This is a law review essay length article which challenges the prevailing cryptoasset community's wisdom on cryptoassets as money and the power of pseudo-anonymity in the context of common law. The author does possess an originally minimum investment amount cryptoasset portfolio which he personally manages in as conventional a method as possible given the amount of information available at any given time, and he is grateful to PUBLISH0X for their information system. The author possesses a graduate degree in finance and financial law (London,) is not a lawyer, and the content may only be construed as information and an educated opinion. Should the reader actually get through to the end, please do tip the author at the very bottom of the footnotes and encourage more thoughtful, timely, and maybe shorter blogs!
Introduction
In the introduction to his book “The Blockchain and the New Architecture of Trust,” Kevin Werbach claims in the context of cryptocurrencies: “A digital coin is a bearer instrument, meaning that, like ordinary cash, it is valuable in itself.”[1] Money may well be an abstraction to many; however, to claim a digital coin to be a bearer instrument seems more so further made unbearable by the fact the statement is one or more fallacies. There is little to substantiate the notion that any digital coin is valuable in itself;[2] indeed, computer scientists and purveyors of cryptocurrencies must engineer value into what is a variety of ‘digital token.’[3] It is not clear if the professor of law and business ethics at Wharton business school of the University of Pennsylvania is being facetious or had the intent to commit fraud. Perhaps the legal subject is not the area of his expertise, or maybe he is simply promulgating something along the lines of a trade puff seeking affiliation with some political faction. A top hypothesis is that he is attempting to project an equivalency between cryptocurrencies and something already defined by statute in the European Union (‘EU’) and United Kingdom (‘UK’) as ‘electronic money’[4] and sometimes referred to as digital cash; notwithstanding the concurrent suggestion that a digital token is a bearer instrument. Even without speculation, Werbach’s statement demands a rebuttal as to what cryptoassets are, inclusive of the mechanics of usage, along established legal terms and categories.
UK’s Her Majesty’s Revenue and Customs’ recently updated policy papers on taxation refer to what is popularly called cryptocurrencies as “cryptoassets,”[5] which is a prudently applicable term. Some of the definitions and processes discussed herein may be unique to each respective cryptoasset; therefore, the innovation behind ‘blockchain,’ Bitcoin, is the pertinent subject utilized in illustration herein. Bitcoin, when capitalized, is a reference to the open-source computer software-based decentralized peer-to-peer (‘P2P’) cryptoasset protocol, network, and blockchain processes designed by alias Satoshi Nakamoto and made public in 2009, and when not capitalized a reference to the cryptoasset made manifest virtually and maintained by the Bitcoin network.[6] Bitcoin records all transactions of bitcoin publically by transaction identifier and pseudo-anonymous receipt address on Nakamoto’s ingenious invention for bitcoin manifestation and emergent consensus-driven transaction verification, execution, accountability, and integrity:[7] the decentralized blockchain transaction LEDGER (‘blockchain’.)[8] A digital token made functional utilizing mathematical cryptographic processes and managed with affiliated public blockchain distributed ledger technology is a common feature of cryptoassets.[9]
The technology is a new, proliferating paradigm which challenges centralized authority systems whilst cryptoassets threaten to infringe on the concept of money and thereby constitutional preferences. Regardless; blockchain distributed ledger technology is promoted for comparative advantages and being found of utility to enterprise and corporate applications irrespective of digital tokens.[10] As treasuries express the desire to tax citizen’s income and capital gains on cryptoassets, surely a priority will be to objectively discern an essence in legal terms. The applicable legal concepts can be complex and cases have only just begun to generate court decisions.[11] It is conceivable that courts of any common law jurisdiction will present differing and, by virtue of their respective authority, definitive conclusions on the subject matter; regardless, a bold step is underway.
I. Objects which are not legal tender are not money; with one exception
A. Money
The legal definition of money stems from its economic function and is always subject to the qualification of attribution by law or with the authority of the state.[12] From economic theory, money is referred to as “purchasing power in terms of wealth in general;”[13] then functionally as “that which passes freely from hand to hand throughout the community in final discharge of debts (and) being accepted equally without reference to the character or credit of the person who offers it.”[14] Finally, what must be accepted by those in authority in the discharge of debts was assumed over history by constitutional law[15] and defined by statute as ‘legal tender’.[16] Only those chattels attributed the character of money by law: denominated by unit of account representing a standard of value intended to serve as a universal medium of exchange and issued by the authority of a jurisdiction is legal tender[17] or money[18]. At property law legal tender, defined and issued as coins and notes,[19] are tangible and fall squarely into the category of chose in possession form of chattel personal;[20] meaning physically possessible personal property of which title is by possession and passes by physical delivery.[21]
B. Electronic money and cryptoassets compared
Information technology, network infrastructure, and public adoption of technology now facilitate making manifest intangible money, or what the EU and UK have defined as ‘electronic money.’[22] Electronic money has “specific character as an electronic surrogate for coins and banknotes which is to be used for making payments, usually of limited amount and not as means of saving”[23] and it may only be issued by a jurisdiction’s regulated issuers.[24] Electronic money may or may not be a digital token;[25] notwithstanding, it is an electronic record of “monetary value as represented by a claim on the issuer.”[26] Thus; electronic money is money that is not legal tender, and cryptoassets remain something different as without a standard of value or issuer in the way in which money is defined.
