Topic: Country XXXX declares Bitcoin legal tender. What happens next? (Read 9918 times)

I think we're mostly in agreement again. :-)

But I think that we continue to circle around the two part issue of value and ownership; we've talked about possible ways to determine the former but we haven't really talked about how the latter might be demonstrated for legal purposes.

Are you aware of any ruling in any jurisdiction in which someone has posited such an argument but where the jurisdiction didn't already consider bitcoins to be money and didn't (re)classify bitcoins as money as part of any ruling on the case?

The reason I ask is because you refer to demonstrating "control" of the bitcoins but I don't think that control is necessarily synonymous with ownership and (taking your use of that word to be literal) I've been doing a brief review of the legal cases that you've mentioned to see for myself if any precedents have been set; please note that I'm not a lawyer so please excuse my admittedly amateurish attempts to interpret what I've found.

BTCST involved the agreed transfer of control of owners' bitcoins to BTCST on the basis that an investment was being made between the owners and BTCST and BTCST issued paperwork to investors providing the details of the investment and their stake in it. As part of the SECs case against BTCST, a US Court has made a ruling that the transfers of bitcoins to BTCST and the purpose of those transfers constituted an investment which had properties that made it legally recognisable as such (and the Court also ruled that bitcoins were money as part of its legal argument for it being an investment). This opened up the feasibility of the SEC taking legal action against BTCST and it's officials for running an illegal investment vehicle since the SEC asserts that BTCST operated as a Ponzi scheme which is a criminal offence under US law. In its case against BTCST, I don't think that the SEC are particularly interested in who owns the bitcoins in question, they are more interested in those people who were investors in BTCST, as evidenced by their respective paperwork. So although the BTCTS case has said something about the financial value of bitcoins, I can't see that it has said very much about determining the ownership of them.

The Silk Road situation seems, among many things but of most relevance to theft of bitcoins, to revolve around bitcoins being held in escrow accounts which had been placed there by bitcoin owners. Unsurprisingly, because of Silk Road's anarcho-libertarian nature, these were unofficial escrow accounts rather than legally certified escrow accounts. Of course the point of any proper escrow account is that a 3rd party controls the contents of the account strictly on behalf of the owner(s) of the contents of the account in accordance with a legally binding escrow agreement and this should also apply to a properly supervised bitcoin escrow account. So the concept of escrow appears to set a general precedent that control does not necessarily equate to ownership.

But this doesn't quite fit with the traditional view of bitcoins from the point of view of the bitcoin protocol in which an (at least nominally anonymous) bitcoin account doesn't have an identified owner but simply has somebody who knows the private key for that account and thus controls it; implicit in the bitcoin protocol is the assumption that whoever controls a bitcoin account is the owner of the bitcoins within the account.

As I understand it, the legal case against Ulbricht actually relates to charges of drug trafficking and money laundering rather than to the theft of bitcoins but it has thrown up an interesting debate with regard to the FBI's apparent desire to gain access to Silk Road's bitcoin accounts and the possible use of a 5th amendment defence by Ulbricht to avoid disclosing any private keys that he may have for those accounts (http://www.coindesk.com/silk-road-case-bitcoin-legal-precedent). I can't work out if:
# the FBI is already actively seeking to show that if Ulbricht is able to exercise control of the account then he is at least complicit in the use of the account for the activities he's charged with, regardless of who owns the bitcoins in the account (and possibly regardless of who else might be able to control the accounts).
# or whether Ulbricht's defence team are simply concerned that if he happens (or is forced to) show that he has the means to control the accounts, even if showing he can do so is for other purposes, that the FBI may *subsequently* try to use it as evidence that he is complicit.
# or whether the FBI is wants or needs to show that Ulbricht actually owns the bitcoins in the accounts and given the implicit entanglement of ownership and control within the bitcoin protocol, the only way they can do that is to show that he can control the accounts...unless he has documented proof that although he might be able to control the accounts, that somebody else actually owns the bitcoins in the accounts.

