I prepared (but not actually used) a powerpoint file for my presentation at the UNCITRAL's 50th Anniversay Congress on 5th July. It is here.
Friday, 1 September 2017
Thursday, 15 June 2017
I will be presenting my thoughts on the subject above in the upcoming Congress of the UNCITRAL for the celebration of its 50th anniversary (4-6 July 2017).
My paper currently on the Congress website is a version which I sent to the UNCITRAL Secretariat some months ago and which no longer represents my latest thinking in some significant respects. I am asking the Secretariat to replace it with the latest version, to which I make a link from here.
The paper gives a particular emphasis on the topic of proprietary restitution of blockchain-based tokens as an area which calls for a globally unified solution.
Postscript: As from 16 June, the Congress website carries the latest version. Many thanks to the Secretariat for swiftly acting on my request.
Tuesday, 18 April 2017
Relevance of the blockchain technology to the draft Model Law on Electronic Transferable Recores (as acknowledged by the latest official document)
My article, "Blockchain Technology and Electronic Bills of Lading", has examined the draft Model Law on Electronic Transferable Records and the Rotterdam Rules to see whether it is possible to interpret them in a manner compatible with blockchain-based bills of lading. What follows will note how the relevance of the blockchain technology has come to be acknowledged in the latest official document (A/CN.9/920 (2017)) which contains the draft Model Law with the draft explanatory notes.
The draft Model Law accommodates various types of electronic transferable records based on the principle of technology neutrality. The draft explanatory notes explain that reference in the Model Law to electronic transferable record management systems does not imply the existence of a system administrator or other form of centralized control (Para. 167).
Nothing in the draft Model Law requires a person to use an electronic transferable record without that person’s consent (draft Article 6(2)). The draft explanatory notes state that consent to using distributed ledger based systems may be inferred by circumstances such as the exercise of control on the electronic transferable record or performance of the obligation contained in the electronic transferable record (Para. 48).
The draft Model Law is based on the principle of functional equivalence. Thus, where the applicable law provides for the endorsement of a transferable document, the draft Model Law treats an electronic transferable record as functionally equivalent to a transferable document only if the information required for the endorsement is “included in” the electronic transferable record (draft Article 16 on endorsement). The draft explanatory notes state that the words “included in” have been chosen to encompass instances when the information is logically associated with or otherwise linked to the electronic transferable record (Para. 141). This wide interpretation would accommodate the endorsement of a blockchain-based token through its transfer from one address to another on the blockchain.
Where there is a legal requirement of a signature of a person, an electronic transferable record can meet that requirement only if a reliable method is used to identify that person (draft Article 9 on signature). The draft explanatory notes acknowledge that certain electronic transferable records management systems, such as those based on distributed ledgers, may identify a signatory by referring to a pseudonym rather than a real name (Para. 60). The notes suggest that an identification by a pseudonym and the possibility of linking it to a real name, if need be, would satisfy the requirement to identify a signatory (Para. 60). The explanatory notes further suggest that linking of a pseudonym to a real name may be based on factual elements to be found outside distributed ledger systems (Para. 60). The same interpretation may be given to the notion of "identification" of the person in exclusive control of an electronic transferable record, a requirement which must be met to establish functional equivalence to the possession of a transferable document (draft Article 11(1) on control).
Friday, 31 March 2017
The relevance of the blockchain technology for the UNCITRAL Model Law on Electronic Commerce (1996), the UNCITRAL Model Law on Electronic Signatures (2001) and the UN Convention on the Use of Electronic Communications in International Contracts (2005)
One of the principles guiding UNCITRAL in its works in electronic commerce is the principle of technology neutrality or technological neutrality, which means that the law should neither require nor assume the use of a particular technology for communicating or storing information electronically. The principle helps ensure that the law is able to accommodate future developments. Thus, blockchain technology, though not yet invented when those instruments were created, is not excluded from their scope of application.
It follows that under the Electronic Commerce Model Law, admissibility in evidence or other legal effect may not be denied to information solely on the ground that it is in the form of a data message stored in a blockchain (See Articles 5 and 9). Where only a hash value of information is stored in a blockchain, legal validity may not be denied to the information provided that it is referred to in the data message stored in the blockchain (See Article 5 bis added in 1998). In the context of contracts, an offer and the acceptance of an offer may be expressed by means of data messages on a blockchain (See Article 11 as affirmed by Article 8 of the Electronic Communications Convention). The performance of contractual obligations are also subject to the Model Law and the Convention. This has a particular relevance to a “smart contract,” a contract which can be automatically executed on a blockchain as programmed. Thus, where the communication of data messages such as notices of receipt of services, notices of failure to perform or notices of termination are programmed by a smart contract, they may not be denied legal effect solely on the ground that it is in the form of a data message (See Article 12 of the Model Law; Article 4(a) and Article 8 of the Convention). Article 12 of the Convention only mentions the formation of contract but the enacting States may wish to extend the idea to the phase of performance to cater for a smart contract. Thus, they may stipulate that the performance of a contract by an automated system may not be denied effect on the sole ground that no natural person intervened in each of the individual actions carried out by the automated system.
The principle of technological neutrality does not mean that any technology can create a data message which satisfies the paper-based requirements such as those of writing and signature. Only the technology capable of fulfilling the purposes and functions of the paper-based requirements can create a data message which is deemed to meet those requirements. This is called the principle of functional equivalence, another principle underlying the UNCITRAL works in electronic commerce. Thus, the Electronic Commerce Model Law sets out the conditions which a data message must meet to fulfill the purposes and functions of the paper-based requirements of writing and signature (Articles 6 and 7). The Electronic Signature Model Law elaborates on the conditions for the signature requirement. A data message stored in a blockchain is deemed to meet the requirements of writing and signature if it satisfies the respective conditions. The Electronic Commerce Model Law also provides that there must exist a reliable assurance as to the integrity of information contained in a data message before the information is deemed to satisfy the paper-based requirement that it be presented in its original form (Article 8). The blockchain technology is particularly apt to provide a reliable assurance as to the integrity of information since it is censorship resistant.
