This really should not be a surprise to anyone. If Bitcoin is not already illegal (and I have reason to believe it is due to most states' money transmitter laws), it's almost guaranteed that it will be soon.
I doubt Bitcoin will be made illegal. By itself, the Bitcoin network is just a mechanism for passing around signed messages and calculating hash values. It would be difficult to outlaw that without running into constitutional free speech issues.
Where Bitcoin might run into trouble is the trading of bitcoins for dollars or commodities. Depending on how bitcoins are classified legally, there may be additional regulations that sellers or buyers of bitcoins need to adhere to. However, because bitcoins are so different to any existing currency or commodity, I think we'll need to wait for a court to decide whether they fall under any existing regulation, if at all.
While I am sympathetic, this is the same sort of argument that was made in the past with napster and the trend of later laws has been to hold "enablers" liable (at least when it comes to copyright). Given what happened with egold I would not have much faith that the US (and western world) legal establishment will tolerate something like bitcoin. But who knows, maybe we'll get a judge who is willing to make fine distinctions from technical arguments, or is more favorable on free speech vs the interests of those who currently control the flow of capital.
Follow up:
egold plead guilty to "operation of an unlicensed money transmitting business". While I'm not familiar enough to say definitively if bitcoin could avoid this same statute in the US, I'd guess not.
Napster had a centralized search engine. Later P2P networks, like Bittorrent and Gnutella are decentralised, and no-one has yet declared those technologies illegal.
Even more so than Napster, E-Gold was very centralized, and thus an easy target. Bitcoins are an entirely decentralized network like Bittorrent or Gnutella, which have not been declared illegal.
Where Bitcoin might run into trouble is the trading of bitcoins for dollars or commodities.
But even if trading was made clearly illegal in the U.S. all that we need is a company abroad under benign legislation that allows you to buy/sell bitcoins and that accepts credit cards.
You're right that you obviously can't make it illegal to perform mathematical calculations over big numbers. Also, you can't make it illegal to interpret the result of the calculations or giving them a context.
But I think you can't make it illegal to trade bitcoins either: if everything else fails we can always have bitcoin trading parties where the participants can exchange bitcoins to money and money to bitcoins with no third party in the middle.
E-Gold was a private organization that allowed people to open anonymous accounts backed by gold. I can see how this could be construed as a bank.
Bitcoins are not backed by anything, and are not managed or owned by any organization. I don't think you could classify the Bitcoin network as a "bank", any more than you could classify any random crowd of people as a bank.
E-Gold was a commercial enterprise with only 20 employees and no legal team. Very easy to take down. It will be hard for the feds to take down a P2P network, although very easy for them to police e-commerce sites that accept it.
You can have separate addresses (accounts) for every transaction, which makes tracking much harder (not impossible). Oh, you can also launder your bitcoins. :-)
See https://en.bitcoin.it/wiki/Anonymity
The transactions are pseudonymous - a public key of each participant is recorded, and world readable. The public key doesn't have to be connected to a real world identity. An attacker could analyse the transaction history to infer the identity controlling a given key, depending on how it was reused/managed.
But this can actually be pretty difficult to manage correctly.
While "best practice" is to generate a new btc address for each transaction, there are still ways to attempt to profile users even if they use that rule. For instance, if someone knows you like an esoteric thing, and they know you have a lot of bitcoin, they can look at people buying things from public addresses (most shops or established bodies have permanent addresses for receiving) that are associated with esoteric thing, and say it's likely that you were purchasing at least some of that. They can do other filtration and process-of-elimination things to find out who is using what, or where something comes from.
Additionally, if the wallet of one who you've traded with in the past is compromised, even if they were using single-transaction addresses, the attacker may be able to fill in some missing links in the chain, especially if the wallet's owner has recorded anywhere a translation from btc address to useful memo/accounting data. Imagine if UBL used btc and the Feds got his wallet; everyone downstream would be hunted with some serious prejudice.
I should clarify that in bitcoin, the entire transaction chain from the time the block is generated until the last time it is used is recorded forever. Once you send from an address to another address, that transaction is ingrained in btc for the remainder of its existence, and every coin you receive has a long history that shows all of that. While the names are long hashes and not things like "TERRORIST KINGPIN -> INNOCENT BUT NOW SUSPECT GUY", there are some ways to put something like that together, and they're not all obvious.
