Topic: How to protect the identity of a purchaser of Bitcoin? (Read 1122 times)

What is legal is not always just.
What is just is not always legal.
What is ... what is ...
What you should (personally) ...

This whole thing reminds me of prohibition (both alcohol) and firearms (2nd amendment, etc.).

And books... Is it legal, or illegal to sell a book that shows you how to build stuff the government doesn't like? Or the source code to difficult to crack encryption (PGP)? Or the sequence of numbers and letters to access bitcoins (private key)?

No, not really paranoid or afraid of anything. It's just a matter of keeping records of what you need rather than keeping too much. I don't want to be a datamine, I just want to be compliant.

Not the end of the world, there's always local bitcoins or bitcointalk forum if you're really paranoid or concerned with privacy.

Listen to what DeathandTaxes says. He has operated a bitcoin business for a very long time, and done all the things he's mentioned. Unfortunately, I'm overseas so I can't buy or sell through his service, yet.

I've been searching over the guidelines and regulations and I can't find where it says all MSB's are required to have a KYC (or CIP). I can't find the threshold or what information they require to be obtained from a customer. I understand that an actual bank must have record of all of this information but I don't see the rules for a MSB on KYC. I need to know in order to understand how I'm going to build records and what I need and how long I need it. I personally want to keep as little information as possible when possible. Saves on time, organizing, and possible liability if the wrong eyes or hands get on people's private information. It's nearly a common weekly occurrence now with some big company having their private data breached.

Yes, I probably will end up getting a new lawyer. A couple I spoke with at first wouldn't even talk to me due to the uncertainty at the time of Bitcoin's status. They basically said well, I don't really know and can't tell you one way or another. The other guy said sure, sounds like you have it right come bring me your money.

Simple answer is you can't.  The entire purpose of the BSA and FinCEN is to expressly prevent that through registration, compliance, and legal action.  The law is the Bank Secrecy Act.  The specific regulations created under the authority of the BDSA are in 31 CFR Chapter X.

Also please stop saying $10,000.  If you offer a service that exchanges a single dollar for Bitcoins, FinCen has stated you are a money transmitter.  As such you are required to collect KYC information, verify information supplied by customers, develop a written AML program, have an independent review, conduct AML training and testing of employees, name a compliance officer, maintain records of transactions, and report suspicious transactions.  Failure to do so would make your civilly and criminally liable.


Then you need a new "lawyer", preferably one that is competent.

You have missed the whole entire point of this discussion. This discussion is about how you can protect the identity of a purchaser of Bitcoin. What are the laws regarding what information needs to be obtained and kept on record and for how long.

Registering as a MSB is a few clicks, not really a big deal in the whole scheme of things.

Everyone that has been arrested or warned when exchanging Bitcoins have clearly been involved in illegal activity. They have failed to report transactions over $10,000 or they knowingly helped aid criminals or launder money.

This discussion was originated in hopes of building on ways to improve transactions for Bitcoin users. I'm not really sure what you're contributing or trying to get across here, but your arrogance isn't increasing the content of this thread. If you'd like to reply and add value to this discussion, then please go ahead but next time try to be more tactful.

PS: And yes, it's the same lawyer that filed and prepared all the paperwork to legitimize our company. I've repeatedly asked this question and it's still the same answer.

Stop trying to think about the law like common sense mean anything.  The IRS has absolutely nothing to do with the laws regarding money transmission.  Stop trying to compare what other financial products can and can't do.  FinCEN has eight different classifications of money service businesses.   They have already provided guidance on this issue.


If this is true then you should get a new lawyer and sue the first one for gross incompetence.  It is also possible you didn't inform your lawyer than you intend to offer this as a commercial service.


There is no gray area and if you believe what the IRS has stated regarding the application of taxes has any relevance on the statutory requirements of money service businesses then with all do respect you are probably going to end up arrested or bankrupt.  How about you actually read the guidance from FinCEN on virtual currencies and the regulations regarding money service businesses?

I know that the technical aspects weren't the challenge, I understood it was the legal ones. I just wanted more insight on what the rules and regulations that follow the sale of gift cards and things of value, such as you described. Thanks for clearing up some of my questions.

I also have sought legal counsel when it comes to buying and selling Bitcoins. My lawyer informed me that I should only be concerned with transactions over $10,000 when it comes to recording another persons personal information. When you are making a trade long distance you are usually using a service that is a intermediary for transacting the money. Western Union for example captures all the personal information of both parties where the actual money was transmitted, so it doesn't make sense to record it twice by the buyer or seller. All money movement is already being handled by the 3rd party and following all regulations in place, I would assume. If any transfer of money is moving improperly or out of regulation then it would be their liability since they are the ones who facilitated the transaction.

Question / Point #1)
Is it illegal to trade a MoneyPak to another individual for the amount that it is worth? I'm not aware of any laws that are against this.

