Bitcoin approved by Germany as a ‘unit of account’ for transactions

PUBLISHED : Wednesday, 21 August, 2013, 12:00am
UPDATED : Wednesday, 21 August, 2013, 4:40am


Germany's finance ministry has formally recognised the digital currency Bitcoin as a "unit of account" that can be used for private transactions - meaning it will now be able to tax users or creators of the four-year-old virtual money.

But companies wanting to use it for commercial transactions will need permission from the Federal Financial Supervision Authority.

Bitcoin is an online token that can be used and exchanged for goods and services in the same way as standard currencies.

But it has no issuing bank; each is the solution to a complex mathematical problem. Transactions are carried out by transferring a unique number within the Bitcoin network from one electronic "wallet" - on a computer or phone - to another.

Each of the 10 million Bitcoins in existence is now worth about US$117. New coins are "mined" by setting computers to find new solutions to the maths problem.

While not putting Bitcoins on the same footing as formal currencies such as the pound or dollar, Germany's move does mean that people who have speculated in the online cryptocurrency could be liable for capital gains taxes if they sell them less than a year after acquiring them.

German authorities are trying to work out how - or whether - they could determine taxes due on Bitcoin transactions between individuals.

One key problem would be identifying when users have carried out such transactions, given that Bitcoin wallets are effectively anonymous.

US authorities have also been studying Bitcoin following fears that it could be used for money laundering or passing funds outside tax oversight.

A judge in the US recently ruled that Bitcoin does amount to "a currency or form of money", in a preliminary hearing over a man in Texas, Trendon Shavers, who is accused of running a pyramid scheme masquerading as a Bitcoin investment company.

In contrast with Germany, Thailand's central bank declared last month that it was illegal to trade Bitcoins, use them to buy or sell goods or services in the country, or "move them in or out of the country".