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Greetings and salutations Bitcoin community.

With much uncertainty as to how the government will regulate Bitcoins, and as a bootstrapped Bitcoin startup concerned that potential regulatory burdens will be too large to overcome, it behooves us (all) to continue seeking clarifications and guidance as to the requirements we must meet.

Searching the Web leaves you wanting as to how best to structure a FinCEN request. There are probably plenty of Bitcoin startups who could use some clarification regarding their business plans (well, those who have business plans, that is), but might not know the best place to start outside of a high-priced lawyer. Don’t know about you but, with limited funds, this startup’s hard-pressed to want to spend them on lawyers writing letters to governments that apparently take about 8 months just to respond. (8 months?! Do they even realize that 8 months is a lifetime when it comes to technology?!)

FinCEN provides a process to make an administrative ruling request, titled 31 CFR Part 1010, Subpart G. But that might be risky as it could lead to the imposition of new regulations. (If you are looking for an example request for an administration ruling, you can find one here.) The first draft of valME’s request to FinCEN is posted within our alpha test site (authentication: valme/makeworldbetterplace). It provides an example of how you might go about requesting clarification and guidance. (Apologies in advance if you see something that's still broken.)

The first rule of coding is to reuse. In hopes that some of you might already have been through this process and could offer advice on wording, structure, questions that aren’t asked but should be, questions that are asked but shouldn't be, etc., please do chime in. It would be useful for others to start asking the questions in a more formal way.


The purpose of this letter is to ask for clarification and guidance as to whether or not the proposed business model constitutes this business as a money services business (MSB) under the Bank Secrecy Act. valME.io has not yet filed an application with FinCEN, pending your response.

Additionally, assuming, arguendo, that FinCEN believes the business to be that of an MSB, there are certain aspects of the business that may be modified if those modifications would change FinCEN’s categorization. Therefore, this letter also seeks clarification and guidance on those modifications.

Business Summary

valME.io (valME, pronounced val-me) is a customizable, Web-based content management system, comparable to a blog or social media site like Facebook. The underlying intent and a primary differentiator is to allow users an opportunity to acknowledge someone else through micropayments when they receive value (i.e., “that was valuable to me”). In other words, if you like and benefited from what someone did or is doing (e.g., wrote an article, posted a funny picture, supported a charity that you favor, organizing an event you support), you give them more than just a somewhat meaningless thumbs-up - you give them a donation to acknowledge the behavior and encourage more of it.

A closely related intent is to give users (especially lesser-known authors/writers/bloggers and moderators of lesser-known forums) an opportunity to earn revenue outside of typical advertising (e.g., AdSense clicks and impressions from a blog) and affiliate programs, as low-traffic websites have limited potential to make money from those sources. The website primarily allows users to:

  • Publish and comment on content
  • Setup, administer, and facilitate social communities
  • Award user participation.

valME is not yet live, although a test site is operational with a limited set of users. A registered user may purchase “karma” that is used to perform various transactions within the site (e.g., to post an article might cost two karma, to edit a community might cost one karma, to promote your community might cost one karma). In most of these transactions, the company charges the user an extremely small quantity of karma. In the future, valME may choose to increase or decrease the price to perform various transactions, including making some transactions free. Although the price of purchasing karma is not yet formalized, valME will likely charge $0.01 to purchase one karma. A user may also purchase karma using Bitcoins.

For a limited set of transactions, a user will give karma directly or indirectly to another user, or even take away karma. The following are examples of each instance in which a user would give karma to or take karma from another user:

