The document says that Germany will treat cryptocurrencies as legal tender for tax purposes when used for purchases.

The Ministry said it had based the guidance on a 2015 European Union Court of Justice judgment pertaining to value-added taxes (VAT).

According to the German Federal Ministry of Finance if certain conditions are met, cryptocurrencies and legal means of payment are treated equally for value added tax purposes:

"Virtual currencies (cryptocurrencies, e.g., bitcoin) become the equivalent to legal means of payment, insofar as these so-called virtual currencies of those involved in the transaction as an alternative contractual and immediate means of payment have been accepted and no other purpose serves as a means of payment. This does not apply to virtual play money (so-called gaming currencies or, ingame currencies, in particular used in online games)."

For tax purposes, this means that converting cryptocurrencies into a fiat currency or vice versa is "a taxable miscellaneous benefit".

This means that, for purchases, taxes will be calculated (in accordance with the EU's VAT Directive) based on the converted value of the cryptocurrency's fiat pair value at the point of sale, which is reported by the vendor.

Taxes may also be applied to fees collected by providers of digital wallets and other types of services relating to cryptocurrencies. However, miners who receive block rewards will not be taxed, since their services are considered voluntary.

Similarly, intermediaries who facilitate cryptocurrency conversions to or from fiat currency would not be considered liable for taxes.

Intermediary operators of exchanges that purchase or sell cryptocurrencies will also be exempt, but that will not be the case for exchanges that facilitate a marketplace.

BaFin said that ICOs are a highly speculative form of investment often not subject to existing capital market regulations. As is the case with most trends, the high level of public interest in ICOs is also attracting fraudsters.

BaFin described the relevant legal background and explained the risks linked to ICOs as well as what consumers should do.

BaFin said that ICOs carry "substantial risks for investors", including "the possibility of losing their investment completely".

The authority added that since projects financed using ICOs are still in their early stages, their performance and business models have not been tested.

In addition, ICOs can attract fraudsters, with investors not usually being able to verify the information stated by providers.

BaFin stated:

"Due to the lack of legal requirements and transparency rules, the consumer is left on their own when it comes to verifying the identity, reputability and credit standing of the token provider and understanding and assessing the investment on offer. It can also not be guaranteed that personal data will be protected in accordance with German standards."

It also warned that consumers should fully understand the risks and benefits of ICO projects before participating in them.

The fact that ICOs are vulnerable to fraud, money laundering and terrorist financing also increases the risk of investors losing their investments, all the more so owing to "the possibility of authorities taking necessary measures against operators or other persons or enterprises that are involved in such illegal dealings".