Cryptopia Judge: "1. Crypto is property 2. Even w/o keys, crypto remains yours"

[friends1980]

About a month ago, a judgment was pronounced in the context of the Cryptopia bankruptcy case.

Imho, this judgment is a landmark decision for crypto, which is - as you all know - a relatively new kind of 'property', about which until now, very few rulings have been pronounced.

I am therefore a little bit astonished - to say the least, to find out that no-one has been posting anything about this. Like it or not, these kinds of seemingly unimportant details are in reality the essential triggers to turn crypto more and more into a commonly accepted good, so how is it even possible that this news was not picked up on these boards (correct me if I'm wrong)...

That being said:

Today 8 April 2020 Justice Gendall delivered his judgement, finding firstly cryptocurrencies are “property” within the definition outlined in s2 of the Companies Act 1993 and secondly that account holders cryptocurrency were held on multiple trusts, separated by individual crypto-asset type. This means that the cryptocurrencies are beneficially owned by the account holders and are not assets of the company.

In short, and in human language:

1. Cryptocurrencies are formally and undeniably recognized as property. The definition referred to in the judgment is this one (for those who don't know, I'd like to specify that this is New Zealand Law): "property means property of every kind whether tangible or intangible, real or personal, corporeal or incorporeal, and includes rights, interests, and claims of every kind in relation to property however they arise".

This gives you all the rights that are attached to it, meaning in a nutshell they're yours, you can do with it as you please, and no-one is allowed to take them from you without agreement from your side.

2. If you leave your cryptocurrencies on an exchange - regardless of the fact of (not) owning the private keys - they remain yours, and do not become the property of the exchange. This protects the owner against bankruptcy and also against theft / hacking (if the money can be found but that goes for any property, of course).

3. Little side note: NZ law and Australian Law are "quite" alike. If Australian judges decide to follow the same line of thought, this could open interesting perspectives for Nauticus Exchange - based in Australia - customers.

More info: http://cryptopia.co.nz/

Again: this is huge.

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[palle11]

Yes, crypto is a property. Is an asset and almost every country see a property as an asset including cryptocurrency too and is protected against an intruder through wallet, phrases or other security codes just like a fence is erected on a land against other people to freely have access

But on the other extent where you mention exchange to protect also the cryptocurrency, I think the laws are not too much available in all the countries to ensure that scam, losses from exchanges are going to be accounted for. Therefore, for me on exchanges if I can keep my coins in my private wallet, I think I would prefer that, for the security of my property  

[friends1980]

Yes, crypto is a property. Is an asset and almost every country see a property as an asset including cryptocurrency too.

Thanks for reminding me about the existence of the Ivory Tower. My mistake.

[Last of the V8s]

  He may not express it well but he understands bitcoin better than this judge person. It's a new paradigm and the kiwis need to catch up.

Not your keys, not your coin. Not that hard.

[friends1980]

He may not express it well but he understands bitcoin better than this judge person. It's a new paradigm and the kiwis need to catch up.

Not your keys, not your coin. Not that hard.

Heh. What I quoted ^ is the only thing he actually posted. Since my quote, he has edited his post and added everything else afterwards.

Back on topic, however, you do not seem to understand the consequences of this judgment. In the case of "not your keys, not your coin", this would mean that the coins on the exchange would be used to fill the debts caused by the exchange's bankruptcy. Quod non.

Thanks to this judgment, this will not be the case, since the judge is separating these completely from the exchange's activa.

This has absolutely nothing to do with Criminal Law (e.g. theft), but this is Insolvency Law (e.g. bankruptcy).

I really don't see how I could explain this more clearly.

[Last of the V8s]

Thanks for fleshing it out.
What happens next?

[friends1980]

Thanks for fleshing it out.
What happens next?

