Bitcoin

Cryptoassets continue to grab headlines after the recent decision by a judge in the U.K.'s Commercial Court who found that a cryptoasset, such as Bitcoin, was a form of property capable of being the subject of a proprietary injunction.

In this case the claimant was able to obtain an injunction against the defendants, freezing the Bitcoin they owned. This follows on from the UK Jurisdiction Taskforce's statement towards the end of last year that cryptoassets are, in principle, property under English and Welsh law. The judge's finding was significant as it is the first judicial decision on the status of cryptoassets in this emerging area, rather than us having to simply rely on guidance.

We frequently find ourselves discussing cryptoassets especially given the often salacious press coverage it garners. For example, in the case of the disappearance of the founder of the fake cryptoasset, OneCoin, and the calls for Gerald Cotton's body to be exhumed – he was the founder of Quadringa CX who died in 2018 taking £105m of cryptocurrency with him. But how much do we really understand about them?

Parties to family law financial proceedings have a duty to disclose all assets that they hold, which, following from the above decision, now definitively includes any cryptoassets. While many people associate cryptoassets solely with cryptocurrency (think Bitcoin), they in fact encompass a much wider group of assets.

These include security tokens such as digital bonds, equities and other securities, natural asset tokens that represent tangible goods like gold, oil or carbon and "Cryptocollectibles" which are unique digital assets such as virtual pets (in 2017, on CryptoKitties, a game for collecting, breeding and selling digital cats, a kitty sold for over $114,000).

If this trend towards investing in and trading cryptoassets is to continue, and the commercial take up of cryptocurrency increases, they will eventually become a frequent feature of financial proceedings that family law practitioners will have to get to grips with. This includes consideration of how to accurately attribute a value to them or deal with situations where one party is potentially hiding cryptoassets.

This emerging area will potentially be problematic for family lawyers since, by their very nature, cryptoassets are difficult to trace and hard to value. Cryptoasset values are unstable and therefore a valuation of an asset made at the outset of proceedings may well be dramatically different by the time the matter reaches its conclusion (but this may not be so different from an investment in high risk shares).

Furthermore, cryptoassets are shrouded in secrecy, and as practitioners we may have to increasingly rely on the services of forensic IT companies to track down and trace any potential assets (with the associated cost). Cases where one party suspects the other is hiding cryptoassets could become disproportionately costly with another reason to embark upon lengthy fishing expeditions that do not necessarily lead to any outcomes of substance.

Even where a client does not have these suspicions, as cryptoassets do not have a paper trail, how will practitioners know whether they may or may not exist, in which case, will we have to engage forensic IT companies to run a basic search so that we can be sure (and would such a 'basic' search provide any answers)?

It is not just the disclosure (or non-disclosure) of cryptoassets that may present a problem to family lawyers. How they are dealt with in any potential settlement will also be difficult to grapple with. As stated above, the value of cryptoassets is extremely volatile so what may look like a good settlement for your client one day may not be such a good deal the next. Secondly, if your client is receiving some form of cryptoasset in the settlement, do they (or you for that matter) understand how to deal with it and access it?

How the courts will get to grips with these issues is another question entirely. How they will view and decide upon the management of cryptoassets is an untried and untested entity. Overstretched and under resourced, how will the system cope with an increase in cases that have a cryptoasset element, and the complexities that go hand in hand with them?

Hannah Gumbrill-Ward is a solicitor at Winckworth Sherwood