Earlier this month Germany recognized the Bitcoin as a “unit of account” when used between private citizens. The German government is willing to recognize the Bitcoin as a valid form of payment between individuals willing to use it, while businesses still need to get approval to use the Bitcoin.

But what is a Bitcoin?  Bitcoin is a new type of online currency.  Bitcoin does not have a central bank, but rather is a peer-to-peer based technology.  Bitcoin is essentially virtual cash with no third party involved in the transaction, unlike sites like Paypal or bank transfers.  Bitcoin creators realize that it is a volatile currency, but maintain that with widespread acceptance this will become less of an issue.

Germany’s recognition of the Bitcoin might present some problems with the European Union, as they have “exclusive competence” over member countries whose currency is the Euro, according to Title I, Article 3 of the TFEU.  Title VIII, Article 119 of the TFEU further asserts that the economic and monetary policy of the European Union “shall include a single currency, the Euro.”

Does Germany effectively circumvent this problem by only recognizing the Bitcoin as a “unit of account” rather than as a currency?  If Germany is going to continue allowing businesses, with government approval, to transact using the Bitcoin it looks more and more like a recognized currency.  Interestingly, Bitcoin creators maintain that government approval is not needed to legitimate Bitcoin transactions.