Into The Unknown – Cryptocurrency Is Property, Says English Court In Blackmail Dispute

The UK High Court followed the UK Jurisdictional Task Force's legal statement on cryptoassets and smart contracts and ruled that bitcoins are property and can be made the subject of a proprietary injunction. The case involved a malware attack on an insurance company and a ransom demand by the hackers of nearly $1 million in bitcoins in return for the decryption tool.

The High Court has ruled that bitcoins are property and can be made the subject of a proprietary injunction.

The court in AA v Persons Unknown [2019] EWHC 3556 (Comm) took its cue from the UK Jurisdictional Task Force's (UKJT) legal statement on cryptoassets and smart contracts, finding the analysis compelling and one to be adopted by the court.

Hack attack

A hacker infiltrated and bypassed the firewall of a Canadian insurance company, installing malware, encrypting its systems and demanding a ransom for the decryption tool that would allow it to regain access to its data.

An incident response company (IRC) that specialised in the provision of negotiation services in relation to cryptocurrency ransom payments was appointed. The IRC was informed by the fraudsters that the price for the decryption tool would be US$1.2 million and that payment would need to be made in bitcoins.

A ransom of US$950,000 was agreed and paid in bitcoins, following which the hackers provided the decryption tool. The insurer then contacted a specialist company to track the ransom bitcoins, tracing them to an exchange based in the British Virgin Islands.

The claimants sought a proprietary injunction against the defendants who were persons unknown, successfully arguing for the hearing to be heard in private on the basis that publicity would defeat the object.

The property puzzle

The court grappled with the issue of whether bitcoins are 'property' under English law, which traditionally views property for these purposes of being potentially of only two kinds: 'things in possession' (tangible rights) and 'things in action' (such as rights under a contract).

On the face of it, bitcoins did not fit squarely into either category. They were not 'things in possession' because they were virtual and not tangible. They were not 'things in action' because they did not embody any right that could be enforced by action. If bitcoins could not be classified as property, the court could not make them the subject of a proprietary injunction or freezing injunction.

Fortunately, the UKJT statement had...