C. Cryptoassets as other objects
Cryptoassets diverge from money beyond the shared characteristic of denomination by unit of account. As a medium of exchange, money is differentiable for intent and purpose of universality for payment within an economic area and political system;[27] upheld by a legal ability for good title to pass by mere delivery. Cryptoassets exist only virtually and are defined by the design and group consensus rules of that particular system.[28] That closed yet decentralized system is, in practice, the cryptoasset network which makes manifest virtually that cryptoasset by the writing of units of account as a reward, by network schedule, for directly productive computational activity in facilitating the cryptoasset’s integrity and utility via blockchain processes.[29] Ultimately, cryptoassets constitute information and at their most tangible are human-readable, numeric denominations of unit of account[30] decoded from an alphanumeric, hexadecimal sequence transaction instruction script recorded electronically on a cryptoasset’s blockchain.[31] Bitcoin is singularly designed to manage the passing of control of bitcoin within that network for use in electronic payments;[32] defined legally as “an act offered and accepted in performance of a money obligation.”[33] Accepting that bitcoin represents value given the existence of public, albeit unregulated global markets and EU Regulation registered benchmark of monetary value,[34] payment by bitcoin will fall into the realm of barter of objects of exchange[35] as with commodities[36] or even curios[37].
Meanwhile; jurisdictions may feel compelled or even obliged to evaluate and define as to public interest and policy any digital token presented as a digital currency or virtual currency, both mediums of exchange, or as a financial asset[38] be that a security or investment contract pertaining to securities.[39] Cryptoassets have been devised and put into uses which function by intrinsic or assigned attributes of all aforementioned sub-categories. The EU Council has sketched a definition of digital currency[40] which might include the BitTorrent token (BTT) of the established BitTorrent protocol P2P file-sharing network or, if not strictly applied, perhaps TRON (TRX) which is utilized inter alia in exchange for online digital services such as entertainment and gambling. The European Central Bank, in a more sophisticated framework focusing on both design mechanisms and the digital representation of value rather than usage, has defined cryptocurrencies as decentralized, bi-directional ‘Virtual Currency Schemes’ and indicate that of virtual currencies[41] bitcoin appears to be an exception in usage for payments.[42] At the time of writing the United States (‘US’) Securities and Exchange Commission works to ascertain if Ripple (XRP) is an unregistered security,[43] as opposed to a medium of exchange,[44] by applying their new “Framework for “Investment Contract” Analysis of Digital Assets.”[45] Digital tokens created and issued as a function of what is referred to as ‘decentralized finance’ such as that of Spanish global bank Santander’s Ethereum network blockchain bond would almost certainly be categorized as a financial asset.[46] Where the public is involved, it is necessary to examine each cryptoasset in detail as to specifics of properties, function, and usage with the objective rigour expected of regulatory authorities in facilitating an understanding and jurisdictional agreement toward mitigating any risk of reputation of systems and regulated markets, failure in consumer protection, and preservation of shareholder interests where applicable.
II. Bearer instruments and cryptoassets compared
‘Bearer’ refers to “the person in possession of a bill of exchange or promissory note payable to the bearer;”[47] however, the more general category of ‘instrument’ encompasses both bills of exchange and promissory notes.[48] The definition of a ‘negotiable instrument’ by the US Uniform Commercial Code (‘U.C.C.’) is inclusive of a bearer instrument.[49] Instruments are defined by statute, as with the two mentioned above, or by mercantile usage and may be divided into sub-categories of ‘negotiable’[50] and ‘non-negotiable’ with some capable of being either.[51] Such documents of title to money, negotiable securities, or goods are classified in property law as a documentary intangible chose in action form of chattel personal:[52] “a specific item of property”[53] which “are issued with respect to payments”[54] and “the physical embodiment of the payment obligation.”[55] Succinctly; “in practice, instruments as a class usually possess distinctive characteristics without which a writing is unlikely to be given recognition as an instrument.”[56] The matter of writing will be addressed specifically in a subsequent section; notwithstanding, by electronic transaction instruction and execution, cryptoasset systems are far more close to electronic funds transfer systems which are not considered negotiable instruments.[57]
A negotiable instrument embodies three unique features: a) it “confers a right of action on the person who has its lawful possession;” precisely, a right of action for conversion differentiating them from simple contracts, b) it is transferrable, and c) it is negotiable.[58] Should cryptoassets be found to be property at law, none incorporate a right to change from one form of property to another, or conversion, as seems possible with electronic money.[59] Cryptoassets are ‘transferable’ within that cryptoasset network in that the network’s procedures and associated blockchain are a mechanism to pass or divest control over units of account.[60] A negotiable chattel requires that “a good faith purchaser of value can acquire good title to it irrespective of any defect in the transferor’s title;”[61] but as for cryptoassets, the ability for title is of question. Regardless; cryptoassets may not be considered negotiable chattel as there exists neither a payable underlying debt obligation of an issuer or cryptoasset network for which a court action for enforcement of the undertaking may be brought nor an individual or party that is Bitcoin to be named as respondent if a jurisdiction were reasonably able to enforce any court’s decision.[62] As for negotiable instruments, an instrument is a documentary intangible: a written “document of title to money”[63] payable to bearer or order of which title may pass by delivery or written endorsement;[64] no condition of which is met by cryptoassets.
