
Ask HN: Bitcoin business unexpectedly taking off, help! - mhluongo
I launched a service to buy gift cards for bitcoin earlier this week (cardforcoin.com) and it&#x27;s doing far better than I expected. Like, in a scary way.<p>I have a full-time job, and was hoping to carve out a small bit of passive income, not launch a full-blown startup.<p>I could really use some advice from anyone else who&#x27;s run a bitcoin business, dealt with an unexpected success, or could get me in touch with a lawyer interested in the BTC world who might start pro-bono.<p>PS - Earlier discussion - https:&#x2F;&#x2F;news.ycombinator.com&#x2F;item?id=7144067<p>PPS - I want to leave the link for context, but if you&#x27;d actually like to use the service, please wait a bit &#x2F; until the weekend.<p>EDIT - I&#x27;m not accepting cards until this gets on the road to straightened out, for obvious reasons. If anyone has any particular further insights <i>please</i> drop me an email.
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patio11
I would strongly consider not running a money transmitter as a side business.
If you do not understand that you are running a money transmitter, I will be
happy to elaborate.

I would also mention, on the assumption you're not aware of it, that you are
offering fairly effective money laundering for credit card thieves at below-
market rates for that service, and you can expect heavy dedicated adversarial
interest. I rather expect you are receiving it already and are as-yet unaware
of it. Feel free to ask for more elaboration if you do not understand the
mechanics of how this works, or why it will quickly dominate the pool of
people willing to receive $50 in consideration for $100 of Starbucks cards.

~~~
axefrog
How is he a money transmitter? His business is buying a product (Starbucks
gift cards) and paying for them with Bitcoin. By your definition, a used car
dealership that buys cars from the public and pays for them with cash is also
a money transmitter.

~~~
rwhitman
Starbucks gift cards are relatively anonymous, can store varying amounts of
money without being suspicious and are easily transferred and sold. They are a
fantastic vector for transfering dirty cash

~~~
anovikov
Anyway why worry? If bitcoin is anonymous, just host in 3rd world and work
through ToR.

~~~
rmc
Yeah because the "third world" has better legal protection than the USA....

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ChuckMcM
Advice: Shut it down before you get raided and shut down and your "side
business" becomes "going to court and defending yourself."

What you clearly didn't realize is that long before BitCoin was popular, gift
cards were one of the ways criminals laundered money. There are even
discussions about which gift cards can be sold for the least discount. Gift
cards can be sold for cash, so you are in effect, operating a bitcoin
exchange.

~~~
ilamont
From the New York Times (1):

"In March, the Financial Crimes Enforcement Network, part of the Treasury
Department, issued guidelines (2) telling businesses involved in the exchange
of digital currencies that they needed to register as money services
businesses and comply with a variety of rules to prevent money laundering. New
York’s Department of Financial services began an inquiry in August to
determine guidelines for digital currency businesses, issuing nearly two dozen
subpoenas (3) to start-ups, investors and others involved in the emerging
field."

1\. [http://www.nytimes.com/2013/10/31/technology/bitcoin-
pursues...](http://www.nytimes.com/2013/10/31/technology/bitcoin-pursues-the-
mainstream.html?_r=0)

2\.
[http://www.fincen.gov/news_room/nr/pdf/20130318.pdf](http://www.fincen.gov/news_room/nr/pdf/20130318.pdf)

3\.
[http://www.dfs.ny.gov/about/press2013/memo1308121.pdf](http://www.dfs.ny.gov/about/press2013/memo1308121.pdf)

------
jstalin
WARNING - get legal advice now. You'll likely come under the umbrella of money
transmission business laws meaning that you need to register with your state
and the federal government (assuming you're in the USA).

~~~
cal2
I think _this_ should be step #1.

