For some time lawyers have been wondering whether cryptocurrencies (crypto assets) can be considered as real property under the law. This matters because without legal certainty on this point it’s very hard to resolve a dispute that connects to such things as Bitcoin, or the hundreds of other blockchain-based currencies around the world.
It’s also a struggle to create a watertight commercial contract involving cryptocurrencies if you can’t be sure they would be recognised as real assets.
So, it was very interesting to hear the news – highlighted by a team of lawyers – Andrew Moir, Rachel Lidgate, Charlie Morgan and Martin Hevey – at Herbert Smith Freehills (HSF), that the English High Court has held that crypto assets (in this case Bitcoin) can be treated as property under English law, following a case involving a ransom demand.
As the HSF team explains, the recent case showed that: ‘….the owner of a crypto asset can, in appropriate circumstances, avail itself of the various proprietary remedies that a court is able to grant.’
The team goes on to say:
‘The practical significance here was that an insurer that had paid a Bitcoin ransom on behalf of its insured was entitled to take action to recover the sum from Bitfinex (the cryptocurrency exchange holding the funds), compel Bitfinex to provide information identifying the individuals who had received the Bitcoin and for the funds to be held on a constructive trust: AA v Persons Unknown who demanded Bitcoin on 10th and 11th October 2019 and others  EWHC 3556 (Comm).
This is not the first case in which the English court has taken the view that crypto assets are (or are likely to be) property under English law, a conclusion which also has wider significance for crypto asset owners and investors more generally. However, the decision is noteworthy for the considerable weight the court appeared to give the recent UK Jurisdictional Task Force (“UKJT”) Legal Statement on Crypto Assets and Smart Contracts (see here).’
Is this a big deal? As the HSF team points out, this is not a view taken in isolation. However, it now adds to a prevailing legal position, at least under English law, that cryptocurrencies are assets and so are protected and also affected by the law in the same way as any other asset.
For those law firms working in the field of smart legal contracts – which may in some cases involve the movement of cryptocurrencies – this certainly matters. After all, no firm wants to create a contract for a client that may have a legally uncertain hole in the middle of it.
This may in turn give some entities, such as banks, more confidence to begin creating complex legal smart contracts where cryptocurrencies are connected with the execution of the terms of the agreement.
All in all, good news for smart contracts and the law (at least where English law is concerned).
[ The full analysis of the case by the HSF team can be found here. ]