Cryptocurrencies and the uniform commercial code: the curious case of bitcoin
| Autor | Lorena Yashira Gely-Rojas |
| Cargo | Juris Doctor Candidate, 2018 at University of Puerto Rico School of Law |
| Páginas | 129-144 |
CRYPTOCURRENCIES AND THE UNIFORM COMMERCIAL CODE: THE CURIOUS
CASE OF BITCOIN
LORENA YASHIRA GELY-ROJAS*
∗
!
I. Introduction .............................................................................................................................................. 129
II. The Mechanics and Inner Workings of Bitcoin ............................................................................... 130
III. Current Regulatory Framework ........................................................................................................... 132
A. Bitcoin as a Currency ......................................................................................................................... 132
B. Bitcoin as Property ............................................................................................................................ 134
C. Bitcoin as a Security .......................................................................................................................... 134
D. Bitcoin as a Commodity .................................................................................................................... 136
E. Bitcoin Classification in Court Rulings ........................................................................................ 137
IV. Bitcoin Under the Uniform Commercial Code ................................................................................. 138
V. Towards a New Regulatory Framework ........................................................................................... 142
VI. Conclusion ................................................................................................................................................ 144
!
I. INTRODUCTION
Virtual currencies have been gaining traction in the media and markets, with Bitcoin as
its most well-known cryptocurrency. They are defined as “digital representations of value,
issued by private developers and denominated in their own unit of account.”1 Advocates praise
their decentralized nature, transparency, convenience, and anonymity. Virtual currencies “can
be obtained, stored, accessed, and transacted electronically, and can be used for a variety of
purposes, as long as the transacting parties agree to use them.”2
Bitcoin was originally introduced as a white paper by an anonymous author or authors
under the pseudonym Satoshi Nakamoto in 2008, primarily as a way to negotiate in the
Internet’s black market.3 Throughout the years, it has grown in popularity to encompass several
sectors and a diversity of uses. Transactions involving bitcoins are like cash payments and are
practically anonymous, for the customer is not required to hand over substantial personal
information through the use of the blockchain. However, recent federal regulations and court
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* Juris Doctor Candidate, 2018 at University of Puerto Rico S chool of Law; B.B.A. in Human Resources Management
and Finance, 2014 at University of Puerto Rico School of Business Administration; U. P.R. BUS. L. J., 2016-2017
Associate Director. This paper is the product of a course on Secured Transactions taught by Professor José L. Nieto
Mingo.
1 D ONG HE,
ET AL
., V IRTUAL CURRENCIES AND BEYOND: INITIAL CONSIDERATIONS, IMF SDN/16/03, 7 (2016)
https://www.imf.org/external/pubs/ft/sdn/2016/sdn1603.pdf.
2
Id.
3 James P. Gerkis & Serafima Krikunova,
Bitcoin and Other Virtual Currencies: Approaching U.S. Regulatory
Acceptance
, 39 ADMIN. & REG. L. NEWS 4 (2014).
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University of Puerto Rico Business Law Journal Vol. 8
130
decisions are contradictory as to the true nature of bitcoins: is it property, a currency, a
commodity, a security, or something entirely different requiring new legislation to promote its
growth?
This article examines the current regulatory framework for Bitcoin and the implications
of this virtual currency under the Uniform Commercial Code (hereinafter, U.C.C.), specifically
under Article 9. In order to provide a background of how this particular virtual currency works
Part II will explain the nature and inner workings of Bitcoin. Part III discusses the conflicting
current regulatory framework that has been used to categorize Bitcoin by different federal
agencies and court rulings. Part IV of this article proposes how Bitcoin can be categorized under
Article 9 of the U.C.C. and, particularly, the implications of its categorization as a general
intangible. Lastly, Part V provides arguments for a new regulatory framework away from the
limiting definitions of the U.C.C. and the particular interests of parties in a case or of specific
agencies, one that incorporates all the categories under which Bitcoin can fall and the
advantages it has as a medium of exchange.
II. THE MECHANICS AND INNER WORKINGS OF BITCOIN
As previously discussed, virtual currencies are digital representations of value that are
issued by private developers and that are not denominated in fiat currency, but rather have their
own unit of account.4 Cryptocurrencies are decentralized, meaning there is no central party that
administers or issues them, instead, there is “a framework of internal protocols that govern the
operation of the system and allow the verification of transactions to be performed by the system
participants themselves.”5 By operating as decentralized systems, users can make secured
transactions, denominated in virtual coins that rely on encryption for security, which are carried
out over virtual networks on the Internet.6
Additionally, most cryptocurrencies are pseudo-anonymous because users are solely
known by addresses that cannot be easily traced back to their real-world identity, but that are
publicly recorded in the blockchain.7 Lastly, cryptocurrencies derive their value from the
expectation that others also value and use them. The main concern with respect to
cryptocurrencies is that because of their rigid supply rules due to a fixed number of possible
outstanding units, these virtual currencies can pose the risk of structural deflation.8 Money
demand grows with the growth of the economy, but when the supply is fixed, a growing
demand often leads to structural deflation because the supply cannot satisfy the demand.
Bitcoin is an open source, peer-to-peer, decentralized protocol that can be used as a
payment system without the use of intermediaries; however, it can also be used as a digital
currency.9 Bitcoin was created in 2008 by someone anonymously called Satoshi Nakamoto and it
is a virtual currency that relies on the principles of cryptography by using a distributed database
across nodes of peer-to-peer networks.10 Bitcoin was built upon the basis of cryptography and
blockchain technology, which “are the foundational technologies accomplishing the tracking of
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4 DONG HE,
ET AL.
,
supra
note 1.
5
Id.
at 9.
6 Sam Hampton,
Undermining Bitcoin
, 11 WASH. J. L. TECH. & ARTS 331, 335 (2016).
7 DONG HE,
supra
note 1, at 9.
8
Id.
at 34.
9 Jeanne L. Schroeder,
Bitcoin and the Uniform Commercial Code
, 24 U. MIAMI BUS. L. REV. 1, 10 (2016).
10 Octav Neguriţă,
Bitcoin – Between Legal and Financial Performance
, 6 CONTEMP. READINGS L. & SOC. JUST. 242
(2014).
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