A currently discussed and debate leading-edge topic in business and finance is the existence, legal status, and use of Bitcoin. In brief, Bitcoin is an electronic medium of exchange which occurs only over the internet.
There is no paper money, actual coins, or government regulation. Unlike the “Federal Reserve Notes” and coinage used in the United States, and similar currency used elsewhere throughout the world, all of which is regulated by the Federal Reserve System or other central banks, Bitcoin has no federal, state, local, or international governmental authority yet in-place to oversee the stability of the value of Bitcoin or its uses in the worldwide marketplace.
One of the risks (and some argue benefits) of Bitcoin is that the parties to a transaction are anonymous one to the other. There are intermediary computer servers which do capture both sides of an exchange deal.
This anonymity gives rise to the prospect of fraud, criminal activity, and bankruptcy. For example, there have been stories in the press of Bitcoin being used to purchase illegal goods and services, domestically and transnationally. On the other hand, the proponents of Bitcoin argue that its transaction costs are low, which can serve as a rational economic incentive to develop and use it as a currency.
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Presently there is not an abundance of “bricks-and-mortar” establishments which accept Bitcoin as payment, so its utility does not appear yet to be widespread. There is movement afoot, though, to establish Bitcoin as a legitimate independent currency. In the United States, for example, a Chamber of Digital Commerce was formed in mid-2014. If Bitcoin and its use matures (or disappears as a short-lived innovation), the typical issues involved with commerce and finance will likely follow – and with it, regulation. For example, Bitcoin might emerge as an intangible asset which can be borrowed, loaned, turned into an investment, made into the subject of contracts, or taxed.
An interesting technological element of Bitcoin is that the algorithm underlying it apparently only permits a finite number of Bitcoin to be “mined” and exist. These and other substantive, procedural, and ethical matters will have to be grounded in trust and transparency among the participants and the community-at-large, if Bitcoin is to survive as a respected and accepted commercial instrumentality. A plain-language of summary of Bitcoin, and its potential ordinary-course and nefarious uses, can be found on an episode of Morgan Spurlock’s CNN program, “Inside Man.”
– For more information, call Philip N. Kabler of the Gainesville, FL office of Bogin, Munns & Munns at 352.332.7688, where he practices in the areas of business, banking, real estate, and equine law. He has taught business and real estate law courses at the University of Florida Levin College of Law and Warrington College of Business Administration. And is now the President-Elect of the Eighth Judicial Circuit Bar Association.
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