Brazil's proposal would legalize crypto payments and protect private keys

A new proposal for existing Brazilian law would give Brazilians the right to use cryptocurrencies as a means of payment while protecting their private keys from being taken by the courts.

Rep. Paulo Martins introduced the proposal to the nation's legislature on June 10. If passed, the bill would expand the legal use of cryptocurrencies in Brazil, as well as the powers of courts to confiscate cryptocurrencies.

The proposed new provision in Article 835 of Brazil’s Code of Civil Procedure states that while a crypto asset is not a currency per se, it can “serve as a financial asset, a means of exchange or payment, or a vehicle for obtaining goods, services or investments.”

It does not necessarily make bitcoin or any cryptocurrency legal tender in the country. Instead, it would make cryptocurrency a legally recognized financial asset for investment and other purposes.

A broad reading of the proposal suggests that cryptocurrencies such as bitcoin or ethereum could be used to pay for goods and services across the country. It could also be used to pay outstanding debts “in the event of issuance or enforcement of restrictions” on crypto assets.

The proposal also discusses new powers and restrictions that Brazilian courts will have once cryptocurrencies are recognized as a financial asset, such as freezing exchange accounts.

However, the proposal also does not give courts the power to confiscate users' private keys.

"The following rules are to be observed: Judiciary agencies are prohibited from obtaining the user's private key."

Debtors must send their cryptocurrency payments to the court’s wallet to ensure their validity. The proposal makes no mention of how courts would obtain cryptocurrencies from self-custodial wallets.

For those who deposit cryptocurrencies on exchanges, courts will have the power to force "intermediaries" such as exchanges to freeze the debtor's crypto assets.

“In the event that the debtor’s assets are not found, the creditor can request the competent court to electronically issue an ex officio notice to the intermediary involved in the crypto asset business, thereby blocking the assets corresponding to the executed amount.”

The proposed increase is still in the preliminary stages of discussion in the House of Representatives, the state legislature. That means it could be years before it passes the Senate and is signed into law by the president. By then, they may have changed dramatically.

Only El Salvador and the Central African Republic recognize Bitcoin as legal tender. Tonga are considering following in their footsteps.