Supreme Court: Bitcoin. First Ruling

Supreme Court’s First Ruling on the Legal Nature of Bitcoin

The Criminal Chamber of the Supreme Court has issued a Judgment dated June 20, 2019, in Cassation Appeal 998/2018, addressing BITCOIN for the purposes of restitution and civil liability, examining the legal nature of this cryptocurrency.

Factual Scenario. Dispute: Civil Liability and Potential Restitution of BITCOINS Following a Fraud Scheme

As reported in summary by the General Council of the Judiciary, through the aforementioned Judgment, the Supreme Court confirms a two-year prison sentence for the sole administrator of the company Cloudtd Trading & DEVS LTD, who signed management contracts with five individuals who delivered bitcoins to him in deposit so that, in exchange for a commission, he would reinvest the dividends and deliver the profits obtained. However, according to the proven facts, when these contracts were signed, the convicted individual intended to seize the bitcoins received without any intention of fulfilling his obligations.

In addition to the prison sentence, the Provincial Court of Madrid ordered the accused to pay the victims of the fraud compensation in the value of the bitcoin exchange rate at the time of the termination of each of their respective contracts, to be determined during the execution of the sentence, and further declared the subsidiary civil liability of the company. As they did not agree with this, the victims filed a cassation appeal with the Supreme Court, alleging that the appropriate course of action would have been for the appealed sentence to order the accused to restore the stolen bitcoins and, only if they were not restored during the execution phase, then proceed to their valuation and agree on the refund of their amount.

Excerpt from the Judgment of Particular Interest

“Even though the jurisprudence of this Chamber has expressed the obligation to restore any property subject to the crime, including money, the defendants were not stripped of bitcoins that must be returned to them, but rather the act of asset disposal that must be compensated materialized in the money in euros that, due to the deception inherent in the fraud, they delivered to the accused to invest in assets of this type. On the other hand, neither is the so-called bitcoin something susceptible to return, since it is not a material object, nor does it have the legal status of money.

The bitcoin is nothing more than a unit of account of the network of the same name. Based on a public and distributed ledger, where all transactions are permanently stored in a database called Blockchain, 21 million of these units were created, which are traded in a divisible manner through a verified computer network. In this way, the bitcoin is nothing but an intangible asset, in the form of a unit of account defined by the computer and cryptographic technology called bitcoin, whose value is that which each unit of account or its portion reaches by the agreement of supply and demand in the sale of these units carried out through Bitcoin trading platforms.

Even though the price of each bitcoin is set at the cost of the exchange carried out, and there is therefore no single or global price for bitcoin, the amount of each unit in different purchase operations (by the same rules of supply and demand) tends to equalize at any given time. This similar cost of the units of account at any given time allows bitcoin to be used as an intangible asset for consideration or exchange in any bilateral transaction in which the contracting parties accept it, but in no way is it money, or can it have such legal status, given that Law 21/2011, of July 26, on electronic money, indicates in its article 1.2 that electronic money is understood only as “monetary value stored by electronic or magnetic means representing a claim on the issuer, which is issued on receipt of funds for the purpose of making payment transactions as defined in article 2.5 of Law 16/2009, of November 13, on payment services, and which is accepted by a natural or legal person other than the electronic money issuer”.

Conclusions

We have already warned from IN DIEM, both in our publications and in various forums and congresses, that cryptocurrencies and bitcoins can hardly be considered “money” since this concept embodies legal concepts and must meet legal recognition by the established powers to be recognized as generally accepted units of account.

In this sense, and firstly, cryptocurrencies do not have recognition in Spain as legal tender, foreign currency, or similar to date.

However, secondly, cryptocurrencies can serve as a means of “payment” based on the contractual principle of party autonomy, that is, when the parties so accept.

We have already mentioned on other occasions that: “cryptocurrencies can serve as a means of fulfilling obligations or as a ‘means of payment’. The decision to use cryptocurrencies as a means of payment is due to the agreement and reciprocal trust between payer and receiver, just as in barter economies when a seller receives another asset with a presumed equivalent value for a good or service.”

What this Supreme Court Judgment does provide value for, for legal purposes and the multiple litigations in which we are involved, is that in cases of fraud and property crimes in general that imply an obligation of restitution or compensation, it seems they must be compensated in euros.

A matter that, without any doubt, will continue to generate controversy, given the following considerations:

A.- Cryptocurrency defined as an intangible asset subject to market value fluctuations (similar to a financial asset) is susceptible to potential capital gains for those offended by the crime depending on the date on which its reimbursement or return was effectively requested (especially in cases of a hypothetical increase in value).

B.- There may be factual scenarios relating to property crimes involving cryptocurrencies, and bitcoins in particular, in which the “return” of the bitcoins is feasible and viable, so it will be necessary to look at each case to determine the fairest system of compensation and civil liability.

Obviously, with this first ruling, the broad range of cases that civil liability for bitcoin-related crimes can generate cannot be addressed, and we will have to continue analyzing the development of jurisprudential doctrine.

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Did you know that Abogados IN DIEM accepts Bitcoin, Ether, and Bitcoin Cash as forms of payment?

At IN DIEM Lawyers we accept payments in different cryptocurrencies. For this, we offer you a simple system. Cryptocurrencies like Bitcoin, Bitcoin Cash, or Ethereum provide an unprecedented level of security. The network provides users with protection against the most frequent frauds such as chargebacks or unwanted charges, plus bitcoins are impossible to counterfeit. Bitcoin is designed to allow its users to have total control over their money.

BitPay is a payment services platform that supports the cryptocurrencies Bitcoin (BTC) or Bitcoin Cash (BCH).