Last week, we explained the institution of electronic money. In today's post, we'll examine the concepts of virtual currency and cryptocurrency, which are gaining popularity year after year. I'll try to answer the question of what these terms mean according to the regulations in force in the territory of the Republic of Poland.

The concept of virtual currency is found in Article 2, Section 2, Item 26 of the Act of 1 March 2018 on Counteracting Money Laundering and Terrorist Financing (hereinafter referred to as the AML Act). In defining virtual currency, the legislator first indicated what it is not—meaning it used a so-called negative definition. Later in the provision, it simultaneously outlined several of its characteristics.

Starting with the positive part of the definition, in accordance with the above-mentioned provision, virtual currency is understood as a digital representation of value, exchangeable in economic transactions for legal tender and acceptable as a means of exchange.

The legislator deliberately used the term "digital value representation" to avoid categorizing this concept within already established civil law institutions. While this is considered a valid solution, it has introduced a concept with an ambiguous legal structure.* This approach, on the one hand, offers significantly broader interpretation possibilities, but on the other, it leaves doubts as to how virtual currency should be treated in the context of civil or criminal law.

By indicating the convertibility and acceptability of these funds, the legislator clearly confirms the legality of virtual currencies in economic activity. Furthermore, the statutory definition clearly states that they can be stored electronically and traded electronically.

Moving on to the negative part of the definition, it should be remembered that virtual currency is not:

• legal tender issued by the National Bank of Poland, foreign central banks or other public administration bodies,
• an international unit of account established by an international organization and accepted by individual countries belonging to that organization or cooperating with it,
• electronic money within the meaning of the Act of 19 August 2011 on payment services,
• a financial instrument within the meaning of the Act of 29 July 2005 on Trading in Financial Instruments,
• bill of exchange or cheque.

Therefore, the regulations that apply to the above-mentioned institutions will not apply to virtual currency unless expressly stated otherwise.

However, it's hard to find a legal definition of cryptocurrency in domestic law. However, referring to the justification for the draft AML Act adopted on March 1, 2018, specifically the section referring to the concept of virtual currency, we can read that "The drafter's intention was to include both so-called cryptocurrencies and centralized virtual currencies within the scope of this definition." Therefore, it's safe to say that the concept of virtual currency, as defined in the AML Act, also applies to cryptocurrencies. However, it's important to remember that virtual currency is a broader concept, so not every virtual currency will be a cryptocurrency. The latter is a specific type of cryptocurrency that uses blockchain technology and related cryptographic methods to record transactions**. However, it seems only a matter of time before a legal definition of cryptocurrency itself appears in our legal system, or the existing definition of virtual currency is modified to take into account its specific form, cryptocurrency.

* Legal and tax status of virtual currencies in the context of introducing the definition of a legal virtual currency into Polish law, Konrad Stolarski, MOPOD year 2018, issue 9 p. 28
** Warning of the Polish Financial Supervision Authority (KNF) on the risks associated with the acquisition and trading in cryptoassets (including virtual currencies and cryptocurrencies) of January 12, 2021 ( https://www.knf.gov.pl/knf/pl/komponenty/img/Os… )

This alert is for informational purposes only and does not constitute legal advice.

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