I’m a fan of Bitcoin, more generally though of block chain technology. It has a lot of interesting future applications that haven’t been fully fleshed out yet.

Bitcoin gets a bad name when used to facilitate illicit transactions. Merely using the currency, however, doesn’t mean that illicit transactions are safe to engage in — especially once they intersect with the real world.

So this piece about a new service, BitcoinForMiles.com, seems like a very bad idea.

They say they’ll buy miles at 1 to 1.7 cents apiece, and that their average price so far is 1.5 cents. That’s higher than what you’ll get from most brokers.

And while I believe strongly in the ‘first sale’ doctrine with respect to intellectual property, and am open to the idea that it ought to be permissible for loyalty currency, I think working with folks on something like this is a very bad idea.

Bitcoin won’t facilitate anonymity for the transaction:

• Bitcoin won’t keep the accountholder whose miles are sold anonymous, because their miles will eventually be redeemed — likely in a manner which sets of flags for a loyalty program’s fraud department.

• And Bitcoin won’t keep the purchases anonymous, because they’ll eventually have to redeem the points… and to get 1.5 cents or more in value the redemption will need to be for travel, likely premium cabin international award travel (most grey market transactions are for gift cards that are harder to track, but those redemptions will be too low value to justify the prices paid here), meaning tickets issued in a real name and a real person traveling with documents to match.

In general, most airline and hotel programs will let you gift an award ticket or hotel night to anyone you wish (although some programs will limit you to giving travel to family members).

But going beyond that — sell your miles on Craigslist or through a broker — and you risk having your accounts closed, tickets cancelled, and even being banned from future participation by a travel provider.

Even giving a ticket to a charity for a fundraising auction violates some programs’ rules.

Here’s why frequent flyer programs forbid you from selling your miles:

1. Frequent flyer programs balance their revenue and costs. If members sell their miles, that’s likely unused miles that get used, sooner, and for more expensive awards. That means higher costs. And it means the program is spending money on someone that they don’t have a loyalty relationship with.

2. A real market in miles would lead to taxation. If miles have a market value–rather than remaining the property of the program, a mere rebate for travel spending, and a reward for loyalty–then there’s a great risk of taxation.

3. Programs want to set the price of their miles themselves for both the general public and to partners. A secondary market for miles undercuts their pricing power and business relationships.

Programs forbid the practice of selling miles, and have managed to enforce their rules by cancelling tickets issued with purchased miles and voiding accounts of sellers.

Should you be allowed to sell your miles? Even if it’s risky, it might be morally appropriate, though you agree not to as part of program membership. It’s the sort of business I stay completely away from and recommend against dealings with. But these points carry many of the characteristics of privately-issued currency that ought to be freely exchangeable.