1.01 - U.S. Constitution
There are a few provisions of the U.S. constitution applicable to cryptocurrency’s formal legal status in the United States. It is important to keep these provisions in mind as calls to make any form of cryptocurrency “legal tender” grow in individual states. (The U.S. Constitution has no bearing on international adoption of cryptocurrency as legal tender. At least El Salvador has made bitcoin legal tender, and cryptocurrency regulation abroad is rapidly evolving. See Library of Congress, Regulation of Cryptocurrency Around the World (2021.11)).
Generally, the Constitution gives the federal government — specifically, Congress — the power to set a national currency and punish counterfeiting that currency. It also explicitly prohibits the states from coining their own money or permitting anything other than gold and silver to serve as payment of debts. This was an intentional rebuke to the many forms of paper currency circulating during the period of the Articles of Confederation. See, e.g., Ogden v. Saunders, 25 U.S. 213, 216 (1827) (“[T]he prohibition of issuing bills of credit, or making any thing but gold and silver coin a tender in the payment of debts, was intended to cut up paper money by the roots. The commercial credit of the nation had severely suffered from this fatal scourge; and the anxiety to be relieved from it, was one of the most pressing motives which induced the formation of the new constitution.”).
[The Congress shall have Power . . . ] To coin Money, regulate the Value thereof, and of foreign Coin, and fix the Standard of Weights and Measures; . . . Constitution Annotated, Article I Section 8, Clause 5
By granting the Congress the power to “coin Money, [and] regulate the Value thereof,” the Constitution gave Congress the supreme power to create a national currency. Thus, the Supreme Court has long interpreted this clause as empowering Congress “to establish a national currency, either in coin or in paper, and to make that currency lawful money for all purposes, as regards the national government or private individuals.” Juilliard v. Greenman, 110 U.S. 421, 448 (1884); see also Knox v. Lee (The Legal Tender Cases), 79 U.S. 457, 545 (1870) (“The Constitution was intended to frame a government as distinguished from a league or compact, a government supreme in some particulars over States and people. It was designed to provide the same currency, having a uniform legal value in all the States. It was for this reason the power to coin money and regulate its value was conferred upon the Federal government, while the same power as well as the power to emit bills of credit was withdrawn from the States. The States can no longer declare what shall be money, or regulate its value. Whatever power there is over the currency is vested in Congress.”) (emphasis added).
The Constitution further clarifies (per Section 10, Clause 1, below) that the states do not have the same power. Accordingly, only the federal government has the sole power to create legal tender and set monetary policy around it. Thus, if any cryptocurrency is to gain status as legal tender in the United States, it must be established as such by Congress. The Federal Reserve is currently evaluating the potential impact of implementing a U.S. Central Bank Digital Currency (“CBDC”), although it is still very early its research. President Biden also issued an executive order directing numerous federal agencies to act with urgency in evaluating a CBDC.
No State shall enter into any Treaty, Alliance, or Confederation; grant Letters of Marque and Reprisal; coin Money; emit Bills of Credit; make any Thing but gold and silver Coin a Tender in Payment of Debts; pass any Bill of Attainder, ex post facto Law, or Law impairing the Obligation of Contracts, or grant any Title of Nobility. Constitution Annotated, Article I Section 10
Although some states have contemplated making some cryptocurrencies (usually bitcoin) “legal tender” in their jurisdictions, the Constitution expressly prohibits them from doing so in this section. See, e.g., Brandy Betz, State Senator Introduces Bill to Make Bitcoin Legal Tender in Arizona (2022.01.28); Leon Siegmund, New bill could make bitcoin legal tender in California (2022.02.20).
As the Supreme Court early concluded, “[t]he whole control, therefore, over the standard of value, and medium of payments, is vested in the general government.” Ogden v. Saunders, 25 U.S. 213, 248 (1827). Indeed, as the Court explained, the policy set forth in the Constitution was “to provide a fixed and uniform standard of value throughout the United States, by which the commercial and other dealings between the citizens thereof, or between them and foreigners, as well as the monied transactions of the government, should be regulated.” Id. at 265. Scholarly debate continues, however, about the extent to which at least bitcoin ought to be considered legal tender. See W. Aaron Daniel, The Constitutional Argument for State Adoption of Bitcoin as Legal Tender (Part I of IV) (2022.03.28).
Despite states not being able to take the (symbolic) move of classifying a given cryptocurrency as legal tender, it remains to be seen what action the federal government would take if states started, for example, accepting bitcoin as valid payment for taxes or public contracts, i.e., as “tender in payment of debts.”
Nothing in the Constitution, however, prevents private businesses or individuals from accepting cryptocurrency as payment for goods or services. States simply cannot obligate them to accept cryptocurrency for payment of debts, which would be the effect of declaring a given cryptocurrency “legal tender” in a state.
Sources are listed in reverse chronological order.