Bitcoin Forum

Hi Folks,

I have finished a preliminary draft of my legal paper on bitcoin. Note that it is missing some very important sections that I plan to add later, such as the implications of the e-gold saga for bitcoin, tax laws, banking regulations, etc. I am posting this early draft to get feedback from you guys. Also please note that I am not a lawyer (yet) and I am not giving you or anybody else legal advice in this paper. Furthermore, the few conclusions that I have made may change.

Please feel free to email comments to reuben.grinberg+bitcoin at gmail.

http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1817857

Best,
Reuben

Thanks for writing this paper. I hope we can read the final product. It's very well done and the introduction is both clear and accurate, if perhaps a bit long relative to the legal content. I have only a few comments.

One is that BitCoins are not infinitely divisible. They are divisible to 8 decimal places, which is an awful lot of coins but there will still be a finite quantity in existence by the time the inflation stops.

Another is that, maybe this is normal for legal papers, but putting huge quantities of text into footnotes makes it quite hard to read. Some pages are more than 75% footnote, making it confusing to follow the flow of text. It might be worth putting all the references at the end, or shrinking the font of the footnotes, etc.

The excerpts of interviews with NotHaus and the prosecutor are very interesting. It would be great to read a full transcript of these. It's re-assuring to know that they were actually focussed on counterfeiting rather than the existence of non-dollar currencies per se. The press release the USG issued was quite alarming but it sounds like this may be simply be the work of some over-aggressive reps eager for a bit of drama rather than a real legal opinion, and the real case was much more balanced than it appeared.

I think the classification of BitCoin as a security would be a real stretch. Trying to describe an entire economy as a "shared enterprise" would be an interesting test of how far you could push semantic arguments in court. But it's good to know about this set of arguments.

Comments:

1) Great paper!

2) I would mention FinCEN, BitcoinUSA, MSB's and "stored value."  See this post (http://bitcointalk.org/index.php?topic=5627.0) and this article (http://bitcointalk.org/index.php?topic=5907.0).

I hope you don't mind me citing you in my paper for my legal paper :) Though, you do have some errors, as xf2 mentioned. Bitcoins are not a security. Money is not a security, nor is it an investment.

Posting to remind myself to read later.

@[mike]: Thanks for taking the time to read the paper and for your comments!

Regarding divisibility, I have read in the forums that it would be trivial for the software to be changed so that bitcoins are infinitely divisible, although something (the software? the protocol?) currently limits it to 8 decimal places. Since there are no real policy implications (only technical ones, I think) to making them infinitely divisible, I think they are, for practical purposes, infinitely divisible.

Your point regarding the length of footnotes is well taken. I will work on that.

Unfortunately, I conducted the phone interviews with both the AUSA and NotHaus and don't have transcripts. I made handwritten notes which I then transcribed into an rtf file in shorthand. I did the confirm the quotes with the AUSA over email, though.

Regarding the securities, I myself was quite surprised with the conclusion that I reached. I am not a securities law expert, though. My law prof (who teaches securities and other classes) has promised me comments soon and hopefully they will shed light on whether my analysis is good.

@xf2_org: Thanks for reading! You are absolutely right that the MSB and related issues are extremely important (in fact, perhaps the most important issues facing bitcoin). I had planned to cover these in my first draft but realized that I wouldn't have time to do everything and also graduate. My plan is to incorporate that analysis into the next draft.

@taykaypee: Feel free to cite as long as you realize that this is a work-in-progress and my conclusions may change. Currently, I believe the best argument is that bitcoin is a security. I'm sure you know that almost nothing in the law is 100% this way or that. Courts will hear the best arguments from both sides, which include arguments based on the text of statutes; the intent of congress as shown by the text itself, the structure of the statutes, and legislative history; policy arguments; and statutory precedents. Although you are probably right that in general, "money" is usually not a security, bitoin is interesting and unique in a number of ways. It's clear that a large number of people _do_ invest in bitcoin. More importantly, when you are talking about something that is unregulated and there are people who end up getting harmed for some reason, courts are more likely to make liberal interpretations of the securities laws. For example, ponzi schemes didn't really meet the "solely from the efforts of others" requirement of the Howey "investment contract" test, but a court expanded the definition slightly so that ponzi scheme operators could be sued under the securities laws.

