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Federal Judge Declares Bitcoin a Currency
tlhIngan writes "An East Texas federal judge has concluded that Bitcoin is a currency that can be regulated under American Law. The conclusion came during the trial of Trendon Shavers, who is accused of running the Bitcoin Savings and Trust (BTCST) as a Ponzi scheme. Shavers had argued that since the transactions were all done in Bitcoins, no money changed hands and thus the SEC has no jurisdiction. The judge found that since Bitcoins may be used to purchase goods and services, and more importantly, can be converted to conventional currencies, it is a form of currency (PDF) and investors wishing to invest in the BTCST provided an investment of money, and thus the SEC may regulate such business."
“Government's view of the economy could be summed up in a few short phrases: If it moves, tax it. If it keeps moving, regulate it. And if it stops moving, subsidize it.”
Ronald Reagan
I can barter my services for goods or other services. Trade one item for another. So, effectively, then this ruling would seem to imply everything is currency, and thus subject to SEC regulation in the States.
Bitcoin is a currency that can be regulated under American Law
Well, yes. When has the government ever ruled that it lacks the power to regulate something?
The motivation behind Bitcoin wasn't to create a currency that government would choose not to regulate; it was to create one that government could not regulate.
Substitute "Sex" for "Bitcoin" and see if this holds true.
Sex may be used to purchase goods and services, and more importantly, can be converted to conventional currencies, it is a form of currency
Yup, it fits. Sex is now under regulation of the SEC.
Agent K: A *person* is smart. People are dumb, stupid, panicky animals, and you know it.
You have a fundamental lack of understanding what a currency is. A currency does NOT have to backed by a government.
Currencies are issued and backed by governments.
Really?
Distinct from centrally controlled government-issued currencies, private decentralized trust networks support alternative currencies such as Bitcoin, as well as branded currencies that are based on reputation of commercial products.[9]
Can't almost anything that can be bought/sold technically be converted to conventional currency...
Personally, I think the definition of currency is unclear. If its not "legal tender", or in other words not officially declared as money accepted for paying taxes (by fiat) , then shouldn't it NOT be considered a currency, in the same way that Gold is not considered a currency (unless it is officially stamped as such by fiat). To be a currency, some official government must declare it as official for paying taxes IMHO. So, for a judge to declare Bitcoin as a currency is ridiculous because, for it to be so, he himself would have to be willing to accept it , and then turn around and pay taxes with it.
-- Betting on the survival of the media industry is a serious risk. I advise investing elsewhere.
The assertion is obviously that it should be subject to SEC regulation and oversight to prevent such ponzi-schemes and scummy behavior. The same SEC that has spent much of the last fifteen or twenty years with their heads in their asses? This is a lot more like stating that a call-girl is the same as a street-walker and, therefore, must fall under the same street-pimp purview.
To sum up, he took Bitcoins for trading into and out of dollars and returned a huge profit (in dollars). But when measured in Bitcoins he returned a loss, investors could have gotten more by sticking to pure Bitcoins, than any dollar trading minus his commissions. So they complained. Not really a Ponzi scheme, but SEC thinks they can use that law.
This really says more about the dollar than anything else. There are 3 times as many dollars now as in 2000 and at no time has there been any export surplus in any of those years, all of that money has been created against nothing.
SEC's desire to regulate means they're forced to pretend Bitcoin is a currency which really adds legitimacy to Bitcoin as a currency. It's a sort of Streisand effect. They want to discredit it by trying to associate it with 'ponzi' and in the process end up legitimizing it.
A couple thousand alternative currencies such as Bitcoin started surfacing? What would happen when the economy is completely watered down with different types of currencies just because people started using them as heavily as Bitcoin?
The IRS can "legally" tax barter agreements for their monetary value, just to tax trade.
I'm getting an image of an arrogant, bratty red faced child with their hands out, waiting for their piece of cake.
If Bitcoin can't exist outside of the economic iron fist, then what possibility do normal people have with turning it around?
It is pitch black. You are likely to be eaten by a grue.
Bitcoin Shavings and Trust? The guy's name is even 'Shavers'. He's supposed to embezzle, not run a Ponzi scheme.
From the tippy-top of the bitcoin.org website:
Bitcoin is an innovative payment network and a new kind of money.
Now, IANAL, but I suspect walking into court with an argument that bitcoin isn't a new kind of money when its creators clearly and demonstrably assert that it is a new kind of money is likely to fail pretty hard.