1. Well, as a quite important side note, let me use just one other example to specify the importance.

If you leave the keys of your car in someone else's hands, there is a risk that your car gets stolen. We all agree that - depending on the circumstances - it is probably not the smartest thing to do. And we all agree that, if and when it gets stolen, there is a chance you'll never see your car back. However, that doesn't mean it's not your property anymore. This concept of property guarantees that, if your car is found, it will be returned to you. If it is damaged, you could receive a compensation. If it has disappeared, but the thief is found, you could receive a compensation. Etc. Also, the thief could get punished, of course, but - again - punishment is irrelevant in the context of this judgment, as we are talking about property rights. (In the case of bankruptcy, this means that, for instance, if your car is being serviced or towed and the service or towing company goes bankrupt while your car is still there, the liquidator has to return it to you as soon as you've paid the invoice)

In the context of cryptocurrencies, of course it's exactly the same, meaning you shouldn't trust anyone blindly. 'Not your keys, not your coins' is a very clear warning, which should make any user of an exchange think twice before transferring his coins. But of course, this also goes for any owner of a car (or any good whatsoever) who trusts his keys in someone else's hands - especially a stranger's.

So of course, there is never a guarantee that, in a case of hacking or theft etc., you will get your coins back, because, well, quite simply, they have to be found first. Just like there is never a guarantee that you will get your car back. You can't get your good back as long as it isn't found. But there is a guarantee that it remains your property, and that your rightful claims remain reserved, should the good and/or those responsible be found.


2. In a way, this probably sounds all very logical and even self-evident, but it's not. Contrary to what @palle11 claimed above, there still is a lot of uncertainty and "grey zones" in the legal context of crypto. Some countries allow trade and some don't. Some allow exchanges and some don't. Some allow ICOs and some don't. Some recognize crypto formally as property (as NZ did with this judgment), some don't, and some do, but have not expressed this formally (yet), e.g. in laws or in judgments.

It is an important discussion, since, as in the car analogy, if crypto is not recognized as property, you haven't got any claim or rights at all. If they're never found back, it won't change a lot in the facts, but if they are, it changes everything.


3. Now, finally back to your question, @Last of the V8s.

No-one knows what happens next, since, as I said before, crypto is too new of a concept from many points of view, and particularly from a legal point of view. To my knowledge, this is one of the few/first judgments who treats the subject of cryptocurrency so extensively.

This judgment does however open quite a lot of other relevant questions:

- what about the coins that were left on the CoinExchange balances, when CoinExchange closed down a few months ago? These coins were "lost". In the context of this judgment, CoinExchange has "lost" other people's property. I'm not a judge, so I leave it up to you to draw your own conclusions.

- idem dito for Nauticus. If I'm not mistaken, Nauticus as well as CoinExchange were based in Australia, so this NZ judgment could be relevant as both legal systems have a lot of mutual influence. However, as far as I know, Australian authorities have not seemed to care a lot about the Nauticus adventures (yet).

- if crypto is fully recognized as property, property tax laws - if any - might be applied. In a way, governments will therefore have an interest in recognizing crypto as property. I think this deserves a topic on its own however (of which there are already A LOT on these boards), so allow me to insist to not discuss tax laws in this thread.

- if it is fully recognized as property, trading crypto is allowed under the same conditions as trading other goods.

Etc.


4. Lastly, and again, all this does not mean you should trust anyone blindly. Although "Not your keys, not your coins", is not a legally correct statement - which was the actual subject of this thread - it is however a perfect and easy to remember way of warning people to keep their eyes peeled. Think about the car: even though it remains your property, would you trust a stranger with your car keys?

However, I have already made this thread, as well as this very extensive thread two years ago, warning people about the shadiness of many exchanges, some of which have indeed disappeared in the meantime, much to my expectations and predictions.


I hope this makes things clearer and that the car analogy helps to further clear things out. I've been editing some things, trying to make them more understandable. I'm really out of inspiration now.

I'm convinced that quite a few interesting discussions and even some careful predictions could come out of this. Years of legal practice may have made some things more evident to me than to others and I apologize should I sound pompous in any way - I've really tried not to. Let us know if you do not agree with my point of view - or rather with the judgment's point of view, but please also do add why, for the sake of discussion.