The protocol defines a BitCoin value as an int64, constrained by the following constants:

static const int64 COIN = 100000000;
static const int64 CENT = 1000000;
static const int64 MAX_MONEY = 21000000 * COIN;

As you can see, the maximum representable amount is 21000000 * 100000000 = 2.1*10^15, a very large number to be sure but by no means infinite.

Changing the int64 to something larger would be very difficult. Every single piece of software that speaks the BitCoin protocol would need to be upgraded. If IPv6 is any indication it'd be a extraordinary multi-decade effort, perhaps it'll even never happen. I wouldn't describe it as trivial even today ...

Fortunately, MAX_MONEY is a really huge number. According to Wikipedia the US "base" currency supply (notes and coins) is approximately a trillion dollars. A trillion is 1*10^12. The maximum amount of coins is 2.1 quadrillion BTC. So representing all the printed/minted dollars in the world would be no issue.

@[mike]: Thanks for the clarification! I'll make the divisibility issue more clear in the next draft.

So if the govt. wants to shut-down/regulate bitcoins will they also go after in-game virtual currencies like Linden Dollars, World of Warcraft, Second-Life credits, etc?

Bitcoin is really no different in essence to a virtual game, albeit with an arcane and simplistic rule set.

+1

witcoin.com uses bitcoin as a micropatronage service for sending tiny amounts of bitcoins without fees.

Do we have to send a tax form with every click of the mouse ?

At most it is a donation service. The site never touches US dollars and how can we even know which country the users or their coins come from ?

Started reading this and stopped when I got to statement that "Bitcoin is a fiat currency" .... wrong.

It has nothing to do with fiat at all ... look up dictionary definition of fiat, it means "by decree or by order of authority" ... bitoin has not been ordered, or decreed, or authorised as currency by any authority that I know of ... it is in many respects the exact opposite of an authorised currency.

Not a fiat currency, this is wrong. Fix that and I might finish the rest of it.

Saying that "software developers ensure Bitcoin's technical and money-supply properties" is inaccurate.

What ensures Bitcoin's properties is not the software, it's the conventions that the community has agreed upon, the protocol if you like.   

The actual software isn't that critical. Bitcoin does not even need an "official" piece of software. It can happiliy function with several independent clients from different developers as long as those clients adhere to the protocol. 

But even developers have very limited power to change the protocol.

At this early stage the protocol is still undergoing minor modifications but at some point it will be set in stone, and require no further "maintenance".

Even though the bootstrapping of Bitcoin did require a conscious design effort, its long term usage may not.  It is no more a "common enterprise" than the social convention that a piece of rare metal is used as a currency.

@moa: If I understand you correctly, you are asking whether, if a government wants to attack bitcoin for some reason, it will also attack virtual world currencies. Is that your question? If it is, I think the answer is generally no but it depends on why the government decides to attack. For example, if it has to do with money laundering issues, then there are probably no implications for Linden Dollars, where the founding company runs the exchange and everything is above board.

While from a technical perspective you are right that bitcoin is like a virtual game, the law looks past technicalities to substance. Linden Dollars and other virtual currencies aren't really meant to be used to buy any and all goods -- just those in-game. Bitcoin, on the other hand, is meant to circulate broadly and to be used to buy real goods. Additionally, whereas Linden (if I recall correctly) has taken steps to restrict illegal activities in second life, such as virtual casinos, no such regulation is happening with bitcoins.

Regarding your second point about the meaning of "fiat," I appreciate your feedback. Yes, the meaning of the word "fiat" is by governmental order. At the same time, "fiat money" has grown to encompass another meaning -- a currency that isn't specie and isn't backed by commodity. See, for example, http://www.merriam-webster.com/dictionary/fiat%20money. I think I made it pretty clear in the paper that even though I referred to it as "fiat" money, I was doing so because it was unbacked by commodity and not because it had the backing of a government. In any case, you might be right that referring to it that way may be confusing and I will consider changing it in the next draft.

@noagendamarket: Thanks for taking the time to read the paper. I'm not really sure how to respond because I'm not sure what you're saying or what conclusions you drew from my paper. I haven't researched and written about tax issues yet. Where certain transactions happen, who runs the business, etc.. are important issues in deciding whether the laws of this government or that government apply. The inability to enforce because of the structure of bitcoin or of a particular business is a separate issue.

@chodpaba: Thanks so much for your very insightful comments. Regarding separate block-chains, I considered writing about that in my paper but I think that is a feature of the software but that separate block-chain wouldn't be _the_ bitcoin currency -- it would be something else (such as namecoin). Those other things are certainly interesting, but don't fit within the subject matter of this paper. Of course, I can be convinced otherwise.

