Crypto currencies – legal nature in Bulgaria

Crypto currencies are a modern phenomenon that enjoys increasing popularity. It is undoubtedly due to the most famous of them – the “Bitcoin”. This article will focus in brief on the clarification of the nature of the crypto currencies as well as it will make a comparison between them and the fiat currencies under Bulgarian law.

In its opinion, the European Banking Authority gives a definition of crypto currencies, which is based on their most significant characteristics. The latter define the crypto currencies as a digital representation of value. The crypto currencies are not issued by a central bank or other public institution, nor are they necessarily attached to any existing currency, but are also used by individuals and legal entities as a means of exchange that can be transferred, stored or traded electronically. A digital representation of a value should first of all mean that the crypto currencies are in a digital form. The term “digital representation of value” also approximates one of the immanent functions of money – to serve as a unit of account, but at the same time allows crypto currencies to be treated as “private” money or commodity.

Crypto currencies are not issued by a central bank or other governmental authority, nor have a fixed, nominal value. A significant difference between the crypto currencies and the money is the fact that the crypto currencies do not represent a legal way of payment (even though they are used as a means of exchange against which other fiat currencies, goods or services can be acquired). A creditor is not obliged to accept payment through crypto currencies, nor does the latter have a mandatory nominal value that is accepted without any restrictions when it comes to regular currencies. Unlike the fiat currencies, crypto currencies cannot serve as a stock store of value, as it does not have the inherent stability of money.

The conclusion that crypto currencies do not constitute a legal way of payment is shared both in the doctrine and by the competent Bulgarian institutions. According to the Bulgarian National Bank and the Financial Supervision Comission, the crypto currencies do not represent financial instruments within the meaning of the Markets in Financial Instruments Act, either. The said institutions take the view that the activities of acquiring, trading and paying with cryptographic data are not covered either in national or European legislation. That being said, under Bulgarian law crypto currencies should be considered as a financial asset. The Bulgarian tax administration treats them as such and deals with them as a supply of services. Income derived from transactions with them participates in the formation of the tax base and is related to the obligations deriving from the VAT Act.

The forgoing draws the conclusion puts that crypto currencies should be distinguished from the fiat money and other legal means of payment. At the same time, it is acceptable that they should be treated as financial assets, as through the relevant exchanges the holder of the crypto currency could obtain another currency recognized as way of payment, goods or services.

Given that crypto currencies are not covered by a legislative framework, whether national or European, they cannot be defined as an object of rights. In this situation, it is difficult to talk about rights over crypto currencies. Indeed, blockchain technology allows the transactions with a given crypto currency to be traced, however the access to an account / electronic wallet that indicates that certain units of a particular crypto currencies are available is the only link between the crypto currency and the person claiming to be possessing it. That being said, the European Banking Authority considers that the lack of legal regulation is one of the main risks for those who have decided to trade and invest in crypto currencies.

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