101 on how to distinguish between crypto assets and e-money

crypto assets | e-money Kryptowerte | E-Geld | PayTechLaw | FinTechLawyers

Crypto assets and e-money are very similar. Both are usually issued by private entities and serve as a means of payment. However, pursuant to the law, e-money does not constitute a crypto asset. So, how can they be distinguished? With that question in mind, here are some quick tips for your own analysis.

Whenever an asset is stored digitally / electronically and it is issued by a private entity, this asset can fulfil the definition of e-money or that of a crypto asset. Doing business with either one requires a licence unless an exemption applies. However, the types of licence are different.

Some set theory with crypto assets and e-money

The definition of a crypto asset is much broader than that of e-money. Simply based on the definition, e-money would also constitute a crypto asset but it has been explicitly excluded from this definition by the legislator. Put in graphic form, it looks like this:

e-money | crypto asset | 1 | PayTechLaw

Quick tip: If something constitutes e-money, it is not a crypto asset.

However, there are also vouchers that do not qualify as e-money as they fall under an exemption (Section 2 para. 1 no. 10 or no. 11 of the German Payment Services Supervision Act, ZAG). For example, this is the case with respect to vouchers that are based on one of the exemptions pursuant to Section 2 para. 1 no. 10 ZAG. By way of example, so-called city cards that are issued against money and that can be used for payment at different merchants in one city, would ordinarily fall under the definition of e-money. However, they do not constitute e-money as they fall under the exemption pursuant to Section 2 para. 1 no. 10 lit. a) ZAG (limited network). These exemptions have also been excluded from the legal definition of a crypto asset. In a graphic, it looks like this:

e-money | crypto asset | 2 | PayTechLaw

Quick tip: If something does not constitute e-money simply because if falls under an exemption, it is still not a crypto asset.

How are crypto assets and e-money created?

Both often have in common that the value is created through the acceptance of another value. For e-money, this can only be fiat currency or e-money. In other words, if the asset is issued in exchange for Bitcoin, financial instruments, property or other objects, it does not constitute e-money. However, it can constitute a crypto asset.

Quick tip: Only money and e-money can create e-money.

What can you do with crypto assets and e-money?

E-money has to serve as a means of payment. Crypto assets can also be used as a means of exchange or as an investment.

Quick tip: If something is not used as a means of payment, it is not e-money.

With regard to digital vouchers that can be redeemed against a good or service provided by the issuer, the following needs to be borne in mind: they do not constitute e-money as they are not accepted by third parties that are different from the issuer. However, they also do not constitute a crypto currency if the following applies: they cannot be traded, they only obtain an economic function when they are redeemed by the issuer and they do not trigger investor-like expectations. If you think this is slightly ambiguous, you are not alone. A utility token also embodies a right to a specific service that is only redeemed by the issuer. BaFin qualifies utility tokens as crypto assets. Does this mean that an iTunes voucher is a utility token? No. Numerous questions pertaining to interpretation are bound to arise in this area.

Quick tip: Digital vouchers and utility tokens are difficult to distinguish. If it is on a blockchain this can be a possible indicator.

Is everything on the blockchain a crypto asset?

Crypto assets are usually based on the distributed ledger technology. However, this is not a defining factor by law but only an indication. This is why it is always necessary to examine everything closely. A crypto asset could also be created as part of some software without the use of a blockchain. Blockchain-based e-money would also be possible as the definition of e-money does not include a reference to a certain technology being used.

The stress test: stable coins

Does a stable coin constitute a crypto asset? That is possible but not necessarily so. Stable coins often fulfil the definition of e-money. However, if, for example, a stable coin is also issued against other crypto currencies or other financial instruments and there is no central issuer and/or it does not serve as a means of payment, it constitutes a crypto currency. This shows that the differentiation is not that easy anymore and requires more analysis so that no quick tips that can help here.


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