Bitcoin not E-money Under the EU Electronic Money Directive

One of the strategic questions for Bitcoin is how it will interact with regulation. I recall that E-gold has been shut down by the American government under allegations of money laundering and operating a Money Transferring Business without the necessary licenses.

In contrast to E-gold, the Bitcoin network lacks a single issuer. No government can just shut down one related business and get rid of Bitcoin that way.

But still, for the Bitcoin network to grow into the mainstream, it would obviously be desirable to get the necessary licenses.

The problem is, it is not entirely clear right now what licenses are necessary. I expect it will take a couple of years before the regulators have figured out what licenses they want to require, and some of the startup businesses in the Bitcoin space have acquired those licenses.

For the time being, it is much easier to say what the Bitcoin network is not.

This post will just point out that the Bitcoin network is not “E-money” under the 2009 European Union Electronic Money Directive.

There have been voices asserting the contrary. For example this blog post at Technollama in 2011 said that the Bitcoin network falls under the Directive. It actually even asserted that the Bitcoin network is illegal in the EU because no one bothered to get a license under the Directive.

Another example would be more recent. Jon Matonis just posted at Forbes about differences between the US and EU regulations, and wrote this:

The dichotomy between EU and U.S. approaches to e-money becomes even more apparent when one looks at the uniformity of the EU e-Money and Payment Services Directives versus the almost hostile FinCEN guidance on virtual currencies and the incomprehensible patchwork of state money transmitter laws. Because of this, I estimate that the EU currently enjoys at least a five-year head start over its U.S. brethren in accommodating evolving payments efforts.

That sounds a lot like he thinks that the E-money Directive is in some way relevant to Bitcoin, just like Andrés Guadamuz at Technollama quite clearly does.

However, after some discussion at Twitter, the last I read from Matonis before it was too late in Japan for me to answer was this Tweet:

I am referring to preamble sections 7,8 & 12 with service providers issuing e-money based on receipt of bitcoin funds

Well, yes. Obviously, if someone is running an electronic money institution under the Directive, they will fall under the Directive. They will do so whether they accept bitcoins or not. Accepting bitcoins as a funding option doesn’t change anything.

Anyway, let’s just note for further reference that the Directive does definitely not regulate the Bitcoin network. This runs somewhat counter to intuition, so I expect many people getting it wrong, like Guadamuz did.

The Directive has this definition of electronic money in its Article 2:

“electronic money” means electronically, including magnetically, stored monetary value as represented by a claim on the issuer which is issued on receipt of funds for the purpose of making payment transactions as defined in point 5 of Article 4 of Directive 2007/64/EC, and which is accepted by a natural or legal person other than the electronic money issuer;

That means there needs to be an “issuer” to qualify. For example, with E-gold you had a company named Gold&Silver Reserve issuing e-gold. There is no company issuing bitcoins. If a customer had e-gold in their account, they had a claim on the issuer (Gold&Silver Reserve) for the equivalent amount of gold (monetary value). With bitcoins, no one can claim monetary value. All the value a bitcoin has now comes from the fact that other people are prepared to pay money for a bitcoin. None comes from an issuer promising to take back bitcoins at some value or other.

At that point, the whole Directive is not applicable to the Bitcoin network. Someone wanting to build a Bitcoin exchange in Europe with regulatory approval will need to find some other framework than that of the Directive.

It is an interesting question what that might be. It is an even more interesting question if an exchange located in Japan (*ahem* MtGox *ahem*) could just go ahead and start Mutum Sigillum Germany and apply for a license from BaFin, the German financial regulator, once people have figured out what license to apply for.

Unfortunately, these questions are not easily answered.

In contrast, it is very easy to see that the Electronic Money Directive is, at is stands right now, not the regulatory framework the Bitcoin network could use in the European Union.

Maybe the EU could amend the Directive and build a new framework for Bitcoin exchanges at some time in the future.


Published by kflenz

Professor at Aoyama Gakuin University, Tokyo. Author of Lenz Blog (since 2003,

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