Bitcoin wallet failed to write undo data

The bakery example was deliberate given this news about a Durham,NC,bakery accepting bitcoins. I have no idea about the financial circumstances of this particular bakery,but to understand the point assume it has loan from a bank secured by the bakery’s “inventory,goods,equipment,accounts,and general intangibles.” Such an arrangement would not be uncommon and would effectively give the bank an Article 9 security interest in all of the bakery’s property that is not real estate,sometimes referred to as a “blanket lien.”

When a customer pays the bakery with bitcoins,those bitcoins certainly now become part of the bank’s collateral. Given that one bitcoin is worth over $600 today,the customer either has ordered the world’s most expensive donut or technically will have paid with bitcoin subunits. For ease of exposition,let’s just call them “bitcoins.”

The bank’s security interest will attach to the bakery’s bitcoins. When the bakery uses bitcoins to buy flour from a supplier,the bank’s security interest will continue to encumber them. UCC section 9-315(a)(1) provides that the bank’s security interest “continue in collateral notwithstanding . . . disposition thereof unless the security party authorized the disposition free of the security interest. The supplier is not protected by the “buyer in ordinary course” provision of 9-320(a) because that provision only strips security interests from “goods.”

Further,the security interest will remain with the bitcoins through subsequent transfers (UCC § 9-325). A remote transferee of the bitcoins will take the bitcoins subject to the bank’s security interest. Assuming the bank has taken the easy steps to perfect its security interest,which it almost always will have,the bank can seize the bitcoins as collateral if the bakery’s debt goes unpaid. The possibility of another party with superior property interest in a bitcoin would seem to substantially dampen their utility as a medium of exchange.

Transferees of money take free of a preexisting security interest (UCC § 9-332). Thus,you do not have to worry that the U.S. currency the bakery gives you as change for your transaction is encumbered by a security interest. That way,money circulates like . . . well,money.