Cryptocurrency Can’t Be “Money” in Canadian Commercial Law


Cryptocurrency Can’t Be “Money” in Canadian Commercial Law

Part 1 of the “Smartblock Law Guide to Cryptocurrency Contracts, Litigation, Monetary Instruments, and Financial Institution Regulations in Canada”


Chetan Phull · April 26, 2018 (addendum June 25, 2018)


The “Smartblock Law Guide to Cryptocurrency Contracts, Litigation, Monetary Instruments, and Financial Institution Regulations in Canada” is comprised of:


A condensed version of this article appears in the Canadian Bar Association National Magazine: Parliament should formally legalize cryptocurrency as “money” (May 25, 2018)


I. Introduction: the statutory problem with cryptocurrency treated as “money”

(a) The problem for commercial contracts: cryptocurrency as “money”

At present, a contract denominated in cryptocurrency can only be legal in Canada if cryptocurrency is not “money”.

Here’s why.

Pursuant to section 13(1) of the Currency Act, R.S.C., 1985, c. C-52 (“Currency Act”), any contract involving the payment of “money” must be in reference to fiat currency. Cryptocurrency has not yet achieved fiat status in any country, including Canada (Currency Act, s.3(1)).

Therefore, because cryptocurrency is not fiat, it is not permitted to be “money” in a cryptocurrency contract.

Under Canadian law, the legal status of cryptocurrency contracts is challenged by the view that cryptocurrency is in fact “money”. Courts in the U.S., for example, have declared cryptocurrency to be “money” or “funds” in the AML context on several occasions (discussed below).

If these cases serve as persuasive authority that cryptocurrency is “money” in the Canadian commercial context, cryptocurrency contracts under Canadian law will be invalid on the basis of section 13(1).

(b) Statutory Reform

The jurisdiction to declare that cryptocurrency is “money” lies exclusively with the Federal Government, because it has exclusive jurisdiction to legislate in respect of banking, currency, bills of exchange, and other related areas (Constitution Act, 1867, 30 & 31 Vict, c 3, ss.91-92; and Alberta References, [1938] SCR 100, 1938 CanLII 1 (SCC)).

Parliament may eventually declare cryptocurrency to be “money”, on the basis that a person or business “dealing in virtual currencies” will soon come under the definition of a “money services business” (see our previous articles, “Virtual Currency Regulations in Canada: Will Your Blockchain Business Be Affected?” and “Your Blockchain Business Needs a Blockchain Lawyer”).

Such a declaration would require a corresponding amendment to section 13(1) of the Currency Act.

As further practical support for the use of cryptocurrency in commerce, section 12 of the Currency Act, and every province’s equivalent to section 121 of Ontario’s Courts of Justice Act, should also be amended by the appropriate governments. This is required for courts to deal with cryptocurrency as “money” in the context of legal proceedings.

(c) An alternative view for now: cryptocurrency as a commodity

Unless and until the Currency Act is addressed by Parliament, it is obviously desirable for cryptocurrency to not be “money” in the context of cryptocurrency contracts. This approach reduces the risk that such contracts are automatically invalid.

Furthermore, if cryptocurrency is not “money”, it will need to be classified as something else.

For the time being, the treatment of cryptocurrency as a commodity for commercial purposes appears to be permissible (consider Hociung v. Canada (Public Safety and Emergency Preparedness), 2018 FC 298 (CanLII) at paras. 56 and 72; CRA’s 2015 fact sheet, “What you should know about digital currency”; Guy David, “Money in Canadian Law”, (1986) 65 Can. Bar Rev. 192 at 215; CFTC v. McDonnell et. al., No. 18-CD-361 (EDNY, 2018)).

However, how far can the commodity view really be extended? Consider the OSC’s Token Funder Inc. decision dated October 17, 2017. This is a securities offering decision. The registered intent was to sell tokens for a variable amount of ETH anchored to a fixed amount of CAD. The OSC required that the price be changed to a fixed amount of CAD without reference to ETH.

Since there was no indication that this aspect of the decision had a securities law basis,* the order to receive funds in CAD was presumably made to avoid the appearance that the ETH was being treated as “money”, which would have voided any investment deal ab initio under the Currency Act.

Moreover, there are additional harsh consequences of treating cryptocurrency as a commodity. For example, the supplier of cryptocurrency in a transaction is arguably required to charge GST-HST on the cryptocurrency (see our previous article, “The CRA’s Present Position on Crypto-Tax”).

(d) Back to the problem for commercial contracts: cryptocurrency as “money”

The issue of whether cryptocurrency can accurately and conveniently be considered a commodity has been provided for context.

