In recent years, we have seen a furious Gold Rush for mining bitcoins. The reasons are complex and can be summarized with the main advantages of the new currency, namely - virtual, decentralized payments; the coins (BitCoin) can be obtain by mining or purchased on a specialized markets.Besides, bitcoin payment system is associated with lower transaction costs; confidentiality of transactions, better protection of the purchasing power during inflation. Among the disadvantages are volatility (fluctuations in exchange rate), the uncertainty against theft, a threat of deflation, high risk transactions that are still outside the sphere of legal regulation.
The most important question for the promotion and development of new virtual money remains the issue of their recognition as legal tender for legitimate payments.
The Idea
The creation of Bitcoin (BitCoin) materializes the idea of "crypto currencies" exchanged in a fully decentralized network through P2P (peer to peer) technology. Currency is based on mathematical algorithms and open source applications.
The first information on the Bitcoin specification was published in 2009 in cryptographic mailing list by an anonymous author with the pseudonym Satoshi Nakamoto. Gradually, the idea became popular and the community is growing with followers developers who contribute to the development of Bitcoin. Nobody owns a Bitcoin technology and the network is not controlled by a particular person or organization.
Bitcoin Transactions
For participation in the Bitcoin network, the user must install special software with open source. After joining the network, receiving Bitcoin is possible in several ways.
One way is through the purchase with conventional currencies in circulation under the exchange rate.
Another way is obtaining trough payment in Bitcoin. More and more merchants accept payments with Bitcoin (e-shops, hotels, restaurants, etc.).
Third, one can generate virtual money through Bitcoin mining, which is so called because it resembles the mining of other commodities This process requires more resources and tools because of the large number of participants in it (diggers). Mining is a very important process to maintain the network because it requires spending more and more computing power for transaction processing, network security and synchronization of all participants in the system. Diggers can earn from fees paid by the users in the network and from new Bitcoin that are created by the respective formula.
In transactions with Bitcoin, the buyer and seller interact directly without the mediation of a third party as their identity is encrypted and there is no exchange of personal information between them. Any transaction with Bitcoin and each user is stored in a decentralized public register (blockchain).
Currently in circulation, there are about 12 million Bitcoin. Meanwhile, the total number Bitcoin which may be generated at random are limited to 21 million coins. This number is expected to be reached in 2040.
The Legal Status
The increased interest in Bitcoin as a means of virtual payments and related transactions cause the attention of law enforcement authorities, regulators and tax authorities of almost all countries. Reaction in different countries varies considerably - from a ban in Thailand to recognition as a legal tender in Germany.
U.S. position so far is rather continue research in analyze the potential risks associated with transactions in Bitcoin as well as clearly expressed concerns about their use as a primary means of laundering money from illegal activity. Step towards legal regulation of new virtual money is publishing of Guidelines on the application of Regulation FinCEN / Financial Crimes Enforcement Network / intended for those who administer, exchange or use virtual currencies, issued on 18.03.2013. The document sets out the circumstances in which certain users can be categorized as business related to money transfers. Users who identify with this cathegory must apply the measures provided for in the laws against money laundering and to identify their counterparts under the same laws.
Germany is the first country in the world that officially recognized Bitcoin as "private money, that can be used in trade and can be subject to taxation upon certain conditions.
Finland is other permissive country, where in September 2013 was issued a regulatory guide to bitcoin, which imposed capital gains tax on bitcoins, and taxes bitcoins produced by mining as earned income.
Canada recognized transactions with Bitcoin as legitimate and taxable as provided in the published instructions for Bitcoin.
The main conclusion on the ground of published documents and official positions of most countries is that Bitcoin is legal when used for legal purposes.
Bulgaria so far not expressed a position on Bitcoin and transactions with virtual money. Bulgarian law contains a legal definition of the term in Article 76, paragraph 2 of the Law on Payment Services and Payment means:
„Virtual money have monetary value stored electronically, including magnetically shape that represents a claim on the issuer, on receipt of funds for the purpose of payment transactions and is accepted by a natural or legal person other than the electronic money issuer.”
Bulgarian consumers can make payments with Bitcoin as the number of persons and organizations that accept payment with electronic money constantly growing. Bitcoin community in the country plans to establish an association to support national legislation in the adoption of legislative regulation of the virtual currency.
The Legal Risks
Trade with bitcoin hides certain risks that should be considered by investors and persons interested in transactions with private money.
First, the most serious threat is the lack of legal protection for consumers. Upon the occurrence of a liquidity crisis, the consumer can not receive legal and state protection because there is no authority to which to turn and no one is required by law to help solve the problem.
Second in the list of hazards is the volatility of Bitcoin. Severe fluctuations in the exchange rate of the Bitcoin nurtures doubts on opportunities for stock speculation. In 2013. rate of Bitcoin noted drastic fluctuations from $ 50 to $ 350 in April, reaching a record of $ 1,200 in December, followed by a decline to $ 800.
Another serious problem is the uncertainty of the network of Bitcoin. Over the past two years several serious hacker attacks were reported and operations resulted in serious losses (2013 BitCoin Bank, operating in Australia, but with servers in the United States reported a loss of hacking 1 million AUD; according to Bitcoin Foundation in August 2013. due to a bug in the software for Android are registered thefts from wallets of Bitcoin users; in August 2012 as a result of blocked user operation in Bitcoin Savings and Trust, leaving 5.6 million USD Bitcoin-based debts).
Trends in the trade and development of virtual currency indicated the need for coordination of the activities of national regulatory authorities internationally. Bitcoin transactions are performed globally, know no borders and legal barriers. Therefore finding an international solution for them becomes more pressing.
Placement Bitcoin transactions on the normative foundation is one more great challenge for the law in the digital era.
Evgeniya Gancheva
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