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.
"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.
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]
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.
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.
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.
I like a well written bitcoin story. As soon as this story opened with the red herring of Silk Road, I sighed in disappointment.
To my knowledge, bitcoin is not recognised as a currency by my country (or any other country), therefore it has no special properties. I'm an individual citizen buying something for one value and selling it for another. This is well established in civil law and tax taw.
When I see a story about bitcoin I read it once, then read it again substituting the words pet rocks for the word bitcoin. I ask 'is there anything specific to bitcoin about the concerns being raised?' and the answer is almost always no.
If I buy some pet rocks at a garage sale in August and sell them at my garage sale in September for more money, I record the profit or loss, report it on my tax return and pay the appropriate income tax on it. This is not advice, but its what I'm going with until I learn otherwise.
I'm sure supporters of Bitcoin would (at least in the US) like to argue for Bitcoin being a currency in this case, as it would allow users to record capital gains and losses rather than standard P/L like you'd get from selling rocks. The tax benefits on capital gains are much greater.
edit: This statement is false. Thanks for the clarification, nullc.
"For the most part, everything you own and use for personal purposes, pleasure, or investment is a capital asset. Some examples are: [...] Any property you own is a capital asset, except the following noncapital assets."
To my knowledge, bitcoin is not recognised as a currency by my country (or any other country), therefore it has no special properties.
I would expect that the laws would be written so that anything people (try to) use as a currency would be treated as one, rather than having a list of currencies that someone has to keep up-to-date.
The main legal weakness of the network is the possibility to launder money while mining. You exchange electricity for anonymous Bitcoins.
Freshly minted coins are obviously anonymous, and so are the ones awarded for transaction fees (they come from whatever transaction your mining rig managed to solve).
It is expected that mining fees will rise to match the cost of mining once the free supply has dried up.
As long as you can find an electricity supplier that looks the other way, mining can be used for laundering.
reported on in the Ars Technica article kindly submitted here is a student law review article, specifically a "note," a classic form of first publication for innovative legal reasoning on a novel issue. I can report, as a one-time law student who was a member of my law school's law review, that every law student's dream (if the law student has a scholarly bent) is to publish a law review article that in turn is taken up by an appellate court and then cited as the basis for the court's opinion. That happened to one of my classmates--his comment on a case in the Minnesota Law Review was cited by the United States Supreme Court in a decision that agreed with his reasoning.
So the author here interviewed by Ars Technica is young, early in his career, and speculating on what COULD happen or opinionating about what OUGHT TO happen. He hopes to persuade a court that his reasoning is correct. But the article is not a sure-fire prediction of how any court or any law enforcement agency will respond to Bitcoins. The Bitcoin experiment has some novel features, and litigation related to it will probably produce new court case holdings (at a minimum) and possibly new statutes as well. "The life of the law has not been logic; it has been experience." Oliver Wendell Holmes, Jr., The Common Law (1881), page 1.
As I have written before, perhaps the greatest contribution the Bitcoin experiment will make to humankind is to teach you and me and our neighbors more about the realities of economics. Here we see that the Bitcoin experiment will also teach us more about the reality of the law (in several different countries of the world, and how law from one country can be applied to transactions that involve another country.) Where there is legal uncertainty, there is transaction risk, and persons using Bitcoins to engage in commercial transactions will have to figure out how to price that risk.
AFTER EDIT: There is an interesting idea in another comment submitted before mine.
I would really like to see a full-frontal assault by a first-world government on Bitcoin, just to test how resilient it is to such an attack
I hazard the guess that significant resources have already been devoted by the National Security Agency in the United States and by comparable government agencies in other countries to figure out multiple attacks surfaces in the Bitcoin ecosystem. It may be that those attacks will not be publicized by any government, but held in reserve for a time of need. Perhaps operatives of this or that government can better conduct covert operations with the help of Bitcoins, in one case, while perhaps they can disrupt the activities of a hostile government by disrupting Bitcoins, in another case. I'm sure there are plenty of interested onlookers analyzing the Bitcoin experiment.
"Miners participate in Bitcoin's distributed transaction-clearing process, competing for the free bitcoins that are awarded at random to one miner every 10 minutes."
Is this even remotely true? I thought they were all basically trying to brute force a valid hash, with no time-based guarantees at all.
