Thread by @el33th4xor

The SEC issued new guidance for money transmitters using cryptocurrencies. It then deleted the web page. Here's the document, it has far-reaching implications:
systems.cs.cornell.edu/docs/fincen-cv…

That should be FINCEN, not SEC.

TL;DR: To my non-lawyer eyes, this looks like mostly bad news. Running a Lightning node requires a money transmission license. Oddly, providers of anonymity services are exempt. DEX operators (but not necessarily developers) are money transmitters.

Let me add a few other random thoughts.

First of all, this document is not a case of "the man" going after crypto, the tech. It is not a case of heavy-handed legislation. It is not a mindless attempt at a ban, of the kind that we have seen in other countries. It's a nuanced document, written by subject matter experts.

It is remarkable what the document does not do: it does not ban the tech. It does not ban any aspect of the technology that actually makes FINCEN's job harder. It leaves anonymity providers exempt, for instance.

It also does not burden or exempt anyone based on their status or title, like developer, wallet provider, etc. Instead, it has a very functional view: they are attempting to capture behaviors where someone has possession of value and helps transfer it.

They provide clarity for multisig wallets, and they seem to exempt multisig wallet providers. This is good. They believe hosted wallets qualify as MSBs, which is not new.

They exempt developers of DEXs and Dapps, insofar as they remain only developers. But they have an "operator" classification that does qualify a DEX operator as an MSB. If you're on the money transfer path and benefiting directly from the value exchange at the DEX, you're an MSB.

To my reading, the document qualifies every LN operator as an MSB. Given how similar LN is to hawala networks, and given the role hawala networks played in financing terrorism pre-9/11, this is not surprising, but it's at odds with the community's expectations.

There will be a lot of uproar over this issue, and many legal minds will look into the nuanced language in the document. Recall that this is a deleted document, that I'm not a lawyer, and therefore this is just a fun exercise with no binding power at the moment.

They also explicitly mention that mining payouts are exempt from MSB status, because that's part and parcel of a "hosted mining" service, but any additional services (e.g. token swaps where dirty coins are exchanged for fresh ones, come to mind) are not.

The bit about hosted mining still leaves a bit of a loophole: hosted mining can still be used for money laundering. Regardless, I think everyone will appreciate the clarity. And the document circumscribes the services that can be provided by miners.