Is Bitcoin money? US Courts Say Yes.

Is Bitcoin money? US Courts Say Yes.

As the popularity of digital currency Bitcoin increases, the United States will need to take a stance on how they will regulate the currency through different sectors of the economy. The media and the general public may think lawmakers will decided the US stance on Bitcoin, but our court system may be the one that decides the future of digital currency in this country. There have been a couple of cases in the past few years where the court system seems to be taking a position on Bitcoin. Although bitcoin may not be considered money in the traditional sense, many of the court cases have viewed Bitcoin as a currency. In fact, bitcoin  has also been compared to international currencies like the Euro or Yuan. The cases provided below may be providing hints of where the future of Bitcoin may be going in America.

SEC v. Trendon Shavers

In September 2014, Trendon Shavers was fined $40 million for defrauding investors into a Bitcoin Ponzi scheme. Shavers was the operator of Bitcoin Savings and Trust and was known to have solicited illicit investments in bitcoin-related opportunities. He accumulated about $64 million with his activities. The SEC brought the case against him and the court charged him by saying that bitcoin is a form of money  and therefore he could not defraud people with it. The court’s ruling was going against a 2013 declaration by the FinCEN guidance, which said Bitcoin could not be considered a currency. However, the Texas Court said it was pretty clear that Bitcoin can be used as a form of money and can help a consumer purchase goods and services. This case was also crucial because Judge Amos Mazzant provided insight on how bitcoin-denominated damages would be considered. In this case, Judge Mazzant looked at the average daily price of bitcoin to determine the amount of damages. This may set a precedent for similar cases in the future.

US v. Faiella

Charlie Shrem and Robert Faiella came under fire when the two were accused of providing bitcoin to Silk Road users, an online black market. Shrem was the CEO of BitInstant, a bitcoin exchange company. Both Shrem and Faiella were charged with several counts of money laundering and transferring money without a license. Faiella tried to plead his case by saying that Bitcoin was a digital currency and therefore did not fall under the money laundering counts. Judge Jed Rakoff rejected this reasoning and said something very similar to Judge Mazzant, explaining that anything that bought goods and services counted as money. Since bitcoin had the capability of purchasing goods and services and paying for things like a rental payment, it could be considered money. With this reasoning, both Shrem and Faiella were forced to plead guilty to the charges and ultimately ended up paying nearly $1 million in fines.

State of Florida v. Espinoza

Pascal Reid and Michell Abner Espinoza were arrested in February 2014 for engaging in fake transactions on LocalBitcoins.com and converting $30,000 of cash into bitcoin. Both were charged with Florida’s anti-money laundering law and with money transmission charges. In August, the Bitcoin foundation filed an amicus brief to dismiss the money transmission charges because Florida’s law applied only to corporations and entities qualified to do business in the state. Reid and Espinoza did not fall under this category. Although the foundation’s brief may help Reid’s case, that was not the goal of the organization. Their amicus brief was only an attempt to ensure an outcome that sets a favorable precedent for the rest of the Bitcoin community. Reid and Espinoza turned to the IRS to help them prove that bitcoin is not money.

US vs Ross William Ulbricht

This last case was fairly similar to the three presented above, where Ulbricht argued that he could not be charged with money laundering because bitcoin did not count as money. Ulbricht was charged with being the leader of the online black market Silk Road. He was found guilty on charges of computer hacking, drug trafficking, money laundering and engaging in a criminal enterprise. Like previous judges, Judge Katherine Forrest compared bitcoin to the Euro and other international currencies. While Ulbricht was not willing to plead guilty on any of his charges, there seems to be little hope that a decision will be made in his favor.

As it is clear through the four court cases present above, the legal definition of money is somewhat debated. US Courts seems to agree that bitcoin does fall under the category of money, but defendants continue challenging this definition of money. Their explanation for this is that bitcoin, like money, can help someone pay for goods or services. Many foreign countries have criticized the use of bitcoin and want to ban the currency all together. A case involving Bitcoin has not yet reached the Supreme Court, but their decision may put an end to all this debate.

Source referenced: Coin Desk

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What are Blockchain Smart Contracts?

What are Blockchain Smart Contracts?

