International Business Law Advisor Insights on International Litigation & Transactions

The World’s First Bitcoin Lawsuit—in the United States?

Posted in International Banking, international law, international trade

Bitcoin lawsuit, international payments, international litigation, bitcoin litigation, bitcoin miami

Have you ever received an email that is so fascinating that you have to read it out loud to make sure you that you read it correctly?

I received one of those several days ago.

The email asked the following question:

“This past summer I purchased [factory equipment] in [Country X] with Bitcoin.  I never received the equipment and [the supplier] won’t respond to my messages. Is it possible to file a lawsuit against [the supplier] even if I used bitcoin?

Wow.

I had to re-read the email several times to make sure I understood what I was reading.

I have heard of people buying all kinds of things with Bitcoin, mainly consumer goods and even trips to space.

But this was the first time I learned of Bitcoin being used as a payment method in a major international business transaction.

And it’s certainly the first time I read anything about anyone contemplating a lawsuit based on a failed bitcoin transaction.

My mind raced with all the implications behind the question, i.e.Is it possible to file a lawsuit against [the supplier] even if I used bitcoin?

I could think of only more questions:

  • Why, for example, did this person use bitcoin to make the purchase instead of using a conventional payment method?
  • Is bitcoin considered legal currency in the U.S.?  How about in other countries?
  • Can one sue for breach of contract where payment was made using bitcoin?
  • Could a court seize the defendant’s bitcoin account? How is “bitcoin jurisdiction” determined?

Bitcoin Basics. 

Let me back up a bit to explain what bitcoin is for readers who may not be familiar with it.

In the most basic terms, Bitcoin is a decentralized digital currency that enables instant payments to anyone, anywhere in the world.

It uses peer-to-peer technology to manage transactions and issue money with near real-time confirmation.  The price of ฿1 bitcoin is currently near the $1000 mark.

Bitcoin Gaining International Legitimacy

Getting back to the question whether a bitcoin-based lawsuit is possible, it’s  my impression is that a cause of action would be viable, at least here in the United States–putting any jurisdictional issues aside for the moment.

A recent SEC decision is guiding and supports the proposition that bitcoin is a legitimate currency.  Just a few months ago, the court in SEC v. Shavers held that bitcoin was a “form of money” subject to regulation by the Securities and Exchange Commission.  (Civ. No. 13-416 E.D. Tex. Aug. 6, 2013).

While the U.S. is just beginning to address the issue, other countries, including Germany and Canada, have emerged as “Bitcoin-friendly” jurisdictions through their favorable pronouncements regarding the regulation and treatment of Bitcoin.

In terms of jurisdiction, however, the international nature of bitcoin raises concerns over where internet transactions involving bitcoin “take place.”

This issue alone is sure to spawn years of litigation.

Conclusion

I’ve still got a lot of  questions.

But  one thing is for sure.  The widespread use of bitcoin will soon generate the first bitcoin lawsuit.  Whether it takes place in the U.S., Germany, Canada or in some other country, remains to be seen.  Until all the legal issues are sorted out, paper money has never looked so good.

What do you think?

References

Regulating Digital Currencies: Bringing Bitcoin within the Reach of the IMF, Nicholas Plassaras, Chicago Journal of International Law, 14 Chi J Intl L (2013), University of Chicago

12 questions about Bitcoin you were too embarrassed to askTimothy Lee

Are Cryptocurrencies ‘Super’ Tax Havens? 112 Michigan Law Review First Impressions 38 (2013) Omri Y. Marian

How Bitcoins Could Revolutionize Global Payments — Forever, Bank Innovation

US regulations are hampering Bitcoin’s growth

The Legal Status of Online Currencies: Are Bitcoins the Future? 
Journal of Banking and Finance Law and Practice (2013)