Even if everything is in fact kosher, approving/solidifying any money-related
operations would be a great idea (especially with Bitcoin's increasing
relevance and scrutiny).

~~~
poopsintub
Step NOW. Put up a maintenance window and figure out if it is even reasonable
to continue. The risk seems outrageously high.

------
TomGullen
How automated is it? Any parts that could be automated that aren't? That would
be step 1 I think.

Secondly, don't panic!

Thirdly, consider if I sell you my Starbucks card balance and I was evil,
could I some how phone Starbucks up and say my card was lost/stolen? What
happens in this instance? It's the biggest risk you need to look at from what
I can see at first glance. Perhaps test this.

Fourthly, is there a difference between a gift card and reward card?
Coincidentally we just bought a reward card today for our startup (we drink
lots of coffee). It looks like it has a similar number format as a gift card,
and the Starbucks FAQ says they can refund a balance from the moment it's
reported as stolen/lost: [http://www.starbucks.co.uk/customer-
service/faqs/card](http://www.starbucks.co.uk/customer-service/faqs/card)

Fifthly, become aquainted with the law. Gift cards in the UK at least are
considered as "Like cash" as far as I am aware. This means you could be
setting yourself up for a bit of legal trouble down the line if you are
considered a transmitter or money or such. As other posters point out, the
reason for your early success could be because you are being used as a money
laundering service without you being aware of the fact.

And a question, what exactly are you doing with all these cards? Selling them
on somehow? Or keeping them?

If this is too much risk/pressure for you, and you feel out your comfort zone,
consider selling it as is for BTC. I'm sure you'll find a buyer for a good
sum. If you like risk, want to make some money then good luck! Let the
adventure begin. Although it sounds like as soon as you get any volume and
Starbucks catches wind you'd be pretty easy to shut down. That's one of the
better outcomes for you as well I think, the legal risks sound significant. If
it was mine, I'd look for a quick sale and pass the risk on.

~~~
lucaspiller
> could I some how phone Starbucks up and say my card was lost/stolen? What
> happens in this instance? It's the biggest risk you need to look at from
> what I can see at first glance. Perhaps test this.

I lost my Starbucks card and somebody used it. I had auto topup, so they kept
using it :) After I reported it, Starbucks replied two days later, cancelled
it and transferred the remaining balance. Still I lost about £15 from the auto
topup.

~~~
mhluongo
I'm _not_ accepting registered cards, which changes the fraud vectors quite a
bit. No auto-reload, etc.

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pemulis
I just pinged you on Twitter, @jdshutt. I know a lawyer who specializes in tax
law and is very interested in cryptocurrencies. If you want to get in touch
with her, you can reach me at john.d.shutt@gmail.com and I'll send her e-mail.

I'm on board with everyone saying that you need to talk to a lawyer sooner
rather than later, and should work with someone who knows the area.

~~~
gamblor956
Tax law isn't very relevant here; the primary areas of concern are federal
money transmission laws and criminal state and federal anti-laundering laws.

~~~
dragonwriter
> the primary areas of concern are federal money transmission laws and
> criminal state and federal anti-laundering laws.

Shouldn't that be "federal and state" in both cases, not just the anti-
laundering case?

~~~
gamblor956
Yes, but too late to edit it.

------
will_brown
Taking the service offline was a good move. You can request an administrative
ruling from FinCEN. It would be prudent to meet with an attorney first and
have the attorney draft and send the letter (it may receive a quicker response
on attorney letterhead).

As a side note attorneys can not contact you, they can send you advertisements
or return your calls but they can not directly contact you, you must contact
an attorney. Therefore any attorney who contacts you as a result of this post
should immediately raise a red flag in you mind.

In the meantime here is FinCEN's guidance on virtual currencies:
[http://fincen.gov/statutes_regs/guidance/html/FIN-2013-G001....](http://fincen.gov/statutes_regs/guidance/html/FIN-2013-G001.html)

And FinCEN's final rule on prepaid access(aka gift cards):
[http://www.fincen.gov/news_room/nr/html/20110726b.html](http://www.fincen.gov/news_room/nr/html/20110726b.html)

~~~
sumedh
> As a side note attorneys can not contact you, they can send you
> advertisements or return your calls but they can not directly contact you,

As someone who does not have much idea about laws, why can't an attorney
contact him?