III. Cryptoassets as property
Legal textbooks are consistent in disseminating that at common law, identifiable intangible property is restricted to two forms of chose in action personal chattel:[65] pure intangibles and documentary intangibles of which the former is more conceptual. Pure intangibles are rights, arguably personal rights, not represented by documents as opposed to documentary intangibles such as instruments.[66] A chattel must be found to be so within a jurisdiction for a real right, or proprietary status, to be enforceable. In English law a chose in action must “embody any right capable of being enforced by action”[67] and this prerequisite is where cryptoassets and globally decentralized anonymous cryptoasset networks fail.[68]
The UK Jurisdiction Taskforce (‘UKJT’) was formed of a group of experts, inclusive of judiciary neither acting nor drafting in that capacity, to conduct a series of public and private consultations towards identifying “the best possible answers to the critical legal questions”[69] in the matter of cryptoassets and in November 2019 published a “Legal Statement on Cryptoassets and Smart Contracts.”[70] Although not a statement of the law,[71] the UKJT examined authorities on the necessary characteristics and puts forward that “cryptoassets have all the indicia of property”[72] as set out by Wilberforce LJ in National Provincial Bank v Ainsworth [1965] 1 AC 1175 of definability or certainty, control and exclusivity, capability of assumption by third parties or assignable, and permanence or stability;[73] and that although the distinctive features of cryptoassets “do not disqualify them from being property”[74] they are neither choses in possession nor choses in action.[75] The UKJT concludes that regardless of not being a chose in action unless found so in mercantile usage, cryptoassets are not “disqualified from being property as pure information”[76] or because they are not “the subject of certain remedies,”[77] and “are therefore to be treated in principle as property.”[78]
Bryan J had reason to consider the UKJT Legal Statement immediately following its publication in AA v Persons Unknown [2019] EWHC 3556 (Comm) and found the UKJT analysis in the matter of proprietary status of cryptocurrencies carefully considered and sufficiently compelling for the court to adopt and does so, given the circumstances of the case under English law, in granting an applied for interim proprietary injunction inclusive of application for the provision of identities of defendants.[79] As the defendants reside outside the UK, the court also found case circumstances conducive under English law to grant applied for extra-jurisdictional service available under UK statute,[80] as well as of adequate exception to grant applied for alternative service of communication by email available under UK regulation.[81] With that, common law moves bravely towards recognizing the proprietary status of cryptoassets as a personal chattel of a specific form extrinsic to those of chose in action and chose in possession.[82]
IV. Control, ownership, and title
A. Ownership and title
Of the forms which real rights may manifest; ownership, possession, and equitable charge, a cryptoasset could only be that of ownership.[83] Cryptoasset networks and blockchain processes are not innately conducive to equitable ownership in automated execution of valid transaction instructions via anonymous network peers, and there exists no structural facility for programming and registration of any lesser interests.[84] Of course; cryptoassets are impossible to physically possess.[85] Ownership will represent proprietary interests against all other persons[86] and bitcoin is structurally able to be co-owned among multiple parties with shared interest via programmable ‘multi-signature’ transaction scripts.[87] A real right in personal property may be described by way of the legal term “title.” Title is defined in common law as: “legal right to land or property; the evidence of such right; title deeds,”[88] with a title deed being a formal document pertaining to interests in real property (‘real estate’.) As for ownership, cryptoassets may be controlled and are not documents of title.[89]
B. Control and ownership
Control over bitcoin necessitates first a ‘private key’ as a function of ‘public-key cryptography’[90] and secondly, an “unspent transaction output” (‘UTXO’) included in a blockchain recorded transaction instruction (‘transaction script’,)[91] of any number of units of account of bitcoin ascribed to a public-key cryptography generated receive address ultimately attributable to that private key.[92] This second qualification necessitates the inclusion in the UTXO of a ‘locking script’ of which a ‘digital signature,’[93] both also public-key cryptography functions,[94] is successfully able to unlock through the utility of that private key.[95] A private key is a random number in a prescribed format and information, but not property in itself.[96] UTXO’s are, more generally, denominations of any number of units of account calculated by a wallet in the generation of Bitcoin transactions and included specifically in that transaction script which once verified as to integrity and recorded on the blockchain function as a ‘claim to fungible’[97] on the part of the receiving party in control of the private key(s) responsible for that receive address.[98] Control of a private key is not evidence of ownership of bitcoin in itself; for example, a private key may not have any bitcoin accessible to it as no units of account have been received by an attributable receive address and no applicable UTXO is recorded on the blockchain. However; without control of the private key ultimately responsible by public-key cryptography for a receive address’s UTXO recorded on the blockchain, there exists no method to evidence ownership of the property.[99]
The private key and transaction script exist as alphanumeric, hexadecimal sequences unreadable to humans; therefore, a cryptoasset wallet (‘wallet’) is a software application, or Bitcoin user interface, made available to the public by a third-party and inclusive of public-key cryptography functions required to securely utilize a private key and search and process recorded blockchain data.[100] A wallet reports all UTXO’s recorded on the blockchain available to the user’s private key, generates public-key derived receive addresses, and generates and transmits valid transaction scripts on demand by Bitcoin protocol via the Internet.[101] Cryptoasset access by a private key may be direct as with a physical hardware device dedicated to incorporated wallet software (‘hardware wallet’) or contractually via a third party such as an online web browser or cryptoasset exchange wallet. Ultimately, ownership of bitcoin is by control facilitated and evidenced by a wallet with direct access to the public-key cryptography responsible for a UTXO recorded on the blockchain.
