Home » Publications » Commercial Law » Usage of Cryptocurrencies For Commercial Activities in Turkish Law

| Reading Time: 11 Minutes

Usage of Cryptocurrencies For Commercial Activities in Turkish Law

Cryptocurrencies, NFTs, and similar assets are now undeniable in today’s world, boasting significant market value in international trade and finance. With crypto exchanges like Binance, Paribu, and various other e-commerce platforms & marketplaces, these cryptocurrencies have turned into a global income source. Türkiye (formerly Turkey), in particular, has seen a surge in cryptocurrency popularity. Since the COVID-19 pandemic, Turkish citizens’ interest in cryptocurrencies and crypto assets has been growing daily. Facing hyperinflation, Türkiye has emerged as the second-largest nation worldwide in terms of the population investing in crypto assets.

Furthermore, anticipated economic instability in Türkiye suggests that cryptocurrencies may attract even more investments from Turkish citizens in the future. Their popularity and technical advantages underscore the importance of cryptocurrencies for commercial activities. However, Türkiye has banned their use in commercial transactions, allowing them only as investment vehicles. This article aims to conduct a legal analysis of the reasons behind this prohibition of cryptocurrencies for commercial use.

Introduction

Cryptocurrencies and blockchain technology significantly impact the global economy, serving as a source of income for many. Blockchain is a technology characterized by its distributed, shared, irreversible, incorruptible, and encrypted nature, storing data across various blocks.^[1] Its structure and technical attributes greatly surpass the capabilities of the current financial system and international commerce, offering speed, resistance to control by any single authority, and elimination of transaction intermediaries. Blockchain has gained popularity in the health, finance, tourism, and banking sectors.

Cryptocurrencies, a product of blockchain technology, are digital monetary units based on blockchain’s distributed ledger. The European Central Bank describes them as digital monetary units regulated by their programmers rather than by states.^[2] These currencies are not legally recognized in several countries. Due to their decentralized nature, they are viewed as a threat to state sovereignty and a potential tool for illegal commerce. However, the substantial market value of crypto assets means that excluding them from commercial activities could be detrimental to international trade. A balanced approach is needed to utilize cryptocurrencies without compromising their core features and making them safe for states.

The COVID-19 pandemic has led to global hyperinflation, reducing people’s purchasing power and making many countries’ economic futures unpredictable. Türkiye is among the most affected nations. Many experts view cryptocurrencies as a safe haven during such economic instability. The economic crisis in Türkiye has made cryptocurrencies increasingly popular among its citizens, more so than in other countries. However, through various legislations, Türkiye has banned the use of cryptocurrencies for buying or selling goods. These legislations are justified due to the potential threat of blockchain and cryptocurrencies to state sovereignty.

I. The Relationship Between Blockchain, Cryptocurrencies and Law

A. Relationship With Public Law

The cryptographic structure of blockchain offers significant benefits for protecting individual privacy and political freedom. It ensures that users’ personal data remains within the blockchain system, preventing deletion or sharing with third parties.^[3] Based on cryptography, the consensus mechanism allows blockchain participants to trust the legitimacy of transactions without needing a central authority governed by Public Law. In other words, it minimizes the role of intermediaries.^[4] In the realm of public affairs, these intermediaries are often the states themselves. Examples of public affairs include taxation of individuals and businesses, assigning national identity to citizens, and organizing social structures. Blockchain technology and cryptocurrencies pose a challenge to state control over these affairs.

With the advent of blockchain and cryptocurrencies, controlling the economy has become a complex issue for public authorities. In the current financial system, central banks have the authority to regulate and supply money, ensuring price stability and smooth operation of the monetary system. These banks operate independently of government control, which benefits monetary independence but raises concerns about the democratic accountability of money and the risks of hyperinflation.^[5] Conversely, in the blockchain economy, the money supply is determined by the number of users on the relevant blockchain platform.^[6] This means the money supply depends on its owners, not a central authority. As this new financial model gains popularity, public authorities may rely on online intermediaries to enforce their policies.^[7]

B. Relationship With Private Law

Integrating blockchain technology with Private Law presents significant challenges, especially regarding property rights and Obligations Law issues. Blockchain facilitates the recording of each transaction.^[8] The most critical aspect of its relationship with Private Law is clearly evident in smart contracts. Parties in a blockchain-based smart contract intend to create a legal relationship represented by code. The related transaction is executed automatically. Unlike traditional contracts, the applicability of a smart contract depends on the law chosen by the parties.^[9]

