Topic: [BIZ] [IDEA] [RFC] International cash transfer via a Bitcoin-based network (Read 6677 times)

Important thread. This is how correspondent banking works, with the money center bank in the middle with offsetting correspondents in local jurisdictions. Knowing all the local bitcoin exchanges would allow anyone (almost anywhere) to receive and then sell bitcoin; however, the majority of exchangers are now registering and becoming AML compliant in their countries of origin, which entails identity verification of exchange clientele. This is still an evolving legal area and certain jurisdictions are evolving faster than others. In fact, some bitcoin exchangers are actively promoting regulation, thereby seeking to legitimize themselves (i.e., Intersango). I cover this in my post http://themonetaryfuture.blogspot.com/2011/11/air-guitars-and-bitcoin-regulation.html

Also, see this Reuters article, Bitcoin exchanges offer anti- money-laundering aid http://www.reuters.com/article/2011/06/15/financial-bitcoin-idUSN1510930920110615

But you are not sending money from US to Iran.

You are sending money from US to US, from Iran to Iran, and from btc address to btc address (A btc address has no geographical location of course).

Note that no fiat currency ever needs to leave either the US or Iran for this to work.

Yes, very similar to hawala, although hawala probably serves the function better currently because of the pre-established trust. Existing without paper and/or transaction records for nearly 2000 years, hawala is nearly impossible to prove. Bitcoin solves the clearing function of hawala but not the settlement-into-local-currencies function. Therefore, any bitcoin exchanger/point-of-transfer in a country that is not on the FATF/OECD blacklist will have to comply with AML and KYC guidleines.

They don't buy Linden Dollars from anyone, they only sell it; when people sell their L$ they are selling it to other people, not back to Linden Lab (notice the use of singular, it's only one lab).

What about public key cryptography?

I'm not sure that's true. Bitcoin would be the currency and that has moved.

So, you are American, right? I say this because you mention "I send from here to Russia" but never say where "here" is, which is very... american

Don't take it personally, I make this joke every chance I get, and I get a lot of chances around here. But jokes aside, you are correct that it can be tagged as money laundering, because that's the 'catch all' that governments use to justify the control measures in place. Imagine that you live in the States and have a 2nd degree cousin in Russia, with which you have a very close relationship. Now, you have a friend in Russia, completely unrelated to your cousin who is having some issues paying for something or another. You mention this to your cousin, ask him to give the guy some cash and promisse to pay him a fancy dinner next time you're together.

Money laundering? No money moved across borders, and for all we know, this is the exact same thing that happens with our service, unless fiat money is in fact moved across borders. Now the real catch is bitcoins and the fact we get fiat money for them. If we where able to operate properly balanced agent nodes, where only bitcoins where ever moved and never converted to cash then it would be no different from the case presented, but even then governments could call it money laundering and shut it down. Only if we can make this legal and taxable will the governments leave it be, because it is in their interest and, to be legal, we would need to get rid of the pseudo anonymous nature of bitcoins and collect all the same data about clients that WU and the like do... not my perfect scenario.

But I digress, I just wanted to make the joke!

Looks interesting but I'm curious, how does this not come under money laundering laws in many countries?

Say I want to transfer $100,000 to Russia - wouldn't this go against both countries laws?

Legally, I can't see it being different to taking a bundle of fiat notes and flying over to Russia with them.

I'm not very familiar with pawn shops either, but in here it's a borrow contract with a physical warranty. The pawn shops are "non-banking financial institutions" (exact translation) and they have rules and regulations. Anyway, using fiat cash as a warranty seems even less legit than all the other approaches we thought about ) )

What about a reversed pawn shop approach? Don't know if there is any legal case to be made or I'm just doing some mental gimmicks but a pawn shop takes your stuff and pays you for it. It didn't *buy* you stuff (disclaimer; I never used a pawn shop, so I just assume this is the way it works). Thus you agree to let me hold your VCR, I agree you hold my $10. No transaction was performed per se.

Now, you come back and say you want the VCR back, I say "well, give me back my $10, plus $1 for my trouble". Lets ignore the +$1 for now, as this is profit and marks the whole thing as a business deal.

But say you can't come to the shop for some reason, so you give your girlfriend the paper slip I gave you to prove you are in fact the owner of the VCR (I mean, I can't remember everyone's face, right?), so your GF hands me the slip and the $10, I give her the VCR.

You see where I'm going... what if we could pawn fiat money? Maybe that is not legal, as legal tender is never owned by any person, we are just allowed to use it, so pawning something you don't own is a no-no for sure. But if we reverse the chain of events and you give me $100 back for the 'good idea (tm)' you will be pawning later in the day at some other location, and the some other person, holding the "receipt slip" goes in to some other branch and pawns the 'good idea (tm)' for $100, net profit is $0, and maybe we could get away with it?