  1. If User B “upvotes” an article or comment posted by User A, User B gives karma to User A. For example, if User B thinks User A’s comment was intelligent, he upvotes the comment’s “intelligence” karma, which gives one of his karma to User A. For each post, a maximum of five karma may be given by any one user through upvotes.
  2. If User B “tips” a user based on an article or comment posted by User A, User B gives that amount of tip karma to User A. For example, if User B thinks User A’s comment was intelligent, but wants to give User A more than just one karma via an upvote, User B can tip User A’s comment ten karma, which gives ten of his karma to User A. Most users are limited in how much they can tip another user to the amount of karma they purchased.
  3. If User B accomplishes predefined tasks or goals, User A can “award” karma to User B via an “honor.” For example, User A sets up an honor contest in his community to award twenty-five karma to the post that receives the most intelligence karma. Many users contribute posts to his community. User B’s post receives the most intelligence upvotes. User A then gives twenty-five karma to User B for winning the contest.
  4. If User A is a “sponsor account” (an account with special privileges and enhanced functionality that is targeted toward businesses), User A can set the “price” to submit a post or comment to his community. As that price will be different from the standard valME price, User A will receive a defined percentage (e.g., 75%) of the karma charged to post above the standard valME price. For example, if User A, as a sponsor account, sets the price to submit a post to his community as five karma, User A will earn two karma for each post others make in his community (i.e., five karma less two karma to valME, with the difference multiplied by 0.75).
  5. If User B “downvotes” an article or comment posted by User A, User B removes karma from User A. For example, if User B thinks User A’s comment was not intelligent, he downvotes the comment’s “intelligence” karma, which costs User B two karma but which also removes one karma from User A.
  6. If User B correctly “flags” a post or comment made by User A, karma that User A received from that post or comment that is not yet used is available to User B as a “bounty.” For example, if User A creates a spam post and has five “puppet” accounts upvote that post with one karma each (in an effort to gain more visibility), User B can flag the post as spam. If a moderator agrees with User B that the post is spam, the moderator will remove that post. User B will then receive the five karma that User A will lose from the removed post.

Financial Processes

Although there does exist Web functionality to give Bitcoins for valued content (e.g., see http://www.reddit.com/r/bitcointip), with most social networks, upvotes or karma received amount to nothing more than good feelings. With valME, a user will be able to redeem and/or donate karma.

valME is not in business to profit from market exchange rates or currency investments. Additionally, valME does not make money from transaction fees incurred when purchasing or redeeming karma. Any transaction fees incurred are directly passed onto users.

valME does not intend to request personal information from users other than the minimum necessary to provide its services. For example, valME does not intend to collect or ask for a user’s real name, address, or phone number, except as required by a partner in the course of purchasing or redeeming karma. (valME does collect and retain registration and changed email addresses associated with an account, as well as IP addresses for certain website actions.) For all financial transactions, valME will retain transaction IDs provided by integration partners that can be used for legally required disclosures.


Although promotional karma will be given as part of valME’s marketing efforts, it is intended that karma will primarily be purchased. Karma can be purchased for either Bitcoins or via PayPal. Karma may not be purchased below a predefined minimum quantity (currently $5.00).

When a purchase is made via Bitcoins, the user’s provided Bitcoin address is retained, as well as the information response from our Bitcoin integration partner’s API/Instant Payment Notification, but it does not include personally identifying information. Like cash, as Bitcoin is often used anonymously, other than the users’ email addresses associated with their valME accounts, no other personally identifying information is retained. The user is not charged any transaction fees by valME when purchasing karma with Bitcoin.

When a purchase is made via PayPal, the information response received from PayPal’s API/Instant Payment Notification is retained, which does include personally identifying information (e.g., full name). Other than what is provided by PayPal, no other personally identifying information is retained. The user is charged the selling fee incurred by PayPal as a transaction fee, which is passed along as removed/reduced karma.


At this point, valME does not intend to offer an ability to redeem karma for hard currencies. It is intended to allow karma to be redeemed for either Bitcoins or as discounts/coupons for merchandise and services (provided by participating third-party retailers and service providers). It is also intended to allow karma to be donated to charities (who can then redeem it for Bitcoins and/or discounts/coupons).

Until valME exits its testing stage, users will not be able to redeem karma. Additionally, at this point, valME has not yet partnered with any merchants or charities. Once valME is live (i.e., outside of testing), users will be able to redeem karma. Currently, valME’s Bitcoin integration partner does not charge transaction fees for valME to transfer Bitcoin to users, merchants, or charities. If, in the future, the partner does charge transaction fees, these fees will be passed directly to users (or picked up by the merchants or charities).

Users are limited in daily redemptions - they may not redeem any amount. Currently, a user may not redeem more than $100.00 per day. Additionally, a user may not redeem less than $25.00.

Bitcoin Mining and Holdings

valME mines Bitcoins for the sole purposes of paying users for earned karma and for merchant partners or charities when users want to redeem karma for something other than Bitcoin. Additionally, valME will retain Bitcoins resulting from user purchases in order to pay users, merchant partners, or charities. valME does not mine Bitcoins for investment as a financial instrument.

For example, if User A earns twenty-five hundred karma and wants to redeem the karma for Bitcoin, using the current market rate and assuming one karma equals $0.01, valME will remove twenty-five hundred karma from the user’s account and issue the user $25.00 worth of Bitcoin. Similarly, if User A wants to redeem twenty-five hundred karma for a participating retailer’s gift card, valME will remove twenty-five hundred karma from the user’s account and transfer $25.00 in Bitcoin to the chosen retailer.