The primary debate concerning cryptocurrencies and Private Law revolves around whether they should be classified as money or property. This classification significantly affects their legal treatment. If considered money, cryptocurrencies would fall under the authority of entities like the Capital Markets Board (CMB), Management of Securities, or Central Bank, affecting taxation.^[10] To be classified as money, cryptocurrencies must possess the characteristics of existing currencies: operational capacity, exchange value, and stability against extreme exchange rate fluctuations.^[11] In such cases, the same rules applied to local and foreign currencies should also apply to cryptocurrencies.^[12] On the other hand, to be legally recognized as property, certain criteria must be met: possession, physical form, and economic value. In Türkiye and Switzerland, cryptocurrencies are generally recognized as property since they can be transferred like a movable asset and possess economic value.^[13] Given the operational nature of cryptocurrencies and blockchain systems, applying Movable Property Laws might be necessary.^[14]

II. Usage of Cryptocurrencies and Existing Regulations

The status of cryptocurrencies as either money or property remains uncertain. However, this does not preclude them from being recognized as financial assets. Globally, there is a notable lack of legislation regarding cryptocurrencies. Out of 251 countries, 107 have no specific legislation for Bitcoin and other cryptocurrencies. There is little urgency in these countries to legitimize or establish new rules for crypto assets.^[15]

A. Governments Have Different Policies Regarding Cryptocurrency Use in Commercial Activities

Many countries prohibit using cryptocurrencies for transactions, and their number is significant. In some states, strict policies govern internet control. For example, in China and some Arab States, the entire internet, including cryptocurrencies, is under state surveillance and control.^[16] Cryptocurrency payments are not permitted within their territories. Iceland has ruled that purchasing cryptocurrencies from markets violates the Iceland Exchange Act. In 2017, the U.K. published the Payment Services Regulations, refusing to recognize cryptocurrencies as currency or money.^[17] Conversely, numerous countries accept cryptocurrencies as payment methods. El Salvador, Ecuador, and the Central African Republic have adopted Bitcoin as their official currency. In Dubai and subsequently in the UAE, real estate companies can legally use cryptocurrencies for property transactions.^[18] Scandinavian countries, particularly Denmark, are developing systems to integrate cryptocurrencies with legal tender. Under Financial Services Law 5776, Israel recognizes cryptocurrencies as financial assets, but their use in financial transactions requires licensing.^[19]

In the United States (USA), the Securities and Exchange Commission (SEC) regulates crypto assets to enhance customer protection. Registering with the SEC’s database is mandatory to engage in crypto-asset transactions.^[20] The SEC focuses on the substance and economic reality of the coin rather than its statutory definition. The European Commission, through its 2018 Fintech Action Plan, has taken regulatory steps for cryptocurrencies, facilitating economic integration between decentralized entities and existing rules while preventing unregulated platforms from exploiting power.^[21] Additionally, they have clarified the relationship between code and law, aiming to link regulatory regimes with decentralized ledger technology applications. The GDPR also regulates privacy and data protection on the blockchain.^[22]

B. Regulations in Türkiye

In Türkiye, regulations concerning the financial status of cryptocurrencies are still insufficient.^[23] It remains unclear whether cryptocurrencies should be classified as property or money, with a lack of judicial decisions on the matter. However, Türkiye is actively researching blockchain and cryptocurrency applications, including a blockchain-based Central Bank.^[24] There is no ban on cryptocurrency production due to the “Freedom of Enterprise” principle.^[25] Nevertheless, their use as payment tools is prohibited.

1. Cryptocurrencies For Banking Regulation and Supervision Agency

A 2013 legislation requires electronic currency producers and payment service providers to obtain approval from the Banking Regulation and Supervision Agency. The agency also oversees their coining and payment processes. This legislation includes a provision on Bitcoin, not recognizing it as electronic money. Thus, for the agency, cryptocurrencies fall outside their regulatory and control scope.^[26]

2. Cryptocurrencies For Turkish Central Bank

In 2021, the Central Bank of Türkiye issued regulations for crypto asset usage and taxation, imposing several restrictions:

• Crypto cannot be used for payments.
• Crypto assets are not allowed for providing payment services or electronic currency export.
• Cryptocurrency exchange platforms cannot facilitate the transfer of crypto asset funds to other entities.

