On September 18th 2015, the Commodity Futures Trading Commission (CFTC) has decreed Bitcoin a commodity, while other U.S. agencies defined it as a property and as a currency. Who is right?
It is common knowledge that Bitcoin, the world’s first peer-to-peer digital currency, was created by a Japanese hacker called Satoshi Nakamoto in 2009. Since its launch, it was welcomed as a great invention and even after six years it still has a high potential to increase its popularity and to compete against ordinary government-backed currencies for two reasons.
- The first one is represented by the avoidance of the double-spending problem, resolved by the mechanisms of the block chain and the timestamp server.
- The second one is the classification of Bitcoin within the Type 3 of the virtual currency schemes, thus allowing bidirectional flows (i.e.: it is possible to convert bitcoins in brick-and-mortar currencies and vice versa).
However, the classification of this asset within the traditional schemes is not straightforward and several agencies have defined Bitcoin in different ways.
Three different definitions
September 18th 2015 – The latest Bitcoin definition was given by the Commodity Futures Trading Commission (CFTC) just few weeks ago, which decreed it a commodity. In a statement, the CTFC’s Director of Enforcement, Aitan Goelman, said:
“While there is a lot of excitement surrounding Bitcoin and other virtual currencies, innovation does not excuse those acting in this space from following the same rules applicable to all participants in the commodity derivatives markets.”
The Bitcoin community is not really satisfied about this classification and somebody blames the high number of US regulators and their willingness to have more jurisdiction.
“There are so many regulators in the U.S., and they all want more jurisdiction, which leads to a constant stream of bizarre rulings.”
said Mike Hearn, software developer specializing in Bitcoin.
Indeed, according to the Webster’s Dictionary, a commodity (i.e.: crude oil, corn, wheat) is “any useful thing,” and/or “anything bought and sold; any article of commerce.”
May it be suitable for Bitcoin as well?
March 25th 2015 – Another definition of Bitcoin is offered by the US Internal Revenue Service (IRS), who faced with a choice of treating Bitcoin like currency or property, chose property. This decision is said to be due to tax purposes and it could reduce the volume of transactions conducted with the virtual currency. In a few words, the IRS ruling means Bitcoin investors are treated like stock investors.
August 7th 2013 – After a Texas man was accused about an enormous Bitcoin fraud, a Federal judge ruled out that Bitcoin is “a currency or form of money”. Indeed, it can be exchanged for other currencies like Euro or Pound Sterling and it can be used for transactions, as a medium of exchange.
A big conundrum
Who is right? The Commodity Futures Trading Commission? The Internal Revenue Service? Or the Federal judge?
Perhaps the closest definition is the easiest one, namely Bitcoin is a digital currency, neither a digital commodity nor a property. Everybody would agree that it is a very special currency, but at the end it is still a currency. The idea of commodity is misleading, since it is impossible to buy goods and services with crude oil or wheat, but it is possible with bitcoins. Of course, the reason for that is in the different nature of these assets: crude oil and wheat are commodities, whereas Bitcoin is a currency.
However, apart from the different ideas suggested, a clear and unanimous definition of what Bitcoin is would be necessary in order to elaborate an effective regulation of this disruptive digital invention.
Guglielmo De Stefano