[Carlton Banks]

Again: this is huge.

no it isn't


any statutory precedent is meaningless if it cannot be enforced (and hence such things are in no way any kind of law at all).

take the Mt Gox case, the Japanese law firm who are handling that case simply cannot hope to refund all of the 650,000 BTC that was stolen/embezzled. even if situations like this resulted in deposit insurance requirements, no insurance company could even dream of underwriting such a liability, the risk is simply too high.

Knowing Bitcoin private keys and in turn the blockchain enforcing their ownership are a law unto themselves, far more powerful than any judicial or statutory pronouncements. that was Satoshi's clear intention from the very start

[DaveF]

Again: this is huge.

take the Mt Gox case, the Japanese law firm who are handling that case simply cannot hope to refund all of the 650,000 BTC that was stolen/embezzled. even if situations like this resulted in deposit insurance requirements, no insurance company could even dream of underwriting such a liability, the risk is simply too high.

Coinbase is insured, Gemini is insured, RobinHood is insured.
No, you are never going to get insurance for a small exchange, the cost is going to be too high to meet the security requirements.
But, for the larger ones it's a matter of choice. Yes, you are going to have to charge a higher fee for trades to cover the cost, but if you get more clients because you are covered then it's probably a good thing.

Not your keys, not your coins. I believe in that. But, this is the real world, people want to buy / sell / trade and you are going to need exchanges for that.

Stay safe.

-Dave

[Last of the V8s]

Would you wander in and call HM Queen 'property'?
Or that Trump fella?
Nah, Bitcoin is a sovereign too you see, and we the controllers of its inputs do not listen to legacy judges wobbling about expounding on matters and things.

[friends1980]

Again: this is huge.

no it isn't


any statutory precedent is meaningless if it cannot be enforced (and hence such things are in no way any kind of law at all).

take the Mt Gox case, the Japanese law firm who are handling that case simply cannot hope to refund all of the 650,000 BTC that was stolen/embezzled. even if situations like this resulted in deposit insurance requirements, no insurance company could even dream of underwriting such a liability, the risk is simply too high.

Knowing Bitcoin private keys and in turn the blockchain enforcing their ownership are a law unto themselves, far more powerful than any judicial or statutory pronouncements. that was Satoshi's clear intention from the very start

 
I'm not quite sure I can follow.

any statutory precedent is meaningless if it cannot be enforced

How does this differ from non-crypto? In the case of Cryptopia, it will be enforced by the liquidators. So in your opinion, when it comes to Cryptopia, it is not meaningless? At least not for the part that wasn't hacked and stolen, thus enforced??

(and hence such things are in no way any kind of law at all)

Judgments are not laws. I don't see the relevance of this remark, because indeed, they are in no way law. So what's your point?

no insurance company could even dream of underwriting such a liability, the risk is simply too high

Sure they could. And they do, as DaveF already pointed out.

Knowing Bitcoin private keys and in turn the blockchain enforcing their ownership are a law unto themselves

With all due respect. Everything you're saying sounds absolutely great... But what does it even mean? It's a genius concept alright. But "A law unto themselves"? Jeez. Why would it?

It's not that I must absolutely disagree with you and I wouldn't dream of wanting to insult you, but this a meaningless slogan. I'd really like to hear you elaborate on this.

that was Satoshi's clear intention from the very start

One of the clear intentions was to get rid of banks, governments and corporations. I discovered BTC through my interest in consitutional law and libertarianism - not through my interest in becoming rich. Property is the very foundation of libertarianism and in my vision of libertarianism, it's the only right that should exist, as it covers all rights, freedom and liberty. This judgment not only doesn't deny this, but on the contrary confirms it. In no way Satoshi (or any libertarian) would oppose to this ruling.

[Carlton Banks]

Coinbase is insured, Gemini is insured, RobinHood is insured.

for the fiat value of the assets, and likely a discounted value too


think about it: if a theft occurred, and the market value of BTC either rose or fell substantially before the insurers paid out, they couldn't possibly cover the previous value in several different scenarios. That strongly implies these policies are simply marketing fig leaves to hide how little clients can actually expect to be reimbursed in the event of theft of any significant amount of BTC reserves at any exchange.

