A user selects an electrical appliance offered for sale on an internet website trading in Bitcoin currency. Photographer: Chris Ratcliffe/BloombergChris Ratcliffe/Bloomberg
The Bitcoin is a phenomenon of far-reaching economic libertarianism, which its proponents claim to be a currency, a purely digital one that is not backed or issued by any national government. Last week, it obtained significant recognition as a currency, though not in the most favourable context.
Apparently for the first time, a court has concluded, persuasively, that the Bitcoin is indeed money – but in a prosecution for fraud.
In 2011, Trendon T. Shavers of McKinney, Tex., who has used the Internet moniker pirateat40, started a company called First Pirate Savings and Trust, later changed to the less provocative name Bitcoin Savings and Trust. He promised an extraordinarily high interest rate – up to 1 per cent per day – and attracted 66 investors from across the United States. Their holdings were in Bitcoin units.
A year ago, BTCST defaulted. The Securities and Exchange Commission commenced a civil lawsuit alleging fraud – more particularly, that Mr. Shavers had set up a Ponzi scheme, paying the investors their interest from the proceeds of new investments in the company.
In a preliminary motion, Mr. Shavers argued that he could not have committed securities fraud. There was no "investment of money" to fit him into the terms of the Securities Act, he said, because Bitcoin units are not money.
Quite rightly, Magistrate Judge Amos L. Mazzant of the U.S. Federal District Court disagreed. Bitcoin units are money because they can be, and are, used to buy all sorts of things: goods, services, shares, conventional currencies and so on. Some people may accept it in payment, and some may not – as happens with normal foreign currencies – but it is nonetheless money.
The value of the Bitcoin has been notably volatile, but recently has become comparatively stable. Digital currencies may yet settle down and remain as voluntary mediums of exchange, which are not reliant on the authority (or "fiat") of a government.
Nonetheless, they can never float freely in pure utopian statelessness. Nation-states cannot permit voluntary currencies to facilitate frauds, money laundering and other crimes. Magistrate Judge Mazzant has done his bit to restrain monetary anarchy.