bitcoin property law seminar paper

8/10/2019 Bitcoin Property Law Seminar Paper

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IN BITCOIN WE DISTRUST: IS BITCOIN MORE TROUBLE THAN IT IS

WORTH?

Kevin Loux

Propert L!" Se#in!r

K!t$ Moore


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INTRODUCTION: WHAT IS BITCOIN?

This new digital era has begot change in all aspects of our life and often provides

us with new ways of spending our money, but what about new ways of acquiring and

storing money? Virtual currency is the digital equivalent of money, but up until recently,

many of these virtual currencies were just property. itcoin however differs from most

virtual currencies, and has stirred debate with some arguing it should be treated as a

currency, some arguing it should be illegal, and others saying it is still nothing more than

property. !hat e"actly is itcoin, and why is it different from all of the other virtual

currencies that are clearly property?

#uintessentially, itcoin is the $ash of the %nternet, or a&in to the funds in your

'ay'al balance.(itcoin as a virtual currency is a digital medium of e"change that can

replace traditional currency online. itcoin is able to do this because its use is not limited

to a single mar&etplace, and it can be used as payment anywhere it is accepted as

payment. itcoin is not the only one of these new virtual currencies that has the potential

to be a true currency) it is just the most notable and popular. !hile itcoin is &ing, there

are also numerous similar *ltcoins) a term used to describe all other less popular virtual

currencies that operate technically similar to itcoin. These technical aspects behind

itcoin are what muddle the legal issues and force us to as& if itcoin really is just

another piece of property.

!hen e"plaining these technical aspects a good place to start is with a term many

have probably already heard, the itcoin miner. * itcoin miner is someone who runs a

machine with itcoin software that is able to preform the comple" equations required to

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encrypt itcoin. These miners act as the facilitators of the financial transactions in

itcoin by encrypting the information and creating the crypto+currency in e"change for

a small amount of itcoins for their wor&. *t the heart of all virtual currency is what

these miners create, the bloc&chain. The bloc&chain is a secure encryption process that

through comple" equations combines multiple transactions into a single bloc& and ties all

itcoin transactions together. This encryption process ma&es the transactions largely

anonymous, and by combining multiple transactions into one ledger entry compounds

difficulty in reversing any transaction. This bloc&chain is the technical difference

between itcoin and other virtual currencies that cause some to question if it should

result in a different legal treatment.

'art % of this paper will loo& at the legal concerns relating to digital movement of

money and how itcoin fits into this e"isting legal structure. The technical components

of itcoin as discussed ma&e itcoin different from other virtual currencies, but more

li&e other instrumentalities already regulated. 'art % will determine which instrumentality

itcoin is most li&e and thus how the law should apply to it. 'art %% of this paper loo&s if

society should trust itcoin operating as a legal currency, and the corresponding legal

impact. y e"amining the true uses of itcoin, other historical types of currency, and how

itcoin compares to e"isting physical currency, this section considers if itcoin should be

illegal or subjected to special laws as a currency. This 'art %%% of this paper concludes

how the law should ultimately treat itcoin in light of all of these considerations.

%f itcoin is nothing more than the digital equivalent of physical cash, should the

law handle them the same, or does the digital nature inherently change the legal analysis?

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The best place to start here is then comparing and contrasting itcoin with its other

digital counterparts.

I- BITCOIN AN ENI;MA WRAPPED IN A RIDDLE: IS IT A CURRENCuri*(i&tion!= &on&ern*- T$i* .!ve ri*e to **te#* *u&$

!* P!P!= !* ! #e!n* o/ tr!n*/errin. &urren& (i.it!==- In t$e "or=( o/

.!#in.) (eve=oper* t$en &re!te( t$eir o"n in .!#e &urren&ie* ,ou.$t

"it$ re!= #one &ir&u#ventin. t$e nee( /or &on*t!nt P!P!=

tr!n*!&tion*- No" &o#p=ete= !utono#ou* **te#* not re=i!nt on ot$er

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/or#* o/ &urren& =ie Bit&oin #i.$t $!ve .one ,eon( ! virtu!=

&urren&) !n( ,e&o#e it* o"n &urren&-

The %- reiterates what conomists universally agree on as the three components

of a currency as a medium of e"change, a unit of account, and/or a store of value.0%n

an economic sense, any asset recogni1ed with universal value could be a currency.