Like, "Bitcoin is anti-American" or "Bitcoin will be used by heroin dealers who will sell your daughters into prostitution"
If bitcoin is a means to circumvent the tax system, then we'd have to apply whatever tax regulation that results to all other forms of currency. Social Security is an illegal pyramid scheme because it wasn't sold to the American public that way.
Let's start applying the law equitably before we stomp on innovation.
Well, it is already being used by drug dealers (see Silk Road). In fact, if you have bitcoins it's probably easier to exchange it for illegal drugs than for food.
No the US dollar is the legal pyramid scheme and the point is that nothing can compete with that part of the dollar.
That is, any "money" is both a medium of exchange and a store of value. It's OK to compete with the dollar as a medium of exchange but if you compete as a store of value, then you've wandered into some heavily guarded turf...
Actually there's a lot of doubt. Bitcoins are not a pyramid scheme, and whilst they could be used as a method to circumvent tax, any skilled accountant can already suggest a dozen other means to achieve the same thing.
Bitcoins are probably most at risk from being classified as a type of security, which would put them under the scope of a large number of financial regulations. It wouldn't make them illegal, but it would make them more difficult to trade.
However, in general I'm optimistic about Bitcoin's chances. I certainly don't believe it is inevitable that they will be regulated out of existence.
So essentially you're saying they can't make bitcoin illegal, just make it completely illegal to use in any practical manner. That sounds like making bitcoin illegal.
Regulation does not necessarily mean "make it completely illegal". Food is regulated, but that doesn't mean the government has made it illegal (or even difficult) to eat.
In some countries (eg UK) prostitution isn't illegal. It's just illegal to ask for money for sex, its illegal to imply you'll pay someone for sex, etc. that sounds like what the government could do to bitcoins. As a result prostitution is de facto illegal.
Yes, the government could do that, but it's not guaranteed they will. My point is merely that regulation does not necessarily mean making something completely illegal.
I don't see much point in this kind of rationalization. We know that it's probably not technically illegal to run the bitcoin network. I'm sure they'll find some way to postulate that btc as a currency is technically illegal, but even if they didn't, you have to know that everything that is big in government and the power scene right now is going to collude to take btc out of the picture as far as possible. They are going to marginalize and destroy it as much as they can.
The government hates it because it's difficult to track the money; they'll claim it's used for terrorism, money laundering, and other forms of illegal funding, and as you know, once such a claim is solidified in the public psyche it doesn't really matter what statute the actual legal charge is based on. They'll also hate it because it makes taxation much more difficult. You may argue that cash does the same, but cash still originates and terminates in the government's officially sponsored banking system and it bears official government markings that are used to track its movement. Cash has also been (intentionally) corralled into disuse by the major financial players (governments, banks, huge businesses).
The banks will hate it because it cuts them out of their usual money-shifting shenanigans, which are both obscenely profitable and generally amoral, if not in principle, then in practice due to gouging and misrepresentation.
Bitcoin allows easy and practically free e-commerce. Bitcoin allows for extremely innovative new banking interfaces and practices. Bitcoin is at least practically if not technically unbound by the onerous regulations and rules that bankers have installed for themselves to help control which people are allowed to play with them. Banks aren't going to like that kind of competition at all.
Bitcoin is in for it as soon as any kind of normal usage begins to occur. It is silly to pretend otherwise. I have extremely high doubts that btc will be allowed to stand; the only way I can see that happening is intervention from US intelligence services, requesting that btc be allowed to continue to operate without molestation because of that agency's specific plans for the platform.
I don't subscribe to the theory that the US government is a nigh-omnipotent entity that always gets its way. There are plenty of things the US government doesn't like that it has to live with, such as strong cryptography, pornography and P2P networks.
I also really dislike the fatalistic attitude that those in power will always get their way, and that we should never try to change the status quo because we will always fail.
I don't think that the government gets whatever it wants and I don't think the people will always fail against the powers that be. However, I don't think there would be enough interest in bitcoin to make it outlast the interest the government would have in killing. The government and banks really hate this kind of stuff, it's not just a passing "that'd be nice to get rid of" thing.
Perhaps, but that doesn't mean that we shouldn't try. I'm also unsure how much of an interest the government has in killing it.
