Wednesday 28 October 2015

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.

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