Is bitcoin property?
The emergence of bitcoin and other cryptocurrencies as a form of virtual currency is growing in popularity, so it is essential to understand whether these forms of virtual currencies can be considered as 'property' at law and, if so, as with other forms of property, whether bitcoins can be bequeathed in a Will in the event of incapacity or death of a loved one.
What is a bitcoin?
Bitcoin is a type of currency that can be used for direct payment between people and businesses. Bitcoins differ from normal currency in that it is a ‘digital’ type of currency, it operates independently of any government or bank, is substantially unregulated, and can be stored in a digital format only.
Each bitcoin has its own unique identifier and can be individually traced, meaning no two bitcoins are the same and all are protected by a private key that confers on its holder the right to reassign a unit in a ledger - otherwise known as the blockchain - to another user.
The blockchain records details of every transaction that the particular bitcoin has engaged in and therefore the ownership of every single bitcoin in circulation.
The verification process is conducted by “miners”, who ensure that all the information concerning the status of any given bitcoin is correct and updated every time a transaction is made. These digital transactions can be carried out on smartphone apps and online accounts which allow people to transfer their coins to others in payment for goods and services.
Is bitcoin ‘property’?
The traditional concept of property at law is that a ‘thing’ will only be treated as property if it is capable of being owned and transferred. Whether a bitcoin can be considered as ‘property’ at law depends on whether the following general indicators can be satisfied:
• that it may be definable;
• that it may be identifiable by third parties;
• that it may be capable of assumption by third parties;
• that it may have some degree of permanence and persistence, and
• that it may grant the person who holds the proprietary right legal protection from third parties.
Applying each of the above to the concept of a bitcoin suggests that the bitcoin is in fact property as defined at law.
The bitcoin is definable as each private key is referrable to a specific unit in the ledger, as opposed to “a” unit out of the many in the ledger.
It’s also capable of being identifiable to third parties as the ledger itself, and the private key held by an individual, identifies a ‘digital wallet’ which contains bitcoins.
It’s also capable of assumption as the digital wallet that holds the bitcoins may be sold, or the private key can be used to reassign the unit in the ledger to gift to another digital wallet-holder.
It’s arguable that a bitcoin also has permanence. The digital wallet that contains the bitcoins may be transferred to another party, for example, by way of a will. The recipient of a transferred account is able to exercise the same technical rights as the original holder. Alternatively, the bitcoin may be transferred to a third party, or inherited, by using the private key.
Economic indicators of property such as “excludability”, “alienability” and so-called “rival consumption” also need to be applied to determine whether a bitcoin is property from the economic viewpoint.
Put simply, a bitcoin will be excludable if there are restrictions on who has access to it. It will be alienable if it can be transferred for value, unlike music purchased online through iTunes where only the digital licence can be on-sold. Further, it will meet the characterisation of being a rival consumption if only a few people are able to enjoy its use.
From the above it’s clear that a bitcoin is excludable. The individual who holds the private key may include or exclude any other parties from knowledge of the private key.
It’s also inherently alienable, meaning it can and has been successfully transferred for value.
A bitcoin is also a rival good given that control of a private key allows the private key holder the sole right to reassign that specific unit on the blockchain to the exclusion of others.
Having satisfied the definition of property at law, it is more likely than not that, as with any other form of property, bitcoins can be gifted to a loved one in a will.
For advice on your Will, or to discuss what and how to best manage your digital assets in the event of incapacity or death, please contact Townsends Business & Corporate Lawyers on (02) 8296 6222.