Virtual currencies, especially Bitcoins, have attracted much public attention as well as scholarly interest. Many related issues have, however, not yet been fully clarified and are still being addressed in specialized literature. Particularly whether, despite the fact that they do not have legal tender status in any jurisdiction, Bitcoins could be qualified as "money", both from a legal and an economic point of view. From a legal perspective, the question whether or not a medium fulfils economic functions of money has proven to be relevant – for example, some US court rulings have taken a functional approach when qualifying Bitcoins as money in a legal sense.
In SEC v. Shavers, WL 4028182 (E.D. Tex. Aug. 6, 2013), the US District Court for the Eastern District of Texas ruled that because Bitcoins "can be used to purchase goods or services, and [...] used to pay for individual living expenses", investments in Bitcoin-related opportunities were "investments of money" and, thus, subject to federal securities regulation. Similarly, in addressing a federal money laundering charge the US District Court for the Southern District of New York in Faiella et al. v. United States, WL 4100897 (S.D.N.Y. Aug. 19, 2014), relied upon a dictionary definition of "money" to conclude that Bitcoin "clearly qualifies as 'money'" as it "can be easily purchased in exchange for ordinary currency, acts as a denominator of value, and is used to conduct financial transactions."
Whilst in Germany, virtual currencies have not yet been the subject of any judicial decisions, economic functions of money have played a role, for example, in the interpretation of the term "money" within the meaning of section 935(1) of the German Civil Code (BGB). The German Federal Court of Justice (BGH) held that Euro collectors' coins – despite acknowledging their legal tender status – were not covered by the term "money" as they lack the necessary "qualities of money".
Although, in all the aforementioned cases, the issue of economic functions of money or the influence of these features on "money-quality" was deemed somewhat crucial in the interpretation of the law, it has not been discussed to any significant extent. This fact is surprising considering that the issue has spawned a considerable amount of research literature. The acceptance of Bitcoins is obviously much lower than with legal tender or foreign currencies, but there is no denying that Bitcoins do, in a certain number of cases, detach the exchange of goods and services from the satisfaction of mutual needs. According to an article in the online journal International Business Times, for example, Bitcoins are now accepted by 100.000 merchants worldwide – among them are IT giants Dell and Microsoft. It is, however, not currently possible to say whether and how fast acceptance of Bitcoins or other forms of virtual currencies will increase in the future. A survey conducted on behalf of the German industry association Bitkom in May 2015 revealed that 53 percent of Germans between age 14 and 29 and 36 percent of all Germans can imagine using or purchasing Bitcoins. Thus, there are approximately 25 million potential users living in Germany.
The role Bitcoins will play in the future will, among other things, depend on their precise legal classification. For example, on 16 July 2015 the Advocate General of the Court of Justice of the European Union (C‑264/14) urged the Court to find that cryptocurrency transactions are exempt from Value Added Tax under Article 135(1)(e) of the VAT Directive (2006/112/EC) because Bitcoins fulfil the economic functions of money. Thus, merchants dealing in cryptocurrency will no longer have to fear the possibility of double taxation on Bitcoin transactions. While ths may lead to increased acceptance of Bitcoins as a medium of exchange, it is still unclear what lead the Advocate General to believe that Bitcoins could by qualfied as "money" in the first place. She simply stated that the sole purpose of buying and selling Bitcoins is to exchange them for other goods and services. Empirical evidence indicates, however, that users approaching digital currencies are not primarily interested in an alternative transaction system, but instead, seek to participate in an alternative investment vehicle.
Tags: Bitcoin, Functions of Money, Virtual Currencies
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