Virtual currencies are no longer an insider tip for “digital natives”, but a trend among investors. Initially, cryptocurrencies were still considered an experimental field for means of payment outside the established banking system. Consider reading Bitcoinminershashrate.com one of the leading website in the Cryptocurrency industry.
In the meantime, the spectrum has become more colorful: virtual currencies and virtual tokens (“tokens”) are used to finance ambitious IT projects and entire companies via crowdfunding (“crowd financing”). Today there is a real gold rush mood – this blinds investors to the risks of such investments and providers overlook the regulatory traps.
Cryptocurrencies: technology and economic importance
Cryptocurrencies such as Bitcoin, Ether or Ripple are often generated by the users themselves through complex calculations using complex encryption algorithms. The currency units generated are the reward for participating in a distributed database for confirming transactions involving the “coins” and maintaining a tamper-proof register of ownership (“distributed ledger”).
The so-called blockchain technology is used here. Because of the tediousness of these calculations, creating them is often referred to as “mining.” As a result, the currency units, which are kept artificially scarce, are becoming a popular investment with potential for appreciation. Huge computer farms are allegedly operated in China, the sole purpose of which is mining.
Due to the brisk trade in cryptocurrencies, it is possible to reasonably reliably quantify the market value of a unit – similar to the price of a security. Even family offices have included BitCoin & Co. in their investment universe. Instead of “IPOs”, there are now “ICOs”, in which digital coins or “tokens” are crowdfunded to the public in an initial issue.
What is a cryptocurrency legally?
Anyone who is not a “digital native” probably has many unanswered questions when it comes to virtual currencies. For example, what are virtual currencies legally and are they allowed?
First of all: Cryptocurrencies such as Bitcoin & Co. are neither a thing nor a right under civil law, but nothing more than an encrypted data record that is forgery-proof and electronically transferable and to which a value is assigned by the circles involved. Civil law struggles to categorize these entities.
The legal rules according to which these currency units are transferred and how faulty transfers could be legally reversed (e.g. erroneous transfer, “theft” by hackers, software errors, identity theft) is therefore unclear.
If the units (“tokens” or “coins”) can be exchanged for a service, they certify a stake in a company or a payment claim, but they are contractual rights that can be transferred according to the rules of an assignment.
On the other hand, it must be denied that, due to the easy possibility of electronic transmission, these could be securities under civil law, because there is no “certificate”, ie an “embodied declaration of ideas”. It is also clear that it is not about money. Because virtual currencies are not legal tender.
Typically, they also do not meet the definition of so-called e-money. E-money is characterized by the fact that there is a publisher (issuer) who issues the e-money against payment of a cash amount. However, many cryptocurrencies do not have an issuer, but are created through “mining”.
On the other hand, if there is an “issuer” who sells the cryptocurrency units for money, what matters is whether the units are accepted as payment by third parties. This is lacking, for example, in the case of artificial currencies in online games that players use to buy virtual equipment or “life points”.
Here, the issuer of the currency units is also the point of acceptance, and the units cannot be passed on to third parties. This is different with cryptocurrencies, however, because they are designed to be transferred to others. The publisher could therefore conduct e-money business that requires a permit.
Crowdfunding as an instrument for selling virtual tokens
Similar to the currencies in online games, cases in which a virtual currency is sold as part of a crowdfunding project must be assessed. The collected amount of money is used to finance a project (e.g. the production of software). With the electronic currency units acquired in return, the investor can pay for services that the software manufacturer offers after the software has been completed.
Here, too, there is no e-money, but an advance payment of services. The transferability of the tokens/tokens should not change this, nor the fact that some buyers regard the units as an object of speculation. But that has not yet been finally clarified.
Cryptocurrencies: forbidden attack on the state’s money monopoly?
The creation of virtual currencies could be seen as a forbidden attack on the state’s monetary monopoly. But that is by no means the case. The issuance of a virtual currency is not prohibited from this point of view.
Thus, the possession and holding of cryptocurrencies as well as their private purchase and sale, also for investment purposes, is legal and does not require a permit. Mining is also permitted, as is acceptance as a means of payment.
Cryptocurrencies are therefore generally allowed. However, many questions about the legal treatment of electronic “coins” are still largely unresolved.
In addition, cryptocurrencies are by no means completely unregulated. In some activities with Bitcoin & Co., the financial market regulators have a say, see for example the possible classification as e-money already mentioned. But there are also other gateways for regulation.