V. Systemic, but not legally enforceable implied contractual rights to ownership of cryptoassets and other options
Implied terms in the law of contracts is another subject entirely; however, it seems appropriate to examine what rights and obligations might exist if a legally binding contract could be found to have been made given a court had adequate reason to do so[102]. If a court had reason to do so, and if a transaction of value took place, a court may be more inclined to imply terms to find a contract and resolve any uncertainty[103]. It seems unlikely for a case to surface where a court will have reason to do so as the counterparty in this context will be a decentralized network. The discussion that follows is grounded in the premise that “if both parties would have responded “Of course” to a term proposed by an officious bystander,”[104] that it might be implied into a unilateral contract. This is the context for the usage of the word “implied” throughout this section.
Control over a private key with access to bitcoin by public-key cryptography, or ownership, provides for, via an intermediary wallet, what may be classified as two systemic implied contractual rights not susceptible to civil proceedings: a) to have attributable units of account accounted for; and b) to transmit an electronic transaction script passing control of units of account within the Bitcoin network to another private key by way of public-key cryptography generated receive address or ‘with digital endorsement’.[105] The primary qualifications are functional access to the Internet and availability of that cryptoasset network. The implied obligations Bitcoin undertakes to an owner of bitcoin are to propagate and publically record on the blockchain, or execute, with automated integrity all transmitted valid transaction scripts which include an appropriate network transaction fee.[106]
A. Passing control by digital endorsement
An endorsed Bitcoin transaction transpires via formalities which, with assumptions, seem recognizable as a “valid assignment of a chose in action”[107] in the law of the US or an “equitable assignment of a present chose in action” [108] in the UK with the qualification that a court might have opportunity and reason to exchange the term ‘digital token,’ ‘virtual currency,’ or ‘cryptoassets’ for ‘chose in action.’ The equitable assignment of English law seems most appropriate[109] for the a simple requirement of “an intent to assign the chose in action and ‘some outward expression by the assignor of his intention to make an immediate disposition of the subject matter of the assignment’”[110] and “without there being any need for writing or consideration.”[111] Firstly, that the generation and transmission of a transaction script endorsed by the assignor by public-key cryptography generated digital signature may be construed as an outward expression by the assignor of immediate intent. Secondly, that the assignment is absolute and not by way of charge; here under limitations of Bitcoin itself where a transfer of a fraction of rights or conditional transfer of control is not possible.[112] Thirdly, notice is provided to an issuer or debtor; here, ostensibly the Bitcoin network despite being neither.[113] Although notification is not a prerequisite to validity for an equitable assignment, it is considered advisable in English law[114] and is duly performed on transmission of the transaction script via the Bitcoin network’s P2P full nodes which independently verify and propagate the transaction script, and Bitcoin ‘mining’ functions where the verified transaction is included in the presently processed block of the blockchain to be recorded.[115] After several subsequent mined blocks, perhaps a minimum of six or approximately one hour of Bitcoin mining productivity, execution of the transaction by recording of the transaction script with receive address assigned UTXO on the blockchain is considered immutable. If this recording is construed also as notice to the assignee, the assignment will be irrevocable at law;[116] however, the transaction script was already either systemically irrevocable or invalid at transmission. The UK Jurisdiction Taskforce finds “no reason to doubt” that cryptoassets are assignable “even if some of the methods of assumption and assignment may be novel” and regardless of identification of the legal owner.[117]
B. Passing control without digital endorsement
The two separate necessary information elements to control over cryptoassets, blockchain recorded UTXO and independent yet associated private key by public-key cryptography, makes possible divestiture of control by passing, physically or electronically, a private key with attributable units of account recorded on the blockchain to another individual or ‘without digital endorsement’.[118] Passing of control may be accomplished with the pure information that is the private key or by operable hardware wallet inclusive of a dedicated private key. Passing control by this method requires, upon receipt, verification of the existence of blockchain records accessible to the private key. Of without and with digital endorsement methods, the intent of Bitcoin by design as a medium of exchange is the latter for convenience and efficacy as a payment system; nevertheless, the former may be evaluated for utility in the creation of express trusts.
C. Proof of stake consensus system distributions
Ownership of cryptoassets utilizing a ‘proof of stake’ emergent consensus mechanism for blockchain transaction validation and reward incentive for participation, a more contemporary system to the ‘proof of work’ emergent consensus innovation of Bitcoin utilized in ‘mining’ processes, may include an implied contractual right to receive virtually manifest units of account, by network schedule, in exchange for locking a minimum specified number of that cryptoasset in a dedicated network ‘node’ account over time,[119] often referred to as “staking.” That dedicated node is directly utilized in productive network activity by various system designs; generally decentralized governance services[120]. With proof of stake consensus systems, the network undertakes the implied obligation to distribute network scheduled virtually manifest units of account, most frequently referred to as “rewards,”
Regardless of proof of work or proof of stake consensus mechanism, accountability of controlled units of account via publically accessible blockchain, on-demand transaction transmission and execution, and network transaction fees remain systemic features of cryptoasset networks.
