” 1) There’s a flaw in the algorithm that can be exploited. 2) The NSA throws insanely massive hardware at the algorithm. 3) There’s a flaw in the consumer implementation of the algorithm that can be exploited.

I would rank them in order of probability as 3>2>1. Which were you referring to?

Anon March 21, 2013 at 3:40 pm

The NSA can easily destroy the bitcoin network via the double spending attack if they can control 51% of the total bitcoin network. At the current size of network, we are looking at 200 million dollars in hardware costs. It really isn’t very much cost for the NSA….

http://bitcoin.stackexchange.com/questions/7246/is-the-minimum-amount-of-money-required-to-purchase-50-hash-power-equal-to-max

Dan Weber March 21, 2013 at 5:54 pm

No, lots of people in the crypto community don’t assume the NSA can break anything it wants.

However, it is believed that 1) their crypto people are smarter than anyone else’s, and 2) they can break some things that the rest of the community doesn’t know how to break, and 3) the value the NSA has in keeping #2 a secret is so huge that they aren’t going to waste that powder on anything but the most existential threats to the country.

JWatts March 21, 2013 at 6:49 pm

The NSA wouldn’t waste it’s time with Bitcoin.

As of March 2013, the monetary base of bitcoin is valued at over $500 million USD.

The NSA owns computers that cost more than $500 million!

dan1111 March 22, 2013 at 3:15 am

Why attack it when they can just regulate it? The latter is much more likely to lead to its death.

Anonymous Coward March 21, 2013 at 2:33 pm

” I’m pretty sure the NSA could crank out a lot of Bitcoins if it wished.”

Why, I think I know the solution to our budget deficit problems! :-D

Miles March 21, 2013 at 1:52 pm

link to “part of one summary” is broken

steve March 21, 2013 at 6:05 pm

Bitcoin is small beer. Hence, the government is ignoring it. Now if there were the correct ugly economic troubles then bitcoins could end up being worth hundreds of thousands or even milions of U.S. dollars. Think Zimbabwe. Under those condition, Bitcoin would no longer be ignored, and the government would reach out it’s greedy hands.

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