And yes, I'm well aware of the of the distinction between money and currency. Gold bugs, sufferers of Fed derangement syndrome and others spend a lot of time proselytizing about this stuff. The thing is that the SEC and the courts don't, which is why no one has ever succeeded in evading financial laws by attacking the legitimacy of fiat money.
At least not without an army.
Maw! Fire up the karma burner!
Shesh.. Not even close on this..
In this case the judge is saying that even though the investors used BitCoin, the activities of the investment where essentially the same as investing dollars so the argument that BitCoin isn't a currency didn't apply. If it walks like a duck, quacks like a duck, acts like a duck and looks like a duck, it's a DUCK.
So.. Even if you make somebody trade in some kind of voucher to invest in your scheme, if you live in the US and are operating in a way that looks the same as something the SEC regulates, you are subject to the regulations.
So the judge is NOT saying BitCoin is a currency, but that the guy was operating an investment scheme that was illegal and is not shielded from the SEC because he used BitCoins.
"File to fit, pound to insert, paint to match" - Aircraft Maintenance 101
Was there really anyone who believed that bitcoin was somehow going to exist outside of the ability of any government to regulate it?
That belief reminds me of the "sovereign citizens" who believe that some obscure 19th century district judge's decision puts them outside of the federal and state government's ability to prosecute them for any crimes.
You are welcome on my lawn.
The Judge didnt rule that bitcoin is a Currency, from the PDF:
"Therefore, the Court finds that the BTCST investments meet the definition of investment
contract, and as such, are securities.2
For these reasons, the Court finds that it has subject matter "
It clearly says that it find that BTCST is subject to law. no ruling related to Bitcoins. move along nothing to see here
The memorandum at http://www.archive.org/download/gov.uscourts.txed.146063/gov.uscourts.txed.146063.23.0.pdf which was signed by the judge, says "Therefore, Bitcoin is a currency or form of money..." ...did we read the same article?
~Knowledge is knowing that a tomato is a fruit, but Wisdom is knowing not to put it in a fruit salad.
The government hates competition.
Prove anything by multiplying Huge Number times Tiny Number
If Bitcoin are a currency because of its attributes (convertibility, common use), what does that mean for "Virtual Currencies" that can be converted back to monetary value?
EVE online? Second Life? Does this ruling apply to them? (I do not play either, I just recall stories...)
Is the SEC going to send virtual regulators into Second Life?
Is it really such a huge leap to mark a joule or watt as a form of currency?
Well given the way bitcoins are generated and the whole network is working (Hashcash), bitcoins are in a way backed by the electrical power that went into minting them (computing the necessary hashcash powering the transaction).
It's not exactly the same as a real gold standard: in a currency backed by gold, somewhere in some bank's vault there should be piles of gold ingots corresponding to the value of the circulating money. With bitcoins, you don't have actual piles of batteries containing the kWh corresponding to the circulating bitcoins, but for each bitcoin in circulation and bitcoin transaction, there are corresponding hascash which got computed (and is stored in the bitcoin's equivalent of a bank, i.e.: distributed across all nodes of the network). And you can map Joules or kWh to them.
And the current price of bitcoins tends to oscillate around the price of the energy which went into minting them.
You can see bitcoins as a way to convert electricty into another virtual currency. And given the crazy minting rigs that some bitcoin-nerds are building, this relationships become quite obvious.
"Sufficiently advanced satire is indistinguishable from reality." - [Tips: 1DrYakQDKCQ6y52z6QbnkxHXAocMZJE61o ]
And here I was thinking the Bitcoin fanbois would be falling over themselves declaring how it is a milestone that Bitcoin is officially recognized as a legitimate currency. Instead, they seem to be falling over themselves expressing how scandalous it is that the government dares meddle with their freedom or whatever. Some people seem to be impossible to please. To those people: you cannot have it both ways, guys. Either your currency is an illegitimate shadow currency, and assuming it will keep on gaining in popularity, it will only be a matter of time before it gets outlawed, or your currency is legitimate which means that transactions made with it are subject to the law.
Regardless, I would say that seeing this as a sign of legitimacy would be over-interpreting the verdict. For the purpose of cracking down on ponzi schemes, it doesn't matter whether the currency is USD or beanie babies, as long as harm is done to someone's posessions by deliberately misleading them. Or does "freedom" mean that you're free to blatantly rip off your fellow citizens? If so, how about just giving people the freedom to shoot each other? Oh wait, stand-your-ground.
