How BitGo's operation is a legal exception, not the rule \ stacker news ~bitcoin

The answer and why it matters

The answer is because of section 4.2.2 in the 2019 FinCen Guidelines (FIN-2019-G001)

Multiple-signature wallet providers are entities that facilitate the creation of wallets specifically for CVC that, for enhanced security, require more than one private key for the wallet owner(s) to effect transactions

...

If the multiple-signature wallet provider restricts its role to creating un-hosted wallets that require adding a second authorization key to the wallet owner’s private key in order to validate and complete transactions, the provider is not a money transmitter because it does not accept and transmit value.

This is a big deal. It frees BitGo up to not be a money transmitter as long as they use multisig wallets in a specific, secure way. This "definition" (definition used lightly) may be provided by the federal government, but is not usually enforced by it. Instead, this definition is piggybacked by each state (all 50) and used to determine if a business requires a money transmittance license (MTL) in that state.

If you wish to do business in a state, you've got to apply. If multiple states, multiple applications. Surety bonds per state range from a floor of 10k to a ceiling for 3m before percentage fees based on existing business.

So yea. Getting out of all that is a big deal.

That's not all

BitGo has two Trust companies based in South Dakota and New York. All their MTLs are granted to their Sioux Falls entity, including the elusive NY Bitlicense.

They do not have any MTLs registered to their New York Trust company.

BitGo is ramping up a new offering, a custodial service that allows businesses to custody fiat and various cryptocurrency with them.

Money Transmittance is the act of being involved in a customers flow of funds, and BitGo got out of being a money transmitter with the exception provided above. However, being involved in the flow of funds for fiat is explicitly the definition of money transmittance. Further, because they wish to perform this service for other entities, they require additional regulatory oversight. Either a trust company or bank charter.

They opted for a Trust.

Why 2 Trusts?

Online, you see people complain that regulation is all politics. These people are misguided only in the belief that it was ever anything else.

Legally, BitGo was granted a bitlicense to their Sioux Falls Trust company. They acquired the Trust in New York for a few reasons:

Establishing unnecessary regulatory oversight in stricter jurisdictions shows that you welcome regulatory bodies
It provides peace of mind to higher net worth clients (South Dakota feels like a hack, New York - the Empire State feels like you've done things the "right" way)
Getting a Bitlicense is a big deal. Getting a Bitlicense AND a New York Trust is just showing off. It shows that their house is in order, don't listen to the FUD.

Conclusion

Tried to keep this succinct, reading about regulation might make even the most technical eyes glaze over. But I think this stuff is intensely cool. Getting around regulation is almost like hacking, except the rules are all right in front of you. There is absolutely a social aspect, but anyone that's pentested can tell you that modern hacking is mostly social engineering :)

0 sats \ 4 replies \ @bitslinger 22 Sep

Would love to hear your thoughts on BNY Mellon getting SEC approval of some sort to custody Bitcoin on Friday. In reference to your conclusion, it seems more to do with the 'social aspect', as good as they may be at navigating regulation.

I don't know the relevant rules and regulations at play in the US, but it sounds like regulatory capture at play. While the Federal Reserve holds folks like Caitlin Long/Custodia at bay on a master fed account, incumbent banks enter the custody game.

10 sats \ 3 replies \ @_arshbot OP 23 Sep

You're reading the room correctly. Folks who think the Biden/Harris administration is unfriendly to crypto are frankly incorrect. They've signaled nothing but acceptance - so long as crypto lives in an institutional landscape with high barriers to entry.

There are pros and cons to that, but the signals they've put out are "we welcome the old players to the crypto game."

However, it's pretty clear these regulatory tools are being utilized as favors. BNY Melon being granted an explicit approval by Biden is interesting in context when you realize the same admin recently veto'd a resolution to overturn SAB-121.

Basically, the White House quite literally said keep the moat but let this guy through.

0 sats \ 0 replies \ @bitslinger 23 Sep

Interesting, thanks!

100 sats \ 1 reply \ @bitslinger 23 Sep

deleted by author

0 sats \ 1 reply \ @kruw 22 Sep

Instead, this definition is piggybacked by each state (all 50) and used to determine if a business requires a money transmittance license (MTL) in that state. If you wish to do business in a state, you've got to apply. If multiple states, multiple applications. Surety bonds per state range from a floor of 10k to a ceiling for 3m before percentage fees based on existing business. So yea. Getting out of all that is a big deal.

I "got out of all of that" and became a money transmitter just by running my own Bitcoin node. Stop giving a shit about whether or not the government allows you to use Bitcoin or not, just defy them and use it anyway.

0 sats \ 0 replies \ @_arshbot OP 23 Sep

You would not be considered a money transmitter by running your own node. However, if you were to acquire investment in the millions to build a crypto business (which is the foundation of our bitcoin economy), you'd need to make sure you're good with the local law.

Or else your investors might be quite upset.

0 sats \ 0 replies \ @_arshbot OP 21 Sep

I didn't really talk about what the status quo is (though I heavily implied it multiple times). It's just a really complicated subject, and I didn't want this article to detract from BitGo while maintaining it's simplicity.

Is that a topic y'all would find useful?