Any insurance likely covers only some small fraction of the total reserves, if an exchange is so confident in their security infrastructure then there is no need to spend good money on insurance policies they will never need to use.

[DaveF]

Coinbase is insured, Gemini is insured, RobinHood is insured.

for the fiat value of the assets, and likely a discounted value too


think about it: if a theft occurred, and the market value of BTC either rose or fell substantially before the insurers paid out, they couldn't possibly cover the previous value in several different scenarios. That strongly implies these policies are simply marketing fig leaves to hide how little clients can actually expect to be reimbursed in the event of theft of any significant amount of BTC reserves at any exchange.

Any insurance likely covers only some small fraction of the total reserves, if an exchange is so confident in their security infrastructure then there is no need to spend good money on insurance policies they will never need to use.

According to their sites / prospectus / investor pages.

Depends. Coinbase has their hot wallet fully insured for the value of the BTC. Their cold wallet is insured for the cash value of it.
Gemini has everything fully insured for the replacement BTC value
Robinhood has 1:1 coverage.

So, yeah they are insured. And at least for Gemini they are re-insured too.

It's not that difficult and if you want institutional investors you are going to have to have it.

For smaller places the security challenges and requirements of the insurance carriers are probably going to be almost impossible. It's going to be tough to have a 7 of 10 multisig wallet with only 8 employees.

Stay safe.

-Dave

[guigui371]

Again: this is huge.

no it isn't

Yes it is

take the Mt Gox case, the Japanese law firm who are handling that case simply cannot hope to refund all of the 650,000 BTC that was stolen/embezzled.

Yes you are right.

However, in the case of cryptopia.
Some assets were stolen (but not all), for Mt gox, there was only one asset listed.

1) People type#1 with stolen assets become unsecured creditors, they are owed their property.
Maybe that the next judgment will say that, because it is a property and not an IOU, they are becoming "secured creditor" jumping the queue to be paid before some service providers and randoms.

2) people type#2 that have coins that were not stolen by the thieves are entitled to recover their coins, their properties cannot be sold to pay for the liquidation and the secured creditor. On the bad side, they are only entitled to get their property back, not the fiat value of it at the time of the hack (if you had 10 coins at $10 each, you get your 10 coins, even if those coins are now $0.1 each).


I am in the case #2, I had some Stakenet (XSN). Their wallet wasn't emptied, so I will get my coins back. No one is allowed to sell them.

[franky1]

first of all you need to have proof of ownership
pretending a car key is the proof is useless. you need some kind of registration/contract proof of ownersip of a car.
thus privatekeys are this proof of ownership
just saying 'that house/address is mine' wont work

in cases where multiple people have access to the private key. you can show separate proof of being the main owner by showing shopping cart logs of your customers being handed the payment address by you and you received the coins by that request
EG prove you created the mtgox account. makes that mtgox account yours and not a hacker

however
as to saying the coins are yours even though the exchange is the custodian with the keys
the contract proof is there terms and conditions of service and logs of deposit/withdraw/trading
which dictate if the service gives you ownership rights

this means that a exchange can make term that a deposit is paying them their then owned coins. and they are then only promising some lame terms of getting something later in return as long as you dont break the terms of service. where by if you break the terms or they say they are not liable for theft. then you get nothing back
eg you can make a request for returns and we will evaluate your eligibility to get returns. is something you dont want to read in a ToS contract for an exchange

[guigui371]

first of all you need to have proof of ownership
pretending a car key is the proof is useless. you need some kind of registration/contract proof of ownersip of a car.
thus privatekeys are this proof of ownership
just saying 'that house/address is mine' wont work

People may still have old emails of proof of deposit and trade.
Then It would be the liquidator to proove that the user had initiated a withdraw and that the coins are not there anymore / empty balance and no coins to return.
The Database has been recovered, it is there, just no incentive to return the coins as the task is huge.

in cases where multiple people have access to the private key. you can show separate proof of being the main owner by showing shopping cart logs of your customers being handed the payment address by you and you received the coins by that request
EG prove you created the mtgox account. makes that mtgox account yours and not a hacker

