ABSTRACT
In this article, the place and legal status of cryptocurrencies in Turkish law are examined in detail, basic concepts such as the definition, characteristics and blockchain technology of cryptocurrencies are discussed, followed by the historical development of cryptocurrencies and how they are defined worldwide.
I. INTRODUCTION
By seeking answers to legal questions such as whether cryptocurrencies can be considered as currency and capital market instruments and whether they can be accepted as goods, the legal status of these assets in Turkey and other countries is comparatively evaluated. Finally, the legal regulations on cryptocurrencies in Turkey and the innovations brought by these regulations will be discussed. The article aims to provide a prediction about the future place and legal status of these assets by examining the current and possible regulations made to eliminate the legal uncertainties of cryptocurrencies.
Crypto simply refers to cryptocurrencies. Crypto assets are digital or virtual currencies and cryptography is used to secure transactions. The most well-known cryptocurrency is Bitcoin, but there are also many other cryptocurrencies such as Ethereum, Ripple, Litecoin. Cryptocurrencies are decentralised and are usually built on blockchain technology. Blockchain is a distributed ledger technology and thanks to this technology, cryptocurrency transactions are securely recorded and verified without the need for a centralised authority. Cryptocurrencies have emerged as an alternative to traditional financial systems and can be used in many areas such as cross-border money transfers, investment, payment methods. However, the values of cryptocurrencies are highly volatile, making them high-risk investment instruments. In this era of accelerating digital transformation, cryptocurrencies and blockchain technology have become a new reality of the global financial system and legal orders. While this new technology offers many opportunities, it also brings legal uncertainties and regulatory challenges. Crypto law is a branch of law born to overcome these uncertainties and challenges. In Turkey, the legal status of crypto assets and blockchain technology is becoming increasingly important1.
In past years, cryptocurrencies and blockchain technology have led to fundamental changes in financial systems, creating a new digital economy. This new digital economy has grown rapidly as cryptocurrencies offer decentralised, secure and anonymous transactions. However, this rapid growth and innovation has also brought with it various legal issues and regulatory requirements. Crypto Law is a new branch of law that has emerged in order to determine and regulate the legal status of these digital assets and to resolve possible legal disputes.
II. HISTORY OF THE CRYPTO
In 2012, the European Central Bank defined cryptocurrency as an unregulated form of digital money issued by its developers, usually controlled by them and accepted among certain virtual communities2. It also stated that this definition should be adapted to future changes. In general, the definitions of cryptocurrencies are based on their usage areas and characteristics, and it is concluded that these definitions should be updated over time as the usage areas of cryptocurrencies become widespread and their types increase. Bitcoin, which is accepted as the first cryptocurrency, was put into use all over the world in 2009 with the realisation of a project announced in 2008 by a person or group acting under the pseudonym Satoshi Nakamoto. As stated in the 2012 report of the European Central Bank, in this decentralised and peer-to-peer network system, there is no central authority responsible for money supply. The money supply is carried out by solving highly complex mathematical problems through a process known as ‘mining’. This process can vary depending on the amount of resources miners devote to solving the mathematical problems3.
The fact that cryptocurrencies are not subject to a central authority causes them not to be subject to regulation and audit processes, thus depriving them of some advantages such as financial and legal security. However, some positive aspects of cryptocurrencies cause them to be preferred by users. For example, cryptocurrencies provide users with fast, easy and cost-free money transfers without paying commissions or account operating fees to banks. In addition, cryptocurrencies can be stored easily and at low cost in electronic media. Their independence from governments also allows them to be traded in national and international markets without being affected by the monetary policies of states. Due to these advantages, cryptocurrencies are increasingly in demand, which contributes to their increasing value. The use of cryptocurrencies as a medium of exchange has created controversy as to whether they should be recognised as a currency. If cryptocurrencies are recognised as a currency in the conventional sense, the provisions applicable to currencies within the scope of national legislation may also apply to cryptocurrencies. In order to answer this question, the concept of ‘money’ must first be defined. In the doctrine, money is defined as a general medium of exchange and unit of account recognised by the legal order as a means of payment4. Today, with the technological developments, money has ceased to be in the form of paper or metal, and has turned into a medium of exchange issued by the state or persons authorised by it, which has no physical existence. The so-called electronic money, which has no physical existence, is regulated in Turkish legislation by the Law No. 64935. Pursuant to subparagraph (ç) of Article 3 titled ‘Definitions’ of the ‘Law on Payment and Securities Settlement Systems, Payment Services and Electronic Money Institutions’, electronic money is defined as ‘a monetary value issued against funds accepted by the electronic money issuer, stored electronically, used to perform payment transactions defined in this Law and accepted as a payment instrument by real and legal persons other than the electronic money issuer’6.
