THE EMERGENCE OF CRYPTOCURRENCIES, such as Bitcoin, has presented challenges in terms of the applicability of traditional legal doctrines and rules [for a previous discussion about cryptocurrencies, see China Business Law Journal, volume 8, issue 9: Cryptocurrencies]. On the one hand, cryptocurrencies can be dealt with in the same way as other assets. They can be held directly by their owner, and they can also be held by intermediaries such as crypto exchanges.
On the other hand, many cryptocurrencies present unique issues that do not apply in respect of other intangible assets such as shares or other securities. For example, there is often no issuer, and it is often difficult to identify their location. In addition, difficulties arise in terms of determining ownership as a result of the pseudonymity of their ”owner”.
This column discusses challenges that arise in relation to the proprietary nature of cryptocurrencies. The column discusses the position in common law jurisdictions, including Australia and the UK, and then provides a brief outline of the legal position in the Chinese mainland.
Cryptocurrencies as property in common law
As noted, cryptocurrencies can often be dealt with in the same way as other assets. The terminology in relation to cryptocurrencies has been adopted accordingly. Cryptocurrencies are referred to as being “held” or “owned”; they are “transferred” from one party to another; and they are “controlled” through the use of a private key.
This suggests parallels with tangible assets that are capable of being “possessed” and “locked away” to prevent third parties from gaining access. The question then arises as to whether these concepts of possession and control should be applied analogously to cryptocurrencies and the private keys that are used to “control” them.
If cryptocurrencies are property, one would expect them to exhibit the essential features of property. A test regularly applied in common law jurisdictions to determine whether rights are proprietary is the test as outlined by Lord Wilberforce, in the case of National Provincial Bank v Ainsworth (1965), known as the “Ainsworth test”.
The Ainsworth test provides that proprietary rights must meet the following criteria:
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- They are definable;
- They are identifiable by third parties;
- They are capable of assumption by third parties (in other words, they can be transferred to third parties); and
- They have some degree of permanence or stability.
In Australia, the courts have applied the Ainsworth test to cryptocurrencies such as Bitcoin in deciding that they do in fact meet these criteria.
In determining whether cryptocurrencies are property, however, it is not possible simply to stop at whether they exhibit – or appear to exhibit – the essential features of property. A further step needs to be taken to identify the category or property into which they fall.
This is a necessary step for a number of purposes including determining the formalities required for their recognition at law and the remedies available for their enforcement against third parties. The numerus clausus (closed number) principle, which is a settled principle of law in many common law and civil law jurisdictions, provides that the categories of property are limited to established categories and the parties are not free, by contract or otherwise, to create or customise property rights to suit their own circumstances.
From an appeal in the seminal case of Colonial Bank v Whinney, which was a personal bankruptcy case, the House of Lords in 1886 decided that company shares were choses in action, not choses in possession. The term “chose” is a reference to a “thing” that has a proprietary nature. In an oft-quoted statement from the decision of the Court of Appeal, Lord Justice Fry stated as follows:
… all personal things are either in possession or action. The law knows no tertium quid [third thing] between the two.
Implicit in this statement is the notion that there is no “third category” of property; namely, there are only two categories of property, and a property right must fall into one or the other. In determining the nature of a company share, LJ Fry continued as follows:
Such a share appears to me to be closely akin to a debt, which is one of the most familiar of choses in action; no action is required to obtain the right to the money in the case of the debt, or the right to the dividends or other accruing benefits in the case of the share; but an action is the only means of obtaining the money itself or the other benefits in specie, the right to which is called in one case a debt and in the other case a share.
The above-mentioned statements support the suggestion that the categorisation was originally based on a distinction between tangible property and intangible property based on physical possession and on the notion that only tangible property could be “possessed”. Thus, a chose in possession was the appropriate category for tangible property and a chose in action was the appropriate category for all other personal property.
