'Bitcoin and the Uniform Commercial Code' by Jeanne L. Schroeder
comments
Much of the discussion of bitcoin in the popular press has concentrated on its status as a currency. Putting aside a vocal minority of radical libertarians and anarchists, however, many bitcoin enthusiasts are concentrating on how its underlying technology – the blockchain – can be put to use for wide variety of uses. For example, economists at the Fed and other central banks have suggested that they should encourage the evolution of bitcoin’s blockchain protocol which might allow financial transactions to clear much efficiently than under our current systems. As such, it also holds out the possibility of becoming that holy grail of commerce – a payment system that would eliminate or minimize the roles of third party intermediaries. In addition, the NASDAQ and a number of issuers are experimenting with using the blockchain to record the issuing and trading of investments securities.
In this Article, I examine the implications for bitcoin under the Uniform Commercial Code (the “U.C.C.”). Specifically, I consider three issues. In Part 1, I discuss the characterization of bitcoin – which I am using generically to refer to any virtual or cryptocurrency – under Article 9. The bad news is that it does not, and cannot be made to fit into, the U.C.C.’s definition of “money”. If held directly by the owner, bitcoin constitutes a “general intangible”. Unfortunately, general intangibles are non-negotiable. This could greatly impinge on bitcoin’s liquidity and, therefore, its utility as a payment system.
In Part 2, I show how this may be mitigated by the rules of Article 8 governing investment securities. If the owner of bitcoin were to choose to hold it indirectly through a financial intermediary, then she and the intermediary could elect to have it treated as a “financial asset” which is super-negotiable. Unfortunately, this comes at the cost of eliminating one of the primary attractions of cryptocurrency, namely the ability to engage in financial transactions directly without a third-party intermediary. However, Article 8, may already provide a legal regime for another contemplated use for the blockchain – namely as a readily searchable means of recording the ownership and transfer of property generally.
In Part 3, I explain how cryptosecurities fall squarely within Article 8's definition of “uncertificated securities.” Ironically, therefore, the creation of bitcoin securities may finally breathe life to little used provisions that were invented almost 40 years ago in a failed attempt to solve a completely different problem.
'The Coming of Age of Digital Payments as a Field', a
paper by Ignacio Mas and Ross P. Buckley,
has
three objectives. It lays out the key differences between a banking and a payments mindset, within the historical context in which these fields have developed. It initiates a discussion on whether it is useful to articulate the digital payments space as an emerging profession distinct from banking, and if so, what might be the core elements of its identity and how might a sense of a profession emerge. Finally, it looks at the main vision, information and human capacity gaps that are at present limiting the pace of development of the digital payments space.
In referring to 'Breaking
the
payment
innovation
floodgates' the authors comment
Given
bankers´
traditional
reticence
to
develop
stand‐alone
payment
services
with
the
levels
of
convenience
and
certainty
that
customers
demand,
a
host
of
players
have
entered
the
space
in
the
last
decade.
They
come
from
diverse
backgrounds
—from
large
mobile operators
and
retailers
to
tiny
specialist
internet
start-‐ups—
but
they
all
share
the
technology
focus
that
enables
transactions
to
happen
fast,
with
as
few
clicks
as
possible,
anytime
and
anywhere.
The
digital
payments
sector
has
grown
beyond
all
recognition
and
continues
to
evolve
fast.
The
innovation
floodgates
are
being
torn
asunder
by
two
main
forces.
From
a
technology
standpoint,
the
internet
and
smartphones
make
it
possible
to
design
rich
and
scalable
solutions
at
a
fraction
of
the
cost
it
would
have
taken
a
decade
earlier.
From
a
regulatory
standpoint,
there
is
a
growing
trend
for
regulators
to
allow
new
specialist
payment
service
providers
or
e-‐money
issuers
the
opportunity
to
get
into
the
business
without
having
to
acquire
a
banking
license
or
partner
with
a
sponsor
bank.
Banking
is
centuries
old,
but
the
field
of
digital
payments
is
only
fifty
years
old.
With
hindsight,
we
can
identify
at
least
four
waves
of
innovation
around
digital
payments.
The
first
wave
of
payment
innovators
sought
to
ride
on
top
of,
rather
than
displacing,
banking
services.
Such
was
the
case
with
the
VISA
and
MasterCard
credit
associations
that
emerged
in
the
1950s,
and
with
internet
payment
service
providers
such
as
PayPal
that
emerged
in
the
late
1990s.
These
systems
rely
on
banks
to
conduct
all
customer
due
diligence
and
provide
cash
in
and
cash
out
services.
If
you
don´t
have
a
bank
account,
you
simply
cannot
have
a
credit
card
or
a
PayPal
account.
A
second
wave
of
payment
innovators
sought
to
stand
alongside
banks,
and
even
became
a
direct
competitor
to
them.
Their
innovation
was
to
go
beyond
the
purely
digital
and
establish
a
brick-and-mortar
network
of
stores
where
customers
could
complete
their
registration
and
conduct
cash
in/cash
out
transactions.
These
were
the
mobile
money
systems
that
emerged
in
a
number
of
developing
countries
following
the
launch
of
Smart
Money
in
the
Philippines
and
is
epitomized
by
M-PESA
in
Kenya.
Now
you
can
be
part
of
a
digital
payment
network
even
if
you
don´t
have
a
bank
account.
A
third
wave
of
payment
innovators
has
been
making
headlines
in
the
last
five
years,
mainly
in
developed
countries
and
the
US
in
particular.
They
are
seeking
to
unbundle
the
payments
landscape
and
entrench
themselves
in
particular
stages
of
the
payments
value
chain.
They
depend
on
other
players
in
the
ecosystem
to
do
the
rest,
but
through
their
bottleneck
control
of
their
stage
they
seek
to
exert
a
major
control
over
their
partners
and
have substantial
influence
on
the
development
of
the
market.
Examples
are
Square,
for
low
cost
merchant
payments;
Google
Wallet
and
Apple
Pay
for
payment
applications;
and
Stripe,
as
an
integrated
suite
of
application
programming
interfaces
(APIs)
or
hooks
into
a
host
of
payment
options
for
businesses.
A
fourth
wave
of
payment
innovators
is
now
emerging,
with
a
much
more
disruptive
agenda:
they
seek
to
lay
an
entirely
new
foundation
for
financial
transactions
that
is
based
on
decentralized
trust,
peer-‐to-‐peer
networks
running
on
standard
internet
infrastructure,
and
open
source
protocols
managed
by
the
community
of
users.
This
is
the
promise
of
the
new
cryptocurrency
platforms,
such
as
Bitcoin
and
Ripple.
These
platforms
may
enable
the
creation
of
a
host
of
new
players
that
will
not
be
content
just
to
rival
banks,
but
in
fact
will
seek
to
displace
banks
altogether.
