Case Studies

Case Study 1

A creditor obtained a judicial judgment ordering a debtor to pay his debt. The creditor then approaches a judicial enforcement officer to investigate which assets could be seized. In her search the judicial enforcement officer discovers that the debtor might have cryptocurrencies stored in a so-called wallet. The wallet is stored on the debtor’s mobile phone. The judicial enforcement officer demands to know what the content of the wallet is and makes clear that she wants to seize its content.

Enforcing judgements against debtors who have various valuable digital assets, such as cryptocurrencies, seems to be a worldwide problem. Access to wallets is, for various and very valid reasons, cryptographically protected by so-called ‘keys’, particularly the ‘private key’. If the debtor refuses to inform the judicial enforcement officer of the private key, hardly any measures are possible to gain access. The judicial enforcement officer is not involved in a criminal investigation and does not have the knowledge or legal power to break into (in other words: ‘hack’) the wallet. Should judicial enforcement officers be given greater legal powers? Could a solution be that the judicial enforcement officer seizes the servers on which the cryptocurrencies are stored, but how realistic is this in the case of a public blockchain?

Case Study 2

A start-up company issues so-called ‘tokens’ as part of its ‘Initial Coin Offering’. The tokens are bought by various investors, as part of a crowdfunding project. One of the investors suddenly needs a loan and goes to his bank, offering the tokens as security.

Tokens are digital assets which represent a part of the economic value of a company, as is the case with shares. The difference with shares is that issuing tokens, on the basis of a ‘White Paper’ is still largely unregulated and takes place outside existing capital markets and capital market regulation aimed at investor protection. The tokens are, like other types of cryptocurrencies, stored in a wallet. This means that, if the tokens are for example given as non-possessory security to a bank, the bank will need the private key (see above under Case Study 1) to gain access to the pledged digital assets. What if the debtor refuses? This creates a risk which no bank will take. A solution might be that the debtor transfers the asset to a third party, debtor and bank sign an escrow arrangement under which the third party, acting as escrow agent, after full repayment of the debt either returns the tokens to the debtor or transfers the tokens to the bank as part of an enforced sale procedure.

Case Study 3

After the deceased passed away the heirs find a laptop. By pure luck, while looking through the deceased’s papers, they find the code giving them access to the laptop. On the laptop they discover that the deceased had an Internet banking account (no printed statements were available), various social media accounts (eg an account that stores family pictures), an e-mail account and they discover that the deceased must have a PayPal account.

All of these assets can be qualified as a record that is created, recorded, transmitted or stored in digital or other intangible form by electronic, magnetic or optical means or by any other similar means. Most of these records will have economic value, but that does not necessarily need to be the case as certain records might not be very valuable, but may have great emotional value. Heirs will want to approach the bank and also PayPal asking about the account and the balance, they may want to have (a copy of) the pictures in the social media account and access to the e-mail account. Regarding the social media accounts and the e-mail account, data protection (privacy) questions may arise and data protection may be used as an argument by the developer of the social media account or the bank to refuse to give access. In the case of the social media account these arguments may be stronger than in the case of a bank account or PayPal. Which information should be given to heirs when they ask for access to the digital assets but not demand control of the assets themselves yet?

Most likely these questions, at least for the time being will in the first place be decided by courts,  although countries are increasingly preparing legislation or have already enacted statutory provisions regarding certain aspects of what are called ‘disruptive technologies’ (distributed ledger technology, blockchains, smart contracts etc).

This is why the various questions raised here in the three case studies for now must primarily be answered from the perspective of the judiciary and those working in public service, such as (civil law) notaries and enforcement agents.