Transactions carried out using virtual currencies (cryptocurrencies)

We are witnessing particularly effervescent times in the world of economics, with the word “crypto” echoing ever more loudly. This article attempts to briefly explain this phenomenon, the scale of which grows by the day.

Transactions mediated by virtual currency (cryptocurrency) are characterised by speed, security and anonymity. The absence of an intermediary (such as banks or other financial institutions) to oversee or coordinate transactions concluded between two or more parties reveals another major advantage of using virtual currency: the absence of banking or other commissions.

Naturally, those who lack the knowledge required to purchase virtual currencies directly, but who wish to invest (for speculative purposes) in the various virtual currencies available on the market, may turn to one of the many brokerage firms in Romania that offer the possibility of trading cryptocurrencies on their platforms (in exchange for a fee for this service).

It should also be pointed out that the absence of a „supervisor” in crypto transactions may also present disadvantages, particularly when compared to the protection and stability enjoyed by a fiat currency (the leu, the euro, the US dollar, the pound sterling, etc.), which is guaranteed by the central bank of the state concerned.

In practice, in the event of the devaluation of a virtual currency, the state will not intervene through economic measures to halt its fall, it being presumed that holders of virtual currencies accepted, at the time of the transaction, the often volatile nature of the cryptocurrency. The National Bank of Romania states in a public notice [1] that virtual currencies continue to represent speculative, highly volatile and extremely risky assets, which carry a high potential to generate financial losses for investors.

From a legal standpoint, the situation of virtual currencies remains rather “grey”. At present, Romanian legislation [2] has adopted the definition of virtual currency mot-à-mot from EU legislation [3].

Thus, by virtual currencies (usually referred to as “cryptocurrencies”) is meant: „a digital representation of value that is not issued or guaranteed by a central bank or a public authority, is not necessarily attached to a legally established currency and does not possess the legal status of currency or money, but is accepted by natural or legal persons as a means of exchange and can be transferred, stored and traded electronically”.

Subsequently, the definition was also incorporated into the Criminal Code, for the prevention of fraud committed through computer systems and electronic means of payment (such as offences of fraudulently carrying out financial operations or accepting financial operations carried out fraudulently).

The same normative acts also define the digital wallet provider as: „an entity that provides services for the safekeeping of private cryptographic keys on behalf of its clients, for the purpose of holding, storing and transferring virtual currency”.

At the level of the European Union, there is currently under debate a proposal for a Regulation [4] drawn up by the European Commission on markets in crypto-assets. At present, we are still lacking a regulation on authorisation and/or registration procedures for providers of exchange services between virtual currencies and fiat currencies, and for digital wallet providers, a regulation that should have been established by Government decision, drafted by the Ministry of Public Finance together with the Authority for the Digitalisation of Romania and the National Office for the Prevention and Combating of Money Laundering, with the endorsement of the Ministry of Internal Affairs and the National Authority for Consumer Protection.

We consider it necessary to qualify the operations of transferring a virtual currency in exchange for consideration, depending on the legal nature of the virtual currency. In light of certain legal classifications set out in the Civil Code, as well as clarifications made in legal doctrine, we consider that, from the standpoint of Romanian civil law, virtual currency is a movable asset, within civil circulation, of a generic kind, fungible, consumable, capable of producing fruits (if we accept that it may be leased, for instance), divisible, a principal asset, incorporeal, and may even be regarded as a mass of assets (if we accept that all virtual currencies are intended for exchange, in accordance with their legal definition), not subject to public ownership, generally held in exclusive use (although we do not exclude the existence of cryptocurrencies held in common ownership, whether in shares or in undivided co-ownership) and subject to seizure.

Given the legal nature of virtual currency described above, we consider that, in addition, the legal qualification of transactions disposing of it necessarily also depends on whether or not cryptocurrencies are granted the status of “money”.

