Decrypting the classification of cryptocurrency around the world

February 1st, 2020

Picture source: Gallo Images/Getty


Cryptocurrencies are currently being experimented with in multiple commercial disciplines and being used for trading to alternative payment methods. The question many governments face at this point is how to legally classify these digital currencies within their economy.

In his blog ‘Can information (data) be an object of legal rights?’ private international law Professor Koji Takahashi comments on the digital nature of cryptocurrency, which results in the risk of them being classified as mere information or even just data. In many legal systems data cannot readily be the object of rights and obligations and only very limited exceptions may exist.

The reactions of governments to cryptocurrency to date can be classified into roughly five categories as proposed below. These range from most favourable to least impressive looking specifically from the perspective of enhancing international commerce in the global economy.

Governments that have categorised cryptocurrency as legal tender or currency

Japan went all in declaring bitcoin legal tender during April 2017, while Sweden has chosen to declare bitcoin a legal currency.

When considering the issue of legal tender verses legal currency specifically, it is always worthwhile looking at Scotland’s banknotes, which are not even legal tender but have been surviving in the economy just fine. A currency is, therefore, perfectly capable of existing without legal tender recognition. Scottish Bank notes are recognised as legal currency by the United Kingdom (UK) Parliament. It is proposed that governments consider the recognition of cryptocurrencies with the purpose of being an alternative payment method as legal currency.

Further developments in Japan include the experimental MUFG Coin launched in 2017 by the Mitsubishi UFJ Financial Group. The data collected from the experimental project will assist Japan in launching J-Coin in preparation for the 2020 Tokyo Olympics. J-Coin will be pegged to the Yen and will thus represent a nationally backed stable coin.

Bitcoin is the only cryptocurrency that has ventured this far in its legal recognition.

Governments that have categorised cryptocurrency as an asset or something less than legal currency

Australia treats cryptocurrencies like money and the purchase of such currencies are no longer subject to goods and services tax, but they class it as property. New Zealand on the other hand sees it as a payment system and, therefore, not a currency.

Estonia declared all cryptocurrencies as an ‘alternative payment method’ while Germany qualified bitcoin as ‘units of account’ in terms of the German Banking Act. They are thus not legal tender in these countries but can be used for commercial purposes.

The Philippines recognise only bitcoin as a ‘legitimate payment method’ and in the UK it is equated with ‘private money’. This classification as an alternative payment method or alternative to money is supported for all cryptocurrencies used in legal commerce for payment purposes. It is, however, discouraged to classify cryptocurrency as being mere property leading to barter transactions.

Brazil, Finland and Israel categorised bitcoin as an asset while Canada and the Netherlands have stated that transactions involving bitcoin are barter in nature. Singapore also treats transactions involving any virtual currency as a barter transaction and sees the supply of such currencies as a service. In the United States (US) regulations are currently all over the place with each state approaching the situation independently and diversely from the next. The Internal Revenue Service has, however, categorised cryptocurrencies as property. This classification is not supported as it hampers the digital evolution of money and international commerce and trade due to the barter nature of the transactions.

Norway and Slovenia have confirmed that bitcoin does not meet the requirements for classification as money or currency while Turkey confirmed that bitcoin does not qualify as e-money.

Governments that have banned the use thereof within its territorial borders

The Financial Action Task Force (FATF) listed the potential considerations of governments that decide to prohibit activities related to virtual currencies based on their own risk assessment and included consumer protection, safety and monetary policy among them in the ‘Guidance for a risk-based approach: Virtual currencies’.

The most significantly negative reactions are out of Bangladesh that has warned against the use of any of the cryptocurrencies and threatened users with jail time followed by Venezuela where people are arrested and allegedly tortured if found using bitcoin. Bolivia, Ecuador, Iceland, Kyrgyzstan have all banned the use of bitcoin. Lebanon has a decree they issued in 2000 prohibiting the use of all forms of ‘e-money’.

All forms of digital currency are outlawed in Nigeria and trading in any cryptocurrencies is illegal in Iran. According to a global benchmarking study done at Cambridge University, the Nigerian Naira is one of the 30 supported national currencies in the cryptocurrency payment industry and 15% of this industry participated from a country where cryptocurrency is illegal. This begs the question of the success of government regulation in this regard. The FATF in its 2015 guidance note mentioned above urged governments to consider whether prohibition of activities relating to virtual currency would result in them simply being driven ‘underground’. It is proposed that regulation will not cure the use of cryptocurrency for illegal purposes just as Anti-Money Laundering/Countering Financing of Terrorism regulations did not cure all forms of abuse in the existing financial industry.

In Russia, the finance ministry developed a draft law banning ‘electronic monetary surrogates’, which include cryptocurrencies, and transactions involving them. The Central Bank of the Russian Federation warned against the use of cryptocurrencies in exchange for goods and services, or anything. Thus discouraging its use in commerce.

India’s Reserve Bank have banned regulated entities including banks and payment gateways from providing any services to cryptocurrency businesses thus disabling their ability to provide deposit and withdrawal services in Rupees. An exchange platform Unocoin has reacted by deploying machines like Automated Teller Machines where Rupees may be deposited and withdrawn directly thus merely and quite elegantly circumventing the ban.

