Electronic money

Charles Lindsey chl at clerew.man.ac.uk
Tue Dec 2 19:51:12 GMT 2014

On Mon, 01 Dec 2014 21:40:24 -0000, Francis Davey <fjmd1a at gmail.com> wrote:

> Clearly cryptocurrencies openly circulate but they aren't "electronic
> money" (*) because they don't represent a liability on anyone.

But I don't accept the argument that money inevitably implies a liability.  
Yes, on a £5 note it says "The Bank of England promises to pay ...". But  
if you march in and tender your £5 note, what will you get in return?  
Another, cleaner £5 note? Yes if you are happy with that, but if you don't  
like it, they will give you 5 £1 coins, and then their liability stops.  
Likewise, if you demand repayment of the money in your bank account, if  
they pay it all in £1 coins, then there is nothing more you can demand of  

Where does a £1 coin get its value? Only from the fact that people are  
willing to give you goods in exchange for one; but that will only last so  
long as the mint refrains from manufacturing too many of them. I doubt  
Tesco would give you goods in exchange for Danish Kröner, but there are  
people (even Tesco) who will exchange them for £s at the "going rate".
> Are there any examples of such things, or are all "electronic money"
> systems essentially reliant on smart cards or references back to an  
> issuer?

No. Assuming for the purposes of this discussion that the Maths and  
Cryptography of Bitcoins are sound, they are worth whatever goods people  
are willing to give you in exchange for them. And some people are willing  
to accept them in exchange for goods, and others are prepared to exchange  
them for more conventional coins, again at a "going rate" (which in this  
case is somewhat volatile, but that is the risk you take).

The real question is whether you could create a legally binding contract  
in which the Consideration was expressed in Bitcoins. I don't see why not,  
nor why such a contract would not be enforceable. For sure, you can agree  
a contract for barter, and it will be enforced. Courts have assessed  
damages in terms of peppercorns before now.

> (*) There's a directive on "electronic money" and being a liability on  
> the
> issuer is an essential (though not only) part of being electronic money.
> Bitcoin is not "electronic money" in that sense and so doesn't fall  
> within
> all the regulatory rules of the same.

But Bitcoins do not have an "issuer". You can mint them yourself (and, to  
some extent, their value represents the cost of minting them, which is  
quite large - people have even designed chips to speed up the process).  
And you have to store them with a company which specialises in doing so  
(of which there are several); but these are really no different from  
banks, and they have a liability if they lose them, or fail to deliver  
them on demand).

Charles H. Lindsey ---------At Home, doing my own  
Tel: +44 161 436 6131                         Web:  
Email: chl at clerew.man.ac.uk      Snail: 5 Clerewood Ave, CHEADLE, SK8 3JU,  
PGP: 2C15F1A9      Fingerprint: 73 6D C2 51 93 A0 01 E7 65 E8 64 7E 14 A4  

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