Bitcoins (BTC) are increasingly used as a virtual currency for purchases of goods and for the remuneration of works or services. There are other, similar currencies such as Litecoins and PPCoins. According to the daily newspaper Die Welt, Bitcoins are now accepted by more than 75,000 companies.
Bitcoins are created using a mathematical process. Anyone who has a powerful enough computer can access that process by logging into a peer-to-peer system. The individual participants (clients) create the currency by solving CPU-intensive cryptographic tasks (so-called mining). For mathematical reasons, the possible number of Bitcoins in circulation is limited to approximately 21 million units (Extract from the Annual Report 2013 of the Federal Financial Supervisory Authority – BaFin – regarding trading in Bitcoins, dated 17 June 2014).
Since their introduction, Bitcoins have been subject to strong value fluctuations: Exchange rates ranged from the single-digit to the high triple-digit Euro area; the current exchange rate is about 215 Euro.
Although most Germans have probably not used Bitcoins yet, it can be assumed that the majority of the population has at least heard of them.
Given the widespread acceptance of Bitcoins by companies, it cannot be ruled out that they fulfil a monetary function and therefore could fall under the legal definition of “money”.
In a first step, a legally binding determination of the regulatory nature of Bitcoins was made. At the end of 2013, the BaFin released an article about Bitcoins and structurally similar virtual currencies. According to BaFin, Bitcoins are financial instruments and specifically fall under the subgroup “units of account”. Therefore, certain activities associated with Bitcoins can trigger a licence requirement pursuant to the German Banking Act (Kreditwesengesetz – KWG). Such a licence is required for e.g. purchasing and selling Bitcoins in the institution’s own name for the account of others (principal broking business) as well as on behalf of and for the account of others (contract broking), the purchase of Bitcoins at the institution’s own risk for placing in the market or the assumption of equivalent guarantees (underwriting business), provided that the activity is carried out commercially or within a scope which requires a commercially organized business. Also, investment advice, the operation of a multilateral trading system, placement business, financial portfolio management and the practically significant proprietary trading can be subject to BaFin authorization, when associated with Bitcoins. For more details, see the mentioned BaFin article.
Since from a legal point of view, Bitcoins are neither regarded as money nor as e-money, they shall in principle not fall within the scope of the German Payment Services Regulation Act (Zahlungsdiensteaufsichtsgesetz – ZAG).
It remains to be seen whether the e-money definition is going to be adapted with the result that it will also include Bitcoins and similar virtual currencies or if those currencies will per se be subject to regulation pursuant to the ZAG as a separate instrument. This could have far-reaching consequences for payments with Bitcoins and Bitcoin-like currencies. In light of the hazards and risks associated with Bitcoins (value fluctuations, data theft), the decision to set up a regulation may well be taken.