Security Interests in Virtual Currencies

The growth of virtual, digital or crypto currencies has surged in the 21st Century. Accompanying that growth has been an increased level of awareness that Internet-related cyberassets have become critically important in the field of secured financing. There is no reason to believe that this trend will change any time soon. One of the problems financers face, however, is that while the pace of cyberasset-based financing accelerates, the law governing those transactions seems to fall further behind. This is especially the case with the use of virtual currencies as collateral. This paper attempts to identify and clarify some of the most fundamental legal doctrines that are likely to be most important to lenders operating in this field.The paper begins with a discussion of how virtual currencies could be classified for the purpose of creditors asserting claims to them. Assuming that they are personal property subject to Article 9, what attributes and characteristics of these assets are important for creditors to understand when they obtain security interests in them, perfect that interest, attempt to ensure priority, and enforce the interest upon the debtor’s default? Can virtual currencies qualify as “investment property” under Article 8, as “money” or a “deposit account” under Article 9, or are they by default placed in the catch-all category of “general intangibles” for Article 9 purposes? Because of the unique nature of these assets and their relatively new status as important business assets, the answers to these questions are not always clear. As more courts and legislatures decide issues related to the use of virtual currencies as collateral, we hope to find more clarity in the years to come.