Blockchain-based electronic transferable record's functional equivalence to endorsement of paper-based transferable documents

A chain of transactions of an electronic record on a blockchain looks like a chain of endorsements on a paper-based transferable document except that the transactions are anonymous. Despite the anonymity, the blockchain technology ensures a far greater security than bearer documents. I think, therefore, that the law should be crafted in such a way as to allow documents made to order (such as order bills of lading) as well as bearer documents (such as bearer bills of lading) to be replaced by blockchain-based electronic records.

From that point of view, this post will examine the draft text of the UNCITRAL Model Law on Electronic Transferable Records. I have noted in my earlier post that the work on the Model Law should be pursued with the blockchain technology in mind so as to facilitate its applications to replace paper-based transferable documents. As of the time of writing, the most recent official documents containing a draft text are A/CN.9/WG.IV/WP.135 and A/CN.9/WG.IV/WP.135/Add.1, both dated August 2015. The draft provisions quoted below are taken from them.

Draft article 19. Endorsement
Where the law requires or permits the endorsement in any form of a paper-based transferable document or instrument, that requirement is met with respect to an electronic transferable record if information [relating to the endorsement] [constituting endorsement] [indicating the intention to endorse] is [logically associated or otherwise linked to] [included in] that electronic
transferable record and that information is compliant with the requirements set forth in articles 8 and 9.

While an electronic record on a registry may include information constituting endorsement, in the case of an electronic record on a blockchain, it is the blockchain (or, to be more precise, a chain of transactions contained therein) rather than the record itself which indicates intentions of endorsement. Accordingly, the expressions "indicating the intention to endorse" and "logically associated with" seem better cater for the blockchain technology. The words “logically associated” was indeed retained "to provide for all possible instances and methods for the incorporation of an endorsement in an electronic transferable record." (A/CN.9/828, para. 80).

A more difficult question relates to compliance with the requirement set forth in Article 9.

Draft article 9. Signature
Where the law requires a signature of a person, that requirement is met [with respect to] [in relation to] [by] an electronic transferable record if:
(a) A method is used to identify that person and to indicate that person’s intention in respect of the information contained in the electronic record; and
(b) The method used is either ...

This provision will not pose problem with respect to a blockchain-based electronic record to the extent it applies to signatures to be included in the record itself, e.g. a "for the master" signature on a bill of lading. 

It is also intended, as indicated by Draft Article 19, to cover signatures for endorsements. It would be natural to impose a signature requirement to ensure functional equivalence to endorsement, especially if we envisage a registry-based electronic transferable record.  But the requirement of identification, if it is read as requiring identification by name, would be incompatible with electronic records on an open, permissionless blockchain since the parties are anonymous. Logistically, it seems possible to build a system whereby the performance of the obligation represented by the electronic record (e.g. the delivery of goods) is effected without the name of the holder of the private key having to be revealed to the obligor (e.g. carrier) by, for example, allowing the record to activate a key in the physical world (e.g. the key to the container). In my earlier post, I have suggested that a blockchain-based bill of lading may, for that reason, be seen as functionally equivalent to a bearer bill of lading. But the present post is considering how to make rules enabling the replacement of order bills of lading (and other documents made to order) with a blockchain-based electronic records. 

The word "identify" also appears in the following provision.

Draft article 17. [Possession] [Control]
1. Where the law requires the possession of a paper-based transferable document or instrument, that requirement is met with respect to an electronic transferable record if:
(a) A method is used to establish exclusive control of that electronic transferable record by a person and to reliably [identify] [establish] that person as the person in control; and
(b) The method used is either ...

The Secretariat notes, "identification should not be understood as implying an obligation to name the person in control" (para. 22) (See my earlier post for a comment). It would aid clarity to say so expressly in the provision. The same could be done in draft Article 19 and it would make it friendlier to blockchain-based electronic records. But it might not be satisfactory for register-based electronic records. That is why I call this a "more difficult question."

Law applicable to a restitutionary claim arising from a mistaken remittance

The bitcoin addresses are randomly generated long alphanumeric strings and prone to be mistyped. If bitcoin is transferred to a wrong address by mistake, what law is applicable to a restitutionary claim by the transferor against the transferee?
This post will consider this question under the Rome II Regulation (Regulation (EC) No 864/2007 of the European Parliament and of the Council of 11 July 2007 on the law applicable to non-contractual obligations) as it is an influential instrument in private international law. Its Article 10 contains choice-of-law rules for unjust enrichment in the following terms:

1. If a non-contractual obligation arising out of unjust enrichment, including payment of amounts wrongly received, concerns a relationship existing between the parties, such as one arising out of a contract or a tort/delict, that is closely connected with that unjust enrichment, it shall be governed by the law that governs that relationship.
2. Where the law applicable cannot be determined on the basis of paragraph 1 and the parties have their habitual residence in the same country when the event giving rise to unjust enrichment occurs, the law of that country shall apply.
3. Where the law applicable cannot be determined on the basis of paragraphs 1 or 2, it shall be the law of the country in which the unjust enrichment took place.
4. Where it is clear from all the circumstances of the case that the non-contractual obligation arising out of unjust enrichment is manifestly more closely connected with a country other than that indicated in paragraphs 1, 2 and 3, the law of that other country shall apply.

In most cases of mistaken remittance, para. 3 will be applicable. Its connecting factor is the occurrence of the unjust enrichment, as distinguished from the occurrence of the event giving rise to the enrichment.
The application of this provision to mistaken remittance of a bank deposit is not particularly difficult. If, for example, A mistakenly transfers money from his Italian bank account to B's bank account in Spain, Spanish law is applicable to A's restitutionary claim against B. It has been suggested that in localising the situs of enrichment, the discrete asset, rather than the centre of wealth of the enriched person, should be focused on (Huber / Huber / Bach, Rome II Regulation (2011), Art. 10, para. 28). Thus, even if B lives in Portugal and maintains all assets there, it is immaterial.
The application of para. 3 is not as simple in the case of remittance of cryptocurrency such as bitcoin, since there is no such thing as a bank account. Remittance of cryptocurrency takes place between addresses on a blockchain. The addresses are not associated with any physical location, unlike bank accounts. Neither is it possible to localise the blockchain since it is a distributed ledger. Faute de mieux, the unjust enrichment should be deemed to have taken place at the habitual residence of the enriched person. The concept of "habitual residence" is elaborated on at Article 23 in the following terms:

1. For the purposes of this Regulation, the habitual residence of companies and other bodies, corporate or unincorporated, shall be the place of central administration.
Where the event giving rise to the damage occurs, or the damage arises, in the course of operation of a branch, agency or any other establishment, the place where the branch, agency or any other establishment is located shall be treated as the place of habitual residence.
2. For the purposes of this Regulation, the habitual residence of a natural person acting in the course of his or her business activity shall be his or her principal place of business.

Paragraph 2 would not be applicable in the context presently discussed because the person enriched by receiving a mistakenly remitted cryptocurrency would not be deemed to be "acting in the course of his or her business activity." Nor would the second sentence of paragraph 1 be applicable since it seems only concerned with the habitual residence of a tortfeasor.

