Is Bitcoin a Currency?

Pop quiz.  What technology has been in place since 1871, allowing individuals and businesses alike to send funds from one entity to another? 

If you guessed electronic payment systems, you’d be called crazy.  But you’d also be right.  From the days of a Western Union “wire” of funds via the telegraph until today, the digitization of funds via an electronic medium is a very, very old technology.

While electronic funds transfer technology is old, confusion abounds in some of the newer entrants to the field.  The greatest example of this confusion is bitcoin and its enabling technology, the blockchain.

Is bitcoin a currency?  This is a topic that has been long debated in many different circles.  In my last article, I argued that blockchain technology itself is not a currency at its fundamental level. 

But as an implementation of blockchain technology itself, is bitcoin itself a currency?  Unfortunately, there is a great divide among experts and even government authorities on the question.

For example, the Federal Reserve Bank of Cleveland refers to bitcoin as a “digital representations of value, a fiat currency based on cryptography”.  The IRS agrees, and even paints with a broader stroke when it refers to all virtual currencies as a representation of value .  As such, the IRS treats bitcoin as property, just as you might a car or a rare autographed book.

Interestingly, there isn’t consensus among regulatory bodies, even in the US.  The US Department of the Treasury’s FINCEN (FINancial Crimes Enforcement Network) provided guidance in 2014 that any US company operating a bitcoin exchange is considered a “Money Services Business” under the Bank Secrecy Act.  In other words, FINCEN believes bitcoin exchanges are money transmitters, which are companies that negotiate or broker currency exchange. As such, they are subject to regulatory oversight for anti-money laundering and anti-terrorism among other things.  So, is bitcoin a currency?  According to FINCEN, yes.

Many vendors would agree.  For a few years now, bitcoin has been accepted as legal tender from large retail chains such as Overstock, Dell and Expedia to small coffee shops and bookstores.  Innovative partners such as Gyft are able to broaden bitcoin’s reach.  I've bought a pizza from Papa John's via a Gyft gift card.  The delivery guy was thrilled when he found out he delivered his first pizza paid in bitcoin.  But I still tipped him in cash.

So is bitcoin a currency?  Probably.  But maybe not.  Until there is a consensus, the jury is out.  I believe it will be helpful to have a universally accepted definition of what bitcoin actually is.  One way this may get accelerated is in a pending criminal case in Florida.

A man was arrested in early 2014 for selling $30,000 worth of bitcoin to an undercover officer.  Prosecutors argue that he was operating an unlicensed money service business, clearly aligning towards FINCEN’s view of bitcoin.  However, the defense argues differently.  Bitcoin is simply a representation of value, and as such, he was selling that value just as if someone might sell a car from one private citizen to another.  Who is right in this case?

While the outcome of this case won’t determine legal precedent across the country, it does illustrate the problems and confusion that abound when it comes to the exact nature of bitcoin.  Perhaps in short time, bitcoin will eventually be more broadly and universally defined.  Or, perhaps, bitcoin will do what it always seems to do best by simply defining itself, finally and forever.