Is Bitcoin money?

In the recent decision of Commissioner of Police v Bigatton [2020] NSWSC 245 (Bigatton) Judge Cavanaugh told us that [C]ryptocurrencies are known as virtual currencies and may be considered a form of electronic money…..”

He expanded this further to explain: “[A] unit of a cryptocurrency, such as a bitcoin, is created from code using an encrypted string of data blocks in the form of numbers known as blockchain. Cryptocurrencies can be bought and sold on exchange platforms and can be used to pay for goods and services from a person or entity that is willing to accept the particular cryptocurrency as payment.”[1]

In technology parlance, cryptocurrencies are a variation of digital currencies, they are transparent in that a person can see all transactions that have been made and received by any user, since all revenue streams are placed in a public chain, called the blockchain. Cryptocurrencies are decentralised, and the regulations inside the network are governed by the community.

Whilst other countries have in place a legal framework surrounding digital currencies, for example the EU’s Directive 2009/110/EC and the US Article 4A of the Uniform Commercial Code, Australia is yet to recognise the need for regulating digital currencies other than for money laundering and counter-terrorism purposes.

Money laundering and counter-terrorism purposes

The plaintiff in the Bigatton case alleged that Mr Bigatton was committing offences by operating an unregistered managed investment scheme and undertaking money laundering activities by dealing with money that had a value of more than $100,000 which, under the (Cth) Criminal Code Act 1995, raises the suspicion of being proceeds of crime.

Whilst it appears from the case that the operations did not have the hallmarks of a managed investment scheme requiring registration under section 601EB of the (Cth) Corporations Act 2001, the discussion on the money laundering activities by his Honour and the plaintiff does not appear to have touched on all relevant aspects of the law.

The defendant operated a business called “BitConnect, a virtual currency or cryptocurrency business…” which promoted a ‘BitConnect Lending Program’ under which he converted Bitcoin into Australian dollars (and used the money to make payments on his mortgage as well as other things). The defendant readily admitted that he was engaged in ‘mining’ Bitcoin which was “sent out…as a problem which must be solved.” The person who solved the ‘problem’ received Bitcoin.  There was also another aspect to the operations, in that the defendant was involved in ‘staking’ (where a computer puts the Bitcoin in a digital wallet) and ‘fausting’ (essentially gambling)[2].

The (Cth) Anti-Money Laundering and Counter-Terrorism Financing Amendment Act 2017 which amended the (Cth) Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (AML/CTF Act) gives us a clue as to the definition of digital currencies. Under the AML/CTF Act, digital currencies involve the converting of Australian or foreign currency in Australia to a digital currency or a digital currency into Australian dollars or a foreign currency in Australia. Section 5 specifically defines a digital currency to mean “(a) a digital representation of value that:

  1. functions as a medium of exchange, a store of economic value, or a unit of account; and
  2. is not issued by or under the authority of a government body; and
  3. is interchangeable with money (including through the crediting of an account) and may be used as consideration for the supply of goods or services; and
  4. is generally available to members of the public without any restriction on use as consideration……”

This means that if a person offers a designated service, which includes operating a digital currency exchange, they must enrol and register with Australian Transaction Reports and Analysis Centre (AUSTRAC). Section 6 of the AML/CTF Act is explicit. Item 50A spells out when a designated service is provided in relation to digital currencies.  Once it is established that a designated service is to be offered, the person must establish and implement an AML/CTF compliance program, and obligations such as verification of identity of the person that the exchange is dealing with come into play. 

Even if it could not be proven that Bigatton was operating a digital currency exchange, he may have been operating a loan business.  Again section 6 of the AML/CTF Act is explicit. Several items may have been applicable, for example, item 6 (making a loan), item 7 (acting as a lender) and item 32A (operating a network of people) requiring Bigatton to register with AUSTRAC.

Not only is failure to register an offence under the AML/CTF Act, AUSTRAC has wide powers such as the right to appoint an external auditor and impose civil and enforcement actions.  In addition, under section 400.9 of the (Cth) Criminal Code Act 1995 an offence is committed where there are dealings with money or property that are reasonably suspected to be the proceeds of crime. The dealings can arise from money laundering activities and in these types of cases proof that the defendant has a particular state of mind about the nature of the money or property that they received is not required. In addition, the unexplained wealth provisions recently included in the (Cth) Proceeds of Crimes Act 2002[3] may be applicable.

What then is Bitcoin?

The production, purchase and sale of digital currencies are not currently recognised or regulated by the Australian Government other than in relation to anti-money laundering and counter-terrorism activities.

On generally accepted principles of what is money, we could conclude that a digital currency is money.  It is a medium of exchange and can be used as a method of payment.  However, section 8(1) of the (Cth) Currency Act 1965 (Currency Act) states that the monetary unit, or unit of currency, of Australia is the dollar. Section 9(1), so far as it is relevant, requires every transaction, dealing, matter or thing relating to money or involving the payment of, or a liability to pay, money to be made, executed, entered into or done according to the currency of Australia, unless the currency of some other country is used. Section 11(1) requires that every payment, unless made according to the currency of some other country (of which Bitcoin is not), be made according to the currency of Australia.

What does that mean for all the other methods of payment such as gift cards, vouchers and digital currencies?  Are they then not legal forms of payment?

Gift cards and vouchers are permitted under the electronic payment system and therefore can be used as legal tender in Australia. Under section 9(3) of the (Cth) Payment Systems (Regulation) Act 1998, the Reserve Bank may declare that this Act does not apply to a specified purchased payment facility.

Digital currencies such as bitcoin on the other hand are generally treated as property and not currency. This is spelt out in more detail in the Guidance Note from the Australian Taxation Office ‘Tax treatment of crypto-currencies in Australia – specifically bitcoin’[4]. 

The future

There has been recent developments relating requiring the use of electronic methods for certain payments including the use of digital currencies. The Australian Government is proposing that transactions equal to, or in excess of A$10,000 for payments made or accepted by businesses for goods and services will be required to use the electronic payment systems, pay by cheque or use a digital currency.[5]  

Does this mean that digital currencies, such as Bitcoin, will be acknowledged as another form of currency when the payment is for goods or services over A$10,000?[6] Is this the beginning of a recognition of the use of digital currencies as a legitimate form of money or currency under the Currency Act? Or will they remain an item of property declared by the Reserve Bank, just like a gift card or voucher, as a method of payment as long as it is through the electronic payment systems?

Currently there appears to be no advantage in using digital currencies for payments in Australia. Other forms of electronic payments (such as debit and credit cards, PayPal and electronic transfers) are usually quicker to transact (instantaneous compared with digital which may take minutes), may offer other benefits such as insurance cover, travel bonuses, warranties and other purchase protections which digital currencies are not able to offer. Digital currencies can vary in price from one day to the next, have the potential for electronic theft, whereas other forms of electronic payments consistently hold their value.

In addition, as there is no general prohibition in exchanging property with other property, whatever the value, this may be the most logical characterisation of digital currencies. However, a more expansive definition may be required. There may not always be a conversion of one currency to another.  There may be a conversion to other digital currencies or property or no conversion at all.  They also have similar properties to intermediated securities or investment instruments and allow for trading and investing with the added protections available under the (Cth) Corporations Act 2001 and registration of interests under the (Cth) Personal Property Securities Act 2009.

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