Coins (Currency) Used in Jewelry: Illegal to Stamp/Deface?

Ring made from 1912 U.S. Half Dollar

I just saw someone ask a question on Etsy's forum about stamping words or letters onto U.S. pennies. She said her father told her it was illegal to deface coins, so she asked others if they knew if it was in fact illegal.  So there were several answers, and several opinions: some think it's "illegal", some think it's fine, and someone actually told her to check with a judge!?  But some had the right idea:  check with the U.S. Mint website!
Here's what it says:

1. Is it illegal to damage or deface coins?

Section 331 of Title 18 of the United States code provides criminal penalties for anyone who fraudulently alters, defaces, mutilates impairs, diminishes, falsifies, scales, or lightens any of the coins coined at the Mints of the United States. This statute means that you may be violating the law if you change the appearance of the coin and fraudulently represent it to be other than the altered coin that it is. As a matter of policy, the Mint does not promote coloring, plating or altering U.S. coinage: however, there are no sanctions against such activity absent fraudulent intent. 

So what this is saying is that it's illegal to alter coins for the intention of defrauding someone; for example, making a quarter look like a dollar, or changing the date on an old coin to one that is more rare and valuable.  And there are no sanctions against coloring, plating or altering U.S. coinage.

So, smashing a penny in a machine at Disneyland is perfectly legal.  Altering a quarter or silver dollar so it forms a ring (as pictured above) that you can wear is perfectly legal.  Stamping words or letters on a coin is also perfectly legal.

In fact, stamping words onto coins was commonly used for free advertising in the 1800's!  

What Are Counterstamped Coins?

This is an interesting bit of  "forgotten history":  in the 19th Century, as a form of free advertising, people would stamp slogans, names, products, etc. onto coins.  About 5% of all coins by 1850 were stamped.  All denominations were stamped, including some gold coins.   Here are a couple of examples:

Pears Soap advertisement stamped onto a French franc

U.S. Copper Large Cent Coin Used For Political Advertising

The Prolific Coin Advertiser, Dr. Wilkins

 Dr. G. G. Wilkins of New Hampshire used thousands of coins to advertise his many businesses:  a dental practice, a barber shop, saloons, and even products such as "Bear Oil" which was a cure-all!

These stamped coins used to sit in antique shop bins unnoticed, but the demand for these interesting coins has risen with numismatists and history buffs.

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I will add just one thing: most coins contain metals, such as nickel, that cause a lot of skin irritation.  For example, U.S. quarters were made of silver until 1965.  Now they're made from copper and nickel--as are U.S. nickels and dimes---very irritating to wear!  So if you want to wear a coin as a ring or pendant, I'd suggest a pure silver coin, or a penny--it's copper plated zinc since 1982, and mostly pure copper before then.