EFF Drops Bitcoin Over Concerns About Legality

from the is-that-reason-good? dept

Tue, Jun 21st 2011 12:38pm — Mike Masnick

I have to admit to being both skeptical and fascinated about Bitcoin. I think it's a very interesting experiment worth following, but I'm just not sure it can really succeed (though, I think it may create some lessons that others can build on). However, it has been growing, getting attention and popping up as an acceptable currency in some surprising places, and not surprisingly, there's been some significant backlash, with some folks pointing out its problems, and even some (mostly clueless) politicians threatening Bitcoin.

Making things interesting is the news that the EFF will no longer accept Bitcoin. It had started accepting Bitcoin donations a little while ago, but has since rethought the concept for a few reasons. The key point is that they're not entirely sure of the legality of Bitcoin and its uses, and want to avoid getting mixed up in a lawsuit over that as a subject, rather than as an advocate:

We don't fully understand the complex legal issues involved with creating a new currency system. Bitcoin raises untested legal concerns related to securities law, the Stamp Payments Act, tax evasion, consumer protection and money laundering, among others. And that's just in the U.S. While EFF is often the defender of people ensnared in legal issues arising from new technologies, we try very hard to keep EFF from becoming the actual subject of those fights or issues. Since there is no caselaw on this topic, and the legal implications are still very unclear, we worry that our acceptance of Bitcoins may move us into the possible subject role.

Some, such as Jim Harper, find this reasoning to be weak, saying that this is a bogus excuse, since lots of technologies that the EFF uses are legally ambiguous at the start:

Bitcoin is legally novel. But every new technology is legally novel. EFF didn't shy away from publishing commentary online while publisher liability was legally ambiguous.

Accepting a Bitcoin donation is like accepting a donation in kind, in contract rights, or in cat food. If it's worth taking, you go figure out how to accept the donation and square it with existing law. If it's clearly illegal, you don't accept the contribution. (EFF would have said so if they felt it was.) If it's in the middle, a defender of rights to use technology should be inclined toward accepting Bitcoin and clarifying the law, not away from accepting Bitcoin in deference to legal ambiguity and free-ranging government power.

I recognize both arguments, and I think that the EFF is basically saying it's interested in these issues, and certainly willing to get involved in a potential legal dispute down the road -- but it would prefer to do it as an advocate, rather than as the subject of a lawsuit -- and it still doesn't fully understand the legal implications (and, likely, technical situation) of Bitcoin itself, so it doesn't have a firm position on the issue that makes it worth fighting for. I respect that, though, I do wonder why the EFF didn't consider this originally and simply not use Bitcoin in the first place.

Thank you for reading this Techdirt post. With so many things competing for everyone’s attention these days, we really appreciate you giving us your time. We work hard every day to put quality content out there for our community.

Techdirt is one of the few remaining truly independent media outlets. We do not have a giant corporation behind us, and we rely heavily on our community to support us, in an age when advertisers are increasingly uninterested in sponsoring small, independent sites — especially a site like ours that is unwilling to pull punches in its reporting and analysis.

While other websites have resorted to paywalls, registration requirements, and increasingly annoying/intrusive advertising, we have always kept Techdirt open and available to anyone. But in order to continue doing so, we need your support. We offer a variety of ways for our readers to support us, from direct donations to special subscriptions and cool merchandise — and every little bit helps. Thank you.

–The Techdirt Team

Filed Under: bitcoin, legality, money
Companies: eff

32 Comments

If you liked this post, you may also be interested in...

Reader Comments

Subscribe: RSS

View by: Time | Thread

Jay (profile), 21 Jun 2011 @ 12:10pm

Another reason?
"I respect that, though, I do wonder why the EFF didn't consider this originally and simply not use Bitcoin in the first place."

Could it be possible that they were also looking into the malware aspect? Since Bitcoin doesn't seem as secure, it could be possible that they no longer accept the currency partially for financial reasons.
[ link to this | view in thread ]
jackn, 21 Jun 2011 @ 12:45pm

"I respect that, though, I do wonder why the EFF didn't consider this originally and simply not use Bitcoin in the first place."