Question / Point #2)
Also we're forgetting that bitcoin is treated by the IRS as a commodity (/1ji4qwU]Reference). There shouldn't be any reason to collect personal information on an individual when selling a commodity under a certain threshold. I'm able to go in to a store and buy an ounce of silver then come back tomorrow and sell it without any paper work. I'm not necessarily sure if this is legal or how it's supposed to be done, but it does work that way in my area.

Question / Point #3.)
Let's say people purchased vouchers or pre-paid type cards with Bitcoin but they were unable to activate or redeem them until supplying the necessary information online.

Question / Point #4.)
Also someone can purchase a Postal Money Order anonymously and give it to someone else to have it cashed without any information being recorded. The only reason they check for IDs is to verify that the person cashing it is indeed the person it was directed to.


As said previously in my post:


I'm wondering more on the regulatory issues, which you have done well in addressing some of my questions pertaining to prepaid gift cards. There just seems to be a few more questions that are somewhat in the grey area with different federal agencies having different opinions.

And that's why the grey and black markets exist.

How to be anonymous = buy it from someone who will accept cash and doesn't care who you are. They don't keep records. Where I am, it is not illegal (but that is not the same as saying it is legal, minor difference.)

It's like the "dirty ice cream" side walk vendor, or hot dog stand. Most of them do not issue receipts. They should. Too much paperwork to go after all of them, besides, it's just a hot dog.

This isn't a technical problem, it is a legal one.  You mention MoneyPaks so I assume you are speaking about the US market.  The US government does not want you to be able to transfer funds anonymously.  It isn't a technical problem, it is an intentional legal limitation.  The system as described would be illegal in the US and merchants adopting it would be taking a significant risk.  This really isn't an area to make plans based on what makes sense to you.  You should obtain competent legal counsel.

I assume you are thinking "but MoneyPak", the important difference is there is no legal place you can redeem a moneypak that doesn't collect and verify KYC information including social security number.  The information required by the BSA is still being collected it is just being collected after the fact.   You aren't anonymous as an end user of a MoneyPak and that is because the federal government doesn't want you to be.  It isn't a technical problem to be solved, or that it has never occured to anyone.  It is intentionally illegal (outside of limited exemptions) to offer a commercial service that allows the transfer of funds anonymously.  The law is EXACTLY what they want the law to be. 

Then there is the second can of worms in that the selling of prepaid access (formerly called stored value) is also regulated and licensed.  Yes to issue even prepaid gift cards you need to be licensed, bonded, and have third party audits.  This is why even major corporations don't issue their own gift cards.  That starbucks gift card you buy .. not issued by Starbucks.  It is issued by a third party who has the requisite licenses and bonds.  The startup costs to become a issuer of prepaid access are in the tens of millions of dollars.  The stores selling third party cards are not licensed, but they are registered agents of the issuer (i.e. registered agents of GreenDot Inc in the case of MoneyPaks, which is a federal registered money service business and holds money transmitter licenses in every state that requires one).  FinCEN also created a poison pill by classifying the exchange of virtual currency not as issuer of prepaid access or dealer in foreign currency, both of which have exemptions, but as "money transmission". There is no exempt amount on money transmission.  Regulation begins at any amount, so if you exchange $1 for bitcoins it is regulated.

You are jumping right to the "help me figure out this technical problem".  The technical aspects are trivial.   Your are forgetting the "is this a violation of federal law?" aspect.  It would be like asking for help in making finishing up the design of a heroin vending machines.  You might be forgetting one obvious factor.

Yes, I'm not very concerned with the aspect of having the cards funded through a "Voucher" type system. I'm more concerned with the regulatory issues.

MoneyPak is able to be issued and value loaded / added to the MoneyPak without any personal information needed, I'm wondering if the same can be true for these "Vouchers". The only time when information is needed for a MoneyPak is when you are applying it to a debit card which is controlled by a bank, so it makes sense.

I imagine a system where you receive a "Voucher" of some sorts and you load the "Voucher" with the amount you wish to buy in Bitcoin. For example: You pick up the card and go to the cash register and pay $100 to be loaded onto the card. They in turn activate your voucher which has a scratch off code on the back (or even BTC Address which is funded once purchased) that you can enter in online along with a bitcoin address and it gets funded.

It also could be just as simple as having something much like Casascius Coins but they aren't funded until paid for at the register. Once they're funded they would be able to be verified with the digits on the voucher, card, or coin on a database.

Gas Stations that sell MoneyPak cards don't have any special licensing or strict regulations, I do believe that it all comes down on MoneyPak. The main obstacle would be to increase adoption at retail stores to carry your vouchers or cards.