Bitcoins are not inherently anonymous, and in some ways it makes things easier for law enforcement, because all transactions are public and accessible without the need for a warrant. The hard part would be matching a Bitcoin address to an individual or organization, but maintaining anonymity against a determined investigator is hard, and requires a high degree of technical expertise to pull off. I don't think Bitcoins actually make things any harder to find criminals.
By that argument, EVE Online's PLEX should be illegal as well, as it is transferrable and exchangeable for something of monetary value (a subscription).
Again we're running into the geeks-trying-to-understand-the-law problem -- they always expect the law to be as sensible and self-consistent as geometry. But the law has no patience with reducito ad absurdum, and judges and lawmakers are quite happy to declare that X is legal and Y is illegal even if in some sense Y is really analogous to X.
As far as alternative currencies go, my understanding is that they're illegal under US law but you can get away with them on a small scale. The moment they reach a large scale or start getting used for money laundering, though, expect to start having legal problems, because the US Federal Government has reserved to itself the right to print currency.
Apple is wise to stay out of it, with the potential for legal trouble outweighing the potential profit from app sales.
"Again we're running into the geeks-trying-to-understand-the-law problem -- they always expect the law to be as sensible and self-consistent as geometry."
Well, there's only one solution then—we need to get more geeks in office.
Edit: Real geeks, not the "I own an iPad" that passes for geekery in Washington.
Who says that things that aren't a problem need to be made illegal because something analogous is?
If they choose to make BitCoin illegal, due to anti-laundering laws, etc, should your iPhone game not be allowed to use credits either, even though it's so small nobody would bother abusing it?
It's not a problem requiring a solution, it's merely an observation. If a bunch of over-logical geeks were to sit down and try to draft a new set of laws which were completely unambiguous and free of arbitrary cutoffs and nonequivalent treatment of equivalent situations then they'd never even get past questions like
"Precisely how far from the end of my nose does your right to swing a fist end?"
Without arguing with your specific wording of "completely unambiguous and free of arbitrary cutoffs etc.", I think the implicit point you're making that a group of highly intelligent people couldn't sit down and come up with a significantly better new set of laws "from scratch" is wrong. I think they could, if that were their only aim, vastly improve laws and government with a noticeable improvement on average quality of life in the world. The obvious problems and the reason this won't likely happen soon are politics, power, trust, etc.
I think the chances of finding a group of highly moral, highly impartial, highly intelligent to work together to set up a new system of laws "from scratch" with no other goals than to produce a better system of laws and improve the average quality of life is practically nil.
Although the US system is far from perfect, I think Jefferson, Hamilton and Madison did a pretty darn good job of all that.
Nah, they'd do an analysis and say that it ends at exactly 1 cm away from the end of one's nose or whatever.
Then people would complain that it wasn't fair, because they intended to stop at 1 cm, but actually stopped at 0.99 cm and that should be close enough. And then someone would try to drag relativity into play and question what reference frame we should be measuring that 1 cm in and things would go downhill from there.
Why are "alternative currencies" illegal under US law? AFAIK the only thing that's illegal is refusing to accept US$ as payment if you accept something else. For example, people can spend foreign money (GBP, Euros, etc) inside the non-international parts of airports. Also, people can transfer their USD to foreign currency and vice versa over the internet and at banks. Is there something different about bitcoin than say zimbabwe dollars? If anything, they're probably safer. As an aside, USD are accepted many places outside of the US in lieu of the local currency. I imagine there would be similar laws in those countries, but yet it's acceptable there.
Jct: They're not. Ithaca Hours. Berkshares. Timedollars. Lots of legal models. What's illegal is making the tokens look like the real thing. Why else would he do it in such an illegal way as to incur the wrath of the government. I think Liberty Dollars was a Judas Goat effort to bring the government down on the whole alternative currency movement.
This is true to varying degrees under different regimes. Of course you're never going to have perfect and consistent justice, but if you're interested in avoiding a police state it's a good idea to keep the law self-consistent and regularly enforced. Otherwise, everyone's a criminal and the state will take the opportunity to put its enemies in prison.
There is a difference a token that is convertible for one, given thing and a token which is convertible into anything and traded with the intention of making transferable into anything.
