Bitcoin and blockchain from a consumer protection perspective. Dr. Evripides Rizos, European University Cyprus

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1 Bitcoin and blockchain from a consumer protection perspective

2 BITCOINS AND CONSUMER RIGHTS DIRECTIVE (CRD) Is payment with bitcoins an obstacle to the consumer s right to withdraw? Art Consumer Rights Directive If not, what shall have the trader to reimburse in case of withdrawal?

3 LEGAL STATUS : HOW BITCOIN SHOULD BE LEGALLY TREATED Mostly unregulated Bitcoin is not a legal tender Case to case judgement. Examples : VAT Directive Electronic Money Directive Payment Services Directive 2

4 CONSUMER RIGHTS DIRECTIVE (2011/83/EU) Art. 6 : Information requirements for distance contracts (e.g. e-commerce) Art : Consumer s right of withdrawal (even without reason) Time limit : 14 days. Can be extended. Information requirements about the right of withdrawal. Art. 6 (1) (h) (k) Exercise of the right of withdrawal reimbursement of payments / return of the goods

5 IS PAYMENT WITH BITCOINS A HINDRANCE TO THE RIGHT TO WITHDRAW? Concept of consumer Sales or services contract Is payment with bitcoins a payment? Exception to the right of withdrawal of Art. 16 (b) A right of withdrawal shall not be provided with regards to distance and off-premises contracts in respect of the supply of goods or services for which the price is dependent on fluctuations in the financial market which cannot be controlled by the trader and which may occur within the withdrawal period Conclusion : Payment with bitcoins cannot be an obstacle.

6 EXERCISE OF THE RIGHT TO WITHDRAW Art. 13 (1) : The trader shall reimburse all payments received from the consumer, using the same means of payment. In which currency? In which value?

7 PAYMENT IN A FOREIGN CURRENCY European Commission : The trader should refund the full amount paid by the consumer in the currency of the payment. Decisive is the money of account, the currency in which the price was denominated in the contract, as the measure of the consumer s obligation.

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9 PAYMENT WITH BITCOINS - COMMON PRACTICE : AGREEMENT The traders, who accept bitcoins, include usually into the contracts a refund policy. They reimburse the value of the price denominated in a state currency. E.g. Price : 600 Value of the reimbursement 600. Some reimburse by means of state currency (600 ). Others reimburse by means of bitcoins. E.g. : Price : 600 paid with 3 bitcoins (BTC to Euro exchange rate at the moment of payment : 200/1). BTC to Euro exchange rate at the moment of reimbursement : 300/1 The consumer receives 2 bitcoins ( equivalent to 600 ) Validity of the agreement

10 PAYMENT WITH BITCOINS DENOMINATION OF THE PRICE IN A STATE CURRENCY In most cases prices are denominated in a state currency, even when the consumer pays with bitcoins. Bitcoins are not a different currency option, but an alternative method of payment

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12 PAYMENT WITH BITCOINS DENOMINATION OF THE PRICE IN A STATE CURRENCY Most of the traders who accept bitcoins do not actually receive bitcoins. The consumer pays the price in bitcoins to a bitcoin exchanger and the bitcoin exchanger pays instantly the price in a state currency to the trader. Value of reimbursement : The nominal value of the price, denominated in a state currency. Means of reimbursement : the bitcoin exchanger conveys to the consumer the amount of bitcoins equivalent to the value of the price in state currency. E.g. : Price : 600 paid in 3 bitcoins (BTC to Euro exchange rate at the moment of payment 200/1) BTC to Euro exchange rate at the moment of reimbursement : 150/1. The consumer shall receive 4 bitcoins.

13 PAYMENT WITH BITCOINS DENOMINATION OF THE PRICE IN A STATE CURRENCY Same solution in cases, where prices are denominated in a state currency, but no bitcoin exchanger is involved. Means of reimbursement : Direct conveyance of bitcoins from the trader to the consumer. Amount of bitcoins to be reimbursed : The equivalent to the nominal value of the price at the moment of the reimbursement.

14 PAYMENT WITH BITCOINS : DENOMINATION OF THE PRICE IN BITCOINS Very rare cases, where prices are denominated only in BTC Source :

15 PAYMENT WITH BITCOINS DENOMINATION OF THE PRICE IN A STATE CURRENCY Object of reimbursement : The exact amount of bitcoins paid Risks for both parties Increase/Decrease of bitcoin s value Information duty about the bitcoin s volatility? No specific information duty Compatibility with the goal of the effectiveness of the right of withdrawal The effectiveness of the right of withdrawal is not an ultimate goal of the CRD This solution is not incompatible to the goals of the CRD

16 CONCLUSION The use of bitcoins does not rule out the application of the rules of the CRD. The consumer receives the nominal value of the price denominated in a state currency, when : 1. There is an agreement between the parties. 2. The price was denominated in a state currency, even if the consumer was provided with the ability to pay with bitcoins. The consumer receives the amount of bitcoins paid, if the price was denominated only in bitcoins

17 THANK YOU!