Cryptoassets: are they property and what does that mean for UK Law?

We have all had to revisit how we use technology to continue working amongst the Covid-19 pandemic and our solicitors have become used to daily meetings via Zoom and Teams. How the law of England and Wales has evolved to treat cryptocurrencies is something we should pay attention to as this area continues to develop.

In 2008 Cryptocurrencies are born. Bitcoin bursts onto the world stage revolutionising the way we transfer value over the internet. In the almost decade and a half since this pivotal moment we can reflect on the journey of the cryptoasset and plot its course into the future. As the global cryptomarket starts to make its entrance into its second decade, one thing is obvious above all: Cryptoassets are here to stay.

There are now thousands upon thousands of different types of cryptoassets (often of the classification Cryptocurrency) on the market today. Bitcoin is still riding the wave of its initial success now valued in the area of $45,000 per bitcoin (a far stretch from its starting price of $200 back in 2008). However, currencies like Ripple, Litecoin and Ethereum are all now a lucrative household name among the crypto trading magnates.

However, despite their almost decade and a half existence on the market, cryptoassets are still very new to the world of economics and law. As with any newly born asset or technology, there are different spheres of legal and regulatory influence to consider. The main question that’s sought an answer is simply, are cryptoassets property? and therefore can it be stolen? And can it be recovered it?). How a jurisdiction answers this question will have a direct impact on the way law firms and accountancies can act on behalf of their clients, and their lawfully owned assets.

In November 2019, the UK Jurisdiction Taskforce (UKJT) published its report on English law’s approach to cryptoassets and smart contracts. They made it very clear that cryptoassets can indeed be considered property that is owned. Additionally, the UKJT stated that:

  • Despite being property, cryptoassets are not things in possession because they are “virtual” and cannot therefore be possessed.
  • The novel and distinctive features possessed by some cryptoassets (intangibility, cryptographic authentication, decentralisation, rule by consensus) do not disqualify them from being property).
  • Cryptoassets are not disqualified from being property as pure information, or because they might not be classifiable either as things in possession or things in action.
  • A private key is not in itself to be treated as property because it is information.

 

The UKJT concluded that cryptoassets have all the recognised legal characteristics of property and so therefore, as a matter of English legal principle, are to be treated duly so.

The UKJT however did not believe that defining the term cryptoasset was a useful exercise given the rapid development of the technology. Commonly, courts are now referring to a definition set out by Lord Wilberforce (in National Provisional Bank v Ainsworth [1965] 1AC 1175) of property to prove why cryptoassets should be treated as such. The definition states that property should be:

  • Definable
  • Identifiable by third parties
  • Capable of being transferred to third parties; and
  • Have a certain degree of permanence.

The English Court has now made a clear ruling; “I consider that cryptoassets such as Bitcoin are property “, Bryan J concludes in his judgment in AA v Persons Unknown.

The Court has granted another interim injunction over Bitcoin, this time held in an account of a cryptocurrency exchange after it had been transferred to the exchange as part of a cyber-attack on a Canadian insurance company.

The finding that cryptocurrencies are property under English law will have noteworthy significances for the application of a number of English legal rules, including those relating to wills, the vesting of property in personal bankruptcy, and the rights of liquidators in corporate insolvency, as well as in cases of fraud, theft or breach of trust.

by Nick Williamson

Paralegal

 

 

 

 

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