For several months, EFF has been following the movement around Bitcoin, an electronic payment system that touts itself as "the first decentralized digital currency." We helped inform our members about this unique project through our blog and we experimented with accepting Bitcoin donations for several months in an account that was started by others.
However, we’ve recently removed the Bitcoin donation option from the Other Ways to Help page on the EFF website, and we have decided to not accept Bitcoins. We decided on this course of action for a few reasons:
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 case law 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.
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.1
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.
We appreciate the outpouring of support we have received from the Bitcoin community and we share that community's commitment to privacy and innovation. We also appreciate their frustration with the privacy problems posed by existing on-line payment systems. However, EFF will no longer be accepting or spending Bitcoins.
Notes:  We understand that we cannot close the account that has been set up in EFF’s name and that returning the donations to the individual donors would be complex and difficult.
I am an e-Money researcher and a Founding Director of the Bitcoin Foundation. My career has included senior influential posts at Sumitomo Bank, VISA, VeriSign, and Hushmail.
"Free-market protagonists, such as Matonis, regard cybercash as better than traditional government-issued or -regulated money, because it is determined by market forces and thus nonpolitical in nature." --Robert Guttmann, Professor of Economics at Hofstra University, in Cybercash: The Coming Era of Electronic Money, 2003
"Matonis is quite correct that the new technology makes easier the use of multiple private currencies." --Mark Bernkopf, Federal Reserve Bank of New York, in "Electronic Cash and Monetary Policy", 1996
"Matonis argues that what is about to happen in the world of money is nothing less than the birth of a new Knowledge Age industry: the development, issuance, and management of private currencies." --Seth Godin in Presenting Digital Cash, 1995