International law firm seeks to define Bitcoin as property rather than as a currency

8:30 AM bitcoin, bitcoin exchanges, contract, international law, property, rehypothication 1 Comment

A month ago, an international law firm that specializes in blockchain technologies and crypto-currencies submitted a white paper in which they advocated that Bitcoin should be officially recognized as property and protected by the property laws of sovereign countries.

Using a California legal precedent on property as their foundation for U.S. determination, the firm believes Bitcoin transactions should be conducted the same as one would do with property, where contractual agreements between two parties utilize permissions and escrow while allowing the Bitcoin owner to retain ownership until the terms of the contract are complete.

Image use courtesy of Michael Carney/pondodaily

As Bitcoin is adopted by more users every day, the need to determine how it can integrate into mainstream society becomes even more pressing. One major question continues to be how traditional laws apply to Bitcoin and its use. 

Many of those determinations could have major implications for Bitcoin and its holders, and few will play a bigger role in the United States than property laws, which could ultimately govern ownership over the digital currency. 

A new white paper, “Treatment of Bitcoin Under U.S. Property Law,” seeks to analyze how the worlds of digital currency and property law should intersect. The report was assembled by Perkins Coie, an international law firm that specializes in blockchain technology and digital currency and has been active in the space since 2013. While detailed and clearly well-researched, the paper’s foremost conclusion is straightforward and transparent. 

“We conclude that property interests should exist in bitcoin under such law, and that multiple sources of persuasive authority provide additional support for that conclusion,” the paper’s authors, J. Dax Hansen and Joshua L. Boehm, wrote. 

The paper begins with an overview of Bitcoin’s technological attributes and what those mean for how property law can apply to it. Using California state law as a benchmark and Bitcoin transactions as an example, the authors make their case. 

“Parties may ... enter into contractual arrangements in which one party entrusts partial or complete control of such private key(s) to a third party while still maintaining formal title to the bitcoin value represented in applicable [unspent transaction outputs],” the paper reads. “These kinds of contractual arrangements are commonplace in custodial, trust, and escrow settings, which have generated well-developed legal principles that should generally translate to bitcoin custodial contexts.” 

The paper dissects academic articles from some of the country’s foremost law professors, who also, for the most part, support the idea that intangible property rights should apply to Bitcoin: 

“Property law scholars who have encountered the bitcoin ownership issues in the context of broader, more theoretical undertakings have reached (or assumed) the same general conclusion ... that is, interests in bitcoin should be protected by property law.” - Bitcoin Magazine

Perhaps the most important question in this concept of labeling Bitcoin and other crypto-currencies as property in the eyes of the legal system is that it would have a profound effect on Bitcoin exchanges who have in the past simply mixed all customer accounts and currencies into a 'pool' rather than keeping them segregated and untouchable without the permission of the account holder.  In fact, it was this re-hypothication scheme that led to the insolvenciea of exchanges like MT. Gox, who used financial and security regulations rather than property law to end up selling more Bitcoins to customers than they had available in their own account.

The United States court system has already made initial rulings that label Bitcoin as property, mostly for taxation purposes rather than for legal protections.  But until the world comes to a consensus on what exactly Bitcoin and other crypto-currencies function as... property, securities, currency, etc... then for the most part crypto-currencies will remain on the fringe and in the realm of a select few who recognize their potential and application.