Is Cryptocurrency property?
Cryptocurrency is a subset of the broader category, cryptoasset. Some examples of cryptocurrency are Bitcoin and Ethereum. Cryptoassets are a relatively new invention, Bitcoin first appearing in 2008, and they exist solely electronically and use a peer-to-peer system. Unlike traditional currency, there is no central bank or government to manage the system or step in if something goes wrong. The reasons users use crypoassets include the following: to avoid the need to deal with Banks or the Government; to disassociate any transaction from the user’s personal identity; to enable users to send and receive payment to and from anyone on the network without requiring external approval; to limit banking fees; to attract low transaction fees; and to assist users without access to traditional banking systems or other methods of payment.
This begs the question whether crypoassets are capable of being treated as intangible property for legal purposes? For example, is a court capable of making determinations on matters relating to its ownership? This is something the English courts and juridical bodies have recently been examining.
The UK Jurisdiction Task Force (“UKJT”)
In November 2019, cryptoassets became the subject of detailed consideration by the UKJT which published a document titled “Legal statement on cryptoassets and smart contracts” (“the Legal Statement”). The UKJT is chaired by Sir Geoffrey Vos, Chancellor of the High Court of England and Wales. Sir Antony Zacaroli is also a member. Neither, in their judicial capacity have been involved in the drafting of the Legal Statement nor have either in their judicial capacity endorsed that Legal Statement.
The Legal Statement came to the following conclusions:
- Cryptoassets have all the characteristics of property, namely, that they are definable, identifiable by third parties, capable of assumption by third parties and have some degree of permanence or stability.
- Novel or distinctive features possessed by some cryptoassets such as: intangibility, cryptographic authentication, use of a distributed ledger, decentralisation and 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 classified either as things in possession (because they are intangible and virtual) or things in action (because they do not embody any right capable of being enforced by action).
- Cryptoassets are therefore to be treated in principle as property.
- A cryptoasset, comprising a conglomeration of public data, a private key and system rules, is treated as property. A private key cannot, of itself, be viewed as property.
The Legal status of Cryptoassets
The status of cryptoassets and more specifically, Bitcoins, recently came before the English Court in the case of AA v Persons Unknown. The Judge was asked to grant an interim proprietary injunction to restrain the Defendants from dealing with the Claimant’s Bitcoins. One of the primary issues was whether the Bitcoins held in the account of D2 together with D3 and D4 were property at all. Mr Justice Bryan made two primary findings on this issue: First, that the Legal Statement was not a statement of law. Nevertheless, he found that its analysis as to the proprietary status of cryptocurrencies was compelling and should be adopted by the court. Second, the Judge, relying on the reasons given in the Legal Statement and other recent decisions of both the English and Singaporean Courts, found that cryptoassets, such as Bitcoins, were property capable of being the subject of a proprietary injunction.
It is noteworthy that following this judgment, HMRC clarified its guidance on the tax status of cryptoassets including its acceptance that they will be property for the purposes of Inheritance Tax. This guidance can be found here.