Why documents of title are an attractive use case of the blockchain technology

In my earlier post, I have noted that there are no fewer than three different functions which an electronic record issued and transferred on a blockchain can fulfill. Each of them has a great potential but needs support from legal infrastructure. Thus, no electronic record can be deemed to embody an entitlement to the performance of obligations unless so treated by the applicable law. It is no different from acknowledging that  a paper-based transferable document would be only a piece of paper without empowering legislation. Accordingly, an electronic transferable record on a blockchain cannot function as a document of title merely by agreement of private parties.

There is, however, one feature of documents of title which make them particularly attractive as a possible use case of the blockchain technology. It is their essential feature, the guarantee of singularity. That feature had been considered to be difficult to emulate in an electronic environment and the only means which had been available was a registry administered by a trusted entity. But the blockchain technology has now made it possible to guarantee singularity in a de-centralised way. The essential feature of documents of title is thus taken care of by technology without need for legal support.

The construction of a supporting legal infrastructure takes time. In the meantime, notwithstanding the risk of unintended legal consequences, entrepreneurs develop business practices to cater for demands on the market. We have been witnessing such phenomena in the bitcoin business. Are there sufficient demands to support experimental documents of title on a blockchain?

Different functions of electronic transferable records: UNCITRAL's definition

There are no fewer than three different functions which electronic records transferable on a blockchain may perform with the necessary support of applicable laws. The Model Law on Electronic Transferable Records currently drafted by UNCITRAL is only applicable to a type of electronic transferable record which fulfills one of them.
According to the latest draft published in an official document (A/CN.9/WG.IV/WP.135), for the purpose of the Model Law, an “electronic transferable record” [is an electronic record that contains all of the information that would make a paper-based transferable document or instrument effective and ... "(Draft Article 3). The same article defines “paper-based transferable document or instrument” as "a transferable document or instrument issued on paper that entitles the holder to claim the performance of the obligation [indicated] in the document or instrument and ...". It will be possible to use a blockchain to transfer an electronic record which contains all of the information that would make a paper-based bill of lading, for example, effective. Such a record would would constitute an "electronic transferable record" within the meaning of the draft Model Law.
Cryptocurrencies, on the other hand, do not represent entitlement to claim the performance of any obligation. Unlike the traditional forms of electronic money, there is nobody who owes obligation to the holder of cryptocurrencies. If right conditions exist, the market will find an inherent value in cryptocurrencies (or some of them) and recognises them as substitutes for money. Cryptocurrencies are electronic records and transferable on a blockchain. But they do not fall within the definition of the Model Law.
A blockchain may also be used to transfer an electronic record indicating proprietary interests (such as security interests) in tangible or intangible properties. My suggestion for substituting a blockchain-based ledger for the registry of the Cape Town Convention (See my earlier post) relates to this type of usage. Such electronic transferable records do not represent entitlement to claim the performance of any obligation. Hence, they do not come within the definition of the Model Law.
The current Model Law project, therefore, leaves a vast area of use cases of the blockchain technology untouched. I think that UNCITRAL can be instrumental in harnessing the technology in all its applications. 

松岡久和「アメリカ法における追及の法理と特定性―違法な金銭混和事例を中心に」

　田髙論文(過去記事参照)と同じく、標記論文(林良平献呈論文集『現代における物権法と債権法の交錯』（有斐閣、１９９８年）３５７～３９４頁所収)は、金銭騙取や誤振込などの場合に、騙取者や不当利得者の無資力危険を返還権利者に負担させることが妥当かという問題提起をする。しかし、返還権利者の物権的保護の可能性を検討する田髙論文に対して、本論稿は、返還権利者の権利を債権と構成しても、一定の場合には優先的な弁済受領を認めることができないかという問題意識の下で、優先権付与の要件として必要とされる客体の特定性をアメリカ法の追及法理の下で検討している。仮想通貨の騙取や誤振込の場合の分析にも参考になる記述が多い。
　規範的な追及可能性が技術的な追及可能性とは一致しないことを指摘した本ブログの過去記事との関係で、特に注目すべきと思われるのは、価値的な同一性として「特定性」が理解されていることである。本論稿によると、アメリカの判例・通説は、とりわけ金銭については、物体的な同一性は問題としておらず、日本の物権的価値返還請求権説が提示する特定性よりも、はるかに緩やかに特定性を認めているとのことである。

Choice-of-law aspects of the judgment on the ownership of bitcoins

As I mentioned in my earlier post, the Tokyo District Court in its judgment on 5 August 2015 denied the ownership (more precisely, "shoyûken" in Japanese) of bitcoins. In that post, I have also noted that translating "shoyûken" into the English word "ownership" may be misleading.

In this post, I will look at the choice-of-law aspects. The judgment is based on the assumption that Japanese law was the applicable law without giving any reasons. Nor did either party discuss choice-of-law issues (according to the Court's summary of their arguments).

The scope of the bankruptcy estate of MTGOX is surely a matter for Japanese law since the bankruptcy proceedings opened in Japan. The effect of Japanese bankruptcy proceedings extends to all assets of the bankrupt wherever in the world they are situated. This follows from the repeal in 2000 of the then Article 3(1) of the Bankruptcy Act which provided:

The bankruptcy which is declared in Japan shall only have effect on the asset of the bankrupt situated in Japan.

The bankruptcy estate of MTGOX, therefore, covers all bitcoin units wherever situated. Here, the borderless nature of the blockchain poses no problem.

On the other hand, it is not as obvious that Japanese law was the governing law of the plaintiff's ownership-based claim to recover the bitcoin units. On the face of it, the application of Japanese law may seem uncontroversial since there were no strong foreign elements in that case: the plaintiff was an individual residing in Kyoto and the defendant was the bankruptcy representative of the bankrupt MTGOX, a Tokyo-based company, appointed in the Japanese bankruptcy proceedings. But as I noted in my earlier post, choice-of-law rules for determining the ownership of intangible property are not well-established and, depending on the connecting factor to be adopted, the borderless nature of the blockchain may make it difficult to localise bitcoin units in a particular country. If the plaintiff had been a foreigner residing abroad (which would not have been a remote possibility since a majority of the creditors of MTGOX are such persons), the parties and the court might have felt it necessary to address the choice-of-law question.

The judgment on the ownership of bitcoins has been published.

As I mentioned in my earlier post, the Tokyo District Court in its judgment on 5 August 2015 denied the ownership (more precisely, "shoyûken" in Japanese) of bitcoins. In that post, I have also noted that translating "shoyuken" into the English word "ownership" may be misleading.
Until recently, the only way to examine the actual text of the judgment was to go in person to the Court pursuant to Article 91(1) of the Code of Civil Procedure. But it is now reported on Westlaw Japan (accessible by subscribers only). Reading it through, I have picked up some noteworthy points from the court's summary of the parties' arguments and its own reasoning. 

1. The plaintiff relied on Article 62 of the Bankruptcy Act which provides: 

The commencement of bankruptcy proceedings shall not affect the right to recover, from the bankruptcy estate, property that does not belong to the bankrupt. 

