A Miami-Dade judge ruled Monday that Bitcoin is not actually money, a decision hailed by proponents of the virtual currency that has become popular across the world.
In a case closely watched in financial and tech circles, the judge threw out the felony charges against website designer Michell Espinoza, who had been charged with illegally transmitting and laundering $1,500 worth of Bitcoins. He sold them to undercover detectives who told him they wanted to use the money to buy stolen credit-card numbers.
But Miami-Dade Circuit Judge Teresa Mary Pooler ruled that Bitcoin was not backed by any government or bank, and was not “tangible wealth” and “cannot be hidden under a mattress like cash and gold bars.”
“The court is not an expert in economics; however, it is very clear, even to someone with limited knowledge in the area, the Bitcoin has a long way to go before it the equivalent of money,” Pooler wrote in an eight-page order.
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The judge also wrote that Florida law — which says someone can be charged with money laundering if they engage in a financial transaction that will “promote” illegal activity — is way too vague to apply to Bitcoin.
“This court is unwilling to punish a man for selling his property to another, when his actions fall under a statute that is so vaguely written that even legal professionals have difficulty finding a singular meaning,” she wrote.
The ruling was lauded by Bitcoin experts who believe the ruling will encourage the use of the virtual currency, and offer a roadmap to governments across the world that have struggled to understand and regulate it.
Espinoza’s attorney, Rene Palomino, said the judge’s order was “beautifully written.”
“At least it gives the Bitcoin community some guidance that what my client did was not illegal,” Palomino said. “What he basically did was sell his own personal property. Michell Espinoza did not violate the law, plain and simple.”
A spokesman for the Miami-Dade State Attorney’s Office said: “We are presently reviewing the court order to determine whether we will be appealing this decision.”
Law enforcement has struggled to figure out how Bitcoin fits into illegal activities, and Espinoza’s case was believed to be the first money-laundering prosecution involving the virtual currency.
The controversial virtual currency allows some users to spend money anonymously and it can be also be bought and sold on exchanges with U.S. dollars and other currencies.
The currency has gained popularity with merchants selling legitimate goods and services. In Miami, there are a few restaurants that accept the virtual currency — and even a plastic surgeon.
Regulated services such as CoinBase, which operates similarly to PayPal, allow people to buy, sell and use the Bitcoins. But authorities have raised concerns about the currency being used in the anonymous black market.
Most notoriously, Bitcoins were used to traffic drugs in the now-shuttered Silk Road network. In an unrelated South Florida case, a Miramar man got 10 years in prison after using Bitcoins to buy Chinese-made synthetic heroin from a Canadian prisoner.
In Espinoza’s case, Miami Beach detectives found him through a Bitcoin exchange site, LocalBitcoins.com, and told him they were going to use the currency to purchase stolen credit-card numbers.
The detectives met with Espinoza, 32, three times in person: on Lincoln Road, at an ice cream shop and in a hotel room.
Espinoza was arrested along with another man, Pascal Reid, who pleaded guilty to acting as an unlicensed money broker and was sentenced to probation. Under his unusual plea deal, he agreed to teach law enforcement about Bitcoin.
At a hearing in May, a defense expert, Barry University economics professor Charles Evans, testified that Bitcoin was not actually money.
No central government or bank backs Bitcoin, like the United States does the dollar. Government regulation of Bitcoin remains a messy hodgepodge from state to state, country to country. The IRS considers Bitcoin deals no more than bartering, he said.
“Basically, it’s poker chips that people are willing to buy from you,” said Evans, a virtual-currency expert who was paid $3,000 in Bitcoins for his defense testimony.
The judge’s decision will help Bitcoin flourish in Miami and countries where banking system are tenuous, Evans said in an interview on Monday.
“Bitcoin is perfect for small-scale cross-border transactions and we are international in this area,” Evans said. “If somebody from Venezuela needs a hammer, now that person can send Bitcoin to his cousin in Miami, that cousin can sell the Bitcoin, go buy the hammer and send it to Venezuela.”
The ruling could also spark a push to tweak Florida law. Judge Pooler, in her ruling, said the state’s money-laundering law that targets transactions that “promote” illegal activity requires a “much-needed update.”
“Hopefully, the Florida Legislature or an appellate court will define ‘promote’ so individuals who believe their conduct is legal are not arrested,” Pooler wrote.