Germany's Federal Ministry of Finance has confirmed that Bitcoins are recognised in the country as a type of 'private money'.
"Bitcoins are not yet regarded as an e-money or as legal tender," a ministry spokesman told ZDNet on Tuesday. "Bitcoins are acknowledged as a 'unit of account'", or 'private money'.
With the designation, Bitcoins can continue to be used for both commercial and private sales in the country.
The 'unit of account' affirmation adds some legitimacy to the cryptocurrency, which has yet to be officially recognised by any other country, and has recently raised regulatory eyebrows in the US.
Bitcoins were initially recognised by Germany as units of account in a small paragraph in a 2011 ruling concerning financial instruments by the country's federal financial regulator BaFin.
The Federal Ministry of Finance also confirmed that Bitcoins can now be taxed by the federal government. The cryptocurrency is subject to capital gains tax, which is currently 25 percent. But like other assets subject to capital gains tax in the country (such as shares in mutual funds or stocks, for instance), Bitcoins are exempt from the tax if they're held for more than one year.
Since Bitcoins can be traded anonymously, it remains to be seen how the country will manage the task of tracking them to assure that the tax is paid.
The 'unit of account' designation means that Bitcoin isn't exactly in the same class of currency as the euro, but more along the lines of a regional currency. Quite a few regional currencies exist and are used locally in communities throughout Germany, most having emerged after the adoption of the euro to assuage fears of the kind of hyperinflation that crippled the country in the 1920s.
Many of the most successful regional currencies (the Chiemgauer in Bavaria, for example) are pegged to the value of the euro but are designed to depreciate quickly, so that people don't stash them away as savings.
In some parts of the country, Bitcoins have already been adopted with fervor. In Berlin, for example, a few streets in the city's Kreuzberg neighborhood are informally referred to as Bitcoinkiez ('Bitcoin neighborhood') because some of the establishments (including a bar, a copy shop, and a hotel) accept the cryptocurrency as payment.