Is anyone capable of making a database / system that is capable of what has been described? I would be very interested in speaking with them and possibly contracting them for some work. Retailers would have the possibility of logging onto a system and scanning in, or entering in the codes of the Voucher which then funds it. Once they scan / activate a voucher then the retailer is debited / invoiced / billed the amount of the purchase. The retailer in return makes a $5 dollar loading fee. I think this all could be accomplished within a web browser and a server so there would be no up-front costs for anyone willing to adopt this product or sell it. The infrastructure would already be in place for most stores because all they would need is a computer with internet access or even a mobile phone.

Creating empty wallet addresses and then funding them when a card is sold
doesn't seem like a huge challenge.

I think these are mostly legal/regulatory issues (will regulators allow anonymous bitcoin cards to be sold in stores)
as well as business/marketing (can you get the $/ft of shelf space for cards).

You might also have the manufacturing/security challenge of , say, writing the private keys underneath
a scratch off portion of the card without anyone knowing about it, or otherwise configuring the card to be
a wallet.

In my dealings and business with exchanging bitcoin with other individuals I'm constantly wanting to improve the experience for my customers and clients. We're going through this huge movement right now in the community where we are really pushing for decentralization within our ecosystem, which I'm in complete support of. I see decentralization, anonymity, and privacy as the core benefits to the Bitcoin protocol and what truly separates it from other payment methods. We've seen tons of improvements when it comes to ways to exchange Bitcoins for goods, trustless escrow sytems, and even decentralized markets now. My focus is at a different level although, I'm more interested in reserving the privacy and anonymity of the individuals right before they even "enter" the Bitcoin ecosystem. With all of this hype, bad news, and rumors coming out of certain countries (ie: China) it may soon be a crime to even purchase Bitcoin or possess it. I believe as Bitcoin starts to grow in adoption rate that the resistance of oppressive countries and regimes will start increasing.

How can we exchange fiat currencies (USD, Euros, etc) to Bitcoin and vice-versa anonymously? I'm a Bitcoin trader, or also know as an "exchanger" depending on how you look at it. When my clients or customers purchase Bitcoin from me they are entrusting me with their personal, private, and financial information. Whenever they sell Bitcoin to me then they are also trusting me with another great deal of information. My customers over time have built a relationship with me and of course have become long-term clients. My goal is to legally exchange Bitcoin while at the same time recording the least possible personal and private information about my clients and customers.

What if there was a way we could conduct transactions with each other through trustless & anonymous exchange? That we could exchange fiat cash to Bitcoin without ever knowing each others identities but yet without involving a centralized exchange (ie: Bitstamp, Localbitcoins).

How do you guys feel about the idea of Bitcoins being preloaded onto cards such as MoneyPak's? The cards would not have value until registered / purchased at a participating retalier and then once active the hidden private key (able to be revealed by scratching the back off) would be funded automatically through the issuing company. We could allow only amounts that are legal to be purchased anonymously (such as MoneyPak has a funding limit) but the customers or clients could in return just purchase multiple cards. MoneyPak's are intended to be used to load debit cards, that is where they capture your private information, not when you purchase it. MoneyPak's are actually used sometimes even if trading Bitcoins (such as on LBC) in order to obtain Bitcoins 'relatively' anonymous and quickly. Why can't we eliminate these steps of purchasing Moneypaks, paying fees, using Localbitcoins, time spent and wasted? What about the above mentioned method? It seems much more simple and every way I can see it, quite legal. It would also not require near the amount of regulation, paperwork, and other nonsense that is involved with a Bitcoin ATM. The only downside and possible problem would be the slow adoption of merchants and getting them on board to sell the cards and process the "validation" process. The merchants would make a similar fee to that of selling MoneyPak's and they would just be invoiced the price of the cards (bitcoins) or electronically debited the amounts "sold".

My company is always looking for ways to spread Bitcoin adoption and also allow new users an easier path into the community. I do believe seeing some mentions of a similar idea before but yet to see any elaboration upon it? The only relative thing right now that is going around is "Debit Cards" that are being funded with Bitcoin? I don't see the point in Bitcoin being a portal to the current financial system, that seems like a step backwards. We should instead be growing stronger infrastructure and faster adoption rates within our current ecosystem, such as quick dispensable methods of Bitcoin as I've suggested.

Please let me know any suggestions, ideas, or advice that you can give me on this subject. As I've stated before, I believe I've seen mention of this idea but yet I never seen any elaboration or growth come from it? If MoneyPak could essentially do it then what stops other companies or corporations from offering the same but within Bitcoin format? The only negative downside I can see of this is the fact you must trust the issuing authority when purchasing your card, but once activated at the register then you could immediately see that your Bitcoins have been credited. The company doesn't need to know your name or any private information on you, which makes things much more simple. Also the company would encourage and heavily suggest that it's users "sweeped" the Bitcoins once purchasing the card and it being activated.

Thanks in advance for any input!
Aaron @ BitSpot.co