2. The plaintiff claimed the return of bitcoin units as appearing in his or her account with MTGOX. The plaintiff admitted that MTGOX had merged those with units from other customers and held them in addresses which were not associated with any specific customers and for which only MTGOX kept private keys. But the plaintiff argued that those units constituted a commingled deposit (“konzô kitaku”) over which each depositor retained “shoyûken” in proportion to his or her share. 

3. The court reasoned deductively from the following provisions of the Japanese Civil Code to reach its conclusion that bitcoin, being intangible, could not be an object of shoyûken. 

Article 85 The term "thing" (“butsu”) as used in this Code shall mean tangible property. 

Article 206 The shoyûken holder of a thing (“butsu”) shall have the right to freely use, profit from and dispose of it, subject to the restrictions prescribed by law. 

My comment: This conclusion is hardly controversial, as noted in my earlier post. 

4. The court disposed of the case, holding that the plaintiff could not obtain recovery, under Article 62 of the Bankruptcy Act, of the bitcoin units based on his or her shoyûken over them. 

My comment: It is true that most claims under Article 62 in practice are for the recovery of tangible property and are based on shoyûken. It is, however, also possible to recover intangible property, such as chose in action and intellectual property right, under this provision. In such cases, shoyûken, by definition, cannot be the basis of the claim. But the claim can be based on the proof that the property belongs to the claimant. Thus, “ownership” in its usual sense of the English word, as opposed to a narrower concept of “shoyûken” under Japanese law (See my earlier post), can be the basis of a claim under Article 62. The Court did not consider the possibility of recovery of the bitcoin units under that provision based on the argument that they were owned by (namely, belonged to, rather than an object of "shoyûken" of) the claimant. Nor did the plaintiff’s submission (as summarized by the Court) contain this argument. The consideration of this argument would have made it necessary for the Court to step into a theoretically difficult territory: it would have had to determine who owned the bitcoin units which were deposited and commingled with other units.

Work of UNCITRAL on electronic transferable records

Since 2011, the UNCITRAL has been working on legal issues relating to the use of electronic transferable records. From the beginning, it envisages two approaches to establishing the identity of the person to whom an electronic transferable record is issued or transferred, namely the token model which identifies the person in the record itself and the registry model which identifies the person in a separate registry (A/CN.9/WG.IV/WP.115 (hereafter "the 2011 document") at para. 48). Like its previous works on electronic commerce, the UNCITRAL is adhering to the principle of technology neutrality (Id. at para. 35) and nowhere in the official documents published to date could I find any mention of blockchain, cryptocurrency or bitcoin. But I think the work should be pursued with the blockchain technology in mind so as to facilitate its applications to replace paper-based transferable documents such as bills of lading.
In the current draft of a model law (A/CN.9/WG.IV/WP.135/Add.1, August 2015), the exclusive control of an electronic transferable record is treated as functionally equivalent to the possession of a paper-based transferable document. Thus Draft Article 17(1) provides:

Where the law requires the possession of a paper-based transferable document or instrument, that requirement is met with respect to an electronic transferable record if:
(a) A method is used to establish exclusive control of that electronic transferable record by a person and to reliably [identify] [establish] that person as the person in control; and
(b) The method used is either:
(i) As reliable as appropriate for the purpose for which the electronic transferable record was generated, in light of all the relevant circumstances, including any relevant agreement; or
(ii) Proven in fact to have fulfilled the functions described in subparagraph (a) above, by itself or together with further evidence.

In the Remarks which accompany this provision, the Secretariat makes some noteworthy comments. It says, "the electronic transferable record in itself does not necessarily identify the person in control, but rather the method or system employed to establish control as a whole performs that function" (Id. at para. 22.). This understanding may simply be intended to cater for the registry model as described in the 2011 document. But it may also open the door to blockchain-based electronic records which may be seen as ill-fitted with the description in the 2011 document of the token model. 

The Secretariat goes on to say, "identification should not be understood as implying an obligation to name the person in control, as the draft Model Law allows for the issuance of electronic transferable records to bearer, which implies anonymity" (Ibid.). This view will also ease the way for the blockchain technology as the latter permits the holders of electronic records to remain anonymous. 

The Secretariat also notes, "reference to the person in control of the electronic transferable record does not imply that that person is also the rightful person in control of that record as this is for substantive law to determine" (Id. at para. 21). In other words, the exclusive control of an electronic transferable record is only equivalent to the possession of a paper-based transferable document. Put in the context of the blockchain technology, this view seems consistent with my opinion that the ownership of a blockchain-based electronic record cannot be determined simply by reference to who has the exclusive control of it (See my earlier post).

The Secretariat proceeds to say, "reference to the person in control does not exclude the possibility of having more than one person in control." It is not easy to see what this observation means for a blockchain-based electronic record. The latter is under the exclusive control of the person holding the private key for the address in which the record is kept. It is, on the other hand, possible for one private key to be known by a number of persons.

Is a blockchain-based bill of lading a "negotiable electronic transport record" under the Rotterdam Rules?

In my earlier post, I have suggested that one of the most promising use cases of the blockchain technology is electronic bill of lading: a token on a blockchain issued by the carrier of goods which represents the right to demand the delivery of the goods. As noted in another of my earlier post, I stressed the importance of the legal infrastructure supporting a blockchain-based electronic bill of lading. The Rotterdam Rules embrace electronic bill of lading, calling it a "negotiable electronic transport record" (See Articles 8, 50 and 51(4)). Though not yet in force, if the Rotterdam Rules come to form part of the legal infrastructure, the question will arise whether they are applicable to a blockchain-based electronic bill of lading as well as the existing registry-based electronic bill of lading. 

One of the underlying principles of the Rotterdam Rules is technology neutrality: the law should neither require nor assume the adoption of a particular technology. It follows that a blockchain-based electronic bill of lading is certainly not excluded a priori. But it does not mean that any technology can create a "negotiable electronic transport record" within the meaning of the Rotterdam Rules. According to Article 9, the use of a "negotiable electronic transport record" is subject to the procedure referred to in the contract of carriage which provides for:

• (a) the method for the issuance and the transfer of the record to an intended holder;
• (b) an assurance that the record retains its integrity;
• (c) the manner in which the holder is able to demonstrate that it is the holder; and
• (d) the manner of providing confirmation that delivery to the holder has been effected or that the record has ceased to have any effect or validity.

Is the blockchain technology capable of providing for all those elements? Article 9 is the manifestation of another principle underlying the Rotterdam Rules: the principle of functional equivalence which requires an electronic medium to fulfill the essential functions of the corresponding paper-based system. In this regard, implicit in the two concepts "issuance" and "transfer" in (a) is the "exclusive control" of the record. Article 1 provides their definitions in the following terms:
For the purposes of this Convention:

...

21. The “issuance” of a negotiable electronic transport record means the issuance of the record in accordance with procedures that ensure that the record is subject to exclusive control from its creation until it ceases to have any effect or validity.
22. The “transfer” of a negotiable electronic transport record means the transfer of exclusive control over the record.

