Bitcoin...But It's Not Real Money!

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Here at Coin Pursuit, we've done a lot of research on digital currency, and we've found even those who support the industry often use terms such as “real money” for government-issued currencies. We believe that's doing alternative currencies an injustice; for this reason, when we refer to government and corporate-backed financial tools, we refer to them as “traditional” currency. Simply put, the implication that cryptocurrency isn't “real” money is just plain incorrect. With that said, we'd like to take a little time here to illustrate exactly what we mean.

Historically, several types of legal tender have come and gone. Back toward the dawn of humanity, sticks and colorful rocks were traded for goods such as food and clothing; those primitive days are gone, and more advanced methods of payment are used now. For a more current example, many cultures to this day still use the barter method—I'll give you four chickens in trade for your making shoes for my two horses. Even without dragging in political, economic and cultural factors, we can boil down the definition for “real” money to the following: If you have goods and/or services I'd like to purchase, and I have something to give you in payment for them, and you openly accept whatever I give you, it's considered real money. No matter if it's dollars, pounds, euros, rhinestones or bits of string, if the method of payment is acceptable to both the buyer and seller, it's a valid financial tool. It's money, even if only to the two parties involved.

The founders of Bitcoin—the world's most-used digital currency—tackle this issue head-on in their FAQ page:

...all that is required for a form of money to hold value is trust and adoption. In the case of Bitcoin, this can be measured by its growing base of users, merchants, and startups. As with all currency, Bitcoin's value comes only and directly from people willing to accept them as payment.

It might sound a little petulant to just say, “It's money because I say it is,” but all it takes is someone to agree with you. Back in the late 1700s, the American dollar wasn't considered “real” money. But over time it became accepted in trade within the Colonies and with the young country's allies abroad. It became “real” money.

With only a few years' time since the introduction of cryptocurrency to the world market, many people—and the numbers are rising every day—have agreed it's a valid financial tool. Millions of people have invested in the several types of digital currency available, and merchants and vendors by the thousands have stepped up and announced they're accepting it for purchases. As long as digital currency carries the faith and trust of its investors and merchants, there's nothing to keep it from being considered legal tender.

For those who make the argument that alternative currencies aren't recognized by the US government...well, they are. Consider the following case:

Shady investor Trendon Shavers misappropriated 150,000 Bitcoins from investors—and used many of the profits for personal purposes—and was charged by the Securities and Exchange Commission (SEC) for running an illegal Bitcoin Ponzi scheme. Shavers insisted the couldn't be prosecuted because Bitcoins weren't “real money.” Since Bitcoins didn't carry the legal status of a commodity or security at the time (their argument went), he couldn't be charged for securities fraud, since he was dealing with something of no real world value. Not so fast, the prosecution argued; Shavers' actions constituted the use of both investment contracts and notes, and should therefore be considered securities.

Magistrate Judge Amos Mazzant of the Eastern District of Texas agreed with the prosecution. Forbes Magazine covered the trial, and quoted Mazzant:

The only limitation of Bitcoin is that it is limited to those places that accept it as currency. However, it can also be exchanged for conventional currencies, such as the U.S. dollar, Euro, Yen, and Yuan...Therefore, Bitcoin is a currency or form of money, and investors wishing to invest in BTCST [Bitcoin Savings and Trust, Shavers' company] provided an investment of money.

Mazzant's ruling still stands; since he's a federal judge, the US government recognizes Bitcoin (and, it can be reasonably argued, other forms of digital currency) as “real money.” It's here to stay, and will continue to serve as a viable alternative financial resource.

If you have questions about digital currency—or the growing industry surrounding it—Coin Pursuit would be delighted to hear from you. Please don't hesitate in letting us know how we can better serve your cryptocurrency investing needs.

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