What the Bitcoin debate is really about
After organising a public debate on whether Bitcoin should be recognised as a legal currency and training a group of speakers on how to argue their respective cases, one of the biggest lessons to come out of it was the importance of defining your terms correctly. Fail to get this part right and you will miss what this debate is really about. So, here is what you need to know:
Debate motion: This House Would recognise Bitcoin as a legal currency
This isn’t a ‘tech debate’
It is easy to get lost in the technical details of what Bitcoin is and how it works, but you don’t need to know that much about it to make an informed decision about where you stand on this particular question. All you really need to know are the key differences between how crypto-currency transactions work and how (what we’ll call for the time being) conventional transactions work. Save the Blockchain webinar for another day — what you really need to understand to take a position in this debate is the meaning of ‘legal currency’.
WTF is legal currency???
Three terms need to be defined within an inch of their life when debating Bitcoin’s official status: legal tender, legal currency, and private money.
Legal tender is pretty clear — it’s a legal term for the one currency you have to accept when someone uses it to settle a debt with you. No one will force you to take their money, of course, but you also can’t sue them for non-payment if you don’t. The pound is legal tender in the UK, which is fine because this debate was never about Bitcoin replacing the pound as legal tender.
Private money is also pretty clear — it simply means that if you are willing to let me pay you back for that coffee you bought me earlier with a picture of a giraffe I drew when I was 8 that I value at exactly £2.35, no one will stop us. This is essentially the rule of thumb that currently applies to people who want to pay for stuff in Bitcoin and people who are happy to get paid in Bitcoin.
But there is scarily little information available on-line about how exactly legal currency differs from either of these two. This much was clear when reading up on how Japan had recently passed a law to make Bitcoin a legal currency and seeing how many publications had to issue a retraction after falsely claiming the Japanese had made it legal tender. They hadn’t, but they no longer regarded it as just private money either — so WTF is it?
Legal recognition, not legalisation
In short, it’s basically a stamp of approval from the government that has some practical implications and a very significant psychological one. Think of it like a small organisation applying to the Charity Commission to be recognised as a non-profit: even if they don’t do this, they are still free to raise money for the causes they care about (up to £5K), but donors are less likely to take them seriously and make a donation if they are not registered as a legal charity.
This is why we talk about giving Bitcoin legal recognition instead of legalising it — because you only need to legalise things that would otherwise be banned and we are not talking about banning Bitcoin (at least not in the UK). This isn’t just a semantic point either. Language matters — it shapes the picture that people form in their heads of what you’re talking about and frames the choice they think they have to make.
OK. So, what?
As long as Bitcoin is not legally recognised as a currency, although no one will be banned from using it to buy and sell things if they so choose, fewer people are likely to accept it as a form of payment because they will assume its value won’t be stable enough to use it for any of the three things that are generally considered to define a currency: buying other stuff, measuring the value of stuff they already have, and saving it up to buy stuff they’ll need in the future.
Hence, right now, Bitcoin is seen by the law (in the UK) more as a piece of stuff itself, also known as a ‘commodity’, than something you use to buy other stuff, aka currency. The practical implications of changing this would include people and businesses that trade in Bitcoin having a better idea of the rules they have to follow and the taxes they have to pay. But the psychological implication of changing this would be that Bitcoin would be taken seriously as a currency, in the same league as pounds and euros, and its use would surge.
What’s the catch?
Because there’s always a catch. Stamps of approval come with strict conditions and legal currency is no exception. Bitcoin, therefore, would have to be regulated the same way as other currencies, which means (among other things) that anyone accepting payment in Bitcoin would have to know the identity of their customer to avoid such transactions being used by shady organisations to launder dirty money or fund criminal gangs and terrorism.
If this sounds straightforward, it’s not because the way this is normally achieved is by central banks overseeing transactions to make sure they’re legit. Yet, Bitcoin and all other crypto-currencies were specifically designed to give their users total anonymity and cut out the middle-man, allowing them to trade freely across borders and bypass national governments. Securing legal recognition to make Bitcoin easier to use, therefore, would technically mean giving up the one thing that made it so popular in the first place.
And?
And that’s what this debate is really about: is it possible for national governments to regulate global crypto-currencies beholden to no-one? If it is possible, would it be a good idea to give Bitcoin that vital stamp of approval that would encourage more people to use it as a currency? And even if the answer to both those two questions was yes, would it be worth it — especially for the people already happily using Bitcoin as a currency right now?
Or?
Or we can go even further and broaden the scope to changing the law to bring its definition of legal currency up to date with modern technology, altering the fundamental basis of all commerce, and making everyone’s head explode.