It is possible that valME will have to purchase Bitcoins on the open market if redemption demands exceed currently held Bitcoins (resulting from mining and user purchases). However, valME does not intend to purchase Bitcoin for any other reason.

Depending on business needs and holdings/reserves, valME intends, at times, to exchange held Bitcoins on the open market for hard currencies that will be used to pay operating expenses (e.g., hosting services) and distributions to shareholders. Additionally, valME may pay employees or vendors in Bitcoins if they choose.


Given the described business model and financial processes, please provide clarifications and guidance to the following questions:

  1. Does FinCEN consider valME an MSB?
  2. If FinCEN considers valME an MSB, would any of the following business model or operating process modifications, singularly or jointly, change FinCEN’s categorization so that valME would no longer be considered an MSB?
    1. Removing a user’s ability to purchase karma via hard currencies (i.e., if a user could only purchase karma using Bitcoin instead of Bitcoin and PayPal)
    2. Removing a user’s ability to redeem karma for merchant products or services
    3. Removing a user’s ability to redeem karma for donations to charities
    4. Removing a user’s ability to purchase karma via Bitcoin (i.e., if a user could only purchase karma using hard currencies)
    5. Adding the ability for a user to redeem karma for hard currencies
    6. Limiting a user’s ability to only redeem karma for the currency used to purchase (e.g., if a user used Bitcoin to purchase karma, the user can only redeem karma for Bitcoin; if a user used Dollars to purchase karma, the user can only redeem karma for Dollars)
    7. Decreasing the daily maximum (i.e., $100.00) that a user can redeem
    8. Increasing or decreasing the minimum redemption (i.e., $25.00)
    9. Increasing or decreasing the cost per karma (i.e., $0.01)
    10. Instead of allowing users to purchase karma, charging users a monthly membership fee which included a predefined quantity of karma, but still allowed karma to be redeemed
    11. Instead of allowing users to purchase and redeem karma, letting users use Bitcoins and/or hard currencies directly to perform activities (e.g., a user “deposits” $10.00 into their valME account; every time a user upvotes another user, he gives $0.01 from his account to the other user)
  3. If FinCEN considers valME an MSB, which specific activities, separately or jointly, make valME an MSB?
  4. If FinCEN considers valME an MSB, does any model exist whereby valME can exchange karma for another value (e.g., currency, product/service) whereby valME will no longer be considered an MSB?
  5. If FinCEN considers valME an MSB, for what exceptions, if any, could valME apply under which valME would no longer be considered an MSB?
  6. Are airlines, who sell and award points/miles, which can later be redeemed for travel, other products and services, or even cash (e.g., https://www.points.com, http://www.pointspay.com/) or as donations, considered MSBs?
  7. Are airline points/miles considered a virtual currency?
  8. If FinCEN considers valME an MSB but does not consider airlines as MSBs or does not consider airline points/miles as a virtual currency, if valME used airline points/miles instead of karma, would valME no longer be considered an MSB?

To the best of my knowledge and belief, the above questions are not applicable to any ongoing state or federal investigation, litigation, grand jury proceeding, or proceeding before any other governmental body involving either the requestor, any other party to the subject transaction, or any other party with whom the requestor has an agency relationship. There isn't any information in this request that is exempt from disclosure under the Freedom of Information Act, 5 U.S.C. 552.

The current FinCEN regulations, opinions, and rulings are unclear with regard to the above questions. valME must be setup and operate properly under the law, including the proper registration, reporting, transaction monitoring, and record-keeping required. valME needs these clarifications and this guidance in order to properly setup its system functionality, operating model, policies, procedures, and protect its financial interests. Your attention to these questions is appreciated.

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Bitcoin is a peer-to-peer payment system and digital currency introduced as open source software in 2009 by pseudonymous developer Satoshi Nakamoto. It is a cryptocurrency, so-called because it uses cryptography to control the creation and transfer of money. Conventionally, the capitalized word "Bitcoin" refers to the technology and network, whereas lowercase "bitcoins" refers to the currency itself.

Bitcoins are created by a process called mining, in which participants verify and record payments in exchange for transaction fees and newly minted bitcoins. Users send and receive bitcoins using wallet software on a personal computer, mobile device, or a web application. Bitcoins can be obtained by mining or in exchange for products, services, or other currencies. 

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