Smart contracts are “contracts between parties stored on a blockchain” or “any computation that takes place on a blockchain.” The term can be used to identify a specific technology (smart contract code) or a specific application of that technology (smart legal contracts). The two uses of this term often lead to confusion and debates among individuals. Understanding the difference between the two uses of the word smart contracts will help you answer questions and better take a stand for your position on smart contracts.

Smart Contract Code

Smart Contract Code is the term used to identify a specific technology. Individuals who develop blockchain technology used the term “smart contract code” to refer to blockchain code. However, many people generically use this term to refer to any complex program that is stored and executed on blockchain. The reason we call these codes contracts is to show that they hold something valuable. Think of it as something equivalent to money or someone’s identity. Unlike legal contracts, smart contracts are not actually “contracts.” They do need conditioned financial language at all times.They can also hold balances of cryptocurrency. Augur, Slock.it, and Boardroom are examples of application that are made out of smart contract code. As the use and understanding of this term increases, we may be able to get out of using the analogy to legal contracts. Instead, we may be able to refer to smart codes the same way we refer to JavaScript or HTML.

Smart Legal Contracts

The terms smart legal contracts refers to “a way of using blockchain technology to complement, or replace, existing legal contracts.” Unlike Smart Contract Code that can operate on its own, smart legal contracts need the assistance of the law. In other words, it would require a blend of code and natural language. An example would be a supplier of goods who enters into a contract with a retailer. While the payment may be automatically made when the delivery is made, an indemnification clause would no bring any value to a smart legal contract because a court would be needed to enforce it.

When can you use a Smart Contract?

There are many different uses for smart contract. In the past, they have been used by the financial field as instruments for stocks, bonds, or derivative contracts. This allowed them to simplify the process related to trading. In the future, real estate and intellectual property can be exchanged and traded over the blockchain system. The hope is that smart contracts can be used to facilitate new types of commercial arrangements and make more commercial relationships possible. Machine-to-machine commerce and the growing system of smart devices with the ability to communicate to one another is also a region for smart contracts to grow. While smart contracts will not necessarily work for legal contracts, they are commercially viable if there is a trusting relationship.

We hope this article has cleared up confusion on the term smart contracts and has provided information on when to use smart contracts. The different uses of the term in the field only adds to the confusion of blockchain technology and smart contracts. With more and more technologies emerging, we should see an increase in the use of smart contracts for commercial purposes. Using them for legal matters is not recommended for the reasons stated above. Lawyers looking at smart contracts often see them as marginally approved legal agreements, but fail to see the potential of blockchain-code to extend beyond law’s reach.

Source referenced: Coin Desk

Investing Spare Change with Lawnmower

Investing Spare Change with Lawnmower

What is the one thing young professionals spend the majority of their time using? You guessed it, their smartphone. What is something young professionals today might have a problem doing? You may have guessed it, saving money. With this knowledge, an app called Lawnmower was launched in 2014. The app tracks its users credit card and bank transactions and rounds each one up to the next dollar. The spare change is invested into buying Bitcoin. If you buy a book for $4.70, Lawnmower will round your purchase up to $5 and invest the extra 30 cents into buying Bitcoin. The goal of the app is that the spare change will add up over time and become a way for today’s generation to save money.

More and more apps are being designed to help young professionals accumulate their wealth. Another app, Digit, automatically sends small amounts of money from a checking account to a savings account. Acorns, similar to Lawnmower, automatically invests spare change into exchange traded funds. Mint is another app that helps people understand their spending and increase their savings. A trend among all these apps is that they charge little or no fees for their services. Lawnmower does not currently charge anything, but users may still pay a fee for using Bitcoin. Lawnmower plans to offer premium services to its users to generate revenue.

The founders of Lawnmower, Alex Sunnarborg, Pieter Gorsira, and Patrick Archambeau, hope that their app will be easier to use than Bitcoin, which can be overwhelming and complex for new users. The fact that Lawnmower’s success is completely dependent on the ongoing use of Bitcoin does not concern the three founders. As an entirely digital currency, Bitcoin has had its fair share of ups and downs. While there were days when the price point of Bitcoin hit over $1,000, there were also days in 2014 where it stood at a little over $200. Although not everyone is convinced that Bitcoin is the future of currency, Sunnarborg does not think Bitcoin’s success or failure with impact his users too much. This is because his user’s will only be jeopardizing spare change, not huge amounts of money. Sunnarborg makes a fair point, but one thing to keep in mind is that losing small amounts of spare change everyday can add up to a huge amount.