The definition of 'valid' is adapted by the system so that on a long term average the rate of new solutions is one per ten minutes.
(The mental model of 'brute force a valid hash' is often unhelpful. Most people think of "given Y find a specific X such that H(X)=Y", Bitcoin is more like "Given P,B,T find any X,Y such that H(Time||P||H(B||X)||Y)<T")
Its true and actually the best concise summary of bitcoin mining I have read. All miners are in a race to find the valid hash for the block they are working on. The first miner to find the hash wins the block and gets 50 coins. The system as a whole notes how long its taking miners to find the hash and adjusts the difficulty of the winning hash based on this speed. So in actually blocks are won in a little less or a little more than 10 minutes and the system adjust to keep the time as close as possible to 10 minutes.
Er. Describing it as a race inspires some of the most common misconceptions about mining. If it were a race and Alice ran 10x faster than Bob, Bob would probably never win.
Bitcoin mining is stochastic, and for a given current difficult each calculation performed by anyone has an equal very small probability of being a solution. Like throwing dice and trying to get a 1. If Alice mines 10x faster than Bob then Alice will find, on average, 10x more solutions.
The network modifies the difficulty of finding a block, to keep the average time close to 10 minutes. Right now it's 2,190,866 times as hard as when the network launched.
eta: Each block is based on the "winner" of the previous block. So you can't skip ahead, because you can't know the "winner" of the current block. https://en.bitcoin.it/wiki/Block_chain
Thanks for the clarification, I thought the hash difficulty was updated much less frequently. The word "random" is still very misleading, as your chances would still be determined by your mining power.
My answer was slightly misleading, while blocks are won about every ten minutes, the difficulty is adjusted every 2016 blocks (2016 * 10 minutes = 14 days).
Bitcoin is not an official currency in any country, but as in any monetary system it has value. It is real no matter how hard you deny.
The problem with Bitcoin is politics. Every country controls how much new money comes into market, lowering the overall value of the currency. With Bitcoin they just can't do that.
It is quite lame to argue that Bitcoin is used to support crimes and so on, since its overall value is by far less than the amount needed to produce every drug USA caught. Let's try not to mix things up. :)
Bitcoin is cool and IMHO, one of the very few viable solution to a unified currency system.
The article seems to imply that BitCoin would be money under current law and that it is subject to all sorts of transmitter and exchange limitations. That makes me wonder.. why are miles and points programs exempt?
What they deal with seems to have all of the qualities of currency. Ditto: Second Life's Lindens.
It is a crime to run your own currency in all countries members of the WTO (for good reasons). You are not allowed to use bitcoins to buy or sell any product in any of those countries.
Also, I'm not a believer in bytes carrying out value. You see, a dollar bill is just a paper that represents a value that's not that paper. Having a serial number of a bill "could" be the same as having a bill itself. That makes bitcoins completely impossible to regulate, it will have life by itself. Lack of regulation is not freedom, is stupidity.
Economies with distinct realities cannot share the same currency or indexed currency. See Greece and Germany. Argentina and US.
Currencies will cease to exist. I'll not be alive to see that, but in the future there will be only XP points (just like diablo!) and maybe commodities. Currencies will slowly die out. You will be only capable of producing XP points by working, products itself will never generate XP points.
Maybe I'm just childish, but that's how I see it right now. It's friday, have a great day!!!
High school?!?! That's part of the Marrakesh Agreement!!! It makes clear that trading of goods can only happen by using it's signatories official currencies.
I would really like to see a full-frontal assault by a first-world government on Bitcoin, just to test how resilient it is to such an attack, and also so that the lessons learned from it can be applied in improving both the technology and its utilization. I wonder to what extent the very prospect of failure discourages that.
Same goes with Tor. Both of these technologies are things that most governments would very much like to see rubbed out before they gain widespread adoption (and, you know, fuck them for that). It's a shame, because even the Internet could probably do with a little bit of regulation, and the monetary system certainly needs it, and yet both of these technologies are in part a reaction to the complete failure of most governments to have any sort of competence with either. In fact in many cases it's just outright malicious. Now in Japan they will begin jailing people for something as harmless as viewing a copyrighted work on fucking Youtube. Time to get a Tor router.
