LEGAL
Insights & Trends
On September 19, Judge Alison J. Nathan of the Southern District of New York ruled that bitcoin is money under federal law – or at least the federal statute in question (18 U.S.C. § 1960). The decision is the latest federal ruling to deem the legal status of the digital currency as “money,” and this continuing trend likely has substantial consequences for the future of bitcoin and any other similar currencies.
First things first, though: What, exactly, is “bitcoin?” Invented in 2008, bitcoin is, according to the criminal complaint in the above case, U.S. v. Murgio, “an anonymous, decentralized form of electronic currency that exist[s] entirely on the Internet and not in any physical form.”
Because of the decentralized nature of the currency, bitcoin has become heavily associated with online illegal activity, being used in black markets and the like because of the distinct lack of regulation.
Interestingly, however, because of the public nature of bitcoin transactions, the currency is one of the least favored by money launderers. On the other hand, even though all bitcoin transactions are public, the accounts that hold the funds themselves are only identifiable by their bitcoin addresses – not any real-world identities.
Finally, because of the purely electronic nature of the currency, bitcoin exchanges have repeatedly been the target of hacking attempts, with some resulting in the theft of bitcoins valued at the time in the tens of millions of dollars.
Against this backdrop, bitcoin proponents have been struggling to establish the currency’s legitimacy in the world economy.
And bitcoin may have finally found the legitimacy it had been seeking, although certainly not in the form it had been expecting.
As mentioned above, a federal judge recently ruled that bitcoins are “money” under federal law. The case, U.S. v. Murgio, is a criminal case against a Florida man charged with, among other things, operating an unlicensed bitcoin exchange, the now-defunct Coin.mx.
The statute under which Murgio was charged prohibits the ownership, operation, or management “of an unlicensed money transmitting business,” and Murgio argued that since bitcoins aren’t “money” for the purposes of the statute, then there was no violation as a matter of law, and the charges must therefore be dismissed.
The court wasn’t convinced, however. Judge Nathan wrote that “it is clear that bitcoins are funds within the plain meaning of that term.” Citing a number of other federal rulings from the past few years that reached similar results, Judge Nathan concisely concluded: “[d]ictionaries, courts, and the statute’s legislative history all point to the same conclusion: bitcoins are funds.”
When bitcoin first gained prominence, it was heralded as the future of currency. It promised decentralization and freedom from the constraints of traditional forms of regulation and oversight. And since its inception, bitcoin proponents constantly struggled to establish it as a legitimate currency, rather than one perceived as the preferred choice of online black market-goers.
With all of the hackings and exchange collapses, the currency certainly felt its share of disappointments over the past eight years. But perhaps none sting quite as much as the looming specter of ever-increasing government oversight represented by Murgio and the rest of such precedent.
To be sure, bitcoin will remain relatively unregulated for the time being. But the increased attention from criminal enforcement agencies, which is responsible for the bulk of the cases creating this “bitcoin is money” precedent, certainly signals that bitcoin isn’t going unnoticed by federal officials.
What this will mean for bitcoin’s status as a decentralized currency remains to be seen, but it is starting to appear that bitcoin cannot hope to operate as a legitimate currency in a legitimate marketplace without the attendant regulatory oversight.
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