Bitcoin declared an official currency

[galgitron]

Time to tighten up friends   Use BitMessage and https://localbitcoins.com/

http://rt.com/usa/bitcoin-sec-shavers-texas-231/

Court officially declares Bitcoin a real currency
Published time: August 08, 2013 15:54

A federal judge has for the first time ruled that Bitcoin is a legitimate currency, opening up the possibility for the digital crypto-cash to soon be regulated by governmental overseers.

United States Magistrate Judge Amos Mazzant for the Eastern District of Texas ruled Tuesday that the US Securities and Exchange Commission can proceed with a lawsuit against the operator of a Bitcoin-based hedge fund because, despite existing only on the digital realm, “Bitcoin is a currency or form of money.”

Trendon Shavers of Bitcoin Savings & Trust (BTCST) was accused last year of scamming customers out of roughly $4.5 million worth of the cryptocurrency through his online hedge-fund. Shavers promised investors a weekly return of 7 percent, according to the federal complaint, but shut-down his site after collecting upwards of 700,000 bitcoins. When the SEC charged Shavers last month with operating a Ponzi scheme, he fought back by saying Bitcoin is not actual currency and can’t be regulated.

“The SEC asserts that Shavers made a number of misrepresentations to investors regarding the nature of the investments and that he defrauded investors. However, the question currently before the Court is whether the BTCST investments in this case are securities as defined by Federal Securities Laws,” Judge Mazzant wrote this week. “Shavers argues that the BTCST investments are not securities because Bitcoin is not money, and is not part of anything regulated by the United States. Shavers also contends that his transactions were all Bitcoin transactions and that no money ever exchanged hands. The SEC argues that the BTCST investments are both investment contracts and notes, and, thus, are securities.”

Despite Shavers’ argument, Mazzant weighed in this week with an opinion that’s not only quite the contrary, but could have widespread repercussions in the world of Bitcoin.

“It is clear that Bitcoin can be used as money,” Mazzant wrote. “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 US 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.”

Bitcoin investments "meet the definition of investment contract, and as such, are securities,” the judge added.

Now with the magistrate’s blessing, the SEC can continue with its case against Shavers and his site. With that same ruling, though, the government is for now getting the go ahead for what could lead to the rampant regulation of Bitcoin.

“The ruling, while certainly a victory for the Commission, is also likely to have farther-reaching ramifications as federal regulators increasingly encounter investment fraud based on non-traditional investment vehicles,” securities and business law attorney Jordan Maglich wrote in a Forbes op-ed this week.

“The case is notable in several aspects. First, it is the first known enforcement action predicated on a Bitcoin-based investment scheme, and comes at a time when US and foreign governments are devoting increasing scrutiny to the unregulated nature of the Bitcoin currency structure. In addition to these issues, the case may also have deeper ramifications going forward. Indeed, the case comes as federal regulators are increasingly tasked with policing non-traditional investments that share few characteristics with traditional investment vehicles such as stocks and notes,” Maglich wrote.

Even if this week’s ruling is a landmark decision with regards to Bitcoin, it certainly isn’t the first time as of late Uncle Sam intervened in the digital marketplace. In May, the US Department of Homeland Security seized a payment processing account Tuesday belonging to the largest international Bitcoin trader, claiming the monetary exchange service falsified financial documents.

[DumbFruit]

How are they going to regulate a million banks all over the world? Anyone with moderate computer skills can run their own bank, thanks to Armory. They can be started up at next to no cost anywhere for any reason in less than  day.

So really, I don't know what people are concerned about with "regulation".

All the US government can do is make it harder to integrate their legacy system with Bitcoins, but being as the end goal is to use Bitcoins exclusively, regulation is no more than a road-bump (And a great opportunity for other countries of the world.)

I'm glad the judge had the common sense to call Bitcoins a currency.

[compro01]

Anyone with moderate computer skills can run their own bank, thanks to Armory. They can be started up at next to no cost anywhere for any reason in less than  day.

Welcome to the 2nd Free Banking Era.

[galgitron]

How are they going to regulate a million banks all over the world? Anyone with moderate computer skills can run their own bank, thanks to Armory. They can be started up at next to no cost anywhere for any reason in less than  day.

So really, I don't know what people are concerned about with "regulation".

