Bitcoin has emerged as the leading cryptocurrency of choice ever since it came into being. In the eyes of the users of Bitcoin, the definition of it as a currency might just be very clear but when it comes to the legal definition of Bitcoin, there is still a lack of clarity.
Does the classification of Bitcoin matter?
Different jurisdictions treat Bitcoin differently
Bitcoin is a true global currency and it can be used in any part of the world. In this type of a scenario, it is but natural that different legal jurisdictions take a different view of what exactly Bitcoin is. In some countries Bitcoin is not even deemed legal.
In some others Bitcoin is completely undefined, others yet see the status of Bitcoin in flux and some have completely given it a free hand. Then there is the matter of whether Bitcoin is money or a currency or both.
The curious case of Michell Espinoza
On February 6, 2014 Michell Espinoza was arrested in a sting operation. Espinoza stayed 3 months in Jail and was charged with selling $1500 worth of Bitcoin to detectives who claimed that he was illegally transmitting and laundering the money.
In July of 2016 a Miami-Dade judge ruled that Bitcoin is not actually money and all charges against Michell were thrown out.
The Miami Herald reported that Judge Teresa Mary Pooler in her ruling said:
“The court is not an expert in economics; however, it is very clear, even to someone with limited knowledge in the area, the Bitcoin has a long way to go before it the equivalent of money.”
This judgement not only clarifies the status of Bitcoin in Florida but it will have wider implications as well, it also means that those people who were on the fence about using Bitcoin because of its status will be encouraged to use it.
Michell Espinoza’s attorney Rene Palomino told the Miami Herald:
“At least it gives the Bitcoin community some guidance that what my client did was not illegal, What he basically did was sell his own personal property. Michell Espinoza did not violate the law, plain and simple.”
The Bitcoin debate in the United States
Different entities in the United States have treated Bitcoin differently. The SEC thinks of Bitcoin as a security or money. FinCEN (The Financial Crimes Enforcement Network) treats Bitcoin as currency, while the IRS labels Bitcoin as property.
Interestingly it was the IRS’ definition that Judge Pooler referenced in deciding the case Michell Espinoza. How the legal authorities ultimately classify digital assets like Bitcoin will definitely shape the future of the cryptocurrency space.
The way cryptocurrencies will be taxed and used of course will depend on how they are viewed. Mass adoption also requires clarity on the part of the authorities to some extent.
In many countries the legal status of Bitcoin falls in the grey area and authorities have simply chosen to ignore the circulation of digital assets like Bitcoin because they do not see the volumes as of any significance.
In my home country of India for example while the central bank, The Reserve Bank of India is interested in exploring blockchain technology to fight against counterfeiting, they had previously in 2013 warned holders of virtual currencies in a 5 point press release.
The press release stated:
“VCs being in digital form are stored in digital/electronic media that are called electronic wallets. Therefore, they are prone to losses arising out of hacking, loss of password, compromise of access credentials, malware attack etc. Since they are not created by or traded through any authorised central registry or agency, the loss of the e-wallet could result in the permanent loss of the VCs held in them.”
Over time though the perception of the Indian central bank seems to have been changing.
What is Bitcoin?
Maybe Bitcoin is what you want it to be. Different people see Bitcoin differently depending on how they utilise the cryptocurrency.
If you are paying for things in Bitcoin, you are using it as money. If you see it as a store of value that can beat inflation, you probably see it as an asset class similar to gold and so on.
As Charles Hoskinson, CEO of Input Output Hong Kong says:
“I classify it as a digital commodity. It has a nice store of value property but makes a poor unit of account and somewhat ok means of exchange. Commodities like gold generally have this property.”
One thing is for sure, it may be rather difficult to arrive at a definite conclusion anytime soon and we can expect a debate surrounding how Bitcoin can be classified for years to come.