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ChapterTitleEducation

Virtual currencies If you are in the business of, for example, transmitting
virtual currency from one consumer to another and taking
and the law – a possession of it as an agent of the sender – like a traditional
money transmitter – then federal and state law will
generally treat you like a money transmitter and require
primer for ISOs you to be registered and licensed.

State licensing is expensive and time consuming. The
regulatory burden of state licensing is so great, that many
By Adam Atlas virtual currency businesses go to other countries, throw
Attorney at Law in the towel or simply operate illegally – at great risk of
prosecution.
itcoin buzz: over the course of one week in
November 2013, the value of bitcoin against the Why should I care?
U.S. dollar increased fivefold, breaking $700
B per bitcoin. Is it even legal? The purpose of this For the moment, virtual currencies are more talk than
article is to put virtual currencies, such as bitcoin in legal action. That said, as legal counsel to a number of virtual
context and compare them to traditional payment meth- currency businesses, I believe ISOs must plan for a scenario
ods. Hopefully, the information here will help you plan in which merchants will want ISOs to assist them in
your business strategy vis-à-vis virtual currency. accepting payment by bitcoin and other virtual currencies.
What is virtual currency? This is not necessarily because there will initially be a huge
volume of processing through these new networks, but
The U.S. Department of the Treasury, through its Financial because certain constituencies of merchants will see value
Crimes Enforcement Network (FinCEN), divides in saying they accept virtual currencies; others will see it
currencies into "real currency," which is legal tender that as a way to boost sales.
circulates and is accepted as a medium of exchange in the
country of issuance. Examples of real currencies include ISO time invested in learning how to service merchants'
the U.S. dollar, British pound sterling, euro and Canadian virtual currency needs is time well spent – and could result
dollar. in revenue to the ISO. What ISOs know better than most
virtual currency startups is the necessity and value of sales
FinCEN defines "virtual currency" as a medium of exchange in any payment network.
that operates like a real currency in some environments,
but does not have all the attributes of real currency. In Several virtual currency startups believe, sometimes
particular, virtual currency does not have legal tender rightly, in the power of online "word of mouth." That kind
status in any jurisdiction. of promotion will work for a certain younger demographic,
but will not get you processing bitcoin on Main Street.
Examples of virtual currency include bitcoin (www.bitcoin. Enter the veteran ISO salesperson.
org), ripple (www.ripple.com) and ven (www.ven.vc). (A
more complete list is at www.moneyservicesbusinesslaw.com.) Will I get in trouble for selling virtual cur-
Think of virtual currency as a kind of electronic monopoly rency processing?
money users agree to value like real currency.
Like any processing sales program, you need to make sure
Is virtual currency legal? that what you are selling is legal. If your processor is a
foreign bank aggregating multiple merchant transactions
There is nothing specifically illegal about the operation or
use of a virtual currency – provided that it is done within in a single merchant identification number without a
license to do so – you know you are selling something a
the parameters of federal and state law. Just like one
can buy old coins at rummage sales, individual citizens little sketchy.
are generally allowed, under federal law, to buy units of
virtual currency. Similarly, ISOs should require proof from virtual currency
processors that what they provide has all the necessary
licenses. An ISO must avoid aiding and abetting an
FinCEN guidelines characterize individuals who buy or illegal business. Just because a virtual currency processor
sell goods with virtual currency as "users." Federal law
doesn't require users of virtual currency to have licenses is new doesn't necessarily mean it is noncompliant.
Correspondence from legal counsel to the processor
or registrations. Other participants in virtual currency
marketplaces, however, are required to register with may give an ISO comfort regarding the virtual currency
processor's status; the same is true for correspondence
FinCEN as money services businesses and may also be
required to become licensed in each state that has money from regulators that have licensed the entity or told the
entity that it doesn't need to be licensed.
transmitter licensing laws. That's about 46 states.

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