These are big fraud/theft cases featuring bitcoin but you run into the control versus ownership issue at a simpler level. For example, if you hold bitcoins in your account and I steal your private key and transfer the bitcoins to my account. The bitcoins that I now have are under my control, not yours; and even though it is easy to show that the coins came from your account, you would have to show that I had stolen your private key and used to transfer bitcoins to my account without your consent, I.e. that I had usurped the control of your account, and I think that's a much more difficult task than simply showing who is able to control a particular bitcoin account.

I'm not arguing bitcoins are software, I was just analogizing ownership of a bitcoin to ownership of software.  I don't think there's any classification box that a bitcoin would fit into, even the phrase "a bitcoin" is kindof a misnomer for a variety of reasons.  What I'm saying is it doesn't matter that we can't classify bitcoin, it's clear that someone can exercise exclusive control over a balance of them, and it's clear that they have cognizable value, that's all that really matters.  We don't need to say "bitcoin is like x" because that's not what the legal analysis cares about.

I think we are in agreement on almost every point, Clobered09. :-)

Perhaps the only point I might disagree with you on is that bitcoins are software. I think most jurisdictions have fairly strict definitions of what constitutes 'software'. Although the implementations of the bitcoin protocol are obviously software, the bitcoins that they 'count' are (I think, self-evidently) data within and between the software instances rather than functional software in and of themselves and especially since ownership of that 'data' is (re)assigned to individuals who are not required to possess the bitcoin protocol software themselves (although they obviously have to interact with the bitcoin protocol software directly or indirectly in order to receive or send their bitcoins).

I suggested in one of my earlier replies that I thought that at the very least, any jurisdiction might be able to reasonably accept bitcoins as being data owned by an individual whether or not that jurisdiction considers bitcoins to be money/legal tender/etc and that an individual might be able to make a case for his (bitcoin) data having been stolen (though I'm not sure that all jurisdictions currently recognise data as something that can be stolen but I feel that most of them would). I suppose the theft, if proven, would ideally result in the return or direct replacement of the bitcoin (data) to its rightful owner but if that is not technically possible, then the owner might seek restitution in financial terms (e.g. fiat money) instead...and that's where the interesting debate would occur with regard to what is the financial (fiat money denominated) value of the bitcoins.

What do you think?

I think you've misunderstood me, I was not clear.  I don't think bitcoins are necessarily money, my point is bitcoins have value that's cognizable under the law.  When courts (at least in every US jurisdiction) analyze whether the crime of theft and the civil tort of conversion have occurred, they don't care whether something is money, they care whether it has value that is cognizable under the law.  If someone takes your picture while you're naked in the privacy of your own home, they've certainly stolen from you, but the value of what they've stolen, that "information" about you, isn't really cognizable under theft or conversion statutes.  Other laws may be relevant, but those ones wont.  Bitcoin, on the other hand, has value that is cognizable, it's like stealing a software program, and that's cognizable under theft and conversion.  The fact that the software isn't "money" is irrelevant, the fact that it may not have a stable value over time is irrelevant, it's something with cognizable value. 

This is why I don't think declaring bitcoin as legal tender will have any substantive effect, legal tender laws don't matter nearly as much as everyone seems to think.  For the most part in modern economies, legal tender only has relevance in one situation; when someone fails to fulfill an obligation.  Owe taxes?  Have a non-equity judgment against you?  You can pay all of those in the legal tender of the relevant jurisdiction, and they have to accept.  Beyond that, it's not really relevant.

Sorry, I hadn't seen the case notes...I tend not to read the court rulings of jurisdictions other than the one I live in since they don't apply to me...bitcoins still don't count as money where I am. However, I should have done wider ranging research before spouting off on the subject in as general terms as I did - apologies.

At another tangent, it's interesting that you frame the bitcoin value question in terms of *getting* bitcoins; I contend that the question should be framed the other way round...what real, tangible goods and services can you get with bitcoins. The answer, of course, is that with at least a few retailers willing to accept bitcoins for the things that they sell, bitcoins do have demonstrable value in the 'real' world.

