Introduction
Using Ainsworth test, most of the courts around the world support the view that the cryptocurrency is property, such as in Supreme Court of (South) Korea, Shenzhen Court of International Arbitration, Singapore International Commercial Court, and High Court of Justice of England and Wales.[1] However, court in Australia indicated that “too much significance should not be attached to the Ainsworth test. In the case of Yanner in 1999 and Ward in 2002, the High Court of Australia did not follow the Ainsworth formulation of property”[2]
This essay will discuss the prospect of cryptocurrencies’ legal status in Australia.
Overview of cryptocurrencies
“ A cryptocurrency is a digital currency which can be transferred directly from one party to another within a network without the requirement of a financial intermediary”[3] . “A blockchain is the infrastructure that supports the exchange of cryptocurrencies. It is perhaps easiest to think of a blockchain as a digital form of ‘ledger book’ in which the cryptocurrency transactions of network participants are recorded.”[4]
Although not all systems possess all of them, we can therefore identify the principal novel and characteristic features of crypto assets as being:
- intangibility; (b) cryptographic authentication; (c) use of a distributed transaction ledger; (d) decentralisation and (e) ruled by consensus.[5]
They have an existence independent of persons and the legal system; they are amenable to exclusive possession and are fully divestible on transfer. [6]
Given the fact that Cryptocurrency is a conglomeration of public data, private keys, and system rules[7], it is essentially data. Therefore, it is duplicable theoretically even though it is difficult at present. Some cryptocurrencies such as Ethereum which is the second most popular cryptocurrency[8] are also reported to be replicable by taking advantage of the weakness in the system rules. E.g., the bug found by Cydia Dev.[9]
Are cryptocurrencies property?
“Property” does not refer to a thing; it is a description of legal relationship with a thing. There is no definitive set of criteria that establish the existence of property right.[10]However, certain characteristics point to the existence of a right of property. They are exclusivity, duration, security, quality of title, transferability, and divisibility.[11]
His honour in Ruscoe and Moore use the Ainsworth test as reasons to conclude that cryptocurrencies are property. The court’s position could be summarized as follows: Glendall J considered that because cryptocurrencies comprised computer-readable strings of characters capable of being allocated uniquely to holder, they were ‘definable’. She also found that an asset is identifiable by third parties through public key.[12] She also observed that they are capable of assumption by third parties because cryptocurrency could be bought and sold freely. She also noticed the required degree of permanence was inherent in the blockchain methodology.[13] Despite “the issue of vulnerabilities of ledger records be changed”[14] and “change in consensus rules leading to divide the original system into two separate systems” [15], the cryptocurrency is stable in most circumstances.
My assessment
In my opinion, given the fact that Cryptocurrency is replicable in theory, the basis of Glendall J’s conclusion is questionable. If Cydia Dev in the Ethereum case indeed printed an arbitrary Quantity of Tokens by using the system vulnerability, the world’s second rank Cryptocurrency would lose the nature of assumption immediately.
Theoretically, any blockchain is breakable. The wall created by encryption technology for us is no more than the unbreakable walls of Constantinople for a person in middle age. Like the cannons breaking the wall of Constantinople, what takes to break the blockchain is new technology. It may mean simply finding a loophole in the source code or a substantially difficult but not impossible task involving advancing computing power by introducing a quantum computer. Although on balance, I am comfortable that reputable cryptocurrencies like bitcoin could meet the Ainsworth test. However, this conclusion only covers the reputable cryptocurrencies with proven high standard underlying blockchain. This expediency could change with the development of computing power or the discovery of the fatal loophole in the source code in the future.
Besides, the legality of cryptocurrency is a potential risk as it could be a competing currency of fiat currency issued by the central bank or being used to funnel money to illegal sources. The legislature could reject the novel claims of property[16] and declare holding or trading cryptocurrency illegal anytime in Australia. This happened in China and 9 other countries.[17] Although, as case law indicates that “the fact that statutory rights are inherently unstable, for this reason, does not mean that they cannot amount to a right in property”,[18] this may affect its suitability to be the subject of an express trust.
Australian way of assessing property
In Australia, the common law’s concern is to identify property relationships between people and places or things as rights of control over access to and exploitation of, the place or thing.[19]
In my opinion, there is property over the cryptocurrency according to the requirements set out in Ward. Regarding the first requirement, the cryptocurrency holder would have the rights of control over the cryptocurrency through the private key as we discussed above. The second requirement is also satisfied as the cryptocurrency holder is free to use it in any way he wishes, including the transfer of the cryptocurrency. Therefore, following the ratio decidendi in Ward, Australian court is likely to find Cryptocurrency is a property without the help of the Ainsworth test.
[1] Paul T Babie et al, Cryptocurrencies as Property: Ruscoe and Moore v Cryptopia Limited (In Liquidation) [2020] NZHC 728 (SSRN Scholarly Paper No ID 3578264, Social Science Research Network, 17 April 2020) 1 <https://papers.ssrn.com/abstract=3578264> (‘Cryptocurrencies as Property’).
[2] Hannah Yee Fen Lim, ‘Is an Email Account “Property”?’ 1(2011) Property Law Review 65 <https://www-westlaw-com-au.ezproxy.flinders.edu.au/maf/wlau/app/document?docguid=I80f117cccfe111e08eefa443f89988a0&isTocNav=true&tocDs=AUNZ_AU_JOURNALS_TOC&startChunk=1&endChunk=1>.
[3] Babie et al (n 1).
[4] Ibid 3.
[5] ‘Ruscoe v Cryptopia Limited (in Liquidation)’ 31 <https://ap01.alma.exlibrisgroup.com/leganto/readinglist/citation/241929187860001771>.
[6] UCL, ‘Online | Time for a Tertium Quid’, UCL Faculty of Laws (2 December 2021) <https://www.ucl.ac.uk/laws/events/2023/mar/online-time-tertium-quid>.
[7] The lawtech delivery panel, ‘The LawTech Delivery Panel Legal Statement on Cryptoassets and Smart Contracts UK Jurisdiction Taskforce’ 65 <https://ap01.alma.exlibrisgroup.com/leganto/readinglist/citation/241929187900001771>.
[8] ‘Cryptocurrency Rankings’, CryptoSlate <https://cryptoslate.com/coins/>.
[9] ‘Cydia Dev Discloses Ethereum L2 Bug — Optimism Attacker Could Have “Printed an Arbitrary Quantity of Tokens”’, Bitcoin News (13 February 2022) <https://news.bitcoin.com/cydia-dev-discloses-ethereum-l2-bug-optimism-attacker-could-have-printed-an-arbitrary-quantity-of-tokens/>.
[10] Yanner v Eaton (1999) 351 CLR.
[11] ‘Water Rights in NSW : Properly Property?’ 31 Sydney law review 443 (‘Water Rights in NSW’).
[12] Babie et al (n 1) 8.
[13] Ken Moon, ‘New Zealand: Are Cryptocurrencies Property? — An Analysis of Eligible Entities for Property in the Light of the First Landmark Ruling on Cryptocurrency’ (2020) 21(5) Computer Law Review International 135, 11 (‘New Zealand’).
[14] The lawtech delivery panel (n 7) 54.
[15] Ibid 55.
[16] Babie et al (n 1) 1.
[17] ‘Crypto Is Fully Banned in China and 8 Other Countries | Fortune’ <https://fortune.com/2022/01/04/crypto-banned-china-other-countries/>.
[18] ‘Water Rights in NSW : Properly Property?’ (n 11) 455.
[19] Western Australia v Ward [2002] CLR 88.