July 29, 2016
This week a judge in Florida ruled that Bitcoin is not actually money, stating that Bitcoin was not backed by a government or bank, and was not “tangible wealth”.
“Virtual currency” is defined as the digital representation of value that can be traded digitally and functions as a medium of exchange, unit of account, or store of value. At present, virtual currency is not legal tender in any jurisdiction. It is not issued by government, not linked to any existing currency, or restricted to any jurisdiction.
Virtual currencies are distinguishable from fiat currency and electronic money (e-money). Fiat currency is the legal tender of a particular country. E-money is the digital representation of fiat currency.
In spite of the above, Bitcoin has become convertible into fiat currency through its use. In May 2010, the first ‘real-world’ transaction in Bitcoin took place, a programmer paid 10,000 Bitcoins for two Papa John’s pizzas. At that point, when Bitcoin was just over a year old, 10,000 Bitcoins was worth £19. Today 10,000 Bitcoins are worth millions of pounds. The growth of virtual currency is continuing and now, five years later, Bitcoin is becoming accepted more and more throughout the world.
The most prominent legislation for virtual currency is with regards Bitcoin’s use outside the EU. New York has implemented the Bitlicence in 2015, to regulate consumer protection. This is a stark contrast with other countries that are attempting to criminalise or discourage the use of virtual currencies, such as China, Iceland, Kyrgyzstan and Vietnam.
In the world of mobile social gaming applications virtual currency is often a “prize” for “money or money’s worth”. The “prize” in this instance is not allowed to be taken/traded outside of the social gaming application. However, in 2011, a UK hacker obtained virtual gaming chips and sold them online and was subsequently jailed for two years. The company from which he stole the chips from valued the chips at £7 million, albeit this was the “pay in” value, not the “pay out” value. The hacker made approximately £53,000 in approximately two months after selling a third of the chips.
For now, virtual currency remains outside the remit of the regulations within the UK. However, Briffa expects this to change, the question is not whether virtual currencies will be regulated, but how.
If you are unsure with regards the compatibility and legality of your virtual currency, please contact Briffa. We will be able to advise you on all aspects of your use of your virtual currency.
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