U.S. Judge determines bitcoin is a currency

[DannyHamilton]

the precedent with this particular case is that
- snip -

This case isn't over yet.  There is plenty of time for both defense and plaintiff to make a variety of arguments about what bitcoin is or isn't.  How bitcoin is defined, how its value is determined, and how ownership is determined could all play a part in this case.  There is no way to know for certain what precedent will be set by this case until after it is over.

[Serge]

Well sadly FinCEN guidance doesn't just stop at third party funds they include second party as well (but only for Bitcoin) so that was not entirely expected.

Example:  you send money to BCB by WU.
you ----> WU -----> BCB  
Obviously a Money Transmitter.

Example: you exchange USD for Euros with a currency exchanger at the airport.
USD:  You ----> Broker
EUR:  Broker ---> You
Not a Money Transmiter.  It is a MSB (dealer in foreign currency) but the rules at the state level are negligible compared to a money transmitter

Example: you exchange USD for BTC with a BTC dealer/broker (coinbase)
USD:  You ----> Coinbase
BTC:  Coinbase ----> You

Between the three scenarios, the later two have far more in common then the first one.  The last two only involve two parties (a business and its customer) while the "classic" MT example Western Union involves three parties (sender, MoneyTransmitter, receiver).  However FinCEN ruled that an exchanger of virtual currency is a money transmitter while an exchanger of real currency (under MSB regs of BSA) is NOT a MT but a different class of MSB.

This is the result of FinCEN trying to force a round peg into a square hole.  

this is interesting and you have a good point. but if you take MtGox for example there are no You << >> MtGox exchanges, there are You authorizing MtGox to handle your funds and matching orders on your behalf with other party's orders - clearly a transmitter, such as paypal btw.

[Serge]

the precedent with this particular case is that
- snip -

This case isn't over yet.  There is plenty of time for both defense and plaintiff to make a variety of arguments about what bitcoin is or isn't.  How bitcoin is defined, how its value is determined, and how ownership is determined could all play a part in this case.  There is no way to know for certain what precedent will be set by this case until after it is over.

On this we can all agree. except i don't think it's important in this case how bitcoin is defined to be honest.

[DeathAndTaxes]

Well sadly FinCEN guidance doesn't just stop at third party funds they include second party as well (but only for Bitcoin) so that was not entirely expected.

Example:  you send money to BCB by WU.
you ----> WU -----> BCB 
Obviously a Money Transmitter.

Example: you exchange USD for Euros with a currency exchanger at the airport.
USD:  You ----> Broker
EUR:  Broker ---> You
Not a Money Transmiter.  It is a MSB (dealer in foreign currency) but the rules at the state level are negligible compared to a money transmitter

Example: you exchange USD for BTC with a BTC dealer/broker (coinbase)
USD:  You ----> Coinbase
BTC:  Coinbase ----> You

Between the three scenarios, the later two have far more in common then the first one.  The last two only involve two parties (a business and its customer) while the "classic" MT example Western Union involves three parties (sender, MoneyTransmitter, receiver).  However FinCEN ruled that an exchanger of virtual currency is a money transmitter while an exchanger of real currency (under MSB regs of BSA) is NOT a MT but a different class of MSB.

This is the result of FinCEN trying to force a round peg into a square hole. 

this is interesting and you have a good point. but if you take MtGox for example there are no You << >> MtGox exchanges, there are You authorizing MtGox to handle your funds and orders on your behalf with other parties - clearly a transmitter, such as paypal btw.

I agree although ironically again Forex companies are not MT they are broker dealers.  Still if FinCEN articulated third party that would at least be consistent with existing classification.  However FinCEN didn't leave the line there.  They went with ANY exchange (unless exempt) of real currency for virtual currency or virtual currency for another virtual currency they felt the need to include virtual to virtual yet real to real is not consider a MT by existing law.

The funny (if it wasn't costing me a small fortune) part is that means it works like this (unless an exemption applies):
Exchange Virtual Currency for Virtual Currency = Money Transmitter
Exchange Virtual Currency for Real Currency = Money Transmitter
Exchange Real Currency for Virtual Currency = Money Transmitter
Exchange Real Currency for Real Currency = Not a Money Transmitter

[DeathAndTaxes]

the precedent with this particular case is that
- snip -

This case isn't over yet.  There is plenty of time for both defense and plaintiff to make a variety of arguments about what bitcoin is or isn't.  How bitcoin is defined, how its value is determined, and how ownership is determined could all play a part in this case.  There is no way to know for certain what precedent will be set by this case until after it is over.

