Hot Takes

Illinois state-chartered banks learned how they can support Bitcoin businesses.

Coin Center, in collaboration with Digital Currency Group and the Illinois Blockchain Initiative, hosted an event in Chicago this week to help interested banks become more familiar with the technology and what they can do to support it.

Digital currencies companies have a hard time establishing banking relationships with traditional financial institutions. Rather than risk navigating the complex regulatory considerations around the technology, many banks have chosen to avoid servicing the industry altogether. This makes it that much harder for startups to operate, even putting aside regulatory burdens.

During the daylong event, Coin Center executive director Jerry Brito presented the conclusions of our report on banking, laying out the obstacles that digital currency companies face when attempting to get banked, what banks perceive as the risks, and how they can be overcome. The banks also had an opportunity to voice their concerns and offer suggestions for measures that companies could take to help potential banking partners feel more comfortable with digital currency business models.

Following the bank briefing, Coin Center and Digital Currency Group headed over to Chicago’s Bitcoin & Open Blockchain Community meetup to share their views on regulation and the ecosystem, respectively, and take questions from the audience. The packed event was a great time for all. If you are interested in hosting Coin Center at your local meetup, be sure to reach out.


Congress is positive on cryptocurrency in new major economic report extensively citing Coin Center work.

The Joint Economic Committee of the Congress has submitted it’s 2018 Joint Economic Report. For the first time, the report includes a chapter on cryptocurrencies [PDF] that we are pleased to see is hopeful and positive about the effect these technologies could have on the U.S. economy:

The buzz surrounding digital currencies resembles the internet excitement in the late 1990s when people recognized technology companies could change the world. Many internet companies launched and their valuations took off in short order. Many failed, but a few succeeded spectacularly and challenged the conventional ways of doing business. For example, people considered GeoCities the “home page” for individuals and Yahoo bought the company for $3.57 billion in 1999.406 GeoCities had characteristics similar to Facebook today (or MySpace in the early 2000s), but it never came close to Facebook’s reach and remained unprofitable. A company that did eventually succeed is an online book retailer called, but along the way its price gyrated with stock splits and recessions.

We were also happy to see Coin Center’s work cited several times throughout the report. Our director of research Peter Van Valkenburgh was quoted directly on money transmission licensing and securities regulations for ICOs, which have been major issues for us over the last few years.


Coin Center’s Peter Van Valkenburgh to testify in upcoming Congressional hearing on cryptocurrencies and ICOs.

Our director of research has been invited to testify at next week's House Financial Services committee hearing entitled “Examining the Cryptocurrencies and ICO Markets.”

Livestreams are typically available on committee websites when the hearing begins.


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.


These members of Congress are applauding the CFTC and SEC’s light touch approach to cryptocurrencies.

Reps. Jared Polis and David Schweikert, co-chairs of the Congressional Blockchain Caucus, along with Rep. Tom Emmer, sent a letter to CFTC Chairman Christopher Giancarlo and SEC Chairman Jay Clayton praising both agencies’ measured response to rise of open cryptocurrency projects. They also tell the agencies not to overlook the massive potential of crypto beyond money and speculation:

As you develop your approach, we encourage you to think not only about the fluctuations of cryptocurrency prices today, but to focus on the future potential of this groundbreaking technology and its role in maintaining our leadership role in technological innovations. Any legislation or regulation should be simple, clear, and narrowly tailored to specific applications of the technology that raise policy concerns, thus allowing innovation in this space to be guided by consistent and predictable guard rails without imposing undue burdens.

We agree with the Representatives’ assessment and are pleased to see responsible approaches to innovation coming from federal policymakers and regulators.

Here's the full letter:

A downloadable PDF version of this letter is available here.


Want to understand cryptocurrency policy? Try these podcasts.

The volume on Bitcoin in DC has recently been turned up to eleven. As we saw from this week’s hearing, Federal regulators have their eye on cryptocurrencies. Coin Center has been working with federal policymakers for a while now, helping them understand the value of protecting and fostering this technology. Here are some podcasts that will update you on our work:

On The Federalist Society’s Free Lunch podcast Coin Center director of research Peter Van Valkenburgh talked about our most recent policy proposal: a federal alternative to onerous state-by-state money transmission licensing. Revisiting this system is something the chairmen of the CFTC & SEC have mentioned, and Peter lays out how we think it could be done to help cryptocurrency innovation.

And on The American Enterprise Institute’s Political Economy podcast, Jerry lays out the nuances of what open blockchains are and why they are an important technology that is worthy of protection.

On the Cato Institute’s podcast Coin Center executive director Jerry Brito discusses what renewed regulatory interest in cryptocurrencies means for the technology and what Coin Center is doing to respond.


Early bird tickets are now available for the Coin Center Annual Dinner.

Blockchain’s night out is back! Get your tickets to our annual dinner—a fundraising gala in support of our policy advocacy mission.

Get tickets now!

Coin Center Annual Dinner

May 14, 2018

The Plaza, New York City

Every year, some of the best and brightest of the cryptocurrency world gather after the first night of Consensus 2018 to meeting, mingle, eat, and drink. We’ll be announcing speakers soon but this is your chance to grab your tickets a little cheaper. Stay tuned for more information.

Here are some pictures from last year’s dinner.


The ULC’s Model Virtual Currency regulation has been introduced in Hawaii & Nebraska.

Earlier this month, State Senator Mike Gabbard introduced the Uniform Regulation of Virtual Currency Businesses Act in the Hawaii legislature. We worked with the Senator on this initiative and are proud that he has taken the leadership on this issue. The model act was also recently introduced in Nebraska.

Last year the Uniform Law Commission, a private body of lawyers and legal academics from the several states, voted to approve a uniform model state law for the regulation of virtual currency businesses. We were highly involved in developing the model act’s language, which gives the states a clear path for updating their money transmission rules in a way that accounts for this technology’s unique characteristics such as shared custody over a multisignature wallet.


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.