EFF Gone Wobbly on Bitcoin

by on June 21, 2011 · 14 comments

My expectations of the Electronic Frontier Foundation are high. It’s an organization that does a tremendous amount of good, advocating for rights to freely use new technologies. Alas, a blog post about how good EFF is would be as interesting as a newspaper story about the lack of house fires in Springfield. So I’ll share how I feel EFF has gone wobbly on Bitcoin.

Bitcoin, the very interesting distributed digital currency that is inflation-, surveillance-, and confiscation-resistant, has been getting a lot of attention. EFF announced yesterday, though, that it would reverse course and stop accepting donations denominated in Bitcoin.

Its justifications, laid out in a blessedly brief and well-organized blog post, were three:

1. We don’t fully understand the complex legal issues involved with creating a new currency system. Bitcoin raises untested legal concerns related to securities law, the Stamp Payments Act, tax evasion, consumer protection and money laundering, among others. And that’s just in the U.S. While EFF is often the defender of people ensnared in legal issues arising from new technologies, we try very hard to keep EFF from becoming the actual subject of those fights or issues. Since there is no caselaw on this topic, and the legal implications are still very unclear, we worry that our acceptance of Bitcoins may move us into the possible subject role.

My insta-reaction was to joke: “Related: ACLU to stop bringing ‘right to petition’ cases.” That’s a little ambiguous, so: Imagine that the government took a position in litigation that suing the government was not protected by the First Amendment, but was in fact actionable. Under EFF’s logic—avoid becoming the subject of a rights fight—the ACLU would not fight the government on that issue. Luckily, the ACLU would fight the government on that issue—as fiercely or more fiercely than any other!

There are some ambiguities. Bitcoin is legally novel. But every new technology is legally novel. EFF didn’t shy away from publishing commentary online while publisher liability was legally ambiguous.

Accepting a Bitcoin donation is like accepting a donation in kind, in contract rights, or in cat food. If it’s worth taking, you go figure out how to accept the donation and square it with existing law. If it’s clearly illegal, you don’t accept the contribution. (EFF would have said so if they felt it was.) If it’s in the middle, a defender of rights to use technology should be inclined toward accepting Bitcoin and clarifying the law, not away from accepting Bitcoin in deference to legal ambiguity and free-ranging government power.

Bitcoin is a currency, and it trades on currency markets, so you would treat it like a donation tendered in non-U.S. currency. If EFF were to start getting contributions in soybean futures, or rights to free oil changes at JiffyLube, I think it would have figured out how to accept those contributions, the absence of caselaw notwithstanding.

EFF, of course, is not “creating” a new currency system—it’s just one user. Its potential liability drops off precipitously because of that, and because EFF would scrupulously ensure that it’s acceptance of Bitcoin—just like any contribution—should not violate money laundering laws (while such regulation exists).

But if the government argues that any use of Bitcoin is money laundering, well that’s worth fighting, isn’t it? Because that’s a huge claim to power. Bitcoin is a value transfer protocol, and it can be used for anything, good or bad. If you pay your taxes on Bitcoin transactions that would have been lawful if conducted in U.S. dollars, why should the use of this less expensive and faster value-transfer protocol be grounds for punishment?

Were this issue to have arisen in the context of a similarly decentralized domain name system EFF would probably have been there, full of effrontery to government power, both promoting and using such a system.

2. We don’t want to mislead our donors. When people make a donation to a nonprofit like EFF, they expect us to use their donation to support our work. Because the legal territory around exchanging Bitcoins into cash is still uncertain, we are not comfortable spending the many Bitcoins we have accumulated. Because of this, we’re giving the Bitcoins that have been accumulated, or that may accumulate in the future, in the account set up in our name to the Bitcoin faucet, so that they can continue to circulate in the community.

For the most part, this point just restates the first, retooling it to sound like a service to donors and not timidity in the face of legal ambiguity. Donors can expect good faith effort on EFF’s part to use their donations, however denominated, in support of its mission. It doesn’t undermine the mission if the form of donation is non-U.S.-dollars.

In fact, refusing donations in Bitcoin seems to detract from EFF’s mission because it denies the organization a source of funds. The donors who gave U.S. dollars expecting EFF to defend things like Bitcoin may feel mislead by EFF’s reluctance to do so.

3. People were misconstruing our acceptance of Bitcoins as an endorsement of Bitcoin. We were concerned that some people may have participated in the Bitcoin project specifically because EFF accepted Bitcoins, and perhaps they therefore believed the investment in Bitcoins was secure and risk-free. While we’ve been following the Bitcoin movement with a great degree of interest, EFF has never endorsed Bitcoin. In fact, we generally don’t endorse any type of product or service – and Bitcoin is no exception.

So put a disclaimer up that says “We don’t endorse any type of product or service – and Bitcoin is no exception.” That solves the problem with potential miscontrued inferences from accepting Bitcoin.

To be cheeky, I’ll wonder aloud whether EFF’s acceptance of U.S. dollars is an endorsement of that currency—with it’s relentless loss of value to inflation, heavy contribution to surveillance, and amenability to illegal government seizure. Well, of course they don’t. And there’s no real inference from accepting a currency that one endorses a currency. Similarly, if you send an email to EFF written in French, and they use the ideas in your email, EFF is not endorsing French.

The point here is not that EFF or any organization must use Bitcoin. There are plenty of reasons to be skeptical of its utility—it might not be convertible to other forms of value easily enough; it might not have enough reliable value; holding it might involve security risks that remain too great. But legal ambiguities around a novel technology are not a sound basis for a digital rights organization to decline using that technology. That’s a reason to embrace and protect that novel technology.

I look forward to EFF reversing course once again, invigorated in its fight for digital liberty by fear of my mighty blog wrath.

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