In China, a company Tencent launched QQ Coin to allow users to make payment for goods and services offered by the company in this virtual currency. However, soon QQ Coin was being traded between people directly, being exchanged on gaming platforms and accepted by merchants as a form of payment. The Chinese government decided in 2009 to ban the use of QQ Coin for anything that was not related to Tencent in the fear that it would impact the ‘real’ financial system. This means that even though QQ Coin was not a decentralised virtual currency, it threatened the financial market enough in the territory of China for its government to react with regulations limiting this effect. Things have since then only gotten worse in China, when in 2013 the People’s Bank of China banned bitcoin transactions from being processed with its financial institutions.

Governments must consider the cross-border element of virtual currency payment products and services as part of its risk mitigation strategy. This stresses the importance of universal recognition and regulation of cryptocurrencies in order to avoid international commercial interactions being treated differently in different jurisdictions due to un-relatable regulatory reactions to them.

Let us assume that a Japanese seller and Nigerian buyer enter into a contract of sale where the goods are paid for by way of bitcoin and arrive damaged in Nigeria. The buyer is now not only without recourse in his own country but has committed an offence and risks action being taken against him.

Governments that have not done anything

Austria, Belgium, Cyprus, France, Greece, Indonesia, Ireland, Lithuania, Pakistan, South Korea have not made any categorisations in this regard. The consequence of not categorising cryptocurrency is that the users thereof are left without any legal protection.

Columbia and Croatia have gone as far as to advise that cryptocurrencies are not illegal but have not proceeded to categorised them in any way.

In South Africa, the South African Reserve Bank (SARB) holds the authority to issue legal tender that is capable of being offered as payment a creditor must accept in discharging an obligation. The SARB issued a Position Paper on Virtual Currencies during 2014, which contains a verbatim definition of virtual currency conceptualised by FATF and is thus not legal tender or e-money in this territory. The SARB acknowledges the interactive potential of cryptocurrency with the real economy and notes the increased acceptance by merchants exerting competitive pressure on existing payment systems resulting in integration with them.

A South African citizen and/or merchant, therefore, have no recognised protection against the risks of cryptocurrency but are free to use it for commercial purposes as they are not banned. JP van Niekerk and WG Schulze in The South African Law of International Trade: Selected Topics (SAGA Legal Publications 2011) advise that from a South African perspective, the buyer’s main obligation in a contract of sale relates to the payment of the purchase price, which is required to be in legal tender. This is of course unless the parties agree otherwise. Such agreements to the contrary are usually as a result of trade usages and thus nothing prevents the parties from agreeing that payment be made in cryptocurrency.

The FATF identified lack of regulation and investigation by countries as a barrier to international cooperation on the area of cryptocurrencies. Governments that have not at least categorised cryptocurrency may want to consider investigating the issue more proactively.

Governments that have launched their own cryptocurrency or have had cryptocurrency launch against them

In 2014, the cryptocurrency Aurora coin was distributed 50% of its coins via airdrop to citizens of Iceland via the unique identification numbers issued to citizens. Aurora coin was, however, not launched by the Icelandic government but by an unknown creator or creators as an alternative to bitcoin in protest against the government’s flawed financial system that categorised cryptocurrency as a fringe activity. This was the first ever country-based cryptocurrency but unfortunately it was not a great success and only ten percent of the Icelandic population claimed their coins and even those that claimed them did not have a place to spend them in Iceland.

The Marshall Islands government are issuing a cryptocurrency called the Marshallese sovereign (SOV) to act as legal tender within the territory.

Venezuela launched the Petro in early 2018, the first cryptocurrency issued by a government in an attempt to circumvent the now worthless Bolívar. The Petro
is linked to the country’s oil reserves and thus serves as another nationally backed type of stable coin.

Other governments that have allegedly been considering a similar launch of their own cryptocurrency is Iran, Turkey and Brazil. A strange consideration for governments that have outlawed the other cryptocurrencies within their territories. Perhaps the ban was really motivated by the preparation and launch of a government cryptocurrency. Great circumspection ought to be given to these national cryptocurrencies as they may be aimed at circumventing sanctions imposed on the countries. The political agenda behind certain government currencies cannot be avoided and for that reason a decentralised cryptocurrency like bitcoin is preferred as an alternative form of payment more likely to be accepted globally.


From face value, it is easy to highlight a number of future commercial concerns in international trade if this kind of unilateral approach is retained by governments. Of great concern is whether transactions involving cryptocurrency will be classed as commercial transactions or barter transactions given the payment method and its classification within the country in question.

Former US congressman Ron Paul proposes that the requirement for legal tender recognition be abolished completely and for currencies to be allowed to compete against each other. This might be to economically exotic for most governments, but it is suggested that they classify cryptocurrency as at least an alternative form of payment in order to allow for the international commerce to include cryptocurrency among its forms of payment in international trade where it can be most beneficial to the global economy.

Tanya Language BCom LLB LLM (UJ) is a legal practitioner at Vodacom In Johannesburg.

This article was first published in De Rebus in 2020 (Jan/Feb) DR 8.

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