On this we can all agree. except i don't think it's important in this case how bitcoin is defined to be honest.

It is in the prosecution's best interest to keep this as simple as possible so I see them attempting to block any testimony which goes into the nuances of what Bitcoin is, how it works, etc.  The judge ruled Bitcoin is "money" for the purposes of meeting the requirements of a security.  The prosecution will now try to keep the case limited to the other material elements of what makes something an illegal security and what makes something a ponzi (regardless of what medium it is paid in).  So I think you are right the rest of the case may have very little to do with Bitcoin or more to do with run of the mill securities fraud.

[Nagle]

This is the result of FinCEN trying to force a round peg into a square hole. 

The SEC, though, is merely faced with putting a round peg in a round hole. Bitcoin exchanges are exchanges, and Bitcoin brokers are brokers. This makes sense. Bitcoin exchanges/brokers look and act like exchanges/brokers. Time to start registering as brokers.

Amateur hour is over.

[BCB]

If he used toothpicks instead of bitcoins, Judge would rule investment securities either way.

Right. The judge's opinion is simply that "Bitcoin investments met the requirements of an investment contract and thus constituted “securities” under federal securities laws." This is based on a Supreme Court decision: "An investment contract is any contract, transaction, or scheme involving (1) an investment of money, (2) in a common enterprise, (3) with the expectation that profits will be derived from the efforts of the promoter or a third party." That's Bitcoin. Deal with it.

This has some implications. One is that anyone operating a "Bitcoin exchange" in the US will have to meet the SEC requirements for being a broker/dealer.  

Would this apply to those that exchange Bitcoin<->USD and vice versa out in the open (Satoshi Square)? I'm thinkin of starting an open exchange where I live but don't want to get in trouble for it.

well, if you make a business out of it instead of an occasional swap here and there you probably would want to cover your bases with your State and FinCEN

Nagle, these implications were understood well in advance to this 'precedent', well before FinCEN/GAO guidelines released earlier this year. I remember saying it here on this forum back in 2011, if a business is in handling and processing 3rd party USD here in States, first-most thing such business needs is to become licensed for money transmitting and money business service and fully AML compliant in every state it's going to operate. I just don't see how current case relates to or affects any of this.

it's called Precedent

http://en.wikipedia.org/wiki/Precedent

the precedent with this particular case is that if you operate bitcoin securities business here in states you fall under SEC jurisdiction, that is all, no other precedent had been ruled and established with it.

Right but I expect other precedents to be set by this case.

[Hfleer]

I guess this paves the way for more regulations and other B/S as well.  Then again with all the trouble Mt. Gox was having maybe we're already at that point.

[BCB]

the precedent with this particular case is that
- snip -

This case isn't over yet.  There is plenty of time for both defense and plaintiff to make a variety of arguments about what bitcoin is or isn't.  How bitcoin is defined, how its value is determined, and how ownership is determined could all play a part in this case.  There is no way to know for certain what precedent will be set by this case until after it is over.

Trendon Shavers is currently defending himself.  He's slick but obviously not that smart.  This will not end well for him.

[BCB]

I guess this paves the way for more regulations and other B/S as well.  Then again with all the trouble Mt. Gox was having maybe we're already at that point.

Not necessarily more regulation but hopefully more clarity.  That is how this process works in the US.

[BCB]

Well sadly FinCEN guidance doesn't just stop at third party funds they include second party as well (but only for Bitcoin) so that was not entirely expected.

Example:  you send money to BCB by WU.
you ----> WU -----> BCB 
Obviously a Money Transmitter.

Example: you exchange USD for Euros with a currency exchanger at the airport.
USD:  You ----> Broker
EUR:  Broker ---> You
Not a Money Transmiter.  It is a MSB (dealer in foreign currency) but the rules at the state level are negligible compared to a money transmitter

Example: you exchange USD for BTC with a BTC dealer/broker (coinbase)
USD:  You ----> Coinbase
BTC:  Coinbase ----> You

Between the three scenarios, the later two have far more in common then the first one.  The last two only involve two parties (a business and its customer) while the "classic" MT example Western Union involves three parties (sender, MoneyTransmitter, receiver).  However FinCEN ruled that an exchanger of virtual currency is a money transmitter while an exchanger of real currency (under MSB regs of BSA) is NOT a MT but a different class of MSB.