It's not resilient to such a thing. If you think _anything_ widely used can be, you are woefully underestimating the power of a modern major state.
This isn't a question about technology; as much as the geeks love to obsess over it. Technology is just one part. Non-technology attacks are simply much more powerful. E.g. "Anyone caught using Bitcoin will be executed on the spot by large caliber fire from attack helicopters flying far enough away that you can't see or hear them targeting you", and suddenly Bitcoin is only some obscure and irrelevant thing— even outlaws have no use for outlaw 'money'. There is no question of _ability_ to suppress it, only a question of sufficient motivation.
And motivation is where it comes up short. Bitcoin is just another thing people can barter. Not different from beanie babies or lumps of coal, and it shouldn't be legally or politically different. This whole weird concept of something being unlawful until proven otherwise must be some kind of crazy fallout from the drug and copyright wars, and I fear that thinking will greatly harm society in the long run.
If Bitcoin turns out to be an efficient 'money' then sane and efficient governments should support it: because a more efficient money will make everyone more prosperous. Some people love to feel all counter-culture and subversive with their hobbies, but as disruptive a technology Bitcoin is it's just not politically disruptive. Most of the few establishment risks that go along with Bitcoin apply doubly to cash, the others apply to other valuable commodities that goverments can't just create out of thin air. The motivation to attack just isn't there.
I don't think the state even needs to go that far. Just have a (gradually increasing) number of press conferences where serious-looking men in uniforms talk gravely about the dangers of Bitcoin and how it is used by criminals to facilitate drugs/human-trafficking transactions. Then have a think-tank with a respectable-sounding name release a report saying that very few law-abiding people use Bitcoin and that there are $X billion of criminal transactions annually. Then a concerned politician can sponsor a bill that makes owning Bitcoins prima-facie evidence of criminal intent to sell drugs/contriband/whatever as part of his/her "tough on crime" initiative.
This will result in a positive feedback loop: The utility of Bitcoins for "regular" people will fall and for "criminals" remain about the same, increasing the criminal fraction of the Bitcoin economy. It won't kill Bitcoin outright, but it will prevent Bitcoin from being anything more than a marginal player.
> Non-technology attacks are simply much more powerful. E.g. "Anyone caught using Bitcoin will be executed on the spot by large caliber fire from attack helicopters flying far enough away that you can't see or hear them targeting you", and suddenly Bitcoin is only some obscure and irrelevant thing
That's still a technology problem. Make the use of it undetectable. A sufficiently technology savvy Bitcoiner would just wrap his stuff with some encryption and with minimal hassle, you would need to be much faster and harsher to stop them.
Besides, if we're assuming civilian execution without trial, then we're not talking about the modern major states. Not a single of the major states could even remotely do such a thing without consequences. The harshest punishments for comparable offences would be for the distribution and possession of child pornography and that is not stopping the offenders, on the contrary.
The widespread use of a money like thing _can't_ be undetectable by its very nature. If you have to keep it between trusted parties it's not money, it's hawala. :)
That's exactly what governments can (and will) prevent. Offering money transfer services or accepting money deposits from the public are regulated activities. And part of such regulation are anti-money laundering rules that essentially mandate that you're not allowed to execute a) anonymous transfers; and b) 'on behalf' transfers if you don't know the 'ultimate payer' and the 'ultimate beneficiary'.
IIRC, skirting such rules just last week led to a fine of some two hundred million for banks that anonymised payer data for some transfers that turned out to be for iranian oil.
>Now in Japan they will begin jailing people for something as harmless as viewing a copyrighted work on fucking Youtube.
Well... we'll see how that pans out. I've never had any problems myself, though the new rules only just kicked in. When you consider the conviction rate it can be worrisome, but then again I don't believe they really have the competency or care to really keep track of any of it. Just a slight push and a shove, and anyone who tries to shove back becomes a person of interest.
Any conviction rate needs to be accompanied with a total potential case rate. In japan, unless there is a high probability of a successful prosecution, will chose not to prosecute so the DA doesn't have an embarrassing 'non-guilty' verdict.
Just to add to that, the laws already on the books for quite some time can get you potentially ten years for sharing copyrighted works over Bittorrent and the like (the new law is for downloading, but a similar law for uploading is already there). Never heard of anyone getting pinched by it though.