Your point about internationality is very well taken. The paper is very U.S.-centric. I will try to do a better job in the next draft of pointing that out and mentioning the internationality of bitcoin. I may try to touch upon laws or regulations in other countries but I don't have expertise in other countries' laws.

Could you elaborate a bit on your point about enforcement? You are saying that bitcoin being illegal won't affect its use because of its decentralized nature, if I understand you correctly. Yes, but it will affect demand for bitcoin and therefore its value. I'm not sure I understand the comparison to the cryptowars.

Regarding your trust point -- what is the implication? Is it that bitcoin is more resiliant than I've painted it to be? Or are you saying that the legal sections don't discuss the trust point? Or is it something else?

@forever-d: That is a great argument and one that I'm sure bitcoin supporters would use in any argument to the SEC or in court. I think your point that others could easily pick up development of the bitcoin client and continue parallel implementations of the software that would work just as well is a very good one that I'll incorporate into my next draft. At the end of the day, I'm just not sure that I agree with you. Yes, the protocol is in place. However, I still think people rely on and expect continual improvements to the software (and protocol). What if Gavin and the rest of the developers just dropped out -- what would happen to the value of bitcoin? My guess is that it would plummet -- until and unless another group jumped up and took responsibility. And since bitcoin's value depends on some group of people continually improving it, there does seem to be a "common enterprise." It is an extremely close question though.

Update:
My Tweet: http://twitter.com/#!/BitcoinBulletin/status/61446925005750272 (http://twitter.com/#!/BitcoinBulletin/status/61446925005750272)
Recognition: http://twitter.com/#!/dhowell/status/61465184455229440 (http://twitter.com/#!/dhowell/status/61465184455229440)
Got to love Twitter.  </update>

Update 2:
I felt like this effort was more than "Hacker News worthy," so I took the liberty of sharing it.  I also made a comment that linked back to this forum thread, indicating that you had requested feedback.  It's currently on the front page.  Here's the submission link: http://news.ycombinator.com/item?id=2480073 (http://news.ycombinator.com/item?id=2480073) </update>

Thank you, Reuben.

As we get our feet wet in the Bitcoin pool there is a considerable need for legal opinion.

Denise Howell of This Week in Law has expressed interest in covering Bitcoin but has needed a guest familiar with the topic.  It's not uncommon for her to bring on law students, so I would look into it!

Here was our exchange:  
Initial Tweet:  http://twitter.com/#%21/Fencefinder/status/44218519663017984 (http://twitter.com/#%21/Fencefinder/status/44218519663017984)
Her Response: http://twitter.com/#!/dhowell/status/46301866065276930 (http://twitter.com/#!/dhowell/status/46301866065276930)

It seems like you are a qualified guest!  I encourage you to reach out to her.

I look forward to passing along my thoughts once I've finished reading it!

Thanks again.

Edited:  Fixed broken links.  Also, this is her show:  http://www.twit.tv/twil (http://www.twit.tv/twil)
2nd Edit:  Wow, now the link is fixed, sorry.

I, for one, would be interested in translating this paper into Italian, so if it would be less usa-centric that would be great.
I'm not a layer, though, so I can't help in that domain.

Bitcoin is a fiat currency.

It is a software fiat currency, but a fiat currency nonetheless.

Correct, but conversely to all the usual fiat currencies, bitcoin is not inflatable at will.
And this is not a small difference :)

Did you look up in dictionary what the word "fiat" means?

Oxford concise, forget about the other crap.

It is not a fiat currency ... mixing technical terms with colloquialisms used by the uneducated is how the law became the subjective morass of co-opted interests that it is today. Basically there are no objective rulings anymore and you can buy the ruling you need. It is not really a justice system but a legal system ... law of the jungle is not far behind.


I do not recall seeing anywhere what bitcoin is "meant" to do .... it is like claiming that people started using gold nuggets for trade because someone stated they were meant to be used to buy real goods. So, no statement of fact, they can be and can not be used for whatever. Nice try to slip around that one but it has more guts than you think.

Regarding the use of the word "fiat"...

People are using the same word to mean two different things.

The first definition, and the one I mean when I use the word, is "money that has value only because of government regulation or law".

The second, and the one that I disagree with, is "money that has value only because people value it".

