The Consumer’s Right of Withdrawal in case of Payment with Bitcoins

4.2.1 Payment with a state currency

The most complicated issues relate to the issue of the consumer’s restitution claim, in cases where the consumer pays with bitcoins and later validly exercises the right of withdrawal provided by the CRD. As mentioned above, according to Article 13(1) the trader should reimburse all payments received from the consumer using the same means of payment that the consumer used for the initial payment transaction. The first question to be addressed concerns the type of currency the payment must be reimbursed in (bitcoins or state currency). The second question relates to the value of the payment to be reimbursed, given that bitcoin’s value is volatile.

It would be useful to first examine the content of the right of withdrawal, should the consumer have effected the payment by means of a state currency. Of course, solutions pertaining to the issue of the value and means of the reimbursement in cases of payments with a state currency in general (ie in cases other than those covered by the CRD) may vary from jurisdiction to jurisdiction. However, there is a need for a uniform interpretation and implementation of the CRD (as mentioned above). Therefore, the rules of the CRD are examined with respect to this issue.

The simplest case is when there is only one currency involved in the payment. The trader has to reimburse the exact amount of money received, notwithstanding any possible increase or decrease in the currency’s internal or external value. This is due to the nominalistic principle, which governs in principle the monetary obligations¹⁴⁸ in most jurisdictions,¹⁴⁹ according to which:

… a unit of currency is always equal to itself … and neither external changes in the value of currency, namely the rate of exchange in relation to other currencies, nor internal changes of value of money are taken into account.¹⁵⁰

The nominalistic principle is statutorily imposed in many EU member states (such as France,¹⁵¹ Italy,¹⁵² and Greece¹⁵³) and is a part of the common law tradition as well.¹⁵⁴

Another potential issue relates to cases where the payment is effected by means of scriptural money (remittance, debit or credit card) and where the consumer’s and trader’s bank accounts are in different currencies. According to the aforementioned Guidance of the European Commission, ‘the trader should refund the full amount paid by the consumer in the currency of the payment’¹⁵⁵ and ‘[i]f the consumer’s bank account is in one currency but the payment and refund are made in a different currency, the trader should not be responsible for any loss arising from the currency exchange performed by the consumer’s bank on the refund’.¹⁵⁶ The meaning of the phrase ‘the full amount paid by the consumer in the currency of the payment’ in this context is to be clarified, since two currencies (the currency of the consumer’s bank account and that of the trader’s bank account) are involved in the payment in a case such as the aforementioned one and the currency of the payment is not necessarily that of the consumer’s bank account, as is implied in the Guidance of the European Commission (to reiterate: ‘…[i]f the consumer’s bank account is in one currency but the payment and refund are made in a different currency…’).¹⁵⁷ The measure of the trader’s monetary obligation of reimbursement is provided by the ‘money of account’,¹⁵⁸ ie the amount of a specific currency in which the price was denominated in the contract as the measure of the consumer’s monetary obligation of payment, regardless of the means of payment.¹⁵⁹ Thus, the ‘currency of the payment’ in the aforementioned context is the currency in which the parties of the contract agreed to denominate the price. Furthermore, for the purposes of reimbursement, the trader should use the same means used by the consumer for the payment. Therefore, the trader should remit to the consumer’s bank account the exact amount of the money of account initially received.

This conclusion can be supported by examining cases where the trader provides the consumer with the option to choose between two currencies; this choice relates to the currency in which the price of the product is to be denominated. For instance, let us take an example of a consumer located in the UK who wants to purchase a product from a trader located in Germany where the price of the product in question is initially 250 euros and the consumer is provided with the ability to choose to effect the payment either in euros or in the local currency, according to a specified exchange rate at the moment of payment (eg £200 GBP). In both cases, there are two currencies involved in the payment, since both the consumer’s and the trader’s bank account are in a different currency. However, the denomination of the price in a specific currency has an effect on the amount of the reimbursement. This amount depends on the agreed currency of the price, ie the currency used as the ‘money of account’. If the consumer chooses to denominate the price in pounds, then £200 GBP shall have to be reimbursed, regardless of the exchange rate at the moment of reimbursement. Likewise, should the consumer choose to denominate the price in euros then the amount of reimbursement is 250 euros, which means that the consumer shall receive the equivalent of 250 euros in pounds, according to the exchange rate at the moment of the reimbursement. Consequently, in the latter case (payment in euros), the consumer could either make a profit or suffer a loss, according to potential fluctuations in the exchange rate.

