Issue link: https://digital.shearman.com/i/1479657
Ownership Issues (cont.) Cryptoassets & Insolvency 11 In its 2019 guidance, the UKJT concluded that ownership of a cryptoasset will generally be attributed to the person who acquires knowledge and control of the private key, subject to the rules of the particular cryptoasset system (e.g., the position may differ for cryptoassets with multiple private keys or a person holding a key on behalf of another etc.). This is supported by the Law Commission Consultation, which suggests the concept of "control," as opposed to "possession," is the most suitable concept to apply to cryptoassets (although noting that control may not necessarily denote legal ownership, e.g., in the case of a custodial arrangement). In the U.S. context, depending on the manner in which the cryptoasset is held, it may be unclear who "owns" the cryptoasset itself, to what extent, and in the context of a crypto exchange, what (if any) custodial relationship exists between the exchange and its customers that may impact that "ownership." Whether cryptoassets are held in trust for an exchange's customers is an issue discussed later in this paper. HOW DO YOU ESTABLISH OWNERSHIP? The UKJT and Law Commission consider the cryptoasset itself, rather than the private key, as the property (i.e., the private key is information and as such is not capable of being property). 01 Given that the cryptoasset constitutes property, ownership of the legal title to that asset should of course be capable of being treated in the same way as other personal property, meaning that it may be capable of being held in trust for others and should be capable of being conveyed both legally (i.e., by transferring control of the key) and in equity (where such transfer does not take place). 02 Private keys are stored in a "wallet" which defines and gives control over each cryptoasset. Wallets can take various forms, including "hard" wallets, physical devices capable of storing the information (an imperfect analogy would be a USB drive), "soft" wallets, in the form of a program downloaded to a computer or a device which securely stores such data, and "hot" wallets which store keys online and require access to the internet. The ability to access keys and gain control over the cryptoasset may be one of the key challenges in relation to cryptoasset insolvencies.