The requirement of "exclusive control" fulfills the essential function of a bill of lading as a document of title. The blockchain technology satisfies this requirement since a token on a blockchain is subject to the exclusive control of the holder of the private key corresponding to the address in which the token is kept. Furthermore, since its algorithm makes a double spending impossible, no two persons could claim to hold the same token.
The blockchain technology is also capable of providing for (b), i.e. an assurance that the record retains its integrity. There can be no tampering with records locked in a well-maintained blockchain such as the one for bitcoin. The blockchain technology indeed has an edge over registry systems since the latter rely on the trustworthiness of the entity maintaining the registry: the registry may have to be equipped with, inter alia, activity logs, an offsite backup system and an adequate oversight on its management.

With respect to (c), Sturley et al. in their book, The Rotterdam Rules (2010), observe, "[t]he token system suffers the technical disadvantage that the required security is extremely difficult to achieve. Indeed, it appears that the technology needed for a reliable token system is still not available in the market place" (para. 3.039). It would be safe to say that things have now changed with the advent of the blockchain technology (See also my earlier post). A question remains, however, whether (c) requires the holder to be identified by its name. That would not be possible on an open, permissionless blockchain since the parties are anonymous. Logistically, it seems possible to build a system whereby goods are delivered without the name of the holder of the private key being revealed to the carrier by, for example, allowing the token to activate the key to the container. Then, a blockchain-based bill of lading may be seen as functionally equivalent to a bearer bill of lading and accordingly considered to be sufficient to provide for (c).

The point (d) would be deemed to be provided for if the system is configured in a way that causes the token to be transmitted to the carrier upon the delivery of the goods.

Blockchain-based bill of lading: need for support from the legal infrastructure

In my earlier post, I have suggested that one of the most promising use cases of the blockchain technology is electronic bill of lading: a token on a blockchain issued by the carrier of goods which represents the right to demand the delivery of the goods.

In another of my earlier post, I have pointed out that while many of the proposed applications of the blockchain technology seem to rest on the assumption that the participants could make effective arrangements themselves, they will produce their intended effects only in the sphere of party autonomy as recognised by the applicable law.

That also holds true with a blockchain-based bill of lading. Suppose that the parties to a sale contract have agreed on the use of a blockchain-based bill of lading and the seller has concluded a carriage contract under which the carrier has agreed to issue such a bill of lading. Their arrangement will work among themselves in accordance with their agreements (If not, remedies for breach of contract will be available). But their agreements are not sufficient to defeat the claims of third parties such as a creditor of the seller seizing the goods, the trustee of the seller's bankruptcy estate, another buyer who has bought the same goods from the seller and a person who has bought the goods in good faith from the person who had stolen them.

The applicable law might protect the (original) buyer if he holds a traditional paper bill of lading. Thus, under Japanese law, once a bill of lading has been issued, the disposal of the goods represented by it is not possible otherwise than by means of the bill of lading (Article 573 of the Commercial Code as referred to by Article 10 of the Carriage of Goods by Sea Act). Furthermore, the delivery of a bill of lading to its lawful holder has the same legal effect as the delivery of the goods represented by it (Article 575 of the Commercial Code as referred to by Article 10 of the Carriage of Goods by Sea Act), with the consequence that an erga omnes effect is bestowed on the holder's title in the goods (Article 178 of the Civil Code).

For electronic bill of lading to flourish, it is essential for it to be given a similar support from the legal infrastructure. The lack of it has long afflicted the various projects of electronic bill of lading. Thus, the banking industry has been reluctant to accept this type of bill of lading as adequate collateral. One laudable initiative for embracing electronic bill of lading is the Rotterdam Rules (United Nations Convention on Contracts for the International Carriage of Goods Wholly or Partly by Sea) which contain provisions for "negotiable electronic transport records." Adopted in 2008, the Convention has not entered into force yet.

For a blockchain-based bill of lading to take off, it is also important for it to be given a sufficient support from the legal infrastructure. To start the ball rolling, it may be worth asking whether a blockchain-based bill of lading constitutes a "negotiable electronic transport record" under the Rotterdam Rules, a question I intend to address in my future post.

Jurisdiction in matters relating to a contract for the exchange of cryptocurrency units with traditional currencies

In my earlier post, I have argued that a contract for "the provision of services" within the meaning of Article 7(1)(b) of the Brussels I-bis Regulation should be interpreted as covering both a contract for the exchange of cryptocurrency units and traditional currencies and a contract for the storage of cryptocurrency units. On that reading, the Regulation would give jurisdiction to the courts for the place of provision of the services (For the text of Article 7(1), see my earlier post). This post will consider where that place is in the context of such contracts.
The first thing to note is that this question will not give rise to the same difficulty of localisation as the choice of law for proprietary issues (as to the latter, see my earlier post). This is because the provision of services can be localised in the physical world even if the services deal with cryptocurrencies. Thus, the exchange of cryptocurrency units with traditional currencies does not take place solely on the blockchain. It also involves a transfer of the traditional currency between the account of the user and that of the service provider. Indeed, all necessary operations will have to be conducted at physical location(s). The storage of cryptocurrency units, too, will necessitate crucial operations at physical location(s) such as the safe keeping of the private keys in cold storage.
In the language of Article 7(1)(b), the place of provision of the services is the place "where, under the contract, the services were provided or should have been provided." Interpreting the equivalent phrase for contracts for the sale of goods, the CJEU held that it should be understood to refer to the actual place of performance only where it was impossible to determine it on the basis of the contractual terms (Electrosteel Europe v Edil Centro (Case C-87/10) (2011)). It is hard to see why the same interpretation should not be applied to contracts for the provision of services. In the context of a contract for the exchange of cryptocurrency units with traditional currencies and a contract for the storage of cryptocurrency units, the physical location effecting the necessary operations described above may be indicated in the contract. The mentioning of the place of incorporation of the service provider or its postal contact address may not be sufficient.
Where the services are provided in several Member States, Article 7(1)(b) is to be understood to refer to the place of the main provision of services as it appears from the contractual terms or, in the absence of such terms, the actual performance of the contract. This is the interpretation taken by the CJEU in Wood Floor Solutions v Silva Trade (C-19/09) (2010). That case was concerned with a commercial agency contract and the CJEU added that where the place of the main provision of services could not be identified by either way, it should be deemed to be the place of the agent's domicile. Unlike an agency contract, which may involve various obligations, neither a contract for the exchange of cryptocurrency units with traditional currencies nor a contract for the storage of cryptocurrency units would be likely to cause difficulties in identifying the main provision of services.

Finally, it should be noted that those contracts are likely to contain a choice-of-court agreement. If it is valid and effective under Article 26, it obviates the need to address all the complicated issues of interpretation arising under Article 7(1). A choice-of-court agreement is indeed generally concluded to avoid legal uncertainty. The User Agreement of Coinbase, for example, contains a choice-of-court clause in favour of the English courts. It should further be noted that special rules set forth in Section 4 of the Regulation are applicable if the contract is a consumer contract falling within the scope of their application.