And to be slightly controversial, picking up on your proposition, it is arguably the case that you *can* get bitcoins for 'free' by mining them, I.e. you can get bitcoins without having to exchange anything (fiat currency, real world goods, etc) with any other individual or organisation. That is not to say that mining bitcoins is not without cost, I.e. computer hardware, electricity, etc. but it doesn't necessarily mean that their value to anyone else is even equal to the cost of producing them.

There actually is a lot of precedent for that with bitcoins, the court recognized that bitcoins have value in the Shavers case as well as in the Silk Road cases.  Moreover, they fit the test for having value, you can't get them for free or at will, right? 

Sorry, I should have been clearer...I had made a somewhat assumptive corollary from "XXXXX recognises bitcoins as legal tender" to "XXXXX's legal system recognises bitcoins as having implicit *financial* value" and progressed my argument from the latter proposition, not from the former.

So even from Clobered09's example of being defrauded of his motorcycle, motorcycles are not legal tender either but the legal system recognises that a motorcycle has financial value and that financial value belongs to the legally recognised owner of the motorcycle. The same argument applies to gold, shares and land but there appears to be no equivalent precedent for bitcoins.

Gold is not legal tender, but has value.
Shares are not legal tender, but have value.
Land titles are not legal tender, but have value.
And so on.

It doesn't matter whether what is stolen is money or not. What matters is that you have been defrauded of something that has legally recognised, financial value, in your example, your motorcycle.

The point I was trying to make is that fiat money is legally recognised as having financial value but bitcoins (probably?) are not recognised as such so if somebody steals your bitcoins it is not at all clear to a court of law that that you have suffered any sort of financial loss that they could try to sort out on your behalf.

Why would it matter that what was stolen isn't money?  If I trade my motorcycle to Bill for his car, and he finds a way to defraud me (fake title or something of the like), you honestly think the court says "oh, well, since no money was involved, there was no theft"?  That's not how the legal system works.

I assume that if country XXXXX recognised bitcoins as legal tender then they would be saying that a bitcoin was imbued with implicit (though probably not intrinsic) financial value.

If someone was to con you out of some of your bitcoins (e.g. by failing to provide agreed goods or services which you had paid for with bitcoins) within XXXXX's jurisdiction, then XXXXX's legal system would have to take the view that you had suffered an illegal financial loss, i.e. that you had been criminally defrauded. Beyond any criminal case that XXXXX's justice system might make against the fraudster, you could mount a civil case against the fraudster through XXXXX's legal system in an attempt to recoup your bitcoins.

So XXXXX effectively stands as a trusted(?) third party arbiter for resolution of disputes of bitcoin denominated trades within its jurisdiction; although it's worth bearing in mind that legal systems generally (and therefore probably XXXX's as well) will only take action against or in support of identifiable entities (I.e. individual people or registered companies/organisations) so if your bitcoin-based trade is (truly) anonymous then you probably can't expect to get any help from XXXXX's legal system.

I'm guessing that if a trade goes wrong at the moment (in any jurisdiction) and somebody effectively 'steals' your bitcoins, no jurisdiction recognises bitcoins as being money, and thus no legal system will consider you to have made a financial loss and they won't get involved.

I don't know what the legal status of bitcoins is in various places...in some places they might be considered to be *data* which belongs to you and thus somebody who steals your data may be considered to have committed a criminal act. In terms of trying to get financial restitution for your loss, you would have to convince the authorities that your (bitcoin) data had demonstrable financial value and thus that you had suffered financial loss from the loss of the data. Part of that might be in showing that you could have used your (bitcoin) data (I.e. Spent your bitcoins) in return for goods, services and/or an amount of legally recognised fiat currency and thus that your stolen bitcoins were worth that amount of financial value which ought to be returned to you. Good luck with that one!

About 1/4th of this forum moves to XXXX.
Really though, on the off chance that this happens within 10 years, I can see a large number of Bitcoin users moving to a country which officially endorses Bitcoin. Unless it's Columbia or something, then it might only be a moderate portion of us 

In the US at least, a truly independent central bank would be logically impossible short of a constitutional amendment, as Congress retains perpetual plenary power over its domains, subject only to the Constitution.  Congress today can make the Federal Reserve as independent as physically possible, but it cannot prevent Congress tomorrow from revoking that independence. 

