FAQs about crypto-assets
What are crypto-assets?
Crypto-assets can be defined as a digital store of value or rights that can be transferred and stored electronically by using distributed ledger technology or similar technology. Crypto-assets therefore take the form of a digital record of value that is not issued by a central bank or other government authority (and is therefore not backed by their guarantee). They can be transferred, stored and traded electronically, and are not necessarily attached to an ordinary legally established (fiat) currency, but are accepted by people and businesses as a means of exchange.
Virtual currencies, crypto-currencies and digital currencies are other terms used for the same concept as crypto-assets. Nevertheless, crypto-assets are, in the opinion of the ECB, neither legally established currencies nor legal tender issued by central banks or other public authorities. Crypto-assets include bitcoin, whose features have also been examined on the ECB website, and similar so-called altcoins (ethereum, tether, dogecoin, etc.).
Are entities that provide for the purchase, storage and trading of crypto-assets systemically regulated and supervised? What does this mean for users?
The backers of crypto-asset schemes that are not recognised as financial instruments and that facilitate the purchase (e.g. trading platforms), storage (e.g. digital wallet providers) and trading of crypto-assets in Slovenia are not systemically regulated and supervised. This means that no authority licenses or supervises these entities from the perspective of the adequacy of their risk management (operational risk and cyber resilience are particularly relevant), the expertise of employees in providing the services in question, the adequacy of transactions with users, etc.
Consumers must therefore be aware of the specifics of crypto-assets and related products, and must weigh up whether these risks are acceptable given their own personal preferences and investment goals.
Crypto-assets have also been discussed by other institutions. Here are a few relevant links:
- Financial Stability Board:
Warning with regard to purchasing, storing and investing in virtual currencies, 9 October 2017
- European Central Bank:
Publications on crypto-assets
- EU financial supervisors (ESAs):
Warnings against potentially harmful financial activities
- Securities Market Agency (SMA):
Speculative investments in CFDs and crypto-assets (in Slovene)
SMA position on ICOs (in Slovene)
- Financial Administration of the Republic of Slovenia (FARS):
Trading in crypto-assets (in Slovene)
Crypto-asset mining (in Slovene)
- Financial Stability Board:
General information about crypto-assets
What are the risks relating to crypto-assets?
The key risks inherent in crypto-assets and related products highlighted by financial supervisors in the EU include:
- You might lose all the money invested.
- Prices can rise and fall (even to nothing) very quickly.
- You may fall victim to scams, fraud, operational errors or cyberattacks.
- If you use crypto-assets as a means of payment, you are not protected as in the case of a transfer from a payment (current) account.
- If something goes wrong, you are unlikely to have any rights to protection or compensation.
Given the growing interest in crypto-assets, Banka Slovenije is making consumers aware of these warnings with regard to crypto-assets, while Slovenia’s Financial Stability Board, which is chaired by Banka Slovenije, also warned about the risks inherent in crypto-assets.
Joint warnings with regard to the risks to consumers inherent in crypto-assets are also issued regularly by EU financial supervisors (the European Securities and Markets Authority [ESMA], the European Banking Authority [EBA] and the European Insurance and Occupational Pensions Authority [EIOPA]).
What should an individual be particularly attentive to when deciding to purchase crypto-assets and related products?
Before purchasing crypto-assets, an individual should at least address questions such as the following:
- Can you afford to lose all the money you invested?
- Are you ready to take on high risks to earn the advertised returns?
- Do you understand the features of the crypto-asset or related products and services?
- Are the firms/parties you are dealing with reputable?
- Are the firms/parties you are dealing with blacklisted by the relevant national authorities (although not being blacklisted is no guarantee that a firm/party is safe to engage with)?
- Are you able to effectively protect the devices you use for buying, storing or transferring crypto-assets, including your private keys?
- What are the fees (commission) you will pay to (i) acquire the crypto-assets and (ii) transfer/sell these units?
- In which country is the entity with whom you are entering into a contract established, and what is the legislation there (tax arrangements, anti-money laundering/combating the financing of terrorism, etc.)?
- What/who guarantees you will be able to convert your units of crypto-assets back into fiat currency (euro, US dollar, etc.), and how? How quickly can you carry out the process of converting crypto-assets into fiat currency?
- What benefits do you gain by investing? Does the particular crypto-asset scheme even allow for conversion back to fiat currency?
- What is your legal recourse if you fall victim to scams or fraud, and will anyone return your money to you in this event?
- What is the tax treatment of crypto-assets and of trading in them? What are the resulting tax liabilities? Answers to this question can also be found in the clarifications by the FARS (in Slovene).
We suggest that anyone who lacks the information to be able to answer questions such as those cited above should reconsider whether a purchase of this type is sensible. Even if a well-informed individual opts for such a purchase, it is recommended that the amount invested should not constitute an excessive exposure, and that they should be aware that it could be lost.
Moreover, holders of crypto-assets that want to use them for making payments are advised to first check any fees or commission that have to be paid to this end.
For consumers thinking of purchasing crypto-assets
Are crypto-assets foreign currency?
Crypto-assets cannot be defined as foreign currency. The Foreign Exchange Act (ZDP-2) defines foreign currency as banknotes and coins in a foreign currency issued by a central bank or government. Entities that provide the conversion of crypto-assets from and into traditional fiat currencies therefore do not require a Banka Slovenije authorisation to provide currency exchange operations pursuant to the ZDP-2.
Are crypto-assets electronic money? Can payment services be provided in crypto-assets?
In general the use of their own denomination means that crypto-assets cannot be considered a digital replacement for banknotes and coins of traditional fiat currencies, but are instead units of a specific crypto-asset (e.g. bitcoin or ether) or a digital form of entirely different content (a token with intellectual property rights, a token as the medium of a hybrid loan agreement, a token as proof of donation with a combination of the option of the use of a service or a refund, etc.). Crypto-assets of this type therefore do not satisfy the criteria for definition as electronic money, and consequently cannot be defined as the subject of electronic money issuance services in accordance with the Payment Services, Electronic Money Issuance Services and Payment Systems Act (ZPlaSSIED). Because according to their currently identified attributes crypto-assets cannot be defined as either one of the two forms of money alongside electronic money, namely cash (banknotes and coins) and scriptural money, they also cannot be the subject of payment services in accordance with the ZPlaSSIED.
Can crypto-assets legally be used to make payments?
The Euro Introduction Act (ZUE) defines banknotes and coins denominated in euros as legal tender in Slovenia (which points of sale are required to accept), and supervision of the implementation of this provision of the ZUE is conducted by the Market Inspectorate of the Republic of Slovenia. The cited provision of the ZUE does not place any constraints on merchants and points of sale in deciding to accept other means of payment, be they regulated (e.g. payment instruments, electronic money, foreign currencies) or unregulated (barter, new means of payment such as crypto-assets, etc.). It is therefore not illegal to accept crypto-assets as means of payment in Slovenia (and in the EU).
Do I have to register as a provider of services in connection with crypto-assets?
Legal and natural persons who in the pursuit of their business activities or profession provide virtual currency services (the terms used by the ZPPDFT-2 for crypto-assets) or other transactions included under these services (e.g. conversion between fiat currencies and virtual currencies, storage or administration of virtual currencies, services related to the issuance of virtual currencies) are also classed by the Prevention of Money Laundering and Terrorist Financing Act (ZPPDFT-2) as obliged entities who are required to take the prescribed measures to prevent money laundering and terrorist financing. Under the ZPPDFT-2, virtual currency service providers who are established in Slovenia or who have a branch in Slovenia are additionally required to register with the Office for Money Laundering Prevention before commencing the provision of virtual currency services.