Bitcoin is Property

oatsandsugar —  July 22, 2014 — 2 Comments

Nicholas Mirzai and I recently wrote an article for the Australian Property Law Bulletin:

“The Bitcoin is Property” N Mirzai and J Ottensooser (2014) 29(5) APLB 94

The article discusses whether bitcoin is property, in both common law and following the economic indicia. Further, this article discussed the definition of bitcoin, a bit of international context and some policy ramifications of bitcoin being classified as property.

Bitcoin, bitcoin coin, physical bitcoin, bitcoin photo

Photo by Antana CC-By-NC-SA

Here’s a sneak peek:

The concept of a “paperless” form of currency has historically attracted as many advocates as it has sceptics. That said, in the digital age within which we now find ourselves, it would be naive to close one’s eyes to the movements and developments of the internet and the methods of trading it facilitates and encourages. The emergence and seemingly overnight popularity of “bitcoin” and other cryptocurrencies have taken regulators around the world by surprise. The comfort of dealing with cryptocurrencies as a matter of personal preference put to one side, the proper characterisation, recognition, regulation and security of the cryptocurrencies all present pressing questions for lawmakers. Unlike many other developments in the law, the prolific expansion of the bitcoin highlights a real need for prompt and thorough legislative intervention. This is so particularly in Australia, where the use of bitcoins is increasingly growing. This article suggests an appropriate starting point for lawmakers approaching the topic and expresses a real need for legislative intervention in the near future.

 

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oatsandsugar

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LLM candidate at Cornell Tech. Consultant for King & Wood Mallesons and Project Evangelist for Legalese.

2 responses to Bitcoin is Property

  1. 

    Why does it highlight a need for regulation? Rather I think it highlights a very much underestimated desire across the general population for less regulation. The mathematics of bitcoin means no trusting the bank, no fractional reserve wizardry, etc. Bitcoin solves a lot of problems regulation was originally designed to solve, not least of which is having to trust the regulators.

    • 

      Dear Scott, thank you for your question.

      Regulation is needed for several reasons.

      First, in order to protect companies who work with bitcoin. If an able regulator does not regulate the use of bitcoin in Australia, then another, less knowledgeable one may apply current law to bitcoin in an inappropriate manner. The prime example of this is GST (the Australian VAT). If bitcoin is not exempted by regulators from this requirement, then any transaction in Australia involving bitcoin could potentially be liable for double taxation (payment of GST for the exchange of bitcoin, and for the exchange of goods and services) in a manner similar to what happened with Barter-Card.

      Second, any bitcoin exchange must necessarily provide some interaction with existing currencies. Currently, the most convenient manner of doing so is by using banks. Banks, however, take on a risk disproportionate to the potential profit by taking on bitcoin businesses before the regulation with respect of them is clarified (especially in the anti money laundering space, as well as the financial licensing space). Thus, it becomes difficult for bitcoin businesses to approach banks until this risk is minimised. This can be done through regulation, which would clarify what liability each party has.

      Third, what you say with bitcoin not requiring “trusting the bank” or “fractional wizardry” is only currently accurate. Financial products are already being created in the bitcoin space. Further, we can see that some people (perhaps less savvy than you, and less aware of the risks than they should have been) did trust the “bank” (in storing their bitcoin in online wallets). Whilst this isn’t ideal, such consumers should be protected. Further, whilst currently there is no fractional holding, there is nothing to stop an online wallet provider from doing so, creating an “I owe you” product (which would be profitable, albeit probably frowned upon by the community).

      The regulation required is not to limit bitcoin businesses, and not to raise revenue. Rather, it is to enact legal certainty and reduce risk for other stakeholders, allowing banks to more easily interact with bitcoin businesses; as well as to ensure that certain bitcoin businesses which are more succeptible to default and fraud (e.g. online wallets) have sufficient security and/or capital to protect their consumers.

      I welcome your debate, and would love to hear more from you.

      TL;DR Regulation provides legal certainty, reducing risk for businesses and allowing for their growth.

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