Cryptocurrency exchanges are a significant target for hackers, and there are numerous well-documented examples of significant amounts of cryptocurrency being taken in attacks. This frequently gives rise to issues of liability and recovery for the individuals who were holding their cryptocurrency with the exchange in question, and the precise basis on which the exchange is holding the cryptocurrency.
This latest judgment results from the hack in 2019 of Cryptopia, a cryptocurrency exchange. It adds to the growing body of case law supporting the conclusion that cryptoassets can have the legal status of property. It also provides further guidance on how traditional definitions of property may be applied to digital assets, as well as a detailed discussion on whether cryptoassets are more than merely information.
After the hack, Cryptopia was placed into liquidation in May 2019, and the liquidators applied to the Court (in New Zealand) to clarify the proprietary status of the remaining cryptocurrency in order to determine how the assets should be distributed. In a judgment of 8 April 2020, the High Court of New Zealand found: firstly, cryptocurrencies were “property” and, therefore, were capable of being held on trust; secondly, the cryptocurrencies were held on multiple trusts for the accountholders, one for each type of digital asset in question. This meant that the cryptocurrencies were beneficially owned by the accountholders and, therefore, did not form part of the assets of the cryptocurrency platform. In this case, the Court did not need to consider the questions of Cryptopia’s legal culpability and implications for lost digital assets resulting from the hack.
For further information, please see our blog post here.