Let us start with a couple of profound questions.
What are cryptoassets?
Is it property in the eyes of the law?
If so, what kind?
Does it matter?
State Theory of Money v Societary Theory of Money
The most widely accepted theory of money. It is generally understood that:
Here, in order to be classed as “money”, an asset must satisfy three conditions. The asset must be able to operate as:
Of course, each of these is controlled by the state, meaning that it can exercise control of its monetary system and therefore design and carry out policies accordingly.
This alternative theory focuses on the first of the three conditions above.
In other words, anything that operates as a medium of exchange should be regarded as “money”.
Obviously, it is unsurprising that governments and central banks adopt the first of the two theories. HMRC, again unsurprisingly, subscribes to the same view[1] and refers to the Cryptoasset Taskforce’s[2] statement on this.
So, generally, and by those that matter, crypto is not money or currency.
The classic legal view is that there are only two types of personal property:
Under this view, there is no other, intermediate status.
A chose in possession is a bundle of rights and remedies of an object of tangible personal property that can be physically possessed by the owner and can be transferred by delivery.
It is perhaps immediately apparent why cryptocurrency cannot be a chose in possession. The data string that represents the coin/value simply cannot be physically possessed. A coin is intangible.
A chose in action is a bundle of personal rights over property which can only be claimed or enforced by action (and not by taking physical possession).
For example, a cash balance at a bank or money due on a bond.
The position here is potentially trickier. The answer will, perhaps, depend on whether:
Held via a wallet
Cryptoassets held via a private wallet are unlikely to be a chose in action.
Example
Paula has £10 in her bank account. Here, Paula undoubtedly has a contractual right against the bank. They must pay her £10 to discharge the debt that they owe to her.
Jamie, who has £10 of value invested through his wallet into his favourite crypto coin, is in a different position. He does not seemingly have any similar contractual right against any person.
Held via a centralised exchange
Another possibility is that the assets are held by a centralised exchange, such as Binance or Coinbase.
In these circumstances, at first blush, the rights held by the investor would appear similar to those of the bank account referred to above and the investor potentially would hold a chose in action.
For example, the service provider holds the coins at public keys controlled by the service provider himself or herself. The investor can introduce fiat/crypto to the platform, can direct which coins should be purchased, sold or exchanged, and can withdraw funds.
Intangible property other than choses in action – case law
As such, outside the centralised ecosystem, a cryptoasset could only be intangible property if there was a category of property that was not a chose in action.
How does this stand up to judicial scrutiny?
| Case | Notes |
| Colonial Bank v Whinney[3](1886) | The view in this case was that there was no such category of property |
| Armstrong DLW GmbH v Winnington Networks Ltd[4] [2012] | the issue was whether carbon trading allowances could constitute personal property. The court’s decision was that such “intangibles” could be personal property and further, that the categories of personal property were not limited to those set out above. In other words, the law is not frozen in time. Here, a test was applied for determining when an intangible asset might be treated as property, namely that the asset: is definable;is identifiable by third parties;is designed to be transferable to third parties; andhas permanence and stability. I would argue that cryptoassets display all of these features |
| Quoine Pte Ltd v B2C2 Ltd [2019][5] | One of the earliest cases wrestling with the specific question of whether cryptoassets are personal property was the Singapore case of Quoine. Here, the main issue was whether funds were held by Quoine, a crypto exchange, on trust for a professional trader who used the platform. The court referred to the traditional definition of property and the four-step test as set out in National Provincial Bank v Ainsworth[6]. In Quoine, although it was held that cryptoassets display the fundamental characteristics of intangible property as they are identifiable as a thing of value. This meant that there was a trust for the purposes of the claim. However, on appeal, the Court of Appeal rejected the claim around the trust. This seems primarily because the required “intention” to create a trust was not present. Unfortunately, the Court of Appeal declined to reach a conclusion on whether cryptoassets are a type of property. However, it did state that “there may be much to commend the view that cryptocurrencies should be capable of assimilation into the general concepts of property”. |
