Technology, Innovation, and the Law: The Wacky World of Bitcoin

by JD Supra Perspectives
Contact

While the IRS’ recent ruling comes as a certain relief to Bitcoin enthusiasts who feared it would be deemed completely illegal and/or entirely shut down, such relief has been bittersweet...

The Bitcoin system is a peer-to-peer digital payment system utilizing open source software and a form of digital currency known as “Bitcoin” that was created by Satoshi Nakamoto in 2009. Satoshi Nakamoto is actually an alias and the true identity (or identities) of Nakmoto remains a mystery. Nakamoto is rumored to possess approximately one million Bitcoins, which is equivalent to $444,700,000 U.S. Dollars as of April 28, 2014.

Since its inception, the Bitcoin system has spawned a flourishing online economy which continues to grow in notoriety and popularity. In fact, an increasing number of retailers, including eBay, PayPal, OKCupid, TigerDirect and Tesla, now accept Bitcoins in lieu of traditional currency and other payment methods.

Despite its growing reputation, there are several risks inherent in the Bitcoin system. Principal among these is the extreme volatility of Bitcoin value, which is capable of drastically dropping or increasing in value unexpectedly. In addition, the electronic nature of Bitcoin creates ample opportunities for cyber theft and hacking, the threat of which was most prominently illustrated by the 2011 security breach suffered by the now-defunct Mt. Gox Bitcoin exchange resulting in the loss of hundreds of millions of users’ dollars when a hacker created an enormous “ask” order at any price.

The legality of Bitcoin has remained an unanswered question since its inception, and only very recently has the U.S. Government shed any light on how it views or intends to treat Bitcoin.

In a Notice issued by the Internal Revenue Service (IRS) in March 2014, the IRS ruled that virtual currency “does not have legal tender status in any jurisdiction.”  Further, the IRS held that virtual currencies like Bitcoin are considered “property transactions” under current tax law. Because Bitcoin is “convertible”, meaning it can be exchanged for other real currencies, transactions involving the sale or exchange of Bitcoin and other virtual currency have “tax consequences that may result in tax liability”.

While the IRS’ recent ruling comes as a certain relief to Bitcoin enthusiasts who feared it would be deemed completely illegal and/or entirely shut down, such relief has been bittersweet and somewhat tempered by the recent flurry of government rulings and public scrutiny aimed at imposing regulation and increased structure on the virtual currency industry. Alas, the primary underlying goal of the Bitcoin system – to function as the world’s first completely decentralized, untaxed, and anonymous currency system – seems to have been compromised by its own popularity.

*

[Part of our JD Supra Perspectives series in which we asked our contributors, experts in their fields, to write about examples in which technological innovation has outpaced the law. Margaret (Maggie) Arcaro is an associate in the Denver office of Sherman & Howard L.L.C., where she focuses her practice on technology transactions and intellectual property.  You can reach Maggie at marcaro@shermanhoward.com.]

Written by:

JD Supra Perspectives
Contact
more
less

JD Supra Perspectives on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Privacy Policy (Updated: October 8, 2015):
hide

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.

Security

JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.