Is bitcoin money or property?

In virtual currency court cases, any ruling has the potential to affect both the status and reputation of bitcoin.

Last month, Judge Teresa Pooler of the 11th Judicial Circuit Court of Florida dismissed the case against a man accused of trying to help two undercover agents who told him they wanted to launder illegally obtained cash by exchanging it for bitcoin.

Judge Pooler reasoned that because bitcoin is not money, the defendant could not be charged with money laundering.

While this ruling affects only Florida, it does raise two important questions for the rest of the U.S. Firstly, is bitcoin money or not? Secondly, how does this determination affect virtual currency regulation in general?

Some bitcoin enthusiasts have declared bitcoin to be the future of currency, insisting that it eventually will replace fiat currency. They believe that bitcoin will be acknowledged as "pure money." However, barring global economic meltdown, the facts throw a wet blanket on this dream.

In the first place, bitcoin is too volatile to serve as money in the traditional sense. Recently, an exchange hacking led to a 20 percent drop in bitcoin's value. If the dollar, pound or euro fluctuated in this way, we would experience catastrophic economic declines on a regular basis. Money must have a reasonably stable value to be useful.

But it's not necessarily a bad thing for bitcoin to forego money status. Both investors and exchanges can benefit from a designation of bitcoin as property or an intangible asset rather than money.

"The court has ruled that it is legal for any individual to sell bitcoin as their personal property," Ashok Misra, vice president of product and compliance at iPayYou, said in reference to Florida court decision. "When making purchases of goods and services for bitcoin, in effect, the court is considering this transaction as a barter transaction.

"This makes it far easier for any company to provide consumer bitcoin services without figuring in very complex money transmission laws. We are optimistic this decision will get upheld in other legal jurisdictions."

According to Misra, virtual currency as personal property aligns with iPayYou users' thinking about bitcoin. Most of this group views bitcoin not as fiat currency, but rather as an "asset" that holds a certain value in fiat money.

"The judge has ruled that under existing legislation bitcoin is viewed effectively as an asset," Misra said. "At iPayYou, we already see that practically all transactions involving bitcoin are made for its U.S. dollar-equivalent value, not for the flat amount of bitcoin. This observation fully supports the judge’s view that bitcoin is simply an asset that represents an amount value."

As yet, it is uncertain whether the Florida decision will have wider implications for bitcoin regulation. It does reflect the current thinking of the IRS, which regards virtual currency as property and calculates it as such for tax purposes.

Judge Pooler's ruling does raise the larger question whether virtual currency should stop trying to be money and simply position itself as an intangible investment asset.

Currently, the vast majority of bitcoins are held by speculators, but this does not mean that people wouldn't flock to it as an alternative currency in the event of economic uncertainty.

However you view bitcoin, it's still early days for the virtual currency, and Florida court rulings notwithstanding, regulations are subject to change.