4.2.2 Agreement between the parties on the issue of refunds in case of payment with bitcoins

With respect to the issue of a payment with bitcoins, the first matter to be examined is whether an agreement between the trader and the consumer on the subject of refunds in case of a consumer’s withdrawal has been concluded in a manner that does not violate the imperative nature (Article 25) of the provisions of the CRD concerning the content of the consumer’s right to receive reimbursement in case of withdrawal. More specifically, Article 25 paragraph 2 provides that ‘any contractual terms which directly or indirectly waive or restrict the rights resulting from this Directive shall not be binding on the consumer’.

In fact, a lot of traders who accept payment with bitcoins, include a specific refund policy in the sales contracts, according to which the trader is to reimburse the nominal value of the price denominated in a specific state currency at the moment of payment, should the consumer exercise a right of withdrawal, provided by virtue of a statute or the contract. For instance, according to the aforementioned refund policy, if a consumer purchases a product, the price of which was €600 at the moment of payment, the trader should reimburse the amount of €600. Some traders reimburse the price in the state currency in which the price was denominated (ie €600),¹⁶⁰ while others reimburse the amount of bitcoins equivalent at the moment of the reimbursement to the price denominated in a state currency at the moment of the payment, according to the exchange rate of a particular bitcoin exchange service.¹⁶¹ For instance, assuming that the bitcoin to euro exchange rate at the moment of the payment is 200:1, a consumer who purchases a product that costs €600 could pay 3 bitcoins instead of €600. According to the aforementioned term, if the exchange rate at the moment of the reimbursement is 300:1, the consumer should receive 2 bitcoins, which is equivalent to €600 at the moment of the reimbursement.

These terms do not violate the mandatory nature of the right of withdrawal or the provisions of the CRD relating to the consequences of the right of withdrawal. The consumer receives the amount of purchasing power that he or she originally spent. Therefore, the implementation of the aforementioned term does, in fact, restore the consumer’s initial monetary situation, from the point of view of the purchasing power disposed. Therefore, this term should be considered as valid, since it is not disadvantageous and does not entail a burden for the consumer.

4.2.3 Denomination of the price in state currency

The issue remains open in cases where such an agreement between the trader and the consumer about the object or the value of reimbursement does not exist. According to Article 13(1) (as mentioned above) the trader must reimburse all payments received. At first glance, this particular provision could apparently lead to the conclusion that the trader should reimburse the amount of bitcoins received. Such a solution is suggested in the legal literature¹⁶² and is possibly implied by legislative organs as well. More specifically, it is suggested in the Explanatory Notes of the UK Consumer Rights Bill that:

… digital currencies (or cryptocurrencies) that can be used in a variety of transactions with a number of traders, and exchanged for real money, are much more akin to real money (eg bitcoins). Where the consumer uses these types of digital currency to pay for digital content, the trader can (and must, unless the consumer agrees) repay the consumer in the digital currency.¹⁶³

Although the aforementioned Note refers only to the means of reimbursement, it may indicate that the payment to be reimbursed is that of the bitcoins received. However, this should not be considered a solution applicable to all cases of payments by means of bitcoins. As mentioned above, when the consumer’s and the trader’s respective bank accounts are in a different currency, the decisive currency is the currency in which the price was denominated in the contract.¹⁶⁴ The denomination of the price in a currency is strongly connected with the function of this currency as a unit of account.¹⁶⁵ In the majority of cases, the price is denominated only in a state currency, even when the consumer has the opportunity to pay with bitcoins;¹⁶⁶ the trader provides information concerning the price in a state currency alone and the contract is concluded in relation to this particular currency. This is due to the fact that bitcoin does not properly serve as a unit of account, as mentioned above (as discussed in section 2). Bitcoin is perceived not as the currency of account, but as a medium to convey the purchasing power that corresponds to the price denominated in a state currency. For this reason, a trader who accepts payments in bitcoins usually does not present bitcoin as a different currency option (ie where the consumer may choose between two state currencies), but rather as a different means of payment, such as (for example) payment by credit card or remittance. Put otherwise, the state currency in which the price is denominated is the ‘money of account’, which is decisive in terms of measuring the consumer’s obligation of payment and the trader’s obligation of reimbursement, while bitcoin is ‘the money of payment’.

Should the consumer choose to effect the payment using bitcoins, the trader usually refers the consumer to a specific bitcoin exchange service. In fact, the majority of traders do not actually receive bitcoins, even when the consumer pays with bitcoins.¹⁶⁷ More precisely, the consumer pays a bitcoin exchange service (in bitcoins), which in turn cooperates with the trader to receive the bitcoins and then instantly pay the trader the bitcoins’ equivalent in the agreed currency (at the moment of payment).¹⁶⁸ The majority of traders who accept payments with bitcoins have adopted this payment practice in order to avoid incurring any risk related to bitcoin’s volatility.¹⁶⁹ The amount of bitcoins to be paid is calculated according to the exchange rate that the exchanger provides at the moment the consumer chooses to effect the payment in bitcoins.

