Bitcoin Forum

Bitcoin was already deemed money when FINCEN started requiring MSB filings.

The interesting part of this ruling is that all the complex products out there that are derived from bitcoin will now be under regulation by the SEC.  Companies like ASICminer with public exchanges of their shares paying out dividends will now be subject to SEC regulations.  The exchanges allow for these securites to trade will now also have rules and regulations to comply with.  Any sites offering CD's or notes that pay interest will also have to pay close attention to the regulations they fall under.

I can see the argument being made that perhaps these securites are offered and solicited on the web in countries outside the SEC's jurisdiction, but any US based site or service will absolutely need to reassess whether or not they are complying with regulations.

Very interesting indeed.

My taxing authority just told me Bitcoin is not money, and they will not accept it.

It can be used to purchase goods or services, and as Shavers stated, used to pay for individual living expenses. The only limitation of Bitcoin is that it is limited to those places that accept it as currency. However, it can also be exchanged for conventional currencies, such as the U.S. dollar, Euro, Yen, and Yuan. Therefore, Bitcoin is a currency or form of money, and investors wishing to invest in BTCST provided an investment of money.

FinCEN's regulations define the term "money transmitter" as a person that provides money transmission services, or any other person engaged in the transfer of funds. The term "money transmission services" means "the acceptance of currency, funds, or other value that substitutes for currency from one person and the transmission of currency, funds, or other value that substitutes for currency to another location or person by any means.  The definition of a money transmitter does not differentiate between real currencies and convertible virtual currencies. Accepting and transmitting anything of value that substitutes for currency makes a person a money transmitter under the regulations implementing the BSA.

I pull up to my grocery store with a couple garbage bags of aluminum cans and get a receipt. I then go into the store and purchase goods and services.   I could even trade that receipt with someone else for cash and they can then go into the store to purchase goods and services.

So if I ran an investment "fund" where you send me 100 aluminum cans and I promise to deliver 107 cans back to you in a week, all of a sudden aluminum cans become securities too?    I'm hoping so, as that will make me feel less guilty each time I pick up a 6-pack of beer on the way home -- it's an investment!

But I'm presuming the form of value is irrelevant (whether it be gold, bitcoins or beanie babies) and instead the matter entirely has to do with the offering where there is the expectation for profit.

Mr. Shavers offered a scheme where investors deposited USD to Mr. Shaver and received 7% per week in interest.  While Mr. Shaver's claimed to be running a business which generated sufficient returns to pay that level of interest, in actuality he used the deposits of later investors to pay the interests and withdrawals of prior investors.  The operation had no real source of revenue.  The state filed for civil action against Mr. Shaver on the grounds that he operated an illegal ponzi scheme and an offered an unlicensed security (that did not meet any exemption from licensing in US securities law).

Well to be clear (and it may just be a typo in your example)

An investment contract is any contract, transaction, or scheme involving (1) an investment of money,

I'm wondering if launching a beanie baby ponzi would have yielded the same response from the feds.

This is a very important point likely lost in the telephone game of people generalizing statement and removing context after the FinCEN announcement.

FinCEN by virtue of the BSA have very wide (I would argue maybe too wide) authority to regulate far more than transactions involving money.  A simplified non-legal definition is that FinCEN regulates the transfer of value.  FinCEN never said Bitcoin is money, they didn't even say it is a "currency" instead relegating in their guidance to the term "virtual currency" (which doesn't appear in any statute).  FinCEN merely said that the exchange of virtual currencies for real currencies (and vice versa) as well as the exchange of one virtual currency for another (aka "being an exchanger") constitutes money transfer.  Depsite the word money in the name, money transfers involve a lot more than just money.

As you point out this was incorrectly simplified to "Bitcoin is money" but was never correct until today.

On July 14, 2004, barely two months after President Bush was forced to end NSA domestic internet metadata collection by Attorney General John Ashcroft, Kollar-Kotelly issued a FISA court order allowing the NSA to resume unconstitutional[2] domestic internet metadata collection.[3]

So bitcoin is money but gold is not money?  :D

http://www.youtube.com/watch?v=OghDOApA-1k Federal Reserve chairman bernank

Black's defines money (http://thelawdictionary.org/money/) as anything used as money, and currency (http://thelawdictionary.org/currency/) as the subset of money that has been authorized by law.  The is different from conventional usage which holds the two terms to be synonyms, only weakly defined.

The judge in this case is clearly using the two words interchangeably, consistent with conversational English, and clearly also in the very broad definition that Black held for money.


If BTCST had traded in gold coins I would expect pretty much the same ruling.  For that matter, if there was a community that used sheep as money, and he had run this scam on them, I'd fully expect the judge to interpret the "investment of money" fork of the Howey test through the victim's eyes and issue the same ruling.

Lawyers have an ethical duty to try every possible defense, so this question was inevitable.  Of course, the answer was just as inevitable, as some of us have been saying for the last few years now.  Courts mostly operate on value, and most of the value that they see is not granted by the decree of some authority, but by the perceptions of the parties involved.

Let all of the scammers be on notice.  Your defense is now solely in your ability to keep your scams small enough that it isn't worth hunting you down.  Your claims that it wasn't really theft/fraud/whatever because bitcoins aren't issued by the government will fall on deaf ears, and some of you are going to end up in prison.

Find a court precedent saying that and you might have something.  Ben Bernkake's comments are just that comments, they aren't the "law of the land" anywhere on the planet.

Wrong, more than "just comments" ... it was congressional testimony by chairman of the federal reserve, in response to a tabled question from the chairman of the senate banking committee.