III. CAN CRYPTOCURRENCIES BE CONSIDERED AS CURRENCY?
In the doctrine, although cryptocurrencies have some similarities with electronic money, it is debated whether they can be considered as electronic money due to their significant differences. According to some opinions, cryptocurrencies can be considered as the natural evolution of the concept of money, but it is not possible to classify them as electronic money. While electronic currencies are issued by certain legal entities under Law No. 6493 and are blocked in banks against cash, cryptocurrencies do not have a centralised issuer and their value changes instantaneously7. Therefore, cryptocurrencies cannot benefit from state guarantee and are not always accepted as a medium of exchange. Furthermore, in the regulation of the Central Bank of the Republic of Turkey dated 16 April 2021, it is clearly stated that cryptocurrencies cannot be considered as money. Therefore, cryptocurrencies cannot be considered as electronic money or conventional money and cannot be subject to the provisions that these currencies are subject to.
IV. CAN CRYPTOCURRENCIES BE CONSIDERED AS CAPITAL MARKET INSTRUMENTS?
The acceptance of cryptocurrencies as capital market instruments is a matter of debate in the legal process. The advantages of cryptocurrencies such as the ability to make payments through platforms such as Remitly, Paypal and Revolut, the ability to transfer without the need for intermediary institutions and the lack of custody problems cause these assets to become more popular and increase demand. Therefore, individual and institutional investors are turning to cryptocurrencies and cryptocurrencies are gaining value as an investment instrument8. Therefore, it is controversial whether cryptocurrencies can be accepted as capital market instruments according to the Capital Markets Law No. 6362. If cryptocurrencies are accepted as capital market instruments, the Capital Markets Law regulating their issuance, trading and other transactions will apply. Article 13 of the CML, titled ‘Dematerialisation of Capital Market Instruments’, provides for the electronic storage of capital market instruments. This system enables the value of securities to be shown by electronic documents independently of the promissory notes and includes the concept of ‘negotiable rights’. Securities issued without a promissory note are referred to in some sources as ‘negotiable instruments without a document’ or ‘negotiable instruments without a promissory note’. According to the Communiqué of the Central Registry Agency, capital market instruments must be registered. Although these regulations give the impression that securities stored in the dematerialised system and electronic environment are similar to cryptocurrencies, there are significant differences between securities and cryptocurrencies. Cryptocurrencies are not included in the definition of securities and the Capital Markets Board (CMB) has not yet issued a regulation recognising cryptocurrencies as securities. The CMB categorises securities as “equity securities, debt instruments, securitised assets and income-based debt instruments”. Share certificates are documents that define the shareholding rate in the main capital of a company, and cryptocurrencies cannot be considered as share certificates as they do not provide any shareholding rights to their owners. It is important to look at the Capital Markets Board’s (CMB) definition of derivative instruments in Article 3 to determine whether cryptocurrencies can be considered derivative instruments. Changes in the price of assets such as various securities, foreign exchange, interest rates and precious metals are referred to as derivative instruments by the CMB. Cryptocurrencies cannot be considered as derivative instruments under Turkish law. On 27 November 2017, the CMB meeting decided that virtual currencies cannot be used as derivative instruments and therefore, derivative transactions based on cryptocurrencies cannot be carried out. Since cryptocurrencies are not issued based on any asset and their value does not depend on price changes, they cannot be considered as derivative instruments.
