In a piece appearing on ZDnet today Ken Hess wrote a about his letter campaign to inform United States Senators of "Bitcoin's illegality" and of how Tom Coburn's office responded. Mr. Hess's case for Bitcoin illegality consist of his reading of Article 1, Section 8, Clause 5 of the United States constitution which enumerates as a power of Congress:
To coin Money, regulate the Value thereof, and of foreign Coin, and fix the Standard of Weights and Measures;
And which Mr. Hess interprets as meaning with respect to Bitcoin:
What makes it illegal is Article 1, Section 8, Clause 5 of the Constitution of the United States. Only the US Treasury can coin currency. If the US government doesn't produce currency, it is illegal. End of story. Now you have the confirmation from a US Senator to prove it.
This of course is the result of a tortured reading of the United States Constitution and gross misunderstanding of the relationship between Bitcoin and the United States. Bitcoin is foreign to the United States, and the politics of Bitcoin are such that Bitcoin exists. Bitcoin exists whether the legislature of the United States wants it to or not. The only extent to which the United States can allow anything at all with respect to Bitcoin is the extent to which it can reform itself to work inside Bitcoin.
For what it is worth, here's Tom Coburn's letter:
Dear Mr. Hess,
Thank you for writing to me to express your concerns about cryptocurrencies, such as bitcoin. I appreciate the opportunity to hear from you on this matter and share many of your concerns.
The IRS recently announced its ruling that cryptocurrencies will be taxed at capital gains rates rather than ordinary tax rates, so there is no longer ambiguity surrounding its tax treatment. I understand your concerns with the potential use of cryptocurrencies in money-laundering activities. This risk is certainly a potential threat, particularly since transactions exceeding ten thousand dollars do not require disclosure to the Financial Crimes Enforcement Network.
In terms of the Department of Treasury’s sole authority to produce currency, the definition of currency must be analyzed. Currency is legal tender recognized by the federal government. In other words, if the federal government does not disperse or remit cryptocurrencies, they are simply not legal currency. If the IRS were to accept bitcoin as tax payment or if Congress were to appropriate bitcoins, then a constitutional conflict would exist under Article I Section 8 Clause 5. I will continue to carefully monitor the use of bitcoin and other cryptocurrencies.
Again, thank you for writing to me. Best wishes.
November 20, 2014
Tom A. Coburn, M.D.
United States Senator
Tom Coburn avoids the extreme position of Mr. Hess and offers that Bitcoin might be illegal, but only for the Federal Government. Still through a complete lack of reading comprehension on Mr. Hess's part he concludes from the letter:
I hope this letter clears up any ideological conflicts for Bitcoiners and cryptocurrency types. The so-called currencies are illegal under the Constitution and there is no defense otherwise.