My thoughts on Casascius in trouble

According to the website casascius.com and a followup report by Wired the company (Casascius) was contacted by FinCen with language that made them take a step back and turn off operations for the time being.  Right now it is hard to separate speculation from actual news but I thought I would weigh in on what I have heard.

For those that don't know Casascius, they are the 800 pound gorilla in the physical bitcoin market.  They produce metal coins that are hollow in the center and cardstock with a secret key printed on it is placed into this space.  The hollow space with the printed key is then covered with a tamper evident sticker.  The result is a fancy cold storage wallet that you can give to someone else with confidence that the secret key was not accessed.  The public key (actually firstbits of the public key) are printed on the coin so that you can verify the balance of the coin.  I have some Casascius coin and I would definitely recommend them for people who like collectibles and want to introduce Bitcoin to new comers in a way that they will understand.

FinCen is the enforcement branch of the US treasury.  They deal with money laundering and other financial crimes.  Where factual reports of this case and speculation seem to blur is what exactly FinCen had a problem with regarding Casascius.  The consensus opinion seems to be that the business process Casascius uses can lend itself to money laundering so it needed to register itself with FinCen as a money transmitter and verify and keep records of its customers.  Here are the specifics to how that works.  When you order a 1 bitcoin coin from Casascius you pay Casascius 1.25 bitcoin (this is not the current rate, just an example).  You pay .05 BTC for shipping and .2 BTC for the markup and when you get your coin in the mail Casascius will send 1 BTC to the address of the coin.  The problem is that Casascius is collecting bitcoin from orders from all over the place and the 1 BTC that is going on the coin is not necessarily part of the 1.25 BTC you originally sent.  There is nothing wrong with that, it is just that FinCen wants you to be registered and follow their rules and regulations for your customers if you are doing that.

If, on the other hand, Casascius was charging .25 BTC for the coin as a blank and telling the recipient that it was up to them to charge the coin then Casascius is not transmitting money.  They are just taking payment for a product.  Whatever happens, I am very interested to see how this all pans out.