All the US government can do is make it harder to integrate their legacy system with Bitcoins, but being as the end goal is to use Bitcoins exclusively, regulation is no more than a road-bump (And a great opportunity for other countries of the world.)

I'm glad the judge had the common sense to call Bitcoins a currency.

It's not so much that regulation will be possible, but it will now be unlawful not to declare bitcoin income, which can escalate into a felony for egregious violations.  This alone will psychologically deter a majority of technically-illiterate bitcoin users from capitalizing on the very point of Bitcoin: anonymity.  And the simple truth is, Bitcoin transactions are not truly anonymous if the Bitcoin-qt client is used as most people use it, for example, consider this scenario:

- you have a bitcoin wallet on your computer
- you have 100 mined bitcoins that were delivered to your private bitcoin address A
- you then purchase something online for 20 bitcoins using your bitcoin-qt client
- your name and address are recorded by the website where you made the purchase (necessary for product delivery)
- the bitcoin transaction in the blockchain shows 20 bitcoins coming from address A going to the website vendor's bitcoin address
- the government taps the website's database for purchase history, correlating bitcoin transactions to name/address
- government reviews bitcoin transaction and now knows you own your private bitcoin address A and can see all your mining income and will tax that income

I suspect most people are oblivious to this and they'll get popped

So, you may say, well create another address!  So let's play that scenario out

- you have 100 mined bitcoins that were delivered to your private bitcoin address A
- you have 20 bitcoins that someone sent you to your private bitcoin address B
- you then purchase something online for 20 bitcoins using your bitcoin-qt client
- Bitcoin-qt indiscriminately chooses to send 20 bitcoins from address A instead of B, exposing your mining address just like the first scenario above

The fundamental problem is that, at this time, Bitcoin-qt does not intuitively give control of which of your accounts your outgoing bitcoins will come from, and this leads to exposure.

There are bitcoin 'mixing' services out there that can anonymize your transactions for you

[J603]

How are they going to regulate a million banks all over the world? Anyone with moderate computer skills can run their own bank, thanks to Armory. They can be started up at next to no cost anywhere for any reason in less than  day.

So really, I don't know what people are concerned about with "regulation".

All the US government can do is make it harder to integrate their legacy system with Bitcoins, but being as the end goal is to use Bitcoins exclusively, regulation is no more than a road-bump (And a great opportunity for other countries of the world.)

I'm glad the judge had the common sense to call Bitcoins a currency.

Anyone can run their own bank with fiat, too. It doesn't mean that fiat can't be regulated.

[DumbFruit]

Anyone can run their own bank with fiat, too.

No they can't..

- you have a bitcoin wallet on your computer
- you have 100 mined bitcoins that were delivered to your private bitcoin address A
- you then purchase something online for 20 bitcoins using your bitcoin-qt client
- your name and address are recorded by the website where you made the purchase (necessary for product delivery)
- the bitcoin transaction in the blockchain shows 20 bitcoins coming from address A going to the website vendor's bitcoin address
- the government taps the website's database for purchase history, correlating bitcoin transactions to name/address
- government reviews bitcoin transaction and now knows you own your private bitcoin address A and can see all your mining income and will tax that income

I suspect most people are oblivious to this and they'll get popped

You're right, but so what? If the government has to audit and track every transaction in order to tax it, then it becomes orders of magnitude more costly to collect those taxes. Even if they do track the user down, and successfully litigate, there's no way to guarantee he'll actually pay what they demand. They can't garnish his wages, and they can't freeze his bank account. The best they could do is throw him in jail, which costs them even more money.

That's presuming that the person has taken even the most mild of precautions. If he breaks up his bitcoins and moves them around to various addresses, or uses a laundry, the plausible deniability that it would create would make successful litigation a nightmare.

And again, bitcoins are worldwide. Any crackdown from one government is a boon for a less stringent government.

It would be cool if bitcoins were truly anonymous, but what most people don't seem to realize is that even without it, regulating bitcoins is impractical.

[Elwar]

In all of this, the court is referring to Bitcoins. It does not become generalized and address virtual currencies.

So is LiteCoin not a currency and Bitcoin is?

This must be what early airline pilots ran into when the first airplane laws were created. The very fact that they were defying the laws of gravity probably left so many government officials dumbfounded by how laws should be put in place for airplanes.