Yes indeed, as soon as the liquidator start the process of return coins, there will be millions of emails to pour in, including fake ones asking for coins.

however
as to saying the coins are yours even though the exchange is the custodian with the keys
the contract proof is there terms and conditions of service and logs of deposit/withdraw/trading
which dictate if the service gives you ownership rights

this means that a exchange can make term that a deposit is paying them their then owned coins. and they are then only promising some lame terms of getting something later in return as long as you dont break the terms of service. where by if you break the terms or they say they are not liable for theft. then you get nothing back
eg you can make a request for returns and we will evaluate your eligibility to get returns. is something you dont want to read in a ToS contract for an exchange

Nah, it is not because you breach their TOS that they can keep your coins.
Property is property, they can refuse to pay you gains if you have cheated the trading algorythm, they can freeze the coins if the deposit was from a fraudulent bank transfer (if the police has a warrant).
But they can't just keep your property.

Imagine Walmart saying that if you park for more than 3 h they keep your car and sell it .... they however have a sign that says that if you overstay they may tow your car at your cost.

[franky1]

Nah, it is not because you breach their TOS that they can keep your coins.
Property is property, they can refuse to pay you gains if you have cheated the trading algorythm, they can freeze the coins if the deposit was from a fraudulent bank transfer (if the police has a warrant).
But they can't just keep your property.

the money in the bank is not yours. its the banks. if they have a theft or a bankrun or they just shift their value abroad and close shop. oh well
this is why the government has insurances. where the government then has to repay losses.
yep banks can run away with peoples money(2007 crisis) and get away with it. because their terms and conditions are that they tell you how much you can withdraw and how much 'they owe you' and they can close business and keep it because their terms say when you lose ask the government to pay out on the insurance provision.

most of the time for longevity and good customer service/reputation. the bank will act like you have control of the funds. but banks have many clauses as to why they can freeze accounts and not give you the money.

thats why checking terms of service is important
the contract between you and a bank is the terms of agreement of who owns what property. the contract/terms can actually be designed that the bank is either
just a manager where you the full funds owner
or
that you hand them the funds and they allow you access to their service within the limitations of their rules. where breaching the rules means loss of access to the funds
yes they can then add in customer friendly sub clauses of methods to regain access.. but its worth reading any terms f service and stop pretending that by default you will always have property rights
especially if the only 'proof' you have value. is in the databases of a service that can just delete the database

again this is why many customers want banks to follow certain regulations such as bcking up their records and having regular reporting. to safeguard customers from those potentials
and yep thats why in the unregulated world of bitcoin 2012-2014 people have to be careful when dealing with unregulated exchanges that have dodgy terms, no insurance, no regulations no customer protections

[friends1980]

the money in the bank is not yours. its the banks.

So you're saying that, even though the judgment says that the coins on the exchange (we're not even talking about banks) are yours, this means that the coins on the exchange are NOT yours.

That's a very interesting interpretation.

[aioc]

2. If you leave your cryptocurrencies on an exchange - regardless of the fact of (not) owning the private keys - they remain yours, and do not become the property of the exchange. This protects the owner against bankruptcy and also against theft / hacking (if the money can be found but that goes for any property, of course).

3. Little side note: NZ law and Australian Law are "quite" alike. If Australian judges decide to follow the same line of thought, this could open interesting perspectives for Nauticus Exchange - based in Australia - customers.

More info: http://cryptopia.co.nz/

Again: this is huge.

This decision is not only a landmark decision but this should become a reference decision as well, exchanges have no basis not to pay owners of this coins if there are hacked or untoward incident because there is an element of trust, just like a bank and a depositor agreement not because you send the money it's not yours anymore, the words not your key not your money is an exception here.

[Last of the V8s]

Oh! Had forgotten this kiwi attempt to fly lol.

The yank 'legal' system is meanwhile getting there https://decrypt.co/39574/not-your-keys-not-your-coins-enshrined-in-us-case-law-says-lawyer

albeit about forks not hacks, but it is a start.