For years, many in the Bitcoin industry have eagerly defined and advocated “Bitcoin as money” to a skeptical world.

I share the blame: with certainty I argued that Bitcoin was not only money, but was the best money mankind had ever seen.

But in our haste, we misled ourselves and others. Bitcoin isn’t money after all.

Our mistake, as Bitcoin advocates, was that in our excitement over an early, popular use of one facet of the technology, we allowed that specific facet to become its defining property, the expression of which we repeated and highlighted to all who would listen. This was understandable, but premature.

Incidentally, a precedent-setting Florida case has now said as much, declaring “Bitcoin isn’t money” based both on government definitions and prudent legal restraint. The Foundation for Economic Education did a good job analyzing the context of that decision.

But a legal case doesn’t make something true or false. The reason Bitcoin isn’t money is actually more fundamental, standing regardless of that opinion.

Several years into the Bitcoin experiment, it’s time to challenge and re-examine a claim we made and took for granted.

 

Bitcoin =/= Money

To be sure, Bitcoin, or more specifically “bitcoins” as scarce and discernible units, can be traded easily under certain conditions, but this fact should not signal or cast the broad system – especially as broad as the Bitcoin blockchain itself – as money. Many things can be “easily traded” and we do not so quickly accept a definition of those things as money.

More specifically, here’s the problem… Bitcoin is not money in the same way and for the same reason that an internal combustion engine is not transportation. The distinction is important. The former can be used for the latter, sure, but they are not the same thing and to categorize them synonymously leads to error. One is a specific application of the other. Money is a specific application, a sub-purpose, of Bitcoin, just as transportation is a specific application, a sub-purpose, of an engine. We quickly see the inaccuracy of claiming “combustion engines are transportation.” We need to similarly recognize the inaccuracy of claiming “bitcoins are money.”

To provide clarity and justification for this distinction, let’s compare Bitcoin to something we know to be money (both legally and in popular impression): fiat paper (cash). Consider the statement, “Bitcoin is not money, but can be used as money.” This is a reasonable statement, but the same statement falls apart for cash: “cash is not money, but can be used as money.”

That doesn’t really make sense; cash is only money and it makes sense to define it only as such because no other use or application of it exists. “Cash” cannot be applied to some other use, in any meaningful sense, other than perhaps its utility in a bathroom (zing!). The thing (cash) and the application of the thing (money) are one and the same, inseparable. It is therefore reasonable to define one as the other. On the other hand, the thing (Bitcoin) and the application of the thing (money) are not one and the same. They are not only separable, but by default should be comprehended separately. It is therefore unreasonable to define one as the other.

Consider that while money is indeed one specific application of the underlying technology of paper, it would be foolish to, as a legal or practical definition, categorize all paper to be money. Besides being inaccurate, it would lead to ridiculous and impractical outcomes, such as an inventory of printer stock suddenly requiring a money transmission license to ship across state lines.

In the same way, money is indeed one specific application of another underlying technology, that of Bitcoin (or blockchains, generally). And yet it is similarly foolish, as a legal or practical definition, to categorize Bitcoin to be money, for it would lead to ridiculous and impractical outcomes, such as an inventory of Bitcoins requiring a money transmission license to ship across state lines.

To continue the parallel, “transportation” is a specific application of a combustion engine, its underlying technology in this instance. And yet it would be again foolish, as a legal or practical definition, to categorize combustion engines always as “transportation.” Installing an industrial engine in a factory might then require the permission of the Highway Safety Administration and operating it would demand a Driver’s License.

See the issue? This is the fallacy currently taking place with Bitcoin. Again, this is largely our own fault, and we ought to correct our thinking.

 

What, if not money?

Bitcoin, the technology, is finding an increasing quantity of applications beyond its prototypical use case. Many of these applications involve the inscription and communication of blockchain messages, which is all a “Bitcoin transaction” really is: communication.

Applications of blockchains (including Bitcoin’s) that are explicitly “non-money”:

  • Demonstration of credit-worthiness/collateral
  • Information anchoring and “truth proving”
  • Meta-token creation (itself a nearly limitless subcategory)
  • Access keys
  • Voting
  • Title tracking
  • Identity formulation and demonstration
  • Secure messaging
  • Content hosting and dissemination (see LBRY)
  • Video game assets (see Spells of Genesis or Beyond the Void)
  • Intellectual property (see what Imogen Heap is up to or Blockai)

And only an unimaginative observer would think the applications of this technology are limited to the concepts above. Consider the early days of the internet, and how few of today’s popular applications were fathomed at its genesis.

Blockchains and the tokens built upon them should be understood as a diverse suite of specific technologies, with all manner of diverging unspecific applications built upon them.

