Federal judge: Bitcoin, “a currency,” can be regulated under American law
arstechnica.com
arstechnica.com
If they decided that it wasn't a currency and had no value, the case against the Bitcoin Savings and Trust founder would go nowhere. This decision cuts both ways. Without recognizing it as having value, there'd be no fraud to charge and if you were defrauded, no remedy available.
Meanwhile, the SEC has far bigger fish to fry, as it were.
IIRC, most definitions provided by Federal Law designate that currency or money is by definition minted by sovereign governments.
I haven't read the decision yet, but the justification in the article is weak. If Bitcoin is a currency because it can be exchanged for dollars and other real currencies, anything I can sell on Ebay is a currency as well. I guess the SEC will crack down on fraudulent dealers on ebay now.
"To coin Money, regulate the Value thereof, and of foreign Coin, and fix the Standard of Weights and Measures;"
So the Constitution gives Congress not just the right to issue currency, but to regulate both its own currency and other currencies.
In any case, Shavers's argument was ridiculous to begin with. He claimed that his investments didn't fall under the umbrella of the SEC because Bitcoin isn't money. But the SEC regulates securities, not currency. A security is just a tradeable financial instrument. The subject of the security doesn't have to be, and often isn't, money. E.g. a share in a corporation is not backed by dollars, it's backed by an ownership stake in some legal entity.
To be clear, I'm devil's advocate arguing that this probably shouldn't be an SEC case, not that he hasn't committed a prosecutable fraud.
Securities always represent a legal obligation to something. A stock represents legal ownership of a legally recognized organization. If this guy wasn't making such binding obligations, as I suspect he wasn't, it isn't a securities issue - just fraud.
Because applied this broadly, the SEC would therefore regulate as Securities Dealers: Ebay, Baseball Card publishers, and Blizzard's World of Warcraft.
You've got a good point that, depending on how Shavers's investment was structured, he might not have been issuing anything that could be called a security. But he was billing it as a "bitcoin hedge fund" so if there was some sort of tradable interest in the fund that would in fact be a security.
Actually I think there is a bit of a tradition of the SEC prosecuting people for purporting to sell securities, even if they legally weren't. So I'd say that should be the basis of prosecution as opposed to "Bitcoin = Money."
I'm mostly just sore that the SEC hasn't bothered to prosecute MF Global principals, as that was outright, straightforward Securities Fraud.
[1] http://www.archive.org/download/gov.uscourts.txed.146063/gov...
It's also not saying Bitcoin is official legal tender, just that for purposes of investment and securities law, it's a form of "money" and fraud involving Bitcoin investments can be prosecuted under existing securities law.
From the decision: "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."
Exchangeability for other currencies isn't the only factor, the real factor is "it can be used as money", and further, that the defendant in the case agreed that it can be used as money.
> I guess the SEC will crack down on fraudulent dealers on ebay now.
If they were selling securities contracts (which is the issue here) on ebay , the SEC would already be cracking down on them.
Shaver tried to argue that the contracts he was selling were not securities contracts because they were being sold for bitcoins rather than dollars, among other arguments.
http://en.wikipedia.org/wiki/Christopher_Bechtler#The_Bechtl...
This move with regard to Bitcoin is merely Bank.Gov trying to protect its monopoly on the issuing of currency.
What this says is that any commercial exchange is subject to government regulation.
"To coin Money, regulate the Value thereof, and of foreign Coin, and fix the Standard of Weights and Measures;"
As I had to explain the difference between lunch and arbitrary use of government power, do I also have to explain the difference between government of consent and tyranny?
It's not your fault; this is just a really terrible venue for political discussions.
The overarching power of government is the problem, not how we discuss it on the net.
Actually, it is Congress. Specifically, the Court ruled that the use of bitcoins for the transactions at issue does not (as the defendant attempted to argue) cause them to fall outside the scope of the Exchange Act of 1934.
You can't defraud someone in any currency in the US. Or launder money or perform illegal activities. I can't mug a tourist and take the money out of their wallet and then claim that because I didn't steal any US currency I'm not a thief.
This case isn't about regulating authority over currency. Its about whether the fact that an investment was sold for bitcoins isntead of a fiat currency takes that investment out of the scope of the definition of "securities" subject to various provisions of the Exchange Act relating to securities fraud.
Yes, but as I understand it, foreign currency within the US is still regulated.
The fact that Congress chooses, for a time, not to exercise a power within the scope of its enumerated powers in Art. I does not in any way change the fact that it is an enumerated power.
> This move with regard to Bitcoin is merely Bank.Gov trying to protect its monopoly on the issuing of currency.
No, this is about punishing fraud in selling investments, not about issuing currency.
Were that true, the principals of Goldman Sachs would be in jail.
No, actually, that has nothing to do with what the issues in this case are.
If you want to make the argument that there is evidence (whether from their response to Goldman-Sachs or otherwise) that the SEC's interest in the case at issue here is not securities fraud, go ahead and make the argument.
Waving your hand in the direction of Goldman-Sachs, however, is not making that argument.
Any medium of exchange can theoretically be used as currency (e.g. cartons of cigarettes in prison, or cans of chewing tobacco on a submerged submarine on its third month of patrol).
Whether the government pays attention to it or not will depend on whether that type of currency starts to act as coinage or as a medium of interstate commerce, but just because the government doesn't deign to notice cowrie shells being used for trade doesn't mean they don't have the power to regulate it.