It sounds like the judge took advantage of someone *treating* it as a currency to back-door define it as such in a precedent setting case.
Future cases involving bitcoin can now point to this case and say "it's a currency! The federal judge said so! That means we get to regulate it automatically".
And yes, tough luck for people who thought they could make an end-run around regulations and taxation by coming up with an "unofficial" new currency.
As long as bitcoin was a fringe phenomenon it could be ignored, but now it's time for it to grow up apparently.
Making Bitcoin subject to SEC regulations is a whole other issue, with additional requirements. The SEC regulates (most*) securities and imposes requirements such as registration and transaction reporting. This is far beyond the sort of regulation applied to money. When was the last time you had to report the serial numbers on all the currency you held?
So, which is it? A currency, subject to income reporting rules? Or a security, under the SEC's authority? IANAL, so I'd really like some enlightened input on what is being decided here.
*Derivatives and commodity contracts are subject to CFTC regulation.
Have gnu, will travel.
Do you have to declare the value of the chicken with or without sales tax? The "value" of a loaf of bread on the store shelves may be $3, but the value of a loaf of bread on my shelf is $3.24, since that's what it cost me.
If you've solved a hard math problem, and you tell me the solution, now we both have the solution. There is no scarcity of solutions if you ever give them to other people. Information is NOT LIKE physical goods, and analogies to physical goods are likely to fail for that reason.
Also, limited-supply material goods (such as food) have value because they are useful or even essential to our daily lives. The solutions to hard math problems have no intrinsic value as a tradeable resource, becuase nobody cares about them except mathematicians or criminals trying to hack your bitcoins.
The only reason bitcoins have any value whatsoever is because you can use them to acquire other things. You can only do that as long as people accept that bitcoins have value. They are not "backed by" anything except the faith of the people who are willing to use them as a currency. Unless we regulate them and get banks and insurance companies and such involved, then it could be said to be "backed by" those institutions. Right now its backed by nothing but blind faith, mathematically-imposed scarcity notwithstanding.
Bitcoin is a currency, but it's not a US currency.
while
Comment removed based on user account deletion
" The judge found that since Bitcoins may be used to purchase goods and services, and more importantly, can be converted to conventional currencies, it is a form of currency"
And while many places do not re-convert into traditional currencies, there are some that do very similar things (such as getting more tokens from a chance machine at an arcade, which is a payout of a good and service.)
So what the fuck makes this any different than those? They function pretty much 100% identically.
Still waiting on Serviscope_minor to wake up to fucking reality and realize that Jessica Price isn't going to fuck him.
If all the dumb-asses would actually stop trading it for FIAT currency and simply used it to sell/but services and goods, then this mess wouldn't be how it is now.
If the US declares it money and regulates it, then well, it is going to be like online gaming. Everyone does it mostly everywhere legally, except the US.
The question is: how far will they go to regulate it? They cannot control it, you can "hide" the protocol into anything and everything, you can carry the wallet on any memory device, hell, even the whole blockchain, even if it tripples or quadruples ...
So what is the plan, they kick the door on you and search your machine for a bitcoin wallet? Or they close all US exchanges? What about the local swaps and businesses already accepting bitcoin?
I am actually really interested in it as I am actively developing a payment gateway (not in the US) and some other interesting projects...
Your thoughts ?
You are not reading the same court opinion that we are.
The court (correctly) ruled that because BTC can be freely exchanged to other currencies, it is currency. (Well, duh.)
The judge also ruled that because the "investment" that was offered involved money, it is a securities note - hence the SEC has jurisdiction.
Future Bernie Madoffs should take notice: BitCoins are not a "get out of jail, free" card.
I would LOVE to see Miss Leading's tittles!!!!
Cost =/= Value!
And don't forget the role of the Community Reinvestment Act: http://news.investors.com/ibd-editorials/071213-663606-proposed-new-bank-law-would-solve-problems-that-dont-exist.htm
That that is is that that that that is not is not.
It looks like the above poster didn't mean the terrorist group known as the "Irish Republican Army", who were up to a lot of bombing in the UK at the time when Reagan was US President. WTF is the IRA referred to above?