Their post on the subject seems to explain that they didn't opt to use bitcoin. Someone created an account for them. If that is true, they never really opted to use it, it just appeared.
[ link to this | view in thread ]
el_segfaulto (profile), 21 Jun 2011 @ 12:45pm

Re: Another reason?
There's nothing inherently "bad" about bitcoin. From a technical and cryptographic aspect it is fascinating. The "wallet" that your bitcoins in is nothing more than a portable database holding the hashes that are the coins. The malware that's been in the news lately simply looks for that .dat file and pilfers it. Simply keep your wallet behind a firewall and preferably on a locked down Linux machine and you should be fine.

On a side-note, I've been playing around with bitcoin mining using my GPU. I like the idea, but the implementation favors those with insanely powerful parallel processing abilities. After 3 days of constant mining, I was able to accumulate $6 worth in bitcoins, probably enough to cover electricity and that's it.
[ link to this | view in thread ]
Anonymous Coward, 21 Jun 2011 @ 12:52pm

Easy for Jim to say that, since as a think tank guy, he generally doesn't accept clients drawn from the public, and thus the risk of being pulling into litigation as the subject of the case is purely theoretical.
[ link to this | view in thread ]
ChurchHatesTucker (profile), 21 Jun 2011 @ 12:57pm

Meh.
This is my problem with the EFF. They talk the talk, but often refuse to walk the walk.

I'm glad they're doing what they do, I just wish they'd do a bit more. (Sorry.)
[ link to this | view in thread ]
Chris Rhodes (profile), 21 Jun 2011 @ 1:01pm

Re:
1. The person who sets up the account has the private key and thus full control over the wallet. Having someone else "set you up" a Bitcoin address would be like having a stranger "set you up" a new Chase bank account.
2. The address was available on the official donation site before they started back-pedaling.

Their explanation is ridiculous. They can't possibly be that cowardly, so I'm trying to imagine what the real explanation it.
[ link to this | view in thread ]
Anonymous Coward, 21 Jun 2011 @ 1:06pm

Legal Wimps
I recognize both arguments, and I think that the EFF is basically saying it's interested in these issues, and certainly willing to get involved in a potential legal dispute down the road -- but it would prefer to do it as an advocate, rather than as the subject of a lawsuit -- and it still doesn't fully understand the legal implications (and, likely, technical situation) of Bitcoin itself, so it doesn't have a firm position on the issue that makes it worth fighting for.

A fat lot of help they'd be if, as they claim, they don't even understand the legal issues involved. Yeah, that's who I'd want representing me. Not.

However, they don't mind standing safely on the sidelines cheering someone else along.
[ link to this | view in thread ]
Michael Kohne, 21 Jun 2011 @ 1:22pm

Re: Meh.
They've got enough work trying to help with everyone else's cases. They don't need the extra distraction of being a litigant themselves. Which would also (in some cases) preclude their involvement in other people's cases.

It's a limited resources thing, you can't possibly do everything, and so you have to decide what you WILL do.
[ link to this | view in thread ]
Michael Kohne, 21 Jun 2011 @ 1:25pm

Legal issues
Does ANYONE understand the legal issues of a brand-new, non-nationally backed currency? ANYONE? I doubt it. Most governments have never even CONSIDERED the possibility (because until recently it WASN'T a possibility).

I think that the EFF is a little odd in doing this, but I can't blame them for not wanting to be a litigant - if they are, they probably can't fight for other people's rights.
[ link to this | view in thread ]
Anonymous Coward, 21 Jun 2011 @ 1:32pm

Re: Legal Wimps
Contrary to popular belief, not every lawyer is an expert on every legal subject. EFF is good at some things, but that doesn't make them experts on securities and tax law.
[ link to this | view in thread ]
Anonymous Coward, 21 Jun 2011 @ 1:44pm

Re: Re: Legal Wimps
Contrary to popular belief, not every lawyer is an expert on every legal subject. EFF is good at some things, but that doesn't make them experts on securities and tax law.

