9 ms·

Coinbase is indefinitely suspending its business in Wyoming

55 points by davidgerard 11y ago

ademarre 11y ago
What does this mean for Wyoming customers who already have bitcoin in Coinbase-hosted wallets?
- wrayjustin 11y ago
  Even on account suspension CB let's you remove your current funds. I'm assuming the customers will have a time-period where they can remove those funds.
doragcoder 11y ago
How does this even work? Meaning if I live in WY, but I bank at "Small Union Bank of Delaware" Does that mean I'm using anything with in the realm of the Wyoming Division of Banking? Would just using an ATM put me under their jurisdiction? Because if I by something from Amazon, the transaction is basically from my bank in DE to WA if there are no Physical Amazon locations in WY. Correct?
- wrayjustin 11y ago
  IANAL and I didn't do any research into this. But based on the content of the CB Press Release, and the fun we had with NY, I'd say it works as such: You're a WY resident, and therefore the DE bank must follow the WY policies for your money. Of course this is a BTC/Digital Currency-based regulation, so...
- jahewson 11y ago
  > if I by something from Amazon, the transaction is basically from my bank in DE to WA if there are no Physical Amazon locations in WY. Correct? Incorrect. What matters is the state (or states) in which the company is "doing business". The exact definition varies from state to state, but in general having customers in WY means that you're doing business there and will (usually) need to register with the state, follow its rules and pay its taxes for your sales in that state. Your bank is also doing business in DE and will need to follow their laws too, as the other end of the transaction is there.
- deleted 11y ago
  [deleted]
tdees40 11y ago
Slightly OT, but I have an amusing story about Montana-based regulation. I work for an insurance company, and when you price life insurance or annuities, you have two separate mortality tables: male and female. Montana decided that that's discriminatory, so they mandate only using one table. So we use whichever table is more onerous (i.e. male for life insurance, female for annuities). So if Montanan women notice they pay more life insurance, or men pay more for annuities, they can thank their local regulator.
- mrgoldenbrown 11y ago
  I don't think you can blame the regulator for that. If you wanted you could calculate tables for "people" regardless of gender. Those tables would more accurately reflect the population than purposely choosing the wrong subset of data to use.
  - tdees40 11y ago
    That leaves you open to anti-selection bias. It would make men's life insurance cheaper than in any other state, and you'd likely get more men buying in Montana.
    - pbreit 11y ago
      I do t think he's saying remove gender from the equation. Just don't have two tables based solely on gender.
  - baddox 11y ago
    That sounds like a good way to quickly go out of business.
- arebop 11y ago
  How do you compete with insurers who use a unconditional table rather than assuming the worst case? Presumably they beat your prices for both genders.
  - 11y ago
ibejoeb 11y ago
Huh. I'm about to go read the the books, but that sounds like a wild interpretation. That sounds like some odd parity reserve, rather than the fractional reserve system common in almost any other domain.
- Animats 11y ago
  No, it's standard for "money transmitters" to have to maintain 100% reserves. Coinbase isn't a bank. They're not a lender. "Fractional reserve" means that a fraction of a bank's assets are in cash, and the rest are in loans owed them. That's fine unless a lot of loans go bad all at once, as in 2008. Even then, it eventually worked out when the economy came back. Here's Wyoming's law: "Each application shall be accompanied by a surety bond, irrevocable letter of credit or other similar security device acceptable to the commissioner in the amount of ten thousand dollars ($10,000.00) or two and one-half (2) times the outstanding payment instruments, whichever is greater. The commissioner may increase the required amount of the bond or security device to a maximum of five hundred thousand dollars ($500,000.00) upon the basis of the impaired financial condition of a licensee as evidenced by a reduction in net worth, financial losses or other relevant criteria."[1] For most money transmitters, this isn't a big deal. They don't hold the money for long. The whole point of the business is to get funds from A to B quickly. So they don't have a large obligation to their customers at any one time. Coinbase's "hosted wallet" service makes them a depository institution - customers have funds on deposit with them. Given the track record of Bitcoin "hosted wallet" companies, most of which have failed, requiring reserves as a consumer protection measure makes good sense. Coinbase could post a bond from an insurance/bonding company, but they'd have to convince the insurance company of their financial soundness. That they can't easily do so is a bad sign. Coinbase should still be able to do their business of converting Bitcoins to dollars for merchants. They only hold the money for a few hours, and should be able to have reserves for that float. If Coinbase became a bank or a broker, they'd be subject to US Federal regulation and audits, but would no longer need state licenses. They're trying to sleaze by as a "money transmitter", while acting as a depository institution, and it's not working out for them. [1] http://legisweb.state.wy.us/statutes/statutes.aspx?file=titles/Title40/T40CH22.htm http://legisweb.state.wy.us/statutes/statutes.aspx?file=titl...
