Sunday, March 16, 2014

Is UCC Article 9 Going to Kill the Use of Bitcoin by US Businesses?

By  Yves Smith

Warning to Bitcoin enthusiasts: if you airily try dismissing UCC Article 9 as a nothigburger, you’ve just established you are unqualified to comment on commercial transactions in the US. Read what follows and be warned.
A new post at Credit Slips by Bob Lawless, based on a discussion with Professor Lynn LoPucki, raises a fundamentally important issue that will severely hamper the use of Bitcoin in commercial transactions once the issue is understood. As we’ve indicated in previous posts, the idea that Bitcoin might someday as anything other than a vehicle for speculation and a curiosity depends on whether it obtains a decent level of acceptance as a means of purchasing real economy goods and services. And as we will discuss in due course, forget about changing the UCC to accommodate Bitcoin; new Basel regimes are decided and implemented faster than changes to the UCC.
Readers who have followed us during the foreclosure crisis and read posts on chain of title issues will have heard us mention the UCC, because it played a critical role in analyzing securitizations. For newbies who are not lawyers (and forgive this for being a bit of a broad-brush treatment), UCC stands for “Uniform Commercial Code”. It is foundational legislation which was devised with considerable care and has been adopted in some form by all 50 states. Key sections from Wikipedia:
The Uniform Commercial Code (UCC or the Code), first published in 1952, is one of a number of uniform acts that have been promulgated in conjunction with efforts to harmonize the law of sales and other commercial transactions in all 50 states within the United States of America…
The UCC is the longest and most elaborate of the uniform acts. The Code has been a long-term, joint project of the National Conference of Commissioners on Uniform State Laws (NCCUSL) and the American Law Institute (ALI), who began drafting its first version in 1942…
The overriding philosophy of the Uniform Commercial Code is to allow people to make the contracts they want, but to fill in any missing provisions where the agreements they make are silent. The law also seeks to impose uniformity and streamlining of routine transactions like the processing of checks, notes, and other routine commercial paper.
Article 9 governs secured transactions in movable property (as opposed to real estate). A secured transaction enables a lender to take a security interest in property to provide a means of obtaining repayment if the borrower defaults. In other words, if the borrower does not make good on his loan payments, the lender can seize specific, agreed upon collateral. Of all the articles of the UCC, Article 9 has been the most widely copied abroad. Again from Wikipedia:
Article 9, which established a unified framework for security interests in personal property, directly inspired the enactment of Personal Property Security Acts in every Canadian province and territory but Quebec from 1990 onward, followed by the New Zealand Personal Property Securities Act 1999 and then the Australia Personal Property Securities Act 2009.
So what does this have to do with Bitcoin? I’m going to quote liberally from the Credit Slips postand unpack as needed:
Read the rest of the article here.

RW Note: This is a fascinating article, which suggests a problem with a firm that accepts bitcoins and then uses those bitcoins to pay for other products or services. But, I am not sure of how much of this type of Bitcoin business is going on. It appears that most who accept bitcoins are immediately exchanging them for dollars. I am not a lawyer but this would appear to resolve the UCC Article 9 "problem." That said, it does highlight the fact that there all types of deep and complex laws that can be used at anytime to pretty much kill anything. My guess is that the method that will be attempted to kill Bitcoin will be to require retailers (or exchange providers such as BitPay) to offer chargeback capabilities to "protect the consumer." That will make it much more costly for businesses to do deal in bitcoins, since they will have to hold some bitcoins in reserve for chargebacks or exchanges will and have to charge much greater fees. At that point, there will be no advantage for retailers to use bitcoins.

1 comment:

  1. I concur that this will encumber bitcoin adoption while people continue to view the dollar as a viable currency. What happens after the dollar blows up is another story. Most banks will go into administration since we know that once there is a credit event, the TBTF banks and those who are dependent on them will fail as they cannot pay off the swaps they have on their books. At that point, it won't matter what is on the books as what's considered "legal", people and what organisations that want to survive will use bitcoin (most likely) or another virtual currency that they trust. It might be gold and silver, but they can be confiscated by government alot easier than bitcoins. This was to some extent inevitable as the elite know that they need to try to undermine bitcoin in order to save themselves. There is no way the banking system can continue for the short period that it going to continue if bitcoin is adopted quickly.