"Implications of the Blockchain Technology for the UNCITRAL Works" – published.

It has come to my attention that my article “Implications of the Blockchain Technology for the UNCITRAL Works” had been published from the United Nations in November last year.
The 50th anniversary Congress was a big occasion for UNCITRAL and it was my great honour to be part of it.
Here is my article excerpted from the book.

An additional note: In my original manuscript, there were some references to specific chapter numbers. I have noticed that in the published version, they have been changed to “Ch. 0” due to the editorial work which has removed all the chapter numbers from the headings. To see where those were actually referring to, please consult my original manuscript here.

Implications of the Blockchain Technology for the UNCITRAL Works

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paper currently on the Congress website is a version which I sent to the UNCITRAL Secretariat some months ago and which no longer represents my latest thinking in some significant respects.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. 

Ownership dispute in the aftermath of the bankruptcy of Mt.Gox

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.

松岡久和「アメリカ法における追及の法理と特定性―違法な金銭混和事例を中心に」

　田髙論文(過去記事参照)と同じく、標記論文(林良平献呈論文集『現代における物権法と債権法の交錯』（有斐閣、１９９８年）３５７～３９４頁所収)は、金銭騙取や誤振込などの場合に、騙取者や不当利得者の無資力危険を返還権利者に負担させることが妥当かという問題提起をする。しかし、返還権利者の物権的保護の可能性を検討する田髙論文に対して、本論稿は、返還権利者の権利を債権と構成しても、一定の場合には優先的な弁済受領を認めることができないかという問題意識の下で、優先権付与の要件として必要とされる客体の特定性をアメリカ法の追及法理の下で検討している。仮想通貨の騙取や誤振込の場合の分析にも参考になる記述が多い。
　規範的な追及可能性が技術的な追及可能性とは一致しないことを指摘した本ブログの過去記事との関係で、特に注目すべきと思われるのは、価値的な同一性として「特定性」が理解されていることである。本論稿によると、アメリカの判例・通説は、とりわけ金銭については、物体的な同一性は問題としておらず、日本の物権的価値返還請求権説が提示する特定性よりも、はるかに緩やかに特定性を認めているとのことである。

Technical traceability and normative traceability

When we consider whether it is possible in law to obtain the recovery of stolen cryptocurrency units, what matters is normative, rather than technical, traceability of the stolen units. This is so whether the claim for recovery is based on the ownership of the units or the restitution of unjust enrichment.
There may be no technical traceability where stolen units are mixed up with other units in the address they have been forwarded to unless the units had been dyed prior to being stolen. In this sense, Patrick Murck seems right to observe in his presentation that while transactions are traceable, coins are less so. On the other hand, to affirm normative traceability, it might be enough to be able to say that the attacker or the persons further down the line could be deemed to hold all or part of the stolen units or their value.
Let us suppose that Alice had 70 units in her address (i.e. an address for which she holds the private key). Bob has stolen them through a phishing attack and transferred them to his address in which they have been mixed up with the 30 units he had held there. Unless the stolen 70 units had been colored, it may be technically impossible to say which of the now 100 units Bob holds in his address is originally Alice’s. It is, however, possible to say that Bob holds the stolen units.
It is true that even a normative tracing becomes harder as the stolen units are forwarded down the line. Thus, let us suppose that Bob has thereafter transferred 40 units to the address of Carol. Again, unless the stolen 70 units had been colored, it may be technically impossible to say which, or even how much, of the 40 units Carol has received is originally Alice’s. But it does not foreclose the possibility of a normative assessment that Carol holds part of the stolen units or their value. The normative assessment may take into account the circumstances surrounding Carol’s acquisition including how much, if at all, she knew of Bob’s theft. It will also be part of the normative assessment how much of the 40 units is deemed to derive from the 70 stolen units: (i) 28 units representing the proportion of the 70 units among the 100 units Bob held in his address or (ii) 10 units on the assumption that all 30 units Bob held legitimately has been transferred to Carol, or (iii) other amounts based on other calculations.
Some legal systems might opt for a simple solution of equating normative traceability with technical traceability. But other legal systems might differentiate them. It is also conceivable that different tests for normative traceability be applied between proprietary recovery and restitutionary recovery. While a test aligned with technical traceability may be preferred for proprietary recovery in order to ensure the specific identification of stolen units, it is not inevitable. Since it is ultimately a matter for legal policy whether to grant recovery merely as restitutionary relief or as proprietary relief (See my earlier post), it is not unimaginable to allow recovery of the stolen value (as opposed to the specific stolen units) as proprietary relief. The blockchain technology being a new invention, I guess that the rules are currently uncertain under most legal systems.

It is needless to say that in the cases where it is considered normatively that the stolen units are traceable, the possibility of recovery will depend on other conditions which the applicable law puts in place to protect legitimate holders in due course.

Technical feasibility of tracking stolen cryptocurrencies and legal response

Arvind Narayanan writes in his blog post that since banks can reverse fraudulent transactions and law enforcement of digital financial crimes is relatively competent, the risk of getting caught combined with the diminished ability to cash in on attacks skew the economics against attackers. He contrasts this with bitcoin whose design puts the entire onus on preventive measures. This insightful observation is based on the assumption (in his words) that “[i]f an attacker breaks into a server containing private keys, he can steal the bitcoins … irreversibly.” This assumption seems widely accepted. It seems to rest largely on technical grounds but I think it also depends on legal issues which are unsettled yet. Narayanan comments on the technical aspect saying, “[w]hile there’s been talk of taint-tracking mechanisms to prevent thieves from cashing out, these haven’t materialized and there are fundamental technical and political difficulties with such proposals.” But he also adds a footnote referring to a paper which argues that it currently is difficult for thieves to launder large sums of bitcoins.
I do not have expertise to comment on the technical feasibility of tracking. But the point I want to make here is that should there be cases in which it is possible to trace the movement of stolen bitcoins, it will raise a legal question whether a recovery should be granted to the original owner. This question has not been tested before courts under any legal system to my knowledge. It would not be inconceivable that thieves and third parties who have acquired stolen bitcoins in bad faith are denied legal ownership and held liable to make restitution of the stolen bitcoins or their value in fiat currencies.