Bitcoin is not considered as legal tender

Date published

15/07/2019

Services

Sectors

Locations

According to published definitions, bitcoin is an "electronic currency", "a cryptocurrency", and "an innovative payment network and new class of money". In this article, we analyse the first judgement of the Spanish Supreme Court which considers this issue and denies bitcoin's definition as legal tender.

Background

The accused created the company Cloudtd and the website www.cloudtd.es through which a number of high frequency trading contracts were made with the five claimants. The object of the contracts were to handle, for a commission, the bitcoins deposited by the affected parties for the purpose of reinvesting the dividends and to transfer the profits obtained once the contracts were fulfilled.

At first instance, the Madrid Court analysed possible offences of continued fraud and undue appropriation, issuing its judgment on 7 March 2018. It concluded that the accused had the intention to take control of the bitcoins deposited without fulfilling any contractual obligations, did not carry out any transactions and did not return any sums to the claimants. The accused was sentenced to two years in prison as well as being ordered to indemnify the claimants for the value of the bitcoin on the date of the finalisation of the respective contracts.

The Supreme Court Criminal Division judgment

In addition to the accused and the subsidiary civilly liable party (Cloudtd), the claimants filed an appeal to the Supreme Court arguing for the return of the bitcoins. Alternatively, if the accused failed to return the bitcoins, then the bitcoins should be valued so the claimants could be indemnified. According to the Supreme Court, citing Section 110 of the Criminal Code:

Even if the case law of this court has expressed the obligation to return any item that has been the object of an offence, including money, the claimants were not dispossessed of bitcoins that have to be returned (...) neither are bitcoins susceptible to return given that they are not material objects, nor do they have the condition of legal tender.

The judgement analyses bitcoin operating and concludes that it is an intangible asset in the form of a unit of account defined through information technology and cryptography (...) used as consideration or exchange in any bilateral transaction for which the contract parties accept it, but it is in no way money.

Conclusion

The Supreme Court concludes that it cannot order the return of the bitcoins. It considers that it is adequate to remedy the loss and indemnify the said loss to the claimants by returning the initial amount deposited with an increase corresponding to the profitability of the bitcoins, which is calculated with reference to the value at the time of the deposit and the value at the finalisation of the contracts.

As mentioned above, the Supreme Court acknowledges, however, that bitcoin is used as consideration or exchange in any bilateral transaction for which the contract parties accept it. This has relevance with respect to the insurance sector and how cryptocurrencies are handled by different countries. In April 2019, France became the first country to allow the use of cryptocurrencies in life insurance. Specifically, the law approved by the National Assembly in April 2019 modifies two sections related to life insurance, sections 21 and 26 of the Insurance Code, that allows "specialist professional funds", to be formed that invest in bitcoins and other cryptocurrencies, all linked to life insurance, although the same are only accessible to large investors as they are an "extremely risky" product.