A primer for consumers about virtual currency, cryptocurrency, and digital assets.

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The basics

The following are terms you may see used throughout this webpage and may not exactly match other definitions used by third-parties. We do not endorse or recommend any provider(s) or product(s); examples used below are for illustrative purposes only.

Blockchain: a digital database containing information (such as records of financial transactions) that can be simultaneously used and shared within a large decentralized, publicly accessible network.

Cryptocurrency: a virtual currency in which transactions are verified and records maintained by a decentralized systems using cryptography, rather than by a centralized authority.

Digital assets: an asset that is issued and transferred using distributed ledger or blockchain technology, including but not limited to, so-called “virtual currencies,” “coins,” and “tokens.” 1

Fiat currency (or real currency): the coin and paper money of a country that is designated as its legal tender, circulates, and is customarily used and accepted as a medium of exchange in the issuing country. In the United States, fiat currency is USD (or U.S. dollars).

Virtual currency: an electronic medium of value that operates like a currency in some environments, but does not have all the attributes of government currencies. It has either an equivalent value in real currency, or acts as a substitute for real currency. There are many different digital currencies being used over the internet, the most commonly known being Bitcoin.

Virtual currency can also be centralized or decentralized

  • Centralized virtual currencies have a centralized repository or single administering authority that controls the system, issues currency, establishes rules for the currency’s use, maintains a central payment ledger, and withdraws the virtual currency from circulation. (ex. World of Warcraft Gold).
  • Decentralized virtual currencies have no central repository and no single administrator. It is a distributed, open-source, and math-based peer-to-peer currency. Persons may obtain it by their own computing or manufacturing efforts. (ex. Bitcoin).

Virtual currency may be convertible (open) or non-convertible (closed)

  • Convertible virtual currencies have an equivalent value in real currency and can be exchanged for fiat (ex. Bitcoin). Convertible virtual currencies can be either centralized or decentralized.
  • Non-convertible virtual currencies are specific to a particular virtual domain and cannot be exchanged for fiat currency or other virtual currencies (ex. World of Warcraft Gold). All non-convertible virtual currencies are centralized.

Virtual currency exchanger (or virtual currency exchange): a person or entity engaged as a business in the exchange of virtual currency for fiat currency, funds, or other forms of virtual currency for a fee. This activity generally requires a license under the Uniform Money Services Act (UMSA) in Washington. You can find a list of our current UMSA licensees that operate in virtual currency area on our website below.

Virtual currency user: a person or entity who obtains virtual currency and uses it to purchase real or virtual goods or services or sends transfers in a personal capacity to another person (for personal use), or who holds the virtual currency as a personal investment.

Virtual currency wallet: a means for holding, storing, and transferring virtual currency. Virtual currency wallets may operate as stand-alone software applications, web applications, or as private and public key pair printed on paper. The wallet can be “cold” or “hot” storage. Cold storage is an offline virtual currency wallet that is not connected to the internet. Hot storage is an online virtual currency wallet that is connected to the internet. Cold storage provides greater security against hacking or theft, but hot storage can provide instantaneous access to the wallet holder’s virtual currency.

Regulation under the Washington Uniform Money Services Act

In Washington, persons who receive money or virtual currency to transmit money or virtual currency to another location is a money transmitter. Generally, money transmitters must be licensed under the Uniform Money Services Act (UMSA) to engage in that activity with Washington residents. At the federal level, money transmitters are considered money service businesses (MSBs). MSBs must register with the Financial Crimes Enforcement Network (FinCEN) and comply with specific recordkeeping and reporting requirements.

While most persons operating virtual currency exchanges, kiosks, or ATMs, or providing storage for another’s virtual currency with the ability to effectuate transfers, are likely to meet the definition of money transmitter, UMSA does have several exclusions from licensure. If you are interested in doing business with a person or company and you are not sure if they are licensed, you can look up the company on our list of virtual currency licensees , look up the company through NMLS Consumer Access, or call the department at 1-877-RING DFI (746-4334) for assistance.

Regulation under the Securities Act of Washington

An Initial Coin Offering (ICO) or token sale is used to raise money to create a new coin, application, or service. Interested investors can buy into the offering and receive a new cryptocurrency token issued by the company. The token may have some utility, meaning that it can be used to purchase or access products or services on the company’s network or platform, or it may just represent a stake in the company or product. The offer and sale of digital assets in an initial coin offering (ICO) or token sale may be subject to state and federal securities laws. If the digital asset is a security, it must be registered or exempt from registration under both state and federal securities laws before it is offered or sold. Whether a particular digital asset is a security is a very fact-specific question.

In addition to the requirement to register a digital asset when it is a security, persons who offer or sell digital assets that are securities (digital asset security) may be required to be licensed as a broker-dealer or investment adviser.

A person that facilitates the exchange of a digital asset security between persons or between a person and a platform, provides trade execution, and engages in the private placement of digital asset securities or ICOs is a broker-dealer. Broker-dealers are regulated by the Securities Exchange Commission (SEC), through the Financial Industry Regulatory Authority (FINRA), and by each state. To check if a Broker-dealer is licensed visit FINRA’s BrokerCheck website.

A person who, for compensation, advises others as to whether they should invest in digital asset securities or issues reports concerning digital asset securities must register as an investment advisor. Investment advisers are regulated by the SEC or the state, depending on the assets under management (if less than $100 million, the adviser is regulated by the state). To check if an investment advisor is licensed by either the SEC or Washington, visit the SEC’s licensee search website.

1 Framework for ‘Investment Contract’ Analysis of Digital Assets, Securities and Exchange Commission, Division of Corporation Finance, available at https://www.sec.gov/corpfin/framework-investment-contract-analysis-digital-assets (modified Apr. 3, 2019).