We believe it is overshadowed by the separate and larger question of whether cryptocurrency is in fact “money”. Given the mandatory wording of section 13(1) of the Currency Act, our view is that this question should be asked in the context of commercial contracts irrespective of whether cryptocurrency is also a commodity.

At present, it appears that the laws in Canada and the U.S. do not support any well reasoned conclusion as to whether cryptocurrency is “money”, in the context of commercial agreements under Canadian law.

Our basis for this position is clarified in the following discussion.


II. No law to consider cryptocurrency as “legal tender”

As a threshold matter, we note that there is no Canadian legal authority for cryptocurrency existing as “legal tender”, which is a subset of “money” (Currency Act, s.8(1)).

Under the Currency Act, “legal tender” includes:

  1. current coins issued under the Royal Canadian Mint Act (ss.8(1)(a) and 7(1)(a));

  2. legal tender issued by the Crown in a province immediately prior to October 15, 1952 (ss.8(1)(a) and 7(1)(b)); and

  3. notes issued by the Bank of Canada pursuant to the Bank of Canada Act (s.8(1)(b)).

This definition of “legal tender” is subject to certain denomination limitations (Currency Act, ss.8(2) and (2.1)), and coins that have been “called in” by the Governor in Council (Currency Act, s.9).

The above categories of “legal tender” may not necessarily constitute a closed list. However, no known authority would appear capable of supplementing this list with cryptocurrency.


III. Moss v. Hancock (1899), 2 QB 11—a classic definition’s problem with scope

This case is considered seminal with respect to the definition of “money”. The issue was whether a thief treated certain stolen gold coins as goods or currency, notwithstanding that he exchanged the gold coins for currency. This issue was held to determine whether the gold coins could be traced into the hands of a third party, thereby providing a remedy to the original owner.

In the course of its decision, the Court adopted the following definition of “money as currency”:

that which passes freely from hand to hand throughout the community in final discharge of debts and full payment for commodities, being accepted equally without reference to the character or credit of the person who offers it and without the intention of the person who receives it to consume it or apply it to any other use than in turn to tender it to others in discharge of debts or payment for commodities.

The coins were awarded to the original owner on the basis of the thief’s treatment of the coins as goods.

However, the result in this case is no longer instructive on the basis of the Hociung case (cited above). In that case, non-circulation legal tender was held to be legal currency under the Currency Act (see Hociung at paras. 44 and 52). The precedential value of Moss v. Hancock in Canada, therefore, is in question.

Even if the above definition of “money” from Moss v. Hancock is still accepted, its reference to “the community” complicates the matter for cryptocurrency. Cryptocurrency is presently traded freely as a form of payment among segments of the cryptocurrency community, but certainly not as between most persons generally.

Therefore, if the definition of “money” in Moss v. Hancock is to be adopted, the scope of its application must be clarified. In its present form, we do not believe its definition of “money” is helpful for the purposes of cryptocurrency in commercial transactions.


IV. Reference Re Alberta Statutes, [1938] S.C.R. 100—deficiency of authoritative force due to obiter dicta

Among cryptocurrency lawyers, this case is generally considered the leading Canadian case on the definition of “money”. We question the relevance of this case, however, on the basis that it primarily deals with the division of government powers.

In this case, the Alberta provincial government attempted to create “Alberta Credit”, a credit constituting an alternative form of money. The purpose of Alberta Credit was to cure the prohibitive cost of bank credit for Alberta consumers.

The enabling statutes of Albert Credit sought to increase the purchasing power of Alberta consumers to the extent of effecting an equation of consumption and production. Several provincial statutes were designed to effect, within the internal commerce of Alberta, a substitution of Alberta Credit for bank credit and legal tender.

The Province of Alberta referred three bills to the Court for a determination on the province’s jurisdiction to pass such bills as law. The resulting decision states:

[M]oney as commonly understood is not necessarily legal tender. Any medium which by practice fulfils the function of money and which everybody will accept in payment of a debt is money in the ordinary sense of the words even although it may not be legal tender; and this statute envisages a form of credit which will ultimately, in Alberta, acquire such a degree of confidence as to be generally acceptable, in the sense that bank credit is now acceptable; and will serve as a substitute therefor.

However, the force of this quote is softened as obiter dicta when it is considered in context.

This quote was provided as marginal support for the point that the province was attempting to legislate beyond its jurisdiction. The pith and substance of the subject legislation went to banking, trade and commerce, and criminal law, all of which are exclusively in Parliament’s jurisdiction.**

On the basis of the above, we submit that this case is not instructive for the purpose of defining “money” under the Currency Act.


V. U.S. cases—inadequate support for cryptocurrency to be “money” in the commercial law context

(a) U.S. counterpart to the Currency Act and overview of U.S. AML cases

The closest U.S. counterpart to section 13(1) of Canada’s Currency Act is the Uniform Commercial Code § 1-201(24) (“UCC”), which applies to commercial relationships.