Blockchain technology to dematerialize bills of lading

The article written by José Angelo Estrella Faria, the secretary general of the UNIDROIT, entitled "Uniform Law And Functional Equivalence: Diverting Paths or Stops Along The Same Road? Thoughts on a New International Regime for Transport Documents" 2 Elon L. Rev. 1 is excellent. 

The author notes that in order to emulate the function of a bill of lading as a document of title in electronic environment, it is necessary to ensure that only the person recognized by a registry as the rightful "holder" is entitled to claim delivery of the goods. Here, he is only restating a widely supported proposition.

What is interesting, though, is that he goes on to observe, "[a]t least in theory, the same result could also be achieved if computer technology were able to create a 'unique' electronic record that could be exclusively held by a holder and transferred to another without replication at some point down the negotiating chain." Later in the same article, the author also states, "[o]ne conceivable model, for instance, might rely on a technical device that would assure the uniqueness of an electronic record to allow the record itself to be 'passed' down a negotiation chain." To this sentence, he attaches a footnote stating "[s]o far, however, computer technology has not yet been able to create such a 'unique' electronic record, which means that electronic negotiability systems continue to rely essentially on electronic registries." The author could hardly be blamed for not mentioning the blockchain technology since this article was published in February 2011, a few years before the technology has come to be widely known outside the circle of computer specialists. Now in 2015, the blockchain technology has been tested enough through the bitcoin to inspire confidence in saying that it is at least as secure as any registry based system (See also my earlier post).

Technical traceability and normative traceability

When we consider whether it is possible in law to obtain the recovery of stolen cryptocurrency units, what matters is normative, rather than technical, traceability of the stolen units. This is so whether the claim for recovery is based on the ownership of the units or the restitution of unjust enrichment.
There may be no technical traceability where stolen units are mixed up with other units in the address they have been forwarded to unless the units had been dyed prior to being stolen. In this sense, Patrick Murck seems right to observe in his presentation that while transactions are traceable, coins are less so. On the other hand, to affirm normative traceability, it might be enough to be able to say that the attacker or the persons further down the line could be deemed to hold all or part of the stolen units or their value.
Let us suppose that Alice had 70 units in her address (i.e. an address for which she holds the private key). Bob has stolen them through a phishing attack and transferred them to his address in which they have been mixed up with the 30 units he had held there. Unless the stolen 70 units had been colored, it may be technically impossible to say which of the now 100 units Bob holds in his address is originally Alice's. It is, however, possible to say that Bob holds the stolen units.
It is true that even a normative tracing becomes harder as the stolen units are forwarded down the line. Thus, let us suppose that Bob has thereafter transferred 40 units to the address of Carol. Again, unless the stolen 70 units had been colored, it may be technically impossible to say which, or even how much, of the 40 units Carol has received is originally Alice's. But it does not foreclose the possibility of a normative assessment that Carol holds part of the stolen units or their value. The normative assessment may take into account the circumstances surrounding Carol's acquisition including how much, if at all, she knew of Bob's theft. It will also be part of the normative assessment how much of the 40 units is deemed to derive from the 70 stolen units: (i) 28 units representing the proportion of the 70 units among the 100 units Bob held in his address or (ii) 10 units on the assumption that all 30 units Bob held legitimately has been transferred to Carol, or (iii) other amounts based on other calculations.
Some legal systems might opt for a simple solution of equating normative traceability with technical traceability. But other legal systems might differentiate them. It is also conceivable that different tests for normative traceability be applied between proprietary recovery and restitutionary recovery. While a test aligned with technical traceability may be preferred for proprietary recovery in order to ensure the specific identification of stolen units, it is not inevitable. Since it is ultimately a matter for legal policy whether to grant recovery merely as restitutionary relief or as proprietary relief (See my earlier post), it is not unimaginable to allow recovery of the stolen value (as opposed to the specific stolen units) as proprietary relief. The blockchain technology being a new invention, I guess that the rules are currently uncertain under most legal systems.

It is needless to say that in the cases where it is considered normatively that the stolen units are traceable, the possibility of recovery will depend on other conditions which the applicable law puts in place to protect legitimate holders in due course.

Legal effect of blockchain-based arrangements

Various proposals have been made to use the blockchain technology for purposes other than to issue and circulate cryptocurrencies. Many of them seem to rest on the assumption that the participants could make effective arrangements themselves. Things will not, however, work according to their plan when disputes arise between them or when third parties get involved unless the applicable law gives effect to their agreements implicit in their arrangements. The law does so only in the sphere of party autonomy. Suppose, for example, that a blockchain-based land registry were created and a plot of land had been registered in the name of one of the participants to the arrangement. That would not be sufficient to confer legal title to the land on the registrant unless the law of the country where that plot of land is situated gives such an effect to such a private arrangement.

Having said that, if there are good reasons why blockchain-based arrangements should be given legal effect, it is the law which should be changed. In some areas, the law might move towards broadening the sphere of party autonomy. It would give rise to a lot of legal debate along the way. In other areas, the law might integrate certain blockchain-based arrangements into the state apparatus. Thus, countries presently having no proper land registry might well adopt a blockchain-based registry as a solution.

Jurisdiction in matters relating to a contract for the exchange of cryptocurrency units with traditional currencies

A court addressing the question whether it has jurisdiction to hear and determine a case in commercial matters decides it by applying its rules of jurisdiction. One of the most influential instruments containing rules of jurisdiction is the EU Regulation No 1215/2012 (a.k.a. Brussels Recast or Brussels I-bis). This post will consider under Article 7(1) of this regulation jurisdiction in matters relating to a contract for the exchange of cryptocurrencies with traditional currencies. Article 7 provides:

A person domiciled in a Member State may be sued in another Member State:
(1) (a) in matters relating to a contract, in the courts for the place of performance of the obligation in question;
(b) for the purpose of this provision and unless otherwise agreed, the place of performance of the obligation in question shall be:
— in the case of the sale of goods, the place in a Member State where, under the contract, the goods were delivered or should have been delivered,
— in the case of the provision of services, the place in a Member State where, under the contract, the services were provided or should have been provided;
(c) if point (b) does not apply then point (a) applies;
(2) ... 

To begin with, a contract for the exchange of cryptocurrencies with traditional currencies is unlikely to be deemed a sale of goods since "goods" are generally understood to mean tangible objects. There is no good reason to deviate from the interpretation of CISG (see my earlier post) in this respect.
In another of my earlier post, I noted that the Court of Justice had observed that a narrower meaning could be given to the concept of "provision of services" than the similar concept of “[s]upply of services” of the VAT Directive (Falco Privatstiftung and Rabitsch (Case C-533/07) (2009)). This observation might be seen as something of significance in view of the Court's recent ruling that the "[s]upply of services" of the VAT Directive covered transactions exchanging traditional currencies for bitcoin units and vice versa. 

