No one seems to understand what to try to to about bitcoin.
Since its genesis, regulators and courts round the world have struggled with whether to and the way to manage it. counting on where you’re within the us , as an example , it either is or isn’t illegal to sell your bitcoin for cash without a state license. That’s because counting on where you’re , bitcoin is either money or it isn’t, and selling bitcoin is either money transmission or it’s not.
And in some places, it may be, but nobody has decided. So, you would like a license to sell your bitcoin… unless you don’t.
As a first-generation member of the rapidly emerging crypto legal profession , I even have seen how regulatory inconsistencies increase the value of innovation and drive businesses from jurisdictions that lack clear guidance or take a hostile view of the blockchain and virtual currency industry. Following the Third District Court of Appeal’s Florida v. Espinoza decision, Florida now does both.
As explained below, this is often thanks to a widespread and fundamental misunderstanding of the very nature of bitcoin.
Espinoza says bitcoin may be a payment instrument
The recent appellate opinion decided that selling bitcoin requires a Florida money service business license, overruling the trial court’s order that dismissed criminal charges against Mitchell Espinoza who was imagined to be operating an unlicensed money service business by selling bitcoin.
The court dismissed the fees , concluding that bitcoin wasn’t a “payment instrument” under Florida law, which selling bitcoin wasn’t money transmission. The Third District disagreed with both of those conclusions, holding that bitcoin may be a “payment instrument” because the Court had evidence that individuals were willing to simply accept bitcoin in exchange for goods and services.
The Court cited no technical authorities regarding the event , uses or structure of Bitcoin for non-financial purposes, but instead focused on the very fact that Bitcoin might be used as a way to convey value.
The Court compared the language of Florida’s Money Transmitter Act (Ch. 560, Fla. Stat.) thereto of the federal law and, supported its reading of the plain text of Florida’s law found that it didn’t expressly require that a 3rd party be included during a transaction for that transaction to constitute money transmission.
Accordingly, the Court found, selling one’s own bitcoin constitutes “money transmission,” which needs a license, a written compliance protocol, and extensive record keeping. Not only is that this decision at odds with the Federal view of what constitutes a money service business, it also contradicts guidance from the state regulator, Florida’s Office of monetary Regulation, which stated during a declaratory statement in re: Cryptobase that parties who buy and sell their own bitcoin don’t got to obtain a money transmission license.
It also demonstrates a fundamental misunderstanding of what Bitcoin is and the way it’s developing into a strong network supporting a spread of use cases, including non-financial uses.
Bitcoin isn’t money. It does money
Bitcoin lacks several fundamental characteristics that we recognize as needed for something to be “money.” it’s not centrally backed or technically fungible. Despite this (and likely because the word “coin” appears in its name), it’s often described as “digital money” or “digital gold.”
In actuality, Bitcoin is neither of those things. it’s a worldwide global network of computers that permits participants to
authenticate data without first obtaining permission from a centralized authority. the primary application of that network just happens to be something like money.
The global network is named Bitcoin with a capital “B” and therefore the public ledger that records and validates data entries on the network is named the Bitcoin blockchain. before Bitcoin, secure peer-to-peer electronic transactions of knowledge were impossible because digital information is straightforward to copy; digital representations useful might be copied and spent twice. Bitcoin solves this issue by using cryptographic tools, during a theory of games based system that incentivizes participants that invest computational energy to validate new data by paying a gift for this work.
That internal network reward mechanism is confusingly called bitcoin (with a lower-case “b.”) Without bitcoins to incentivize mining, Satoshi’s network couldn’t work. First, because users who wish to feature or change data tracked on Bitcoin’s blockchain got to pay fees in bitcoin, there’s a price to feature new data and thus the Bitcoin network is unlikely to be flooded with phony or low- value transactions (essentially preventing a denial of service type attack).
Second, because miners that invest their resources to validate changes to the blockchain must be trusted to act honestly, and not certify false data, the bitcoin reward provides a monetary incentive to participants to only accept valid transactions.
The Third District’s decision and what Florida should do about It
The Third District’s opinion focuses exclusively on bitcoin’s financial uses. However, their analysis ignores other uses of the Bitcoin network, including as a censorship-resistant publication network, a time-stamping tool, a document authenticator, a sensible contract platform (using RSK Rootstock) with broad application across many industries, and therefore the ability to facilitate sorts of micro-communications (utilizing Bitcoin’s lightning network) that aren’t otherwise technologically possible.
Each of those non-financial uses requires a user to simply obtain bitcoin to participate in both the financial and non-financial activities facilitated by the Bitcoin network.
By ignoring the State’s existing policy of permitting individuals to sell their digital property without obtaining a money services business license, the Court has transformed Florida from one among the more innovation-friendly states for the blockchain and virtual currency industry into one among the smallest amount . By not recognizing the worth and developing uses of the Bitcoin network, the Court essentially made it cost-preclusive to start out a business that helps to grow or facilitate the still-developing uses of Bitcoin’s global decentralized network and created higher burdens for parties who wish to transact on the Bitcoin network.
The State’s desire to stop unlawful behavior is well founded, but it should be overly cautious when endorsing overbroad or technologically restrictive policies. The Third District Court of Appeal’s decision is at odds with Florida’s Office of monetary Regulation and its proper understanding of the various aspects — both non-financial and financial — of the Bitcoin network. Fortunately, a replacement bill has been introduced before the Florida House that might form a working party to advise the State, among other things, of the way to regulate bitcoin. However, a legislative solution may take months or years.
In the meantime, it’s imperative that regulators and courts take the time to know the Bitcoin network’s applications beyond its use as value in order that they don’t let Florida fall behind.