Which wouldn't make them a very good legal advocate, would it?
[ link to this | view in thread ]
Chris Rhodes (profile), 21 Jun 2011 @ 1:52pm

Re: Legal issues
Does ANYONE understand the legal issues of a brand-new, non-nationally backed currency? ANYONE? I doubt it. Most governments have never even CONSIDERED the possibility (because until recently it WASN'T a possibility).

This is the first decentralized currency that I know of, but it's certainly not the first alternative currency in the US. Those have been around for a long, long time.
[ link to this | view in thread ]
The eejit (profile), 21 Jun 2011 @ 2:41pm

Re: Re: Re: Legal Wimps
In that area, yes. But that doesn't preclude them from being, for example, experts in Constitutional law, or medical law. You cannot be a l;awyer for evey single kind of law there is, because there is literally too much for a person to take in.
[ link to this | view in thread ]
Jeremy7600 (profile), 21 Jun 2011 @ 2:58pm

Re: Re: Re: Legal Wimps
Not a good advocate for securities and tax law.

But for everything else they advocate for, they are experts. (free speech, online rights, copyright fair use, freedom of information requests)
[ link to this | view in thread ]
Anonymous Coward, 21 Jun 2011 @ 3:01pm

Re: Re: Another reason?
I think there is one thing that is inherently bad about Bitcoin. It incentivizes/values electricity usage.
[ link to this | view in thread ]
Anonymous Coward, 21 Jun 2011 @ 3:02pm

Re: Re: Re: Legal Wimps
They are a good legal advocate for some things, not others.

They may be a great legal advocate for bitcoin users on certain issues, but not others.
[ link to this | view in thread ]
Anonymous Coward, 21 Jun 2011 @ 3:23pm

Re: Legal Wimps
Organizations that step on the governments toes, like the EFF, need to be especially how they step. The government would probably like to find a pretext, even a bogus one, to take action against them. This is something the EFF needs to avoid if they are going to continue stepping on those toes.
[ link to this | view in thread ]
Anonymous Coward, 21 Jun 2011 @ 3:25pm

Re: Re: Re: Re: Legal Wimps
Not a good advocate for securities and tax law.

That's what was meant.
[ link to this | view in thread ]
Anonymous Coward, 21 Jun 2011 @ 3:44pm

"I respect that, though, I do wonder why the EFF didn't consider this originally and simply not use Bitcoin in the first place."

They figured it was a coin toss.
[ link to this | view in thread ]
Anonymous Coward, 21 Jun 2011 @ 4:06pm

It was a good laugh from the start. Last week's pwnage will create (and expose) more security problems, and will eventually be the downfall. It proves they're not serious about the whole thing and either aren't prepared to secure their stuff, or simply not interested.
[ link to this | view in thread ]
Anonymous Coward, 21 Jun 2011 @ 4:19pm

Re:
It was a good laugh from the start. Last week's pwnage will create (and expose) more security problems, and will eventually be the downfall. It proves they're not serious about the whole thing and either aren't prepared to secure their stuff, or simply not interested.

That's why everyone should stick to the established banking system, which has been proved freed of any security problems.
/s
[ link to this | view in thread ]
Anonymous Coward, 21 Jun 2011 @ 4:33pm

The world doesnt revolve around US law, where I come from any money made from bitcoins are tax free hehehe hahaha.
It will bounce back and with the US and Greece etc not far off from defaulting bitcoins are not such a bad thing to have a wee stake in as a side bet.
[ link to this | view in thread ]
Lauriel (profile), 21 Jun 2011 @ 5:11pm

Re: Meh.
It's a solid move. It's not so much not walking the walk as protecting their ability to advocate for others. Having cases brought against them as the subject of a lawsuit seriously undermines their legitimacy. Think about it - when looking for lawyers, do you choose the one who you feel confident can speak for you, or the one who is defending himself against allegations? Which one would you most be able to trust? To be an effective advocate, they need to present as legitimate, and lawsuits undermine that, whether baseless or not.