My view, however, is that the concept of "provision of services" of Regulation No 1215/2012 is wide enough to cover such transactions. The Court's observation in the Privatstiftung case was made in the context of ruling that licensing an intellectual property right did not fall within that concept. The ground for the ruling was that the concept of service implied that the party who provided the service carried out a particular activity whereas the only obligation which the licensor undertook was not to challenge the use of the intellectual property right by the licensee. On the other hand, a contract for the exchange of cryptocurrencies with traditional currencies certainly imposes obligation to undertake a particular activity, i.e. exchanging the currencies.
It is also worth noting that the Court has held that a contract for the storage of goods constitutes a contract for the provision of services (Krejci Lager & Umschlagbetriebs v Olbrich (C-469/12) (2013)) on the reasoning that the commitment of the warehousekeeper of such a contract entails a specific activity consisting of the reception of goods, their storage in a safe place and their return in an appropriate state. A contract for the storage of cryptocurrency units, too, would constitute a contract for the provision of services on a similar reasoning. Accordingly, a contract concluded with a wallet provider would fall within the second indent of Article 7(1)(b).

The next question which arises is how to identify the place of provision of services under that provision. I intend to discuss it in my future post.

Difficulty of localisation in choice of law in other areas

In my earlier post, I have noted the difficulty of localising cryptocurrency for the purpose of choice of law for proprietary issues.

The difficulty of localisation in choice of law is not unique to blockchain. The high seas and outer space, too, present the same difficulty since no nation exercise sovereignty over such space. The difficulty does not solely concern proprietary issues but could also arise with respect to other issues such as tort, for which the applicable choice-of-law rules may specify the law of the place of the harmful event. I will discuss three approaches to get around this difficulty below.

One approach is to come up with an alternative connecting factor. Thus, where a ship is involved, its flag may be used as a connecting factor. In a case involving a collision of ships on the high seas, the Sendai District Court in its judgment on 19 March 2009 cumulatively applied the laws of the flag states to a tort claim for damages. It is not, however, easy to conceive of similar connecting factors for cryptocurrencies since their units are stateless by nature.

Another approach is to apply the law of the country with which the issue in question is most closely connected. This approach was taken by the Tokyo High Court in its judgment on 28 February 2013 when it determined the law applicable to a tort claim for damages caused by dangerous cargoes on board a ship while the ship was in transit on the high seas. Since a major (if not the most important) goal of choice of law rules is to ascertain the law of the country with which the issue is most closely connected, this approach pursues this goal directly without relying on other more concrete concept as a connecting factor. This approach could also be taken to determine the proprietary issues of cryptocurrency. But a drawback of this approach is the lack of certainty and predictability since all the relevant factors must be taken into account on a case-by-case basis.
A third approach is to unify the substantive rules of national legal systems. The unification of substantive rules, to the extent it is achieved, dispenses with the need for choice of law. The Cape Town Convention and its Space Protocol would offer many lessons when we consider proprietary issues of cryptocurrencies.

Right of conversion

In some legal systems, a debtor has the right to discharge its debt by paying in a currency other than the currency of account (i.e. the currency in which the debt is denominated). This option is sometimes called the right of conversion. Thus, Article 403 of the Japanese Civil Code provides:

Where a debt is denominated in a foreign currency, the debtor may make the payment in the Japanese currency in accordance with the exchange rate of the place of payment.

Where a debt is denominated in a cryptocurrency, the question whether the debtor has the right of conversion may arise. To fully consider this question, the following issues would need to be addressed:
1. what is the rationale of the right of conversion;
2. whether cryptocurrencies should be equated with foreign currencies in this context; and
3. what should be the law governing the right of conversion (More specifically, whether it should be the law applicable to the debt or the law of the place of payment and, if it is the latter, where is the place of payment of cryptocurrencies).

A separate question is whether the creditor has the right to demand payment in a currency other than the currency of account. This question, too, could arise where the debt is denominated in a cryptocurrency.

I intend to discuss these issues in my future posts.

Applicability of CISG

The CISG (UN Convention on Contracts for the International Sale of Goods) does not expressly define what constitutes a "contract of sale." 

There can be little doubt, however, that the Convention will have no application to contracts to buy cryptocurrencies with traditional currencies since the Convention is only applicable to sales of "goods" which are generally understood to mean tangible objects (e.g. Schlechtriem, Commentary on the UN Convention on the International Sale of Goods (1998) p. 23 [Herber]).
A separate question is whether the CISG is applicable to contracts to buy goods with cryptocurrencies. In the language of the Convention, the question is whether payment of cryptocurrencies should be interpreted as constituting "payment of the price." If not, such contracts would be barter contracts and accordingly fall outside the scope of the Convention (For barter contracts, see e.g. Schlechtriem.)
In this connection, it is worth recalling that the CJEU observed in its VAT judgment that bitcoins had no purpose other than to be a means of payment (para. 24). In other legal contexts, other purposes such as speculative investment purposes may be relevant. But in the context of CISG, a better interpretation seems to be that payment of bitcoins or other cryptocurrencies constitutes "payment of the price," since they have no intrinsic value of their own.

Technical feasibility of tracking stolen cryptocurrencies and legal response

Arvind Narayanan writes in his blog post that since banks can reverse fraudulent transactions and law enforcement of digital financial crimes is relatively competent, the risk of getting caught combined with the diminished ability to cash in on attacks skew the economics against attackers. He contrasts this with bitcoin whose design puts the entire onus on preventive measures. This insightful observation is based on the assumption (in his words) that "[i]f an attacker breaks into a server containing private keys, he can steal the bitcoins ... irreversibly." This assumption seems widely accepted. It seems to rest largely on technical grounds but I think it also depends on legal issues which are unsettled yet. Narayanan comments on the technical aspect saying, "[w]hile there’s been talk of taint-tracking mechanisms to prevent thieves from cashing out, these haven’t materialized and there are fundamental technical and political difficulties with such proposals." But he also adds a footnote referring to a paper which argues that it currently is difficult for thieves to launder large sums of bitcoins.
I do not have expertise to comment on the technical feasibility of tracking. But the point I want to make here is that should there be cases in which it is possible to trace the movement of stolen bitcoins, it will raise a legal question whether a recovery should be granted to the original owner. This question has not been tested before courts under any legal system to my knowledge. It would not be inconceivable that thieves and third parties who have acquired stolen bitcoins in bad faith are denied legal ownership and held liable to make restitution of the stolen bitcoins or their value in fiat currencies.

Analogy with ownership of traditional coins and notes

With respect to most tangible items, ownership is not determined by possession. Thus, if I hold in my possession a bicycle which I have rented, it does not make me the owner of the bicycle.
With respect to traditional coins and notes, Japanese law makes an exception to this principle. According to an established line of case law, the ownership of coins and notes depends on their possession (e.g. Supreme Court decision on 24 January 1964). There is a good reason behind this treatment. Coins and notes are different from other tangible items in the sense that their financial worth is derived not so much from the material (such as metal and paper) they are made of but from the monetary value (e.g. 10,000 yen) they represent. Accordingly, the ownership of coins and notes is in essence the ownership of monetary value. An analogy could therefore be drawn from it when we consider the ownership of cryptocurrency.
What should, then, be understood as the possession of cryptocurrency? Since the holder of the private key for the address in which cryptocurrency units are held has control over them, holding the private key could be equated with the possession of the cryptocurrency units. It would then mean that the holder of the private key owns the units.

