Online currencies have recently become a trending topic of discussion among various interest groups. Very broadly, an internet currency is a means of exchanging value which exists entirely in the virtual world. Though this definition could, to some extent, encompass currencies whose value exists solely in the realm of various online gaming worlds and even the U.S. dollar, whose presence in electronic transactions far outnumbers its presence in actual wallets, this paper will focus on the web-based currencies which many see as an alternative to sovereign-issued and backed paper currencies including Bitcoin.
Though not a new concept (at least not on the internet timeline) online currencies have come increasingly into the spotlight recently in the U.S. as both their efficacy has been shown and as speculation has grown over whether federal authorities will decide that they are an affront to sovereignty. The most likely result of such a determination would be legal action against their creators, their use and possibly their users. Such government action would likely be premised on the concept that online currencies are illegal under U.S. laws which dictate that the federal government has a monopoly on most forms of hard currency issuance.
Against this backdrop a complex topical alliance of increasingly vocal minority groups who view online currencies as a possible solution to many perceived societal problems has arisen. Included in this motley crew of allies with otherwise disparate ideological interests are gold bugs, libertarians, privacy advocates, anarchists, and those to whom, having grown up in a world where online transactions have begun to outweigh more traditional interactions, online currencies seem a natural corollary. There is also a growing sense among many that mismanagement of the dollar, by abusing both its status as the reserve currency of the world and its strength as a policy tool, has made the U.S. dangerously dependent on foreign interests. These factors and others have made the potential for alternatives increasingly desirable in the eyes of many.
Academic research over the past dozen or so years has created more questions than answers with respect to online currencies. Some have argued that the US Federal Reserve Bank should manage online currencies side-by-side with its management of U.S. dollars. Such a view is reflective of the notion that online currencies fall strictly under the powers of the U.S. government, and would arguably result in a well-structured system in harmony with the existing dollar. However, such a system would certainly lack appeal to many of the interested groups noted above.
Others have argued, based on somewhat tortured readings of existing federal statutes, that online currencies do not fall strictly under the purview of the U.S. government currently. While such a position would have appeal to some advocates, investing time and effort into a system resting on a foundation of semantic acrobatics in a world where federal officials have a history of protecting their interests seems risky at best and foolhardy at worst. The type of healthy and thriving system many envision is dependent on greater assurances than that.
There are, of course, more issues than whether or not current U.S. laws govern or even contemplate online currencies. As the internet knows no geographic borders, it could be argued that they are not currencies as defined by U.S. law at all. Those responsible for the issuance of such currencies may not even be located within the jurisdictional authority of U.S. officials. In-force currency laws were written to combat the proliferation of private currencies which threatened the sovereignty of a young federal government; the internet was 200 years from existence when many of them were written, and their authors surely didn’t have such technology in mind. On top of these questions, such varied areas of the law as securities regulation, international law and banking law are implicated by online currencies making analysis of their use particularly challenging.
In this paper, we assume arguendo that online currencies are not exempt from government regulation if for no other reason than pragmatism; the government could, even in a losing judicial action, eliminate or at least seriously curtail their use. Inherent in this is an acceptance that federal laws would either have to change or be interpreted differently than they thus far have in order for the legal status of online currencies to become clear. We explore both options and conclude with our recommendation for a productive approach.
eremiah Newhall is a graduate of The George Washington University Law School and currently serves as a law clerk in Chicago. He can be reached via the miracle of email. Joshua Sturtevant is also a GW Law grad, and currently serves as an in-house legal fellow at a renewable energy financing and development firm.