| AA v Persons Unknown[7] | Here, a dispute arose because a hacker (the first defendant) was alleged to have breached the firewall of a Canadian insurance company and infected its computer systems with malware. It was then alleged that the hacker sent ransom demands to the company’s clients. The company obliged and, as requested, paid the hacker 109.25 bitcoins, which was just under £1m at the time. In return, the hacker would provide access to a “decryption tool”. The relevant customer was insured against cyber-attacks by the person making the claim (the “claimant”). The claimant had undertaken some detective work and managed to trace the bitcoins to the Bitfinex exchange (one of the defendants in the action). It was argued that an unknown second defendant was said to hold 96 of the bitcoins in question. Although the claimant was not in a position to identify the second defendant, it seemed likely that Bitfinex was in such a position. The claimant’s submissions could be summarised as follows: that Bitfinex held the bitcoins as constructive trustees for the claimant or, alternatively, that they had a claim against all four defendants in proprietary restitution. The submission necessarily required confirmation as to whether the bitcoins constituted property. Because of the risk of imminent dissipation, the plaintiff sought that the hearing should be heard in private under a cloak of anonymity and without notice. This point is of limited relevance to this work but, for the record, it was decided that the hearing should exceptionally be in private. In relation to the main submission, the judge had to grapple with a number of points. Fundamentally, Bryan J had to determine whether bitcoins are “property at all”. He stated that, based on the narrow view set out in Whinney, bitcoins cannot be viewed as property. This is because they do not fall within either of the two, neat classes set out and discussed above. However, drawing on the Taskforce’s opinion, he distinguished Whinney as confined to its facts and not a general proposition about the scope of property law. Instead, the Taskforce opined that cryptoassets are capable of being classified as personal property as either: a chose in action, if it is understood as a residual category, a “catch-all” to refer to any property that is not a thing in possession; or a new, emerging third category of “intangible property”. Firstly, Bryan J stated that the Taskforce’s legal statement was an “accurate statement as to the position under English law”. He found that the bitcoins were in fact “intangible property” and went further, stating that it was “fallacious” to divide the categories of personal property into the two separate pots previously mentioned. Additionally, their claim to property status was supported by Quoine where it was held that the cryptoassets satisfied the National Provincial Bank test. The case does show how the courts are willing to adapt the law to accommodate new markets in intangibles. Indeed, Bryan J stated that dividing all personal property into choses in possession and choses in action is incorrect. Rather, he recognised a third category of intangible personal property. |
| Ruscoe and Moore v Cryptopia Limited (In Liquidation)[8] | In the 2020 New Zealand case of Cryptopia, adversely impacted account holders claimed that tokens held in their respective accounts were held on trust for them by a crypto exchange (Cryptopia) that had gone into liquidation. Of course, if this was correct, those tokens would not form part of Cryptopia’s assets and therefore would not be to general creditors. As per Quoine, in order to be the subject matter of a trust, the tokens had to constitute “property”. The court analysed each of the four criteria set out in Ainsworth and held that the tokens were “property” and that the funds were held on trust by Cryptopia for the relevant users. |
| Torque Group Holdings Limited (In Liquidation)[9] | The BVI courts came to a similar conclusion in the Torque Group Holdings case. |
| Wang v Darby[10] | Similarly, in the recent UK case of Wang v Darby, it was reaffirmed that cryptoassets are property and can form the subject matter of a trust (albeit, there was no trust on the facts of the case). |
| Osbourne v (1) Persons Unknown and (2) Opensea[11] | In this recent case, two NFTs were allegedly transferred from the claimant’s digital wallet provided by the NFT marketplace, Opensea. The transfer took place without her consent. Despite being able to ascertain the relevant wallets, it was not possible to identify the individuals behind them. . The judge ruled that the NFTs could constitute “property” under English law and therefore a proprietary freezing injunction could be granted over them. |
| D’Aloia v Binance Holdings[12] | Mr D’Aloia, an Italian engineer and founder of online gambling company Microgame, filed a claim on 24 June 2022 against four cryptocurrency exchanges (including Binance) and a software company. The application was made because Mr D’Aloia’s cryptocurrency had been misappropriated by “Persons Unknown” who had been operating a fraudulent online brokerage. The claimant sought permission from the court to allow the provider of a crypto wallet to assist in serving proceedings by means of an NFT! Mr Justice Trower granted permission and his decision will therefore allow the claimant to serve proceedings on the Persons Unknown who are linked with the wallets connected with the alleged fraudulent activity. This judgment is significant on two counts: It provides a route for other victims of cryptoasset fraud to bring an action against persons unknown who have stolen their cryptocurrency. This has the potential to lead to digital service over the blockchain and the associated benefits (such as immutability and verification) becoming a normal part of legal proceedings. The judge’s order recognised that the cryptocurrency exchanges, including Binance, held the misappropriated cryptocurrency as trustees. |
Your Response Ltd v Datateam Business Media Ltd[13]
However, the development of the law in this area to accommodate new assets such as cryptoassets is not entirely plain sailing. In contrast to Armstrong, a subsequent case, Your Response Ltd,adopted the classic view. Here, it was held that information was not property as it had never been treated as property.
