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I recently came across a pair of articles that make a case that bitcoins are not money but property. OK so what?
Bob Lawless on Credit Slips discusses an alleged problem in Is UCC Article 9 the Achilles Heel of Bitcoin?
Yves Smith at Naked Capitalism commented on the above. Yves' take: Is UCC Article 9 Going to Kill the Use of Bitcoin by US Businesses?
Yves states ...
Here is the layperson recap. If anyone takes Bitcoins from a business that has a blanket lien (and you as someone dealing with that business won’t know the state of their finances) and that business gets in trouble, the bank can go after any current holder of Bitcoins that have passed through that business’ accounts. This is not the case with money because Bitcoin is considered to be property under the UCC, not money. As the post stresses, “money”. ... Bitcoin is property, and when you exchange the property of a business (its goods, like its doughnuts or other inventory for sale) for other property, like your Bitcoins, the next person who takes the Bitcoins (now regarded as property of the bakery) has any blanket liens of the bakery attach to those Bitcoins.
Fundamental Error in Logic
I believe Yves and Lawless made a fundamental error in logic. Once the bakery transfers those bitcoins to another person or corporation, the bitcoins are no longer property of the bakery. I do not believe any court of law would accept an argument the bakery has any rights to bitcoins it used to make purchases.
And if the bakery has no right to those bitcoins then it is illogical to propose lien holders on the bakery have any right to them.
I had an email exchange with Pater Tenebrarum at Acting Man over this issue. Pater writes, and I agree ...
"Legally it should not matter whether the bakery pays a supplier with money or enters into a 'barter' arrangement (by paying with bitcoin). It is a payment either way. Moreover, the bakery could also first sell the bitcoin for money. Then it has delivered goods and accepted bitcoin in a 'barter' transaction for them, and the bitcoin have taken the place of their stock of salable goods.
If we regard bitcoin legally as non-money, then the bakery is now not only a bakery, but has a bitcoin trading operation on the side. Only if it shifts bitcoins out illegally (e.g. after declaring bankruptcy, or shortly before, in an obvious attempt to fraudulently deprive creditors of attachable assets) will there be any further consequences."
Theoretical Question Regarding Theft
A far more interesting question does arise over theft.
Consider stolen cars or paintings.
If you buy a stolen car or painting. You have to return it. If you buy from a dealer, you can hold the dealer responsible. If you buy a stolen car or painting from someone who vanishes, you are out the money and the painting or the car.
With that in mind, suppose someone stole your bitcoins from Mt.Gox or elsewhere. Unlike the bakery example above, those bitcoins are still your legitimate property.
In the case of Mt.Gox, let's assume stolen coins. Let's also assume the thieves cashed out for untraceable US dollars.
The next person who bought the bitcoins, bought stolen property. If one can determine the location of the stolen bitcoins, then lawsuits, and lots of them (over the rightful ownership) will be coming.
Theoretically, if each bitcoin (and fraction thereof) had a unique number ID (and I believe it would have been possible to have set bitcoin up this way), then they could be traced. But if the bitcoin-blockchain was traceable in such a manner now, it would have already been done.
If governments ever do go to digital currencies, I strongly suspect every cent will be traceable to someone at all times.
Mike "Mish" Shedlock