Are Bitcoins money or not? We could get into technicalities about whether currencies need to be backed by central banks, but when criminals use Bitcoins to do naughty things it is because they are a medium of exchange and a store of value, which are the chief attributes of money. However, the Miami Herald reports that a judge in Florida, USA, ruled that Bitcoins did not meet the definition of money per state law, and so could not be used for money laundering!
Criminals will love the judge’s decision – they want to profit from crime, not argue with lawyers and economists about the definitions of words. Bitcoins should be both a blessing and a curse for enterprising internet businesses, and the networks that empower them. The use of blockchain-based technologies makes it easy for transactions to be performed, recorded and audited without needing a central authority to oversee them all. This will drive down costs, create opportunities, and encourage international trade. All of this is good for comms businesses, whose infrastructure underpins the use of Bitcoins. On the other hand, criminals can be entrepreneurs too, and they often engage in cross-border trade for nefarious reasons. The pseudonymous nature of Bitcoins makes it much harder for law enforcement to use the ‘follow the money’ approach to identifying criminals. That will lead to even more pressure being placed on telcos and other comms businesses, who already get burdened or blamed as societies struggle against organized crime and terrorism.
The idiosyncrasies of the legal arguments about Bitcoin are best demonstrated by repeating the words of Charles Evans, an Associate Professor and self-described ‘moneypunk’ who was an expert witness for the defense. Evans testified that Bitcoins do not meet the definition of money. But this is how the Miami Herald quoted Evans:
“Bitcoin is perfect for small-scale cross-border transactions and we are international in this area,” Evans said. “If somebody from Venezuela needs a hammer, now that person can send Bitcoin to his cousin in Miami, that cousin can sell the Bitcoin, go buy the hammer and send it to Venezuela.”
Maybe an economics professor and a senior judge can hold a productive conversation on the difference between Bitcoin and money. But if they were paid to go to ordinary members of the public in Miami and Venezuela and market this ‘perfect small-scale cross-border transaction’ thing which just happens to be called Bitcoin my guess is they would soon be talking about how similar it is to money.
These blurred lines about the definition of money are nothing new. Many in the world of telecoms are familiar with Special Drawing Rights (SDRs) and will have seen their exchange value quoted in long lists including many currencies. SDRs have been around since 1969, so they predate the internet, never mind Bitcoin. When I google “Special Drawing Rights” the following definition pops up in my browser window:
special drawing rights
plural noun: special drawing rights; noun: SDR
a form of international money, created by the International Monetary Fund, and defined as a weighted average of various convertible currencies.
However, the International Monetary Fund (IMF) is very careful to avoid using the word money when talking about SDRs. The IMF says SDRs are an an “international reserve asset” but not a currency. This only illustrates that there will sometimes be good reasons to be pedantic about the definition of money, even when describing something that admittedly shares a lot of the same properties as money, and is used like money in relevant contexts. Such pedantry is probably less helpful when the context is crime!
Bitcoins may not be the most useful currency in the world – try doing your grocery shopping with Bitcoins and you will see my point. But it is used to move value from place to place – as agreed even by those economics professors who insist Bitcoins are not money. So without getting stuck on the meaning of words there is clearly potential for Bitcoins to be exploited for criminal purposes. The sooner lawmakers, judges and law authorities come to terms with this and align their thinking, the better for all those businesses who want to profit by supporting the many legitimate uses of this technology whilst also helping police to fight crime.