Courts Recognize Property Rights Of Cryptoasset Owners

It’s fair to say that cryptoassets are no longer considered a niche investment. Their value may be volatile  but  blockchain technology (which enables the creation of crypotocurrency and other cryptoassets) continues to be exploited and developed in what is a lightly regulated sector. This in turn presents huge challenges for cryptoasset owners, their advisers and the courts. 

When very basic issues around the legal nature of cryptoassets remain unclear it’s no surprise that the rise in cryptoasset-related litigation is significant. In 2022 for example the English High Court was asked to consider whether an increasingly common type of cryptoasset – a ‘non-fungible token’ or NFT – was capable of being treated as ‘property’ under English law. If it was then NFT investors would acquire many of the rights associated with property ownership. As we’ll see below the court decided that NFTs were recognizable as property and granted the injunction sought by the owner of the NFTs.  

The case is important because it increases the recognition and protection of certain types of cryptoassets. As an English High Court decision, it will have a bearing on similar cases decided here in the Bahamas and elsewhere. 

Cryptoassets – An Explainer

The terminology around cryptoassets is complex and unfamiliar to many of us. 

In short cryptoassets, notably cryptocurrencies like Bitcoin and Ethereum are commodities that exist in a digital, online format only. They operate outside of traditional, centralized monetary systems so are beyond governmental control.

Cryptocurrencies like Bitcoin are held electronically and provide investors with an alternative to centralised national currencies. They are created, verified and secured using distributed ledger technology (DLT). One way of implementing DLT is blockchain which ensures secure tracking of ownership.

The High Court case we discuss below focused on NFTs which correspond to property that’s stored on a blockchain. They usually represent items such as art or music or something that’s collectible. They are ‘non-fungible’ because they cannot be replaced with another kind of NFT – unlike for example cash. An example of a much-discussed NFT is the creator of Twitter, Jack Dorsey’s first ever tweet which sold as an NFT for $2.9 million.

This short explainer is intended only as a brief guide to some of the terminology associated with cryptoassets. It’s not intended to be legal advice. Resources on the crypto sector are available online, including a useful guide to cryptoassets by the UK’s Financial Conduct Authority that can be found here. 

The High Court Decision: Osbourne v Persons Unknown and Ozone (2022) 

The claimant, Ms Osbourne had purchased several NFTs from Boss Beauties, a fashion and design collection which she placed in an account operating in the NFT marketplace. 

The account was operated by Ozone, an American organization. It had no connection to the UK. When the claimant discovered that her NFTs had disappeared from her account she was able to track them down to other accounts operated by Ozone.

Th  main claim was for a freezing injunction to stop ‘persons unknown’ from transferring her NFTs. Ms Osbourne raised other issues relating to:

• The identification of the people who owned the digital wallets in which her NFTs had ended up; and 
• The jurisdiction of the English courts to hear the application 

However the main issue that concerns us here is whether her NFTs could legally be classed as ‘property’ and assume the rights attached to personal property. 

The claimant succeeded in all her applications. The judge satisfied himself that there was a realistic case to argue that NFTs could be treated as property. 

Comment

The decision has been seen as hugely significant in this specialist legal area. This view is largely down to the fact that it’s the first time the property rights of those who invest in NFTs have been recognized in the way that the property rights of owners of other types of cryptoassets had been recognized previously. 

It’s important to remember that the law around cryptoassets is developing rapidly. The case we’ve looked at revolved around a very specific legal point and type of cryptoasset – an NFT – that is not as common as other assets like cryptocurrency. Crucially the case involved an application for a freezing injunction so there was no full trial of the facts.

That said the case illustrates how judges in the higher courts of England and Wales are ready do adapt and be flexible when it comes to ascribing property rights to new and innovative types of assets.

Investing in any type of cryptoasset brings significant risk, and we would always advise you to seek specialist advice before doing so. If you own cryptoassets that are subject to any kind of legal dispute our team of litigation lawyers is ready to advise. Our young, energetic team is always on top of key developments and can offer practical, cost-effective advice.

Contact us 

Please feel free to reach out to us at ParrisWhittaker for an initial, no-obligation discussion.