And, yes, while IANAL, I know a lot of the law turns on the intentions behind a given act rather than the act-in-itself. This seems counter intuitive to geeks but its not likely to change soon.
Why would it be illegal if bitcoins are never exchanged for dollars?
I know it's totally utterly contrary to human nature, but if everyone got up tomorrow and left their wallets at home and took things from stores with the consent of the owner and went to work, but received no pay, and stood in line at the soup kitchen and did not take from stores if they felt they had not contributed to the society, would that be illegal too?
Think about it for a while. Sometimes we lose sight of what money actually is.
It could actually be illegal if it would turn out to be a scheme for evading tax payments. For example I think you can not simply start exchanging goods for services and quit paying taxes because you don't make money - somehow you have to make a statement to the tax office.
Try this on for size: if someone offers to trade me a week of their time for a week of my time (do NOT do this, please, as it makes little sense for me and even less for you), and I say yes, then I have a legal obligation to a) declare the fair market value of your time as income I received for services and b) file a form with the IRS saying that I paid you something of value equivalent to my usual consulting rate for the week. You then get taxed at your usual rate on that implied income, despite no dollar changing hands. (That would almost certainly be several thousand dollars in taxes.)
If this is illegal, then I think there's a freedom of speech issue here given that essentially the protocol is just sending messages (with no copyright infringement or anything like that) to peers...
Edit: of course, you could say the same about other digital transmission of currency, but it seems different due to bitcoin not being tied directly to any "real currency". Then again, IANAL.
With this message, I hereby transfer to jnhnum the sum of $12.54 out of my checking account.
(Translation, since that's probably a bit subtle to just throw out there: In the process of abstracting money transfers as "just sending messages" your abstraction has leaked critically important details. There's more to money transfers than "just messages", and it is precisely those differences that are why you will not be finding $12.54 from my bank account in your account as a result of this "message" that I have just sent. Your abstraction is not a good one for any purpose, practical or rhetorical.)
Citizens United (the decision that allowed corporations to make unlimited monetary contributions to political organizations) was justified by the first amendment. A check or promissory note is a message, transferring money, and is a form of speech. Where you spend your money is protected free speech.
Your criticism is logically backwards. Transfer of money is not just a message. It is a message, plus some other things that make it also a transfer of money. You can't reduce it to just a message being passed. It is a message, it is not just a message.
When does money start to become "real currency"? Numbers on an ATM machine are only representative of the physical currency that I can extract from a bank. A message on an IM window could essentially mean the same thing: "Thanks for helping me move my couch, I'll get that $20 over to you by tomorrow".
So at what point does the rubber meet the asphalt and how will Apple enforce this down the road?
We don't have 'money' anymore, we have currency. USD is not money, it's currency and fiat currency at that. US Dollars are backed by an obligation to give you more US Dollars in the future.
If you had liberty dollars then you'd have money.
To directly answer your question, money becomes currency when you transfer representations of value instead of value.
(eg. A piece of paper obliging the barer to receive something of value)
Pennies, especially pre-2000 pennies would be considered money as the store of value is the metal not the face value.
"Money is any object or record, that is generally accepted as payment for goods and services and repayment of debts in a given country or socio-economic context."
This is in line with most actual usage of the word. Bottom line, you're just playing silly semantic games. It is useful to understand the differences between different types of money, but claiming that something is "not really money" based on your own private definition of money does not add to the discussion.
Actually I juxtaposed the definition of money and currency. The distinction is important. Money is a superset of currency and I got that wrong.
Most people think that playing the lottery is an investment strategy for retirement, I would not trust what most people think when it comes to economics. Little semantic games are hugely important to people. Look how pissed everyone gets when MS describe the MSPL as 'open source'.
Actually, my own private definition does add to the discussion, when enough people connote a word to have a different meaning it changes the definition of a word, all based on their own little private definitions of words.
Your views on semantic contexts are 'fantastic'. I'd suggest you look that one up on the OED if you want to understand the definition I'm using, most people would get it wrong.
Where Bitcoin might run into trouble is the trading of bitcoins for dollars or commodities. Depending on how bitcoins are classified legally, there may be additional regulations that sellers or buyers of bitcoins need to adhere to. However, because bitcoins are so different to any existing currency or commodity, I think we'll need to wait for a court to decide whether they fall under any existing regulation, if at all.