It's Official, Bitcoin is Money, Honey
When Jay-Z said "the Internet is like the wild west," he was on to something. One of the Internet outlaws du jour is Bitcoin, the ambiguous, invisible, electronic form of payment. Slowly, the government is starting to notice.
California issued a cease-and-desist letter to the Bitcoin Foundation, essentially accusing it of money laundering. After it was alleged drug dealers are using Bitcoin for illegal transactions Senator Charles Schumer (D-NY) called for a crack down on Bitcoin denouncing it as "online form of money laundering used to disguise the source of money," NBC reports.
Now, we even have the SEC and federal courts weighing in.
Bitcoin probably describes its own services best:
Bitcoin uses peer-to-peer technology to operate with no central authority or banks; managing transactions and the issuing of bitcoins is carried out collectively by the network. Bitcoin is open-source; its design is public, nobody owns or controls Bitcoin and everyone can take part.
Until now, Bitcoin has been in a legal grey area, with state and federal law applicability in question. While creating physical currency is illegal, what about electronic currency? By its own admission, Bitcoin's website defines itself as "an innovative payment network and a new kind of money."
The SEC got involved last year when it shut down Bitcoin Savings and Trust (BTCST), a virtual Bitcoin hedge fund, that the SEC characterized as a Ponzi scheme, reports Ars Technica. BTCST was originally formed as First Pirate Savings & Trust by Trendon Shavers, who solicited potential investors by offering them "up to 1% daily 'until either you withdraw the funds or my local dealings dry up and I can no longer be profitable.'"
Based on the daily average price of Bitcoin, Shavers collected almost $5 million and lost almost $2 million. The SEC charged Shavers and BTCST with violations of the Securities and Exchange Acts. Shavers countered with arguing that the federal district court did not have subject matter jurisdiction under the Securities Act of 1933 (under § § 77t and 77v) and the Exchange Act of 1934 (under § § 78u and 78aa).
In a Memorandum Opinion addressing its subject matter jurisdiction, Judge Mazzant of the Eastern District of Texas stated: "It is clear that Bitcoin is money. It can be used to purchase goods or services, and as Shavers stated, used to pay for individual living expense .... Therefore, Bitcoin is a currency or form of money, and investors wishing to invest in BTCST provided an investment of money."
Though this decision is only binding on one circuit, it could have huge legal ramifications because it is the first decision of its kind regarding Bitcoin. If Bitcoin is defined as a currency, then many of the laws regulating currency will then apply. Though the laws were drafted before Bitcoin's existence, there may be a way to regulate Bitcoin now. Either way, if the government wants in -- without any ambiguity -- it needs to start enacting some specific laws sooner, rather than later.
- Judge to Bitcoin: You Are Money (Wired)
- Should You Accept Bitcoin for Your Services? (FindLaw's Technologist Blog)
- Risky Business: More Law Firms Taking Bitcoin (FindLaw's Strategist Blog)
You Don’t Have To Solve This on Your Own – Get a Lawyer’s Help
Meeting with a lawyer can help you understand your options and how to best protect your rights. Visit our attorney directory to find a lawyer near you who can help.