Application of Money Transmitters Act to Bitcoin ATM Companies in Colorado

This article is written by Zachary Owens. Twitter: @zaowens for questions, comments, and contributions. Listed below in the blog is legal documentation I’ve been working on regarding Bitcoin and its place in money transmitter laws in the state of Colorado. Coincidentally while working on this document, Colorado issued a statement confirming that a money transmitter license is NOT required by most bitcoin companies inside the state. The official statement can be found here: https://bitcoinsupport.center/wp-content/uploads/2018/09/AB-Interim-Guidance-Cryptocurrency-and-the-Money-Transmitters-Act.pdf I’ve chosen to upload this incomplete rough draft as an example of how to read and interpret state legislation around this issue. This may be a good starting point for legal research in this area. You should be able to compare points I make in the draft below, to the official interpretation of the law in the PDF link above.

Title 11 Article 110

It is in my opinion that the Colorado state law Title 11 Article 110 does not apply to bitcoin ATM operators in the state of Colorado. 11-110-102 “Legislative declaration” states: “It is declared to be the policy of this state that checks, drafts, money orders, or other instruments for the transmission or payment of credit or money are widely used by the people of this state as a process of settling accounts or debts and that sellers and issuers of the instruments receive, in the aggregate, large sums of money from the people of this state and it is therefore imperative that the integrity, experience, and financial responsibility and reliability of those engaged in the various types of businesses dealing in the instruments be above reproach. In order that the people of this state may be safeguarded from default in the payment of these instruments, it is necessary that proper regulatory authority be established through the banking board. Any person who sells or issues the instruments without complying with the provisions of this article 110 endangers the public interest.” 11-110-103 (5) “Exchange” means any check, draft, money order, or other instrument for the transmission or payment of money or credit. It does not mean money or currency of any nation. 11-110-103 (11) “Money transmission” means the sale or issuance of exchange or engaging in the business of receiving money for transmission or transmitting money within the United States or to locations abroad by any and all means including but not limited to payment instrument, wire, facsimile, or electronic transfer. Currently, bitcoin ATM companies conduct a sale of property (bitcoin) to a customer. When a customer inserts cash into a bitcoin ATM, the customer is purchasing bitcoin which is the property of the ATM operator. The machine accepts and verifies the amount of money interested, then sells the customer the corresponding amount of bitcoin. The bitcoin is marked up above average market cost of bitcoin, in which the difference is the company’s profit. This transaction is similar to inserting $1.00 into a vending machine, which will allow you to purchase a $1.00 bag of chips, which the vending operator paid only $0.50 to purchase.
Business flow of typical bitcoin ATM
In no way is the bitcoin kiosk “issuing a check, draft, or money order” to a customer. The machine is not storing any on behalf of the customer. Once money is inserted into the machine, the customer has made a purchase of property owned by the ATM business. Similarly, the machine is not acting in a manner that is issuing payment (or transmission) of a “credit” or money that is stored or held by the ATM company. The company is not settling accounts or debts on behalf of itself or the customer. The company is simply conducting a normal exchange of property for US dollar.