English Court Rules Bitcoin is Property
In an important decision for users and developers of cryptoassets, the High Court of Justice of England and Wales has confirmed in AA v Persons Unknown and Bitfinex1 that cryptoassets with characteristics similar to Bitcoin should be treated as property under English law. While the decision related to a narrow point of law, the judgment endorsed the conclusions on this issue in a wide-ranging study on cryptoassets2 (the “Cryptoasset Statement”) published in November 2019 by the UK Jurisdiction Taskforce (the “UKJT”).
The categorisation of Bitcoin (and similar cryptoassets) as property under English law is significant as it demonstrates that ownership rights relating to cryptoassets are legal and enforceable against third parties.
While the AA case relates to a narrow question, if the ruling is widely followed in relation to cryptoassets with characteristics similar to Bitcoin:
- it will be possible to obtain freezing injunctions and pursue tracing claims in respect of a cryptoasset;
- English law security can be validly taken by way of charge or mortgage over a cryptoasset;
- cryptoassets will be treated as property for the purposes of custody arrangements; and
- cryptoassets will be property for the purposes of English insolvency law, allowing the holder to claim for return of the asset rather than being limited to a monetary claim against an insolvent estate.
The AA Case
- An English insurance company (the “Insurer”) paid the equivalent of US$950,000 Bitcoin to hackers who infiltrated its insured customer’s IT systems.
- The Insurer engaged a specialist cryptoasset investigations company to trace the Bitcoin that was paid to the hackers and found that the majority was transferred to a cryptocurrencies exchange called “Bitfinex”.
- The Insurer sought to recover the ransom amount by applying for an injunction over the Bitcoin held on account for the hackers at Bitfinex.
In granting the injunction, the Court concluded that the nature of Bitcoin satisfied the criteria to be regarded as property under English law (agreeing with the Cryptoasset Statement).
The Cryptoasset Statement
In reaching its conclusion that cryptoassets can be treated as property under English law, the UKJT found that it is not the private key held by an individual to validate transactions on a distributed ledger system that is regarded as property (this is just “information” ). Rather it is the ability to transact within the rules of the system including the public data and use of an individual’s private key that gives cryptoassets the characteristics of property.
Other significant conclusions in the Cryptoasset Statement that were not directly referred to in the ruling were:
- smart contracts are capable of being recognised and enforceable under English law provided the existing common law elements of contractual formation are met;
- cryptoassets are not “negotiable” in the legal sense as an “on-chain” transfer creates a new asset in favour of the transferee – however the effect of an on-chain transfer is the same as cryptoassets being negotiable instruments given the new owner will have valid title albeit to a newly created asset; and
- in order to take security over a cryptoasset, only a mortgage or equitable charge can be taken (in the same way as a mortgage or charge is created over other intangible property).
- AA v (1) Persons Unknown Who Demanded Bitcoin on 10th and 11th October 2019, (2) Persons Unknown Who Own/Control Specified Bitcoin, (3) iFINEX trading as BITFINEX, (4) BFXWW INC trading as BITFINEX  EWHC 3556 (Comm).