VI. A note on writing
A. A cryptoasset is an electronic record
The issue of writing and documents has surfaced on several occasions and the opportunity to attend to those instances as one subject lends itself to a conclusion of the rebuttal at hand. Writing, signatures, and documents also come to the forefront in evidentiary law in civil and criminal proceedings,[121] as well as in statutes promoting certainty and enforceability in electronic commerce and international trade for which the United Nations Commission on International Trade Law (‘UNCITRAL’) has most conveniently published model laws in promotion of international uniformity. An electronic message may be considered writing as defined by the US U.C.C.;[122] however, in the UK the issue is not as clear.[123] By the UNCITRAL Model Law on Electronic Commerce, a Bitcoin transaction script will be considered written form.[124] As the serialized, hexadecimal sequence is stored on a public blockchain and is retrievable and decodable,[125] by the UNCITRAL Model Law on Electronic Records a Bitcoin transaction script would be considered an ‘electronic record;’[126] however, not an ‘electronic transferable record’ which refers to an electronic version of a legally defined document in ordinary commercial use; generally, an instrument. Indeed, the UNCITRAL definition of electronic record encompasses the blockchain recorded UTXO by transaction script and responsible private key as “information logically associated with or otherwise linked together so as to become part of the record, whether generated contemporaneously or not”;[127] thus lending an interpretation in mercantile usage to the essence of cryptoassets by way of the two requisite sequences of information required of control or ownership of cryptoassets.
B. Public-key cryptography and evidence of exclusive control
UNICITRAL utilizes the term ‘control’ in the context of ‘electronic transferable record’ where the law requires or permits possession and physical transfer of an equivalent transferable document such that transfer of possession of a documentary intangible equates to transfer of control of an electronic transferable record.[128] Equivalency is propounded by a reliable method to establish ‘exclusive control’ of an electronic transferable record and to identify that person.[129] The UNCITRAL Model Law on Electronic Signatures defines public-key cryptography generated signatures, such as those utilized by cryptoassets, as ‘digital signatures’[130] which necessitate a repository stored certificate from a certification service provider linking the public-key cryptography to an identity of an individual to serve the function of a legal electronic signature and demonstrate exclusive control of an electronic transferable document. Control and exclusivity are an essential characteristic of a property of which the UKJT finds satisfied of cryptoassets by public-key cryptography;[131] however, evidence of exclusive control necessitates attribution of identity under the principles expressed in UNCITRAL Model Law on public-key cryptography towards international conformity in mercantile use.[132] Given that public-key cryptography is intrinsic to a cryptoasset and its availability, evidence of exclusive control may be the extent of electronic equivalent to a document of title for a cryptoasset electronic record.[133]
As Bitcoin is designed and intended to function between anonymous network peers and pseudo-anonymous bitcoin assignors and assignees, there exists no provision for public-key cryptography digital signature certificates. For security purposes, private keys are rarely if ever shown to wallet users.[134] Some wallets will permit the import and export of private keys as hexadecimal sequences or QR code to facilitate a user’s ability to change wallet application,[135] yet if printed or electronically stored will neither provide evidence of exclusive control over cryptoassets nor an identity; likewise; a paper ‘backup’ of mnemonic code words able to recreate a private key even if a required password is written on the same document. Online and cryptoasset exchange wallets may provide the ability to record identity documentation as required by their corporate jurisdiction`s regulations in operation of accounts; regardless, for users the system remains pseudo-anonymous.[136] However; a wallet may provide a statement of account, access to transaction history, or issue email confirmations of transactions which attribute control of cryptoassets to the identity of the registered user of a wallet or email address.[137] Therefore; control over cryptoassets as referred to thus far as ownership is not as strict as to the attribution of identity as expected, in mercantile usage, of an electronic transferable record utilizing public-key cryptography as electronic substitute for an instrument or document of title. An ability to provide evidence of exclusive control over a cryptoasset electronic record by a certificate linking an identity, or perhaps a wallet providing sufficiently verifiable information to attribute an identity, to relevant public-key cryptography would appear necessary to achieve adequate evidence of a real right or ownership.
VII. The end of analogue comparison
The likening of analogue and bank facilitated payment systems to cryptoassets and cryptoasset network mechanisms can only be cursory by legal terms and processes. Conceptually, the closest yet still remote analogue equivalent to bitcoin may be a traveller’s cheque, which is an instrument and medium of exchange[138] used as a uniquely identifiable substitute to a specified amount of a specific legal tender and requiring written endorsement in transfer to a bearer.[139] Passing control of cryptoassets is most similar to electronic fund transfer payments between clients of the same domestic bank or branches of the same domestic bank where credit is ‘pushed’ to the transferee by electronic order of the transferor or,[140] if such is not considered to be in writing, the nominee of a payee.[141] They are also similar in that the term transfer is misleading as no property is actually transferred but “simply the adjustment of the separate property rights”[142] in what transpires as a “transfer of value rather than the transfer of funds.”[143] However; the term ‘transfer of value’ is imprecise where it comes to cryptoassets in this context as ‘transfer’ does not involve assignment,[144] and ‘of value’ entails the ability to exchange cryptoassets for legal tender contractually via an independent third-party. Therefore; ‘equitable assignment of cryptoassets’ by ‘nominee of a receiver’ may well be more accurate terms. To point to the most general of radical legal differences between electronic fund transfer systems and cryptoassets: the former represents bank debts to a payer then payee whose right to that payable on demand money is by contract with their respective bank whereas the latter; once again, never a debt obligation contractual or otherwise. Also, a cryptoasset transaction script once transmitted may not be countermanded. Further, interbank processes of clearing and settlement utilized with cheque and bank fund payments are not comparable to cryptoasset transaction processes. Clearing is the interbank transfer of a contractual debt obligation to respective clients and settlement the performance of the resulting underlying debt obligation between banks, whereas with cryptoassets the network simply promulgates a wallet generated valid transaction script and that transaction is validated and executed when recorded in the blockchain.[145] The time is nigh for the fog to lift and any confusion about the cryptoasset phenomenon at law to dissipate, dispelling anxiety in governments, commerce, and the public in promoting predictability: cryptoassets are truly differentiable.