>>"I do wonder why the EFF didn't consider this originally and simply not use Bitcoin in the first place."

Lol. I guess everyone can be blindsided from time to time. You can't see everything coming.
[ link to this | view in thread ]
Parkway Cozy, 21 Jun 2011 @ 6:19pm

"(mostly clueless) politicians"

Nah. Not clueless. They always see the side of the toast that has the butter.

"Lol. I guess everyone can be blindsided from time to time. You can't see everything coming."

No, this is something someone as clueless as me could have seen coming. Bitcoin is a great idea for honest people, but you had to know there would be manipulation and money laundering five minutes after you heard about it.

I'm glad the EFF has backed away from Bitcoin. Along with the ACLU, they are doing astoundingly important work. I don't want them to become tainted. There's no one else left to defend us.
[ link to this | view in thread ]
Anonymous Coward, 21 Jun 2011 @ 8:34pm

Re: Re:
Yes because the money is owned, distributed, and handled by only one bank. You're a good laugh as well.
[ link to this | view in thread ]
Hephaestus (profile), 21 Jun 2011 @ 11:42pm

Re: Re: Legal Wimps
I was thinking the same thing. They have made a ton of enemies in the content industry and several other industries with their friends of the court briefs. All any of the people they have pushed aside legally need is a pretext to get the goevernment involved.
[ link to this | view in thread ]
Nicedoggy, 22 Jun 2011 @ 2:41am

Bitcoins! Bitcoins! what you gonna do? what you gonna do, when they come for you?
[ link to this | view in thread ]
Bi Tcoin, 22 Jun 2011 @ 3:23am

Re: Re: Another reason?
The idea of bitcoin is not to get rich by having a GPU heat your room.
[ link to this | view in thread ]
Jose_X, 23 Jun 2011 @ 9:40am

Re: Meh.
We talk about what someone doesn't do and forget about what they do do.

Every group has goals. You don't see me as a lawyer even though I could study law and move in that direction. Clearly, I am not really helping people in many ways as a result. I know, Sar. I am a miserable human casm.

So we pick and chose our fights and our areas of expertise.

I think that at this point bitcoin is not a fight they have planned for and feel ready to consider. They may do a 180 degree in 3 years or maybe end up moving in some other new direction.

They mentioned many areas of law that likely apply and which they feel they'd want to understand better before engaging in a suit.

Also, by avoiding being a subject, you get to pick and choose based on your strengths and expectations of success at that moment for maximum bang for buck/time.

I am sure that if someone were to donate $1 million exclusively to be used for bitcoin legal issues, that they would refocus on that topic more aggressively. Anyone making such a contribution to the EFF so they can walk that particular walk cough cough?
[ link to this | view in thread ]
dacoinminster, 23 Jun 2011 @ 1:42pm

Try TradeHill
Some people are saying that the EFF is concerned about the MtGox bitcoin exchange getting hacked, but MtGox.com is just one exchange.

I use http://www.TradeHill.com, which has lower fees and seems more professional to me. I have a code that will get you 10% off your fees there if anybody wants to buy or sell bitcoins on TradeHill.com: TH-R1168
[ link to this | view in thread ]
Jim Harper (profile), 21 Aug 2011 @ 12:37pm

Re:
I own Bitcoin personally, so I have the potential liability that EFF shied away from. I'm not particularly worried, by the way.
[ link to this | view in thread ]
Risk, 5 Oct 2011 @ 11:16am

EFF is broadcasting to all those who can listen that BitCoin is on the fast track to unwanted attention from the invisible government (those who control the "Federal" Reserve, not just those who jerk Obama's puppet strings).

EFF is not immune to the encroaching and insidious presence of US intelligence operatives within their staffing structure. (Just like any organization deemed pertinent to "national security" interests, e.g. state governments, financial institutions, the ACLU, etc.) They have a vital need-to-know directive as to who contributes to the EFF.

�The best way to control the opposition is to lead it ourselves.�
― Vladimir Ilyich Lenin
[ link to this | view in thread ]