Hot Takes

FinCEN raises major licensing problem for ICOs in new letter to Congress.

Nearly a year ago Coin Center released a report highlighting a looming ambiguity in FinCEN’s interpretation of federal anti-money-laundering laws: whether or not token sellers are money transmitters who are subject to the Bank Secrecy Act and need to do “know your customer” compliance with respect to their buyers, and arguing that any such interpretation would require formal rulemaking. We issued the report in part because we felt that the separate but related discussion over whether token sellers might be issuing securities had overshadowed this issue and left many unaware of the serious legal consequences that could stem from potentially violating the Bank Secrecy Act rather than the Securities Acts.

As it happens, our concerns were well-founded. Today FinCEN released a letter to Senator Ron Wyden clearly indicating that they interpret the relevant laws and regulations such that token sellers are money transmitters:

A developer that sells convertible virtual currency, including in the form of ICO coins or tokens, in exchange for another type of value that substitutes for currency is a money transmitter and must comply.

Make no mistake, this is a highly consequential interpretation. Accordingly, any group or individual developer who both (A) sold newly created tokens to buyers (i.e. had an ICO) involving U.S. residents and (B) failed to register with FinCEN as a money transmitter,and perform the associated compliance KYC/AML obligations, can be charged under a federal felony criminal statute, 18 U.S.C § 1960, with unlicensed money transmission. If found guilty one could face up to five years in prison. Criminal liability may also extend to employees of, and investors in, the business that sold the tokens.

There are important public policy questions at stake here:

  1. Is it wise or appropriate under relevant administrative law to make this substantial change/clarification in interpretation through a letter to a member of Congress interpreting guidance, rather than a public rulemaking or new legislation?
  2. Is it constitutional to mandate private data collection from people who are not financial intermediaries in the traditional sense, and may be better analogized to persons selling a new invention to buyers in a person to person transaction?

It is very difficult to take this letter and derive from it a clear picture of FinCEN’s interpretation. Only one footnote is given to explain their legal reasoning:

See, FIN-2013-G001 (explaining that convertible virtual currency administrators and exchangers are money transmitters under the BSA), and FIN-2014-R001, Application of FinCEN’s Regulations to Virtual Currency Mining Operations, January 30, 2014 (explaining that persons that create units of virtual currency, such as miners, and use them in the business of accepting and transmitting value are also money transmitters).

This footnote does not tell us whether FinCEN classifies these sellers as “exchangers” or “administrators,” two distinct types of money transmitter identified by the 2013 guidance. As we describe in our 2015 paper, there are compelling reasons why a developer selling a token is not an administrator: they cannot both issue and redeem the tokens that they sell, like a Bitcoin miner they merely put them into circulation and cannot claw them back (assuming they have sold an actual decentralized token and not some promise of future tokens). There are also good reasons why a developer selling a token is not an exchanger. They may sell but they do not do so as a business dedicated to exchange; they sell as one individual or entity would sell any valuable investment or commodity to another person, for their own purposes rather than to provide third-party money transmission services between two customers or people.

The bulk of the cited 2014 guidance on miners explains why a Bitcoin miner is not a money transmitter if they merely create the units. To be a money transmitter a miner must also sell them as part of an exchange business, rather than merely sell them on their own behalf. We can only assume that FinCEN believes that developers selling tokens are “in the business of accepting and transmitting value” in addition to creating new tokens. No doubt a developer selling tokens is accepting value, but who are they transmitting it to aside from themselves?

This is a complicated and consequential legal interpretation, and one that should be discussed, unpacked, and eventually finalized in a more formal and transparent setting, e.g. a rulemaking. A footnote in a letter to a Congressman should not suffice.

In the conclusion to our report from last May we outlined Coin Center’s position on these matters:

Common understanding suggests that money transmission is an act performed by an intermediary, a person who stands between two parties accepting money from one and transmitting it to another. When a person transacts directly with another person, giving them money for any reason—as a gift, a payment, a donation, a grant, a tip—she does not play this intermediary role. She does not hold herself out as a trusted third party. She is engaged in private, personal transactions rather than being engaged as a third party to the transactions of others.

Deputizing third-party intermediaries to surveil their users on behalf of the government is a policy choice Congress made long ago; one that carries risks to individual privacy but also potential benefits to national security and peace. It’s a tradeoff Congress made back in the 1970s and it isn’t going away anytime soon. However, mandating the same kind of surveillance from individuals who are not intermediaries—who are merely transacting on their own account with another citizen—is a considerable recalibration of the balance between privacy and security. It tips the scales against personal privacy and may even be unconstitutional.

This is not a recalibration that should be made merely by issuing administrative rulings or guidance, the approach thus far taken by FinCEN when dealing with these questions. Instead, FinCEN should clarify that selling decentralized virtual currency on one’s own account does not constitute money transmission, regardless of whether the purpose of that sale is to pay a merchant, to sell tokens received through mining, or—indeed—to sell one’s own newly invented decentralized token.