Consequently, in the aforementioned cases, the trader should reimburse the amount in the state currency in which that price was denominated. However, the CRD demands that the reimbursement be conducted by the same means of payment that the consumer initially used, unless the consumer agrees to another means of reimbursement. In the aforementioned cases, where the trader has received the payment in a state currency from a bitcoin exchange service, payments should be reimbursed according to the value of the price, as initially denominated in the state currency (as suggested above) and by the means the consumer used to pay. Accordingly, the consumer should receive bitcoins and, more specifically, the bitcoin exchange service should convey to the consumer the amount of bitcoins equivalent to the amount of the state currency to be reimbursed at the moment of the reimbursement (as in fact happens in the majority of cases, by virtue of an agreement between the parties to the contract).¹⁷⁰ For instance, to revisit the earlier example, if the consumer paid 3 bitcoins, instead of €600, and at the time of reimbursement the euro to bitcoin exchange rate decreased from 200:1 to 150:1, the consumer should then receive 4 bitcoins (the current equivalent value in bitcoins of €600). Of course, there is always the possibility that the consumer will agree to more traditional means of reimbursement, such as remittance to a bank account, directly from the trader, as the CRD allows in Article 13(1), provided that the consumer does not incur any additional fees as a result of such reimbursement.

Even in cases, where the payment is effected without an intermediary and bitcoins are conveyed directly from the consumer to the trader, it is of utmost importance to examine whether the price was denominated in bitcoins or in a state currency. As stated above, bitcoin does not properly serve as a unit of account. Therefore, if the information about the price is provided only in relation to a specific state currency, this particular unit of account serves as the unit of account in which the price is denominated. Even if the consumer is given the option to effect the payment using bitcoins, bitcoins are not perceived as a unit of account, in which the price is denominated, but as an alternative means of conveying the value of the price actually denominated in a state currency. Consequently, even in cases of a direct conveyance of bitcoins, if the trader sets the price in a state currency then the reimbursement should be conducted according to the nominal value of the price denominated in this particular currency. The means of reimbursement should be the same as the means of payment used by the consumer. Therefore, the trader should reimburse the amount of bitcoins that is equivalent to the nominal value of the price at the moment of the reimbursement, with respect to the average bitcoin price in relation to the currency in which the price was denominated.¹⁷¹

4.2.4 Denomination of the price in bitcoins

There are still cases, albeit rare,¹⁷² where prices are indeed denominated in bitcoins. These are cases where the trader provides information about the price of the product in bitcoins alone and therefore bitcoins are actually used as a unit of account. Thus, in these said cases, bitcoin is indeed perceived as the currency of payment and not merely as a method of payment. If a valid agreement concerning the manner of a potential refund does not exist, the trader should reimburse the exact amount of bitcoins received, regardless of any future fluctuations concerning the bitcoin’s value, as is suggested in the legal literature.¹⁷³ For instance, if a consumer has paid 3 bitcoins to purchase a product then in this case 3 bitcoins are to be reimbursed.

However, due to bitcoin’s high volatility, this mode of reimbursement entails risks for both parties to the contract. If the bitcoin’s value increases, consumers may exercise the withdrawal right more often than otherwise expected, in order to benefit from the increase in value.¹⁷⁴ However, this does not constitute a valid reason to justify an exception to the right of withdrawal,¹⁷⁵ since the trader should bear the risk of denominating the price in bitcoins. In this case, the consumer can benefit from the withdrawal, since he or she can receive a financial asset of greater value at the moment of reimbursement than at the moment of payment. Besides, even in cases where the consumer pays in foreign currency, he or she might still make a profit if the value of the currency of payment decreases in comparison to the value of the currency in the consumer’s bank account used for the payment (as mentioned above).

Bitcoin’s value, however, could not only increase but also decrease. In this case, the consumer could suffer the consequences of bitcoin’s value fluctuation, as he or she would receive a financial asset, the value of which is then less than it was at the moment of the payment. The consumer’s losses can be covered by means of a claim to damages only in cases of a breach of contract from the trader’s side. Otherwise, the exercise of the consumer’s right to withdraw does not justify a claim to damages against the trader.¹⁷⁶ With respect to this potential loss incurred by the consumer, there are two issues to be examined: whether there is a duty to inform the consumer about the risks that derive from bitcoin’s volatility in case of the exercise of the right of withdrawal, and whether the potential losses incurred by the consumer are compatible to the reasoning of this particular right.

