INTRODUCTION
By now, virtually everybody has heard about the blockchain, or “distributed ledger technology” (DLT), as it is called among professionals. Claims that DLT is about to change the world or trigger a new informational revolution may have been greatly exaggerated.1 What the technology offers is a mechanism for the
1.* Cf., e.g., Interview by Rik Kirkland with Don Tapscott, CEO, Tapscott Grp. (May 2016), https://www.mckinsey.com/industries/technology-media-andtelecommunications/our-insights/how-blockchains-could-change-the-world [https://perma.cc/N7HS-RDNS] (explaining how blockchains could “revolutionize the world economy”); Andrew Gazdecki, *Five Ways Blockchain Could Change the World, FORBES (Sept. 7, 2018), https://www.forbes.com/sites/forbestechcouncil/2018/09/07/five-ways-blockchain-could-change-the-world/#1f4b831273d7 [https://perma.cc/6937-RQU4] (providing five examples of the revolutionary nature of blockchains).
transfer of assets between two parties at any place in the world with an internet connection.2 Importantly, its use is not limited to the transfer of virtual currencies and other crypto assets, but can also extend—through so-called tokenization—to objects of the physical world, such as gold, land, or stocks.3 The main advantage of DLT is that it dispenses with the necessity of trust between the parties and sharply reduces the need for intermediaries.4 This is the result of three hallmark features of DLT: pseudonimity, resilience, and immutability.5 Pseudonymity denotes that although each transfer is recorded on a ledger that is open to the public, the identity of the parties to the transfer is not revealed.6 The resilience of DLT stems from the fact that the ledger is distributed over a large number of nodes that cannot be easily attacked at the same time.7 Finally, immutability means that the transfers cannot be undone once they have been recorded on the blockchain.8
As is by now equally well-known, DLT raises a number of legal problems, such as the possibility of money laundering, drug and arms dealing, terrorism financing, and the circumvention of
2. See PRIMAVERA DE FILIPPI & AARON WRIGHT, BLOCKCHAIN AND THE LAW: THE RULE OF CODE 2 (2018) (explaining blockchains and their potential role in the modern economy).
3. See Joshua A. T. Fairfield, BitProperty, 88 S. CAL. L. REV. 805, 826–827 (2014) (describing how ownership in commodities, land, and stock might be tied to coins within a blockchain).
4. See Adrian Blundell-Wignall, The Bitcoin Question: Currency Versus Trust-Less Transfer Technology 7 (OECD Working Papers on Finance, Insurance and Private Pensions, No. 37, 2014) (arguing that cryptocurrencies avoid the need for a trusted third party); Fairfield, supra note 3, at 814 (emphasizing that trustless public ledgers can avoid the enormous costs of generating trust).
5. See DE FILIPPI & WRIGHT, supra note 2, at 134 (“blockchains can store records in a tamper-resistant, resilient, and nonrepudiable manner.”).
6. See id. at 38 (“[B]lockchains make it possible for a person to store information or engage in transactions without revealing one’s true identity.”).
7. See id. at 36–37 (explaining how the distributed nature of blockchains makes them resilient and tamper-resistant).
8. See id. at 37 (describing the “nonrepudiable” nature of all transaction data stored on a blockchain: “[O]nce a transaction occurs on a blockchain-based network, parties subject to that transaction will have a hard time denying involvement.”).
embargoes.9 Much ink has been spilled on these problems.10 This contribution deals with an issue that has been less studied: the private law rules that underpin a DLT transfer. It tries to answer a couple of fundamental questions: Who owns the transferred assets? How can a transfer be reversed in case of a mistake or fraud? What are the legal consequences if the code is hacked and the virtual assets are stolen? What happens in case of death or bankruptcy of the bitcoin holder?
In the world of physical objects, the answers to these questions are found in private law. Property law in particular enumerates exhaustively the methods by which ownership may be transferred from one party to another. It imposes certain conditions, such as an agreement between the present and the prospective owner.11 DLT neither requires nor ensures that such an agreement exists.12 It merely relies on the fulfillment of technological requirements, namely the use of the correct private and public key.13 The result produced by DLT may thus clash with classic private law.
On a meta-level lies an even more fundamental problem: the determination of the national law applicable to the transfer. For each and every transaction, a governing national law must be identified.14 As DLT is a global and virtual transfer mechanism, it is impossible to identify the state which has the closest connection to it. The underlying difficulty is that the technology
9. See, e.g., FINANCIAL ACTION TASK FORCE, VIRTUAL CURRENCIES – KEY DEFINITIONS AND POTENTIAL AML/CFT RISKS 17 (2014), http://www.fatf -gafi.org/media/fatf/documents/reports/Virtual-currency-key-definitions-and -potential-aml-cft-risks.pdf.
10. See, e.g., Lawrence Trautman, Virtual Currencies Bitcoin & What Now After Liberty Reserve, Silk Road, and Mt. Gox, 20 RICH. J.L. & TECH. 13 (2014) (exposing the links of virtual currencies to numerous types of crimes); Kevin V. Tu & Michael W. Meredith, Rethinking Virtual Currency Regulation in the Bitcoin Age, 90 WASH. L. REV. 271 (2015) (arguing for a holistic technology specific regulation to combat risks of virtual currencies); Sarah Hughes & Stephen T. Middlebrook, Regulating Cryptocurrencies in the United States: Current Issues and Future Directions, 40 WM. MITCHELL L. REV. 813 (2014) (discussing enforcement actions by U.S. legislators and regulators).
11. See, e.g., JESSE DUKEMINIER ET AL., PROPERTY CONCISE EDITION 426 (2nd ed. 2017) (describing the agreement between a seller and a bona fide purchaser at common law).
12. See infra Section A.2.
13. See, e.g., DE FILIPPI & WRIGHT, supra note 2, at 14–15 (introducing the concept of public-private key encryption).
14. See PETER HAY ET AL., CONFLICT OF LAWS 5 (5th ed. 2010) (describing choice of law in a property law context).
is completely delocalized and a-national, while the law is first and foremost made on the national level. Therefore, trying to identify the law applicable to DLT seems like putting a square peg in a round hole.15
This article is organized in the following way: The first part will show why private law is relevant for the blockchain although it has been devised as an alternative mechanism to the law. It will outline the numerous types of legal questions that arise and to which precise answers are needed. On the other hand, one must not ignore the specificity of DLT, which produces technically irreversible transfers in a decentralized manner without being connected to a particular state. The second part will demonstrate that these specificities pose obstacles to the application of classic concepts of private law. The third part suggests a way to reconcile the technology with the law and combine them into a meaningful whole. The fourth part will address counterarguments and complications, such as the problems of succession and bankruptcy. The fifth part concludes.