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Home > Areas of Law > Where is the Bitcoin? (Part II)
Where is the Bitcoin

Go to Where is the Bitcoin? (Part I)

Explanatory note: This series of posts -Where is the Bitcoin?- seeks to address the legal impact arising from the decentralization of Bitcoin, given the difficulty to link the location of the bitcoins to a certain territory or jurisdiction.

As we previously mentioned in a previous post, bitcoins have no a physical location, as may occur with coins and bills, and they are not stored in current accounts managed by financial entities.

In this post, we are going to break down this issue in depth.

Blockchain vs. Book entries

As we previously stated, the operation of the blockchain is very similar to the book entries system, which is used, among others, by registered entities.

The book entries system, as opposed to the bearer securities system, consist on book records carried out by an issuer on the current account of the owner of the securities. Consequently, this system is paperless.

Nevertheless, we should highlight the differences between the book entries system and the blockchain-based system. When certain shares are issued through the book entries system, there is always an issuer entity of those shares. This is something that does not happen with the issuance of bitcoins.

Location of the blockchain

Once we have determined the impossibility (at least, from my point of view) of locate the bitcoins legally speaking, the next logical step is to determine the location of the blockchain.

At this point, it is necessary to stand out certain features of the operation of the blockchain and the bitcoins:

  • Bitcoins are issued thanks to a network of the so called “miners” who work in a decentralised way.
  • Bitcoins are not physically moved, but the transactions are registered in the blockchain. Consequently, the change in the ownership -from an address to other- of the bitcoins is recorded in the referred blockchain.
  • The blockchain is not stored just in one server, but it is stored in every node -connected together- which takes part in the Bitcoin network.

On the one hand, the entities whose shares are issued through a book entries system are registered in a certain jurisdiction. In this sense, in order to locate those shares we just have to know where the company is registered. However, as we previously determined, there is no central Bitcoin issuer and the blockchain is no located in just one server, but it works through a decentralised public ledger.

As you can see, we have no solved yet the issue related to the location of the bitcoins. However, I would like to highlight certain approaches made in a meetup celebrated in Madrid two months ago regarding this issue. In this context, I would like to explain why I think that those approaches do not solve the problem of the location of the bitcoins.

  • “The bitcoins are located -legally speaking- where it owner has its residence”

This statement seems to solve the problem in some cases, but, what happens when there are two or more owner of the same bitcoin wallet, and each of them has its residence in a different jurisdiction?

  • “The bitcoins are located where the person who controls the private keys of the wallet has its residence”.

In order to contextualize this situation, this asserting was made answering the following question: “If my bitcoins are managed by an Exchange which control the private keys of the wallet –as it happened with the extinct Mt.Gox-, should be understood that the bitcoins are located where the Exchange is registered?

As explained before, the solution presented just solve certain cases, but not every of them. In this sense, for those who may not know, there are multi-signature Bitcoin wallets. The abovementioned means that two or more signatures are required in order to make a Bitcoin transaction from one wallet to other. Consequently, if those who own the different private keys of the multi-signature wallet have their tax residence in different jurisdictions we have the same problem.

That said, even if the issue explained may seem just theoretical, it could involve real consequences.

In advance, we inform you that the thid part of this series of posts -Where is the Bitcoin?- we will talk about there is (or not) obligation in Spain of declaring the assets located abroad through the form 720.


This post has been written by Antonio Gómez de la Cruz Alcañiz, Corporate Lawuer at Law & Bitcoin and by Alejandro Gómez de la Cruz Alcañiz, specialist in taxation of cryprocurrencies.

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