The Bona Fide Acquisition Rule Applied to Cryptocurrency
Cryptocurrency is an attractive target for theft. This digital property is compact, portable, and subject to conversion by simply acquiring the private key, giving unfettered control to the key’s associated cryptocurrency. Crypto-theft may occur without any physical interaction with the true owner. Crypto-thieves are difficult to identify and—even when identified—are often out of the practical jurisdictional reach of owners seeking recovery. The blockchain, a public ledger underpinning any cryptocurrency, creates a permanent record of all transactions. A victim of theft can follow the digital transaction trail to identifiable third- parties several orders removed from the actual theft. A true owner’s only available remedy may be asserting claims against these innocent third parties. However, the bona fide acquisition rule works to protect good faith purchasers who acquire property without notice of misconduct. Are the principles justifying the bona fide acquisition rule fulfilled if applied to cryptocurrencies?
Users of cryptocurrencies largely rely on third-party services to exchange their value in one virtual currency into traditional fiat currencies or other cryptocurrencies.1 Cryptocurrency exchanges provide this service, like commodities or securities exchanges.2 Using these services generally requires cryptocurrency owners to surrender possession to the third-party exchange.3 This creates hoards of virtual assets consolidated and entrusted to exchanges. Exchanges, in turn, become targets of thieves.
Florida International University (FIU) College of Law, J.D. Candidate 2019; United States Military Academy, B.S. Computer Science 1999; Holland & Knight LLP, Blockchain Technology Law Clerk. I am grateful to Josias Dewey, Holland & Knight’s blockchain expert, for suggesting and discussing with me the topic of this paper. Thank you to Professor Hannibal Travis of FIU for brainstorming ideas relating to this topic, reviewing my work, and providing substantive feedback. I also owe a debt to FIU Professors M.C. Mirow for loaning me a book on property principles and suggesting other useful titles and Scott Norberg for letting me pepper him with UCC-related questions.