Cryptoassets and Property

Despite the hype surrounding cryptoassets, one question continues to haunt the cryptoasset ‘revolution’: are these assets truly ‘property’?  In our recent paper, we explore how different legal systems classify cryptoassets, the challenges they present for traditional property law, and what these challenges reveal about the legal system’s conception of property, which may variously focus on property as things or property as assets or wealth.

The adaptability of common law is evident in its ability to integrate new types of property, including intangible assets like cryptoassets, within their law of property. There is thus a growing judicial consensus among common law courts, like those in England and Wales, New Zealand, and Singapore, regarding the recognition of cryptoassets as property. Courts have leveraged existing legal principles to extend property rights to cryptoassets, thus providing essential legal protections. Significantly for the purposes of the comparative exercise, the common law is conceptualising property more as asset than as thing.

What is more contentious is how cryptoassets would fit within the common law’s classificatory twofold scheme for personal property. It is obvious that cryptoassets cannot be choses in possession so the debate instead focuses on whether they should be classified as choses in action. Some have argued that cryptoassets do not fit this category because they do not carry rights of action against anyone. However, others argue that it is not essential for an actual action or an immediate right of action for classification as a chose in action. Thus, intellectual property rights are (with the mysterious exception of patents under the English Patents Act 1977) categorized as choses in action despite not carrying any rights of action until infringement occurs. If so, the Law Commission of England and Wales’s proposal to introduce a tertium quid (https://lawcom.gov.uk/project/digital-assets/) is redundant.

The more serious problem with the Law Commission’s proposal to analogise cryptoassets with real-world objects is that the metaphor is broken. Unlike possession, cryptoasset control is reliant on public key cryptography. Whereas possession is naturally rivalrous, private key control is at best conditionally so. This is because private keys are information and hence naturally non-rivalrous. Cryptoasset control is thus at best near=rivalrous but this is akin to the state of being almost pregnant. There is also the near complete absence of discussion of what rights follow from classifying cryptoassets as property, whether chose in action or tertium quid. If property is a social construct, then reification necessitates considerations of distributive justice, especially where intangible property is concerned. Yet without an account of what rights follow from ownership of cryptoassets, it is impossible to determine if the benefits of the reification outweigh its political costs. Nevertheless, with few exceptions, most common law proponents of cryptoassets as property are silent or vague about the rights cryptoasset holders should enjoy.

In civil law jurisdictions, particularly those influenced by the German Pandectist tradition, the challenge of categorising cryptoassets as property faces greater resistance. In such systems, property is generally defined as a tangible, corporeal object, leading to limitations when addressing intangible assets like cryptoassets. This rigidity poses challenges in recognising cryptoassets as legitimate forms of property. Thus, the Japanese courts have ruled that bitcoins cannot be classified as property under Japan’s Civil Code due to their intangible nature, emphasising that only corporeal things can be considered property . This outcome has, however, led to criticisms that such a strict definition results in inadequate legal protection for holders of cryptoassets, such as in cases of insolvency or theft. As we note in the paper, though, Francophone systems are more accommodating of cryptoassets: an object of ownership includes corporeal and incorporeal things, though it is arguably more accurate to refer to assets rather than things since the organising principle of the French Civil Code is bien rather than chose.

The consequences of a hard fork marks a significant point of comparison between the French and Japanese legal approaches to cryptoassets as property. In France, in a dispute that arose over bitcoins created due to a hard fork, the court ruled that the holder of the bitcoins at the time of the hard fork was entitled to the newly generated bitcoins. This decision classified bitcoins as bien meuble incorporel (incorporeal movable property), ruling that, under French law, cryptoassets holders have a claim to any assets created as a result of a hard fork. This approach aligns with the general principles of property law regarding ownership and benefits derived from ownership. By contrast, Japanese law presents a more restrictive view regarding rights to forked cryptoassets, searching instead for rights to the forked cryptoassets solely on the basis of contract law, with the result that, in a similar case but relating to a different hard fork, neither the exchange nor the customer owned the forked bitcoins.

By comparing a variety of legal systems, we can see that the answer to the question of whether cryptoassets are property depends on the meaning we assign to the word ‘property’. In strict legal systems like Germanic civil law, cryptoassets do not qualify as objects of property rights because ‘things’ are the relevant term of reference. By contrast, both the common law and French law recognise intangible assets under concepts like chose in action and biens incorporels, property is conceptualised not as thing but asset. Thus, the apparent disagreement between Germanic systems and the common law and Francophone systems is as much semantic as it is conceptual. Ultimately, the experience of propertisation of cryptoassets in these diverse legal systems demonstrate that the definition of property is more complex than many realise.

Kelvin FK Low is Professor of Law at the University of Hong Kong.

Megumi Hara is Professor of Law at Chuo University.

The full paper is available here.