W$i=e t$e evo=ution o/ (i.it!= &urren& $!* =e/t ! *=e" o/ =e.!=

i**ue* in it* "!e) t$e $i*tor o/ $o" t$e =!" $!n(=e( t$i* evo=ution

provi(e* .ui(!n&e /or $o" to $!n(=e Bit&oin-

A- NON2TRADITIONAL CURRENCIES: RE;ULATION O' PRI4ATEL< ISSUED

CURRENCIES

!hile traditional currency or money brings government issued currency to the

forefront of the mind, the legality of non+government issued currencies is a mur&y area.

The constitution prevents states from issuing their own currency, and delegates the power

to coin currency to congress.23egally, some have ta&en this clause in conjunction with

the -tamp 'ayment *ct of (450 to mean that the federal government has an e"clusive

authority over all issuances of currency.6* prominent e"ample used in support of this

conclusion is the prosecution of the creator of the 3iberty 7ollar.89n this matter the :%

5 IRS) Noti&e 57%825%) !v!i=!,=e !t $ttp:++"""-ir*-.ov+pu,+ir*2(rop+n2%825%-p(/3L!*t 4i*ite( Nove#,er 5) 57%8 6:7%p#-6 U-S- Con*t- !rt I F-8 Bri!n W- S#it$ G R!#*e - Wi=*on) How Best to Guide the Evolutionof Electronic Currency Law) 89 A#- U- L- Rev- %%7) %%%% 3%@@J %F

U-S-C-A- 669- Pre** Re=e!*e) 'e(er!= Bure!u o/ Inve*ti.!tion) Defendant Convictedof Mintin His !wn Currency "Mar# $%& '($$)) !v!i=!,=e !t$ttp:++"""-/,i-.ov+&$!r=otte+pre**2re=e!*e*+57%%+(e/en(!nt2&onvi&te(2o/2#intin.2$i*2o"n2&urren&3L!*t 4i*ite( Nove#,er 56) 57%8) :68PMJ Nio=ei M- K!p=!nov) *erdy Money+ Bitcoin& the ,rivate DiitalCurrency& and the Case Aainst -ts .eulation) 5 Lo- Con*u#er L-Rev- %%%) %88 357%5-

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said, %t is a violation of federal law for individuals . . . to create private coin or currency

systems to compete with the official coinage and currency of the ;nited -tates.5 does not

prohibit private persons, or private partnerships, or private corporations strictly so

called@ from issuing bills of credit.A

This conclusion is easily squared away with the 3iberty 7ollar case once we

reali1e the reason for ruling the currency illegal was because it was so similar to

government issued currency that it could easily be confused. 4The relevant criminal

statute would (4 ;.-.$.*. B 648 li&ely would not apply to itcoin as it e"ists in a purely

digital state. The 3iberty dollar was a physical coin with characteristics similar to a

government issued coin such as the phrase, ;-*, 3iberty, Trust in Cod instead of %n

Cod !e [email protected]!hile itcoin does not intrinsically do anything that would cause a

reasonable person to confuse it with government circulated currency, third parties could

potentially use it in this manner. %f an individual used itcoin online but the seller called

it a wire transfer of ;.-. currency, they could be subject to the reach of this law. This

9 Pre** Re=e!*e) 'e(er!= Bure!u o/ Inve*ti.!tion) Defendant Convictedof Mintin His !wn Currency "Mar# $%& '($$)) !v!i=!,=e !t$ttp:++"""-/,i-.ov+&$!r=otte+pre**2re=e!*e*+57%%+(e/en(!nt2&onvi&te(2o/2#intin.2$i*2o"n2&urren&3L!*t 4i*ite( Nove#,er 56) 57%8) :68PM- Briscoe v# Bank of Co//onwealth of 0entucky) 69 U-S- 5) 68F) @ L-E(- 7@ 3%F6-F Nio=ei M- K!p=!nov) *erdy Money+ Bitcoin& the ,rivate DiitalCurrency& and the Case Aainst -ts .eulation) 5 Lo- Con*u#er L-