~~~
will_brown
Well the answer as to why is because the Model Rules of Professional Conduct
prohibit said conduct. Specifically Rule 7.3, Direct Contact with Prospective
Clients, reads as follows:

(a) A lawyer shall not by in‑person, live telephone or real-time electronic
contact solicit professional employment when a significant motive for the
lawyer's doing so is the lawyer's pecuniary gain, unless the person contacted:

(1) is a lawyer; or

(2) has a family, close personal, or prior professional relationship with the
lawyer.

Now you may be curious about the justification of the rule...ever hear of the
term _ambulance chaser_? It is a nasty term for attorneys who preyed on
prospective clients in very vulnerable states who otherwise would not be able
to make a voluntary and informed decision. The rule is meant to protect the
public and profession from said behavior.

~~~
sumedh
Thanks specially for the justification.

------
dreamdu5t
My guess is it's exploding because people are desperate for untraceable ways
to convert cash into bitcoins. Most likely other services like this have
popped up but then shut down for fraud related legal issues, or people are
scared to start them.

------
gnaritas
Yes, money laundering is profitable, but I wouldn't call it safe; I'd shut it
down fast before you get yourself into real trouble.

------
acangiano
I think part of your success comes from having created the ability to, de
facto, buy Bitcoins via credit card. Any credit card (e.g., stolen ones).
That's also your biggest legal challenge. That's what should scare you. But if
you can sort out those details and regulations with a good lawyer, you
shouldn't be afraid of success and taking projects as far as they'll go.

~~~
mhluongo
One of the steps to de-risk the cards will be a waiting period- new cards
won't be accepted unless they've been activated X days/months. That should
seriously lower the chance of stolen cards getting through.

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noonespecial
If it were me, I'd back slowly away from this particular sleeping dog. You're
playing both ends against the middle here. Fraudsters on one side and what can
only be described as a vengeful, willfully belligerent government on the
other. Both have infinite resources compared to you and a strong desire to do
you harm.

------
_sentient
ITT: People who do want to start full-blown startups, and are more than happy
to replicate your idea. If your moonlight project is seeing significant
traction, imagine what could be done with full-time commitment and funding.

I think it's in the nature of an entrepreneur to always be hunting for
promising new ventures. And that's not a bad thing. Just a heads up.

~~~
grimtrigger
If thats true, then the people in this thread would make excellent partners.
Give them some equity and let them your headaches.

ps. I'd be interested: www.aakilfernandes.com

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blazespin
The reason you're successful is because no one rational will compete in this
space because of the legal liability. I've seen that many times, segments
which are profitable until you realize the legal quagmire you've wandered into
and appreciate very well why no one else is doing it.

------
dpweb
I'm shocked that on a programmers/hackers forum people would tell a guy not to
start a business because there's "probable" illegality. This kind of thing is
the basis of all FUD.

There's obviously enormous gray area regarding btc's legality. Get your advice
from an professional lawyer.

------
bira
What scares you? If you outline your worries, you can problably get better
answers addressing them.

~~~
mhluongo
I don't know, these are pretty good answers. My concerns: the law, fraud, and
finding a balance between this and my full-time job, in that order.
Overarching theme- how to make this work while minimizing my personal risk.

------
samstave
WRT lawyer: go talk to orrick. They will get you properly incorporated and
will give you a ton worth of upfront legal help and won't require payment
until you raise capital if that's needed.

If you crash and burn, they charge you nothing.

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MVf4l
How scary is it? I guess the selling point of your idea is actually
"anonymous".

Some holders bought bitcoins at $0.1/BTC, now they are spending coins like
having a 99% off.

Well, if $0.1/BTC looks too dramatic, fine, let's say they bought at $200/BTC,
still, 70% (which was paid off by newcomers if you think about it).

What I'm saying is the prosperity is based on how much profit your users will
get, like Groupon (in the early days when they were providing huge discounts).
While newcomers now are buying coins at high, how long do you think the
prosperity could last?

Not sure if i'm thinking it right. Just wanted to point out.

