It is often said that transactions made on the blockchain are immutable: once the transaction is done, it is done. And in principle they are indeed immutable. Aside from security breaches, changes to the ledger are possible only if a predetermined fraction of the miners or block producers consent to them. It is infeasible to reverse a single transaction, even if there were valid reasons to do so. However, it is frequently overlooked that blockchain transactions (including those relative to cryptocurrency), apart from the digital rules (code), are governed by law – and even possibly by the laws of various jurisdictions. Law governs those buying, selling, holding, brokering, or accepting cryptocurrencies as payment; it can also restrict their ability to do so.
Therefore, while a cryptocurrency transaction cannot usually be changed in the ledger, the outcome of the transaction, what matters at the end of the day, can be modified through legal recourse. A recent case, Copytrack Pte Ltd v Wall, is illustrative of this: a superior trial court judge of the province of British Columbia (Canada) decided that a cryptocurrency, Ether Tokens, should be returned to the plaintiff who mistakenly transferred them to the defendant.
The circumstances of the case are as follows. After participating in an Initial Coin Offering (ICO), Mr.Wall mistakenly received 530 Ether Tokens from a blockchain start-up, instead of the 530 CPY Tokens he was expecting to obtain after the ICO. At the time of transfer to his private cryptocurrency wallet, the value of the Ether Tokens was 495,000 Canadian dollars, while the CPY Tokens he intended to purchase were worth 780 Canadian dollars. The mistake was immediately discovered, and Mr. Wall was asked to return the Ether Tokens. At first, Mr. Wall declined to return them and transferred the Ether Tokens to a cryptocurrency exchange; but he finally agreed to send them back to the start-up, and withdrew the tokens back from the cryptocurrency exchange to his private wallet. However, soon after that, he claimed that his wallet had been hacked, and the Ether Tokens stolen. Three months later, just a few days after the hearings began, he passed away.
The case is important for at least two reasons.
First, the Court order has a broad scope, and authorises the plaintiff (the blockchain start-up) to trace and recover the particular Ether Tokens regardless of ‘in whatsoever hands those Ether Tokens may currently be held’. This precedent may have major repercussions for the enforcement of claims regarding lost or stolen cryptocurrency. With the possibility to track the history of cryptocurrency (token) transactions from one wallet to another in a digital ledger, and advancement of professional services of the cryptocurrency transaction tracing, one may envision a situation where a rightful owner could recover his tokens once they appear in the cryptocurrency exchange’s wallet. While cross-border enforcement can be problematic, it seems that the cryptocurrency exchange would, without a doubt, comply with the judgment of the same jurisdiction where it is based or has strategic business interest, e.g. the US, the EU or Japan.
Second, this case is one of the first where a Canadian court is called to define the legal character of a cryptocurrency. The parties disputed whether cryptocurrency is a digital form of currency, a digital good, or something else. Unfortunately, the court missed the opportunity to clarify the issue, stating that while the determination of the cryptocurrency’s character was essential for the case, the issue could not be handled through summary judgment. Yet, it decided to grant summary judgment, as ‘there would be no practical utility in sending this matter to trial given Wall’s death’. The court confined itself to the fact that Ether Tokens were the property of the plaintiff, and they should rightfully be returned to it. The claims in conversion and detinue were left undecided as depending on whether cryptocurrencies can be characterised as ‘goods’. While it is challenging to predict what legal character will be bestowed on cryptocurrencies in prospective case law, there is an increasing number of decisions recognising that other intangible assets, e.g. funds, shares and mineral interests, may be subject to claims in conversion and detinue.
The pressing issue of the legal characterisation of cryptocurrency has been postponed for now. Nevertheless, courts across jurisdictions slowly but incrementally are filling in the vacuum of legal uncertainty created by the disruptive underlying technology.