The rationale that underlies the information duty is ‘the one-sided drafting of the contract, the information asymmetries and ignorance of the average consumer about the legal technicalities, to which one can add the ignorance of the content and usefulness of products and services may lead to suboptimal contracts’.¹⁷⁷ One of the legal technicalities that the consumer might ignore is the existence and the main legal consequences of the right of withdrawal (such as the obligation of the trader to reimburse the payment in the agreed currency of the price) where such a right exists. Consequently, the trader bears a respective duty of information, according to Article 6(1)(h)-(k) of the CRD. The trader complies with this duty provided he or she informs the consumer that the latter has a right of withdrawal, and in case of a valid exercise of this right, the trader shall reimburse the agreed price. However, the fact that the value or the exchange rate of the currency of payment may fluctuate in the future or the consumer’s domestic currency may lose its internal value due to inflation constitutes neither a legal technicality, on the grounds of which the trader has an informational advantage concerning the contract to be concluded, nor does it constitute information directly connected with the obligations derived from the contract. For this reason, the CRD provides no specific duty of information about the potential losses the consumer could incur due to fluctuations in exchange rates, in cases where the payment is agreed in a foreign currency.

A parallel can be drawn with respect to sales/services contracts, where the agreed price is denominated in bitcoins. The fact that bitcoin’s value may fluctuate in the future is essentially no different from the fact that a state currency’s value may fluctuate in the future, since both refer to cases where there is no information asymmetry concerning the contract to be concluded. Therefore, the trader bears no duty to inform the consumer that bitcoin’s value may decrease in the future. With respect to the issue of the compatibility of the consumer’s potential loss due to the possible decrease of bitcoin’s value with the ratio of the right of withdrawal, there could be a possible objection, relating to the teleological interpretation of Article 13. More specifically, the consumer’s financial position might deteriorate and this can then hinder the actual exercise of the right of withdrawal, something that potentially opposes the rationale for the aforementioned rules, which inter alia is to ensure the effectiveness of the withdrawal right.

However, the teleological interpretation of Article 13 should take into consideration not only the goal of the effectiveness of the right of withdrawal but also the teleological system of the CRD more generally, ie as a coherent system of goals expressed by its provisions. There are cases, such as those regulated in Article 14(2)¹⁷⁸ and Article 13(2),¹⁷⁹ where the consumer’s financial situation might deteriorate. These rules refer to situations where the consumer has attempted to gain a profit from the use of the goods or selected a more expensive means of transportation. Both rules are based on the principle of the bona fides dealing. Furthermore, as mentioned above, according to the DG Justice Guidance, the consumer might suffer losses due to fees charged by the consumer’s bank in case of reimbursement of a foreign currency¹⁸⁰ or due to fluctuations in relation to the value of the currency, yet the trader shall not be responsible for any such losses. The trader’s duty is only to reimburse the nominal value of the agreed price in the agreed currency of payment. Consequently, a perfect restoration of the consumer’s previous financial position in any case of withdrawal is not an ultimate goal of the CRD.

Parallels can be drawn with respect to the potential losses that the consumer might suffer should the bitcoin’s value decrease. Bitcoins are an asset of a rather speculative nature and could also be profitable for the consumer who uses them, since the consumer may withdraw within the legal time limit in case the bitcoin’s price has increased. In this case, the consumer would reap the profit of the bitcoin’s value increase. Since an exception to the right of withdrawal in case of a payment with bitcoins cannot be justified, the consumers can use bitcoins as a means of payment even for speculative reasons, in cases where prices are denominated only in bitcoins. However, speculation also entails risks. Since the consumer could potentially profit from the use of bitcoins, he or she should also bear any potential losses. Expecting only to gain the potential benefits but not to bear any potential losses of a personal choice should not be regarded as a legitimate expectation, especially if one takes into account the need for an honest and fair (bona fides) dealing. Furthermore, it could be difficult to determine the exact loss to the consumer, if the price is only denominated in bitcoins. Bitcoin’s value is defined in relation to its exchange rate against state currencies, as it is not legal tender or domestic currency in any state.¹⁸¹ Since no state currency is mentioned in the contract or used as a standard of comparison, the exact decrease of bitcoin’s value cannot be precisely defined. For instance, bitcoin’s value may decrease 5 % with respect to its exchange rate against the domestic currency of the trader (eg GBP) and 7 % with respect to its exchange rate against the domestic currency of the consumer (eg euro).

Moreover, from a purely technical perspective, the consumer is restored to the same position that they were in at the moment of the payment inasmuch as they receive the same financial asset that they spent. However, the consumer does not necessarily receive the same purchasing power that they originally disposed, so they are not necessarily restored to the same monetary position. At the same time, the value of the financial asset that they receive could also increase in the near future, given the constant fluctuation in bitcoin’s value.