 See the Guide to Enactment of the Electronic Signatures Model Law (2001) para 5; the preamble of the Electronic Communications Convention. In the context of the Electronic Commerce Model Law, the expression “media-neutral” is used to convey the same idea (See the Guide to Enactment of the Electronic Commerce Model Law (1996) para 24). Only later, has that expression come to be understood as referring to non-discrimination between paper and electronic media (See the Guide to Enactment of the Electronic Signatures Model Law (2001) para 5).
Thursday, 23 February 2017
The above phrase is the title of the note at http://sclbc.zehuti.co.uk/site.aspx?i=ed47875. I guess what the authors meant was who owns "bitcoins" while they also rightly point out relevance to other blockchain-based assets. It is nice to see this and other writings appearing in the course of last year which deal with the issues I have been discussing in this blog since 2015.
The note acknowledges that questions of choice of law could arise (See my previous post), it only examines English law. It does not diminish the value of the note in view of the preeminence of English law in the practice of international commercial transactions. Any global standard which might emerge in the future might indeed mirror the framework of English law.
What should attract the attention of civil law lawyers is the meaning of "ownership." The note explains that English law recognises that there can be multiple individuals each entitled to assert 'ownership' rights to the same property. The note further casts doubt on the availability of a proprietary restitutionary claim, a cause of action which seems to come closest to rei vindicatio in the civil law legal systems.
Like my previous post, the note draws an inspiration from the legal treatment of emissions credits. It observes similarity with Bitcoin but is careful to point out an important difference: a Bitcoin is mere information and does not come with a bundle of rights conferred by statute.
The note finds that an unjust enrichment claim is the most promising approach in English law to the recovery of a misappropriated bitcoin. Among the "property-like" remedies, however, the note observes that a claim for knowing receipt founded by a constructive trust is the most promising avenue. As my previous post has pointed out (at page 4 of the slide), this remedy constitutes an alternative avenue for recovery in some legal systems; it can indeed be the most potent one as in English law.
Tuesday, 17 January 2017
Any asset having market value will generate demand for use as a collateral.
It would be possible to create security rights in a receivable which is denominated in a cryptocurrency in the same way as a receivable denominated in a fiat currency.
The UNCITRAL Model Law on Secured Transactions (2016) sets forth a special set of rules for bank deposits (Article 25 on effectiveness against third parties and Article 47 on priority). Are they also applicable to a receivable denominated in a cryptocurrency? If the words “authorized deposit taking institution” as contained in Article 2(c) of the Model Law which defines the term “bank account” are interpreted as a generic expression covering any institution authorized to receive deposits, a company which is authorized to provide an online wallet service for the Bitcoin would be an “authorized deposit taking institution.” This interpretation, if adopted, would attract the application of the rules of the Model Law for bank deposits.
Then, would it be possible to create security rights in the units of cryptocurrency? This question concerns cryptocurrency units themselves rather than a receivable denominated in a cryptocurrency. Under the Model Law, any type of movable asset may be encumbered by a security asset (Article 8(a)) and the words “movable asset” is defined broadly as a tangible or intangible asset, other than immovable property (Article 2(u)). So the Model Law seems applicable to cryptocurrency units.
There are, however, questions of interpretation as to how its rules are to be applied. Thus, a security right in cryptocurrency units would be effective against third parties under Article 18(2) where the secured creditor holds them at his address if it is possible to interpret the possession of a private key as being equivalent to the possession of a tangible asset.
Under the Model Law, the word “money” is defined as currency authorized as legal tender by a State (Article 2(t)). A cryptocurrency would be capable of meeting this definition if any State authorized it as its legal tender. However, money is supposed to be a tangible asset under the Model Law (See Article 2(ll)). Consequently, the special rules for preserving negotiability of money contained in the Model Law (Article 48 on priority) are not applicable to cryptocurrencies. Should it be thought that cryptocurrencies ought to benefit from the same rules, amendments would be needed.
Finally, the Model Law recognizes that the enacting State may specify certain types of asset as being subject to specialized secured transactions under other law (Article 1 (3)(e)) but it recommends such exceptional regimes to be limited (footnote 3).
Monday, 28 November 2016
Attached here is the powerpoint file I used in my presentation at the Cyberspace 2016 conference on 26 Nov. 2016.
I examined the Tokyo District Court's decision in a suit filed after the opening of Mt.Gox's bankruptcy proceedings. The suit was filed outside the bankruptcy proceedings to obtain a full recovery of the bitcoins of which the claimant had a contractual right to return from the bankrupt exchange. To do that, he sought rei vindicatio of the bitcoins over which he asserted ownership rather than making a contractual claim to join other creditors in the bankruptcy proceedings.
I considered three questions noted at p. 4 of the slides. On the first question, the Court relied on the Japanese law concept of "shoyuken" to deny that bitcoins could be an object of ownership. But if we leave aside the technicality of the Japanese law concept and understand the concept of ownership more broadly to mean a right to monopolize the exploitation of objects, it may be possible to say that bitcoins are fit to be an object of ownership. This would open the possibility of rei vindicatio, if other prerequisites are satisfied. The other two questions I considered relate to those other prerequisites. In most of the cases, a customer of a bitcoin exchange would have difficulties meeting those other prerequisites but the possibility of a successful claim is not foreclosed in all cases.