Bitcoin as a (crypto) currency

Recent headlines abound with stories about Bitcoin and other cryptocurrencies. These have been prompted to a large extent by their extreme volatility over the past 18 months. Further, because those stories are principally focused on people and institutions who are trading Bitcoin, a great deal of legal analysis has focused on legal mechanisms for how they can be recovered if a trade does not go through or if they are misappropriated — an analysis which often turns on whether Bitcoins can be classified as a form of property.

However, momentum is now gathering behind using Bitcoin as a currency or medium of exchange in trade (as opposed to merely speculating on its value). To great fanfare in December 2017 a property developer announced that it was marketing a house for sale in Bitcoin. Then, the Financial Times reported in January 2018 that major commodities houses, Louis Dreyfus and Mercuria, together with some of the leading trade-finance banking institutions had performed international sales of goods priced and paid for in Bitcoin. More recently still, in February 2018 it was reported that ships were being chartered with freight stated and paid in Bitcoin.

Bitcoin as “money”

These developments prompt the question whether English law would treat Bitcoins or other crypto-currencies as not merely property but as actual money. The guidance on this from other jurisdictions is mixed. A 2014 case in Holland decided that Bitcoins were not money for the purposes of the Dutch Civil Code and cases in the USA at about the same time came to a similar view.

However, more recent US authority supports the conclusion that Bitcoins are money. This change of attitude is not surprising since the test for what counts as money looks in significant part at how the item in question is used and crypto-currency technology and usage is adapting and advancing at an extraordinary pace.

There are a number of reasons to think that the English courts would follow this more modern approach. A leading theory in English law is to focus on money’s function as the currency of commerce – is the item in question commonly and continuously accepted as payment in exchange for articles of commerce? The news stories summarised above suggest we are moving in that direction. In addition, it is perhaps telling that HMRC treats cryptocurrency as foreign currency for the purposes of income, corporation and capital gains tax.

Judgments in Bitcoin

Why does this matter? The answer goes back to the volatility of Bitcoin’s value. If Bitcoin is merely property, then damages for its non-delivery would (traditionally) be assessed at the date of breach. However, that might be many months or even years before the date of judgment, during which time the value of Bitcoin may have changed dramatically.

The English courts faced a similar issue during the 1970s when there was considerable volatility in the external value of sterling. This problem was solved by the House of Lords deciding in Miliangos v George Frank that the courts were not confined to giving judgments in sterling (as had previously been assumed) but could give judgments in foreign currencies. Their Lordships stated that this was a question of procedure and the common law, not statute. As such, there is no in principle bar to the courts adapting that reasoning to give a judgment in Bitcoin. If they did, the judgment would operate by “awarding delivery in specie rather than giving damages” and the relevant date for converting the judgment sum into sterling would be the date of payment (on the basis that this best secures to the creditor what he bargained for). The financial result in any given case could be a matter of considerable significance.