Mt. Gox today notified its customers via e-mail that the Mt. Gox redeemable codes used for transferring U.S. dollars (USD) and Canadian dollar (CAD) funds will no longer be issued beginning April 10th, 2013.
The message reads:
Generation of USD and CAD redeemable codes will not be possible due to legal issues.
The codes, sometimes alternatively referred to as vouchers or coupons, enable account-to-account (A2A) transfers between Mt. Gox customers. The codes have been popular for those trading over-the-counter as a method for exchanging between other payment systems such as Dwolla to or from a Mt. Gox exchange account.
For instance, after selling bitcoins on Mt. Gox a trader Bob might be looking to receive $100 of Dwolla funds quickly so that he can make a purchase where only Dwolla is accepted for payment. Alice has funds in her Dwolla account and is looking to transfer those funds into Mt. Gox for immediate credit. So Bob and Alice agree to trade. Alice sends $100 to Bob using Dwolla, Bob creates a $100 Mt. Gox redeemable code and sends that securely to Alice. Then Alice redeems that code into her Mt. Gox exchange account. When that happens, Dwolla only knows of a $100 transfer from Alice to Bob. Mt. Gox only knows of a $100 transfer from Bob’s account to Alice’s account.
Because the codes are pseudonymous, they function as a bearer instrument. In the example above, rather than redeeming Bob’s voucher code herself Alice could have later traded that redeemable code with any other party or the code could change hands multiple times even before being redeemed.
This may explain why “legal issues” were cited. When Seattle-based Coinlab transitions Mt. Gox’s customers from the U.S. and Canada next month, these redeemable codes would likely be considered as forms of “prepaid access” (formerly known as “stored value” instruments). In the U.S. an issuer of prepaid access is required to be licensed as a money transmitter — something Mt. Gox has not done and discontinuing this product means they likely won’t be applying for that status.
Mt. Gox isn’t the only organization to get caught up with these restrictions. Last week the State of Illinois issued a cease and desist order to payments provider Square for their prepaid access product (digital gift cards) which differ very little from Mt. Gox’s redeemable codes.
Mt. Gox will continue to offer redeemable codes for bitcoins (BTC) as well as for another dozen fiat currencies that the exchange offers for its customers funds (e.g., EUR, GBP, JPY, HKD, NZY and more).
Some merchants, such as Cinfu hosting, had been accepting the MTGUSD redeemable code as a payment method alongside other digital currency payment methods. These merchants could simply switch to another currency that is still supported (e.g., MTGEUR) however Mt. Gox’s U.S. and Canadian customers will likely be unable to hold wallets for any foreign currency.
Some exchanges, including Bitcoin-24.com and WeExchange.co, currently accept MTGUSD redeemable codes as a funding method. Other exchanges that previously used these tools no longer do. Exchange intermediary BitInstant, for example, now transfers funds directly to a specific Mt. Gox account rather than delivering a redeemable code to its cash-paying customers.
There are other issuers of USD redeemable codes, such as AurumXChange’s VouchX vouchers but no other issuers have taken any steps towards dropping support for the redeemable codes.
Mt. Gox had never shared publicly how much transaction volume occurred through these redeemable codes so the impact of them being discontinued is unknown. Perhaps the over-the-counter traders will be the only ones to notice.