Source referenced: Fortune

Western Union vs. Bitcoin

Western Union vs. Bitcoin

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Western Union was not happy when Bitcoin “released” an advertisement comparing itself to Western Union. The image above shows the parody ad that was posted on Bitcoin’s Facebook page. Western Union filed a claim against Bitcoin under the Digital Millennium Copyright Act (DMCA) saying Bitcoin had infringed on its trademark of the image. However, DMCA only covers copyright material, not trademarks. Facebook removed the image from Bitcoin’s News Page immediately and the man who originally posted the image, Dave Aiello, wanted to charge Facebook for deleting his image. It is not clear whether Aiello was the one who originally created the image, but he was the one to post it on Facebook and later share it on reddit. Facebook told Aiello they would restore the image to Facebook, unless Western Union takes legal action within 10 to 14 days.

Parodies are usually considered “fair use” under DMCA. In addition, companies rarely take legal action based on images or content posted on social media sites. This raises the question of why Western Union was so fast to take action against Bitcoin. One reason could be that Western Union feels threatened by Bitcoin’s rise in popularity. Another reason could be that Western Union simply wanted attention. If this spoof had not surfaced on social media sites, Western Union would not have gotten the attention it received. If they decide to take further legal action against Bitcoin, it just brings more attention to the company.

While we may not know the exact reason Western Union is making such a big deal out of a parody advertisement, it will be interesting to see whether or not the DMCA holds that parodies fall under the “fair use” doctrine. In addition, DMCA does not cover trademarks, which is what Western Union wants to sue for. This controversy brought attention to Bitcoin and their services. It would be a win-win situation for both companies at the end of the day in terms of media exposure, especially if Western Union is not able to formally file against Bitcoin.

Sources referenced:

  1. ARS Technica
  2. Coin Desk

I am Invincible at the SF Coin Summit – This Week!

Get your Bitcoins on!

Excited to be attending Coin Summit this week in the city by the bay.

And proud to finally be able to announce that I am attending as Co-Founder and Director of an exciting new high tech start up in the crypto digital currency security space.

InvincibleWallet LLC is developing a web-based, BIP32 wallet. It’s next-generation. It’s hierarchical. It’s deterministic. And, it will fundamentally alter the security landscape for Bitcoin storage and transactions.

Stay tuned as we approach our launch and Follow the fun on my Twitter feed:  https://twitter.com/RauschLaw

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Apple declares war on Bitcoin, but it’s a war that it’s destined to lose | SiliconANGLE

Has Apple just committed a blunder of historic proportion?

When Apple pulled the Blockchain.info wallet app from the Apple store yesterday, Blockchain drew a line in the sand and came out swinging – calling Apple out for trying to use its monopoly power to take for itself what is generally believed to be the inevitable migration toward digital currency payment systems.  Many thought (myself included) this to be a huge blunder by Apple because the centralized handling of all things Apple (think “iCoin”) is at fundamental odds with the premise of the BitCoin protocol’s trusted consensus achieved via a de-centralized highly distributive network.  It’s hard to believe Apple doesn’t get this.

This article well articulates why Apple may be destined to loose this fight.

Apple declares war on Bitcoin, but it’s a war that it’s destined to lose | SiliconANGLE.

Bitcoin Is Good!

I’ve been following BitCoin for some time now with great interest.  Most recently, I’ve become involved in a new start up venture that will work in the BitCoin space.

There is certainly a wealth of criticism and pessimism about BitCoin – all easily found on the internet – exspoused by naysayers who, frankly, are mostly prone to critic there own fundamental misunderstanding about the nature, core and significance of the BitCoin Protocol.

Below is a link to an excellent counter-point to one recent New York Times columnist. Granted, this rebuttal is authored by the CEO of a major first entrant into the BitCoin business space. But, then, maybe that simply underscores that he “gets it”.

Stay tuned for lots more about this.

Bitcoin Is Good | Re/code.