Looks interesting, but it has the problem that it only solves the technical issues, not the legal or trust ones. I started this topic exactly because I want a publicity stunt for Bitcoin - so it needs to be legal and hard to take down.

On the other hand, this interesting topic just popped out: https://bitcointalksearch.org/topic/there-is-a-way-we-can-trade-bitcoin-without-getting-shut-down-constantly-read-49854 .

The other legal solution that I can think of is some e-currency/e-wallet service like MoneyBookers and others, but using Bitcoins "on the inside". I like MoneyBookers because they have local bank accounts in all the countries they work on, so costs and hassle are minimum for the users. Unfortunately, it means it has to be centralized and specially registered... not what I had in mind (also considering the Bitcoin e-wallet companies' history), but it would still be useful and adaptable to our initial goals. Biggest problem of all will be huge startup costs I would do it, but we need an investor with big pockets...

Just wondering out load whether something like Open Transactions is a better fit than bitcoin for your service. I think it would help cut out a lot of the slippage associated with exchange fiat to bitcoin and then back to fiat. BitTransfer would issue electronic USD currency and agents could buy this with bitcoin. When client gives agent A $100, agent A gives them BitTransfer issued currency in OT. Client sends this to friend. Friend takes BT currency to agent B and gets $100 is return (minus fees).

Wonder how Linden Labs goes about the Linden Dollars... I mean, it's in game, there's a central body, but in the end, is it a token as in some kind of good or is it money services? Do they have to comply with anything special?

Then this company does not need bitcoin, because it will be yet another Western Union.

Doing this network decentralized is in the direct oposite of doing it legal.

What if every agent is actually an employee or a shareholder of a central company? (And yes, I do realize that being an employee opens another can of worms).

I was thinking about similar idea almost year ago. I was in touch with some WU agents, asking them how it works internally. However I gave up the idea when I found that every agent in this decentralized network built on top of Bitcoin need to be registered as a currency exchange and do some AML reporting and so on (at least here in Europe). Doing this *legally* is very hard and expensive business.

I'm positive that will not work, at least not legally. The bearer bonds you speak of are a great idea, although getting a company going somewhere bearer bonds are still allowed will be expensive. The thing is when a client gives you $100 and you give them the code you are selling them the code, unless we try to make this a "transport" service, where the client pays us to grab the $100 bill and move it to the recipient.

Thing is, every time fiat money gets moved as a service you are acting as a money service. That's a bank's job, plain and simple. The alternatives are selling things (and rebuying on the other side) or work in some other place more relaxed in the money tracking and taxes.

I do love the bearer bonds principle, though.

I don't like the news that I'm reading regarding MtGox and TradeHill versus Europe. Having the nodes depend on a 3rd party to process the redeem codes doesn't seem like a good idea anymore. So I would suggest we move back to the idea of doing it all inside our own network of nodes. I know that it will make the bootstrap process harder, but I believe that it's necessary.

From a legal point of view, my latest idea is to have a central company created in a friendly legislature. This company will issue bonds that will be sold to customers. The bonds will not be nominal, so they can be send to another person and they could be redeemed from any other agent. The agents will be representatives of the central company. If this is possible and I'm not full of hot air, it would solve the VAT problem (as bonds are not normal sales, but loans).

Let's say that customer Bill wants to send 100 USD to his friend Jean in France. He goes to his local BitTransfer agents, pays 100 USD and receives a redeem code for 100 bond units issued by BitTransfer. He also pays the local agent's fees, which will be invoiced according to local laws. He goes home and sends his redeem code to Jean, who will then contact his local BitTransfer agent and get from him 100 USD converted to Euros at spot exchange rate, minus local agent's fees, which will be invoiced according to local laws.

What do you think, would that work?

My point was between agents, the client side is covered as you point out. What I meant is if the mtgox voucher is created by agent A, when agent B gets the redeem code agent A gave to the client and needs the attached mtgox voucher code, he either needs to contact agent A or have some DB managing that. Just putting the mtgox vouchers on an open (to agents) pool and expect everyone to behave and only use the codes they actually are entitled to use is, at best, over optimistic.


Yes, or the exchange rate used can be slightly higher than the interbank, just like exchange bureaus do (but no need to charge 10% plus or minus like these do).

We can assume we have the full trust of the customer - he just gave us his money


It would be cool if we could create vouchers in all and any currencies, but I guess we can start with USD and let the end node exchange at his local exchange rate at the time of redeem. It's a risk that the client will have to take anyway with all the existing transfer systems and I see no way of avoiding it.