The Congressional Research Service (CRS) has finally released a report on Bitcoin. From my days as a Congressional Intern I know first hand just how influential these reports can be. Overall, the report is incredibly well-researched, and exactly what I was expecting from the CRS’s Bitcoin report.
Unfortunately, as is always the case in research presented to Congress, analysis of existing laws that might effect the subject matter at hand: Bitcoin. One particular piece of prior legislation that was mentioned is the Stamp Payments Act of 1862. The law specifically says:
“Whoever makes, issues, circulates, or pays out any note, check, memorandum, token, or other obligation for a less sum than $1, intended to circulate as money or to be received or issued in lieu of lawful money of the United States, shall be fined under this title or imprisoned not more than six months, or both.”
Without getting into the in-feasibility of government enforcement of this law or any law for Bitcoin, I want to start by noting the historical circumstances that led to this Stamp Payments Act of 1862, and by extension the Legal Tender Act of 1862.
During the Civil War, United States currency (which had then-accurate amounts of silver per coin) became worth more than their government-denominated value due to rising prices of precious metals caused by the prolonged war. Very simply, this caused a short supply of “loose change”, or metal coins of denomination under $1. Most readers will appreciate that $1 was worth a whole lot more back in the 19th century, and most individual purchases would almost certainly fall under that total. As a result, companies started issuing their own paper loose change to replace coins. For instance:
Copying the process, the United States government started issuing their own “postage currency” and simultaneously outlawed companies from producing the same notes. During these years, the first fiat tender that the United States ever issued was circulating for 33-85 cents on the dollar when compared to the gold dollar in a great example of Gresham’s Law.
While many historians blame the economically destabilizing inflation of precious metals during the Civil War on the actual Civil War, the circumstances that led to silver being overpriced relative to gold and the dollar was none other than the California Gold Rush of the 1850s. The influx of gold was a shock to the supposedly fixed supply of the precious commodity, much akin to what happened in the Old World once the Spanish started bringing Gold from the New World back. That influx of gold had economic ramifications that spread through time and space to cause the Opium Wars in China.
While many point to Gold’s superiority to Bitcoin due to its historical status as a true store of value due to resilience to supply shocks, I have just pointed out two major incidences where Gold’s supply has proven fallible and carnage has followed. Bitcoin will never suffer from such native supply shocks, thus is the power of a mathematically secured money. (Some might argue that large whales beaching on exchanges constitutes a “supply shock”).
The Stamp Payments Act doesn’t effect Paypal payments of under $1.00, and it won’t effect Bitcoin, no matter what the United States government tries to do with it.
As Darrell Duffie, a Finance Professor at Stanford University, told Robert McMillan of Wired Magazine:
“A lot depends on whether the government becomes anxious to move against Bitcoin,” he says. “Whether this is the most appropriate statute under which to control Bitcoin, I’m not so confident.”
The Stamp Payments Act was directly targeted at centralized currency issuers attempting to supplant United States monetary authority. For instance, common sense tells us that there are “denominations” of gold that are worth less than $1; to further the example, there will always be naming conventions for Bitcoin that are worth over $1, just as there will always been naming conventions/denominations for Bitcoin that are worth under $1.
By the time 1 Satoshi is worth $1 USD, it is incredibly likely that the Bitcoin protocol (version sideways 8) will have added more divisibility to Bitcoin. For more discussion on naming conventions of Bitcoin units, check out this article featuring a poll to name 0.0001 BTC.
The Stamp Payments Act is from an era so far removed from the current fiat regime, enforcing it for anything let alone Bitcoin would be an arduous task. The only reason I write this is to hopefully open the eyes of newcomers frightened by archaic United States laws and sensationalist non-Bitcoin media about Bitcoin.