These regulations reflect the Central Bank of Türkiye’s cautious stance on cryptocurrencies in commercial activities. Additionally, the bank issued a warning about the risks associated with crypto assets in fraudulent business models.^[27] Despite this, the 11th Development Plan includes various Central Bank projects on cryptocurrency implementation. As a result, the Central Bank is actively exploring new blockchain-based currencies.^[28]

3. Cryptocurrencies For Capital Market Board of Türkiye

The Capital Market Board (CMB) advises against using digital speculative currencies, including crypto assets, for transactions.^[29] According to the Turkish Code of Capital Market Article 3, capital instruments encompass securities and debt tools, potentially including cryptocurrencies.^[30] However, the Board asserts that cryptocurrencies do not qualify as bank deposit accounts or participation funds.^[31]

III. Integration of Crypto Finance Into Turkish Law

A. Crypto Finance and Turkish Commercial Law

1. Are Cryptocurrencies Considered Money in Turkish Commercial Law?

As previously discussed in section I-B, there are universal criteria to define something as money. Under Turkish Law, specifically Turkish Commercial Code Article 127, cryptocurrencies must possess the characteristics of money. Currently, cryptocurrencies do not meet these criteria; therefore, they are not recognized as money under Article 127.^[32] Turkish Code of Obligations Article 99 defines money as a tool for debt discharge.^[33] Numerous legal proposals have emerged following the Turkish Central Bank’s legislation prohibiting crypto for payments. One suggestion involves converting cryptocurrencies into Turkish lira, akin to how foreign currencies are treated in the Turkish commercial system. Under Turkish Law of Obligations Code Article 99, debts must be paid in Turkish lira, as this article does not recognize cryptocurrencies as official currency.^[34] Thus, a similar approach could be applied to cryptocurrencies, allowing their indirect use as a payment tool.^[35]

The use of cryptocurrencies for international commerce under the Turkish Commercial Code is yet to be defined. Although there’s no specific regulation in the Commercial Code, this doesn’t imply that cryptocurrencies can’t be used for international transactions. Merchants may agree to use cryptocurrencies for international payments through swap deals. If a payment default occurs, smart contracts can provide proof, and the delinquent party would be held responsible under Turkish Law of Obligations Article 112. Furthermore, due to cryptocurrency market volatility, merchants might face performance impossibilities, considered problematic transactions under a blockchain and Smart Contract Law, and addressed by Article 137 of the Law of Obligations.^[36]

2. Using Crypto Assets as Capital For Companies

Turkish Commercial Code Article 127 also dictates the types of assets that can serve as company capital. Any item with economic value, including all forms of cryptocurrencies, qualifies as potential capital.^[37] The valuation of specific crypto assets is crucial when used as capital, aligning with the capital types recognized by the Turkish Commercial Code.^[38]

• For Collectives and Limited Partnerships: Assets that individuals can transact can serve as capital. Therefore, cryptocurrencies are eligible for use as capital in collectives and limited partnerships, with their value determined by co-founders.^[39]
• For Corporations and Limited Liability Companies: The capital for these entities is governed by Turkish Commercial Code Articles 342 and 581. Assets subject to rights, seizures, or temporary injunctions are not capital-eligible. The classification of the cryptocurrency, either as property or money, is crucial for its use as capital. It can be used as capital if deemed an asset, provided it’s transferable and not under seizure.

B. Taxation of Crypto Assets in Türkiye

The taxation of crypto assets is a complex and debated topic. Before implementing a taxation policy, a clear definition and legal status of crypto assets must be established.^[40] Different countries have varying taxation rules for cryptocurrencies. For instance, in the U.S., buying and selling crypto assets are subject to capital gains tax. Similarly, in Canada, cryptocurrencies are subject to value-added and corporate taxes.^[41]

In Türkiye, the taxation approach for cryptocurrencies is still unclear, hinging on whether they are classified as money or property. If recognized as money, they would be subject to Tax Procedure Law and Law of Income Tax. Turkish Constitutional Law Article 87 states that currency issuance is a Central Bank prerogative.^[42] Therefore, if cryptocurrencies are deemed money, they must be regulated and coined by the Central Bank and taxed accordingly. If considered commodities, taxation depends on income from their trade, stock exchange activities, or income derived by miners. In this case, a value-added tax would apply.^[43] Another perspective in Türkiye is to tax cryptocurrencies like negotiable instruments, potentially subjecting them to appreciation gains taxation.^[44]

Conclusion

The rising significance of cryptocurrencies in the digital era, with their potential benefits to the financial system and societal wealth, is undeniable. However, their structure poses challenges to state sovereignty. Balancing the needs of decentralized monetary units with state interests is crucial, especially for a country like Türkiye, where cryptocurrencies are highly popular. Despite numerous legislations and projects, Türkiye’s regulatory approach to decentralized finance remains in flux. Currently, Türkiye does not capitalize on the vast cryptocurrency market within its territory. By recognizing cryptocurrencies as payment tools and establishing control mechanisms without disrupting their inherent structure, Türkiye can leverage these assets for its economic benefit. The proposed blockchain-based central bank project might serve as a catalyst for this reform, leading to new, applicable, and liberal legislation on cryptocurrencies.