Bitcoin could be attacked pretty easily right now. It really isn't big enough to stand a substantial assault from a major government. In part it's due to being too small of a network; while there is a lot of CPU power mining, it would have to grow a couple orders of magnitude before I seriously considered it resilient (an in order for that to happen, the value of Bitcoins will have to grow the same amount, to make mining worthwhile). A DDOS against the top miners and pools, plus a few million dollars in CPU cycles, could probably allow you to successfully fork the block chain.
Furthermore, there isn't much of a pure-Bitcoin economy. There are a few things you can buy in Bitcoins, but you cannot make your living in Bitcoins and pay for all of the goods and services you need in Bitcoins. As such, Bitcoin relies on the exchanges to keep the economy going. And there aren't that many of them, and they aren't that resilient. Taking down the top couple of exchanges could devastate the Bitcoin economy. Heck, just taking down Mt.Gox would probably do it.
And there are some weaknesses in the current implementation as well. Most discovery of peers is still done through a single centralized IRC channel. There are a few hard-coded peers to bootstrap the network even if the IRC channel is unreachable, but again, for a sufficiently motivated government, that probably wouldn't be too hard to deal with.
But you also have to wonder if a government would want to attack Bitcoin. After all, there are a lot of people who think that it's an anonymous method of transferring money, but it really isn't. It's pseudonymous, but the entire history of transactions is publicly available to everyone. With a little bit of knowledge of who own certain keys (by buying or selling from people, using compromised vendors, or the like), you could start to generate some pretty good data on where money is flowing. Given that you also publish your IP publicly, and someone listening into the network could start to watch for which IP addresses initiate certain transactions, a party with sufficient resources could probably de-anonymize a large amount of the transactions that go over Bitcoin. Yes, there are ways to protect yourself; connect to the network via Tor or a proxy, launder the money through online exchanges or wallet services, be careful about breaking up transactions randomly across addresses and time to hide any laundering. But there are many people who are not going to be sufficiently technically savvy or motivated to do all of that. Bitcoin probably provides a lot of interesting data to snoops; why try to shut that down?
There are similar arguments for Tor. For one thing, running a Tor exit node and snooping the traffic can get you a lot of interesting data. Given the technical and legal risks of a private citizen running a Tor exit node, I wonder how many of them are run by governments looking for interesting data? Anonymity is pretty hard; there are lots of ways to leak information allowing yourself to be uniquely identified, like browser fingerprinting, forgetting to turn off cookies when using Tor, and the like.
There are also reasons why the government might want to encourage the use of Tor and Bitcoin. Remember, Tor was originally funded by the US Naval Research Laboratory. Any type of security or privacy tool can help US interests as much as it can harm spooks. Tor was originally developed to protect government communications, and can be used both by the government's allies as well as its enemies.
So, I don't think that Bitcoin or Tor are under serious threat of full-frontal assault from a first world government, nor do I think they could survive such an attack. But I think that said first world governments are probably more interested in keeping them running and keeping an eye on them quietly than very visibly shutting them down.
I completely agree with your first speculation. I don't think they want to go after these and fail. I think they'd rather have them exist in their present possibly less hardened form and try to monitor and reverse engineer them passively. Attacking them would just harden them.
It's not a question of law but simply one of power. The USG is sovereign and not subject to any controlling legal authority. And its power, especially in financial matters, is global.
Therefore it can be analyzed as if it were a criminal actor. Does the USG have motive, propensity and opportunity to murder Bitcoin? Sadly, the answers are yes, yes and yes.
Motive and propensity - obvious. Opportunity - USG can't shut down Bitcoin trading, but it can smash the BTC price by destroying the exchangers. If it misses one, everyone who owns BTC and sees it as an investment will rush for that exit. Once it is closed, the price is zero by definition.
In retrospect, BTC will look like a very foolish bubble. In fact it is perfectly sound from an economic perspective, but not from a political perspective - it assumes a basically fair, just and sensible global legal order. Or at least a multipolar one. Closing our eyes and believing these illusions exist is not an effective way to make them exist.
BTC is flourishing. It continues to flourish because DOJ hasn't finished its paperwork yet. If you have some - sell it while you can. A big lump of gold feels nice in the hand.
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.