This approach would commend itself for simplicity since in a majority of cases, no further question would arise. But some people may not like this solution since it would give wallet providers the ownership of units that they are entrusted with. Furthermore, the outcome is not clear in any of the following events:

1. The holder of a private key has disclosed it to others. The others would have the same  control over the units. No analogy could be drawn with traditional coins and notes which are physically possessed.

2. A private key has been stolen.

3. The holder of a private key has transferred it to others without effecting transfer of the corresponding cryptocurrency units on the blockchain.

4. Another person has generated an address with the same private key. This is likely to happen where a simple phrase is chosen to generate an address by using a brain wallet.

Other complications would arise if a multi-signature account is used or if a trust is set up over cryptocurrency units.

It seems to me that there is no simple test which could furnish answers to all ownership questions.

Choice of law rules for proprietary issues

In my earlier post, I have noted why legal ownership of cryptocurrency matters. The use of cryptocurrency as a collateral is also imaginable. 

The prerequisites for acquiring such proprietary rights and their effect are to be determined by legal rules. In the absence of internationally uniform rules, an applicable national legal system must be determined by choice-of-law rules of the country in which such issues are litigated or considered.

With respect to a tangible item, proprietary issues are subject to the law of the country where it is situated (lex situs or lex loci rei sitae) under the prevailing choice of law rules. With respect to intangible goods, choice-of-law rules are not as well established. In one of my articles, I have argued that the proprietary issues of an emissions quota, a species of intangible goods, should be subject to the law of the country where it is registered. 

Cryptocurrency is intangible. It is also a financially valuable data (information) as is an emissions quota. However, unlike the latter which is registrable on a national registry, cryptocurrency is registered on a blockchain which is borderless. This makes it difficult to localise cryptocurrency in a particular country for choice-of-law purposes.

VAT on transactions exchanging cryptocurrencies for traditional currencies and vice versa (comment on CJEU judgment 2)

The part of the judgment in which the Court held that transactions which consisted of the exchange of traditional currencies for bitcoin units and vice versa constituted the "supply of services" is relatively unremarkable. The "supply of services" and "supply of goods" are two main categories of economic activities taxable under the VAT Directive (Art. 2(1)). The Directive further provides, ‘“[s]upply of services” shall mean any transaction which does not constitute a supply of goods.’ (Art. 24(1)). Seen in this context, the notion of "supply of services" would hardly be expected to receive a narrow interpretation.

It may, however, be of interest to note that the European Court does not necessarily give the same meaning to a similar concept in different contexts. Thus, the Court once noted, "it is not necessary ... to interpret the concept of the 'provision of services' set out in the second indent of Article 5(1)(b) of Regulation No 44/2001 in the light of the definition of the concept of 'services' in the Community directives on VAT" (Falco Privatstiftung and Rabitsch (Case C-533/07) (2009)). On that reasoning, the Court interpreted the concept of the "provision of services" narrowly for the purpose of the rules for determining the jurisdiction of courts of the Member States. In a future post, I intend to discuss whether a claim in matters relating to a contract for the exchange of cryptocurrencies with traditional currencies would fall within the "provision of services" under what is now Article 7(1)(b) of the Brussels I-bis Regulation and if so, how the provision is to be applied.

Why legal ownership matters.

What follows is a description of three of the circumstances where the legal ownership of cryptocurrency matters.

1. The person with whom cryptocurrency is deposited (such as the provider of an exchange or an online wallet) has gone bankrupt. 

The depositor would certainly have a contractual claim for the return of the deposit. But the deposit would be converted into the fiat currency which is legal tender of the country where the bankruptcy proceedings are opened. Furthermore, the depositor would have to join other creditors and could obtain only a proportional recovery.

If the depositor could alternatively claim the ownership of the units of cryptocurrency which have been deposited, he would be able to obtain a full recovery outside the bankruptcy proceedings. The Tokyo District Court case, discussed in my earlier post, arose in this context but was decided on a narrower ground that only tangible items could be an object of "shoyûken" in Japanese law. 

2. Cryptocurrency units have been stolen and then transferred to third parties. 

The original owner could certainly claim damages in tort from the thief but his effort of recovery will often end in vain. Even if a restitutionary claim is available against the third party who obtained the units in bad faith, it would not defeat the seizure of the units by a creditor of the third party nor would it lead to a full recovery in the case of bankruptcy of the third party. If, however, the original owner retains the ownership of the units, he could defeat the seizure of the units and could also obtain a full recovery in the case of the third party's bankruptcy.
3. Cryptocurrency units have been sent to a wrong address or in a wrong quantity due to an error. In the case of bankruptcy of the recipient, a full recovery could not be obtained by a restitutionary claim but could be obtained if the original owner retains the ownership of the wrongly sent units.

田髙寛貴「金銭所有権と価値の追及」

　田髙寛貴「金銭所有権と価値の追及」(法学教室June 2015 No.417、22頁)は、仮想通貨の物権的側面の検討に大変示唆的である。

　この論文は、現金通貨に物権的保護を認める議論を展開した上で、預金債権は、預金保護措置などにより、弁済確実性が高いことから、「現金をもっている」のと同視でき、他の一般の債権と区別されうるとする。ただ、郵便切手や有価証券，さらには商品券やプリペイドカード，電子マネー等々，多様な金銭価値の存在形態のうち，どこまでを物権的帰属保護の対象に含めてよいかは問題であるとし、「ビットコインは、通貨としての価値を担保する機関が存在しておらず、このようなものにまで物権的な帰属保護が妥当するとはいえない」と述べる。

　たしかに、仮想通貨には、通貨としての価値を担保する機関が存在しておらず、その経済的価値は市場の評価に委ねられている。しかし、預金等と異なり、そもそも債権ではなく、債務不履行が考えられないので、弁済確実性も問題とならず、同列には論じられない。仮想通貨に物権的保護を認めるとすると、別の論拠が必要ということになろうか。物権的保護を認めるとしても、どの仮想通貨が保護されるべきかの判断(ビットコインのみを明示したCJEUのVAT判決も参照)が必要となる。

Replacing letters of credit with escrow transactions using multi-sig accounts

In an earlier post, I have argued that the blockchain technology could finally herald a breakthrough in the digitization of bills of lading, which are a backbone of trade in goods.
Another backbone of trade in goods is a letter of credit. It may be replaced by a vastly cheaper alternative of escrow transactions using multi-signature accounts on blockchains. A letter of credit relies on the issuing bank checking conformity of documents with the terms of the credit. As a non-expert in goods, the bank is not concerned with the conformity of goods with the underlying sale contract (under the principle of independence as enshrined in the UCPs). Under the alternative model, an expert in goods will act as the holder of a third signature for the multi-signature account, who will be called upon to inspect the goods in case of any dispute between the seller and the buyer.
For both bills of lading and letters of credit, the blockchain technology may offer alternatives and thus has the potential of providing a spark for the world trade and economy. Are there any entrepreneurs willing to put these ideas into practice?

VAT on transactions exchanging cryptocurrencies for traditional currencies and vice versa (comment on CJEU judgment 1)

Hot on the heels of my analysis of the Advocate General's opinion, the Court of Justice of the European Union gave its ruling yesterday.