Should FinCEN or Congress wish to regulate this activity for financial surveillance purposes, that change must be the subject of a larger, more public debate within a notice and comment rulemaking or an amendment to the statutory law itself. Only those formal processes can enable necessary debate over financial surveillance and the constitutionality of warrantless search.


Get your tickets for the 2020 Coin Center Annual Dinner

Individual tickets are now available for our annual fundraising gala. Get them here.

Every year, the Coin Center Annual Dinner brings the best and brightest from the blockchain community together for a night out in New York City during Consensus 2020. We hope you will once again join us in rubbing shoulders with the people building the future of this technology, all while supporting Coin Center’s critical policy advocacy mission. Here are some photos from years past.

Monday, May 11, 2020

Reception: 7:00 PM

Dinner: 8:00 PM

Ziegfeld Ballroom

141 W 54th Street, New York, NY 10019

Get your tickets here

Thank you to our sponsors: Fidelity Digital Assets, John Pfeffer, Baker Marquart, Digital Currency Group, Cooley, Perkins Coie, and Stand Together.

If you would like to join in by sponsoring a table please contact Details on sponsorship levels are available at


Eight members of Congress have asked the IRS to fix its broken guidance on forks and airdrops.

In October the IRS released long overdue answers to pressing questions about how Americans can properly calculate their taxes owed for various cryptocurrency activities. Unfortunately, that guidance is muddled, raises more questions than it answers, and seems to be based on a poor understanding of how cryptocurrency networks work.

Now Congress has taken notice of this problem. A new letter signed by eight members of Congress succinctly lays out the problem:

The guidance appears to suggest that taxpayers may have dominion and control, and thus be taxed on forked or airdropped assets when the fork or airdrop occurs, even if the taxpayer has no knowledge, and even if the taxpayer takes no affirmative step, or manifests any intention to claim or access those forked or airdropped tokens. This creates potentially unwarranted tax liability and administrative burdens for users of these important new technologies and would create inequitable results. We do not expect this is the intended effect of the guidance, and we urge the IRS to clarify the matter.

And asks the agency what it will do about this:

  1. Does the IRS intend to clarify its airdrop and fork hypotheticals to better match the actual nature of these events within the cryptocurrency ecosystem? When does the IRS anticipate issuing that clarification?
  2. Does the IRS intend to clarify its standard for finding dominion and control over forked assets wherein some level of knowledge and actual affirmative steps taken are necessary to find that the taxpayer has dominion and control?
  3. Does the IRS intend to apply the current guidance or any future guidance retroactively, or will the IRS issue proposed guidance that is subject to notice and comment?

Coin Center worked with Rep. Tom Emmer to develop this letter and we are grateful for his and his colleagues leadership on this topic. We also worked with him to develop legislation that would offer a safe harbor from tax penalties for taxpayers who have made good faith efforts to comply over the years, despite the lack of clarity. Since the recent disappointing guidance was released, Coin Center has been working to educate more policymakers on this issue, and it seems as though our efforts may be bearing fruit. Getting cryptocurrency tax policy right is a top priority for us and we are pleased to see Congress stepping in on this critical issue for its users.


The Human Rights Foundation has published a guide to stablecoins for people living in at-risk economies.

In the latest installment of their multi-part series meant to help those who may need to transact privately in the course of their sensitive work, security expert Eric Wall details compares the properties of several popular stablecoins.

Stablecoins are designed to maintain a peg to an existing currency, usually the dollar. These are similarly experimental yet promising technologies for those who need censorship resistance but prefer to be insulated from the volatility that comes with using something like Bitcoin.

Eric explains why permissionless dollars are interesting:

Most digital dollars exist as entries in central databases, where your access to them as a user is at the mercy of the system owners. To provide you with this service, the system owners will almost always demand that you provide identifying information. Examples of such systems include banks, PayPal, Wechat Pay, Venmo, and Skrill. These operators in turn fall under the regulatory purview of the jurisdictions they operate in. As such, they provide little to no help in regions where usage of the dollar is not permitted or blocked by sanctions.

Stablecoins, by virtue of existing on cryptocurrency ledgers, are — perhaps to some amount of surprise — different. The entire purpose of cryptocurrency ledgers is to be without central system owners. As such, these coins can to varying extent slip through the cracks and into the hands of people who can use them without the blessing of their government. Because cryptocurrency ledgers do not typically embed the notion of people’s real-world identities in them, stablecoins can often be held by completely unknown users.

He goes on to explain the relevant risks and benefits of various stablecoin system designs. You can read the full piece here.


Save the Date: The 2020 Coin Center Annual Dinner will be on May 11, 2020.

The Blockchain community’s night out is coming back to New York City during Consensus 2020. We hope you will join us once again to rub shoulders with some of the best and brightest in the industry, all while supporting Coin Center’s critical policy advocacy mission.

Monday, May 11, 2020

Reception: 7:00 PM

Dinner: 8:00 PM

Ziegfeld Ballroom

141 W 54th Street, New York, NY 10019

Tickets will be on sale in early 2020. For sponsorship information please contact

Check out these photos from last year’s dinner.