This is the result of FinCEN trying to force a round peg into a square hole. 

this is interesting and you have a good point. but if you take MtGox for example there are no You << >> MtGox exchanges, there are You authorizing MtGox to handle your funds and orders on your behalf with other parties - clearly a transmitter, such as paypal btw.

I agree although ironically again Forex companies are not MT they are broker dealers.  Still if FinCEN articulated third party that would at least be consistent with existing classification.  However FinCEN didn't leave the line there.  They went with ANY exchange (unless exempt) of real currency for virtual currency or virtual currency for another virtual currency they felt the need to include virtual to virtual yet real to real is not consider a MT by existing law.

The funny (if it wasn't costing me a small fortune) part is that means it works like this (unless an exemption applies):
Exchange Virtual Currency for Virtual Currency = Money Transmitter
Exchange Virtual Currency for Real Currency = Money Transmitter
Exchange Real Currency for Virtual Currency = Money Transmitter
Exchange Real Currency for Real Currency = Not a Money Transmitter

In the Bitcoin Foundation answer to the cease and desist from the State Of California DFI they also made the Forex argument:

"This conclusion is confirmed by the DFI's December 6, 2011 opinion letter entitled "Foreign
Currency Exchange Services - Not Subject to money Transmission Act."21 In that opinion, the
DFI determined that the receipt of dollars and the delivery of pesos for a fee did not constitute
money transmission."

http://www.scribd.com/doc/151346841/Bitcoin-Foundation-Response-to-California-DFI

[Nagle]

I guess this paves the way for more regulations and other B/S as well.  Then again with all the trouble Mt. Gox was having maybe we're already at that point.

True. If a regulated broker tried to "defer withdrawals", they'd be shut down within days.

[DeathAndTaxes]

FinCEN provided similar ruling 5 years ago it would seem to be inconsistent with the guidance on virtual currencies or at the very least the guidance on virtual currencies is overly broad or vague.

http://www.fincen.gov/statutes_regs/guidance/pdf/fin-2008-r004.pdf
http://www.fincen.gov/statutes_regs/guidance/pdf/fin-2008-r002.pdf

[zamazama]

almost wasted my time reading 3 pages .... then I saw this on post 4

Code:

I really want him to have the best legal team possible.  This case is likely to set a lot of precedents for bitcoin, and if his legal team isn't top notch, many of those precedents are likely to be detrimental to bitcoin in the long term.

.. then realised you know nothing about Government ... a single ruling will have no effect whatsoever on the status of bitcoin.

Secondly any official positive/negative stance on bitcoin by the US government would send the price through the roof.

[Dabs]

Create a gold based Ponzi scheme and I guess we'll find out.
 

I'll start one:

1. Send me a bar of gold.
2. I pay you back an extra bar of gold in 3 months. I now owe you two bars of gold. Don't "withdraw" it and I'll owe you 4 bars of gold in another 3 months.
3. You're not allowed to "withdraw" your gold for at least 3 months.
4. Wait for the whole scheme to implode in 3 years.

Although, I prefer bitcoins and much easier to compute 7% per week up to 8 decimal places.

[Nagle]

Create a gold based Ponzi scheme and I guess we'll find out.

There have been many, many gold-based Ponzi schemes. Here's one from this year. Gold mining scams go back to the 18th century at least. Here's some background.

It's worth learning about the history of financial scams. None of the ones involving Bitcoin are new.

[Bitcoinpro]

its hard to tell without doing more research on it though people are opening up bitcoin companies that have similarities to banks, exchanges and ponzi's so its obviously setting of alarm bells, going to be interesting times

[QuestionAuthority]

Create a gold based Ponzi scheme and I guess we'll find out.

There have been many, many gold-based Ponzi schemes. Here's one from this year. Gold mining scams go back to the 18th century at least. Here's some background.

It's worth learning about the history of financial scams. None of the ones involving Bitcoin are new.

History always repeats itself in new clothing.

[MasterSplinter]

Bitcoin is a form of currency because it can be used to purchase goods or services and exchanged for more traditional forms of money

Bullshit, the same apply to gold but gold IS NOT money

http://www.forbes.com/sites/afontevecchia/2011/07/13/bernanke-fights-ron-paul-in-congress-golds-not-money/

And since bitcoin is, in my opinion, digital gold, i say that it is not money.

gold is different it has monetary value bitcoin does not, our money is not backed by gold anymore so it is kind of like bitcoin its not backed by anything.

[CasinoBit]

Open a thread on Bitcointalk about the judges ruling and get a philosophical thread about what is money and what is the meaning of life.