Faced with spectacular increases (and drops) in value, cryptocurrencies appear to be making their first inroads in the regular economy. As of March 2018, dozens of Belgian brick-and-mortar stores now offer customers the possibility to pay in bitcoin, the first and still most widely used cryptocurrency.

For the time being, cryptocurrencies are still a relatively marginal phenomenon. Customer demand for them remains negligible, and the few businesses that accept bitcoin appear to do so mostly as a publicity stunt.

But while the number of bitcoin payments at your corner shop is undoubtedly limited (and will likely remain so for the foreseeable future), things are vastly different online, where hundreds of thousands of bitcoin transactions take place every day.

Progressive business owners may be asking themselves whether they should offer their customers the option to pay in bitcoin (for instance in their online shop) while others may already offer this possibility.

This blog post briefly discusses the economic and legal risks associated with accepting pay-ments in cryptocurrencies, particularly bitcoin.

Economic considerations

Before deciding whether to accept bitcoin, a business should first consider the financial and economic risks.

Bitcoin's value is extremely volatile. Some say this is because bitcoin is a pyramid scheme or the perfect example of "the greater fool theory", pursuant to which the value of an asset is based purely on the speculative possibility of selling it to "a greater fool" at a higher price. But there are also those who claim that cryptocurrencies are the future of our financial system.

If you are not averse to financial risks and opportunities or actively seek them out, there are still a number of legal considerations to take into account before accepting bitcoin payments.

The absence of a ban does not mean absolute freedom

At present, the only Belgian legislation on cryptocurrencies is a 2014 royal decree shielding private investors from certain types of cryptocurrency derivatives. Further information is scant and is only gradually becoming available on a piecemeal basis. From a tax perspective, we can flag a tax ruling on cryptocurrency value gains and a CJEU judgment on the applicability of VAT to certain cryptocurrency transactions. From a criminal law perspective, we know that the Belgian authorities have seized the bitcoin proceeds of criminal offences. Cryptocurrencies have been (non-exhaustively) debated before Parliament, and the FSMA and National Bank have issued a number of warnings to investors.

The absence of exhaustive cryptocurrency legislation does not however mean that crypto-currencies can be used freely, without any legal risk. Without claiming to be comprehensive, parties that wish to make or accept payments in bitcoin currently face the following (potential) legal issues under Belgian law.

Criminal law concerns

First, there are a number of criminal law concerns. Article 178bis of the Criminal Code penal-ises the issuing and disbursing of money without government authorisation. Although there is very little case law and literature on this provision, there are good reasons to believe that a payment in bitcoin is a punishable offence. Article 178bis is intended to protect the government's monopoly on the issuing of money. Bitcoin is a decentralised currency, essentially aimed at undermining that monopoly.

Furthermore, the detention or use of the proceeds from a criminal offence constitutes money laundering. One of bitcoin's most prominent features is that users remain (mostly) anonymous, making it attractive to criminals. Bitcoin's bad reputation in this regard is not entirely without merit, meaning parties that decide to accept bitcoin will face specific risks under the anti-money laundering legislation.

Contractual uncertainty

Second, Bitcoin's exact nature remains undefined in civil law terms. Is it a form of money, a commodity (comparable to gold) or an investment instrument? Is it a receivable or an intangible asset? Which rules apply when a creditor wishes to attach a debtor's bitcoin wallet? What rights does a bitcoin owner have in the event of a fork in the blockchain? What happens when parties agree on a price in bitcoin but bitcoin's value rises or falls the next day? Does the principle of monetary nominalism apply (Article 1895 Civil Code)?

If paying in bitcoin is considered a criminal offence under Article 178bis of the Civil Code, both the payer and the recipient can incur criminal liability and their underlying contract can be jeopardised. A contract whose purpose constitutes a violation of criminal law is contrary to Belgian public policy and will consequently be considered null and void. The parties will not be able to enforce it in court.

Unresolved tax issues

Third, there are uncertainties in the field of tax law. Bitcoin payments received by a business constitute taxable income, but the tax treatment of this income (if bitcoin's value increases) is not clear. In a December 2017 tax ruling, bitcoin profits were qualified as miscellaneous income, taxable at a rate of 33%. However, this ruling was issued within a very specific factual context and may not be generally applicable.

Virtual money with real risks

In sum, we can quote one author who referred to bitcoin as virtual money that entails very real risks. As long as cryptocurrencies are not subject to a clear and comprehensive legal framework, the prudent approach for a business is to not accept payment in bitcoin.