minimax 11y ago
Wyoming has something like 0.2% of the US population. I wonder if the number of Wyoming-based active accounts at Coinbase even reaches into the triple digits.
- ForHackernews 11y ago
  Bitcoin is used by something like 0.05% of the US population. I wonder if the number of active users at Coinbase reaches into the quadruple digits.
  - ikeboy 11y ago
    Do you math? http://www.wolframalpha.com/input/?i=.05%25+*+number+of+americans http://www.wolframalpha.com/input/?i=.05%25+*+number+of+amer... says over 150,000 people given your number. Coinbase themselves say https://www.coinbase.com/about https://www.coinbase.com/about over 2 million users.
    - Miner49er 11y ago
      And that times .2% gives 322 people, so 322 is a safe estimate for the number of bitcoin users in Wyoming.
    - somedudethere 11y ago
      Thats the upper limit. Not all bitcoin users use coinbase.
      - ikeboy 11y ago
        2 million according to https://www.coinbase.com/about https://www.coinbase.com/about
    - cwp 11y ago
      So you assume that all BitCoin users maintain active Coinbase accounts?
oconnor663 11y ago
> licensees must maintain dedicated fiat currency reserves in amount equal to the aggregate face value of all bitcoin held on behalf of customers Does bitcoin have a "face value"? I'm not sure what the legal definition of that term is, but I'd be surprised if it was the same as "market value".
- newobj 11y ago
  "face value" is the term used in the Coinbase press release, not necessarily the wording used in the law.
- omouse 11y ago
  Does that mean that bitcoin must be a US-dollar-backed or gold-backed currency? I don't quite understand the reading of this.
- dragonwriter 11y ago
  > Does bitcoin have a "face value"? No, clearly not. Which is one thing that makes either the interpretation or Coinbase's understanding of it ludicrous; given that we have no source for the actual interpretation by the Division of Banking, its kind of hard to tell which, though.
thinkcomp 11y ago
Maybe now some will take my comments about the need for federal reform more seriously. http://www.aarongreenspan.com/writing/20131118.hsgacstatement.pdf http://www.aarongreenspan.com/writing/20131118.hsgacstatemen...
CPLX 11y ago
Both people in Wyoming could not be reached for comment.
startupfounder 11y ago
Indefinitely is a very strong word and goes beyond the initial implications for the (small) population of Wyoming. Under this interpretation of Bitcoin companies like Coinbase need to hold the equivalent value of their state holdings in a fiat currency (deriving it's value from government regulation), but fiat currency, aka USD, is no longer on the gold standard (a commodity currency) and thus only holds value because our government tells us it does and our collective agreement that it does hold value. The interpretation of this law would be the equivalent of telling the native americans they need to hold USD reserves to trade in shell money regardless if all people collectively agree that shells hold value as a currency for trade. It's an attempt to continually establish USD being the standard for global currency value. If more states follow suit set by this precedent than companies like Coinbase can't do business and the US Government crushes legitimate bitcoin uses. This requires Bitcoin to continually evolved into an increasingly decentralized currency where both individual humans and computers agree on it's value without the inefficiencies of marketplace or government middlemen.
- Frondo 11y ago
  "... thus only holds value because ... our collective agreement that it does hold value." What exactly do you think the value of a given collection of bits is?
  - x3n0ph3n3 11y ago
    As much as people agree, just like every other currency.
  - startupfounder 11y ago
    The value of a given collection of bits is whatever you and I agree the value of those collection of bits is. It's a one to one relationship. The value of USD is not what you and I agree the value is, it's what the government tells us what the value should be. This is not a one to one relationship. One is based on a transparent mathematical equation between you and I and the other is based on 7 non-elected and appointed board of governors between you and I. That's the difference.
gigq 11y ago
This would only make sense if when you moved bitcoins into coinbase they immediately converted them to USD. In that case, sure they would need to have USD on hand to cover your funds. In the case where you are storing the bitcoins with coinbase and not converting it they just need to make sure they have the bitcoins on hand. Forcing coinbase to both hold bitcoin and USD to cover the value of those bitcoins makes no sense.
- davidgerard 11y ago
  Explanation here: https://news.ycombinator.com/item?id=9661614 https://news.ycombinator.com/item?id=9661614 > If Coinbase became a bank or a broker, they'd be subject to US Federal regulation and audits, but would no longer need state licenses. They're trying to sleaze by as a "money transmitter", while acting as a depository institution, and it's not working out for them.

