Here To Stay: The Burgeoning Crypto Market And Its Crossover With Insolvency Disputes

• Published date: 08 March 2023
• Subject Matter: Insolvency/Bankruptcy/Re-structuring, Technology, Insolvency/Bankruptcy, Fin Tech
• Law Firm: Collas Crill
• Author: Mr Oliver Terry

This article by Trainee Solicitor Oliver Terry was published in ThoughtLeaders4 FIRE Starters magazine as part of its essay competition. Click here to read the publication (Oliver's article is on pages 30-33).

The growth of cryptocurrency generally and in Jersey

Crypto's role in the legal world is complex. The legal crypto industry is in constant evolution given the need to adapt to an ever-changing regulatory and legal landscape. Analysts estimate that the global cryptocurrency market will have tripled by 2030, hitting a valuation of nearly $5 billion.¹ With the number of new bitcoins issued per block halving every four years or so, the final bitcoin is not expected to be generated until 2140, and Bitcoin will exist even beyond this.² The opportunities that the crypto world offers and will continue to offer to the legal industry and FIRE practitioners through to 2033 and beyond should not be overlooked.

How does crypto relate to law?

Litigation in the cryptosphere is rapidly developing. In just three years, the English Court has confirmed that Bitcoin is capable of being property (AA v Persons Unknown & Ors³); that the legal jurisdiction of cryptocurrency is where the owner is based (Ion Science Ltd v Persons Unknown & Ors⁴); that cryptoassets are capable of being held on trust (Wang v Darby⁵); and that cryptoassets may not be used as security for costs (Tulip Trading Ltd v Van Der Laan⁶). Many cases heard in the English Court will be in relation to asset recovery and involve applications for freezing orders, disclosure orders, and orders to allow the recovery of cryptoassets. In such cases, it is absolutely essential to get the underlying basics right before initiating the action.⁷

Road to recovery

Because cryptoassets are by their very nature hidden, the key question becomes what legal remedies are available to recover cryptoassets that have been misappropriated by hacking or through fraud.

The victim must act quickly to locate and secure their crypto assets because of their temporary nature.⁸ One way in which this issue might be addressed is by issuing urgent ex parte applications for injunctions (as exemplified in the case of Fetch.Ai Limited v Persons Unknown & Ors⁹) against the wrongdoers that may hold information relevant to the tracing of the misappropriated cryptoassets. Such applications should be made without notice and hearings should be held in private in order to make it more difficult for offenders or holders of the criminally tainted assets, to be tipped off.¹⁰ Whilst the courts in Jersey have not had to contend publicly with freezing crypto assets to date, we can draw parallels with the position taken by the English Court in Fetch.Ai Limited v Persons Unknown & Ors.¹¹

The identity crisis

A key feature of cryptocurrency is that it is anonymous. Originally, it was almost impossible to identify its owner, however this has now changed.

The law commission¹² defines crypto in its consultation paper as a 'data object' which is a 'thing' that can be considered a physical object or property. The paper's definition of this is welcome, as a data object follows rules which can support the legal process. Legally, crypto must be property otherwise an injunction cannot be secured. The 'thing' or crypto is held in a wallet (software programmes designed to hold public or private keys that allow owners to trade, monitor, track and hold their cryptocurrency¹³) that shows...