Conclusion
It will take pertinent cases to be brought through a justice system and a resultantly appropriate amount of time for any judicial decision or consensus on cryptoassets to become legal authority or law. With regards Werbach, there exists sufficient law published to objectively ascertain that cryptoassets are neither money nor bearer or negotiable instruments.[146] The recognition of cryptoassets as some form of, possibly superficial, personal property in the UK will promote certainty in control over cryptoassets with the public, support for any domestic cryptocurrency service providers, and is of particularly pragmatic significance to regulated legal tender currency exchanges buying and selling bitcoin.[147] The common law concept of negotiability will not apply to cryptoassets, and that of equitable assignment is expected to apply to cryptoasset transactions. Given the absence of issuers, automated logic of anonymous and decentralized cryptoasset networks, necessity of third-party wallet intermediaries, and market value for cryptoassets, it seems that cases are most likely to arise in the areas of property law, contract law, criminal law, and the law of trusts.[148] A jurisdictional regulatory requirement of cryptoasset service providers for the provision of client identity in the operation of accounts is a sound primary policy. The ability to demonstrate exclusive control of a cryptoasset electronic record by certificate or verifiable record attesting to the identity of the individual(s) with direct control over the public-key cryptography responsible for a cryptoasset electronic record should suffice as adequate evidence as possibly able to be compared to the concept of title, by UNCITRAL Model Laws on international conformity in trade law as proxy for accepted mercantile usage, in demonstration of ownership of cryptoasset property in any potential legal proceeding.
[1] K Werbach, The Blockchain and the New Architecture of Trust, Information policy series. (Cambridge, MA: MIT Press, 2018) at 8.
[2] C Cuervo, A Morozova, and N Sugimoto, Regulation of Crypto Assets, Fintech Notes No. 19/03. (December 2019) at 4-5, online (pdf): International Monetary Fund
[3] UK Jurisdiction Taskforce “Legal Statement on Cryptoassets and Smart Contracts” (November 2019) at para 24, online (pdf): The LawTech Delivery Panel <35z8e83m1ih83drye280o9d1-wpengine.netdna-ssl.com/wp-content/uploads/2019/11/6.6056_JO_Cryptocurrencies_Statement_FINAL_WEB_111119-1.pdf>.
[4] Council Directive 2009/110/EC of 16 September 2009 on the taking up, pursuit and prudential supervision of the business of electronic money institutions amending Directives 2005/60/EC and 2006/48/EC and repealing Directive 2000/46/EC [2009] OJ L 267/7 at art 2(2); Adopted by the United Kingdom, The Electronic Money Regulations 2011, SI 2011/99.
[5] HM Revenue & Customs, Tax on Cryptoassets (2019) online:
[6] S Nakamoto, “Bitcoin: A Peer-to-Peer Electronic Cash System” (2008) Bitcoin.org, online (pdf):
[7] A “decentralized mechanism for emergent consensus,” AM Antonopoulos. Mastering Bitcoin: Programming the Open Blockchain. 2nd ed. (Sebastopol, CA: O’Reilly, 2017) at 233.
[8] W Song, “Bullish on Blockchain: Examining Delaware’s Approach to Distributed Ledger Technology in Corporate Governance Law and Beyond” (2017) 8:1 HBLR Online 9 at I. Introduction, online (pdf):
[9] The Bitcoin blockchain and recorded bitcoin transactions may be perused on the internet, Anon, Blockchain Explorer - Search the Blockchain | BTC | ETH | BCH (n.d.) online:
[10] For a concise description of blockchain and the promoted advantages of the technology, Song, supra at II. What is Blockchain?.
[11] B2C2 v Quoine Pte Ltd [2019] SGHC(I) 03; AA v Persons Unknown [2019] EWHC 3556 (Comm); Vorotyntseva v Money-4 Limited trading as Nebeus.com [2018] EWGC 2598 (Ch).
[12] The foremost treatise, FA Mann, “The Concept of Money” in The Legal Aspect of Money. 5th ed. (Oxford: Clarendon Press, 1992) at 8.
[13] Ibid at 28.
[14] Moss v Hancock [1899] 2 QB 111 at 116, Darling J.
[15] The ‘state theory of money,’ Mann, supra at 14.
[16] E.g., Currency Act RSC 1985, c. C-52, Part 1.
[17] Mann, supra at 24, see at 19; The US State of Utah also accepts US federal issued gold and silver coin, otherwise defined as commodities, as legal tender, Legal Tender Act, Utah Legislature (2011) HB0317S01.
[18] E.g., U.C.C. § 1-201(24) General Provisions (2001).
[19] E.g., Currency Act RSC 1985, c. C-52, s 8(1).
[20] Mann, supra at 8.
[21] Ibid at 9.
[22] RM Goode & E McKendrick, Goode on Commercial Law. 4th ed. (London: Penguin, 2010) at 488-490.
[23] Council Directive 2009/110/EC of 16 September 2009, supra at Statement of Reasons 13.
[24] E.g., The Electronic Money Regulations 2011, SI 2011/99, s 63.
[25] See Council Directive 2009/110/EC of 16 September 2009, supra at Statement of Reasons 8.
[26] Ibid at art 2(2).
[27] Mann, supra at 25.
[28] UK Jurisdiction Taskforce, supra at para 17, 28, 30.
