The Lighting Network could fail because it would be considered a Money Transmitter, according to a medium.com article

We all know that Bitcoin’s fees are way too high, and if you’re like me then you’ve been waiting for the Lightning Network that way the load on the Bitcoin network will decrease (slightly decreasing the fees for “normal” transactions) and offering very cheap transactions on the Lightning Network (and perhaps aiding adoption of Bitcoin). However, the medium.com writer Curt0 is worried that the lightning network will fail for a number of reasons, the biggest being that a lightning node could be considered a money transmitter.

From Curt0:

Advocates for LN seem to talk a lot about the technology, but ignore the legalities.
FinCEN defines money transmitters. LN hubs and intermediary nodes seem to satisfy this definition.

From https://www.fincen.gov/resources/statutes-regulations/guidance/application-fincens-regulations-persons-administering:

“…applicability of the regulations … to persons creating, obtaining, distributing, exchanging, accepting, or transmitting virtual currencies.”

“…an administrator or exchanger is an MSB under FinCEN’s regulations, specifically, a money transmitter…”
“An administrator or exchanger that (1) accepts and transmits a convertible virtual currency or (2) buys or sells convertible virtual currency for any reason is a money transmitter under FinCEN’s regulations…”

“FinCEN’s regulations define the term “money transmitter” as a person that provides money transmission services, or any other person engaged in the transfer of funds. The term “money transmission services” means “the acceptance of currency, funds, or other value that substitutes for currency from one person and the transmission of currency, funds, or other value that substitutes for currency to another location or person by any means.””

“The definition of a money transmitter does not differentiate between real currencies and convertible virtual currencies.”

This is kind of a big deal

Think about that. Every lightning node either has to break the law (US law although, as the Curt0 pointed out, the US has sued foreign banks over other things before), or register as a money transmitter. Because of the price of becoming a legal money transmitter only large only large companies will host Lightning Nodes, creating a centralized off chain solution similar to Coinbase is now instead of what we are expecting.

Now of course this is just the interpretation of the Curt0, and often with new technology like this the courts will ultimately decide whether this law applies to cryptos or not, but it's defiantly something to think about.

Also, I highly encourage you to read the entire article from Curt0. https://www.fincen.gov/resources/statutes-regulations/guidance/application-fincens-regulations-persons-administering

Thanks for reading.
Did you like my post? Check out other content by me and consider subscribing.

This information is provided solely "as is" and it's up to you to decide what to do with the information you received.