Digital Asset Update: Australian court determines Bitcoin is property

What you need to know

• In Australia, a State Supreme Court has determined, on a final basis, that a cryptoasset can be property.
• This is a landmark decision, answering a question that remained at-large in Australia, and bringing Australian courts in line with a number of other jurisdictions.

Are cryptoassets property?

In February 2023, Ashurst published an article concerning this question.

The problem was that cryptoassets did not slot neatly into the two traditional classes of property, namely:

(a) a thing (or 'chose') in possession – something that could be possessed; or

(b) a thing (or 'chose') in action – something that could give rise to a legally enforceable right.

At the same time, the courts had proven willing to treat cryptoassets as property in various jurisdictions because they met the 'classic' definition of property established by Lord Wilberforce.¹

But – in Australia – the question had only been dealt with at an interlocutory level. There had been no final judgment by an Australian court endorsing the proposition that one could have a proprietary interest in a cryptoasset.

That has now changed.

In Re Blockchain Tech Inc (Blockchain),²  the Supreme Court of Victoria has determined that an interest in a cryptoasset, in this case Bitcoin, can be a proprietary interest.

In Blockchain, the plaintiffs alleged that Blockchain Tech agreed to deliver to one of the defendants 36 Bitcoin for her to retain for the purposes of a purported audit of the defendant's superannuation fund. After the audit was complete, the Bitcoin were to be returned to Blockchain Tech.

Crucially, the plaintiffs alleged that the Bitcoin were therefore being provided as a bailment. In other words, they alleged Blockchain Tech was delivering the Bitcoin to the defendant on the promise that they would be returned back to Blockchain Tech.

But for there to be a bailment 'relationship', Blockchain Tech had to be capable of physically possessing the Bitcoin.

The Supreme Court of Victoria therefore considered whether an interest in Bitcoin was property, and what kind of interest that was.

Ultimately, the Court determined that a person's interest in Bitcoin was property because:

(a) the interest was definable – each asset was a specific 'thing' (a coin) and was allocated to a specific public key;

(b) the interest was identifiable by third parties – others could use the public key to identify the asset;

(c) that interest had a degree of permanence or stability – the assets were recorded on a shared public ledger which contains 'the entire life history of a cryptocoin'; and

(d) the interest was not the same as having an interest in mere 'information' or data. An interest in a cryptoasset included the power to undertake transactions on a network by using a public and private key, and the power to exclude third parties from accessing or dealing with it. It was therefore different to information or data, which typically cannot be possessed.

The Supreme Court also noted that, in a literal sense, a 'transfer' of Bitcoin does not actually involve a transfer of anything. Rather, the Bitcoin owner uses their private key to digitally sign a hash which records the details of the transaction, and the recorded transaction is 'added' to the blockchain. But the Court did not see that as any impediment to a proprietary interest, because inalienability is not an indispensable attribute of property. In other words, the fact that the assets on the blockchain were not 'transferred' in the strict sense did not matter.

The Supreme Court therefore determined that an interest in a cryptoasset was property, and in fact that it was a chose in action defined as:

'a heterogeneous group of rights which have only one common characteristic in that they do not confer the present possession of a tangible object'.

In Blockchain, that meant that no bailment arose because the Bitcoin were intangible and could not be 'possessed' by anyone, notwithstanding one could have a proprietary interest in them.

What does this mean?

Most significantly, this decision represents the first instance in which a superior Australian court has determined, on a final basis, that an interest in a cryptoasset can be a proprietary interest.

In our previous article, we noted that 'until the nature of the property is rigidly defined, some uncertainly prevails'. The Supreme Court of Victoria has swept away some of that uncertainty. In Australia, there is now a clear, final judgment determining that an interest in cryptoasset is proprietary, and the nature of that interest.

It is, of course, possible that there may be subsequent decisions by superior or equivalent courts that take a different view. But it is noteworthy that the Supreme Court cited a speech delivered by Justice Jackman of the Federal Court of Australia earlier this year, in which his Honour had concluded there was no bar to treating rights in cryptocurrency as rights in property.³   That speech perhaps foreshadows the approach that the Federal Court (or at least one Federal Court judge) might take on the issue.

It is also worth noting the Court's finding that cryptoassets are a form of property was based on the technical characteristics inherent to Bitcoin. For other types of cryptoassets, particularly those which use considerably different protocols, the decision will not be automatically binding or necessarily persuasive, as their distinct technical and operational features may warrant different legal treatment.

Further, even if the Supreme Court's determination on the nature of that property is not without controversy (noting especially that in the UK, there is significant support for cryptoassets to be classified as a different, third type of property), the decision does follow the general weight of authority in a variety of jurisdictions that accept cryptocurrency as being property in one form or another.

And then there are a number of ramifications that flow from cryptocurrency being deemed as capable of being owned as property. For instance, it means:

(a) cryptoassets are capable of being the subject of a trust;

(b) cryptoassets are capable of being the subject of specific relief, such as proprietary injunctions; and

(c) cryptoassets could be 'frozen' to prevent them from being moved between exchanges.

In Blockchain, the importance of understanding whether cryptoassets are property and the nature of that property proved crucial. As outlined above, the Court determined that no bailment arose because the Bitcoin was intangible. However, the Court ultimately did determine that some of the Bitcoin were the subject of an express trust, because the Bitcoin was capable of being the property of a trust. This ultimately meant that Blockchain Tech, as the beneficiary of that trust, could require the defendant to pay it compensation directly. If the Court had determined that the Bitcoin were not capable of being property, then that relief could not have been obtained.

What's next?

In our previous update, we said the following:

'As things stand, litigants involved in crypto disputes will arrive at the courthouse with more questions than answers, particularly where it comes to appropriate relief and the ability to secure that relief.'

Blockchain answers one of those important questions. Any litigant seeking to establish that they had a proprietary interest in a cryptoasset now has the benefit of a final judgment on the nature of that interest. That answer also goes some way to helping litigants understand the relief they might be able to secure. All in all, the judgment should make it easier for litigants to recover and secure relief related to their cryptoassets.

But it is not a panacea. Some legitimate questions remain. An individual might be able to establish a proprietary interest in a cryptoasset, but the utility in that will be limited if they cannot locate that asset (or, in many circumstances, the person who stole it from them). The 'owner' of the asset may also depend on the precise structure of the exchange in which the asset is held.

The vital question for litigants remains: What relief can I realistically obtain through litigation? This decision will help those litigants answer it.

Authors: Matthew Blycha, Partner; Julian Pipolo, Senior Associate and Elizabeth Sheridan, Associate.