Friday 11 January 2019

Conflict of Laws in Blockchain-Based Crypto-Assets

The Journal of Private International Law will be holding its 8th Conference at the University of Munich from 12-14 September 2019. In response to a call for papers, I have submitted the following abstract. I only mentioned choice-of-law issues because of the word limit. In my actual paper, I may as well touch on jurisdictional issues.

This paper will consider a range of choice-of-law issues arising from crypto-assets on blockchains.

(1) Contractual issues. Suppose that a contract is concluded pursuant to which bitcoins are offered to purchase goods. Given that cryptocurrencies are not a fiat currency and might not be seen as goods, is that contract to be characterised as a “sale of goods”, a “barter of goods”, or a “barter of service for goods” for the choice-of-law purposes? Aside from the question of characterization, blockchains will not raise particularly difficult choice-of-law questions in contract since party autonomy is almost universally adopted.

(2) Issues of non-contractual obligations. If bitcoins are stolen and the victim seeks redress from the offender in tort, where is “the country in which the damage occurs”? Again, if bitcoins are transferred by mistake and the transferor demands restitution from the transferee in unjust enrichment, where is “the country in which the unjust enrichment took place”? Such connecting factors raise difficulties because crypto-assets are recorded in distributed ledgers on a borderless network and accordingly cannot be localised in any specific country. But since obligations are owed by, and to, specific persons, it should not be too difficult to identify, as an alternative connecting factor, the country with which the issue in question is most closely connected.

(3) Proprietary issues. If the provider of a cryptocurrency exchange is entrusted with bitcoins from its customers and becomes bankrupt, the customers may seek proprietary restitution from the bankruptcy administrator. Then, what law is applicable? Unlike tangible assets, for which the prevailing choice-of-law rules specify the lex situs, there is no settled choice-of-law rules for intangible assets. With respect to emissions quotas, a species of intangible assets which, like crypto-assets, are financially valuable, I previously argued for the application of the law of the country where they are registered ("Conflict of Laws in Emissions Trading" (2011) 13 Yearbook of Private International Law 145). But this connecting factor would be unworkable with crypto-assets since they are not recorded on a national registry but on distributed ledgers. So proprietary issues of crypto-assets pose a great challenge to the approach of choice of law. Noting this challenge, I previously suggested applying the law of the country with which the issue in question is most closely connected (A note on 4 November 2015 in my blog: Blockchain, Cryptocurrency, Crypto-asset and the Law). While the task of ascertaining that law is not always easy, the subsequent emergence of consortium blockchains and a “constitution”-based public blockchain should make it easier for such blockchains.

(4) Issues pertaining to transferable documents. Suppose that a company purports to issue its stocks or debentures on a blockchain. What law determines whether they are legally valid stocks or debentures? This question is important because the blockchain technology ensures the uniqueness of record, an essential feature of any electronic form of transferable documents. The clarification of law in this area will be a key to developing the “token economy.”

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