In January 2014, Overstock Chairman and CEO Patrick M. Byrne announced that the retailer would accept Bitcoin as a form of payment. Since then, retail experts have been researching the digital currency, and contemplating its role as a payment option for consumers in the future.
There are a number of security and legal implications retailers must understand before making a decision about Bitcoin acceptance. In the below Q&A, Jeffrey Neuburger, Co-Head of the Technology, Media and Communications Group for international law firm Proskauer, shares details regarding these implications and discusses developments in the Bitcoin world.
As an adjunct professor at Fordham University School of Law, Neuburger teaches e-Commerce law and lectures extensively on a wide range of issues, including emerging technology developments, intellectual property, outsourcing, privacy and data security. He is co-author of two books: Doing Business On The Internet and Emerging Technologies And The Law.
Retail TouchPoints (RTP): Of all the conversations taking place about Bitcoin, what do you believe are the common misconceptions and fallacies about the digital currency?
Neuburger: Bitcoin has been heavily associated with illegal activities. In fact, Bitcoin was the currency of the infamous Silkroad online marketplace. Law enforcement officials continue to make arrests and bring criminal charges against individuals involved in criminal enterprises using Bitcoin. To that end, one common misconception is that Bitcoin is used only for illegal activities. In reality, there is a steady increasing adoption of Bitcoin by legitimate businesses — particularly in the retail world. Many people think that one cannot use Bitcoins for anything other than drugs, guns or other contraband. In fact, that is not true, and Bitcoins are now being accepted across industries for a variety of goods and services.
RTP: Overstock was one of the first retailers to embrace Bitcoin. What are your thoughts on the retail world adopting digital currency?
Neuburger: In general, I think it is a positive thing. However, because of the issues related to the security of Bitcoin wallets could end up setting back adoption of Bitcoin in the retail marketplace and in other industries. For example, there is a significant security issue involving the theft of Bitcoins.
I think it is important for any industry to have the appropriate security mechanisms in place to ensure a successful, safe and secure customer experience. Given the problems we have in the retail marketplace with data security, it is key for retailers to have thought through the security issues associated with Bitcoin transactions.
RTP: What are the legal issues associated with Bitcoin?
Neuburger: There are many legal issues associated with Bitcoin. We have already seen allegations of money laundering, illegal money exchange and transmission, Bitcoin thefts, etc. We have seen Bitcoin Ponzi schemes, alleged to be in violation of U.S. securities law. Bitcoins also present tax issues. In short, people are likely to use virtual currency in many of the same ways they use cash — for both good and bad — and we are likely to see all of the same legal issues we see with cash.
Retailers and other companies that want to accept Bitcoin have to prepare themselves for a bumpy ride. Challenges include a general sense of uncertainty over whether Bitcoins are for real, and how much to invest in their adoption and use.
RTP: Can you share more details around the positive and negative aspects of Bitcoin?
Neuburger: For those who want to be able to conduct transactions anonymously, Bitcoins are helpful. While there may be ways to identify individuals using Bitcoin at some point in the transaction (e.g., when they convert to or from a standard currency), generally, people are able to use Bitcoin without being tracked or monitored. Many people who are not involved in illegal activities appreciate the anonymity that Bitcoin offers. While many people appreciate that, it does offer a way to avoid many of the systems that are in place for traditional currency to detect illegal activity.
RTP: Is it possible to eventually phase out the negative aspects of digital currency through regulation?
Neuburger: I don’t think the “negatives” of any currency can be eliminated. Regulation can help to control virtual currencies better, but just like with cash, people will always be involved in the bad activities.
RTP: What do you think the next year will hold for Bitcoin and the digital currency space in general?
Neuburger: I think we will continue to see the regulators getting involved, try to understand Bitcoin and work to make illegality more difficult. I think we will continue to see arrests and convictions. But I think we will also see more widespread adoption of Bitcoins, with mixed adoption on an international scale.
Slowly, I think we will see more and more legitimate businesses trialing Bitcoin. In my view, I think regulation will be important to create a marketplace where people feel more secure about Bitcoins. I also think that the digital wallet businesses need to offer products and services that make people feel comfortable and secure. I think consumers need to be educated as to what Bitcoins are and how they work. And finally, I think that the Bitcoin community needs to generate more positive public relations for the Bitcoin phenomenon so people believe that they are legitimate tools for commerce. It will be a long process before Bitcoin has any chance of really being considered “mainstream,” and personally, I don’t know if Bitcoin will survive or not.
Jeffrey Neuburger, is Co-Head of the Technology, Media and Communications Group of international law firm Proskauer, and a member of the Privacy & Data Security Group. Neuburger’s practice focuses on technology, media and advertising-related business transactions and counseling, including the utilization of emerging technology and distribution methods in business. He also represents many organizations in large infrastructure-related projects, such as outsourcing, technology acquisitions, cloud computing initiatives and related services agreements.