Article 1660(1) of the Civil Code provides that: „[t]he price consists of a sum of money.” The requirement that the price be fixed in money distinguishes sale from other transfer contracts [6] (such as barter/exchange) and, thus, the price is not only an element of the contract's validity, but also one used to qualify or identify it [7]. In addition to the textual argument arising from Article 2(t) ¹ of Legea nr. 129/2019 (Law no. 129/2019), which expressly provides that virtual currency does not hold the legal status of a payment instrument or of “money”, we also endorse the arguments set out in detail in a study [8] from 2017, in legal doctrine, which converge on the view that virtual currencies are NOT money.

Therefore, being an asset, private individuals who conclude transactions for the acquisition of movable property are in fact entering into a barter contract, governed by Articles 1763–1765 of the Civil Code. Thus, the parties may exchange cryptocurrencies for movable assets, such as books, coffee, cars or jewellery.

Furthermore, the parties may also “pay” for the provision of services with cryptocurrencies, given that, in the special sense used by art. 1854 alin. (1) din Codul civil (the Civil Code) in the field of the contract for works, the price of the works may consist of a sum of money or of any other goods or services. It is therefore not excluded that in the future the washing of a car, the renovation, or even the construction of a house, and so on, could be “paid” for with cryptocurrencies.

As a novel element, facilitated by the essentially online nature of virtual currency, the parties to a transaction may enter into “smart contracts” or “smart-contracts”, self-executing by means of blockchain technology, whereby they may provide for certain objective conditions on which the conclusion of the transaction is to depend (e.g. cryptocurrency X will be transferred from user A's digital wallet to user B's digital wallet once the BNR exchange rate for LEU-EURO reaches the level of 5 LEI to 1 EURO), conditions whose fulfilment is to be assessed by the blockchain system.

The absence of human intervention in the performance of the contract may lend speed and precision to transactions, but, on the other hand, it may also lead to transactions being concluded erroneously where the conditions agreed by the parties, as set out in the code/algorithm they entered into the network, are not sufficiently and/or effectively drafted, resulting in the virtual currency being transferred incorrectly. It remains to be seen whether, should artificial intelligence develop further in the future, these scenarios will become all but impossible.

It is imperative that the Romanian legislature make every effort to regulate this field as rigorously as possible, with a view to the efficient collection of taxes and duties, the use of virtual currencies including within public administration, and the prevention of economic offences. Nor has the European legislature been any prompter, although a draft regulation is currently under debate.

Nevertheless, until such time as the factual reality is reflected in detail within the Romanian/European/international regulatory framework, it may be said that the crypto world resembles outer space, (still) undiscovered: vast, fascinating and uncertain.

REFERENCES

[1] https://www.bnr.ro/page.aspx?prid=19236#footnote4

[2] Legea nr. 129/2019 (Law no. 129/2019) for the prevention and combating of money laundering and terrorist financing, and for the amendment and completion of certain normative acts.

[3] Directive (EU) 2015/849 of the European Parliament and of the Council of 20 May 2015 on the prevention of the use of the financial system for the purposes of money laundering or terrorist financing, amending Regulation (EU) No 648/2012 of the European Parliament and of the Council, and repealing Directive 2005/60/EC of the European Parliament and of the Council and Commission Directive 2006/70/EC (Text with EEA relevance) - OJ L 141, 5.6.2015, p. 73–117 (https://eur-lex.europa.eu/legal-content/RO/TXT/?uri=celex%3A32015L0849).

[4] COM/2020/593 final (https://eur-lex.europa.eu/legal-content/EN/ALL/?uri=CELEX:52020PC0593).

[5] Marian Nicolae - “Drept civil: teoria generală - Vol. 2: Teoria drepturilor subiective civile”, 2018, Editura Solomon, p. 115 et seq.

[6] Răzvan Dincă - “Contracte special civil law in the new Civil Code”, Ed. Universul Juridic, Bucharest, 2013, p. 90.

[7] Dan Chirică - “Tratat de drept civil. Contractele speciale - Vol. I, Vânzarea şi schimbul”, Ed. C.H. Beck, Bucharest, 2008, p. 67.

[8] Lucian Bercea - “''The price consists of a sum of money.'' From book money to virtual ''money'' (and back)”, published in the Revista Română de Drept Privat, issue 3 of 2017.