An entertaining fictionialisation of how the current economic system started in in Neal Stephenson's "baroque" trilogy, where the goldsmiths that started the English banks get a mention. Their written notes were valued just as much as Newton's coins from the Mint.
... he should be on trial for that name, before anything else!
just look at how crooked american banks are. the SEC knows this, and pretty much ignored it while they fucked our country pretty hard. is Bitcoin really a threat to the banks and the stock market? hard to tell.
Remember kids, if you're not paying for the service, YOU ARE THE PRODUCT THAT IS BEING SOLD.
I didn't say a word about guns in GP. I also didn't say a word about Trayvon. I just think the stand-your-ground laws are inane regardless of that isolated case. They're blatantly incompatible with the "reasonable person" concept. A reasonable person would not stand their ground when facing the threat of serious bodily harm, period. Plus, they leave the door wide open for provocation, arbitrary enforcement, and unnecessary violence in general. Trouble with them had been predicted by, among others, Miami police chief John F. Timoney.
Since you bring up the Trayvon Martin case, I'd also like to point out the Judge's instructions to the jury included the statement that he had no duty to retreat as per Florida's stand-your-ground law. The stand-your-ground law was definitely a factor, or are you just assuming Eric Holder doesn't know what he's talking about? Get your facts straight before starting the name-calling!
Also, if you wouldn't be so lazy as to read just one page of my posting history, then you'd have seen that the gun stuff is just an ongoing discussion in the "NRA loves lead" story, and that my posts are usually about science, compilers and such. As for stand-your-ground, this is my third post containing that term in my years-long posting history... I'm just using it, and will continue use it (together with Citizens United) as a blatant showcase of the US lawmaking system being fatally undermined by special interest both at the state and the federal level.
Now who's the troll here, Mr. AC?
You call me troll? I'm not the one copy-pasting the same stuff in multiple posts, trying to divert the discussion offtopic, or using foul language. So get lost kid, adults people are having a serious discussion here.
But did it pay for the electricity you used?
Presenting as proof, any particular definition of 'currency' or 'money' when the question is what constitutes an apt definition of 'currency' (or 'money'), is begging the question. In fact both these terms prove so difficult that even someone like Allan Greenspan can famously admit that he does not know what money is. (Which is actually wisdom notwithstanding the lampooning he received). And observers such as Steve Forbes can declare that Whatever [Bitcoin] Is, It's Not Money! (Not sure I find his reasoning any more convincing than the current judge's)
And one could equally quote the classical money theorist Georg Friedrich Knapp's quip to the effect that "money is whatever is accepted at government pay offices" to argue the bitcoin is not money. Though perhaps it's safer to say that legal tender is what can be used to a) dispose of tax liability (or fines) and b) to coerce a creditor to settle a debt. Whether money is or is not something other than legal tender is an open question.
Given the highly difficult and contentious nature of 'money' and/or 'currency,' I have to agree with OP that this judge's determination, based largely on the idea bitcoin can be exchanged for conventional currencies, is somewhat lacking. I say this as a lawyer and someone with an interest in money theory. Here is how superficially the magistrate judge disposes of this thorny question:
First, the Court must determine whether the BTCST investments constitute an investment of money. It is clear that Bitcoin can be used as money. It can be used to purchase goods or services, and as Shavers stated, used to pay for individual living expenses. The only limitation of Bitcoin is that it is limited to those places that accept it as currency. However, it can also be exchanged for conventional currencies, such as the U.S. dollar, Euro, Yen, and Yuan. Therefore, Bitcoin is a currency or form of money, and investors wishing to invest in BTCST provided an investment of money.
One hopes a superior court would provide a more considered evaluation as to what constitutes 'money' for the purposes of these Acts.
Better to be despised for too anxious apprehensions, than ruined by too confident a security. --Edmund Burke
So banking regulation will apply to bitcoin wallets.... hehe.
to the Federal Reserve.
Indeed. What they need is to strengthen laws against fraud/abuse regardless of the monetary medium. This doesn't seem to be an attempt at controlling fraud so much as controlling the medium itself.
While they're add it, perhaps they can improve the regulation of pseudo-currency providers like paypal, etc as well.
To see how MS peacefully tolerates and humbly accepts total fail of the Surface. Peacefully & humbly. Any cash!
