November 25, 2020/
While it was only relevant for a small group of savvy individuals some time ago, it is now steadily gaining in importance: we are talking about Bitcoin. More and more investors are backing the virtual currency and it is also increasingly accepted as a payment method in everyday life. It therefore makes sense to take a closer look at the Bitcoin phenomenon and examine its history and economic significance.
The history of Bitcoin
If you find out about the origins of Bitcoin, you quickly come across a hacker group called “Satoshi Nakamoto”, which was responsible for the creation of the Bitcoin network in 2009. However, the actual origins of this first form of cryptocurrency lie a little further back, in 1998 to be precise, when the Cypherpunk movement introduced the first digital transaction system, the so-called cryptocurrency , which functions without the intervention of central authorities (e.g. banks). A big step at the beginning of the digital age.
Bitcoin itself is the first implementation of cryptocurrency – and also the best known – and was introduced at the beginning of 2009, as already mentioned. The background to this was the financial market crisis taking place at the time, as a result of which investor confidence in banks was increasingly dwindling. With Bitcoin, “Satoshi Nakamoto” created a digital medium of exchange for paying for all consumer goods available online.
Functionality
To get an overview of how bitcoins work, the following different terms are relevant:
The "Wallet": simple & uncomplicated
As a new user, you must first create a wallet, i.e. a digital purse. All keys are stored in this wallet. The keys enable access to the Bitcoin addresses with which transactions are carried out. Each address should only be used once. It can be passed on to friends, who can use it to send money to you, and vice versa. This generates so-called transactions. This is roughly comparable to the way e-mails work.
The blockchain
The blockchain forms the basis of the entire Bitcoin network. It is decentralized, i.e. publicly visible and distributed across many computers, and transparently stores all confirmed transactions between the parties. This allows wallets to calculate the account balance and only bitcoins that actually belong to the sender can be used for transactions.
Mining - processing of transactions
Mining can be seen as a kind of decentralized data center. Transactions are processed there and their legality is confirmed by their inclusion in the blockchain. All recorded Bitcoin transactions are documented in a land register. The confirmation also results in the payment of the so-called Bitcoin transaction fee. Transactions that are added to the block must meet strict cryptographic requirements, which are confirmed by the network. This means that transactions from previous blocks cannot be manipulated, as they would otherwise no longer be valid. Consequently, mining is very secure.
Legal classification of Bitcoin
Bitcoin can be viewed as a cryptocurrency from a monetary and tax law perspective as well as from a civil and commercial law perspective.
Currency and tax law
All cryptocurrencies fall under the so-called abstract concept of currency, as they fulfill the abstract aspects of quality as a means of exchange and payment, the function as a unit of account and as a means of storing value. In contrast, the concrete concept of currency has so far only applied to legal tender.
The tax classification differs between private users and companies: while Bitcoins are subject to income tax for private users, profits from Bitcoins within companies are subject to either income tax (partnerships and sole proprietorships) or corporation tax (limited liability companies, stock corporations, etc.), depending on their legal form, and trade tax is also due in each case. Furthermore, sales generated by companies from bitcoins are exempt from VAT.
Civil and commercial law
Bitcoin as such has no physicality under civil law and is therefore classified as an intangible asset that is not tangible property. Coupled with a hardware data carrier and the key pair stored there, however, Bitcoins are classified as an object in accordance with Section 90 BGB.
From a commercial law perspective, however, cryptocurrencies are generally and clearly defined as goods.
Economic significance
As already mentioned, Bitcoin is a decentralized means of payment that cannot be controlled by banks or other institutions. The price of a Bitcoin is determined exclusively by supply and demand and is therefore often subject to strong fluctuations.
Due to its advantages, Bitcoin is becoming increasingly popular with more and more companies, investors and private individuals. Transactions of any amount can be transferred internationally, free of charge and in real time. All Bitcoin transfers are also processed anonymously, which guarantees a high level of security.
If Bitcoin were to become a widespread means of payment in the future, this would mean less control for central banks and governments, which would fundamentally change the structure of the global economy. It remains to be seen if and when this development will occur.