The Legal Assessment of Bitcoin - Part 1: Fundamentals

Cryptocurrencies, especially Bitcoin have been on everyone's lips for over a year. In a very short time, Bitcoin managed to become synonymous with all cryptocurrencies. Therefore, Findea explains in this series of articles exactly what Bitcoin is all about.

Currency and Payment System

‍Bitcoin is one of the so-called cryptocurrencies. These are digitally created units of money that operate outside any governmental or regulatory oversight. The currencies are completely decentralized in creation and management. The sequence of payments and the expenditures of Bitcoins are managed decentrally. Every action is stored in a so-called block, which must first be approved by the other participants before it becomes valid. All this is done using cryptographic technology, which also explains the umbrella term cryptocurrencies.

Bitcoin itself is not only the digital currency, but also a digital payment system. People who invest in Bitcoins directly or trade them enjoy complete anonymity. There is no entitlement to exchange this digital currency into a "regular" currency (also called fiat money).

‍Legal Foundations

‍The legal assessment of Bitcoins and cryptocurrencies in general is challenging. This is because it represents a complete novelty, with which the legislator has not yet been confronted. So far, the following legal aspects of cryptocurrencies need to be considered:

• In Switzerland, only the money issued by the National Bank is considered legal tender. Cryptocurrencies do not fall under this category
• The Swiss Federal Tax Administration treats Bitcoin like a foreign currency (more here). However, cryptocurrencies are not considered foreign currencies, as they do not represent an official foreign currency
• Bitcoins are not classified as goods or services. Nevertheless, they qualify as a thing in the form of a digital information unit, regardless of the fact that they have no physical substance
• In the event of bankruptcy, Bitcoins can be segregated. This can be justified because the owner can exercise control through the "private key" and Bitcoins can be distinguished by "public key" assignment.

It will be interesting to see how the legislator will continue to handle this topic. Further information can be found here.

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