[29] Referred to as ‘mining’ in ‘Proof of Work’ or ‘staking’ in ‘Proof of Stake’ reward-based decentralized emergent consensus-driven cryptoasset networks respectively. In Bitcoin, which utilizes Proof of Work algorithms, bitcoin is manifest virtually in what is called a ‘coinbase transaction:’ the first transaction in any blockchain blocks containing the scheduled network reward permitted, without prior existence or idea of distribution, to a miner for successful productivity; Antonopoulos, supra at 120, 237-242; Contra UK Jurisdiction Taskforce, supra at para 46.
[30] One unit of account is defined herein as one “satoshi” or the minimum unit of account recordable by protocol: 0.00000001 bitcoin (BTC), Antonopoulos, supra at 18.
[31] Ibid Example 10-4 under “value” at 238; UK Jurisdiction Taskforce, supra at para 59.
[32] Antonopoulos, supra at 117.
[33] Goode & McKendrick, supra at 498.
[34] Chicago Mercantile Exchange, “CME CF Bitcoin Reference Rate & Real Time Index - CME Group” (n.d.), online:
[35] Goode & McKendrick, supra at 63.
[36] Mann, supra at 24-26.
[37] Moss v Hancock, supra at 117-120, Channell J.
[38] E.g., U.C.C. § 8-102(9) Investment Securities (1994).
[39] The United States Securities and Exchange Commission utilizes the term ‘investment contracts’ inclusive of stocks, bonds, and transferable shares, U.S. Securities and Exchange Commission, “SEC.gov | Framework for “Investment Contract” Analysis of Digital Assets” (2019), online:
[40] Council Directive 2009/110/EC of 16 September 2009, supra at Statement of Reasons 6.
[41] AA v Persons Unknown, supra at para 34.
[42] European Central Bank, Virtual Currency Schemes: A Further Analysis, (Frankfurt am Main: European Central Bank, 2015) at 6-7.
[43] J Moore, “XRP Class Action Turns New SEC Directives on Ripple and Brad Garlinghouse” (14 August 2019), online: Cryptoglobe
[44] D Hollerith, “A Brief History of U.S. Regulatory Classifications for Bitcoin”, Bitcoin Magazine 10th Anniversary Edition (2019) 80.
[45] U.S. Securities and Exchange Commission, “SEC.gov | Framework for “Investment Contract” Analysis of Digital Assets” (3 April 2019), online:
[46] See Santander, “Santander launches the first end-to-end blockchain bond” (12 September 2019), online:
[47] EA Martin, ed, A Dictionary of Law. 8th ed, Oxford quick reference (Oxford: Oxford University Press, 2015) sub verbo “bearer”.
[48] Goode & McKendrick, supra at 513-515.
[49] U.C.C. § 3-104 Negotiable Instrument (2002).
[50] Although money is not an instrument, “it came to be united under the heading of ‘negotiable chattels’,” Mann, supra at 10.
[51] EP Ellinger et al, Ellinger’s Modern Banking Law. 5th ed. (Oxford: Oxford University Press, 2011) at 389, 407, 440.
[52] Goode & McKendrick, supra at 52-53.
[53] Ellinger et al, supra at 387.
[54] Ibid at 389.
[55] Goode & McKendrick, supra at 513.
[56] Ibid.
[57] Ibid at 595-596.
[58] Ellinger et al, supra at 386-387.
[59] Martin, supra sub verbo “conversion”.
[60] Antonopoulos, supra at 117.
[61] UK Jurisdiction Taskforce, supra at para 120.
[62] Ellinger et al, supra at 387; see UK Jurisdiction Taskforce, supra at para 120-122.
[63] Goode & McKendrick, supra at 513.
[64] Ellinger et al, supra at 386-387.
[65] Goode & McKendrick, supra at 51-53.
[66] Ibid at 32, 51.
[67] AA v Persons Unknown, supra at para 55, Bryan J.
[68] See ibid.
[69] UK Jurisdiction Taskforce, supra at 3.
[70] It is difficult not to take the opportunity to point out that what is referred to ‘smart contracts,’ which is a cryptographer’s term later applied to the innovation of “immutable computer programs that run deterministically in the context of an Ethereum Virtual Machine as part of the Ethereum network protocol,” are “neither smart nor legal contracts,” But cf. AM Antonopoulos & G Wood, Mastering Ethereum: Building Smart Contracts and Dapps, (Sebastopol, CA: O’Reilly, 2019) at 127.
[71] AA v Persons Unknown, supra at para 57.
[72] UK Jurisdiction Taskforce, supra at para 85(a).
[73] Ibid at para 49-58; AA v Persons Unknown, supra at para 59.
[74] UK Jurisdiction Taskforce, supra at para 85(b); see B2C2 v Quoine Pte Ltd, supra at para 142.
[75] UK Jurisdiction Taskforce, supra at para 71-84.
[76] Ibid at para 85(c).
[77] Ibid at para 81.
[78] Ibid at para 85(d).
[79] AA v Persons Unknown, supra at para 57, 61-65, 81, 85.
[80] Ibid at para 66-71.
[81] Ibid at para 72-78.
[82] UK Jurisdiction Taskforce, supra at para 58, 86(a).
[83] Goode & McKendrick, supra at 28.
[84] See ibid at 42-45.
[85] UK Jurisdiction Taskforce, supra at para 67.
[86] Ibid at para 36; Goode & McKendrick, supra at 28-29.
[87] Antonopoulos, supra at 82-83, 149-150.
[88] A Stevenson & L Brown, eds, Shorter Oxford English Dictionary, 6th ed (Oxford: Oxford University Press, 2007) sub verbo “title”.
