Digital currency has been arousing a lot of interest for some time. In public administration circles - at least officially – so far, it has not been discussed very much. A few days ago though, the situation has changed. The National Bank of Poland together with The Polish Financial Supervision Authority (KNF) took a precedent position on the digital currency.
With one voice
A few days ago, the common view of the NPB and the KNF on digital currency was revealed. The document was prepared objectively. The "Announcement" clause is, in principle, a warning of risks, as evidenced by its preamble. It also refers in content to my pioneering publications devoted to bitcoin in Polish law, published almost three years ago. This is pleasant for me. And because of some knowledge of digital currency and the commitment to work on the regulatory taming of this phenomenon in the Polish legal realm, I am allowing myself to make a few comments.
Attention worthy is the whole "Announcement". This is the first official position on the digital currency, and in addition - which should be emphasized - edited jointly by the central bank and the central body of public administration. It can certainly influence the direction of legislative processes and the practice of economic life. It was, however, needlessly edited in a rather conservative tone, paying homage to an out-of-date terminology. We are dealing with digital currencies, and not, as they were called, with virtual "currencies". Such terminology (digital currencies) is now considered to be accepted and dominant. Virtuality does not associate well in this context. Digital currencies really exist.
It is really a warning?
As you read the content of the position, a conviction forms that the basic tone of the "Announcement from the National Bank of Poland and the Polish Financial Supervision Authority" on virtual "currencies" includes primarily descriptive and educational content. It may thus contribute to clarifying their legal nature and spectra of economic applications. It not so much warns about digital currencies but explains their main characteristics. These include, among others, decentralization of issuance and lack of legal status of redemption of obligations (private and public). Digital currency is not universally accepted by creditors nor is it an electronic money or a financial instrument.
That's all true. True is also the repeatedly expressed concern by the ECB and the EBA over digital currencies, and the fact that digital currency trading in Poland does not violate national or EU law, and that a fraudulent incident has occurred in one of the Polish bitcoin stock exchanges. It also does not hurt the realm of facts to present examples of risks associated with owning digital currency. It is true that the digital currency is, in certain circumstances, susceptible to computer anomalies (hacking interference, for example), and the person who owns it can be deceived in various ways. At present, the performance (rates) of digital currencies relative to the dominant world currencies are also characterized by significant volatility. It is also true that some forms of investing in digital currency offered may have the character of the so-called financial pyramid. In the latter case, the NPB and the KNF expressed themselves with a reasonable restraint, as the feature described can only be highlighted in some cases (in trace practices).
Through the lawyer's eye
When referring to the "Announcement" essentials, one has to pay attention to a few inaccuracies and to become aware of a few forward-looking themes. The definition of digital currency, as referred to in the "Announcement", is burdened with economic considerations. To a conservatively educated lawyer, the clarification of the phrase "virtual currencies are a digital representation of value" comes with great ease. The point here is that digital currency can be an asset. It is, therefore, a category which falls within the framework of the basic concepts of private law. A unit of a digital currency (e.g. bitcoin, litecoin, ethereum) has a legal status of property (art. 44 of the civil code). It can therefore be an asset. Therefore, it can be the subject of a disposal, that is to go from the seller to the buyer. It can be an element of inheritance, that is, go to successors. It can also be a non-cash contribution, that is, entering into the assets of a legal person. I have already mentioned all of this in scientific publications.
A unit of digital currency may also be "recognized by natural and legal persons as a means of payment". There is nothing disturbing about this. This feature of digital currency (as well as props such as collectables, amber, gold, etc.) is part of the content of art. 35811 § 2 of the civil code, if "the parties may stipulate in the contract that the amount of cash benefit shall be determined by other measure of value than money". In the context of private law, digital currency is a different measure of value than money. This is the core of its legal substance (design). As such, it can be used to redeem obligations between private legal persons.
