A cryptocurrency is an entirely new and unique value, the existence of which is currently being solved not only by individuals but also by entrepreneurs. Current statistics⁽¹⁾ show that in the last two years there has been a diametric increase in the number of subjects receiving payments in the cryptocurrency. In addition, cryptocurrencies are now subject to investment by businessmen who trade them on stock exchanges.

Due to the fact that the cryptocurrency is based on a modern, unique technology which is operating within completely different and special principles, there are questions about the nature of the cryptocurrency as well as the legal aspects that concern them. This is because the cryptocurrency becomes an everyday part of the business sphere. Those persons who hold, receive, exchange, trade with cryptocurrency, have to deal with issues such as the ownership of the cryptocurrency, tax obligation, the possibility of establishing a pledge on the cryptocurrency or other related rights and obligations.

Nowadays, solutions are only being sought, not only at a national level but also at a global level; though while there is still legal uncertainty, which undoubtedly has negative consequences for the further development of the cryptocurrency and the associated business expansion, it is still in its infancy which gives plenty of time for future progression to be made.

The most frequent discussion regarding the cryptocurrency is the question of what legal nature the cryptocurrency possesses. In order to answer this question, it is necessary to assess technical aspects of the cryptocurrency, its features as well as the possibilities of disposal with it.

In simple terms, the cryptocurrency is, in its most primary nature, only a certain script in the programming language (code) that is stored on each node (computer). On the other hand, it is obvious that a certain value and importance is attributed to this script. Extensive discussions are currently led especially on the question on whether the cryptocurrency is money, currency, commodities, rights, or other objects of legal relationships.

Before further analysis, it is necessary to emphasize that in the area of the cryptocurrency, there’s a rapid and fundamental technological development that it is very difficult to define or legally determine the cryptocurrency in its entirety, since various derivatives and “offshoot” cryptocurrencies, which do not possess all the features of Bitcoin, but in principle they can be included in this area, are continuously developed. This fact is also reflected in the assessment of the cryptocurrency by the state and public authorities that are not able to set out rules for the whole area of ​​cryptocurrency and are basically limited to specific individual cases.

In the case of money and currency, it is necessary to point out that the development of the new form of money in their digital form has been linked to the development of the Internet and a significant increase in the number of its users.⁽²⁾ The European Central Bank considers the cryptocurrency as virtual currencies, which is defined as a digital representation of values ​​not issued by a central bank, credit institution or electronic money institution and which may, in certain circumstances, only be used as an alternative to money.⁽³⁾ The European Central Bank at the same time emphasized that virtual currencies do not fall under the current legal definition of money or state currency.

The legal nature of the cryptocurrency has also been assessed by other states, for example, in the United States of America, several cases have been medialized, in which some cryptocurrencies were considered as securities because they meet all the elements of the so-called Howey test.⁽⁴⁾ In Germany, the German Federal Ministry of Finance (Bundesministerium der Finanzen) commented on the nature of Bitcoin in August 2013, stating that Bitcoin could be considered as a financial instrument under the current legislation.

However, if we return to the nature of the cryptocurrency, it is obvious that the cryptocurrency is not a material thing, such as coins or banknotes. This fact is also confirmed by the fact that the person, even if he/she has "acquired" the cryptocurrency, does not holds the cryptocurrency in tangible form. For the ability to "hold" their own cryptocurrency, the "wallet” was created, which means a software program that stores a private key (similar to a PIN)⁽⁵⁾ and a public address (similar to a bank account number)⁽⁶⁾ allowing the person to send and receive the cryptocurrency through a blockchain. Obviously, the cryptocurrency itself is not stored in the wallet, as this remains only in the form of a blockchain registration. Only the private key and the public address are basically stored in the wallet, so, in practice, the wallet is, in its essential, something similar to a password management.⁽⁷⁾

In light of the aforementioned, under the current Slovak legislation, the cryptocurrency should be assessed as the “other asset value” within the scope of the meaning of Article 118 (1) of Act No. 40/1964 Coll. Civil Code as amended.⁽⁸⁾ Within wider professional discussion, opinions on the nature of the cryptocurrency as securities were presented, but this conclusion is not supported by the current legal legislation of the Slovak Republic, because in the sense of Section 2 (2) of Act No. 566/2001 Coll. on Securities and Investment Services and on the Amendment to Certain Laws (hereinafter referred to as the “Securities Act”), the securities system consists only of those types of securities which are expressly stated in the exhaustive enumeration in the relevant legal provision and the cryptocurrency is not listed in this closed enumeration (numerus clausus). In this context, it should be noted that the nature of the securities itself is ambiguous in practice, whereas the decisive role has the form of the security. "While a paper security has a physical form, so physically exists and can be likened to a thing in the legal sense, the book-entry security exists only as a virtual script and therefore cannot be a thing under the current law." ⁽⁹⁾ A practical solution to the situation in the case of book-entry securities was introduced by the legislator, who in Section 9 (2) of the Securities Act stated that securities are subject to the provisions of the Civil Code on movable property, unless this law or a separate law provides otherwise, and therefore, even the book-entry security is not a thing in the true sense of the word, it will be in some cases assessed as a thing.

The Court of Justice of the European Union stated that there is no doubt that the virtual currency Bitcoin does not represent a security that would "confer ownership rights in legal persons or other comparable securities."⁽¹⁰⁾ However, as there are currently no legal provisions in the legal order of the Slovak Republic that, like the securities, states that virtual currencies will be subject to the provisions of the Civil Code on movable property or the provisions of the Securities Act, the nature of virtual currencies should be considered as the other asset value.

