-BITCOINS ARE “INTANGIBLE ASSETS WITH PROPERTY VALUES”

-SUBSTITUTE PAYMENTS IN FIAT MONEY  IS “VALUE OF BITCOINS AT THE TIME OF CLOSING ARGUMENT OF THE APPELLATE COURT”

As the price of popular cryptocurrencies like the Bitcoin or the Ethereum skyrocketed, legal issues surrounding cryptocurrency has increased exponentially as well. Most common civil disputes surrounding cryptocurrency include situations in which people borrowed or lent Bitcoin to one another when it was only one tenth the value of what it is today.

Frequently, the point of dispute includes the interpretation of contract. People overlooked settling on in what form the Bitcoin shall be returned in—fiat money of the Bitcoin value at the time of the loan agreement or the same number of Bitcoin loaned—because they had no idea the prices of Bitcoin was going to fluctuate so much. The lender argues the Bitcoin should be returned in the form of Bitcoins, now that the value of Bitcoin is multiple times the value it used to be; the borrower argues the Bitcoin should be returned in fiat money amount equal to the value of Bitcoin when the loan agreement was made.

The root of all evil lies in that people did not foresee the prices of cryptocurrencies to stand where they are today. The price of Bitcoin rose about ten times since 2016, and almost five times since last year, and there is no guarantee where it will go in the future.

[1] Bitcoin as “intangible assets with property values”

Per Article 98 of Korea’s Civil Act, “things” are “corporeal objects, electricity, and other natural forces which can be managed.” Cryptocurrencies are not corporeal because they are merely digital codes; nor they are natural forces which can be managed like electricity. Therefore, cryptocurrencies are not by definition of the Civil Act, “things”.

However, the legal nature of cryptocurrencies was indirectly recognized by the Supreme Court of Korea in 2018 as “intangible assets with property values” according to Article 2(2) of the Enforcement Decree of the Act on Regulation and Punishment of Criminal Proceeds Concealment (hereinafter the “Enforcement Decree”). The point of dispute was whether cryptocurrency can be defined as asset with property values, and thus be subject to confiscation. The First Instance Court ruled that Bitcoin could not be confiscated because it is “intangible”. The Appellate Court ruled that it could be confiscated because “although Bitcoin is a form of electronic files without any physical tangibility, it can be confiscated because it is a profit that can be traded for goods and services.” The Supreme Court confirmed this stance and ruled that, “Bitcoin obtained by the defendant from “serious crimes”, crime of violating the Information and Communications Network Act(distribution of obscene materials) and Assistance in Setting up Places for Gambling, pursuant to the Act on Regulation and Punishment of Criminal Proceeds Concealment, is “intangible assets with property values” because 1) Bitcoin is a type of ‘cryptocurrency’ which allows the transfer, storage, and exchange of economic value in digital form, and because 2) the defendant treated Bitcoin as having property value while operating “000.com”, the internet site for disseminating obscene materials, by receiving it from users consuming the photographs and videos on the internet site and from advertisers willing to advertise on the internet site.”(Supreme Court Decision 2018Do3619, decided 2018. 5. 30.)

Although the first court decision to recognize cryptocurrency as “intangible assets” came from a criminal court, this court decision is acknowledged by many to have made possible civil claims for return of property—cryptocurrencies.

Seoul Central District Court also ruled that dividend obtained from selling Bitcoin awarded due to system error is considered unjust enrichment, and thus the recipient must make restitution. (Seoul Central District Court 2018GaDan5010428, decided 2019. 5. 23.)

[2] The price of Bitcoin at the time of closing argument of the Appellate Court

If for some reason Bitcoin cannot be returned to the original owner, a substitute claim in fiat money needs to be made. As for the sum of money that shall be returned instead, the Western Branch Court of Busan District Court quoted the Supreme Court Decision 75Da450, decided 1975. 7. 22. which decided that, “In the case a claim for substitute as compensation has been made in combination with the original claim for return of property, the claim for substitute is claim for compensation based on the premise the original claim was possible at the time it was being claimed, made in advance in case the original claim for return of property becomes impossible to fulfill or carry out after the judgement becomes final. Therefore, the combination of the two claims shall be considered a simple combination between a current claim and a future claim, and in this case the amount claim for substitute shall be calculated by the price at the time of closing argument of the Appellate Court. (Western Branch Court of Busan District Court Decision 2017GaDan11429, decided 2018. 10. 23.)

In conclusion, the civil disputes surrounding cryptocurrencies like Bitcoin can be summarized as follows. First, cryptocurrencies are generally recognized by the Korean court as property and thus civil claim for its return can be made. Second, when the cryptocurrency cannot be returned, the amount of money that shall be returned instead of the cryptocurrency shall be calculated by the value of cryptocurrency at the time the closing argument is made at the Appellate Court.