The second meaning makes no sense to me, as gold does not have intrinsic value, it's only useful as money because I know that I can trade something I have for gold, then trade gold for something I want.

That's not exactly true. Gold is a good electrical conductor and also does not oxidise, hence why it is used in electronics. It's also a good EM reflector and is hence used in satellites. NASA doesn't launch gold components into space because of its monetary value :P

Granted it's overvalued in respect to its intrinsic properties (except its scarcity), but it does have intrinsic value.

The chief developer, Satoshi Nakamoto, arleady has dropped out, and the value did not plummet.

It didn't matter because the bulk of the work had already been done and Gavin is just doing the fine tuning now.

I remember it was only about 9 months ago that Gavin was still struggling to understand the code, and now he is the chief developer. That's how fluid this community is.

Will Gavin still be the chief developer 2 years from now? Will the official Bitcoin client even be used by anyone but geek users? I doubt it.

The point is there is not one closed group working on Bitcoin, there are several independent groups.

Example: an entrepreneur in Zimbabwe might design a mobile Bitcoin client aimed at Zimbabweans. None of the developers could do anything to prevent this client from joining the Bitcoin network.  

Other example: Someone writes a client designed for storing DNS assignments or other non-monetary transactions in the block chain. Again, nobody could prevent that client from joining the network.

Other example: There might be several competing block chains in fututre, some deflationary and some inflationary, to cater for different ideologies.

We simply do not know Bitcoin will be used 3-5 years from now. If other disruptive technologies are any measure, it's likely to be used by a diverse group of communities, for diverse purposes, some very different from the original intent, some of which we can't even imagine right now.

It's unlikely though that there will still be a "common enterprise".  

@spenvo: Thanks for reaching out to This Week in Law for me. I am a bit busy studying for finals and getting ready to move at this point, but I will reach out to her in a month or so. I also want to make sure I have done my research on one of the most important set of legal issues -- money transmitter registration, money laundering regulations, etc.

@forever-d: You make a very cogent and persuasive case. (BTW, has Satoshi actually dropped out? Can you post a link to something on the forums that confirms that?). I will incorporate your arguments into my next draft, although I'm still not convinced.

@moa: When I said that bitcoin is "meant to circulate broadly and to be used to buy real goods," I was looking at what people are actually doing with bitcoin (trading bitcoins for actual goods and services on bidding pond, the OTC market, and with businesses that take bitcoin) and what people are advocating for bitcoin on these forums and elsewhere (many are trying to encourage businesses to accept bitcoin; someone is taking a cross-country trip trying to use only bitcoins; someone else is working on a bitcoin-based point-of-sale system). Furthermore, I think if you look at Wei Dai's b-money proposal and statements attributed to Satoshi, you'll find that they evince an intent that bitcoin be used as competitor for fiat currencies in general, and not just, say, online.

USDv6! I like that!

I don't know if it would be useful or not, but you may be able to draw some legal parallels between bitcoin and the recent development of an emerging market for IPv4 addresses.  See http://www.networkworld.com/news/2011/042511-ipv4-sales.html?hpg1=bn .

IPv4 addresses are starting to gain monetary value on their own, even though they are a purely virtual commodity, because they are in demand and there is a limited supply of them.  There will never be any more IPv4 addresses created, and the world has essentially run out of unassigned ones.

Very, very good point ... in many essential legal respects bitcoins are exactly like Ipv4 addresses.

There is a network of peers maintaining the assignations  (the DNS servers), they are limited in number, and now they are trading.

We just need a client well suited to swapping IPv4 addresses amongst users and some industrial strength security, to make it more bitcoin-like.

All value is imputed by human action.  Nothing has intrinsic value in the economic sense of the word.  Gold has value because human desires give it value.  This is the diamond/water paradox.

The one major issue I have is in calling bitcoin a fiat currency.  That is completely inaccurate...you might think people view that term to mean that it is not backed by a commodity, but even if that were the case (and I would strongly argue that it is in fact not the case), it does not make it correct.  A fiat currency is a currency that has value only because of government regulation or law.  Period.  And that absolutely is not the case for bitcoin.  In fact, one of the essential attributes of bitcoin is that no one is forced in any way to ascribe any value to bitcoin.  I would encourage you to start with a definition of fiat currency.  Then talk about commodity backed currencies.  And then describe bitcoin, which is neither a fiat currency, nor backed by a commodity (but which does have certain properties that, based on the evidence, does give it value).