One of those applications can be “money,” sometimes, and perhaps that use was all many people recognized in the blockchain’s early years. But – and this is why it’s important to let an innovation blossom before striving too hard to narrowly define it (or regulate it) – as Bitcoin and other blockchains have evolved, it has become clear that money is but one narrow application of many for which they excel, just as transportation became one narrow application of combustion engines.

Bitcoin and other blockchains are fundamentally communication tools between humans; a mechanism for speech. Blockchains do little but convey messages of various forms, in a highly secure, decentralized, transparent, and honest form. This is profoundly advantageous for society. Like the printing press and the internet (two other technologies which can also be used “for money,” and yet shouldn’t be defined as such), the blockchain is a human tool for speech and communication, and should be categorized as such, if categorization is required.

And as a tool for speech, blockchain communication deserves the exact same sanctity as world wide web communication, or phone communication, or written communication. If the protection of speech is not meant to encompass the forming, publishing, and conveyance of important messages between people, then what is it for, exactly?

A blockchain message is fundamentally no different than a message over the web, indeed, it is a message over the web. Knowing that a blockchain message occurred does not demonstrate that “money” happened any more than knowledge of an internet packet demonstrates that “file sharing” happened.

If specific applications of these communication tools require narrow definition, categorization, and legal treatment, then so be it, but the general inscription of a bitcoin message should not, by any reasonable person, be categorized automatically as “money” any more than the general inscription of an FTP message should be categorized as “filesharing,” though indeed both categories of activity occur on those platforms. On its own, a glance at the packets (in the case of FTP), or the transactions and blocks (in the case of BTC), establishes neither the application nor the appropriate legal treatment of that application.

 

Why does this matter?

This distinction is important for anyone who cares about the technology’s technical, social, and regulatory development and, specifically, the value it will bring to billions of individuals standing downstream.

When defined holistically as money, Bitcoin and other blockchains inevitably fall within a narrow, unreasonable, incorrect, and dangerously limiting legal framework. The restrictions architected around money, designed decades ago upon a wholly different system of value transmission (namely corruptible, opaque, siloed, and centrally controlled), have cut deep into the flesh of innovation, tearing at it upon every attempt at movement.

To the extent that Bitcoin as a communication platform (its rightful, most factually accurate definition) is improperly defined universally as money, all who build upon it, all who would use it, and indeed all who attempt to regulate it, will be led toward undue burden, cost, confusion and regret. This may not have been obvious in 2012, but it should be increasingly obvious now. Again, this is why many of us in the community have urged prudent regulators to “wait and see.”

Within a few short years, the branches of this technology have been reaching out swiftly in all directions. We should not cast the whole tree as but one branch.

 

The Long View

Peer just slightly into the future… The reputational value of a parent’s Identity Token will be leveraged as collateral for a car loan. Access to the car, once purchased, will be transferred to the owner’s daughter via a blockchain key. In the car, the daughter will play the latest Taylor Swift single, tokenized in limited quantity for her Number 1 fans, which she acquired by bartering her tokenized Candy Crush trophy earned the prior day. This single, it should be noted, is streamed to the car over a P2P network, seeded by a man in Toronto with spare bandwidth, paid in real time with Platform Tokens that he intends to use to buy pizza, once he acquires 10,000 of them.

Most, and probably all, of these activities should not by any reasonable person be construed under the same regulatory apparatus as an interbank currency transfer. If “Bitcoin is money,” they become indistinguishable.

If the narrative doesn’t change today, Harvard Law professors of tomorrow will teach a class on this folly, while the students snicker at the pigeonhole into which early 21st century observers so naively placed blockchain technology. Legal professionals: don’t let your hard work become the joke of the future. Squeezing Bitcoin into the Bank Secrecy Act of 1970 is a recipe for humiliation.

I fault myself for this mischaracterization, and must admit that I was both wrong, and myopic, in my early years of Bitcoin when I spent so much time and effort trying to classify this technology as money.

I’d encourage everyone in the community, from technologists to regulators to the actual users, to revisit their categorical assumptions, commonly made during a prototypical period, when the bright light of novelty made the delineations of this technology difficult to discern.

 

Erik Voorhees
Erik Voorhees
http://www.ShapeShift.io
Erik Voorhees, CEO of leading digital asset exchange ShapeShift.io, is among the top-recognized serial Bitcoin advocates and entrepreneurs, understanding Bitcoin as one of the most important inventions ever created by humanity. Erik's former project, the groundbreaking gaming phenomenon SatoshiDICE, was, at its peak, responsible for more than half of all Bitcoin transactions on Earth and popularized the concept of "provable fairness." Having been a featured guest on Bloomberg, Fox Business, CNBC, BBC Radio, The Peter Schiff Show, and numerous Bitcoin and industry conferences, Erik humbly suggests that there is no such thing as a “free market” when the institution of money itself is centrally planned and controlled. This blog is about the human struggle for the separation of money and state, and about Bitcoin as the instrument by which it will happen.

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