So next to supreme court, senate testimony is akin to the next highest court in the land ... unfortunately senators have crapped all over that status for so long now it has as much standing now as judge judy and jerry springer re-runs ... dyodd.

It holds no legal weight

I disagree, and I already explained why.

Testimony has no legal precedent.  It never has and it never will.  Congress COULD (but didn't) act upon the chairman's testimony to codify it in the form of statute explicitly defining gold as "non-money".  Had they done so it would be the law of the land and gold wouldn't be money however they didn't and as such the testimony was just that, testimony.

If you still don't get it, well I have to conclude you are trolling.

Standby for an update on that.  The IRS evidently only just learned about bitcoin in May of 2013.

http://www.gao.gov/assets/660/654620.pdf

Developed in 2009 by an anonymous programmer or
programmers, bitcoin is a privately-issued digital currency that exists only
as a long string of numbers and letters in a user’s computer file
---
IRS is responsible for ensuring taxpayer compliance for all economic
areas, including virtual economies and currencies. One mechanism that
assists IRS in enforcing tax laws is information reporting, through which
third parties report to IRS and taxpayers on certain taxpayer transactions.
---
U.S. tax laws and regulations generally require
taxpayers to report and pay taxes on all income, regardless of the source
from which the income was derived
---
Ann plays an online game and amasses virtual tools that are valuable
to her avatar. The online game does not allow users to directly
exchange their virtual tools for U.S. dollars, but rather they can do so
using a third-party, making this a hybrid system. Ann uses a thirdparty exchange not affiliated with the online game to coordinate the
transfer of her virtual tools to another player in exchange for U.S.
dollars. The transfer is conducted by the third-party exchange and
payment is mediated by a third-party payment network. Ann may have
earned taxable income from the sale of these virtual tools.
---
Bill is a bitcoin miner. He successfully mines 25 bitcoins. Bill may
have earned taxable income from his mining activities.
---
Carol makes t-shirts and sells them over the Internet. She sells a tshirt to Bill, who pays her with bitcoins. Carol may have earned
taxable income from the sale of the t-shirt.
---
These risks are not unique to virtual economies and currencies, as they also exist for
other types of transactions, such as cash transactions, where there are
not always clear records or third-party tracking and reporting of
transactions
---
If taxpayers using virtual currencies turn to the Internet for tax help, they
may find misinformation in the absence of clear guidance from IRS.
For example, when we performed a simple Internet search for
information on taxation of bitcoin transactions, we found a number of
websites, wikis, and blogs that provided differing opinions on the tax
treatment of bitcoins, including some that could lead taxpayers to
believe that transacting in virtual currencies relieves them of their
responsibilities to report and pay taxes.
---
According to IRS compliance officials, IRS ultimately decided not to
pursue these actions in light of available IRS resources and other higher
priority needs. Also, IRS did not find strong evidence of the potential for
tax noncompliance related to virtual economies, such as the number of
U.S. taxpayers involved in such activity or the amount of federal tax
revenue at risk.
---
IRS has not assessed the tax compliance risks of open-flow virtual
currencies developed and used outside of virtual economies. These types
of currencies, generally, were introduced after IRS’s last review of
compliance related to virtual economy transactions. According to IRS
compliance officials, IRS would learn about tax compliance issues related
to virtual currencies as it would any other tax compliance issue, such as
IRS examiners identifying compliance problems during examinations or
taxpayers requesting guidance on how to comply with certain tax
requirements. To date, these processes have not resulted in IRS
identifying virtual currencies used outside of virtual economies as a
compliance risk that warrants specific attention.

Virtual economies and the use of virtual currencies intended as
alternatives to government-issued currencies are a recent phenomenon,
and the extent to which their use results in tax noncompliance is
unknown. Given this uncertainty, available funding, and other priorities,
IRS made a reasoned decision not to implement a compliance approach
specific to virtual economies and currencies. However, IRS did see value
15Although IRS has not issued guidance, another Department of the Treasury agency, the
Financial Crimes Enforcement Network, recently issued interpretive guidance clarifying
the treatment of persons creating, obtaining, distributing, exchanging, accepting, or
transmitting virtual currencies. However, such guidance does not discuss the tax
treatment of virtual currency transactions. FIN-2013-G001
in providing taxpayers with information on the tax consequences of virtual
economy transactions, a low-cost step to potentially mitigate some of the
noncompliance risk associated with such transactions. The uncertainty
about the extent virtual currencies are used in taxable transactions and
any associated tax noncompliance means that costly compliance
activities are not merited at this time. However, the fact that
misinformation is circulating and the possibility of growth in the use of
virtual currencies outside virtual economies suggest that it would be
prudent to take low-cost steps, if available, to mitigate potential
compliance risks. The type of information IRS provided about virtual
economy transactions is one model.

I pull up to my grocery store with a couple garbage bags of aluminum cans and get a receipt. I then go into the store and purchase goods and services.  I can also cash it out to dollars.   I could even trade that receipt with someone else for cash and they can then go into the store to purchase goods and services, or get cash out.

So if I ran an investment "fund" where you send me 100 aluminum cans and I promise to deliver 107 cans back to you in a week, all of a sudden aluminum cans become securities [Edit: money] too?    I'm hoping so, as that will make me feel less guilty each time I pick up a 6-pack of beer on the way home -- it's an investment! [Edit: simply my way of changing my asset allocations to diversify the forms of money I may hold].

But I'm presuming the form of value is irrelevant (whether it be gold, bitcoins or beanie babies) and instead the matter entirely has to do with the offering where there is the expectation for profit.