However, it is perhaps not realistic to say that cryptoassets and the system that they are part of is merely information (as was the case in Your Response Ltd). Instead, a cryptoasset ecosystem is something that is much greater than the sum of its parts. The transactions that form part of that ecosystem go beyond straightforward exchanges of data and the information is more akin to a conventional currency.
UK Jurisdiction Taskforce[14]
The UK Jurisdiction Taskforce (“the Taskforce”) has given a non-binding opinion in which it is stated that the common law should facilitate parties’ reasonable expectations by treating cryptocurrencies as property:
Briefly, it concludes:
“57. We conclude that cryptoassets possess all the characteristics of property set out in the authorities.
58. As far as we are aware, the proprietary status of cryptoassets specifically has not yet been the subject of any authoritative decision in any common law jurisdiction.
We find some support, however, for our conclusion in a recent case in Singapore, B2C2 v Quoine. The judge accepted (there being no argument to the contrary) that bitcoins could be the subject of a trust, and hence were property.
He observed that ‘cryptocurrencies have the fundamental characteristic of intangible property as being an identifiable thing of value’ and that they met all of the requirements in National Provincial Bank.”
Law Commission Consultation – update
On 28 July 2022, the Law Commission published a consultation paper[15] which contained proposals “to ensure that the law recognises and protects digital assets (including crypto-tokens and cryptoassets) in a digitised world”.
Following a review of this paper, there are no real material deficiencies in my analysis above consultation paper.
Cryptoassets are personal property. As a consequence, these new assets are capable of being subject to trust and will also be regarded as property that can be part of the estate.
[1] See CRYPTO10100
[2] See Cryptoassets Taskforce: Final Report, October 2018:
“While cryptoassets can be used as a means of exchange, they are not considered to be a currency or money, as both the Bank of England and the G20 Finance Ministers and Central Bank Governors have previously set out.
They are too volatile to be a good store of value, they are not widely-accepted as means of exchange, and they are not used as a unit of account.”
[3] Colonial Bank v Whinney (1886) 11 AC 426
[4] Armstrong DLW GmbH v Winnington Networks Ltd [2012] EWHC 10 (Ch)
[5] Quoine Pte Ltd v B2C2 Ltd[2019] SGHC(I) 03; Quoine Pte Ltd v B2C2 Ltd[2020] SGCA(I)
[6] National Provincial Bank v Ainsworth [1965] 1 AC 1175
[7] AA v Persons Unknown[2020] 4 WLR 351
[8] Ruscoe and Moore v Cryptopia Limited (In Liquidation)[2020] NZHC 728
[9] Torque Group Holdings Limited (In Liquidation) v Torque Group Holdings Limited (In Liquidation)BVIHC (COM) 31
[10] Wang v Darby[2021] EWHC 3054 (Comm)
[11] Osbourne v (1) Persons Unknown and (2) Ozone Networks Inc trading as Opensea[2022] EWHC 1021 (Comm)
[12] D’Aloia v Binance Holdings & Others [2022] EWHC 1723 (Ch)
[13] Your Response Ltd v Datateam Media Ltd[2014] EWCA Civ 281, [2015] QB 41
[14] UK Jurisdiction Taskforce, Legal statement on Cryptoassets and Smart Contracts, November 2019
[15] https://tinyurl.com/mr2nxk9p (Law Commission consultation paper: Digital Assets)