---

Sources

• Armstrong, Dean/Hyde, Dan/Thomas, Sam. “Blockchain and Cryptocurrency: International Legal and Regulatory Challenges”. Bloomsbury Professional Law. 2019.
• Bilgili, Fatih/ Cengil, M. Fatih. “Blockchain And Crypto Money Law”. DORA Press. Second Volume. 2022.
• Bilgili, Fatih/ Cengil, M. Fatih. “Utilization of Bitcoin For Commercial Companies as Capitals”. AHBVU-HFD. 23.3 (2019). 3-23 (COMMERCIAL COMANY).
• Cakmak, Meltem. “Development Process of Crypto Currencies, Blockchain Technology and Taxation of Crypto Assets in Türkiye”. Marmara University, Social Science Institute (2019). P. 74-81.
• Dayanan, Dilan. “Crypto Monies and Legal Applications in Türkiye”. Rahva Journal of Technical and Social Studies (2021). V. 1. No. 1. P. 37-44.
• Hacker, Philipp/Lianos, Ioannis/Dimitropoulos, Georgios/Eich, Stefan. “Regulating Blockchain: Techno-Social and Legal Challenges – An Introduction”. Oxford (2019).
• Kaplanhan, Fatih. “Evaluation of Crypto Monies According To Turkish Law” Taxation Problems Journal (2018)
• Kucukkurt, Mustafa Zafer. “Utilization of Crypto Monies as Capital for Commercial Companies” Aktuel Law Magazine (2021). No. 1. P. 78-88.
• Oral,Burcu Gediz/ Yesilkaya,Yusuf. “Taxation of Crypto Monies”. Turkuaz International Socio-Economic Strategy Research Journal. C. 3, No. 1.
• Ozkul, Fatma Ulucan/ Bas, Ece. “The Technology of Digital Century: An Evaluation For National and International Legislation”. 2020.
• Uzumcu, Rabia/ Yildirim, Yasin. “Legal Statuses of Cryptocurrencies and Their Places In Terms Of Contracts”. Suleyman Demirel University Visionary Journal (2022). V. 13, No. 33, P. 271-291.
• Papp, Jeremy. “A Medium of Exchange for an Internet Age: How to Regulate Bitcoin for the Growth of E-Commerce,” Pittsburgh Journal of Technology Law and Policy 15, No. 1.
• Pollicino, Oreste/De Gregorio, Giovanni. Blockchain and Public Law: An introduction, 2021.
• Saglam, Anil. “Usage of Crypto Monies for International Commerce”. <https://www.ozgunlaw.com/makaleler/kripto-paralarin-uluslararasi-ticarette-kullanimi-1006>
• Topaloglu, Buse. “Integration of Crypto Monies with State Authorities”. Think and Society Journal 2021. 2687-4946, No. 4.
• Turanboy, Asuman. “Legal Characters of Crypto Monies”. Banking & Commercial Law Journal (2019), 35.3.