Rev- %%%) %88 357%5J Reu,en ;rin,er.) Bit&oin:An -nnovativeAlternative Diital Currency) 8 H!*tin.* S&i- G Te&$- L-- %@) %F9357%5J %F U-S-C-A- 8F-@ Pre** Re=e!*e) 'e(er!= Bure!u o/ Inve*ti.!tion) Defendant Convictedof Mintin His !wn Currency "Mar# $%& '($$)) !v!i=!,=e !t$ttp:++"""-/,i-.ov+&$!r=otte+pre**2re=e!*e*+57%%+(e/en(!nt2&onvi&te(2o/2#intin.2$i*2o"n2&urren&3L!*t 4i*ite( Nove#,er 56) 57%8) :68PM-
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however seems unli&ely, and it is more li&ely any fraudulent enterprise would desire to

pretend to use itcoin and avoid the counterfeiting charge. *s long as any virtual

currency avoids resembling e"isting currency, it will avoid the legal fate of the 3iberty

7ollar.(E

This brings the analysis to the -tamp 'ayment *ct, which is a potential issue for

virtual currencies statingF

!hoever ma&es, issues, circulates, or pays out any note, chec&, memorandum,to&en, or other obligation for a less sum than G(, intended to circulate as money orto be received or used in lieu of lawful money of the ;nited -tates, shall be finedunder this title or imprisoned not more than si" months, or both.((

Therefore, in addition to the potential $onstitutional concerns, any virtual currency

circulating for less than the value of G( would be illegal. !hile the 3iberty 7ollar failed

because of its similarity to e"isting government issued currency, it appeared to be legal

under the -tamp *ct. y never issuing currency with a value under G(, the 3iberty 7ollar

avoided violating the -tamp *ct.(0itcoin is currently trading in e"cess of G28E, and has

not been under G2EE in over a year, thus easily avoiding the -tamp *ct facially.(2*

problem could arise here however as users can e"change fractions of itcoins valued at

less than a dollar, and a strong case could be made that this violates the -tamp *ct.(6The

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-L- Te&$- G Po=) Sprin. 57%6) !t %9) %-

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question is if these fractional itcoins are the appropriate measurement or if the whole

itcoin is the appropriate unit of measurement.

%n Van Auken the court addressed the meaning of for a less sum than one

dollar.(8The court here focuses on the appropriate unit of measurement and focuses

defining sum as the sum of the money circulating.(5This suggests that the appropriate

time to measure the sum of money is when it is initially issued. -etting aside some

technical considerations with the issuance itcoin as they would only ma&e the value

even more favorable, this case suggests there is no violation of the -tamp *ct.

:urthermore, the language from the statute supports this conclusion as it uses the

terms issues, circulates, or pays out any note, chec&, memorandum, to&en, or other

obligation. This language helps us to determine when the measurement should ta&e

place, as the terms issue and circulate, suggest the appropriate time to measure the

value is when currency is initially created. !hile e"isting systems such as 'ay'al do not

violate the -tamp *ct, it is arguably different since official currency bac&s the transfer.(A

This analysis however is incongruent with a strict reading of the statute, as 'ay'al clearly

e"ists in lieuF of official money despite being bac&ed by it, much in the same way a

chec& does that the statute clearly applies to. !hen we consider that 'ay'al has never

been the subject of litigation under the -tamp *ct it then seems li&ely that this civil war

era law is applied narrowly, and very relevant in modern society.(4The -tamp could force

% 6nited 7tates v# 8an Auken) @9 U-S- 699) 69) 58 L- E(- F5 3%F-

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itcoin to only allow fractions worth more than a dollar) however, when put in conte"t

this seems unli&ely to be an issue. itcoin does however offer other regulatory issues

with relevant concerns for a modern world.

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bitcoin property law seminar paper

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