Please correct this mistake.  Otherwise, I think it's a very good paper.

You are mistaken.

Bitcoin is a fiat currency.  Call it software fiat, as I do.  Or satoshi-fiat.  Or community-fiat.  Or miner fiat.

But it is definitely fiat currency.

stopped reading right there.
Fiat money is money that has value only because of government regulation or law
bitcoin is money by "consensus", U.S Dollar is money by "decree"

I didn't go to Yale Law or anything but aren't the meaning of words an important aspect of law?
In fact I would say law includes the interpretation of language ;)

What exactly is your definition of fiat currency?

People are using two different definitions of the term - "currency given value by government decree" or "currency not backed by specie". Unless you can prove that your definition is the only correct one, why not try a little less arrogance?

The word fiat, on the other hand, is pretty unambiguous. Literally translated, it is "let it be done", and it implies the imposition of will by some sort of authority, such as a government. Fiat currency then implies to me a currency backed by threats of violence, such as government issued paper money. Even if you make an agreement with an individual that payment for services will be made by gold, he can still take you to court and force you to accept federal reserve notes. That is fiat.

I can't kind of see how "let it be done" could be taken to mean anyone declaring that something is of value, but if that is the case, everything has value only by fiat. Gold is fiat, Bitcoin is fiat, sea shells are fiat, and yap stones are fiat. Seems like kind of pointless stance.

It is the imposition of the software rules.  Try to change bitcoin's software rules, and you'll realize it's a fiat currency.

I don't see how that has anything to do with the question of the source of Bitcoin's value, which is at the heart of the fiat question. Still, does the imposition of the rules of nature make gold a fiat currency?

This is a valid point, what you are really arguing here though is that the software development group of bitcoin are somehow a recognised "authority" ... if you can classify them as an authority, then yes you are right, it is by their decree, or rules, that bitcoin is fiat.

Now how do you go about arguing that the software developer group of bitcoin are a legitimate authority?

Definition of authority, as used in the context of fiat, not quite a match but maybe ...

The software development group isn't an authority in the manner in which you think.  They are only an authority in the sense that people have a certain amount of trust in the software they produce.  Also, there is no one software development group...there is different bitcoin related software and different bitcoin clients that completely unaffiliated people are creating.  They do not possess any unique position to influence the operation of bitcoins than anyone else.  The software development group does not have the ability to unilaterally change the bitcoin protocols without convincing the network of people using bitcoins of the merits of such a change.

It is in fact mathematics and physics that govern the bitcoin system.  You only have to trust that your computer runs the code correctly, that the mathematics are sound and that there aren't major flaws in the code.  And, you don't necessarily have to trust those things...to the extent you are knowledgeable in those subjects, you can verify it.

And, here are a few definitions of fiat money in case you are still unconvinced:
http://en.wikipedia.org/wiki/Fiat_money ("Fiat money is money that has value only because of government regulation or law.")
http://www.investopedia.com/terms/f/fiatmoney.asp  ("Currency that a government has declared to be legal tender")
http://dictionary.reference.com/browse/fiat+money ("paper currency made legal tender by a fiat of the government")
http://www.answers.com/topic/fiat-money ("Legal tender, especially paper currency, authorized by a government")
http://www.thefreedictionary.com/fiat+money ("Legal tender, especially paper currency, authorized by a government")

I think it would be a shame if you didn't at least devote a paragraph to the definition of fiat money (and preferably go on to explain how bitcoin is not a fiat currency, but has no commodity backing...but at a minimum, mention that there are many that would vehemently disagree with its characterization as a fiat money).

Steve:

Yes all very convincing arguments. Particularly that the bitcoin protocol is not dictated (decreed) by an authority but is rather a set of mathematical, programming standards.

The clincher for me is that bitcoin is not "Legal Tender", this is almost a necessary condition for a fiat money.

Surely, a fiat money has to have a "Legal Tender" legal classification?

I say bitcoin is not a fiat money.

Many convincing arguments here that Bitcoin is neither fiat nor commodity backed. I'll let them speak for themselves. But I would like to underline that regardless of the definition of fiat, I would be careful about using it because there is a large group of people who connect fiat and 'debt based money' or 'inflate at will money' and specifically use the term to denote this inflation weakness.

Since BitCoin does not have the inflation weakness, it muddies the water a little bit to describe it as fiat, whether that's technically correct or not. Better to refrain from that particular term at all and just be explicit for maximal clarity in writing.