The question whether cryptocurrencies such as Bitcoin constitute choses in possession or choses in action is one that has challenged courts in many common law jurisdictions to date. The UK Parliament has attempted to resolve the question by providing that courts are not limited to the above-mentioned two categories in recognising property rights, and may recognise a third thing or category.
This legislative intervention came about in response to a recommendation of the Law Commission of England and Wales, and took the form of the Property (Digital Assets etc) Act 2025 (UK), the preamble of which provides that it is “An act to make provision about the types of things that are not prevented from being objects of personal property rights”. Section 1 of the act states as follows:
(1) Objects of personal property rights
A thing (including a thing that is digital or electronic in nature) is not prevented from being the object of personal property rights merely because it is neither:
(a) a thing in possession, nor
(b) a thing in action.
In addition to the question as to whether courts should be limited to the above-mentioned two categories in recognising property rights, there is a question as to how a chose (or thing) in action should be defined and, in particular, whether:
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- It requires the existence and identification of a person against whom rights can be enforced; and
- It is limited to the situation where the only way of enjoying the benefit of the right is by legal action.
This is problematic in the case of cryptocurrencies such as Bitcoin as there is no issuer as such and, therefore, no person against whom rights can be enforced by legal action.
In Australia, courts have not limited choses in action to rights that can only be enforced by legal action. One of the reasons why the distinction between a chose in possession and a chose in action matters is that a chose in possession can be the subject of bailment and can support an action based on the proprietary torts of conversion or detinue. A related issue is what remedies should be granted, and when the cryptocurrency should be valued for remedial purposes.
In Australia, the legal position is unsettled as to whether cryptocurrencies such as Bitcoin constitute choses in possession or choses in action, and awaits clarification by the High Court of Australia. To date, some judges have categorised them as choses in action. Other judges have made statements suggesting that they should be categorised as a “virtual” chose in possession.
Academics and practitioners have also differed on this point, and different approaches have been taken by courts in other common law jurisdictions such as Singapore, Hong Kong and New Zealand.
Treatment of cryptocurrencies under Chinese law
In the Chinese mainland, fundamental legal principles of property are reflected in the provisions of the Civil Code of China as set out below. Article 114 defines property rights as “the rights of direct control and exclusivity over a specific thing”. Under article 115, the concept of “property” includes immovable property and movable property. Article 116 reflects the numerus clausus principle.
Article 114
Civil law subjects enjoy property rights in accordance with law.
Property rights are the rights of direct control and exclusivity over a specific thing by the rights holder in accordance with law, including ownership, usufruct rights, and security rights.
Article 115
Property consists of immovable property and movable property. Where the law provides that a right is treated as the object of property rights, such provisions shall be followed.
Article 116
The categories and content of property rights are provided by law.
Some Chinese academics have suggested that movable property includes intangible assets such as cryptocurrencies. In addition, some courts have decided that cryptocurrencies possess attributes of “virtual assets” on the basis that they satisfy various criteria including having an economic value and being capable of possession, and have granted proprietary remedies (such as restitution) in respect of cryptocurrencies. Other courts, however, have decided that they do not enjoy legal protection, and that parties must bear responsibility for any losses.
Given the cautious approach to cryptocurrencies in the Chinese mainland, it is uncertain whether, at some point in the future, the law will expressly make provision for cryptocurrencies (or digital assets generally) to be the object of property rights.
Andrew Godwin previously practised as a foreign lawyer in Shanghai (1996-2006) before returning to his alma mater, Melbourne Law School in Australia, to teach and research law. Andrew is currently Joint Associate Director of the Corporate Law and Financial Regulation Research Programme at the Melbourne Centre for Commercial Law and Honorary Associate Director (Commercial law) of the Asian Law Centre. Andrew has acted as a consultant to a broad range of organisations, regulators and governments in Australia and abroad. He served as Special Counsel and Acting General Counsel of the Australian Law Reform Commission between 2020 and 2024.