This is not a defect, but a feature. Therefore, digital currency trading is legal. Most of the functions of digital currency derive from this code attribute (feature). Commonly, a unit of digital currency is money, since it can redeem obligations. However, it should be stressed that this is a function, not a public-law status, which interferes with the central conditions of the issue of money by the central bank. Digital currency in no way lies on the antipodes of the assumptions of the system of money creation formulated in the Constitution of the Republic of Poland.
It is, however, a means of redeeming obligations. In the same way fidget spinners, recently the most popular items of lust in certain circles, also have the status of money, since in exchange for a fidget spinner, one can get a collection of pokemon stickers. The fulfillment of such equivalent benefits also leads - as indicated by the results of the basic legal reasoning - to the redemption of obligation resulting from the exchange agreement (art. 603 of the civil code). Not only the payment by money may result in the redemption of obligation. This is the elementary message, known to the students of the university lecture on contract law. Digital currency is not money. That is certain. However, they perform the function of money, just as measures of value other than money. This is also certain.
What's before us?
The joint "Announcement" of the NPB and the KNF does not deserve a unilateral orthodox condemnation, although its leading tone due to the programmed warning character is slightly ominous. Beyond doubt, however, through its strong official voice, it enters the mainstream discussion on the location of digital currency in Polish law and in the Polish economic reality. That is why it is important to convey that the "Announcement" raises an incredibly significant issue in its final words. It mentions DLT (distributed ledger technology). It does it well. By omitting the warning precautionary plot in the "Announcement", this is certainly the most important element of the content of the commented submission.
It is true that the digital currency arouses some anxiety in the unacquainted people. The reasons are various, generally associated with the phenomenon of hiding pre-tax income. In the meantime, in practice, the most untaxed income is laundered with legal money. At present money laundering through digital currency, a prominent phenomenon due to its media attractiveness, is marginal. That is why, the positive inclusion of the most important issue, namely the DLT, included in the "Announcement", should be praised.
One has to agree with the thesis described in the "Announcement" that "distributed ledger technology can have a range of other uses, such as in the electronic databases, industry, services, or the financial sector. Many of the functional, operational and legal aspects of this technology should, however, be subject to a thorough and detailed analysis and testing, prior to its mass market introduction". From the perspective of future considerations this is the most significant part of the commented "Announcement". The importance of the distributed ledger technology can be overestimated and diminished only by those who do not know what is really going on.
Therefore, it will be sensible on this occasion to refer to the fruit of the works conducted under the protectorate of the Ministry of Digital Affairs of Poland under the program "From paper to digital Poland". A group of scientists and practitioners works pro bono under this program. I have participated in the "Blockchain Stream/DLT and Digital Currency" work from the beginning as a leader of the involved lawyers. We performed a number of documentary studies that are currently the most important resource for reliable knowledge of digital currency and DLT technology in Poland. All materials are easily available on the Internet.
This legacy primarily includes the "Overview of Polish law in the context of applications of distributed ledgers technologies and digital currency" from October 2016 (announced in January 2017 version), "Blockchain technology and cryptocurrency term lexicon" from October 2012 and "The canon of good practices of cryptocurrency market entities in Poland" from January 2017. I refer the persons interested in the essence of things to those documents. I think that these few papers constitute a starting point for forming an opinion on the officially mentioned subject in the joint "Announcement" of the NPB and the KNF.
Should we be afraid?
It is not my role to convince anyone to specific solutions because I have to admit that from the perspective of an academic-lawyer and a practitioner–lawyer, I have no influence on the direction of legislative activity and the practice of exercising public authority by public administration bodies. As a scientist I explain, and as a lawyer I solve problems. That is why, I strongly encourage all those concerned to diligently deepen their knowledge of digital currency and distributed ledger technology.
Bitcoin is not so black as it is painted... And that is why, a bit of a personal thread at the end. I have set up my first email account in 1996. In order to obtain it, I directed an application to the Head of the University's Information Technology Center, previously approved by the Dean of the Faculty of Law and Administration of my home University. Recognition of the application took two weeks. I have received a letter of approval about one month after the application has been accepted by registered mail, including the approval of the address and the login and password. And I could use the email. This is hard to believe today - email used to to cause concern...
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.