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2017 Bitcoin Case Law Update

Around this time last year there was a fair bit of noise as to whether Bitcoin is legal money or not, spurred on by Florida v. Espinoza, in Miami, Florida. This pithy line struck a chord with many:

The court is not an expert in economics; however, it is very clear, even to someone with limited knowledge in the area, the Bitcoin has a long way to go before it the equivalent of money.

Ouch. Tough to hear for proponents of virtual currencies. But Judge Poole’s opinion wasn’t actually that relevant to the Bitcoin’s status as legal money. Regardless, if you want a primer on what Bitcoin actually is and the state of the law surrounding it, read my post Is Bitcoin Legal Money?

But as it’s been a year, I decided to do a quick search to see what recent Federal cases have said about Bitcoin as currency.

2017 Bitcoin Case Law Update

United States v. Ulbricht, 858 F.3d 71, 82–83 (2d Cir. 2017)

Transactions on Silk Road exclusively used Bitcoins, an anonymous but traceable digital currency.

United States v. Brown, 857 F.3d 334, 337 (6th Cir. 2017)

On August 28, 2012, a padded envelope arrived at the Franklin, Tennessee office of PricewaterhouseCoopers, an accounting and professional services firm. The envelope contained a flash drive and a letter, which explained that the anonymous sender had gained access to the firm’s network and stolen the unreleased tax documents of Republican presidential nominee Mitt Romney and his wife Ann. To “Stop Release” of those tax records, all PricewaterhouseCoopers had to do was deposit one million dollars in Bitcoin—a virtual, sovereign-free currency—into a specified account.

United States v. Lord, No. CR 15-00240-01/02, 2017 WL 1424806, at *1 (W.D. La. Apr. 20, 2017)

The bitcoin is a decentralized form of online currency that is maintained in an online “wallet.”

Matter of Warrant to Search a Certain E-Mail Account Controlled & Maintained by Microsoft Corp., 855 F.3d 53, 60 (2d Cir. 2017)

Not actually relevant to Bitcoin’s status as currency, but some philosophical waxing in a dissent from Judge Jacobs:

To enforce the warrant, there is no practical alternative to relying upon access, and no need to seek an alternative. We can conclude that warrants can reach what their recipients can deliver: if the recipient can access a thing here, then it can be delivered here; and if statutory and constitutional standards are met, it should not matter where the ones-and-zeroes are “stored”

Localizing the data in Ireland is not marginally more useful than thinking of Santa Claus as a denizen of the North Pole.

Problems arise if one over-thinks the problem, reifying the notional: Where in the world is a Bitcoin? Where in my DVR are the images and voices? Where are the snows of yesteryear?

Are Bitcoins “funds” under 18 U.S.C. § 1960?

Now here’s the kicker.

United States v. Petix, No. 15-CR-227A, 2016 WL 7017919, at *5 (W.D.N.Y. Dec. 1, 2016)

The above context demonstrates that Bitcoin is not “money” as people ordinarily understand that termBitcoin operates as a medium of exchange like cash but does not issue from or enjoy the protection of any sovereign; in fact, the whole point of Bitcoin is to escape any entanglement with sovereign governments. Bitcoins themselves are simply computer files generated through a ledger system that operates on block chain technology. See, e.g., Shahla Hazratjee, Bitcoin: The Trade of Digital Signatures, 41 T. Marshall L. Rev. 55, 59 (2015) (“The Bitcoin system operates as a self-regulated online ledger of transactions. These transactions are currently denoted by the change of ownership in Coins. This ledger, also referred to as the ‘block chain,’ has certain built-in mechanisms that eradicate the risk of double spending or tampering with the master record of all transactions.”). Like marbles, Beanie Babies™, or Pokémon™ trading cards, bitcoins have value exclusively to the extent that people at any given time choose privately to assign them value. No governmental mechanisms assist with valuation or price stabilization, which likely explains why Bitcoin value fluctuates much more than that of the typical government-backed fiat currency.

The ordinary understanding of money, and Bitcoin’s status outside of that understanding, bring the Court back to the case at hand. The Government’s aphorisms aside (Dkt. No. 24 at 2), there might be ways to prosecute Petix if he had conspired with others to engage in activity that violated other criminal statutes. Here, though, and as noted above, the Government has chosen to focus on the transfer of bitcoins in itself. The Government’s theory of prosecution requires treating Bitcoin as money in the ordinary understanding of that term. Because Bitcoin does not fit an ordinary understanding of the term “money,” Petix cannot have violated Section 1960 in its current form. As a matter of law, then, Count Two fails no matter what amount of factual evidence the Government might have at its disposal.

So in WDNY, Bitcoin is definitely not money under § 1960. But two months earlier…

United States v. Murgio, 209 F. Supp. 3d 698, 707 (S.D.N.Y. Sep. 19, 2016)

“When a term goes undefined in a statute,” courts give the term “its ordinary meaning.” Taniguchi v. Kan Pac. Saipan, Ltd., 566 U.S. 560, 132 S.Ct. 1997, 2002, 182 L.Ed.2d 903 (2012). The ordinary meaning of “funds,” according to Webster’s Dictionary, is “available pecuniary resources.” Webster’s Third New International Dictionary 921 (2002). “Pecuniary” is defined as “taking the form of or consisting of money.” Id. at 1663. And “money,” in turn, is defined as “something generally accepted as a medium of exchange, a measure of value, or a means of payment.” Id. at 1458.

This definition of “funds,” and the corresponding definition of “money,” have consistently been adopted by courts in this circuit. In United States v. Faiella, Judge Rakoff defined “funds,” in the context of interpreting § 1960, as “ ‘available money’ or ‘an amount of something that is available for use.’ ” 39 F.Supp.3d 544, 545 (S.D.N.Y.2014) (citation omitted). And as the Court does here, he also defined “money” as “something generally accepted as a medium of exchange, a measure of value, or a means of payment.” Id. (citation omitted).

Similarly, Judge Forrest has explained that “ ‘[f]unds’ are defined as ‘money, often money for a specific purpose,’ ” and that “ ‘[m]oney’ is an object used to buy things.” United States v. Ulbricht, 31 F.Supp.3d 540, 570 (S.D.N.Y.2014) (citation omitted). Although Judge Forrest reached that conclusion in a case involving a different statute—18 U.S.C. § 1956, which prohibits money laundering—she did so by engaging in the same analysis the Court must perform here. See id. (noting that “ ‘[f]unds’ is not defined in the statute and is therefore given its ordinary meaning”).

In light of this consensus as to the term’s ordinary meaning, the Court concludes that “funds,” for the purposes of § 1960, means pecuniary resources, which are generally accepted as a medium of exchange or a means of payment.

Applying that definition here, it is clear that bitcoins are funds within the plain meaning of that term. Bitcoins can be accepted “as a payment for goods and services” or bought “directly from an exchange with [a] bank account.” Getting started with Bitcoin, bitcoin, https://bitcoin.org/en/getting-started (last visited Sept. 16, 2016). They therefore function as “pecuniary resources” and are “used as a medium of exchange” and “a means of payment.”

But I guess it is money as defined in § 1960 in SDNY?  ¯\_(ツ)_/¯

I imagine we’ll continue to have differing opinions like this until Bitcoin gets kicked up to SCOTUS for an opinion or Congress passes legislation that defines Bitcoin for the courts.

If you know of any other interesting cases involving the legal status of Bitcoin, drop me a line.

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