Similar to Canada’s Currency Act definition of “money”, the corresponding UCC definition is restricted to fiat currency or a monetary unit of account established or agreed to by at least two countries.

Moreover, similar to Parliament’s exclusive jurisdictions in Canada (discussed above), Congress has exclusive power to coin and regulate money in the U.S. (U.S. Constitution, Article I, § 8, para. 5; 75 U.S. 603 at 615; Julliard v. Greenman (1883), 110 U.S. 421 at 447).

The bulk of cryptocurrency jurisprudence in the U.S. appears to create an expanded definition of “money” that includes cryptocurrency.

However, these cases involve securities and AML issues which have a broad public-protection purpose, as opposed to the narrower private law purpose between contracting parties. This merits a restricted application of the following cases to section 13(1) of Canada’s Currency Act, consistent with the dissent in Bank of Canada v. Bank of Montreal, [1978] 1 S.C.R. 1148, 1977 CanLII 36 (SCC).***

Additional reasons supporting non-application of the following cases in the Canadian commercial context are provided below.

(b) Shavers case

In SEC v. Shavers et. al., Case No. 4:13-CV-416, Document 23 (E.D. Tex. 2013), the definition of “money” was considered in the context of the Howey test for securities (see our previous article, “The Law of ICOs/ITOs: Simplified”).

Bitcoin was stated to be “a currency or form of money” on the basis that: “It can be used to purchase goods or services, and … to pay for individual living expenses. … [I]t can also be exchanged for conventional currencies, such as the US dollar, Euro, Yen, and Yuan.”

However, this definition is based on no analysis of the American law of “money”. This case should therefore not be considered persuasive authority for the definition of “money” in the context of cryptocurrency contracts.

(c) Faiella and Shrem case

The next case is U.S. v. Faiella and Shrem, 39 F. Supp. 3d 544  (SDNY 2014). This is an AML case in which “money” was defined in accordance with Merriam-Webster Online’s definition: “something generally accepted as a medium of exchange, a measure of value, or a means of payment.”

The Shavers case was cited in support of adopting the Merriam-Webster definition in this AML case.

We take especial note that the Black’s Law Dictionary definition of “money” was not considered in any detail. The Court stated that the Black’s definition was irrelevant because “money” was not a term of art that Congress intended to invoke in the context of the AML legislation (footnote 2).

This rationale is unsatisfactory, because “money” in Black’s has several different common-sense definitions (Black’s Law Dictionary, 8th ed., B. Garner, ed. (West Group: 2004) at 1157, 2626-27, 3116, 3184-85), and analysis with respect to the Black’s definition could have affected the result.

We submit that the Court in Faieilla and Shrem sidestepped crucial analysis by relying on a simplified Merriam-Webster definition, instead of engaging with the multiple common sense definitions in Black’s.

In our view, the reasoning in this case is clearly over-simplified, and should therefore not be considered persuasive for the purposes of Canada’s Currency Act.

(d) Ulbricht case

In U.S.A. v. Ulbricht, 31 F.Supp.3d 540 (2014) at 569-70, aff’d No. 15-1815 (2d Cir. 2017), the relevant money laundering statute was triggered by the term “financial transaction”, which had been broadly considered by caselaw and expressly included “the movement of funds”.

Bitcoin was considered to fall within the definition of “funds”, because of its function as a “medium of exchange” and the AML-driven intent of Congress.

While this sufficiently triggered the AML legislation, the Court went on to state—seemingly in obiter dicta—that the Cambridge Online Dictionary included “money” in the definition of “funds”.

The Court thereafter took the leap of stating that “‘money’ is an object used to buy things”. It is unknown where this definition was sourced from. It is considerably broader than the Cambridge Online Dictionary definition for “money”, which more narrowly refers to “coins or paper currency …. used to buy things”.

This case should not be considered persuasive for the purposes of Canada’s Currency Act, because the proffered definition of “money” was:

  1. irrelevant to the result,

  2. considered in the context of AML legislation, and

  3. inadequately sourced.

(e) Espinoza case

In Florida v. Espinoza, Criminal Division Case No. F14-2923, (Fla. 11th Cir. Ct. 2016), Bitcoin was considered again in the context of AML legislation.

The Court took efforts to engage with the definition of “money” more closely than the prior cases. It appears to have reached the same conclusion that we have—that cryptocurrency can only fall within the definition of “money” as a result of statutory reform.

(f) Murgio case

U.S. v. Murgio, 209 F.Supp.3d 698 (SDNY 2016) expressly disagrees with Espinoza, stating: “bitcoins function as a medium of exchange, and they are therefore both monetary value and payment instruments, as Florida defines those terms.”

