Cryptopia's Crypto is 'Property' and Owned by Account Holders - Judge
The judge in the case of the troubled, New Zealand-based crypto exchange Cryptopia has found that the account holders, not the exchange, own the cryptoassets.
As a short reminder, Cryptopia, founded in 2014, suffered a devastating hack in January 2019, when reportedly some USD 30 million in cryptoassets were stolen. The exchange was placed into liquidation in May last year. The questions that the High Court of New Zealand had to provide an answer to are "who owns the remaining cryptocurrency under the control of Cryptopia and what should happen now."
This is relevant as the liquidators asked the judge for guidance on whether all the currencies in account holders' accounts belong to the holders, or are they debts, given that creditors were owed millions too.
In the 210-pages judgement delivered on April 8, Justice David Gendall provided two answers:
1. Cryptoassets are property
Cryptos are "a type of intangible property as a result of the combination of three interdependent features," writes Gendall. The cryptos get their definitions as there is the public key recording the unit of currency, while the two other features give it the control and stability necessary to ownership and for creating a market in the coins. These are the private key attached to the corresponding public key and the generation of a fresh private key upon a transfer of the relevant coin, said the judge.
2. Account holders own the crypto on that account
As it was determined that cryptoassets are property and are able to form the subject of a trust, the judge then looked into whose property are they, finding that they are held in trust for the account holders. He concluded that Cryptopia held the digital assets on trust by way of a separate trust for each cryptoasset. "The SQL database that Cryptopia created showed that the company was a custodian and trustee of the digital assets," and the exchange didn't trade in the digital assets in its own right "except to the extent that it too was a beneficiary of the trusts established," says Gendall. He added that a trust was created for each of the cryptocurrencies as soon as Cryptopia came to hold a new currency for account holders.