As regulators heighten their scrutiny of Bitcoin businesses, several digital currency supporters are looking for business models that do not subject them to the cumbersome requirements they would face as money services businesses or money transmitters.
Brawker, a Bitcoin company incorporated in Hong Kong, is taking lessons from the sharing economy, which has grown rapidly over the past couple years with standouts like Airbnb, Uber, Getaround and TaskRabbit.
Brawker matches Bitcoin users with credit card users to make purchase at merchants that don't accept Bitcoin. The credit card user buys the product, then gives it to the Bitcoin user in exchange for the equivalent amount of digital currency.
"Usually exchanges rely on banking services in order to function we piggyback on the e-commerce infrastructure," said Cyril Houri, co-founder and CEO of Brawker.
Brawker has nearly 15,000 registered users (both buy side and sell side) and handles about 15 transactions per day, mostly for Amazon gift cards, Houri said. He's also seen people use the service to pay an electricity bill, a parking ticket or an installment of a student loan.
"We're making it possible now for someone who's going to receive bitcoin to be confident that they'll be able to spend it on anything they want," said Houri.
Gil Luria, an analyst with Wedbush Securities, agrees that these types of bridge services could significantly expand the Bitcoin ecosystem. "It's a clever idea on how to facilitate commerce with Bitcoin by tapping communities," Luria said.
Other bridge services come from Gyft, a mobile gift card company that accepts Bitcoin for gift cards to more than 50,000 merchant locations; and nascent Bitcoin debit card providers like Xapo and FreshPay.
But Brawker claims to work outside the Financial Crimes Enforcement Network's money service business rules, Luria is hesitant to agree, especially after the agency issued two response letters on Oct. 27.
One letter, FIN-2014-R011, states that a company that matches buyers and sellers and holds separate accounts for U.S. dollars and a virtual wallet to facilitate these transactions will be looked at as an MSB and is not eligible for the payment processor exemption.
"A person that accepts currency, funds, or any value that substitutes for currency, with the intent and/or effect of transmitting currency, funds or any value that substitutes for currency to another person or location if a certain predetermined condition established by the transmitter is met, is a money transmitter under Fincen's regulations," the response letter said.
So the line into money transmission seems to be whether the Bitcoin business holds funds, even for its customers.
Brawker takes 1% on both sides of the transaction. Currently the company keeps bitcoin in escrow for the user who creates the order. In a couple weeks, it will not hold any consumer funds at all, but instead only siphon the commission fee from the transaction.
When Brawker doesn't hold the funds in escrow anymore, it shouldn't be viewed as an MSB, according to the Fincen guidance and response letters up to this point.
Brawker has customers around the world, but most come from the U.S., Canada and Western Europe. The company indirectly allows consumers to buy bitcoin with a credit card transaction which has been limited on exchange sites.
The other Fincen letter, FIN-2014-R012, seems to be targeted at merchant services providers, such as BitPay and Coinbase, stating that if a consumer purchases a merchant good with a credit card and that payment goes to a third party, which then transfers the equivalent amount of bitcoin to the merchant, that service is also considered money transmission.
BitPay's model is a little different. It enables consumers to pay merchants with bitcoin, and the company doesn't have its own wallet for holding consumer funds.
"BitPay is not any type of bank or account service and we do not store any funds for consumers or for merchants," BitPay said in a prepared statement. "We only process payments on behalf of merchants, similar to First Data, Braintree and other merchant service providers."
While BitPay has a central company hub in Atlanta that could subpoenaed, fined or indicted, parts of the sharing economy are becoming harder to regulate.
For example, there are many Twitter bots that transact small amounts of Bitcoin and other cryptocurrencies, like Dogecoin, on behalf of users. These bots are not controlled by any central business or authority, but instead pick up on transactions through a specific hashtag and transfer the amount tweeted out with that word or phrase.
"There's a trend towards decentralization," Houri said. "All the major services that we know of up to a couple years ago were a centralized service that were transacting for users but now we're seeing people doing business with one another through person-to-person transactions."
Luria agrees. "The sharing economy has been developing over the past couple years with a consumer helping another consumer buy and use their bitcoin and creating liquidity in Bitcoin," he said.