This case provides the much needed in-depth analysis missing from the prior cases. Moreover, the accused referenced the UCC in arguing that “money” should be narrowly considered to include only fiat currency.

However, the Court refocused the inquiry on the broader term “funds” in the context of AML legislation.

Similar to Ulbricht and Faiella, therefore, this case should have no persuasive force on the definition of “money” in Canada’s Currency Act, because it addresses the very different question of “funds” in the context of U.S. AML legislation.

(g) Stetkiw case

At the time of writing, U.S. v. Stetkiw, Case No. 2:17-MJ-30566 (E.D. Mich., 2017) is making its way through the courts. This case involves an allegation of operating an unlicensed money transmitting business.

Because this is another AML case, we expect that this decision will only be material for our purposes if the Court:

  1. agrees with Espinoza, or

  2. confirms that “money” in the context of the UCC (i.e. commercial law) is narrower than each of “money” and “funds” in the context of AML legislation.


VI. Conclusion

More than 30 years ago, Guy David stated the following in his 1986 article, “Money in Canadian Law”, (1986) 65 Can. Bar Rev. 192 at 208-09:

As we progress into the electronic age, there is little doubt that the courts will have further opportunities to grapple with the problem of the legal characterization of money….

[The preferred definition] is to equate money with any medium, tangible or intangible, specifically adopted as a means of effecting payments. … [This] would imply a conceptual flexibility better suited to accommodate changing customs and advances in technology. It is submitted that [this approach] is … conducive to the development of a comprehensive legal theory of money, and would be more likely to result in uniformity in the legal terminology used to describe the various means currently employed to discharge monetary obligations.

[Emphasis added.]

Mr. David’s proposal would certainly clarify that cryptocurrency is “money”. However, it is ironic that his good intentions would likely result in every cryptocurrency contract being void under Canadian law, on the basis of section 13(1) of the Currency Act.

We call upon Parliament to amend the Currency Act to legalize cryptocurrency contracts that treat cryptocurrency as “money”, and to support the enforcement of such contracts.

Until then, the legality of cryptocurrency contracts appears to tenuously depend on how obviously the cryptocurrency is being treated as “money”, and whether or not the commodity view is realistic in any given case. It moreover remains an unfortunate likelihood that GST-HST must be charged on the supply of cryptocurrency under all legal cryptocurrency contracts.

If you are involved in contract negotiations involving cryptocurrency, consider our service offering for "Contracts denominated in cryptocurrency".

* Despite the Filer’s clear initial intent to treat the amount of ETH tokens as a derivative (see OSC Rule 91-504, s.1.1 “OTC derivative” and “forward contract”), the OSC did not consider the OTC derivative exemptions (OSC Rule 91-504, ss.2.3-2.4), or its jurisdiction to declare that the amount of ETH tokens did not constitute an OTC derivative (OSC Rule 91-504, s.4.1; Securities Act, RSO 1990, c S.5, ss.1(1) “derivative”, 1(10)(b)).

** See section 91 of the Constitution Act, 1867 (UK), 30 & 31 Victoria, c 3, which statute is referred to in Alberta Reference by its former name, the “British North America Act 1867”. The statute name was changed, pursuant to item 1 of the Schedule to the Constitution Act, 1982, being Schedule B to the Canada Act 1982 (UK), 1982, c 11.

*** The dissent in that case drew a clear distinction between statutes that empower institutions with a public purpose, and statutes that create instruments meant to apply between private parties.

Addendem  June 25, 2018

On June 21, 2018, the dissent of a narrowly split U.S. Supreme Court, in Wisconsin Central Ltd. vs. United States, 585 U.S. ___ (2018), inched forward the legal definition of “money” to potentially include Bitcoin and/or other cryptocurrencies. The case involved a tax statute.

The dissent provides:

[W]hat we view as money has changed over time. ... [P]erhaps one day employees will be paid in Bitcoin or some other type of cryptocurrency.... Nothing in the statute suggests the meaning of this provision should be trapped in a monetary time warp, forever limited to those forms of money commonly used in the 1930’s.

Although the Bitcoin comment in dissent is obiter dicta, the majority opinion also suggests an openness to the idea of cryptocurrency being “money” in future cases:

While every statute’s meaning is fixed at the time of enactment, new applications may arise in light of changes in the world. So “money,” as used in this statute, must always mean a “medium of exchange.” But what qualifies as a “medium of exchange” may depend on the facts of the day. Take electronic transfers of paychecks. Maybe they weren’t common in 1937, but we do not doubt they would qualify today as “money remuneration” under the statute’s original public meaning.


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