Security rights in cryptocurrency-related assets

Any asset having market value will generate demand for use as a collateral. 

It would be possible to create security rights in a receivable which is denominated in a cryptocurrency in the same way as a receivable denominated in a fiat currency. 

The UNCITRAL Model Law on Secured Transactions (2016) sets forth a special set of rules for bank deposits (Article 25 on effectiveness against third parties and Article 47 on priority). Are they also applicable to a receivable denominated in a cryptocurrency? If the words “authorized deposit taking institution” as contained in Article 2(c) of the Model Law which defines the term “bank account” are interpreted as a generic expression covering any institution authorized to receive deposits, a company which is authorized to provide an online wallet service for the Bitcoin would be an “authorized deposit taking institution.” This interpretation, if adopted, would attract the application of the rules of the Model Law for bank deposits.

Then, would it be possible to create security rights in the units of cryptocurrency? This question concerns cryptocurrency units themselves rather than a receivable denominated in a cryptocurrency. Under the Model Law, any type of movable asset may be encumbered by a security asset (Article 8(a)) and the words “movable asset” is defined broadly as a tangible or intangible asset, other than immovable property (Article 2(u)). So the Model Law seems applicable to cryptocurrency units. 

There are, however, questions of interpretation as to how its rules are to be applied. Thus, a security right in cryptocurrency units would be effective against third parties under Article 18(2) where the secured creditor holds them at his address if it is possible to interpret the possession of a private key as being equivalent to the possession of a tangible asset.

Under the Model Law, the word “money” is defined as currency authorized as legal tender by a State (Article 2(t)). A cryptocurrency would be capable of meeting this definition if any State authorized it as its legal tender. However, money is supposed to be a tangible asset under the Model Law (See Article 2(ll)). Consequently, the special rules for preserving negotiability of money contained in the Model Law (Article 48 on priority) are not applicable to cryptocurrencies. Should it be thought that cryptocurrencies ought to benefit from the same rules, amendments would be needed.

Finally, the Model Law recognizes that the enacting State may specify certain types of asset as being subject to specialized secured transactions under other law (Article 1 (3)(e)) but it recommends such exceptional regimes to be limited (footnote 3).