Germany Officially Recognizes Bitcoin As Real Money

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Germany Officially Recognizes Bitcoin As Real Money

The German ministry of finance (Bundesministerium der Finanzen) has officially recognised bitcoin, mentioning the digital currency in a reply to an inquiry in parliament.
From food to toilet paper, and drugs to weapons - everything is available on the Internet and, increasingly, purchases are paid with virtual currencies such as bitcoin.

The move has somewhat polished up bitcoins still dubious image, putting Internet trading in the currency on a legal footing and allowing the exchange of the virtual currency into real dollars or euros. Online currency conversion sites determine the value of Bitcoins according to supply and demand.

Currently, one bitcoin is valued at about $110 (82 euros) with overseer group Bitcoin Foundation limiting the total number of currency units to 21 billion.

Taxable Income


However, since bitcoin was not universally recognized as a currency it remained private money, the German Finance Ministry said. Nevertheless, the cyber currency was subject to German tax laws, the ministry said, including value-added tax on sales and income tax on profits garnered from bitcoin business.

This means that, like stocks or shares, any profit from them is subject to Germany’s capital gains tax, at 25pc – unless they are held for more than a year, according to German newspaper Frankfurter Allgemeine Zeitung.


However, the ruling may prove difficult to enforce, as Bitcoins can be traded anonymously, and therefore making them hard to trace.

“The German Ministry of Finance does not classify bitcoins as e-money or as a functional currency, they cannot be regarded as a foreign currency. Nevertheless they have to be subsumed under the German term of ‘Rechnungseinheit’ as a financial instrument,” Martin Chaudhuri, of  Bundesministerium der Finanzen, told CoinDesk.

German news website Die Welt reports Member of Parliament Frank Schäffler as saying that this is good news as, for the first time, the federal government is recognising bitcoins as private money.

A few weeks ago, Germany’s financial regulator BaFin amended the German Banking Code to state that bitcoins are “units of value” and, therefore, can be classed as financial instruments.

Stefan Greiner, of German law firm Xenion Legal, said both this and the government’s recognition of bitcoin are, in principle, positive for digital currencies.

“Germany now is the first country in the world which has a clear cut set of rules applicable to bitcoins,” he explained.

Greiner went on to say this could improve the access of bitcoin companies to VC funding as VC companies now have a “manageable regulatory risk environment”.

“This could also facilitate the cooperation between bitcoin companies and banks as banks now know where bitcoin companies are placed in the regulatory framework and which standards these companies must meet.”
"We should have competition in the production of money. I have long been a proponent of Friedrich August von Hayek scheme to denationalize money. Bitcoins are a first step in this direction,"said Frank Schaeffler, a member of the German parliament's Finance Committee, who has pushed for legal classification of bitcoins."

Kathleen Brooks, a research director at FOREX.com, told CNBC that classification by the German government gave bitcoin legitimacy to be used as a settlement currency in one of the world's largest economies. She said this was a big step forward for the bitcoin movement.

"I think it is interesting that Germany has gone ahead and given legal status to the bitcoin, as it could become an alternative to the euro if the single currency ever ceased to exist," Brooks said. "If the euro does go belly up the German authorities could potentially still collect tax if everyone started using the bitcoin - that's a good example of German forward-thinking!"

Success for bitcoin rests on regulatory fair-treatment and the existence of a level playing field with other currencies, said, Schaeffler. He added that it would be bad if national authorities smeared bitcoin as a criminal tool for money laundering, just because it makes anonymous transaction possible.


"Sooner or later, depending on the success of private currencies, authorities will feel the urge to ban or regulate private currency. A free country should resist and not intervene in citizen's private choice of money. In my opinion the production of money is none of the government's business," Schaeffler said.

Greiner believes these developments will raise the standards within the bitcoin space significantly as the companies involved are now regarded as financial services companies and must fulfil strict standards of operation. For example, companies are required to have an initial capital of 730,000 euros, certain professional qualifications of management and must report to BaFin.

Marco Streng, a bitcoin investor and trader based in Munich, agreed that the government’s recognition of bitcoin is good news for the future of digital currency in Germany.

“We can finally be more confident in dealing with bitcoins. Also it feels really good to have open-minded politicians like Frank Schäffler who can see the potential benefits of cryptocurrencies,” he said.

“I think that having bitcoin-related discussions on a governmental level and also having banks cooperating with bitcoin businesses gives us a special role in the global view of regulations and I hope this serves as a good example for other nations to follow,” Streng added.

What is yet to be clarified is whether sales tax is due on commercial transactions involving bitcoin. Although it has been clarified that bitcoin is exempt from capital gains tax in Germany.

In the meantime, over in the US, the government has launched an inquiry to establish the potential of bitcoin and other virtual currencies. A letter from the US Senate Committee on Homeland Security and Governmental Affairs to the Department of Homeland Security states: “As with all emerging technologies, the federal government must make sure that potential threats and risks are dealt with swiftly; however, we must also ensure that rash or uninformed actions don’t stifle a potentially valuable technology.”

Additional Resources:
What is BitCoin and How Does It Work?

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