Lessons From Block Earner: #1 Cryptocurrency as legal property?
It has been long debated whether cryptocurrencies can be considered legal property. This issue was mentioned, and worth noting, by Jackman J in the recent case of Australian Securities and Investment Commission v Web3 Ventures Pty Ltd in the Federal Court of Australia. This case again spotlighted the legal quandary surrounding cryptocurrencies: Are they considered legal property?
This question is not just academic but has profound implications for the future of finance, investment, and property rights in the digital age. Jackman J highlighted this legal controversy, drawing upon common law in the English Court of Appeal case, Tulip Trading Ltd v Bitcoin Association for BSV [2023]. In this case, the English Court of Appeal held that cryptocurrency was property, following AA v Persons Unknown [2019], on the basis that the “crypto asset can be said to be capable of assumption by a third party by way of access to the private key.”
It is evident that there is a growing legal consensus that cryptocurrency can indeed be classified as property. This classification hinges on the unique characteristic of cryptocurrencies: they can be controlled or "assumed" by someone through access to a private key, satisfying a crucial requirement for something to be considered property under common law.
Lord Wilberforce's identification that the ability for a right or interest to be assumable by a third party is a necessary element of property rights offers a legal foundation that supports this view. Yet, not everyone agrees, as highlighted by Professor Robert Stevens in his critique, arguing against the classification of crypto as property.
Despite these debates, the practical usage of cryptocurrencies in business and finance continues unabated, with terms like "ownership" and "lending" of cryptocurrency becoming commonplace, albeit used in a "neutral sense" to denote control rather than legal possession in some contexts.
The notion of "lending" cryptocurrency, as explored in the case, suggests that traditional legal terms may not fully encapsulate the operations within the crypto space. Just as securities lending involves the transfer of securities with an obligation for equivalent return, so too does cryptocurrency lending involve the transfer of control, albeit in a manner that challenges conventional property transfer mechanisms.
Jackman J after this common law analysis, stated:
“It is not necessary to form a view as to this controversy in order to resolve the present proceedings, and I express no opinion on it.”
And although he refrained from siding on either side of this debate, he explored key wording in Block Earner’s Terms of Use and Website:
“I note, however, that certain terms used by the parties in their evidence and arguments before me, and by Block Earner in its Terms of Use and website, refer to ownership or lending of cryptocurrency, and those terms might be thought to assume the existence of rights of property in cryptocurrency.”
Although Jackman J refrained from making his own view as to this controversy, he did highlight key principles that argued for cryptocurrency being considered legal property. This case and judgment is a lesson to Web 3 projects to be thorough and deliberate in your wording on websites, marketing materials, and terms of use.