Saturday, 31 October 2015

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.

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