Your Bitcoin Is Mine: What Does Law and Economics Have to Say about Property Rights in Cryptocurrencies?
55 Pages Posted: 25 Feb 2020 Last revised: 22 Jun 2020
Date Written: February 21, 2020
Can anyone really own virtual tokens, such as Bitcoin and Ether? And if so, how should the law protect the rights of the owner? Legal rulings in the federal courts have yielded inconsistent policies regarding the applicable remedy when rights in cryptocurrencies are infringed: some adopt a property rule, enabling also enforcement against third parties, whereas some restrict the remedy to damages. However, all rulings share one problematic feature: a lack of distinction between types of tokens, resulting in an implicit one-size-fits-all policy. The economic analysis of law suggests that the choice between a property rule and a liability rule should depend on transaction costs, but such costs typically differ across cryptotokens, given that the tokens are diverse and customizable. Thus, I propose to exploit the common taxonomy of cryptotokens, which distinguishes between security, utility, and currency, as a proxy for transaction costs. My analysis then suggests that security tokens should be protected by property rules, whereas currency tokens are better protected by liability rules.
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