Trully independent Central Banks are an exception!

I believe every country, except those that have joined economic unions under certain conditions, retain the power to create money.  For instance, in the US, the Federal Reserve (which is a governmental agency that's only independent in the sense that executive discretion is extremely limited) controls the money supply, and if Congress really wanted to (and had agreement from the president or dual super-majorities), it could direct the Federal Reserve to create more money.  This is an inherent power of national governments.

Really? You have any evidence for that?

i do not know where you life but governments do not have the power to create money... this is mostly done throu "independent" central banks...

It's not possiable because the state hates the idea of losing power over the creation of it's own currency.

Yet countries are joining the euro.

No reason to have counterfeiting insurance or agencies.. (less overhead use costs and restrictions)

No "printing", thus, no associated maintenance or losses due to cost to print, record, destroy, recycle.

No need for expensive underlying networks for transmitting and tracking... We already do that. (Less overhead costs.)

Direct bank use, storage and tracking. (Countless benefits there.)

All those costs come from your dollars/FIAT's value, and taxes.

What advantages does FIAT have? Banks as we once knew them, are a breed that will die. Transactions take too long, communication between banks is slow, and records are just useless to most people. Not to mention all the hidden fees and overly complex operation, just to spend a dollar, or save a dollar. We no longer need banks. Get rid of them. They better upgrade to BTC loan-agents, or they will no longer have a use.

P.S. Iceland has made Auroracoin an official "currency", and accepts BTC as a currency.

They haven't declared it legal tender, but they have declared it private money.

http://rt.com/news/bitcoin-germany-recognize-currency-641/

I think that's the most we could ever hope for, because the state hates the idea of losing power over the creation of it's own currency.

What would the incentive be for a country to declare Bitcoin legal tender?

I don't see any benefit to a very large country like the USA, but perhaps for a very small country there would be a benefit.

Would it make it easier for Bitcoin exchanges or other Bitcoin service companies to set up shop in this small country and then do business all over the world?

Would the country then be able to reap a benefit from taxes on these companies. The companies will have to pay taxes anyway to some country. Why not to the country that declared Bitcoin a legal tender.

If some helpful country did that it would probably come as a relief to a lot of tax authorities and financial regulators, because it would allow them to stick bitcoin in a pre-existing box (foreign currency) that fits it pretty well for most practical purposes, but that they may not currently be technically allowed to put it in under existing legislation.

Good point.

Ironically is that happened it would reduce regulation as Dealer if Foreign Currency is generally less regulated at the state level than money transmitters.  Come on Somalia make Bitcoin your legal tender.

That's not quite true. A country declaring Bitcoin as a legal tender would affect Bitcoin under many laws in the U.S. that apply to the legal tender of a foreign nation. For example, FinCEN would regard Bitcoin as a "real" currency and no longer a "convertible virtual" currency:

None of those things.

The declaration of legal tender would apply only to that country and only in a very limited scope. 

In the US legal tender means it can be used to pay debts, damages awarded by courts are denominated in legal tender, and legal tender is only accept method to pay tax liabilities. Nothing more.

Outside of that extremely small scope you can use other currencies in the US.  For example a shop in the US could accept Euros, pay customers in Euros, issue invoices in Euros, have Euro denominated bank accounts, etc.  A shop can even refuse to accept payment in US dollars (but not for debt). 

So legal tender has a very limited scope and Bitcoin could (not saying it will) become the most used currency in the world without being legal tender in any nation.

Perhaps this has already been discussed.

I could not find the right search words to locate it if it has, so please excuse the question and point me to the post.

There are a lot of small countries (Islands mostly) that have multiple currencies as their legal tender. Ascension Island has for example the Ascension Pound and the Saint Helena Pound as their legal currency. Their main product is the selling of WEB domains and Stamps (according to Wiki).

What if a similar country declared Bitcoin a legal currency. What would happen?

Do other nations have to honor the currency of the country?

Do the banks in other nations then have to honor accounts holding Bitcoin?

Would the country declaring Bitcoin legal tender have any advantages concerning Bitcoin exchanges?

Is this even possible?