Evan Schuman's StorefrontBacktalk

The government alleged that the use of Bitcoin violated Title 18 USC 1960, which prohibits the transfer of funds without a money transfer license, or without registering with the Secretary of Treasury under 31 U.S.C. 5330. The term funds transfer “includes transferring funds on behalf of the public by any and all means.” This presumably would include not only Bitcoin, but also Amazon coins, assuming that the value of the Amazon coins can be transferred from one customer to another.

You can imagine a secondary market, used by drug dealers or others, in Amazon coins. Narcotics dealers surreptitiously smuggling Kindles laden with virtual cash. A terrorist transferring millions of Amazon coins to a fellow traveler, together with a copy of the latest Dan Brown tome.

The problem for retailers and the government alike is that, frankly, we don’t know what “money” is anymore. In fact, we never did. From stone wheels to pooka shells to golden and silver disks to green paper to digital representations, the nature and character of “money” is constantly changing. Freely exchangeable Amazon coins are as much “money” as are bitcoins, and as are eGold credits. They permit something of value to be transferred from one person to another. In fact, gaming credits potentially can be the same thing.

At the boardwalk, when you play the games and wind up with armfuls of paper tickets redeemable for a plush toy or some other nonsense, we might consider the tickets themselves to be “currency” subject to federal or international regulation.

The problem arises from the fact that the government wants not only to control the supply and value of “money” but also increasingly to know who has it, and to whom they are transferring it. This is both for tax reasons (transfers of money are frequently taxable) and to deter money laundering (the concealment of funds derived from specified unlawful activities). If those paper tickets at the amusement park are not money, then a drug dealer could collect 10 billion such tickets and give them to another dealer, who could redeem them for several million stuffed Nemo the fish dolls, which would then be sold on the open market for $1 million. Voilà! A million bucks transferred without filing any paperwork. The government won’t like that.

Anytime a merchant creates a virtual currency, or any alternative method of payment or barter, it has to consider the legal and practical effects of doing so. I am not saying that it will necessarily be unlawful, but prosecutors and judges are getting increasingly aggressive about making crimes out of things that nobody would have thought was criminal. And lawyers generally hate uncertainty, especially when it means that their client can go to jail, and really especially when it means that a client’s funds might be seized and they may not be able to pay their lawyers.

If you disagree with me, I’ll see you in court, buddy. If you agree with me, however, I would love to hear from you.