------
rasengan
How are you handling fraud?

~~~
mhluongo
Hand-verification right now before payout, though I'm locking it down further
now.

~~~
ozi
Perhaps there's an api you can use to do the heavy lifting like
[http://dev.maxmind.com/minfraud/](http://dev.maxmind.com/minfraud/) or
[http://www.subuno.com/developers.html](http://www.subuno.com/developers.html)

~~~
eli
This is a _really hard_ problem that will not be easily offloaded to someone
else.

------
codezero
I'm curious about the mechanics of this. What stops someone from giving their
number for BitCoin, then using the card anyways?

After you sell/trade your card, how do others use it to buy coffee?

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swalsh
This is a cool concept, A lot of people let you trade bitcoin for cards, but
the opposite is really useful too! I'd love this business in dollars.

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davidpaulkrug
Take a deep breath. It just means you have a good idea. Develop a system to
streamline everything and enjoy the profits.

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cushychicken
I would recommend speaking with an accountant or financial adviser before the
lawyer first - you'll still need the lawyer, but if it's really blowing up,
you'll need some advice regarding taxable status of all this newfound digital
income.

Congratulations on your success, no matter what direction you decide to go
with it!

~~~
maaku
I think he'll need more help regarding the legality of running a non-licensed
money transmitter which is ideally suited for money laundering credit from
stolen identities...

~~~
cushychicken
Upon reflection and more comments read, yes, I think you're quite right.

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hahainternet
That's a pretty damn neat idea. I've neither run a bitcoin business nor am I a
lawyer.

Just thought I'd comment and congratulate you on your idea, if you end up
needing tech or systems advice I'm sure I or someone else here can answer.

------
jordsmi
I really would be more careful with this site if I were you. You need to get
pictures of the receipt or something, because if not you are just going to get
alot of carded giftcards which will just have the money revoked shortly.

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TheMakeA
There appear to be a lot of people knowledgeable on money transmitters here so
maybe someone can shine some light on this: How are app stores/online
marketplaces/AirBnb/Kickstarter not also money transmitters?

------
icedchai
How are you getting your bitcoin? Are you mining, or buying it at retail
(coinbase, etc)?

You are providing a channel for money laundering, so you will likely come
under scrutiny if this gets popular.

~~~
mhluongo
Retail.

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beachstartup
my advice to you is either decide to pursue this full time, eyes wide open
with regard to the risks, both legal and financial...

or shut it down and return all the money.

you can't half-ass this kind of thing.

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cnp
Wow, as soon as I read that article about this I KNEW it was going to explode.
Even at that low rate of exchange. Great idea, but stay away from the shady
ones.

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ionwake
On the top - does anyone know a good reliable place where you can get
Starbucks Gift cards - for Bitcoin?

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aosmith
Shoot me an email... I may be able to help here <aosmith-at-gmail>.

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bencollier49
Aren't most gift cards "non-transferable"?

~~~
mcherm
Most gift cards can be used in person for purchases without any sort of ID --
which means that they can be effectively "transferred" to anyone. In fact,
that's rather the point. They're called "gift" cards because you're expected
to transfer ("give") them to someone else!

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ty4
Incorporate in Switzerland, I can help. tyfour at gmx.ch

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grotm001
You can find a lawyer to work for equity on EquityLancer

~~~
rhino369
I won't want to belittle anyone, but payment processing law is really
complicated. I doubt you'll find someone with experience willing to take
equity.

It's not like making simple LLC membership agreements and employment
contracts. This stuff is complex federal regulations.

------
rbosinger
Are you planning on drinking a lot of coffee?

~~~
joosebox
I feel dumb, but I'm wondering this too. How does he convert the Starbucks
cards to anything not coffee - or not take a loss converting them to cash?

~~~
nacs
Well you can buy cookies, muffins and such with it too so maybe he's using it
to feed himself.

But yeah I'm not seeing what the OP's benefit is unless coffee = same as cash
for OP.

~~~
jaredsohn
There are a variety of websites that will give you at least some cash for your
cards (useful if you have accumulated cards that you otherwise won't use).

