A fairly obscure case in the Miami-Dade County Circuit Court speaks volumes about the role of Bitcoin in the national consciousness—in both the rapt attention it received from techies and privacy zealots and the way it demonstrated that most people, lawmakers included, still have no idea what to make of virtual currency.
On the surface, Judge Teresa Pooler presided over a fairly straightforward money laundering case, the defendant having facilitated the sale of stolen credit card numbers.
In this instance, however, the exchange was made using Bitcoin rather than an old-fashioned suitcase full of bills.
But since the judge ruled that Bitcoin does not qualify as money, what took place technically wasn’t money laundering in her view. Case dismissed.
It’s easy to picture gangs of shady characters rushing to fence goods with impunity before this decision can be appealed, or before lawmakers can patch up the loophole.
At the same time, I can imagine virtual currency champions bemoaning the continued lack of respect shown their pet project. Such is life when technology moves faster than the law or mainstream society.
This is a good place to revisit my tried-and-true disclaimer that Bitcoin is not blockchain. Blockchain is the underlying distributed ledger technology that enables virtual currencies like Bitcoin.
Financial institutions have been investing billions of dollars in that technology, very little of it in virtual currency applications.
Bitcoin is a fascinating concept with a profoundly flawed reputation. Fortunately financial institutions don’t seem inclined to throw the baby out with the bath water.
Judge Pooler freely admitted she’s no expert in cryptocurrency before opining, “Bitcoin has a long way to go before it is the equivalent of money.”
If we apply her logic as a litmus test, however, that “long way to go” may not actually be so far in the future. The judge argued:
• Due to large exchange-rate fluctuations, Bitcoins have “a limited ability to act as a store of value.” Throw out its first 14 months of existence, which included a massive bubble (plenty of financial instruments behave oddly in their infancy), and Bitcoin has traded in a tighter range than the Brazilian Real and several other sovereign currencies.
Even Bitcoin’s late-2013 bubble has plenty of precedent in foreign currency shocks (see Zimbabwe). Assuming a few more years of stability, Bitcoin should pass this test if it doesn’t already.
The value of Bitcoin fell about 15% this week on reports of a big heist from a Hong Kong cyber vault. That’s roughly the same decline as the British pound post-Brexit (14%).
As in past cases, the breach was of a storage facility, not the Bitcoin code itself. If someone uses this event to claim Bitcoin is useless, the analogy would be to claim US currency is pointless because robbers were able to crack into a bank vault.
Another analogy: if cyber criminals empty out your balance by hacking your online banking account, a victim's reaction might be to shut their online account—not to stop using money.
The equivalent response here would be to close your account with that Bitcoin storage facility.
I suspect the drop in Bitcoin value will correct in the coming days.
• Bitcoins “are not a commonly used means of exchange.” Major retailers like Target and Amazon increasingly are introducing vehicles to accept Bitcoin, particularly for online purchases.
Meanwhile, airlines are among the most visible household brands that no longer accept U.S. currency for in-flight purchases. Should both trends continue, this distinction will similarly evaporate.
• Bitcoin “does not have any central authority, such as a central reserve, and Bitcoins are not backed by anything.”
This condition may take the longest to overcome. U.S. currency, for example, is backed by nothing more than the full faith and credit of the U.S. government.
By its very design Bitcoin does not have an equivalent backing entity, although future virtual currencies may. Given the rapid rise of decentralized, “leaderless” organizations, this criterion itself may eventually become moot.
In her own way, Judge Pooler may have done more than anyone to move cryptocurrency into the mainstream—which may have been her intent all along.
It’s easy to poke holes from the sidelines. But part of Pooler’s ruling seems to express frustration that existing Florida law is insufficient to impart a reasoned judgment.
Since it would be dangerous to declare permanent open season for Bitcoin money laundering, Pooler’s decision may provide the necessary nudge for a much-needed overhaul of the statutes.