In order to understand whether cryptocurrencies can be evaluated within the scope of investment contracts as capital market instruments, it is first necessary to examine the concept of investment contract. In the US Supreme Court’s Howey decision dated 1946, this concept, which was not defined by the CMB, was defined as a flexible concept to cover various schemes that use other people’s money with the promise of profit. Investment contracts mean that investors invest money in a project and gain profit if the project is successful. However, the concept of investment contract has not yet been clarified in Turkish law. The United States Securities and Exchange Commission (SEC) announced that cryptocurrencies can be considered under investment contracts, but there is no such regulation in Turkey yet. According to the Regulation of the CBRT dated 16 April 2021, cryptocurrencies cannot be accepted as capital market instruments or securities.
V. CAN CRYPTOCURRENCIES BE CONSIDERED AS GOODS?
It is not possible to recognise cryptocurrencies as investment contracts. The similarities of cryptocurrencies with commodities such as gold have raised the debate on whether they can be considered as goods. Some of these similarities include the fact that they have limited quantities like gold and that they do not have a central issuer. However, the doctrine generally holds the view that cryptocurrencies cannot be considered as goods. Goods are defined as corporeal assets over which individual sovereignty can be established and which have a certain economic value. Cryptocurrencies do not fit this definition since they do not have a physical form. Nevertheless, according to some opinions, cryptocurrencies, especially Bitcoin, should be considered as ‘intangible property’ and it is argued that the provisions regarding movable property should be applied. The jurisprudence in Turkey has also stated that cryptocurrencies should be recognised as an asset value, but emphasised that legal arrangements should be made in this regard. The Antalya Regional Court of Appeals ruled that cryptocurrencies should be considered as digital assets. It is concluded that the legislator should make the necessary arrangements to eliminate the uncertainties in this area.
Due to the different ways in which cryptocurrencies are used in contracts, there are no regulations in Turkish legislation regulating how cryptocurrencies can be used. For example, in cases where cryptocurrencies are purchased in exchange for money or used as a means of payment for goods and services, it is debated how to evaluate cryptocurrencies in accordance with the law. The Istanbul 21st Commercial Court of First Instance defined the purchase of cryptocurrencies as a ‘consumer transaction’9. However, legal uncertainties caused by the fact that cryptocurrencies are not defined as financial services or means of payment exist in the laws of the country. Although it is possible to use cryptocurrencies within the framework of the principle of freedom of contract, there is a widespread view that such contracts should be considered as sui generis contracts since they are not defined as sales contracts by the Turkish Code of Obligations. The Court of Cassation has accepted that cryptocurrencies can be used in exchange for services or work instead of money. However, such contracts should be regulated clearly and unambiguously by the legislator in order to prevent legal uncertainties.
VI. USE OF CRYPTOCURRENCY INFOREIGN COUNTRIES AND COMPARISON WITH TÜRKİYE
As in Türkiye, the legal status of cryptocurrencies is controversial all over the world. In many countries, courts, administrative agencies and parliaments are working to define cryptocurrencies and establish legal regulations. For example, even leading economies such as Germany, Japan and the United States do not have a clear and precise definition of cryptocurrencies. Even the various institutions of the country have different views on this issue.
The SEC recognises cryptocurrencies as securities in the US. However, other major players in the financial sector in the United States categorise cryptocurrencies differently. Cryptocurrencies are considered commodities by the Commodities and Futures Trading Commission (CFTC). This shows that different cryptocurrency regulatory bodies use different methods10.
Cryptocurrencies are much discussed in Germany. The German government and judicial bodies are more flexible on cryptocurrencies than the US. There is no definitive law on cryptocurrencies in Germany, but transactions are conducted using auxiliary laws created by federal agencies. In 2018, the Berlin Higher Regional Court ruled that cryptocurrencies do not require a banking licence. However, the German Federal Financial Supervisory Authority (BaFin) recognises cryptocurrencies as both a ‘unit of account’ and a ‘financial instrument’ and subjects them to taxation11.
