Despite dealing with bitcoin on many different fronts, the authorities are still debating about the function that bitcoin fulfills. To some, it is a currency, to others it is a commodity and many others fill in the distance between those categories with creative definitions of their own. In the meantime, a judge in Florida was left to fill in the gap once more. Judge Theresa Mary Pooler acquitted Michel Espinoza of illegally transmitting and laundering $1500 USD worth of bitcoin. Her argument was that ‘bitcoin has a long way to go before it is the equivalent of money’.
Striking a Chord within the Bitcoin Community
There are many within the bitcoin community who would disagree with Judge Pooler’s appreciation of the cryptocurrency. The whole definition behind the label ‘cryptocurrency’ is precisely aimed at conveying the properties of these new digital assets. Nevertheless the authorities in the US would mostly disagree with categorizing bitcoin or other cryptocurrencies as currencies.
What is a Currency Anyways?
To understand where the authorities stand, it is necessary to list the main characteristics that define a currency, and see where cryptocurrencies stand. A currency – a word used interchangeably with the word ‘money’ – must comply with these 4 principles to be considered as such:
There is no doubt that the above are all inherent characteristics of bitcoin and many other cryptocurrencies. Yet US authorities are still struggling to define them as such. Perhaps Investopedia’s definition of currency can shed some light onto why US authorities are still not convinced. Investopedia’s definition includes the following:
- Generally accepted form of money.
- Issued by a government.
- Circulated within an economy.
- Used as a medium of exchange for goods and services.
Finding the Currency in Cryptocurrency
From the latter, it is possible to see that bitcoin not only does not comply with at least one of the characteristics – objectively speaking – but was also created in part to counter the negative effects that some of these characteristics have in a world that is increasingly driven by peer to peer exchange over the internet. As such, cryptocurrencies have developed in a completely decentralized manner, lacking an issuing entity that is controlled by a government. However they still fulfil the core functions of a currency, because they are circulated within an economy – the internet economy – they are used as a medium of exchange and they are generally accepted – at least by a number of users that is bigger than the population of many countries that have their own currencies.
Confirming Federal Agency Definitions
In any case, Judge Pooler just confirmed what federal agencies such as the Internal Revenue Service – IRS, the US taxation authority – and the Commodity Futures Trading Commission – CFTC – have already stated before. Bitcoin is not a currency in the eyes of these agencies, and the CFTC even declared it a commodity. This debate is also raging within agencies and government authorities around the globe.
Some supra-national authorities have had opposing views, and have ruled that bitcoin is indeed a currency, at least when it fulfils certain functions. For example, a recent ECJ ruling stated that for exchange purposes bitcoin will be treated as a currency and no VAT will be charged when it is exchanged for other currencies within the European Union. This shows how tough the debate has been for the authorities worldwide.
A Dynamic Role Requires Different Regulation
The ECJ ruling implies that bitcoin doesn’t necessarily serve a single, distinct role just like regular currency does. This will require legislative processes that will give clear guidelines to regulators about dealing with digital assets like bitcoin. Judge Pooler did allude to the role of the legislature in defining the guidelines that are necessary to deal with bitcoin and other cryptocurrencies in the future. In the meantime judges will have to continue stepping in to fill the void, just like the ECJ did and more recently, just like Judge Pooler did in Florida.