China intends to launch a national digital currency that will let the government easily surveil spending. Following in their footsteps would be a mistake.

A recent New York Times report highlights that Facebook’s Libra project has led Beijing to accelerate its cryptocurrency effort:

A state-issued e-currency would help China’s government know more — much, much more — about how its citizens spend their money, giving it sweeping new powers to fight crime and manage the economy while also raising privacy concerns.

“It’s extraordinary power and visibility into the financial system, more than any central bank has today,” said Martin Chorzempa, a research fellow at the Peterson Institute for International Economics in Washington.

Yet some in the U.S., including members of Congress, have been pointing precisely to China's pursuit of a state digital currency as a reason why the U.S. should consider its own corporate-led or central bank digital currency. As policymakers look at the issue they should make sure not to fall into the trap of undermining American values--like freedom of speech and assembly and rights to privacy and due process--in the haste of competing with China. Such values are absent in China's planned system, according to the Times:

Chinese officials use something of an oxymoron to describe what their new currency will offer: “controllable anonymity.”

“As long as you aren’t committing any crimes and you want to make purchases that you don’t want others to know about, we still want to protect this kind of privacy,” Mr. Mu, the deputy director of the central bank’s payments department, said in another recent online lecture on China’s cryptocurrency plans.

The capacity to perfectly surveil and control transactions on a payments or currency network is possible when intermediaries--whether banks, or companies, or consortia of either--operate a network. Any such American-led effort must forswear that kind of power by making anonymity and censorship-resistance core network features. To do otherwise would be to import authoritarian values out of fear when it is the liberal values enshrined in the U.S. Constitution that are the basis of our global leadership.


Coin Center has published a new plain English explainer on forks and airdrops to highlight ambiguities in recent IRS guidance.

Last week we published our analysis of the recently released IRS guidance. Our biggest concern with that guidance was that it incorrectly described how forks and airdrops occur, and therefore failed to provide much needed clarity with respect to how these events will be taxed.

Today we published an updated explainer on forks and airdrops to provide policymakers with a plain english description of how these events actually unfold. We hope this material will help to underscore how inappropriate it would be to hold taxpayers liable for forked or airdropped assets that they have taken no affirmative steps to claim and of which they may not even be aware. We are working closely with tax professionals, members of Congress, and other policymakers to ensure that this ambiguity is quickly resolved in a manner that does not leave cryptocurrency users with unreasonable obligations.

Read the explainer here.


This week’s EOS and Sia settlements with the SEC reinforce Coin Center’s 2016 policy recommendations. has settled and is paying a fine for doing a pre-sale of EOS as ERC20 tokens, and Nebulous has settled and is paying a fine for selling Sianotes, a profit share in the returns from their network’s decentralized storage system. In both cases, the cryptocurrency on each project’s running network has not been deemed a security in their respective settlements: EOS (the tokens on the now functional EOS network) is not deemed a security, and Siacoin (the tokens on the now functional Siacoin network) is also not deemed a security in their settlement.

In our Framework for Securities Regulation of Cryptocurrencies we explained why this exact type of outcome strikes an ideal policy balance. Tokens providing some use-value from a decentralized network are not a good fit for securities regulation, while heavily marketed and pre-sold tokens (as in trading before the network is live) are a good fit for securities regulation.

In a 2018 update to our Framework we stressed that two separate inquiries should be performed regarding security classification if a network’s token was presold but later successfully launched and now provides functionality. First, an inquiry about the pre-sale agreement (and any tokens representing it, e.g. EOS’s original ERC20 token) will likely find them to be a security and investors could benefit from appropriate disclosures and controls. Second, a separate inquiry should look at the resultant decentralized token (once distributed) and if the network is powered by open source software and running with an open consensus mechanism the token is not a security, current purchasers have less need for a disclosure regime focused on the original issuer.

This division between pre-sold token and resultant token is sometimes referred to as a transmutation of a security into a non-security or commodity. We don’t like this framing. Nothing, in our opinion, ever transmutes. The agreement for future tokens was (and always will be) a security, and the tokens that get delivered are the fruits of that agreement. The resultant assets are not tainted by their being part of an earlier crowdfund any more than the Floridian land sold in the Howey case is tainted today. Yes the land and the tokens were involved in investment contracts that were rightly regulated as securities, but these assets are not securities when they trade on secondary markets amongst persons who did not participate in the prior investment schemes. With regard to functional and decentralized cryptocurrencies, there is no original sin and there is no transubstantiation.

While some may be vexed by the size of the fines involved, the policy here is sound. We are very gratified that the SEC continues to take a reasonable approach to providing investor protection in this space.


Based in Washington, D.C., Coin Center is the leading non-profit research and advocacy center focused on the public policy issues facing cryptocurrency and decentralized computing technologies like Bitcoin and Ethereum. Our mission is to build a better understanding of these technologies and to promote a regulatory climate that preserves the freedom to innovate using permissionless blockchain technologies.