Since the early 2010s, discussions on the legal status of cryptocurrencies have been ongoing in Japan. The Japanese government stated that cryptocurrencies cannot be characterised as currency or bonds with the Cabinet Decision in 2014 and stated that these are unique elements. A new law will also be prepared. The 2016 Payment Services Law defined cryptocurrencies as a good or property that can be stored and exchanged electronically. Japan passed a law mandating the taxation of cryptocurrencies used for commercial or professional purposes.
VII. LAW AMENDING THE CAPITAL MARKETS LAW
Türkiye has taken the first official steps on crypto in recent months and the law on crypto assets was published in the Official Gazette12.
On 26 June, the ‘Law Proposal on the Amendment of the Capital Markets Law’, adopted by the General Assembly of the Turkish Grand National Assembly, established the first legal basis for cryptocurrencies in Turkey. The law stated that the software or hardware that enables the transfer and storage of crypto assets is called a ‘wallet’. The term ‘cryptoasset service provider’ refers to intangible assets that are distributed over digital networks and carry value, while the term ‘cryptoasset’ refers to organisations that provide services related to these assets. The Law also sets out the rules regarding the issuance of capital market instruments as crypto assets and the electronic monitoring of these assets. The CMB may require these procedures to be merged with the Central Registry Agency (CRA)13. The law, which introduced legal regulations for the crypto asset ecosystem in Türkiye, made it mandatory to obtain authorisation from the Capital Markets Board (CMB) for the establishment and operation of crypto asset service providers. These service providers must meet certain conditions on is sues such as establishment, activity, capital adequacy, information systems, and share transfer. Transactions and regulations regarding crypto assets will also be supervised by the CMB. In addition, these service providers have the obligation to establish security and internal control systems. The CMB will determine the principles for the sale, distribution, settlement and custody transactions of crypto assets and may request a technical report from TÜBİTAK according to certain criteria14. The Board will evaluate whether crypto assets are in accordance with their technological characteristics, but this evaluation will not provide public guarantee. Crypto asset transactions will be subject to the provisions of the ‘Law on the Protection of the Value of Turkish Currency’ and related legislation, but the ‘Law on Movable Pledge in Commercial Transactions’ will not apply to pledge agreements.
Crypto asset service providers must obtain authorisation from the Capital Markets Board (CMB) in order to be established and start their operations. These service providers must comply with the rules set by the CMB, such as incorporation, capital adequacy and information systems. In addition, shareholders will have to meet certain requirements and transactions such as share transfers will be subject to the CMB’s approval. The information systems and technological infrastructures of crypto asset service providers must comply with the standards set by TUBITAK. Board members and other officials representing the crypto asset service provider must fulfil certain roles. The CMB will regulate the trading, distribution, transfer and custody of crypto assets. These transactions may be used by the CMB to impose obligations on banks by obtaining the opinion of the Banking Regulation and Supervision Agency (BRSA). The signatories of these information documents will be responsible for any damages arising from incorrect, misleading or incomplete information contained in the information provided during the sale and distribution of crypto assets.
Other legislation and provisions regarding crypto-assets will remain valid, but the ‘Law on Pledge of Movables in Commercial Transactions’ will not apply to pledge agreements involving crypto-assets. The Law states that contracts between cryptoasset service providers and their customers may be established in writing or by means of remote communication tools, and methods enabling verification of customer identity may be used. The scope and conditions of these contracts may be determined by the CMB. Aspects of the contract terms that restrict liability to customers will be deemed invalid. The listing and trading of crypto assets will be regulated by protocols to be established by the platforms, and the opinions of institutions such as TÜBİTAK may be taken in this regard. Prices will change freely on the platforms, but the CMB will be authorised to intervene in the free market. Client assets, which are stored in a secure, accessible and traceable manner, will be kept separate from the assets of the platforms and will be stored in a way that cannot be seized. Due to the debts of investment institutions, it will be mandatory to keep clients’ cash in banks. Crypto asset service providers will be granted an authorisation certificate and will comply with the principles determined by the CMB in commercial communications such as publications, announcements and advertisements. It is also possible to block access to unauthorised capital market activities over the internet or remove content by amending the law. These rules are designed to ensure that the cryptocurrency ecosystem in Turkey operates in a secure, transparent and orderly manner.
