30 January 2018

Bitcoin legislation in the Netherlands

Category: Financial law

Cryptocurrency is the new way to invest money. The Bitcoin was the first cryptocurrency, being created in 2009, but for a while now, not the only one. Nowadays, we see also other cryptocurrencies like Ethereum, Litecoin or Dash upcoming.

Like Bitcoins, these are digital currencies which are stored in an online wallet.

According to current legislation and regulation, digital cryptocurrencies are not to be seen as a legal method of payment.

This does not mean that payment at all is out of the question. For instance, it is possible via specific vendors to purchase goods using Bitcoins. For example, Microsoft restored Bitcoin as a payment option.

Who ‘creates’ Bitcoins?

Bitcoins are created by means of ‘mining’ via usage of specific computers. Mining is a mix of advanced math combined with record-keeping activities. By resolving these math problems, Bitcoins are earned. Another word for solving these problems is ‘finding a block’. Approximately every 10 minutes a block is released and the person who solves the code belonging to that particular block is rewarded with some Bitcoins. The blocks are collectively indicated as the “blockchain” which is basically some sort of ledger recording all transactions that have taken place in the Bitcoin network.

The risks of investing in Bitcoins

According to some commentators Bitcoins are a fraud, to be considered a bubble and no different (if not worse, considering its international diffusion) than the tulip bulb bubble, which is destined to collapse.

Furthermore, the Dutch national supervisory authority has no grip on Bitcoins which fall – under circumstances – out of the scope (for now!) of the Dutch Financial Supervision Act (‘Wft’), thus leaving this authority (the Autoriteit Financiële Markten ‘AFM’) and the Dutch central bank (De Nederlandsche Bank – ‘DNB’) with no regulatory power.

That is why Bitcoin brokers have – from a regulatory perspective – no defined regulatory constraints.

Bitcoin legislation and regulation in the Netherlands?

There is no central issuer, which means nobody can be held reliable for the issuance of Bitcoins.

Bitcoin cannot be qualified as virtual money as mentioned in the Wft. It can also not (yet) be qualified as a financial product under Dutch law.

This means that the AFM cannot (yet) have any supervisory power which gives the Bitcoin broker a large amount of freedom. That said, there are circumstances under which activities with Bitcoins might fall under the scope of the AFM.

Regardless of the fact that Bitcoins are not yet regulated, it is to be advised immediately to put in place internal procedures aimed to govern transparency and safety of Bitcoins transactions.

It is expected that Bitcoins will be regulated in the Netherlands in the near future.

Legal advice on Bitcoins and other cryptocurrencies in the Netherlands

If you need support in drafting Bitcoin – and procedures or if you seek other legal advice regarding cryptocurrencies, please feel free to contact Jasper Hagers, financial lawyer in the Netherlands (email: jh@blenheim.nl or phone: + 31 20 5210100).