Money Transmitter Considerations

When Bitcoin was invented, very few laws or regulations were applicable to its use. Virtual currency definitions were added to tax codes, and in many countries the definition of “money transmission” expanded to include virtual currencies. In the U.S., exchanges and applications that incorporate virtual currencies must have a money transmitter license.

Commodity vault receipts, even in electronic form, are well defined and have been in use for decades. Vault receipts have been exempted from many virtual currency regulations, such as the New York Department of Financial Services Bitlicense, which specifically excludes the issuance of tokens for physical goods, as well as from virtual currency contract law, as in the case of U.C.C. Section 12, which excludes commodity vault receipts.

Regulations vary between U.S. states and more so between different countries. And regulators, attorneys-general and private attorneys frequently have different interpretations of seemingly apparent laws. While they must only rely on the advice of their own counsel, application developers in certain domiciles may have a valid argument that they do not require a money transmitter license to incorporate Carats for peer to peer transactions.