[J603]

Anyone can run their own bank with fiat, too.

No they can't..

Yes I can. I can buy a safe, and keep all my paper money there. Similarly, I can get a bitcoin wallet and put all my bitcoins there.

[DumbFruit]

I can buy a safe, and keep all my paper money there. Similarly, I can get a bitcoin wallet and put all my bitcoins there.

And lets expand on this thought process a little bit... What can you do with the bitcoins from your own home that you can't do with fiat?

[J603]

I can buy a safe, and keep all my paper money there. Similarly, I can get a bitcoin wallet and put all my bitcoins there.

And lets expand on this thought process a little bit... What can you do with the bitcoins from your own home that you can't do with fiat?

Send it? I can drive to someone's house and give them fiat too, and they can put it in their safe.

[galgitron]

Anyone can run their own bank with fiat, too.

No they can't..

- you have a bitcoin wallet on your computer
- you have 100 mined bitcoins that were delivered to your private bitcoin address A
- you then purchase something online for 20 bitcoins using your bitcoin-qt client
- your name and address are recorded by the website where you made the purchase (necessary for product delivery)
- the bitcoin transaction in the blockchain shows 20 bitcoins coming from address A going to the website vendor's bitcoin address
- the government taps the website's database for purchase history, correlating bitcoin transactions to name/address
- government reviews bitcoin transaction and now knows you own your private bitcoin address A and can see all your mining income and will tax that income

I suspect most people are oblivious to this and they'll get popped

You're right, but so what? If the government has to audit and track every transaction in order to tax it, then it becomes orders of magnitude more costly to collect those taxes. Even if they do track the user down, and successfully litigate, there's no way to guarantee he'll actually pay what they demand. They can't garnish his wages, and they can't freeze his bank account. The best they could do is throw him in jail, which costs them even more money.

That's presuming that the person has taken even the most mild of precautions. If he breaks up his bitcoins and moves them around to various addresses, or uses a laundry, the plausible deniability that it would create would make successful litigation a nightmare.

And again, bitcoins are worldwide. Any crackdown from one government is a boon for a less stringent government.

It would be cool if bitcoins were truly anonymous, but what most people don't seem to realize is that even without it, regulating bitcoins is impractical.

My point was that for technically-challenged people, they won't employ the tactics required to assure anonymity, thus the government could run a very simple algorithm to correlate bitcoin addresses to people, and then run a quick sum to see how much those balances are.  It's nearly as simple as looking at someone's bank account.  This wouldn't cost the government a thing, especially if they legislate (and they will) that all companies accepting bitcoins must report address/person data to the government.  Once the 'income' is calculated from the blockchain, the govt would pursue precisely the same recourse as if someone had claimed less income than their employer's reported.  Nothing really changes from the current system of tax enforcement.  Your scenario where the person refuses to pay taxes is no different in a fiat scenario.  People go to jail all the time for not paying taxes, I see no reason why this would increase where bitcoin was the currency.

Your second point refers to the tech-savvy segment of society that can exercise these precautions, which I think is a shrinking minority as more newbies join the bitcoin circuit.

Until the bitcoin-qt client evolves to better protect your addresses and intuitively points the user into best-practices, the government will still have a strong hold on income taxes.

[DumbFruit]

My point was that for technically-challenged people, they won't employ the tactics required to assure anonymity, thus the government could run a very simple algorithm to correlate bitcoin addresses to people, and then run a quick sum to see how much those balances are.  It's nearly as simple as looking at someone's bank account.  This wouldn't cost the government a thing, especially if they legislate (and they will) that all companies accepting bitcoins must report address/person data to the government.

There's a few problems with that.

1.) It wouldn't be an enforceable law to have everyone report all contact information to the US government. What's the government going to do if someone generates an address and send bitcoins to it? They could look up who sent the bitcoins there, but they don't know where they went and they don't know if it was intentional on the part of the sender. Are they really going to track down every unreported .1 bitcoins sent somewhere by somebody?

2.) The US government has no control over what foreigners do. Are they going to ban all international transactions of bitcoins? Not possible.

3.) That's a huge violation of privacy without a warrant.

4.) What are they going to do about off-chain transactions?