The judge said that he was *treating* Bitcoin like currency because the investors where buying BitCoin with money to make the investment. He was treating BitCoin the same as currency, because it was being used like currency. Thus the duck analogy I used. This is not tantamount to the judge declaring BitCoin legal tender and creating a slot for it on the world's official currency exchanges. Though he did make it clear that if you use it like currency, you are subject to the standard set of laws governing your activity.
Think about it. Lets say I invented some scheme where you purchased some kind of "token" then used that token to "invest" in the investment I'm hawking. The investment is dogy and the SEC becomes aware of my activity. Well, guess what, I operate in the US and the SEC rules apply to me. I cannot turn around and thumb my nose at the SEC and get out of jail free just because I only accepted tokens and paid out tokens not money. Substitute "token" for anything, IOU notes, checks, Promissory notes, yen, gold bars, Euros, ammunition for your .45 and the same rules would apply. (Well... Mostly anyway.. There are some exceptions for some kinds of things..)
BitCoin as it's just the token in my hypothetical above and the judge wasn't claiming it was somehow now more legal than it was before. It's just a token that was used to transfer money (value) around.
"File to fit, pound to insert, paint to match" - Aircraft Maintenance 101
The OP presented a definition that currency is only issued and backed by governments. I would agree legal tender can be defined that way but most consider currency a broader term than legal tender. In the end, we have a system that leaves it up to judges. While a superior court might offer a better definition I would be surprised if any court rules that bitcoin is not currency.
That was my first thought in reading the ruling.The ideas behind bitcoins - or any digital currency - have to annoy the established banking industry so the best way to destroy a new disruptive technology is to regulate it with regulators that are from the industry or will become part of the industry once their government stint is over. Corporate banking is working hard to destroy bitcoin or anything that bypasses banks.
The various online wallets like blockchain.info allow you to bypass the wait and are secure enough for new users to get quickly involved with.
The OP presented a definition that currency is only issued and backed by governments. I would agree legal tender can be defined that way but most consider currency a broader term than legal tender.
You may very well be correct, which is exactly why I wrote "it's safer to say ... legal tender."** Of course the term under consideration in this case was 'money.' What, if anything, distinguishes 'money' from 'currency' from 'legal tender' in a technical (whether legal or economic) and coherent sense, notwithstanding the what most consider (usually without too much considering), becomes less clear the more one considers it. Colloquially, either 'money' or 'currency' can of course be used in any number of senses.
Personally, I cannot declare OP wrong for using 'currency' as a synonym for 'legal tender' any more than I can declare another wrong for distinguishing between them. It may well be that currency is any exchange technology, (by which I mean something which derives the greater part of its value from its use in exchanging other goods or services), which definition would clearly encompass BitCoin. Then again it is perhaps exclusively the official exchange technology. So this dispute largely devolves into argument by definition and even argumentum ad dictionarium, which is best avoided by agreeing on a particular set of definitions prior to the argument. Of course it is another matter when a judge is called upon to determine what definition the law will henceforth accept.
In the end, we have a system that leaves it up to judges.
Indeed, and as someone who has had to read a fair number of judgments, I find this particular one to be wanting.
I would be surprised if any court rules that bitcoin is not currency.
Or, more pertinently, not money. I wouldn't be surprised either way, but I would be interested in reading the legal analysis which led to such a determination. This is what is sadly lacking in the present opinion.
[** I do this when I'm feeling timid. In a less cowardly mood, I'll simply declare money to be what is, from place to place, legal tender. Swashbuckling, no? Currency is perhaps any exchange technology, (by which I mean something which derives the greater part of its value from its use in exchanging other goods or services), which definition would clearly encompass BitCoin. Then again it is perhaps exclusively the official exchange technology. ]
Better to be despised for too anxious apprehensions, than ruined by too confident a security. --Edmund Burke
Of course the term under consideration in this case was 'money.'
Actually it was currency. Read the original post to which I was replying to. You're arguing with the wrong person. He's the one that felt the judge was 'wrong' and then went on to define currency. I posted a one word question and a link to Wikipedia that disagreed. If the term is continental then by all means, I agree it's hard to define.
Here is the original post to which I was replying to that started this. I didn't even say he was wrong. I only replied 'Really?' with a link to Wikipedia.
Currency? (Score:0)
by Anonymous Coward on Wednesday August 07, 2013 @05:06PM (#44503149)
Wrong answer. All sorts of things can be exchanged for goods or cash. Currencies are issued and backed by governments. This is bad law.