Cryptocurrencies are dominating the news headlines. The price of Bitcoin continues to hit record high, Dogecoin is now being reported to fund a mission to the moon by Space X and the Commonwealth Bank of Australia announced that it will be the first Australian bank to allow its customers to buy, sell and hold cryptocurrency. The insurance industry is also starting to consider how they might be able to provide cover for these products if they are stolen. However, as products only exist online, largely stored in e-wallets means that these products are at risk of theft from cyber criminals. If the worst happens, what options exist for parties to seek to recover them or are they simply lost to cyberspace?
Practical legal considerations arise when considering the recovery of stolen cryptocurrency. Australian Courts are yet to deliver a published decision regarding cryptocurrency’s legal status; however, common law courts in England, Singapore, and New Zealand can provide some helpful guidance on how Australian Courts may approach these issues.
A primary legal issue is whether cryptocurrency can be considered property. There are also unique issues of governing law and jurisdiction to ensure that the Australian Court have jurisdiction to hear such matters and have the power to make the necessary orders to discover, freeze and arrange for the recovery of cryptocurrency. Finally, critical procedural matters must be considered, including the evidence required to establish the right to those orders.
In this article, Clyde & Co partners Matthew Pokarier and Darryl Smith consider these issues in detail.
What is Crypto-currency?
Before considering the legal issues, it is worth highlighting some of the technological and practical features of cryptocurrency to understand better the context of the legal attempts to recover them.
Cryptocurrency is a digital currency that uses encryption techniques to control its creation and verify the transfer of funds. The underlying technology of cryptocurrency is blockchain. A blockchain is a decentralised ledger across a network of computers that records transactional records across many computers. Cryptocurrency is not linked to any fiat currency, nor is it regulated by any central monetary authority. Its value is only what the market prescribes to it. It has no intrinsic value and has no physical form, and it only exists online the network. It is, therefore, an intangible and decentralised property that does not necessarily exist in any one place.
In addition to blockchain, the other important feature is the encryption technique used, called public-key cryptography. This mathematical function is easily solved in one direction but almost impossible to crack in reverse. Cryptocurrency works by using a public key and a private key. The public key allows others to verify your ownership of cryptocurrency on the blockchain, while the private key proves your ownership and allows it to be used as a medium of exchange. As we will see, cryptography’s public/private nature is essential in considering the legal characteristics of cryptocurrency.
Private keys are often stored in e-wallets or on bitcoin exchanges. These exchanges act as brokerages that allow cryptocurrencies in their wallets/accounts to be exchanged for fiat currency.
Is Cryptocurrency property?
To seek an order for recovery of cryptocurrency, a court will need to be satisfied that cryptocurrency is “property”, and the is currently no published Australian decision on this issue. The chief difficulty in considering cryptocurrency is that it does not fit neatly within the traditional division of the concept of property between a chose in action, and …….
Source: https://www.lexology.com/library/detail.aspx?g=3cdaf691-eb32-4f8e-835a-d19e1338f520