This article considers how EU and German civil and regulatory law approaches crypto assets as well as how those types of crypto assets are dealt with in an insolvency.
Assets issued or transferred via distributed ledger technology (DLT) or blockchain are known as crypto assets. DLT makes it possible for peers on a network, each of whom has a complete copy of the ledger, to concurrently view, verify and update transactions involving crypto assets on a decentralised ledger. Blockchain technology is a peer-to-peer DLT safeguarded by encryption. It is intended to be immutable and appended-only, meaning that once data and transactions are added, they cannot be taken out and can only be altered by consensus among peers. Crypto assets can be exchanged for other crypto assets or for traditional currency (such as US$ or €) at crypto asset trading platforms and other intermediaries. Most crypto assets are utilised for payment as a novel means of raising capital and as potential investments.
Notably, transferring crypto assets requires an authorisation in the form of a cryptographically signed message by the initiator. The signature, produced by a private key, represents the user’s permission for the DLT to request a ledger entry reflecting the change in possession. A valid signature provides the cryptographic assurance to the DLT system and its participants that the transaction initiator has the authorisation to enact a corresponding ledger entry. If accepted, the ledger is updated in a way that a particular crypto asset is associated with the (typically pseudonymous) public key of a particular user. In this context, the private key can be compared to a password that unlocks the user account, whereas the associated public key (and the derived address) resembles a user account number.
However, a valid signature does not automatically provide proof that the owner of the corresponding private key has produced the signature. Instead, it provides a guarantee that a holder of the private key has initiated the transaction. Therefore, the use of a private key underpins the presumption that a transaction has been authorised. Furthermore, in the context of crypto assets, the notion of custody thus no longer refers to the direct holding of assets, but to the secure storage of cryptographic keys. Despite this functional equivalence, it is far from straightforward that (exclusive) knowledge of a private key is for all purposes equivalent to legal ownership of the certain crypto assets.
Apparently, as described in more detail in a previous article, global legal systems take divergent approaches to the concept of property which is essential for the legal aspects of ownership of objects. Three broad approaches can be named in the world’s major legal systems:
- Common law jurisdictions use categories of things that can be owned and transferred like other types of personal property.
- Most civil jurisdictions treat certain rights as non-physical objects although a few stipulate that only physical objects qualify as “objects” that can be owned.
- Some civil jurisdictions, including German and Japanese law, have the most fundamental problems, as the recognition of any non-physical object as an object of property rights needs to circumvent this dogmatic axiom.
In this insight we focus on :-
- Type of Crypto Assets
- Legal Nature of Crypto Assets From a European and German Legal Perspective
- Crypto Assets in Insolvency Proceedings
- Recovery of Crypto Assets