55 points by davidgerard 11y ago

ademarre 11y ago

What does this mean for Wyoming customers who already have bitcoin in Coinbase-hosted wallets?

wrayjustin 11y ago
Even on account suspension CB let's you remove your current funds. I'm assuming the customers will have a time-period where they can remove those funds.

doragcoder 11y ago

How does this even work? Meaning if I live in WY, but I bank at "Small Union Bank of Delaware" Does that mean I'm using anything with in the realm of the Wyoming Division of Banking? Would just using an ATM put me under their jurisdiction? Because if I by something from Amazon, the transaction is basically from my bank in DE to WA if there are no Physical Amazon locations in WY. Correct?

wrayjustin 11y ago
IANAL and I didn't do any research into this. But based on the content of the CB Press Release, and the fun we had with NY, I'd say it works as such: You're a WY resident, and therefore the DE bank must follow the WY policies for your money. Of course this is a BTC/Digital Currency-based regulation, so...
jahewson 11y ago
> if I by something from Amazon, the transaction is basically from my bank in DE to WA if there are no Physical Amazon locations in WY. Correct? Incorrect. What matters is the state (or states) in which the company is "doing business". The exact definition varies from state to state, but in general having customers in WY means that you're doing business there and will (usually) need to register with the state, follow its rules and pay its taxes for your sales in that state. Your bank is also doing business in DE and will need to follow their laws too, as the other end of the transaction is there.
deleted 11y ago
[deleted]

tdees40 11y ago

Slightly OT, but I have an amusing story about Montana-based regulation. I work for an insurance company, and when you price life insurance or annuities, you have two separate mortality tables: male and female. Montana decided that that's discriminatory, so they mandate only using one table. So we use whichever table is more onerous (i.e. male for life insurance, female for annuities). So if Montanan women notice they pay more life insurance, or men pay more for annuities, they can thank their local regulator.

mrgoldenbrown 11y ago
I don't think you can blame the regulator for that. If you wanted you could calculate tables for "people" regardless of gender. Those tables would more accurately reflect the population than purposely choosing the wrong subset of data to use.
- tdees40 11y ago
  That leaves you open to anti-selection bias. It would make men's life insurance cheaper than in any other state, and you'd likely get more men buying in Montana.
  - pbreit 11y ago
    I do t think he's saying remove gender from the equation. Just don't have two tables based solely on gender.
- baddox 11y ago
  That sounds like a good way to quickly go out of business.
arebop 11y ago
How do you compete with insurers who use a unconditional table rather than assuming the worst case? Presumably they beat your prices for both genders.
- 11y ago

ibejoeb 11y ago

Huh. I'm about to go read the the books, but that sounds like a wild interpretation. That sounds like some odd parity reserve, rather than the fractional reserve system common in almost any other domain.

Animats 11y ago
No, it's standard for "money transmitters" to have to maintain 100% reserves. Coinbase isn't a bank. They're not a lender. "Fractional reserve" means that a fraction of a bank's assets are in cash, and the rest are in loans owed them. That's fine unless a lot of loans go bad all at once, as in 2008. Even then, it eventually worked out when the economy came back. Here's Wyoming's law: "Each application shall be accompanied by a surety bond, irrevocable letter of credit or other similar security device acceptable to the commissioner in the amount of ten thousand dollars ($10,000.00) or two and one-half (2) times the outstanding payment instruments, whichever is greater. The commissioner may increase the required amount of the bond or security device to a maximum of five hundred thousand dollars ($500,000.00) upon the basis of the impaired financial condition of a licensee as evidenced by a reduction in net worth, financial losses or other relevant criteria."[1] For most money transmitters, this isn't a big deal. They don't hold the money for long. The whole point of the business is to get funds from A to B quickly. So they don't have a large obligation to their customers at any one time. Coinbase's "hosted wallet" service makes them a depository institution - customers have funds on deposit with them. Given the track record of Bitcoin "hosted wallet" companies, most of which have failed, requiring reserves as a consumer protection measure makes good sense. Coinbase could post a bond from an insurance/bonding company, but they'd have to convince the insurance company of their financial soundness. That they can't easily do so is a bad sign. Coinbase should still be able to do their business of converting Bitcoins to dollars for merchants. They only hold the money for a few hours, and should be able to have reserves for that float. If Coinbase became a bank or a broker, they'd be subject to US Federal regulation and audits, but would no longer need state licenses. They're trying to sleaze by as a "money transmitter", while acting as a depository institution, and it's not working out for them. [1] http://legisweb.state.wy.us/statutes/statutes.aspx?file=titles/Title40/T40CH22.htm http://legisweb.state.wy.us/statutes/statutes.aspx?file=titl...

minimax 11y ago

Wyoming has something like 0.2% of the US population. I wonder if the number of Wyoming-based active accounts at Coinbase even reaches into the triple digits.

