Regulated Exchange Launches in US With Crypto-Backed Visa Card Offering
A FinCEN-registered crypto exchange has launched with its own debit card that allows holders to pay for goods and services with digital assets. Utah-based CoinZoom announced Wednesday it would begin onboarding new institutional and retail clients, and will offer a Visa payment card that instantly converts cryptocurrencies into U.S. dollars. As a registered money service business with FinCEN in most U.S. states and territories, CoinZoom has to comply with local regulations, including those concerning consumer protection and know-your-customer (KYC) requirements. The exchange is also licensed as a money transmitter in the U.S., as well as a digital currency exchange in Australia. CoinZoom supports most prominent cryptocurrencies, such as bitcoin (BC) or ether (ETH), in pairs with the U.S. dollar, providing a fiat gateway into the asset class. The platform also includes a staking facility for selected proof-of-stake (PoS) coins, which provide rewards for holders. The exchange, which already has a trading app available for Apple iOS devices, can also be used as a remittance solution, according to CoinZoom founder and CEO Todd Crosland. “CoinZoom is not only the first U.S. cryptocurrency exchange to provide a Visa card to its customers, but also offers ... industry-first features like ZoomMe, CoinZoom’s free Peer-to-Peer crypto and fiat payment system," he said Last year, U.S.-based cryptocurrency exchange Coinbase, which is also a registered MSB with FinCEN, released its own Visa-backed debit card, but only for users based in the U.K. and European Union. The exchange announced Tuesday it had newly integrated the Coinbase Card with mobile payment provider Google Pay.
Playing with fire with FinCen and SEC, Binance may face a hefty penalty again after already losing 50 percent of its trading business
Last month the Libra Association, a consortium of 28 businesses including a Facebook subsidiary, announced that it is developing a cryptocurrency called the Libra. The Treasury Department has expressed very serious concerns that Libra could be misused by money launderers and terrorist financiers. Cryptocurrencies such as bitcoin have been exploited to support billions of dollars of illicit activity like cyber crime, tax evasion, extortion, ransomware, illicit drugs, human trafficking... This is indeed a national security issue. The United States has been at the forefront of regulating entities that provide cryptocurrency. We will not allow digital asset service providers to operate in the shadows, and will not tolerate the use of the cryptocurrencies in support of illicit activities. Treasury has been very clear to Facebook, bitcoin users, and other providers of digital financial services, that they must implement the same anti-money laundering and countering financing of terrorism (known as AML/CFT) safeguards as traditional financial institutions. Money transmitters of cryptocurrency must comply with the relevant bank secrecy act obligations (known as BSA), and register with the financial crimes enforcement network, known as FINCEN. Many people are not familiar with FINCEN. It is a bureau of the US Department of Treasury. FINCEN's mission is to safeguard the financial system from illicit use, combat money laundering, and promote national security through the dissemination of financial intelligence. Last year alone it collected over 20 million BSA reports, and has collected over 300 million in the last 11 years. FINCEN implements the bank secrecy act's regulation and has federal regulatory, supervisory, and enforcement authority over money service businesses and banks. The rules governing money service providers apply to physical and electronic transactions alike. As money service businesses, cryptocurrency money transmitters are subject to compliance examinations just like every other US bank. To be clear, FINCEN will hold any entity that transacts in bitcoin, Libra, or any other cryptocurrency, to its highest standards. I also recently established the Financial Stability Oversight Council's Working Group on Digital Assets. This FSOC group enables US financial regulators, such as FINCEN, the Fed, OCC, CFTSC, CFPB, SEC, and other key stakeholders to work together to combat risks posed by cryptocurrencies. As the president has said, bitcoin is highly volatile and based on thin air. We are concerned about the speculative nature of bitcoin and will make sure that the US financial system is protected from fraud. Given the international nature of cryptocurrencies we are also going to great lengths to ensure that effective regulation does not stop here at the US border. Last month, led by the United States, the Financial Actions Task Force, known as FATF, the global standards-setter for AML/CFT, adopted comprehensive measures on how countries must regulate and supervise activities and providers in this space. This was a major step toward harmonizing international regulations concerning cryptocurrencies. We have also had extensive work at the G20, and I will be addressing this again this week at the G7 finance ministers in France. To be clear, the US welcomes responsible innovation, including new technologies that may improve the efficiency of the financial system and expand access to financial services. That being said, with respect to Facebook's Libra, and other developments in cryptocurrencies, our overriding goal is to *maintain the integrity of our financial system** and protect it from abuse. Treasury takes very seriously the role of the US dollar as the world's reserve currency, and will continue our efforts to protect our country and secure the US and global financial systems.
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.
4.5.1. Providers of anonymizing services for CVCs Providers of anonymizing services, commonly referred to as “mixers” or “tumblers,” are either persons that accept CVCs and retransmit them in a manner designed to prevent others from tracing the transmission back to its source (anonymizing services provider), or suppliers of software a transmittor would use for the same purpose (anonymizing software provider). 4.5.1(a) Anonymizing services provider An anonymizing services provider is a money transmitter under FinCEN regulations. The added feature of concealing the source of the transaction does not change that person’s status under the BSA.
Relevant to Monero because the providers (or users) of the opt-in tumble/mixing services for Bitcoin may run into some legal trouble if this report is anything to go by. Would further solidify Monero's necessary existence. Also
4.5.2. Providers of anonymity-enhanced CVCs [convertible virtual currencies]. A person that creates or sells anonymity-enhanced CVCs designed to prevent their tracing through publicly visible ledgers would be a money transmitter under FinCEN regulations depending on the type of payment system and the person’s activity.62 For example: (a) a person operating as the administrator of a centralized CVC payment system will become a money transmitter the moment that person issues anonymity enhanced CVC against the receipt of another type of value (b) a person that uses anonymity-enhanced CVCs to pay for goods or services on his or her own behalf would not be a money transmitter under the BSA. However, if the person uses the CVC to accept and transmit value from one person to another person or location, the person will fall under the definition of money transmitter, if not otherwise exempted. (c) a person that develops a decentralized CVC payment system will become a money transmitter if that person also engages as a business in the acceptance and transmission of value denominated in the CVC it developed (even if the CVC value was mined at an earlier date). The person would not be a money transmitter if that person uses the CVC it mined to pay for goods and services on his or her own behalf.
[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.
Hey Reddit World! Bitcoin Solutions has another ATM set to arrive in the next few weeks and we have our sights set on San Francisco, CA! While we have done our research we feel it is important to get the input from the locals! So if anyone in the area has/knows/thinks they know a good place to host an ATM can you put them in touch? [email protected] is a good place to contact the team! Thanks a bunch, Reddit World! We hope to be hearing from you shortly! Bitcoin Solutions @EDMbtcsolutions http://btcsolutions.ca
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:
BTC fees have been trending higher all year and will be higher by the time LN is ready
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:
they buy more than 13 widgets from the same store ($7.60 divided by 60 cents)
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:
Users will want to connect to large hubs to minimize the number of times they need to open/close channels, which incur fees
LN’s security and usability relies on 100% uptime of relaying parties
Only large hubs with a lot of liquidity will be able to make money
Hubs or intermediary nodes will need to be licensed as money transmitters, centralizing LN to exchanges and banks as large hubs
“…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.”
"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:
it is moral for the government to execute criminals and heretics (non-believers)
According to this video, Luke-Jr was the only person to have ever carried out a 51% attack, to destroy a coin that he did not like.
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 fou