Of Bitcoins and Garden Gnomes

Cash is a great medium of exchange. It is very efficient. If someone wants to buy a garden gnome at a garden store, there are very few hurdles to the transaction.  The store does not require identification and there is no need to pay a transfer fee or monitor a bank account for the funds to clear. The buyer just pays in cash and goes back to important things like worrying about where the garden gnome will go. Online transactions through third-party payment networks, in contrast, are generally not anonymous, often costly, and far from instant.

Federal officials are examining opportunities for improvement.  But others are considering privately run, digital currencies as a means to securely transfer funds over the internet. Foremost, and most controversial, among such online currencies is Bitcoin. Bitcoins are computer files corresponding to a specific amount of “digital cash” that can be exchanged through a privately run, peer-to-peer network. With no central authority monitoring transactions, Bitcoin relies on cryptography and thousands of computers to protect value and to process transactions worldwide. Like other fiat currencies (including the United States Dollar), its value floats, making it worth only what people are willing to pay for it.

Bitcoin will likely never replace national currencies, but it has many advantages over them.

A number of businesses like Overstock.com, Tesla Motors, and Tigerdirect now accept Bitcoin. This is both a marketing strategy and a low-cost form of payment processing. Compared with credit cards, Bitcoin can be transferred for little-to-no cost (roughly forty cents per transaction) and finalized in less than five minutes. Of course, Bitcoin is also used for online gambling and purchases of illegal drugs and weapons, due to its anonymity. If someone is buying a garden gnome made of cocaine online, chances are they are doing so with Bitcoin. And because Bitcoin can easily be traded for dollars speculation is wild. In the past year, the value of a single Bitcoin has risen from less than a hundred dollars to nearly twelve-hundred dollars in December 2013 and then falling to seven-hundred dollars in March 2014.

Questionable transactions aside, attorneys should take the time to learn about Bitcoin. Bitcoin users increasingly require legal services. Wall Street firms are looking at ways to adapt Bitcoin for a variety of financial processes. Congress is evaluating Bitcoin’s meteoric rise and related financial regulatory concerns. The Justice Department is pursuing individuals and companies suspected of money laundering with Bitcoin. Businesses that want to accept Bitcoins need to set up exchange contracts to mitigate volatility. And companies that specialize in Bitcoin services are availing themselves of American courts. For example, Tokyo-based Mt. Gox, the world’s largest Bitcoin exchange, filed for chapter 15 bankruptcy protection in Dallas and a related case in Japan. Mt. Gox is also the defendant in two nationwide class-action suits. As Bitcoin and other similar currencies grow, lawyers will increasingly be called to help clients navigate the complex legal issues that these digital currencies present. Attorneys faced with such challenges will quickly realize that traditional cash transactions are simple, but the law governing digital cash like Bitcoin is not.


Law Clerk for Justice Henry duPont Ridgely, and beginning in September 2014, Associate, Weil, Gotshal, & Manges LLP.  The views expressed in this article are purely my own and do not reflect the views of the Supreme Court of Delaware. For a more in-depth primer on Bitcoin, see Nikolei M. Kaplanov, Comment, Nerdy Money Bitcoin, the Private Digital Currency, and the Case Against Its Regulation, 25 LOYOLA CONSUMER LAW REVIEW 111 (2012). (link)
[Editor’s note: As of the end of April, this paper had been downloaded from the Social Science Research Network over 2000 times, making it one of the most frequently downloaded papers by any Temple author, ever.]

2 thoughts on “Of Bitcoins and Garden Gnomes”

  1. Well, the un-traceability is slightly otersvated, as I understand it. If you’re willing to go to a lot of bother, you can make it more untraceable, but you can’t make it completely absolutely untraceable.Is the word dangerous the correct one? I’m thinking disruptive is more accurate. The Internet is described as dangerous , too, but it’s disruptive not dangerous.But if he’d used disruptive , would he have gotten as much attention?It’s not *just* a political statement. If it works for some purposes micropayments or convenient meso-payments or alternative to national currencies or inflation hedge it’s an asset, much like a natural resource. Gold. Petroleum. Fish. Only it’s artificial. An artificial resource, like a reverse phone directory, or a bourse, or precious metal made into coins.If a major currency takes a Zimbabwe-style nosedive, we can expect bitcoin bans, that end-user prosecution . Suppress the symptom and create a scapegoat. A two-fer.

  2. Excellent analysis but I am not entirely sure that the issues that you outlined regarding bitcoin will be solved, neither if the solutions that are to be found are in the best interest of this currency (or other virtual currencies in the future). I think we, bitcoin fans, will just have to wait and see.


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