Cryptoassets: the red hot issue Turned Hot Property
Understanding Cryptocurrency
Cryptocurrency is a kind of cryptoasset. Essentially, it is a digital asset designed to function as a medium of exchange by utilizing encryption techniques to generate and verify the change in virtual currency. Basically, it is electronic money with no physical counterpart, most abundant in famous examples being Bitcoin, Litecoin and Ethereum.
Whilst widely used and traded all over the world, most jurisdictions don't recognise cryptocurrency as legal tender. It remains a decentralised, self-sustained virtual currency that isn't controlled by any singular entity and is subject to different regulatory frameworks with respect to the jurisdiction in question.
Similarly, the fact that it's intangible has also resulted in uncertainty regarding whether it could be legally classified as property.
Property or Not?
In November 2021, the united kingdom Jurisdiction Taskforce published a landmark paper called Legal Statement on Cryptoassets and Smart Contracts, which provided an in-depth analysis of how cryptoassets should be treated under English and Welsh law. The paper concluded that cryptoassets, including cryptocurrencies, are capable of being recognised as property.
A few considered the paper to be progressive, yet not conclusive, because it only deemed cryptoassets as capable of being recognised as property, without holding they unequivocally are. This aligned with a few previous English decisions which served only as a persuasive authority, although not a direct ruling, on the property related status of cryptoassets.
It is against this background the decision in AA v Persons Unknown assumes key importance. It had been in this case the English High Court provided, for that first-time, an immediate ruling on this controversial point, judicially recognising, and endorsing, the UKJT's legal analysis of cryptoassets as property.
The Case
In this example, digital attackers used cyber ransomware to compromise the database of the Canadian insurance provider, before demanding a payment of $1,200,000 in cryptocurrency to supply the organization using the decryption tool required to recover the data. In the end, $950,000 in Bitcoin was paid by the company's insurer to the hackers to regain access to the system. The insurer subsequently made an interim application for any proprietary injunction to recuperate the Bitcoin payment made to the attackers. The significant question prior to the Court in order to determine the application for proprietary injunction was whether Bitcoin might be treated as property under English law to begin with.
The Court considered UKJT's legal statement, and previous case laws, on the definition of property and its evolution with time. Holding the UKJT's analysis as 'compelling', a legal court concluded that cryptocurrencies are property as they possess the key attributes of being definable, identifiable by organizations, able to assumption by organizations and having some degree of permanence. A legal court recognised cryptocurrencies to be a type of property and therefore, capable of being subject to a proprietary injunction.
Looking Forward
Historically, English courts have recognised 3 types of property – chose for action and chose in possession . The decision in AA v Persons Unknown presents a progressive judicial approach where the Court has classified cryptocurrency as property despite the truth that it does not neatly fit into either of these two forms. In line with the UKJT's analysis, the choice manifests the 'ability of the common law to stretch traditional definitions and ideas to adjust to new business practices.
This is also a progressive step towards instilling greater market and user confidence within the owners, traders and insurers of cryptoassets. Legal certainty and protection are vital when it comes to increasing the strength of an asset in the marketplace, causeing this to be decision a hugely positive step for future years of cryptocurrency and cryptoassets in general.
The decision is pertinent to the industry which uses or recognises cryptocurrency as a form of value. Because of the facts of the case, it is of particular relevance towards the parties operating in the cyber insurance space.
From a legitimate perspective, the decision can also get a parallel impact on other associated fields of law, from cyber law and insolvency to IP, tax and succession.
It is essential to notice that this decision was given in an interim application, made without warning, and therefore is not the outcome of a fully considered trial. However, it does provide essential legal guidance on cryptoassets, building a more stable image for cryptocurrencies, in addition to giving much-needed protection to the users along with other counterparties.
It remains seen whether this decision will give you impetus to further judicial rulings and legislation, domestic or international, on other pertinent issues in regards to the wider status of cryptoassets and regulation of cryptocurrencies, but it's certainly a step forward.