ForHackernews 11y ago
Bitcoin is used by something like 0.05% of the US population. I wonder if the number of active users at Coinbase reaches into the quadruple digits.
- ikeboy 11y ago
  Do you math? http://www.wolframalpha.com/input/?i=.05%25+*+number+of+americans http://www.wolframalpha.com/input/?i=.05%25+*+number+of+amer... says over 150,000 people given your number. Coinbase themselves say https://www.coinbase.com/about https://www.coinbase.com/about over 2 million users.
  - Miner49er 11y ago
    And that times .2% gives 322 people, so 322 is a safe estimate for the number of bitcoin users in Wyoming.
  - somedudethere 11y ago
    Thats the upper limit. Not all bitcoin users use coinbase.
    - ikeboy 11y ago
      2 million according to https://www.coinbase.com/about https://www.coinbase.com/about
  - cwp 11y ago
    So you assume that all BitCoin users maintain active Coinbase accounts?

oconnor663 11y ago

> licensees must maintain dedicated fiat currency reserves in amount equal to the aggregate face value of all bitcoin held on behalf of customers Does bitcoin have a "face value"? I'm not sure what the legal definition of that term is, but I'd be surprised if it was the same as "market value".

newobj 11y ago
"face value" is the term used in the Coinbase press release, not necessarily the wording used in the law.
omouse 11y ago
Does that mean that bitcoin must be a US-dollar-backed or gold-backed currency? I don't quite understand the reading of this.
dragonwriter 11y ago
> Does bitcoin have a "face value"? No, clearly not. Which is one thing that makes either the interpretation or Coinbase's understanding of it ludicrous; given that we have no source for the actual interpretation by the Division of Banking, its kind of hard to tell which, though.

thinkcomp 11y ago

Maybe now some will take my comments about the need for federal reform more seriously. http://www.aarongreenspan.com/writing/20131118.hsgacstatement.pdf http://www.aarongreenspan.com/writing/20131118.hsgacstatemen...

CPLX 11y ago

Both people in Wyoming could not be reached for comment.

startupfounder 11y ago

Indefinitely is a very strong word and goes beyond the initial implications for the (small) population of Wyoming. Under this interpretation of Bitcoin companies like Coinbase need to hold the equivalent value of their state holdings in a fiat currency (deriving it's value from government regulation), but fiat currency, aka USD, is no longer on the gold standard (a commodity currency) and thus only holds value because our government tells us it does and our collective agreement that it does hold value. The interpretation of this law would be the equivalent of telling the native americans they need to hold USD reserves to trade in shell money regardless if all people collectively agree that shells hold value as a currency for trade. It's an attempt to continually establish USD being the standard for global currency value. If more states follow suit set by this precedent than companies like Coinbase can't do business and the US Government crushes legitimate bitcoin uses. This requires Bitcoin to continually evolved into an increasingly decentralized currency where both individual humans and computers agree on it's value without the inefficiencies of marketplace or government middlemen.

Frondo 11y ago
"... thus only holds value because ... our collective agreement that it does hold value." What exactly do you think the value of a given collection of bits is?
- x3n0ph3n3 11y ago
  As much as people agree, just like every other currency.
- startupfounder 11y ago
  The value of a given collection of bits is whatever you and I agree the value of those collection of bits is. It's a one to one relationship. The value of USD is not what you and I agree the value is, it's what the government tells us what the value should be. This is not a one to one relationship. One is based on a transparent mathematical equation between you and I and the other is based on 7 non-elected and appointed board of governors between you and I. That's the difference.

gigq 11y ago

This would only make sense if when you moved bitcoins into coinbase they immediately converted them to USD. In that case, sure they would need to have USD on hand to cover your funds. In the case where you are storing the bitcoins with coinbase and not converting it they just need to make sure they have the bitcoins on hand. Forcing coinbase to both hold bitcoin and USD to cover the value of those bitcoins makes no sense.

davidgerard 11y ago
Explanation here: https://news.ycombinator.com/item?id=9661614 https://news.ycombinator.com/item?id=9661614 > If Coinbase became a bank or a broker, they'd be subject to US Federal regulation and audits, but would no longer need state licenses. They're trying to sleaze by as a "money transmitter", while acting as a depository institution, and it's not working out for them.