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July 2015

Damyana Lazarova for Bulgaria On Air: Legal challenges for the trade of the cryptocurrency Bitcoin

Damyana Lazarova is a lawyer with over ten years’ professional experience, partner at CasePro (www.casepro. bg) since the establishment of the law firm, member of the Sofia Bar Association and the International Bar Association (IBA). She graduates from Sofia University with a Law degree and gets a qualification in Commercial Law from the London School of Economics and Political Science. Along with the rest of the partners at CasePro Damyana, is in charge of regional and international projects in the sector of business processes outsourcing (BPO), mergers and acquisitions, Private equity deals. CasePro’s team, led by Damyana, is a legal partner of reputable international financial and payment institutions, operating in the online and mobile payments sectors, where cryptocurrency payments are applied.

Despite the contradictory views on the nature and stability of cryptocurrencies, bitcoin – the most successful currency in the history of virtual money – continues to gain popularity and to attract new users. At the same time, digital money presents a number of challenges to the legislations of the different countries and many important issues remain unsolved and hinder its establishment as a universal means of payment. Bitcoin falls outside the International Monetary Fund regulation, hence there isn’t a direct a mechanism for intervention on behalf of the Fund. Due to that, there are risks of sudden changes in the bitcoin exchange rates, as well as risks from the so called “speculative attack”. Bitcoin opponents point out disadvantages, such as the anonymous nature of the bitcoin, which might ease money laundering, black market and tax avoidance with regard to incomes from cryptocurrency deals. Still there isn’t an explicit regulation in the European Union concerning the establishment of bitcoin as a type of currency. The European Central Bank (ECB) believes the bitcoin can’t be treated in the context of Directive 2007/64/ЕО, regarding payment services as it doesn’t regulate electronic money and the issuing institutions themselves. It’s thought that the bitcoin may be defined according to the Directive 2009/110/ЕО regarding the activity of the electronic money institutions, as it’s kept on an electronic data storage device and it’s considered a means of payment on behalf of persons, different from the issuer. However, the ECB thinks that the bitcoin doesn’t fall within the scope of the latter directive, as it doesn’t meet the third main criterion, namely “issuance in exchange of money”. The European Central Bank has issued a warning concerning transactions with virtual currencies, pointing out that bitcoin isn’t regulated and its users aren’t protected from the risk of losing their money. Regardless of this, following the market trends, many companies are introducing and maintaining bitcoin payments, and the supporters of the cryptocurrency believe in its future better positioning on the market. The necessity of regulating the matter is becoming more and more notable and recently the different countries have been conducting a lot of discussions on the subject at the highest level. A legal regulation of the virtual currency would be a positive step for all participants in the bitcoin trade, including with regard to the principles of taxation of income from virtual currencies, which is already a fact in the most of the developed economies. In Bulgaria, despite the lack of a legal term for “virtual currency", the National Revenue Agency considers that the incomes from sales or exchange of virtual currency, including from selling bitcoins shall be treated and taxed as incomes from the sale of financial assets.

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