---

References

• ¹ Pollicino, Oreste/De Gregorio, Giovanni. Blockchain and Public Law: An introduction, 2021. p. 1.
• ² Ozkul, Fatma Ulucan/ Bas, Ece. “The Technology of Digital Century: An Evaluation For National and International Legislation”. 2020. p. 60
• ³ Topaloglu, Buse. Think and Society Journal 2021—no. 4. p. 246.
• ⁴ Pollicino/De Gregorio. p. 2.
• ⁵ Hacker, Philipp/Lianos, Ioannis/Dimitropoulos, Georgios/Eich, Stefan. “Regulating Blockchain: Techno-Social and Legal Challenges – An Introduction”. Oxford (2019). p. 8.
• ⁶ Topaloglu, Buse. Think and Society Journal 2021—no. 4. p. 246.
• ⁷ Pollicino/De Gregorio. p. 5.
• ⁸ Armstrong, Dean/Hyde, Dan/Thomas, Sam. “Blockchain and Cryptocurrency: International Legal and Regulatory Challenges”. Bloomsbury Professional Law. 2019. p. 29
• ⁹ Armstrong/Hyde/Thomas p. 36.
• ¹⁰ Kaplanhan, Fatih. “Evaluation of Crypto Monies According to Turkish Law” Taxation Problems Journal (2018). p. 113.
• ¹¹ Kucukkurt, Mustafa Zafer. “Utilization of Crypto Monies as Capital for Commercial Companies” Aktuel Law Magazine (2021). No. 1. p. 78-88.
• ¹² Uzumcu, Rabia/ Yıldırım, Yasin. “Legal Statuses of Cryptocurrencies and Their Places In Terms Of Contracts”. Suleyman Demirel University Visionary Journal (2022). V. 13. No.33. 271-291. p. 274.
• ¹³ Uzumcu/Yildirim. Suleyman Demirel University Visionary Journal (2022). V. 13. p. 277.
• ¹⁴ Bilgili, Fatih/ Cengil, M. Fatih. “Blockchain And Crypto Money Law”. DORA Press. Second Volume. 2022. p. 179.
• ¹⁵ Oral, Burcu Gediz/ Yesilkaya,Yusuf. “Taxation of Crypto Monies”. Turkuaz International Socio-Economic Strategy Research Journal. C. 3, no.1, p. 85.
• ¹⁶ Pollicino/De Gregorio. p. 5.
• ¹⁷ Armstrong/Hyde/Thomas p. 26.
• ¹⁸ Oral/Yesilkaya. Turkuaz International Socio-Economic Strategy Research Journal. p. 1. p. 85.
• ¹⁹ Armstrong/Hyde/Thomas p. 69.
• ²⁰ Papp, Jeremy. “A Medium of Exchange for an Internet Age: How to Regulate Bitcoin for the Growth of E-Commerce,” Pittsburgh Journal of Technology Law and Policy 15, no. 1. p. 50.
• ²¹ Hacker/Lianos/Dimitropoulos/Eich p. 12.
• ²² Hacker/Lianos/Dimitropoulos/Eich p. 13.
• ²³ Ozkul/Bas. p. 59.
• ²⁴ Topaloglu, Buse. Think and Society Journal 2021. No. 4. p. 252.
• ²⁵ Dayanan, Dilan. “Crypto Monies and Legal Applications in Türkiye”. Rahva Journal of Technical and Social Studies (2021). V.1. no. 1. P.37-44. p. 42
• ²⁶ Dayanan, Dilan. Rahva Journal of Technical and Social Studies (2021). V.1. P.37-44. p. 42
• ²⁷ Cakmak, Meltem. “Development Process of Crypto Currencies, Blockchain Technology and Taxation of Crypto Assets in Türkiye”. Marmara University, Social Science Institute (2019). p. 74-81.
• ²⁸ Bilgili, Fatih/ Cengil, M. Fatih. p. 206
• ²⁹ Cakmak, Meltem. Marmara University, Social Science Institute (2019). P. 74-81. p.79
• ³⁰ Turanboy, Asuman. “Legal Characters of Crypto Monies”. Banking & Commercial Law Journal (2019), 35.3.
• ³¹ Turanboy, Asuman. Banking & Commercial Law Journal. 35.3. p. 59.
• ³² Kucukkurt, Mustafa Zafer. Aktuel Law Magazine (2021). No. 1. p. 81.
• ³³ Turanboy, Asuman. Banking & Commercial Law Journal. 35.3. p. 48.
• ³⁴ Bilgili, Fatih/ Cengil, p. 206.
• ³⁵ Topaloglu, Buse. Think and Society Journal 2021. No. 4. p. 254.
• ³⁶ Saglam, Anil. “Usage of Crypto Monies for International Commerce”. <https://www.ozgunlaw.com/makaleler/kripto-paralarin-uluslararasi-ticarette-kullanimi-1006>
• ³⁷ Kucukkurt, Mustafa Zafer. Aktuel Law Magazine (2021). No. 1. p. 82.
• ³⁸ Bilgili, Fatih/ Cengil, M. Fatih. “Utilization of Bitcoin for Commercial Companies as Capitals”. AHBVU- HFD. 23.3 (2019). 3-23. p. 14 (Commercial Company).
• ³⁹ Bilgili, Fatih/ Cengil, M. Fatih. AHBVU-HFD. 23.3 (2019). 3-23 p. 13 (Commercial Company).
• ⁴⁰ Topaloglu, Buse. Think and Society Journal 2021—no. 4. p. 255.
• ⁴¹ Topaloglu, Buse. Think and Society Journal 2021—no. 4. p. 250.
• ⁴² Kaplanhan, Fatih. Taxation Problems Journal (2018). p. 114.
• ⁴³ Ozkul/Bas. p. 66.
• ⁴⁴ Oral/Yesilkaya. Turkuaz International Socio-Economic Strategy Research Journal. No. 1. p. 89.

---

Related Articles