As cryptoassets become increasingly commonplace, litigators will need to understand how they function to effectively identify the use and/or possession of these assets through discovery. Without a clear understanding of how these assets function, how they are controlled, and how they may be transferred, counsel may miss valuable assets in collection actions, unwittingly ignore fraudulent transfers, and/or allow parties to violate bankruptcy court turnover orders.
What Are Cryptoassets?
Cryptoassets like Bitcoin are novel ephemeral assets that have no physical form and that are not an asset derived from any other asset; although a party can externalize onto physical media the information needed to control a bitcoin, Bitcoin and similar cryptoassets are purely digital. A human cannot physically hold a bitcoin. Unlike intellectual property rights and other familiar intangible assets, a bitcoin does not represent a claim of right against an existing asset. Although bitcoins rely upon the continued existence and operation of the Bitcoin network, that network is supported and operated by a globally distributed set of computer operators; the efforts or actions of a single bitcoin owner are irrelevant to the continued viability of the network. Thus, the closest analogue to a “right” to a bitcoin would be a unilaterally assignable anonymous intended beneficiary right under a contract between unrelated parties.