Bitcoin is democratic.

It does not have a central bank to inflate the currency at will -- but a majority of clients and miners can choose to inflate the currency at will, change the maximum from 21M to 1000M, etc.

Of course, most current bitcoin users like the 21M / 50 BTC / etc. software rules, so they are unlikely to change.

But the rules can change.

I should perhaps have said "easily inflate at will" rather than just "inflate at will" - indeed, if there was large and widespread will, BitCoin could inflate. None the less I am fairly sure "easily inflate at will" is what people think of when they hear fiat.

Yes, but not by a legislated decree.

I.e. not Legal Tender, not by fiat.

Drop the fiat terminology and all the baggage that goes with it and you're good. It's technically insufficient or misleading at best anyway

Hi all,

Thanks for the continued discussion and sorry I haven't responded promptly. I'm in the middle of studying for finals.

Let me say that although I think there's a good argument calling bitcoin "fiat" (as I mentioned in an earlier post), that word seems to confuse more than clarify. I will probably not use that term in the next draft and may allude to the discussion (of fiat vs. not) in the footnote.

Best,
Reuben

Reub,

I'm with Moab on this. From my recollection of economcs, the term that people should be using is a *Fiduciary* issue currency. This is a currency that is not backed by any commodity, but is also not necessarily by government decree or fiat.

Moreover, bear this in mind, most government "fiat" currencies are "legal for all debts both public and private". Can you pay your taxes with bitcoin?

Although you could argue that bitcoin is a de-facto currency, you could just as easily describe bitcoin as a "digital good". I could barter my not-valid for tax, not backed by anything digital "good" for another digitial good, service or real world good.

You may also want to look into the BIS (bank of international Settlements). They decide if a currency is "recognised" by the various central banks for trading around the world. Banks are unlikely to accepted it since it is an anethema to them; banks make their money by having the *monopoly on the creation of currency and the interest derived thereof*.

I'm nore sure if you are aware but the nascent stages of bitcoin came out of the anarchist community, here is the original article by Wei Dai.

http://weidai.com/bmoney.txt (http://weidai.com/bmoney.txt)

Also the author of bitcoin in his paper who acknowledges Wei Dai,

http://www.bitcoin.org/sites/default/files/bitcoin.pdf (http://www.bitcoin.org/sites/default/files/bitcoin.pdf)

posits one of the uses of bitcoin is to *avoid going through a financial institutions*.

In other words bitcoin is *political*. In a sense bitcoin is the "garlic" to the blood sucking vampire banks/big government. As a lawyer though I expect that financially (at least in dollars:P) it would be best for you to side with the banks to see how you can either tax or regulate away innovations such as bitcoin.

Despite being bitcoin being international, the banks exert significant influence on governments world wide though their existing debt based ponzi currency which they loan to governments, and harvest the interest back via tax. Being able to *avoid* the banks currency, and governments unfair taxes by using a third party currency will not be exactly popular with the ruling olligarchies. Note people are not doing anything *illegal* ....YET. By using bitcoin they are simply voting with their feet for a better system.

Maybe after you graduate you can help stop this by drafting laws to make up new crimes; if you represent the "right" interests this could be very profitable. Since you are in the US, I'd not be suprised to see the "Patriot Act" expanded to brand more harmless people as "terrorists".

In a nutshell, bitcoin is not a "toy", some people see it as a *political tool* to reduce the power of overbearing, bloated central governments and the associated banking olligopolies.

Fiduciary.

That's the word I was looking for, had forgotten that one.

That's what bitcoin is, it is a fiduciary currency. Thanks gareth69, nice post, good clarity of thought on the political situation surrounding bitcoin. Time for ethical lawyers and law-makers to stand up and not get co-opted by the oligarchs. The technologists have supplied bitcoin, look after it.

Heya Reuben, here's my feedback on the paper as a layperson.
  
First, digging a bit deeper into the consequences of securities regulations being imposed upon the Bitcoin economy would be relevant.  It would also be helpful if you could give the layperson (the BTC "businessman") a starting point for self-education on what you feel is relevant case law.

Now, I just have questions:

Is exchanging basic goods or services for a "security" or "investment contract" a foreign idea to the local grocery store or web service provider?  How often does someone go into a store and get a cup of coffee in return for giving a "security?" (As opposed to a unit legally defined as a "currency.")  

