"Bitcoin," wrote Justice Amos Marrant of the United States District Court,Texas, Sherman Division (Texas), in USA Securities Commission v. Shavers, "is an electronic form of currency unbacked by any real asset and without specie, such as coin or precious metal."
For the sake of simplicity, Bitcoin is like a share in a company; let's call that company "Bitcoin Inc.". Once paid for with real money, those virtual shares, called bitcoins are then used as units of currency agreed to between participants to a transaction as the consideration. Contrary to other Internet-based electronic payment systems like VISA or PayPal, the bitcoin consideration is not backed up by any personal assets of the payor or any government currency and precious metal reserves. If ever to be ultimately presented for cash, money, bitcoin is fully dependent on the viability of a nonexistent central payment agency, bitcoin, contrary to, for example, the American dollar being backed up by the Federal Reserve or the Canadian dollar by the Bank of Canada reserves.
In his 2013 article published in the University of Illinois Journal of Law, Technology, Derek Dion wrote:
"Bitcoin (is) an electronic currency not backed by any government. This allows both parties to deal anonymously and avoid the leering eyes of law enforcement.... Bitcoin, seems to fall in between the cracks of a collection of legal frameworks....
"Bitcoin is an electronic form of floating currency unbacked by any real asset and without specie, such as coin or precious metal. It is not regulated by a central bank or any other form of governmental authority; instead, the supply of Bitcoins is based on an algorithm which structures a decentralized peer-to-peer transaction system.
"Bitcoin was designed to reduce the transaction costs that are created when third parties validate transactions and mediate disputes. It solved this problem using a system where all of the other users work together to validate transactions, creating a public record of the chain of custody of each Bitcoin. Users access their Bitcoin account through electronic wallets. They can keep their wallets on their computers, or, to mitigate the risk of theft, they can sign up to use a wallet through an online wallet service....
"Bitcoin is commonly used for online drug markets or casinos. Bitcoin has also been accepted by legitimate organizations, such as WikiLeaks, for charitable donations. Additionally, this trend has been extended to donations to illegitimate organizations, such as criminal hacker groups. Even some brick-and-mortar facilities accept Bitcoins.
"For example, customers can log onto a computer and transfer Bitcoins from their account into the account of a number of restaurants. Currently there are nearly 10.7 million Bitcoins in existence, and this amount is steadily increasing."
Relying on an article published in a popular computer magazine by a journalist Benjamin Wallace, in an article entitled The Rise and Fall of Bitcoin in the computer magazine WIRED, published in November of 2011, Dion adds:
"Bitcoin is commonly used for online drug markets or casinos.... Bitcoin is ideal for those who seek to purchase illegal guns or drugs online, sponsor domestic or international terrorist agendas, or even hire a hit man in anonymity."
A prevailing legal issue is whether owning bitcoin is a security, a negotiable instrument, and therefore falls under local security legislation.
But for all the detractors, bitcoin does appeal as an alternative to the 'big brother' character of official currency and the privacy issues with the now ubiquitous tracking done with other forms of electronic currency such as credit cards, and websites such as Google and Facebook which appear most willing to track users. For example, Google computers read your Gmail emails and present side ads to correspond to the content.
- Dion, Derek A., I'll Glady Trade You Two Bits on Tuesday for a Byte Today: Bitcoin, Regulating Fraud in the E-Conomy of Hacker-Cash, 2013 U. Ill. J.L. Tech & Pol'y 165, 167 (2013)
- Securities and Exchange Commission v. Shavers, Dist. Court, United States District Court, E.D. Texas, Sherman Division, August 6, 2013 (no formal legal citation as of date of publication).