They were. The government's reaction to the popularity of the Bechtler coins was to open two mints in North Carolina, not to "regulate" Bechtler's coins.
The government does not lose enumerated powers, or the ability to apply them in a particular manner, because it chose not to apply them in that manner at one time in the past in a similar circumstance.
You can, of course, make the argument that, power aside, the government should not use its enumerated powers in the way in question and should instead act as it did in the past case, but that takes more than waving your hand in the direction of the past case and asserting that it exists and therefore the restraint the government exercised then must be repeated, it takes actually making the case that that decision would be correct in the present circumstances.
Generation to generation, the natural tendency of a relative minority is to seek and maintain influence over the many. This is reflected in the continued advance of the power of the State over the rights and liberties of its citizens. Unlike our own political vocabulary, The Greeks had terms for this particular dynamic: hoi polloi and hoi oligoi.
> You can, of course, make the argument that, power aside, the government should not use its enumerated powers in the way in question and should instead act as it did in the past case
My larger argument is more fundamental. If power is asserted over rights often enough, there will be few, if any, actual rights left.
Perhaps. But in this case you're not speaking of any actual 'right' that people had in the first place, so there's no right that would be eroded by SEC action here.
The important part of this news seems to be that bitcoin is indeed going to be a currency. That currencies can be regulated is not news at all.
In computing terms, the definition of a local variable in one scope doesn't tell you anything about a variable with the same name in a different scope.
Or is that not what this says? Because to me, "can be regulated under American law" means what I wrote above.
Really though, what the judge is saying is that Bitcoin cannot be used to evade US laws where those laws apply. No surprises there.
Obviously they don't have natural jurisdiction over and above crypto-anarchy, unless they have the capacity to wage war against the protocol. They probably do. There will be workarounds. So it goes.
I believe the ponzi pirate PirateAt40 should be punished, not because Bitcoin falls under the jurisdiction of government as money, but rather because the pirate defrauded people. You can defraud people with beanie babies or baseball cards as well.
It is also very likely that any taxes or fees associated with Bitcoin will have to be paid in dollars. If there are no legal avenues for exchanging Bitcoin for dollars then it would be illegal to do business in Bitcoin at all. You may personally skirt the law on that, but your local supermarket will not, and neither will your apartment complex, your auto dealership, or any of the dozens of other businesses you deal with in your daily life.
What matters to bitcoin users is whether the transaction goes through or not.
What this boils down to is this: how much faith you have in the government's ability to enforce the law, particularly those laws related to money. I have quite a bit of faith in the government's ability to enforce the tax code; even people who cheat on their taxes are rarely bold enough to not bother to pay any taxes.
The government confiscates wages by sending legally binding orders to people who they believe might owe you wages directing them to remit the owed wages to the remit them to the government instead.
They obviously can do the same thing with bitcoins. The only current difficulty with doing that with bitcoins now is that bitcoins are currently used for so few transactions for so few people that its not likely to be worth the governments effort to find out who is likely to owe you bitcoins to serve them with such orders. If bitcoin were to become widely used, that would change.
How? They can't confiscate bitcoins without the private key. It's not like Bitcoin is run by a bank with an internal central ledger.
I suggest you reread the sentence that precedes the one you quoted (and which is the one that "the same thing" refers to.) Because it answers your question.
It's not 'the US can regulate any interaction that involves bitcoins'.
The proper reading is 'even if an monetary interaction substituted bitcoins for dollars, if the US would have had jurisdiction, then the US still has jurisdication'.
Basically, the guy who ran Bitcoin Savings and Trust decided as part of his defense to argue that he couldn't be prosecuted under federal securities law because what he was doing didn't meet the definition of "securities", since -- and this was the defendant's argument -- Bitcoin isn't money.
The judge basically took a look at this, said "it walks like a duck and quacks like a duck", and ruled that for purposes of this prosecution under securities law, yes, Bitcoin is money and Bitcoin investments are securities.
As for gold versus paper money, the above reasoning does not apply. Paper money is accepted for tax purposes (and would be far less popular if it was not).
And if you stick to Bitcoin transactions only, it would be very easy for authorities to declare tax-evasion, for starters, which opens up a whole different can of worms, as transactions are occurring in a non-regulated space.
On the whole, it seems like Bitcoin-enthusiasts would be far safer in a more regulated environment.
Now, you can still get around it if you are small enough, but it is the same with nearly anything else.
Yes, regulations and laws are applied at the entry and exit points of the money system, and people who try to avoid those regulations run the risk of being arrested.
Speaking as a longtime Bitcoin user, I'd disagree. My bitcoins were easier to trade before the government started taking Bitcoin seriously. They were also safer before the government declared the power to confiscate bitcoins.
Exchanging numbers is speech. The war on the 1st continues.
Unrelatedly, there's a problem with calling things only numbers when they're much more than just numbers. If bitcoin were only numbers, nobody would buy them. People buy them because there's an expectation to store and liquidly transfer value.
The claim that the government can't regulate atoms won't stand up if the atoms you have are in an arrangement that fires bullets.
Well, it might, given the 2nd Amendment. That's not to challenge the general principal you are arguing for, only the specific choice of analogy.
Fraud isn't protected speech. Even if you use speech in the course of comitting it. The issue here is securities fraud, not prohibiting the exchange of bitcoins.