You say that people could withhold their money with fiat, which is true, but you could never do it as easily and thoroughly as you can with bitcoins.

I just don't see it as being as easy as you make it out to be.

[TECSHARE]

I think there is a lot of misunderstanding regarding this judges decision in this case. This hearing was not about Bitcoin and its legal status, it was to decide if Trendon Shavers was guilty of fraud, and or other regulations he allegedly violated. Trendon Shavers tried to argue that because Bitcoin wasn't a recognized legal tender anywhere in the world it was not money, and therefore he was not guilty of fraud. Clearly this defense is invalid, because it doesn't matter if you defraud someone out of millions of beanie babies, it is still fraud regardless the form. The judges decision was in response to Trendon Shaver's defense strategy, not a declaration of the legal status of Bitcoin. Does this set a legal precedent? Yes. Did the government just declare Bitcoin legally money? Not really.

For comparison look at the supposed "Bitcoin Banned In Thailand" reports. One part of a regulatory entity made a single mention of Bitcoin, and attention seeking bloggers sensationalize the comment.

[galgitron]

My point was that for technically-challenged people, they won't employ the tactics required to assure anonymity, thus the government could run a very simple algorithm to correlate bitcoin addresses to people, and then run a quick sum to see how much those balances are.  It's nearly as simple as looking at someone's bank account.  This wouldn't cost the government a thing, especially if they legislate (and they will) that all companies accepting bitcoins must report address/person data to the government.

There's a few problems with that.

1.) It wouldn't be an enforceable law to have everyone report all contact information to the US government. What's the government going to do if someone generates an address and send bitcoins to it? They could look up who sent the bitcoins there, but they don't know where they went and they don't know if it was intentional on the part of the sender. Are they really going to track down every unreported .1 bitcoins sent somewhere by somebody?

2.) The US government has no control over what foreigners do. Are they going to ban all international transactions of bitcoins? Not possible.

3.) That's a huge violation of privacy without a warrant.

4.) What are they going to do about off-chain transactions?


You say that people could withhold their money with fiat, which is true, but you could never do it as easily and thoroughly as you can with bitcoins.

I just don't see it as being as easy as you make it out to be.

I disagree with #1..  Surely you've heard in the news about the feds tapping all these corporate databases (Apple, Microsoft, Verizon, etc.) for their customer information.  As it stands now there's no law forcing companies to proactively supply info to the feds, but I can't imagine a reason they couldn't legislate something like that.  They already have tons of mandatory reporting (accounting, payroll, etc.) so this would just be one more thing on the list.  Once this reporting requirement is in place, it will be easy to have a cross-reference database that correlates addresses with name/address info.  For non-tech-savvy people (the majority), they wouldn't be cautious enough to anonymize their addresses when making purchases, and they would expose their accounts in their wallets. 

for #2, I was only referring to technically-challenged US citizens and how they will be subject to US income tax

for #3, Prism

for #4, this falls into the same category as well-anonymized transactions, requiring knowledge the average person isn't privy to and thus couldn't capitalize upon.

I think there is a lot of misunderstanding regarding this judges decision in this case. This hearing was not about Bitcoin and its legal status, it was to decide if Trendon Shavers was guilty of fraud, and or other regulations he allegedly violated. Trendon Shavers tried to argue that because Bitcoin wasn't a recognized legal tender anywhere in the world it was not money, and therefore he was not guilty of fraud. Clearly this defense is invalid, because it doesn't matter if you defraud someone out of millions of beanie babies, it is still fraud regardless the form. The judges decision was in response to Trendon Shaver's defense strategy, not a declaration of the legal status of Bitcoin. Does this set a legal precedent? Yes. Did the government just declare Bitcoin legally money? Not really.

For comparison look at the supposed "Bitcoin Banned In Thailand" reports. One part of a regulatory entity made a single mention of Bitcoin, and attention seeking bloggers sensationalize the comment.

Definitely this court case was more sensationalist than definitive, but it's the psychological impact this kind of case has that makes it transitional in the sense that it's a step in the direction of becoming a bona fide currency.  I believe the only thing that distinguishes Bitcoins from a real currency, is its taxability.  If and when (and how?) they start to tax your bitcoins, that will be the official day it becomes a real currency.