Bitcoin isn’t illegal because it isn’t real money

• By James Plafke on April 3, 2013 at 11:40 am
• http://www.extremetech.com/internet/152349-bitcoin-isnt-illegal-because-it-isnt-real-money

1
inShare

As it falls in and out of public view, Bitcoin is once again all the rage. However, rather than just tech blogs and internet culture sites covering the cryptocurrency, more mainstream sites and esteemed financial analysts are now weighing in on the matter. Instead of just providing yet another explanation of what Bitcoin is, though, analysts are now wondering why the pseudo currency has caught on, and why it’s not illegal. As it turns out, it’s not illegal because of that “pseudo” moniker.
First, if you’re wondering why Bitcoin is back in the forefront of the news cycle, that’s because it always does that. Bitcoin comes and goes, generally in relation to its value. Currently, one Bitcoin (BTC) is worth quite a bit of actual money, sitting pretty at $92. Once upon a time — just three years ago — it famously took 10,000 BTC to buy $25 worth of pizza. However, while the actual current value is a new height, the rise of the peer-to-peer cryptocurrency is not. The value of Bitcoin ebbs and flows, like real currency, though due to the nature of it, ebbs and flows much faster and more drastically. Just two years ago the internet was abuzz with news about the Great Bitcoin Crash, which only came one year after the famous pizza purchase.
Now, here we are again, marveling at the strength of the BTC, salivating over all the Domino’s pizza you can buy in exchange for Bitcoin through a third-party service. If you know your country’s currency laws, though — in that it’s illegal to start a new form of currency in many countries, including the US — you might wonder why the government hasn’t come down on Bitcoin in response to all of the recent exposure. In what will no doubt anger some fans of the digital currency, financial services lawyer Dan Friedberg says it’s because the government doesn’t view Bitcoin as a real currency. Zing.
Friedberg explained to Business Insider that Bitcoin is considered a virtual currency rather than actual legal tender, and “lacks all the real attributes of real currency,” so why would the government care about that? However, as Business Insider pointed out, the US government recently stated that it would be applying money-laundering rules to virtual currency, which means that the government does, in some respect, care enough about virtual currency to try to police it. Wouldn’t outlawing a virtual currency constitute as policing it, though?
There are a few factors as to why the government hasn’t made Bitcoin illegal, nor seems to care that much about it at the moment. Basically, Bitcoin is small potatoes. Sure, Bitcoin was recently valued at around one billion dollars, but compared to the estimated $1.18 trillion of US currency in circulation, Bitcoin is barely a blip on the country’s economic radar, much less the global economic radar. The pseudo currency seems like a bigger deal than it is because of a loud vocal minority shouting about its favorite topic, which in turn caused the news cycle to pick up on the shouting and cover it.
Another reason why the government just doesn’t care very much at the moment is because practically nothing accepts Bitcoins. When you see news that you can purchase Domino’s pizza or Amazon gift cards using Bitcoins, you’re not actually making a direct transaction — Amazon and Domino’s aren’t accepting your Bitcoins. The exchanges are made through third-party services. You’re giving some random people Bitcoins, then they’re buying you pizza with regular US dollars. It’s like giving your friend some of your old Magic: The Gathering cards so long as he buys you dinner. Magic cards aren’t recognized as currency by your government, but your friend surely accepts them as payment.
It’s also worth noting that Bitcoin is not just a US-based currency, and due to its virtual nature, is technically more of an international currency, as it exists on the internet overseas wherever anyone has a computer that can mine.
What the legitimacy of Bitcoin comes down to is what accepts it as currency, which in turn prompts the question of what, exactly, currency is. If currency is considered to be government-authorized tender, then Bitcoin isn’t currency. If currency is considered to be an item that is widely accepted by legal businesses in exchange for goods or services, then Bitcoin still isn’t currency. If currency is considered to be an item that is accepted in exchange for goods or services, but doesn’t need to be widespread, then Bitcoin can indeed be classified as currency. One thing is for certain, though: The government doesn’t view Bitcoin as legal tender, and instead classifies it as a virtual currency. It isn’t made clear if the term is only applied to something open like Bitcoin, or simply any kind of alternative to cash that you can purchase with legal tender, such as Riot Points in League of Legends.
Regardless of how you classify Bitcoin, whether or not the very thought of it makes you laugh uncontrollably, or reminds you to move your account to a new virtual address for safety’s sake, certain people out there are accepting it as currency. If it eventually rises to prominence and overtakes the US dollar as the main form of currency people are using, then you can bet the government will take action, which would in turn classify the cryptocurrency for once and for all.
Now read: Bitcoin: The ultimate spear phishing target
[Image credit: Zach Copley]