What is Bitcoin

In any examination and analysis of the contractual, regulatory, and financial obligations of corporate providers, government regulators, and the courts[1] as applied to Bitcoin, Bitcoin operates as a financial instrument[2]. Depending on how the transaction is constructed this can be a contractual exchange, electronic cash, a promissory note or another financial security, a bill of sale, or a simple ledger entry. In each instance, from the creation from the Coinbase[3] allocation of rewards to the payment and consideration for an exchange, many regulatory and financial considerations arise.

The courts have developed many different views concerning the nature of money. At its simplest, however, money[4] is:

“Money is any generally accepted medium of exchange for goods and services and for the payment of debts (see Butterworth’s Australian Legal Dictionary at 759). Currency and legal tender are examples of money. However, a thing can be money and can operate as a generally accepted medium and means of exchange, without being legal tender. Thus, bank notes have historically been treated as money, notwithstanding that they were not legal tender. It is common consent and conduct that gives a thing the character of money (see Miller v Race (1758) 1 Burrow 452 at 457). Money is that which passes freely from hand to hand throughout the community in final discharge of debts and full payment for commodities, being accepted equally without reference to the character or credit of the person who offers it and without the intention of the person who receives it to consume it or apply it to any other use than in turn to tender it to others in discharge of debts or payment for commodities (see Moss v Hancock [1899] 2 QB 111 at 116).”

Being money, Bitcoin is an intangible property that is capable of being owned. What is less clear is if Bitcoin is “currency”[5]. However, the acceptance by the German Government[6] of Bitcoin as a unit of account and the postulate before the Swiss Parliament asking that Bitcoin is treated as a foreign currency suggest that Bitcoin may be “currency”. If not now, it seems inevitable that Bitcoin will be formally accepted as currency by a government in the near future.

The distributed nature of Bitcoin leads to its use across international borders. Consequently, it is important that financial rules be applied using an international law and comparative law framework. The research conducted in the development of this thesis seeks to investigate the legislative foundations of digital currencies in the context of the UK, Europe, China[7] and the USA[8].

Bitcoin as well as all other decentralised virtual currencies represent a highly underdeveloped area of law. The international nature of bitcoin belies the fact that it is regulated differently in each of these regions. Further, it has been seen as a virtual token[9], currency[10] or even a security[11] at separate times and places within individual jurisdictions. This uncertainty leads in part to the limitations of its use.

We see that many gaps and disparities exist between the nature of money not only between jurisdictions but within different branches of law. Consequently, this thesis seeks to investigate amongst others, the following questions:

• When is Bitcoin money[12]?
• What are the tax implications of bitcoin?
• What forms of securities and related debt instruments could legally/practically be created within bitcoin?
• What are the limits of anonymity and privacy within the bitcoin ecosystem and what rights of non-disclosure when an individual or corporation maintain?
• What impact would bitcoin bring to monetary policy and what judicial response is available under the existing legislation framework?

We shall start to address these issues in this blog over time.

This shall continue tomorrow.

That said, one thing we do know, Bitcoin is cash.

Notes and references

[1] Debenhams Retail Plc v Customs and Excise Commissioners [2004]. The third party could be a party to the contract, an agent or one of the two contracting parties, or may just be an ancillary facilitator or medium, across which, and through whom the contractual bargaining occurs (McKendrick [1], 2005, Pp163–164).

Lord Steyn (Butterworths; The Law of Contract, 1999, Forward) reminds us “. . . it is wise for practitioners to bear in mind that the higher you go in the legal system the more important it is to concentrate on the footholds of the secure theoretical foundations.”

[2] See, Todd Zerega and Tom Watterson, Regulating Bitcoins: CFTC vs. SEC?,SWAP REPORT (Dec. 31, 2013),

http://www.theswapreport.com/2013/12/articles/general/regulating-bitcoins-cftc-vs-sec/ (archived at http://perma.cc/536B-ULPB) (“[C]ould or would the SEC attempt to classify a speculative investment in Bitcoins as a security?”);

[3] https://en.bitcoin.it/wiki/Coinbase

[4] Travelex Limited v Commissioner of Taxation [2008] FCA 1961 (Travelex), Emmett J made observations regarding the “money” (including the subsets of “currency” and “legal tender” at paragraph 25.

[5] Ibid at para 24 :

“In that regard, the term “currency” may have different usages in relation to money. In the sense in which I have just used it, the term is a synonym for the medium of exchange itself, namely, coins and bank notes circulating in a particular polity. In another possible usage, the term refers to a characteristic feature of the proprietary regime that applies to money. That is to say, the full force of the general rule on derivate transfers of title does not apply to title to money, in that title to money is exempt from the maxim nemo dat quod non habet. In that regard, currency refers to the negotiability of money, such that, as a general rule, the right to money is inseparable from the possession of it. Where coins or bank notes are delivered in payment of a debt or for the provision of goods or services, it is not incumbent upon the recipient of the coins or bank notes to enquire into the title of the payer. Not only possession of, but also property in, coins and bank notes passes by mere delivery, irrespective of the title of the payer (see Miller v Race (1758) 1 Burrow 452 and David Fox, Property Rights in Money (Oxford University Press: Oxford, 2008) at 265–6 and the authorities there cited).”

[6] http://www.cnbc.com/id/100971898

[7] PRC — People’s Republic of China

[8] United States Government Accountability Office (USGAO), Report to the Committee on Homeland Security and Governmental Affairs, U.S. Senate, Virtual Currencies: Emerging Regulatory, Law Enforcement, and Consumer Protection Challenges (May 2014) 10.

[9] https://www.fincen.gov/news_room/rp/rulings/pdf/FIN-2015-R001.pdf

[10] Ibid, “On March 18, 2013, FinCEN issued guidance on the application of FinCEN’s regulations to transactions in virtual currencies (the “guidance”)”.

[11] Dan Stroh, Secure Currency or Security? The SEC and Bitcoin Regulation, UNIV. OF CINCINNATI L. REV. BLOG (Nov. 18, 2014), http://uclawreview.org/2014/11/18/secure-currency-or-security-the-sec-and-bitcoin

[12] There is United States jurisprudence indicating that Bitcoin falls within the ordinary meaning of “money” and perhaps “currency” in Securities and Exchange Commission v Trendon T. Shavers and Bitcoin Savings and Trust, Case №4:13-CV-416 (E.D. Tex)[12] (SEC v Shavers). SEC v Shavers concerned charges made by the U.S. Securities and Exchange Commission (SEC) against Mr. Trendon Shavers, accusing Mr. Shavers of using Bitcoin to run a Ponzi scheme. Mr Shavers sought to dismiss the charges on the basis that the Bitcoin investments offered by his business were not securities within the meaning of U.S. federal securities law as Bitcoin was not money.