Virtual currency mining
Virtual currency software development and investment activity


On January 30 2014 the Financial Crimes Enforcement Network (FinCEN) published two administrative rulings(1) regarding whether companies engaged in certain 'mining' software development and investment activities with respect to virtual currencies must be registered as a money services business under the regulations promulgated by FinCEN under the Bank Secrecy Act. While regulators are continuing to develop positions on virtual currency activity, these rulings provide useful insight on how FinCEN is likely to interpret the regulations and the recent virtual currency guidance with respect to various activities in the virtual currency markets.


Under the regulations, a person or entity that is engaged in certain types of activity is considered a money services business(2). Dealers in foreign exchange, providers and sellers of prepaid access and money transmitters are included in the definition of 'money services business'.(3) Money services businesses are subject to certain requirements under the regulations, which are dictated, in part, by the activities of the money services business. Such requirements include an obligation to maintain an anti-money laundering programme, as well as registration, reporting and record-keeping requirements.

On March 18 2013 FinCEN issued guidance regarding the application of the regulations to exchangers, administrators and users of virtual currency (for further details please see "FINCEN guidance on application of Bank Secrecy Act to virtual currencies")(4).The guidance:

  • distinguishes 'real' currency from 'virtual' currency on the basis that virtual currency does not have legal tender status in any jurisdiction;
  • defines 'convertible virtual currency' as a virtual currency that "has either an equivalent value in real currency, or acts as a substitute for real currency"; and
  • concludes that 'administrators' (which are engaged in the business of issuing and redeeming virtual currencies) and 'exchangers' (which are engaged in the business of exchanging virtual currency for real currency, funds or other virtual currency) of convertible virtual currency are money transmitters, and therefore money services businesses, while 'users' of convertible virtual currency are not money services businesses.

FinCEN's recent administrative rulings serve to clarify further the distinctions between 'administrators' and 'exchangers' on the one hand, and 'users' on the other.

Virtual currency mining

The Mining Ruling concerned a company that 'mines' the convertible virtual currency bitcoin (ie, used a computer program to perform the algorithms that allow a person to generate new bitcoins). The company stated to FinCEN that it had not used or transferred any of its bitcoins, but that it might in the future:

  • use its bitcoins to purchase goods or services;
  • convert the bitcoins to legal tender currency or another virtual currency; or
  • transfer the bitcoins to the company's owner.

The company sought a ruling as to whether any of these activities would make it a money transmitter, and therefore a money services business, under the Bank Secrecy Act regulations.

FinCEN concluded that none of these activities constituted 'money transmission', chiefly because none of the company's activities obliged it to send its mined bitcoins to another person or place for the benefit of another. So long as the company mined and used bitcoins solely for its own purposes, including the payment of dividends to its shareholders, and not for the benefit of another, FinCEN concluded that the company was a 'user' of bitcoins, and therefore not a money services business. This would be true even if the company converted bitcoins to another currency, so long as it did so for its own purposes.

Virtual currency software development and investment activity

The Investment Ruling concerned a company that intended to produce software that would facilitate its purchase of convertible virtual currency from sellers by automating the collection of virtual currency and payment in legal tender by an interface offered to the seller. The company stated that it did not intend to offer the software to parties other than its counterparties in these transactions. In addition, the company stated that it intended to limit its activities to investing in convertible virtual currencies for its own account, purchasing virtual currency from sellers and reselling the virtual currency at the company's own discretion.

Again, FinCEN concluded that none of these activities constituted 'money transmission' under the regulations, to the extent that the activities were solely for the company's own benefit. FinCEN focused on the purposes for which the company obtained and disposed of the currency. Importantly, FinCEN noted that if the company were to offer these services to others (eg, by operating as a virtual currency broker) it would require additional analysis to determine the company's regulatory status. For example, FinCEN suggested that such a business might be required to register with the Securities and Exchange Commission or Commodities and Futures Trading Commission as part of its activities, although neither agency has yet taken such a position. If such registration were required, the company would be subject to the regulations as either a securities broker-dealer or a commodities or futures trader.


Together, the Mining Ruling and Investment Ruling provide helpful clarity on FinCEN's treatment of common virtual currency activities. In both rulings, FinCEN stated that it will look not to the label applied to a particular process of obtaining a virtual currency, but rather to "what the person uses the convertible virtual currency for, and for whose benefit". The rulings suggest that FinCEN will take a functional approach in determining whether virtual currency businesses are engaged in virtual currency activities for their own account, or are instead acting as administrators or exchangers of virtual currency in transactions driven by third parties.

However, these FinCEN rulings are limited in scope to the fairly narrow facts presented, and FinCEN has suggested that even minor variations in facts could change its conclusions. For example, in both rulings FinCEN included a footnote stating that:

"a user wishing to purchase goods or services with a convertible virtual currency it has obtained, which pays the convertible virtual currency to a third party at the direction of a seller or creditor, may be engaged in money transmission."

Therefore, convertible virtual currency users should carefully evaluate their activities involving virtual currency, since seemingly minor variations could result in a conclusion that the user is engaged in money transmission or other activity that requires registration and compliance with other requirements under the regulations.

As virtual currencies grow in popularity, federal regulators will likely continue to refine and revise their approaches to virtual currencies and their users. Persons that are engaged in 'mining' activities, investment or any other use of virtual currencies should closely monitor the activities of FinCEN and other regulators to stay abreast of what is likely to remain a rapidly developing area of law.

For further information on this topic please contact David E Teitelbaum, Joel D Feinberg, Gretchen E Lamberg or Thomas L Devlin at Sidley Austin LLP by telephone (+1 202 736 8000), fax (+1 202 736 8711) or email ([email protected], [email protected], [email protected] or [email protected]). The Sidley Austin website can be accessed at


(1) FIN-2014-R001, "Application of FinCEN's Regulations to Virtual Currency Mining Operations" (January 30 2014); FIN 2014-R002, "Application of FinCEN's Regulations to Virtual Currency Software Development and Certain Investment Activity" (January 30 2014).

(2) 31 CFR § 1010.100(ff).

(3) 31 CFR § 1010.100(ff)(1), (4), (5).

(4) FIN-2013-G001, "Application of FinCEN's Regulations to Persons Administering, Exchanging, or Using Virtual Currencies" (March 18 2013).