There is no legal definition of the term "other asset value" in the legal order of the Slovak Republic. In general, however, we consider the other asset value as objects that are neither a thing nor a right, but nevertheless have a certain asset value.⁽¹¹⁾ In view of the abovementioned, it is clear that cryptocurrency is, by its primary nature, closest to the other assets values, for which reason they should be treated in a similar way.

Responding to this question and determining the nature of the cryptocurrency is necessary because the situations in which the nature of the cryptocurrency determines the rights and obligations of the persons are solved. First of all, there is a broad debate on the question of who is legally considered to be the owner of the cryptocurrency. Due to the fact that cryptocurrency is not a thing, it is not possible to talk about a proprietary owner. Due to technology side of the cryptocurrency, it is possible to consider as the owner of the cryptocurrency a person who has a private key to a public address and is therefore able to send the cryptocurrency from a public address. How to treat cases in which such a private key is unlawfully acquired by a third person? In the case of litigation, it will be only through the disposal of relevant evidence and the possibility to bear the burden of proof for the legitimate acquisition of a private key.

The fact that the cryptocurrency can be considered as the other asset value is also confirmed by the fact that the cryptocurrency is in fact capable of being subject to a pledge. At present, several schemes are being implemented in which the cryptocurrency is kept as a pledge, and if it falls below the amount of the receivable it secures, it is exchanged for another cryptocurrency or for money.⁽¹²⁾ Similarly, the cryptocurrency can be object of heritage as well as a part of the common ownership of spouses.⁽¹³⁾

The necessity of dealing with the nature of the cryptocurrency has also arisen in criminal proceedings, as some crimes have been committed using the cryptocurrency.⁽¹⁴⁾ In practice, it is primarily solved with how to deal with the retained cryptocurrency. In the United States of America, the FBI has retained several thousand bitcoins to abolish the illegal Silk Road server, which trafficked narcotics and psychotropic substances for bitcoins. Retained bitcoins were allegedly sold at the auction to a person who subsequently donated them to support a charity project.

In summary, in today’s world, it can be stated that there is no clear settlement of the nature of the cryptocurrency, but in the legal environment of the Slovak Republic, according to the current legislation, it is necessary to consider the cryptocurrency as other asset values.

_______________________________________________________________________

(1)   See e.g. a map of entities that accept payment with the cryptocurrency, posted on:

https://coinmap.org/#/world/47.37231462/19.80285645/3

(2)   According to https://internetworldstats.com/stats.htm, as of 30^th June 2018 4,208,571,287 Internet users are registered.

(3)   An Analysis of the European Central Bank entitled "Virtual currency schemes - further analysis" of February 2015, which is published on the website:

https://www.ecb.europa.eu/pub/pdf/other/virtualcurrencyschemesen.pdf.

(4)   The Supreme Court of the United States of America in the so-called Howey's case (SEC, WJHowey Co., 328 US 293 (1946), states that a contract by which money is invested in the joint venture with a reasonable expectation of profit deriving from the business or management effort of others, is considered as an investment contract, which is a security. U.S. Securities and Exchange Commission, in its report of July 2017, stated that DAO tokens as specific cryptocurrency units conform to Howey's test because they constitute an investment contract and are therefore considered to be securities regulated by applicable laws.

(5)   E.g. in the Bitcoin there are up to 2²⁵⁶ private key options, whereas the private key is shown as a set of letters and numbers composed of 64 elements within the hexa form.

(6)   The public address is not chosen by the user, but it is automatically derived from the private key through different cryptographic formulas (e.g. Elliptic Curve Cryptography, SHA256 and RIPEMD160). E.g. Bitcoin's public address consists of 34 digits and letters.

(7)   Interestingly, it is possible to find a public address from a private key, but vice versa it is almost impossible. Therefore, if a user wants to send a cryptocurrency, he/she has to enter the public address he/she wants to send the cryptocurrency, and he/she confirms with his/her own private key, by which he/she de facto signs the transaction.

(8)   Under Section 118 (1) of the Civil Code "the subject of civil relations is the thing, if its nature permits, rights and other asset values."

(9)   Števček, M. Dula, A., Bajánková, J., Fečík, M., Sedláček, F., Tomašovič, M. et al. Civil Code I. § 1 - 450. Commentary, Prague: C. H. Beck, 2015, p. 743.

(10) Decision of the Court of Justice of the European Union C-264/14 in the case Skatteverket (Swedish Tax Administration) vs. D. Hedqvist

(11) Mostly, there are certain sets of rights and obligations (e.g. business share) or intangible assets (trademark).

(12) This procedure is mostly programmed as a smart contract.

(13) When dealing with the practical issues involved in this area with cryptocurrency, it is possible to proceed analogously as to a commercial share or a trade mark that can also be classified as other asset values.

(14) For example, in the criminal proceedings for committing the crime of illicit manufacture of narcotic drugs and psychotropic substances, the virtual bitcoin value of 0,14299232BTC, which is located on the virtual police wallet number XXrgXLBSWdXQqXwAeuhXFCDbXUXXKXBgPn in the sense of the KP TN sp. no. 1Kv 75/17 / 3300-39 according to Section 90 (1) b), e) of the Criminal Procedure of 5^th March 2018.