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Bitcoin is now a fungible unit in France

A court in Nanterre, France, has ruled that Bitcoins are fungible value units. The trial was about whether forkcoins such as Bitcoin Cash are also repayable in a loan in Bitcoin. But the ruling goes far beyond that: it defines what Bitcoins are before the law. A thing — or money?

Photo by Sharon McCutcheon on Unsplash

A court case in Nanterre, a suburb of Paris, became a landmark case for Bitcoin. The commercial court there handed down a judgment on February 26 that could have far-reaching implications for Bitcoin’s legal position. The ruling not only decides the dispute between the two plaintiffs but also sets a precedent that will influence future case law.

Paymium lends BitSpread 1,000 Bitcoin and now wants Bitcoin Cashback.
The dispute involved the following: The French stock exchange Paymium had lent 1,000 Bitcoin to the British investor BitSpread in 2014. The British investor had repaid the 1,000 Bitcoins in October 2017, but Paymium froze 53 Bitcoin of BitSpread, which the investor had deposited as collateral, instead of just the 42 Bitcoin, which according to the contract are to be paid as interest. This is because Paymium is demanding not only the 1,000 Bitcoins back but also the Bitcoin cash generated by a hardfork in August 2017.

In August 2017, Bitcoin Cash (BCH) split from Bitcoin (BTC) through a hardfork. Everyone holding Bitcoins at that time had the same amount of Bitcoin Cash on the BCH blockchain. Paymium, therefore, claims to be the rightful owner of the 1,000 Bitcoin Cash created from the 1,000 Bitcoins lent.

The dispute has ended up at the Nanterre Commercial Court, where the judges will probably have to deal with a Bitcoin loan for the first time. There aren’t many cases yet — if any — which is why the Commercial Court has been forced to decide, rather unintentionally, whether Bitcoin is money or not.

This distinction is extremely important for the case at the Nanterre Commercial Court. Paymium seems to assume that Bitcoin is a thing, that is, an object with individual characteristics. Say, like real estate or a car. In that case, it could be argued that an increase in the value of the item due to externally generated income — like a hardfork — is not due to the current owner, that is, the borrower, but to the owner, who is still Paymium.

It is difficult to find an illustrative example of this. Let’s say I rent an apartment and the city council gives each apartment owner a case of beer. This goes to me, of course, and not to my tenant. Or let’s say an environmental foundation sets up solar panels on every roof of a house free of charge. Even then, these would not go to the tenant but to the landlord.

Another example would be to lend Bitcoins. If I lend you 10 Bitcoins as one thing, and their value doubles, you have to give me back 10 Bitcoins again. Logically. A hard fork makes things more complicated, because it is not an immediate increase in value, like a stock price increase, but copies the coins on a new blockchain as new coins, which is a process that has no legal precedent yet.

BitSpread responds by arguing that the distribution of the forkcoins was not automatic. Instead, it has been dependent on the willingness of exchanges to issue them, as well as the ability of users to receive, store and send them. This argument makes sense. Some exchanges have refrained from crediting Bitcoin Cash to their users, and of the dozens of Bitcoin Forks that have existed since then, hardly any exchange has taken them all. The same applies to the users: Hardly anyone has taken all the Forkcoins.

Photo by Aditya Joshi on Unsplash

The increase in the value of Forkcoins was therefore not automatic, but a fruit of the actions of the owner of the coins. Therefore he is entitled to it.

The court defines Bitcoin as a fungible and intangible value unit
However, the Court of First Instance did not deal with these detailed questions concerning the fork at all. Instead, it shortened the decision by considering the loan not as a loan in kind, but as a loan in a fungible unit of value, such as money.

In contrast to tangible assets, the conditions for returning money loans are clearly defined from the outset. You have a sum to lend, a sum to return, and defined interest. Money is fungible, which means that one unit resembles all others. One euro is one euro. Period. While tangible assets such as real estate can experience both positive and negative changes in condition, which in the case of rented property, for example, regularly give rise to disputes as to who takes responsibility for them, the quality of a euro remains the same. Therefore, the lender’s rights are exhausted with the repayment of these clearly defined sums.

It would be possible to quote loans in euros but pay them out in Bitcoin. The Berlin platform for micro-loans, BitBond, offered this in the past. Bitcoins are here only the means of payment, the carriage, so to speak, with which the gold box is transported, but not the gold itself. As long as the value of Bitcoin is not yet stable, this is the only sensible option for entrepreneurial purposes.

A loan in which Bitcoins are the unit of value is unusual and dangerous. If the borrower changes the Bitcoins into fiat currency or goods and services in order to advance his business, he takes high risk because if the price of Bitcoin increases in the future, it may be very expensive for him to repay the loan. The loan to BitSpread is one of the rare examples of a loan quoted in Bitcoin. It is reasonable to assume that BitSpread did not swap the Coins Coins, but used them to make profits by trading on exchanges.

Such a rather niche question now leads to the Nanterre Commercial Court having to define what Bitcoins are. The decision that Bitcoins are a fungible unit of value, such as money or shares, is the most obvious answer and the clearest judgment. It simply cuts off all the detailed questions that arise around the fork.

This decision could also clarify some of the legal uncertainties that are still smoldering regarding Bitcoin. For example, there is a delicate legal difference in the way non-fungible goods and fungible means of payment are treated when theft and receiving of stolen goods occur. When I take money for a good, I acquire the money legally, regardless of whether it comes from criminal activity. It is mine. If, on the other hand, I take money for a good, I only become the rightful owner if it was previously also acquired lawfully.

An example: If I swap my sofa for my neighbor’s TV set, but he stole it from the Mediamarkt, then without knowing it I have become a fence. In this case, ignorance protects me from punishment, because I did not know that I had acquired a stolen good. However, I did not legally acquire the television set. The owner remains Mediamarkt, which can reclaim it from me.

The same could apply to Bitcoin if the crypto-currency is treated as a non-fungible item. If I take 0.002 Bitcoin to sell my book, but those Bitcoins come from a criminal source, such as a fraud, and the aggrieved party reclaims them — do I have to give them back to him? This question is still open but has the potential for widespread uncertainty.

The Nanterre court ruling may not be the final answer to this question. But it is right for a perspective in which Bitcoins are fungible and therefore to be treated as money.

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