News has emerged that Utah-based Bitcoin Mint Casascius has stopped minting cryptocurrency, following pressure from the US government.
The company, which sold bitcoins embedded within metal coins, has reportedly been picked up by the US Financial Crimes Enforcement Network (FinCEN) for being an unregistered “money transmitter”.
Since coming on to the scene in 2011, around 90,000 Casascius coins have been minted. Each coin contains the private key for a bitcoin address, making them a “secure and collectible” offline container for the digital currency.
Casascius founder Mike Caldwell, a resident of Sandy, Utah, told Wired.com: “They considered my activity to be money transmitting.”
‘Money services business’
According to Wired’s report, Caldwell received a letter from FinCEN dated 15th November, in which the regulator claimed that his business was a “money services business”.
Under US law, failing to register such a business can result in a fine of up to $5,000 per day and up to five years in prison, as well as the seizure of funds relating to the unregistered business.
On 27th November, almost two weeks after the date of the letter, Caldwell posted a notice on his site:
“For the time being, I have suspended accepting new orders, pending resolution of some concerns I have as to regulatory issues. I am anticipating a possibility of having to prequalify buyers, and am holding off taking orders until I know for sure.”
When asked if he was considering shutting down the whole business, he replied: “It’s possible. I haven’t come to a final conclusion.”
Caldwell is reportedly seeking legal advice, refusing to accept FinCEN’s assertion that he is a money transmitter.
Casascius coins, made from solid brass and fine silver, are essentially cold wallets – Caldwell created private keys for each coin using an offline computer, imprinted them onto the coin and deleted the originals. (Caldwell details the process here). The coins could only be purchased using bitcoin.
To view the private key, you had to remove a protective holographic strip on the coin, meaning you could be reasonably confident nobody else had access to your bitcoin, as long as that protective strip was undamaged. (Although hackers at this year’s DEFCON conference showed it is possible to crack the coins).
Coins vs bars
According to casascius.uberbills.com, a website which tracks Caldwell’s public wallet list for Casascius coins, only around 10% of owners have broken the seal to access their bitcoins.
The most popular denomination appears to have been the 1 BTC coin, but Caldwell also created higher denomination bitcoin “bars”. Of the 74,100 BTC bars tracked, 69 have been opened.
Casascius’ story is the latest development in a cat-and-mouse game between burgeoning bitcoin businesses and US regulators.
Several times this year, Mt. Gox has fallen foul of US regulators, with millions of dollars being seized from Mt. Gox bank accounts.
In May, FinCEN director Jennifer Shasky Calvery, explained her organisation’s attitude to bitcoin businesses in an interview with American Banker, saying:
“Digital currencies are just a financial service, and those who deal in them are a financial institution. Any financial institution and any financial service could potentially pose an AML [anti-money laundering] threat.”
Just days before her interview, the owner of Liberty Reserve, the Costa Rica-based exchange with its own digital currency, was arrested in Spain as a result of the US and Spain’s joint money laundering investigation.
Coindesk has published a series of articles by the Chairman of the Bitcoin Foundation’s Regulatory Affairs Committee Marco Santoni, explaining how bitcoin businesses in the US can avoid falling foul of the law.
“Registration with FinCEN is a fairly simple exercise: 15 minutes and a few mouse clicks on FinCEN’s website will satisfy that obligation. The real burden here comes from the ongoing costs of compliance, like verifying customer information and filing Suspicious Activity Reports.”
Other problems affecting US businesses, or businesses with US customers, is that money transmitting regulations have a state component, as the founder of BitBox explained to Coindesk in September.
Thus, in addition to registering with federal regulators, businesses must also register with each of the 50 states in which they want to operate.