Cryptocurrencies: 2020 And Beyond

• Published date: 06 July 2020
• Subject Matter: Technology, Fin Tech
• Law Firm: Conyers
• Author: Mr Jonathon Milne

As the global leader in alternative investment funds and one of the most innovative financial centres in the world, it is unsurprising that the Cayman Islands has quickly become a popular destination for cryptocurrency vehicles and initial coin offerings (ICOs).

There are several other reasons why Cayman is an attractive jurisdiction for FinTech business, including the fact that it offers tax neutrality, a stable political system, judicial ties to the United Kingdom and support via sophisticated professional services firms.

There is always a balancing act between adopting a pro-industry approach to exciting new business and maintaining the highest standards of governance. Cayman, like the rest of world, is considering how best to regulate and place controls on the cryptocurrency space.

In this article, we consider recent case law and developments regarding the treatment of this FinTech business and the legal status of this relatively new and evolving asset class, to predict how the Cayman Islands and other jurisdictions may treat crypto assets and deal with disputes as they arise.

Brief history of the development of cryptocurrencies

Almost 12 years ago now, a white paper entitled "Bitcoin: A Peer-to-Peer Electronic Cash System" was published under the moniker Satoshi Nakamoto. Prior to that watershed moment, other Blockchain pioneers had tried to create digital currencies with more limited success.

By 2010, cryptocurrency exchanges were cropping up. Shortly after that, more coins and crypto assets were created under a variety of brand names. The market was relatively sophisticated by 2015, when Ethereum arrived on the scene, and ICOs began taking place. Fast forward to 2020 and there are literally thousands of unique digital currencies.

There is now a wide-ranging investor base for digital assets and many retail stores are accepting cryptocurrencies as a method of payment. With the advent of dedicated ATMs and mainstream use of Blockchain technology, it appears that cryptocurrencies (in one form or another) are here to stay.

Accordingly, as Bitcoin and its competitors become more embedded in our daily lives, there is an increased focus on regulation and a desire to determine the legal status of this relatively new and evolving asset class. However, that focus and desire creates a number of issues from a philosophical standpoint. Many early adopters of Bitcoin and other cryptocurrencies were attracted to the ideology of cryptocurrencies rather than the financial benefits. It is no coincidence that Bitcoin gained traction and support following the Global Financial Crisis, when anger and apathy were at an all-time high.

The Bitcoin white paper contains this statement: "The root problem with conventional currencies is all the trust that's required to make it work. The central bank must be trusted not to debase the currency, but the history of fiat currencies is full of breaches of that trust."

It is against that ideological background that the judiciary, regulators, legislature and industry stakeholders must consider how to apply existing principles (if possible) and also develop a satisfactory regulatory regime in respect of cryptocurrencies and related digital assets.

Latest developments: is cryptocurrency property?

An issue which has arisen repeatedly in the recent past and will continue to arise is, whether Bitcoin and other cryptocurrencies should be treated as property in the eyes of the law. The answer to this question has profound consequences, and has been the subject of a number of decisions. For example, how can misappropriated assets be recovered and remedies sought to trace them, if the asset is not property and therefore there is no proprietary interest to protect? As will be seen, the position is not as straightforward as it initially appears.

The spectrum of academic opinion on certain fundamental, threshold questions is broad:

- Is cryptocurrency personal property? If not a form of personal property (as it is neither a chose in possession nor a chose in action), is it a new hybrid category of personal property, a "virtual chose in possession"?

- Is cryptocurrency money? Although it lacks certain of the fundamental characteristics, it may soon become a form of money.

Therefore, can it be classed as property in that sense?

It is generally accepted that a bitcoin, to pick a particular type of...