T Skevington and M Bacina
French Court finds Bitcoin is equivalent to fiat
In an unpublished decision arising out of a dispute between a digital currency exchange and lender, the Commercial Court of Nanterre in France found that Bitcoin is an intangible asset with an exchange value, equivalent to fiat money at law.
While this decision is subject to review, it is important in that it allows facilitates Bitcoin (and potentially other digital currencies in future) being treated like money or other regulated financial instruments.
The decision arose from a dispute between French digital currency exchange Paymium and the UK-based alternative investments firm BitSpread as to ownership of assets following a hard fork. A hard fork occurs when a blockchain, upon which a cryptocurrecy relies, splits into two separate chains, and all those who held crypto currency on the blockchain before the fork have the same amount on each of the new chains immediately following the fork. The new cryptocurrency immediately exists in the digital wallet where the cryptocurrency was stored at the moment of the fork. In most cases the new currency is close to worthless but some significant forks have resulted in new currencies with significant values arising.
In 2014, Paymium loaned 1,000 Bitcoin to BitSpread. The dispute arose following the 2017 hard fork of Bitcoin which created Bitcoin Cash, as the Bitcoin Cash created in relation to the 1,000 Bitcoin immediately was in the possession of BitSpread (who controlled the wallet holding the 1,000), but Paymium asserted that they were, in effect, the legal owner of the new Bitcoin Cash.
The court found that the loan from Paymium to BitSpread was the same as any other consumer loan. Under a consumer loan, the court found that the Bitcoin Cash belonged to the borrower who had borrowed the bitcoin, in the same way that dividends belong to shareholders, even if the shares themselves had been borrowed.
Digital currency lenders should take this decision as key opportunity to review their cryptocurrency loan contracts, and consider including a clause explicitly providing for the ownership and return to the lender of any digital assets created by a hard fork.
The decision is viewed as positive for the digital currency space in France. For instance, lawyer Hubert de Vauplane believes that this decision now permits Bitcoin to be legally used as currency in France and will lead to an increase in the number of Bitcoin transactions in France.
He also stated:
[the decision] will, therefore, facilitate Bitcoin transactions, such as lending or repo transactions, which are growing, and thus favor the liquidity of the cryptocurrency market.
This decision represents another step towards legal clarity on the nature of Bitcoin, and follows legal recognition of digital currencies by the UK and in Australia in a recent case.