Perhaps I'm just overlooking an obvious (everyday) security-for-goods analogy that exists on a micro-level in the US economy.  For example, as far as I know, buying something on a credit card could be analogous to buying something with a BTC-security--(maybe credit is considered a security or investment contract).

If the US economy is structured around laws that make it easy to get 'x' with USD, what funky repercussions would come out of getting 'x' with BTC?  Would I collect sales tax in the same manner?  Would the big differences come out in the wash on tax day--or--would doing business in accordance with the law be so dragged down by securities regulations that it would prohibit the purchase of a stick of gum with BTC in the first place?  

My point is that as a very simple-minded person, when I hear the words "securities law" -- I immediately think of the SEC -- and I don't typically think of the SEC as an institution worrying about the kinds of everyday transactions that Bitcoin might ultimately end up facilitating.

Sorry if you were expecting an analysis of your legal opinion--that effort fell flat on its face.  But addressing the above points might be useful to the Bitcoin community.

Total global private financial wealth was recently estimated at about $100 trillion by Credit Suisse. (Another $100 trillion for non-financial wealth, mainly real estate).

Is the max 2.1 quadrillion BTC, or 2.1 quadrillion sub units of BTC? I'd understood there were max 21 million BTC.

One issue is that you could end up with very clunky transaction amounts to handle.

Paying 0.00000000002 BTC is as impossible to read as paying 500000000000 Zimbabwe dollars.

So here's a business idea. Someone would create a new bitcoin backed currency with fewer zeros. Most likely a bank that would charge a fee!

It's not really necessary, if those small amounts become the most commonly used, client software could just shift the decimal place over. So 0.00000002 BTC becomes 2 Satoshi.

ah ha!

or maybe 2 splitcoins

Spenvo and I had some back and forth on the issues he brought up and settled, I think on the following:

First, it's difficult to understand the claim that bitcoin is a security without knowing what impact that will have. Will it affect miners, software developers, exchangers, speculators, businesses accepting bitcoins, and consumers using bitcoin to make purchases all in the same ways or in different ways? These are important questions that I will try to get to in my next draft, although I can't promise anything.

Second, the tax implications of bitcoin are important, and I hope to get to them.

(Spenvo - I hope I haven't misconstrued our conversations).

@moa and @gareth69: the fiduciary suggestion is an interesting one that I will consider in more detail although the word "fiduciary" carries a lot of legal baggage with it that I think will probably make it inappropriate. For example, a "fiduciary" usually has a number of fiduciary responsibilities to the beneficiaries of the thing in question, and must act solely in their best interest -- and can be sued for failing to do that in court. Do you guys believe that, e.g., Gavin should be treated like the director of a corporation (who, in general, have fiduciary obligations to shareholders), sueable whenever he does something that some bitcoin holders believe is not in the best interests of bitcoin holders? Anyway, I'm not dismissing this idea out of hand, but I just want to point out that it is fairly complex and would have many consequences, some perhaps unintended.

I would also like to thank the several individuals who acknowledged my paper by donating a total of about 7 BTC - enough for dinner and a drink under current exchange rates!

Give me a tip jar and I'll put something in it.

Check out http://bitcointalk.org/index.php?topic=7373.0 (http://bitcointalk.org/index.php?topic=7373.0) and give some feedback.  Are you graduating this year?  If so maybe when you have your juris doctorate you could look me up, and maybe we could round up some btc for a solid legal briefing.  Maybe FTC laws and monetary policy is an aspect of law that you have an interest in now.  One thing for sure is that if this goes someplace you have a big leg up in a marketability standpoint to the financial law firms of nyc.

Good job!

Yes, use your knowldege wisely ... don't go over to the dark side.

Reuben,

Did you consider the first amendement implications should the government try to restrict bitcoin?  When you spend bitcoins, you are quite literally doing nothing more than announcing your intention to do such to the world.  It is really quite a beutiful thing when you think about it.

- Stephen

As a physics nerd, I'd be partial to calling them nano-Bitcoins. So, 0.00000002 BTC would be 20 nBTC.  :D

I think the term nanobitcoins is a good one, but it should not be used unless/until the base unit of Bitcoin is made smaller. Otherwise, there will be a regular new FAQ: "I want to send someone a nanobitcoin but the system won't let me".

Still, even today it's hard to send 0.001 coins ("the system won't let me", sort of) and it's okay. So perhaps an inability to send a nanobitcoin will just as easily be accepted.