Bitcoin has quickly become the world’s dominant digital currency. As it becomes increasingly accepted by more and more businesses, governments around the world have begun wrestling with how to target and control it. Perhaps the greatest concern regulators have expressed is the inherent anonymity in Bitcoin transactions. This lack of traceability makes Bitcoin a powerful tool for money laundering or black market sales activity. While Bitcoin as a currency is still decentralized and unregulated, Bitcoin miners, Bitcoin exchanges and individual Bitcoin users may all be subject to United States regulations based on how they actually use the currency.

1. GAMAByte:
Bitcoin’s Legal Viability
Bitcoin has quickly become the world’s dominant digital currency. As it becomes increasingly accepted by more and
more businesses, governments around the world have begun wrestling with how to target and control it.
Perhaps the greatest concern regulators have expressed is the inherent anonymity in Bitcoin transactions. This lack of
traceability makes Bitcoin a powerful tool for money laundering or black market sales activity.
While Bitcoin as a currency is still decentralized and unregulated, Bitcoin miners, Bitcoin exchanges and individual
Bitcoin users may all be subject to United States regulations based on how they actually use the currency.
An#-­‐Money
Laundering
Laws
and
FinCEN
Guidance
For example, the U.S. Financial Crimes Enforcement Network (FinCEN), a branch of the U.S. Treasury, has drafted
guidance describing when those using Bitcoin could be considered money transmitting businesses (MTBs).1 MTBs are
obligated to enforce anti-money laundering regulations and can face liability if they do not keep track of who is using
their services.
Bitcoin exchanges are the most obvious example of participants in the Bitcoin economy that FinCEN considers to be
MTBs. As long as these exchanges operate on U.S. soil, they are subject to anti-money laundering laws. Individuals
simply using the virtual currency as an investment or to make purchases, however, could not be considered an MTB.
Bitcoin miners, on the other hand, do seem to be liable as MTBs under FinCEN’s classification,2 though this treatment
is contested by Bitcoin miners who have requested clarification.3
Ponzi
Schemes
Also of concern to regulators is the potential for fraudulent Bitcoin investment schemes. Earlier this year, the Securities
and Exchange Commission (SEC) charged a Texas man with “running a Bitcoin denominated Ponzi scheme.”4 The same
day, the SEC issued a general investor warning regarding such frauds.5 While the SEC still has yet to issue any specific
rules or regulations around Bitcoin, it is clear that the Commission will prosecute fraudulent activity regardless of the
currency involved.
The
Future
of
Bitcoin
Regula#on
Currently, Bitcoin remains largely unregulated. It appears that this may not change anytime soon. At recent
congressional hearings on the topic, witnesses testifying before the Senate Committee on Homeland Security and
Governmental Affairs were greeted with a surprisingly cordial atmosphere from legislators.6 All three White House
officials who testified at the hearings heralded the value of the currency and recommended no immediate legislative
action to regulate Bitcoin.
For now, Bitcoin itself remains legal in the U.S. Any liability arising from its use depends entirely on what is done with
the currency. Engaging in money laundering or black market activities will categorically run afoul of already existing
laws. Legitimate individual use of Bitcoin, under current regulations, seems to present little legal risk.
A GAMA Byte produced by Brandon Wiebe © 2013. Gagnier Margossian LLP. All rights reserved.

2. Endnotes
See Guidance: Application of FinCEN's Regulations to Persons Administering, Exchanging, or Using Virtual Currencies, FINCEN (2013), available at
http://fincen.gov/statutes_regs/guidance/html/FIN-2013-G001.html.
1
“[A] person that creates units of convertible virtual currency and sells those units to another person for real currency or its equivalent is
engaged in transmission to another location and is a money transmitter.” Id.
2
3 Danny
Bradbury, FinCEN quizzed on mining regs, COINDESK (June 5, 2013), http://www.coindesk.com/fincen-quizzed-on-mining-regs/.
4 Press
Release, SEC Charges Texas Man With Running Bitcoin-Denominated Ponzi Scheme, SECURITIES & EXCHANGE COMM’N (July 23, 2013), http://
www.sec.gov/News/PressRelease/Detail/PressRelease/1370539730583#.UqQOjmRDtp-.
Schemes Using Virtual Currencies, SECURITIES & EXCHANGE COMM’N, (July 23, 2013) http://investor.gov/news-alerts/investoralerts/investor-alert-ponzi-schemes-using-virtual-currencies#.UqQOh2RDtp.
5 Investor Alert: Ponzi
6 Timothy
B. Lee, Here’s How Bitcoin Charmed Washington, WASH. POST (Nov. 21, 2013), http://www.washingtonpost.com/blogs/the-switch/wp/
2013/11/21/heres-how-bitcoin-charmed-washington/.
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