It is illegal to create virtual currencies without a licence? | In Principle

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It is illegal to create virtual currencies without a licence?

The process of creating virtual currencies depends on the model used for the currency. In some instances it is a centralised process, where it is easy to identify the entity responsible for creation of the currency. In other cases, it is a decentralised process, in which various—often anonymous—users of the decentralised system may be involved in creation of the currency.

First it should be determined whether the persons creating the virtual currency are exposed to criminal sanctions for production and circulation of money or other means of payment. In Poland, Art. 310 of the Penal Code provides harsh sanctions for altering or counterfeiting Polish currency, foreign currency or other means of payment, or for releasing altered or counterfeit money or other means of payment into circulation. It should be beyond doubt that so long as the purpose of creating a virtual currency is to establish a means of payment which is an alternative to legal tender issued by the National Bank of Poland (or other means of payment recognised under Polish law), and not to alter or counterfeit such existing means of payment, creation of virtual currencies will not qualify as an offence under Penal Code Art. 310.

The process of creating virtual currencies should also be analysed from the perspective of administrative regulations, particularly regulations concerning payment services. Of special interest in this context are the regulations requiring issuance of electronic money to be treated as a regulated payment service.

As we wrote in our article “What Are Virtual Currencies?” it should be accepted that most currencies whose creation is not dependent on prior paying in of a certain amount of money will probably not be treated as e-money for purposes of the Payment Services Act. Nonetheless, it cannot be excluded in advance that some virtual currencies will indeed be created as an equivalent for traditional money (i.e. creation of such currencies will require prior paying in of an equivalent in the form of traditional money). In the case of such currencies, the risk that they will be classified as e-money is very high. Pursuant to Art. 4(2b) of the Payment Services Act, activity involving issuance and redemption of e-money may be performed solely by e-money issuers, which are defined by the act to include a fixed set of entities holding specific licences to conduct operations (such as banks and payment institutions). In the case of virtual currencies whose characteristics permit them to be classified as e-money for purposes of the Payment Services Act, a licence may therefore be required before such currencies may be created. Under Art. 150 of the act, any person who conducts operations involving performance of payment services or issuance of e-money without authorisation is subject to a fine of up to PLN 5 million and/or imprisonment of up to 2 years.

In summary, it should be concluded that in the case of virtual currencies that are created in a decentralised manner and are not issued as an equivalent for traditional money, the process of creating the currency does not require any licence under current Polish law. However, in the case of virtual currencies which may be classified as electronic money under the Payment Services Act, the process of issuing the currency may require a licence.

Krzysztof Wojdyło, New Technologies Practice and Payment Services Practice, Wardyński & Partners

This article is part of a larger report on virtual currency. The entire report (in Polish) is available for download here.