When unlawful actions of crypto asset service providers are detected, the law provides for various measures. Accordingly, the law will penalise announcements, advertisements, commercial communications and unauthorised actions. The activities of platforms based abroad in Turkey will also be considered as unauthorised service provision. When the financial strength of crypto asset service providers weakens, the CMB will have the authority to give them time to get better or stop their activities. Independent auditing of service providers will be carried out by taking the opinion of institutions such as TÜBİTAK. Crypto asset service providers face serious penalties if client assets are not protected or are embezzled. Those who commit embezzlement offences will be imprisoned for 8 to 22 years and heavy fines, but the penalties can be mitigated if the damage is returned. The crypto asset ecosystem in Turkey is supervised and regulated by these laws and supported by criminal sanctions. According to the new article added to the Law No. 6362, members of the board of directors, other personnel and real person shareholders holding the management may be penalised with personal bankruptcy for damages caused to customers due to decisions and transactions of crypto asset service providers that are deemed embezzlement. These personal bankruptcy orders will be enforced in order to compensate the harmed customers. In case the damages are not paid in full, the payment will be made on a pro rata basis. Bankrupts will receive more. In addition, the beneficiaries of transactions to benefit third parties will also be included in this liability. In this case, the courts will apply the relevant laws to carry out bankruptcy and liquidation proceedings. On the effective date of Law No. 6362, crypto asset service providers are obliged to submit the necessary documents to the CMB to obtain an operating licence within one month or to terminate their activities without accepting new customers by taking a liquidation decision within three months. Organisations that decide to liquidate must provide this information to their customers and the public. New service providers must apply before obtaining an operating licence from the CMB. Institutions that do not apply for an operating permit or do not go into liquidation may be penalised. The CMB may, if necessary, require them to complete their operating licence process within a certain period of time. After the secondary regulations enter into force, penalties will be imposed on those engaging in unauthorised activities.
Crypto asset service providers are obliged to terminate their activities for Turkish residents within three months from the date of entry into force of the law. Likewise, ATMs and similar electronic devices located in Turkey may be used to convert cryptocurrencies into cash or cryptocurrency. Such devices must be shut down within three months, otherwise they will be closed and criminal sanctions will be imposed on those who continue their activities. In addition, starting from 2024, the practice of recording the revenues of the platforms in the budget of the Board and TÜBİTAK will begin. The secondary regulations to be issued pursuant to Articles 35/B and 35/C of the Law will enter into force within six months from the date of entry into force of the Law.
VIII. CONCLUSION
Despite its shortcomings and risks, cryptocurrencies play an important role in the economic and social life of technology. Although the law for cryptocurrencies has recently been passed in Türkiye, they have been the subject of contracts and actively used for a long time. However, cryptocurrencies are not considered as money in the traditional sense since they are not issued by a central authority, have no real-world equivalents and their value changes according to the supply-demand balance. As a result, it is not possible to apply money-related laws to cryptocurrencies. Investment also uses cryptocurrencies, but such transactions do not qualify cryptocurrencies as capital market instruments. Since cryptocurrencies are not issued by a central authority and their supply is limited, they cannot be characterised as commodities or goods. Cryptocurrencies are considered as ‘digital assets’ or ‘intangible assets’ in both law and practice, and there are opinions that the regulations regarding movable goods should be applied. These rules, which show that cryptocurrencies have a unique structure, show that the most appropriate legal characterisation is ‘intangible property’. In conclusion, the Republic of Turkey has complied with the necessity of issuing explanatory regulations by the government in order to eliminate the existing legal and financial uncertainties regarding cryptocurrencies and has taken the necessary steps. Such regulations will reduce the risks associated with cryptocurrencies and enable both institutional and individual users to transact in a legally and financially safer environment.
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