[89] UK Jurisdiction Taskforce, supra at para 112.
[90] Antonopoulos, supra at 55-60; UNCITRAL Model Law on Electronic Signatures: with guide to enactment 2001, (New York: United Nations, 2002) at Part Two, c I(III)(B)(2).
[91] Antonopoulos, supra at 131
[92] Ibid at 119-126.
[93] Ibid at 132-133.
[94] Or external ‘witness’ script within the transaction per Bitcoin’s Segregated Witness protocol, Cf. ibid at 170-173.
[95] Ibid at 138-141.
[96] Ibid at 58; UK Jurisdiction Taskforce, supra at para 85(e).
[97] See Goode & McKendrick, supra at 63-65.
[98] Antonopoulos, supra at 120.
[99] Only bitcoin and bitcoin hard fork coins such as bitcoin cash etc., as well as the similar litecoin, utilize UXTO’s. Each cryptoasset may be expected to utilize differing processes designed by their lead developer or developer team. For example; Ethereum and that network’s cryptoasset ether utilizes processes more similar to what would be recognizable as an account ‘balance’; Cf. Antonopoulos & Wood, supra at 303.
[100] Nakamoto’s open-source Bitcoin Core software is a reference implementation of Bitcoin’s system which includes a wallet that is not intended for applications or users; Antonopoulos, supra at 31.
[101] In generating a transaction script, a wallet utilizes an algorithm to aggregate the required amount of bitcoin instructed to be passed to another receive address out of available and otherwise indivisible UTXOs, and return any equivalent of computed ‘change’ as another UTXO, ibid at 120.
[102] P Davies, “Contract Formation and Implied Terms” (2018) 77(1) C.L.J. 22, 24.
[103] Ibid at 23-24.
[104] Ibid at 24.
[105] Applied conceptually from instruments by way of the utilization of digital signature; See Ellinger et al, supra at 438-439; But see UK Jurisdiction Taskforce, supra at para 45.
[106] Antonopoulos, supra at 117, 126-130.
[107] Ellinger et al, supra at 598.
[108] Ibid at 597, 598.
[109] See Goode & McKendrick, supra at 51-52.
[110] Ellinger et al, supra at 597.
[111] Ibid.
[112] Bitcoin transaction script does facilitate automated execution of network promulgated valid transactions at some specified point in the future, Antonopoulos, supra at 157-157.
[113] Ellinger et al, supra at 597.
[114] Ibid.
[115] Antonopoulos, supra at 229-230, 233-237.
[116] Ellinger et al, supra at 597.
[117] UK Jurisdiction Taskforce, supra at para 51.
[118] Applied conceptually from instruments by way of the utilization of digital signature; See Ellinger et al, supra at 438-439; But see UK Jurisdiction Taskforce, supra at para 48.
[119] E.g., Tron Foundation, “TRON: Advanced Decentralized Blockchain Platform Whitepaper Version 2.0 TRON Protocol Version: 3.2 ” (10 December 2018) at 14, Tron.network, online (pdf):
[120] E.g., Dash Cryptocurrency, “Dash Governance and Decentralized Decisions” (2019), Dashcrypto.org, online:
[121] E.g., Canada Evidence Act, RSC 1985, c. C-5, s 31.1 – 31.8.
[122] U.C.C. § 1-201(43) General Provisions (2001).
[123] Ellinger et al, supra at footnote 249 at 595.
[124] UNCITRAL Model Law on Electronic Commerce: with guide to enactment 1996; with additional article 5 bis as adopted in 1998, (New York: United Nations, 1999) at art 2, 5, 5 bis, and 6.
[125] Antonopoulos, supra at 118-119
[126] UNCITRAL Model Law on Electronic Transferable Records, (New York: United Nations, 2018) at art 2.
[127] Ibid.
[128] Ibid at art 11.
[129] Ibid.
[130] UNCITRAL Model Law on Electronic Signatures, supra at Part Two, c I(III).
[131] UK Jurisdiction Taskforce, supra at para 50.
[132] E.g., The Secure Electronic Signature Regulations SOR/2005-30 annexed under the Canadian Personal Information Protection and Electronic Documents Act, SC 2000, c 5 and Canada Evidence Act, RSC 1985, c C-5 reflect the identical principles articulated in the UNCITRAL Model Law on public-key cryptographically generated ‘secure electronic signatures’ and ‘digital signature certificates’.
[133] See UK Jurisdiction Taskforce, supra at 119.
[134] Antonopoulos, supra at 69.
[135] Ibid.
[136] AA v Persons Unknown, supra at para 81-82.
[137] Vorotyntseva v Money-4 Limited trading as Nebeus.com, supra at para 6-7.
[138] Goode & McKendrick, supra at 609-611.
[139] Ellinger et al, supra at 422-423.
[140] Ibid at 562; UNCITRAL Model Law on International Credit Transfers, (Vienna: United Nations, 1999b reprinted 1994) at Explanatory note by the UNCITRAL secretariat on the UNCITRAL Model Law on International Credit Transfers: A. Fund transfers in general.
[141] See Ellinger et al, supra at 596.
[142] Ibid at 559.
[143] Ibid at 560.
[144] Ibid at 593, 599-600.
[145] Ibid at 562-567.
[146] UK Jurisdiction Taskforce, supra at para 17.
[147] See Cuervo, Morozova, & Sugimoto, supra at 15, 19.
[148] UK Jurisdiction Taskforce, supra at para 16