It is noteworthy that the dispositive part of the judgment speaks solely of "the ‘bitcoin’ virtual currency" rather than using a more general expression like "a pure means of payment." So the question I raised with the AG's opinion would not arise under the judgment. It is a judgment specifically on bitcoin, though it does not mean that the possibility of a mutatis mutandis application of it to other cryptocurrencies is foreclosed.

So far as bitcoin is concerned, the Court embraced the opinion of AG. But there are some differences in their reasoning. Thus, AG noted that the Court had not previously ruled on the rationale of the exemption for currency and considered that its purpose is to ensure that, in the interests of the smooth flow of payments, the conversion of currencies is as unencumbered as possible. The Court, on the other hand, considered that the exemption is intended to alleviate the difficulties connected with determining the taxable amount and the amount of VAT deductible which arises in the context of financial transactions. The reasoning of AG seemed informed by a broad policy consideration while that of the Court is based on a technical consideration which is specific to the context of VAT. In the final analysis, neither AG and Court saw good reasons to differentiate bitcoin from traditional currencies with respect to the rationale to which each of them attributed the exemption.

Can information (data) be an object of legal rights?

This is a broad question underlying the analysis of any proprietary issues of cryptocurrencies and other assets on blockchains, since they may be seen as nothing but information (data) whose value is acknowledged by the market or specific parties involved in a transaction.

Information cannot be an object of legal rights in Japanese law (a position presumably shared by many legal systems), a major exception being intellectual properties. Thus, if a disc containing valuable information is stolen, a criminal charge cannot be brought against the theft of the information but only against the theft of the disc (See e.g. Tokyo District Court judgment on 7 July 1998). The rationale is that if otherwise, a conduct like browsing at a bookshop could be a criminal offense, which would seem counter-intuitive.

This general position may need to be reviewed with the proliferation of financially valuable information such as big data in the society. Emissions quota may be regarded as another example. I have previously considered the issues of conflict of laws in emissions trading on the assumption that emissions quotas can be an object of ownership. That assumption conjures up the image of ownership of atmosphere and has been met with occasional scepticisms but it is now widely accepted. Cryptocurrencies and other assets on blockchains, too, would pose a challenge to the conventional thinking and I think that they should be treated as being capable of becoming objects of legal rights at least for the sake of conflict-of-law analysis.

International registry of the Cape Town Convention

The Cape Town Convention (Convention on International Interests in Mobile Equipment) is one of the most successful international conventions in transnational commercial law. At the heart of its system of priorities lies the international registry. It is established by the Supervisory Authority who also appoints the registrar (Art. 17). The Registrar is liable for damages for loss resulting from its errors and omissions or those of its officers and employees (Art. 28(1)).

I think the Convention would benefit a lot from replacing the centralised registry with a blockchain-based decentralised system of registration. It would be much cheaper to operate and would be free from errors or omissions caused by the registrar or its officers or employees.

VAT on transactions exchanging cryptocurrencies for traditional currencies and vice versa (comment on Advocate General's opinion)

　ビットコインと法貨との交換は付加価値税(VAT)の対象となるサービスかどうかについて、2015年7月16日に、EUのKokott法務官の意見が出された(Skatteverket v David Hedqvist, Case C-264/14)。法務官意見には、EU裁判所の判断にも影響力があるが、英語の公定訳はまだ出ておらず、日本語では未紹介のようだ。
　本事件では、Hedqvist氏は、スウェーデンの法貨によるビットコインの販売と購入を行い、その交換レートの差を利益とする営業(したがって、取引所ではなく、販売所)を開始することにした。同氏がVATの支払義務を負うかについて、EUのVAT指令(2006/112)の解釈について、スウェーデンの最高行政裁判所がEU裁判所の判断を求めた。
　法務官は、このような交換は、原則としてVATが課税される「対価を伴うサービス」(Art. 2(1)(c))に当たるが、通貨に関する取引として課税が免除される(Art. 135(1)(e))と判断した。ここで言う「サービス」の内容は、交換であり、通貨の移転ではないとしている(paras.13,18)。また、ビットコインの保有目的は、支払手段以外にはない(para. 17)との前提に立っている。その上で、VAT指令の前記条文との関係では、支払手段である通貨を法貨と区別する理由はなく(paras. 15, 40)、ビットコインが良貨か悪貨かも関係ない(para. 44)と説示している。結論部分においては、ビットコインという固有名詞は使わず、「純粋の支払手段」という一般的な表現を使っている。他の仮想通貨について、どの時点で誰の判断を基準に「純粋な支払手段」であると評価することになるのか等々、興味は尽きない。

I have given above a short account in Japanese of Advocate General's opinion as it is not known in Japan yet. The opinion contains a number of interesting remarks such as that the possession of bitcoins would be for no other purpose than for making payment and that it does not matter whether bitcoins are a good or bad currency.It is also notable that the advocate general did not use the word "bitcoin" in the conclusion but used a more general expression "pure method of payment." Since there is a large number of altcoins, it is to be wondered who gets to decide whether any particular one of them constitutes a "pure method of payment."

Tokyo District Court ruling on the ownership of bitcoins: the use of the English word "ownership"

The Tokyo District Court ruling on 5 August 2015 is reported as having denied the "ownership" ("shoyûken" in Japanese) of bitcoins on the ground that shoyûken is a concept limited to tangible things. This ruling cannot be wrong so far as the Japanese law concept of shoyûken is concerned since no one can deny that bitcoins are intangible. It is, however, misleading to translate "shoyûken" into "ownership" since the English word "ownership" is often used in a broader sense covering also intangible things. Thus, it is not uncommon to speak of the ownership of patent or copyright. On the other hand, "shoyûken" of patent or copyright is never heard of. The ruling, when reported outside Japan in the language of "ownership", seems to have caused a lot of alarm but the appreciation of difference between the Japanese law concept of "shoyûken" and the English word "ownership" should allay concerns.

Electronic bill of lading on blockchain

The first and most famous application of the blockchain technology is bitcoin. But the real innovation lies in its underlying technology and a number of proposals and trials have been made on its application in the past few years. I personally think that one of the most promising areas of application is trade in goods. 

Bills of lading, which form the backbone of trade in goods, have been the subject of a number of attempts for digitization since 1986. But they seem to have yielded only a limited success, with paper bills of lading still occupying a mainstream status. The only means to electronically emulate the function of bills of lading as a document of title is to effect an online registration. It, however, limits the possibility of the use of electronic bills of lading to trading among members of a registry. This limitation encumbers the spread of electronic bill of lading since trading often has to involve a number of parties such as consignors, banks, carriers, and consignees. 

With the advent of the blockchain technology, I think a breakthrough is finally on the horizon. A delivery order issued by the carrier may be registered on a blockchain and may be transferred to the seller and then to the subsequent buyers on the blockchain. The algorism of the blockchain ensures singularity, a function essential as documents of title. It does not rest on any memberships but allows everyone to take part in transactions. While putting sensitive trade-related information on blockchain may give rise to concern, it could be overcome by putting the hash values of such information instead.