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New Hampshire money transmitter rule change will include bitcoin businesses

The libertarian stronghold US state of New Hampshire, where bitcoin has one of its largest and most dedicated communities, has amended their definition of a money transmitter to include “convertible virtual currencies,” taking effect on January 1.

New Hampshire has been the most libertarian-leaning US state from the very founding of the nation. In January 1776, it became the first North American colony to establish a government that was independent of Great Britain’s authority, and it has held onto its rebellious spirit ever since. More recently the Free State Project (FSP) chose to make the state their home, in 2003, and attracted liberty-minded individuals from around the world.

As a result, bitcoin usage over recent years has soared in the “live free or die” state, with events like the annual Porcfest primarily attracting bitcoin-accepting merchants.

Many great bitcoin businesses call New Hampshire home, including the original bitcoin ATM company Lamassu. Erik Voorhees’ Satoshi Dice, the largest source of bitcoin traffic for many years, was there before it got shut down in the US.

Unfortunately, New Hampshire statute 399-G:1, “Licensing of Money Transmitters,” was recently changed to add “virtual” currencies, commencing on January 1, 2016.

The old statute defined “Monetary value” simply as “a medium of exchange, whether or not redeemable in money.” The new version adds “convertible virtual currency” to the definition of monetary value, which makes a lot of difference for those that use it in a business setting.

Seal of New Hampshire“‘Monetary value’ means a medium of exchange, whether or not redeemable in currency, and includes convertible virtual currency.”
— – New Hampshire General Court statute 399-G:1

The new rules define the term “Convertible virtual currency” as digital representation of value, that fulfills four criteria; It can be a medium of exchange, a unit of account, and/or a store of value; It has an equivalent value in real currency or acts as a substitute for real currency; It may be centralized or decentralized, and it can be exchanged for currency or other convertible virtual currency.

There are a few exemptions in the statute; Government agencies, and retailers issuing store value credit, or gift cards. Other than these exceptions, which typically do not apply to businesses that deal in bitcoin, the state’s regulations are starting to look very similar to the federal regulations for digital currencies.

FinCEN finalized its rules on the money transmission of virtual currency in 2013, although there have been little enforcement. The most high profile case resulted in a US$700,000 fine against Ripple labs earlier this year.

According to a FinCEN ruling in August, there are three types of virtual currency activities. A virtual currency entity can either be an “exchanger,” an “administrator,” or a “user.”

  • An exchanger is a person engaged as a business in the exchange of virtual currency for real currency, funds, or other virtual currency.
  • An administrator is a person engaged as a business in issuing (putting into circulation) a virtual currency, and who has the authority to redeem (to withdraw from circulation) such virtual currency.
  • A user is a person that obtains virtual currency to purchase goods or services.

Under the FinCEN guidance, both exchangers and administrators are considered to be Money Transmitters, unless a limitation or exemption applies. The guidance does concede that an exchanger can act as either a broker or dealer, but both are considered money transmitters.

Assuming that New Hampshire closely follows these federal definitions, this statute could affect everyone in New Hampshire that exchanges bitcoin in order to profit from the trade as a business. The bitcoin users most likely to be affected are selling on LocalBitcoins and Paxful. The business that run the platforms they use may well need to address compliance, along with any other bitcoin exchange that operates within the state.

It should be noted that this doesn’t make such activities illegal; It means that those affected need to register through the proper channels, and become an official Money Transmitter Business (MSB).

Unfortunately, this is simply not an option for most. Becoming a legal MSB involves a time-consuming and difficult application process in New Hampshire, that includes recordkeeping and reporting procedures. There is, of course, a nonrefundable application fee of $500 for the principal office, and additional fees for each authorized delegate registration.

Aggravating these compliance woes is a prerequisite requiring registration with FinCEN. A copy of a filed Registration of Money Services Business, form 107, must accompany the State’s registration application, which won’t be issued without qualifying first.

To qualify as a money transmitter with FinCEN, a business must meet various requirements, such as having minimum capital of $50,000 to $1 million, with bonding, background checks on the executive staff, proof of holdings equal to 100% of consumer funds in “permissible investments,” regular reports, annual renewal filings, hiring a full-time compliance officer, and full audits on request.

Then there are some more fees. FinCEN’s fees can be far higher than many startups can afford. Cumulatively, the fees for operating as a money transmitter in all 53 states and territories of the US total approximately $200,000, according to research conducted by Ashley Grimes, of Grimes Law PLLC. It typically takes upwards of 2 years to process these applications. A common complaint about this situation is that such a high barrier to entry serves to keep competition low for existing money transmission businesses.

One saving grace is that bitcoin miners will typically not be seen as transmitters by FinCEN.

FinCEN“A person that creates units of this convertible virtual currency and uses it to purchase real or virtual goods and services is a user of the convertible virtual currency and not subject to regulation as a money transmitter.”
— – FinCEN

It is a very fine line however, if miners turn around and sell their bitcoins for cash or other currencies, which most do, they will be classified as money transmitters again. Despite this, there have been no enforcements against bitcoin miners to date.

It seems quite counterintuitive to many that NH, of all states, could adopt this stance on bitcoin. One of the objectives of the Free State Project is to put libertarian-minded representatives in the state legislature, which writes these statutes. State representative Mark Warden is a Free State Project member.

The Free State Project“I will exert the fullest practical effort toward the creation of a society in which the maximum role of civil government is the protection of life, liberty, and property.”
— – The Free State Project

Although it’s not yet clear how much enforcement New Hampshire residents are likely to see, at least one thing is crystal clear: It will be interesting to watch what the states libertarians do in response.


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