A court in the State of Florida, US, has recently issued a judgement in relation to a money laundering case. The money laundering aspects are not relevant to this post – instead, what is interesting is how the judge viewed bitcoin.
Bitcoin is relevant to the case since that is how the allegedly fraudulent transactions were being conducted. The full judgement is available here http://www.miamiherald.com/latest-news/article91701087.ece/BINARY/Read%20the%20ruling%20(.PDF)
The judge ruled that bitcoin is not money, and hence any prohibitions on money transactions, such as might include money laundering, could not apply to bitcoin. The judge said that while bitcoin had some attributes in common with what we commonly refer to as money, it differs in “many important aspects.”
The judge then went on to name those differences:
- bitcoin is not a commonly used means of exchange
- bitcoin is accepted by some, but not all, merchants
- the value of bitcoin fluctuates wildly hence is not a good store of value
- bitcoin is decentralised; it does not have any central authority, such as a central reserve
- bitcoins are not backed by anything
- bitcoin cannot be hidden under a mattress like cash and gold bars.
I’m sure that final point must have been said by the judge with a twinkle in her eye and a wink at the court clerk – she would not seriously believe that money cannot be money if it cannot be hidden under the mattress? The judge then went on to say, somewhat unnecessarily, that “This Court is not an expert in economics…”
The history of money demonstrates that bitcoin is indeed money. Money is whatever people use in common practice. It could be grain, salt, gold or silver. All those commodities have been used as money in years gone by. Cigarettes were used as money by soldiers in the 20th century world wars. Paper and coinage became more widespread because of the inconvenience of lugging great sacks of grain to the supermarket, but the fundamental point is money is what people want it to be. Clearly, to be money, whatever commodity is used must have certain specific qualities: it must be consistent, divisible and difficult to counterfeit. It should be convenient, easy to store and transport. Bitcoin meets all of those criteria. Unfortunately, what we currently accept as money does not meet all of those criteria.
Governments used to have to back the amount of currency on issue with actual gold reserves – this was necessary to gain the trust of the community that the paper and coins could be relied on. That constraint imposed a fiscal discipline on government – a good thing, I hear you say. But fiscal discipline is very annoying to a government. So the governments around the world dumped the fiscal discipline and came off the gold standard. What was left were fiat currencies not backed by anything of value. Also, fiat currencies are abused by governments all around the world. When you hear of quantitative easing and fractional reserve banking – the hallmarks of modern banking systems, ordinary citizens are being abused by the central institutions of government policy. When you hear of helicopter money, think abuse of the citizenry.
The abuse is that money is being created and its first use goes to governments and banks. To be first user of new money grants a huge advantage because the purchasing power has not yet been diminished by virtue of having more money on issue. That purchasing power will be diminished after a period of time in circulation. First user gets the full value – eventually, the economic system adjusts to what every high school student knows to be obvious: printing money does not make the whole community richer, it only makes the printer richer.
I’m sorry to have to advise the judge that bitcoin is more what money used to be than is the greenback.