I copied this from the thread it was posted in because it was not responsive to the OP and really deserves its own thread.
I have no legal expertise, but it sure seems to me that there are a lot of ways to argue for the legality of bitcoin. Even if it were to be outlawed, what would that do? Downloading music is illegal, look how swimmingly that has worked out.
Nobody's actually argued that Bitcoin per se is illegal. The grey areas it falls into at the moment are the ways in which it's used - buying/selling drugs or gambling online with Bitcoin isn't going to make those activities more legal - and the services which have grown up around it (the exchanges and payment processors currently being unlicensed and unregulated).
In the short-term, there probably don't need to be any special Bitcoin specific laws to address those issues. In a lot of jurisdictions, supply and possession of certain drugs are illegal whether or not money changes hands so whether Bitcoin is "money" would only be relevant in terms of trying to seize "proceeds of crime" from dealers (and a lot of places don't require that proceeds of crime be only money, either - pretty much any "asset" can be seized).
Likewise, trying to avoid the laws regarding accepting funds from those in the US for online gambling is an offence in itself according to the US DoJ - that's what the whole shit-storm targeting payment processors and seizing the domains of offshore gambling operators earlier this year was about. Once again, it's not necessary to define Bitcoin as "money" in order to crack down on it being used for online gambling - although it may be considerably more difficult for the DoJ to force operators to return player balances if there's no record of the true owners of those balances.
The continuing e-gold drama suggests that even if Bitcoin became a preferred method of money laundering, it's more likely that the exchanges would be restrained from allowing users to trade and that the government would seek forfeiture of the Bitcoins and funds they hold on behalf of users than that there'd be a need to specifically outlaw Bitcoin.
Maybe, just
maybe, if Bitcoin became a conduit for financing terrorism the government might go after Bitcoin itself. Once again, though, financing terrorism is illegal in and of itself in most Western countries. The Bitcoin economy might also be too small at the moment for it to be useful for moving large amounts of money undetected - significant deviations from established patterns would probably be noticed fairly quickly if counter-terrorism analysts had reason to suspect that Bitcoins were making their way to groups high on the government's watch-list.
I agree with repentance in this. The exchanges are the juicy targets, without them everything is different and much harder to do for bitcoin.
Still, keep in mind that although bitcoin is a big deal to us enthusiasts, it means very little to any government or politician at the moment. It is such a small economy for enthusiasts, it isn't even as big as a moderately successful MMO. It is not as big a deal as EVE online, for instance, let alone WoW, Lineage, or 2nd Life. And those economies have not been regulated or banned or shut down. Neither have the exchanges.
I wish some of the people on this forum would just tone it down on the political provocation angle. It's like they are waving and shouting "this is a political protest please come break it up". Look at what happens to people that do that in real life. There are more police than protesters showing up to some of these big hyped "political" events. Conversely, there can be 1 million people gathered for a peaceful, albeit mildly political, primarily apolitical purpose like a love parade or rock concert, and just a handful of police are there. Bitcoin is not political by nature. It is just a virtual currency, it has no political agenda.
People playing a game can move a billion dollars a month in value around internationally with no bank and no transaction fees, no problem - World of Warcraft. If people use bitcoin peacefully as a virtual currency in legitimate business transactions, for gaming, fun, love, etc. it will be fine. Unfortunately, many seem compelled to call governmental attention to the bitcoin project prematurely by financing and making bold political statements with it or using it criminally, flagrantly to defraud others, trade in contraband, etc.
Much of what we will see in terms of additional regulation and direct legal attacks on the exchanges will be the result of how things play out with existing factions within the bitcoin community.
If we can police ourselves and drown out the bad guys' harm to the bitcoin project with good guy legitimate economic activity, then a good argument can be made against regulation. If the good guys factions' can grow and recruit faster than the "hacker, fraudster, trafficker" factions, we should not have many problems with regulation. Otherwise, most of the transactions in the blockchain will be for crime, and expect the exchanges to get shut down.
(I see a Comparison to "substantial non-infringing use" as held in Sony, as discussed at length in the Grokster SCOTUS opinion. But that is a HUGE can of worms/other post.)
