Comment by ChuckMcM | Hacker News Reader

Comment by ChuckMcM | Hacker News Reader

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Actually its not legal in the US, as part of the original Federation of states and later under 31 U.S.C Sec 5103 the United States has held that it is not legal to conduct business within the United States with any currency other than US Dollars. When pressed, the rationale generally relies on protecting consumers from fraud, and preventing money laundering and other financial crimes. Back in the mid 70's, growing up in Las Vegas, I got to experience this first hand when the Treasury Department swooped in and put a stop to people using Casino chips [1] as a casual currency.

However, given the way that Bitcoin works, I really wonder if governments do want to shut it down. This may be controversial but it seems with the blockchains the psuedo anonymity of bit coin that the transaction history (if its used primarily for crime) is creating something of a map of nodes as to who the 'big' guys are and who the 'little' guys are. This isn't an 'id' based strategy more along the lines of 'where has this bitcoin been' and then tracing all of them to see how they flow. If all you do is download transaction blocks once a day and note which coins have transacted, then compare that with the coins you find in the wallet of the guy you just arrested, it might leak more data than you would hope. Pure speculation though, based on how current law enforcement identifies criminals by watching bank balances change.

[1] They had great properties, you could take them into any casino and get their face value in dollars.

ChuckMcM: what about using Bitcoin as a store of value or investment asset, in the same way people use commodities like gold and silver?

Just as it's perfectly legal to have any portion of your wealth invested in gold or silver, which you can freely buy and sell at any time, shouldn't it be legal to have any portion of your wealth invested in bitcoins, which you should be able to buy and sell at any time like any other commodity?

Edit: Note that the same argument can be made for bartering. According to the IRS, in the US, it's perfectly legal to barter any product, commodity, or service for another product, commodity, or service, so long as any taxes due are paid as required by tax law.[1]

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[1] http://www.irs.gov/businesses/small/article/0,,id=188095,00....

As a value store, sure. Just like baseball trading cards. Where it gets dicey is where person A uses currency to get a proxy item (BitCoin, Casino Chip, Baseball Trading Card) takes that proxy item to Person B and uses it to purchase a good or service of some value, then Person B takes the proxy item and uses it to purchase a good or service from Person C who then converts it back to currency. In those situations the transaction between A and B has become 'lost' (or laundered) because its not possible to connect the transaction C made to the transaction A and B made beyond a reasonable doubt. And that is the stuff that gets the enforcement types all agitated.

The IRS would like like to know if you bought some proxy thing, it appreciated in value, and then you sold it for a gain (or loss). BitCoin exchanges should send a 1099 of all transactions to the IRS (I don't know if they do that or not).

Also a "Proxy Item" is always subject to capital gains tax and sales tax. Otherwise it would be money. This is the only thing really preventing competing currencies. In fact, Ron Paul has worked on getting this restriction repealed in the case of gold and silver: http://www.lewrockwell.com/paul/paul434.html

"The final step to ensuring competing currencies is to eliminate capital gains and sales taxes on gold and silver coins. Under current federal law, coins are considered collectibles, and are liable for capital gains taxes. Short-term capital gains rates are at income tax levels, up to 35 percent, while long-term capital gains taxes are assessed at the collectibles rate of 28 percent. Furthermore, these taxes actually tax monetary debasement. As the dollar weakens, the nominal dollar value of gold increases. The purchasing power of gold may remain relatively constant, but as the nominal dollar value increases, the federal government considers this an increase in wealth, and taxes accordingly. Thus, the more the dollar is debased, the more capital gains taxes must be paid on holdings of gold and other precious metals.

Just as pernicious are the sales and use taxes which are assessed on gold and silver at the state level in many states. Imagine having to pay sales tax at the bank every time you change a $10 bill for a roll of quarters to do laundry. Inflation is a pernicious tax on the value of money, but even the official numbers, which are massaged downwards, are only on the order of 4% per year. Sales taxes in many states can take away 8% or more on every single transaction in which consumers wish to convert their Federal Reserve Notes into gold or silver."

I believe ChuckMcM is correct and I'd paraphrase his point as Bitcoin is not legal but in an enforcement gray area.

For example, I suspect anyone who conducted business in gold or silver, who bought or sold goods and services using gold or silver, would be seeing the black helicopters in fairly short order. I could be wrong and the Feds might only show up once such entity had a little of traction but I am 100% certain they would stop any which seemed like plausible alternative to dollars, especially considering their legal right to do so is spelled out.

"Legal tender for all debts" means that if someone offers the currency for payment of debt, unless other terms have been previously agreed to, the payee must accept it.

The most common place you'll encounter this is at certain payment locations at which bills over a certain denomination (generally $20) aren't accepted, or credit/debit cards must be used. However these requirements must be stated in advance of creating the obligation/debt. I'd be interested to know how this applies, say, to automated toll collection systems as well.

And more specifically: if the payee doesn't accept legal tender, then the legal obligation to pay the debt is removed -- you cannot seek legal redress for payment.

Its illegal to use a substitute for USD dollars. A substitute for USD is exchanged directly for USD as you describe in the footnote. See the Liberty Dollar (http://en.wikipedia.org/wiki/Liberty_Dollar) for an example. Bitcoins, like cigars or real estate, fluctuate in value relative to USD.

Liberty Dollar was charged with violating laws related to "coins of gold or silver or other metal" -- it's quoted right there in the page you linked to -- as well as being so similar to actual US currency as to be confusing to people. Not for being a currency that competes with the dollar.

So Disney Dollars are illegal?

If they are traded outside Disney. Yes. Other than that, that's not currency. That's just a paper stating that you already paid for something.

unless I'm mistaken, that's a misinterpretation - private parties can conduct business in any way they mutually agree upon, including straight up barter.

31 U.S.C Sec 5103 only states what is legal tender - and that only comes into force if you end up owing money and the courts order you to pay - you must pay in legal tender.

The referenced law only mentions "foreign gold or silver coins" as not being legal tender for debts. Did something expand that to non-US currency, or is this just a letter/spirit issue?

Personally I think its more the latter, and fair warning there are folks who will tell you the Federal Reserve is unconstitutional and the only legal money is actual gold or silver. Suffice it to say there are a lot of opinions.

In Vegas, the Secret Service was pretty clear that their 'goal' was to mitigate criminal activity not clamp down on people who bought a slurpee at 7-11 and only had a $5 casino chip in their pocket.

While there are perfectly libertarian reasons for not wanting your transaction history or cash flows viewable, it is essential in many (most?) criminal endeavors. For better or worse this is an aspect that the US Government uses to uncover those operations. As we've discussed on HN before there are waaaay more federal laws than are necessary which result in making a lot of things "illegal" which I and perhaps others would not agree made sense ( the whole 'lying to the FBI' which is waaaaay overly broad for example ). My point is that if you ask Eric Holder or any Treasury Agent if using BitCoin as the currency for buying or selling goods or services in the US to people in the US they will say "No, it is not." And if you tell them you have been doing so, they may decide to arrest you at that point.

Policy debates (and really that is what this is) are messy and heated, but its unreasonable for a print publication to say that BitCoin is in a 'legal gray area' when calling up the Treasury would disabuse them of that notion. Just like saying paying Income Tax is optional. From the point of view of the IRS that is not true, regardless of the number of scholars and researchers who will create a chain of reasoning to show that it is.

Totalitarian regiems usually ban dealing with any currency other than the national currency. In Libya (under Gadhafi's rule) dealing in the US dollar was (supposedly) punishable by death. Currency exchange in these countries is always a black market.

Carrboro, NC, has its own local currency:

http://www.ncplenty.org/faq.php

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