¶ 4901
Overview
Scope of the chapter. This chapter addresses digital assets: cryptocurrencies, stablecoins, tokenized securities and other assets whose ownership is recorded on a distributed ledger and whose transfer depends on control of cryptographic keys. It covers the legal character of digital assets in the United States and abroad, the models by which they are held and the risks of each, the placing of digital assets in trust, the remedies available to creditors and the courts' treatment of debtors who claim to have lost access, the treatment of digital assets in bankruptcy, tax and information reporting, and the problems of death and incapacity. It closes with planning recommendations and an assessment of digital assets in the Threat Matrix.
What is different about digital assets. Digital assets differ from other property in three respects that matter for asset protection. First, the ability to transfer them depends on knowledge of a private key, which is information in a person's mind or on a device. A person who controls the key controls the asset, wherever the person and the asset are said to be, and a court that cannot compel the person to use the key cannot reach an asset held in self-custody. Second, the ledger is public, so that transfers can be traced through the blockchain by anyone with the necessary tools, and an asset moved to a protective structure is visible to a creditor who can link the addresses to the debtor. Third, digital assets held through an exchange or other custodian are subject to the custodian's insolvency, and customers of failed custodians have found that their assets belonged to the custodian's estate. These features make digital assets both easier and harder to protect than conventional assets. They also make the debtor who claims to have lost a key a familiar figure in collection litigation.
Relation to other chapters. The reporting of digital assets under the Crypto-Asset Reporting Framework is addressed in chapter 44 (see supra ¶ 4470). The anti-money-laundering inquiry into wealth derived from digital assets is addressed in chapter 45 (see supra ¶ 4520.06). Contempt and the impossibility defense are addressed in chapter 39 (see supra ch. 39), freezing orders in chapter 38 (see supra ch. 38), and the founders of digital asset businesses in chapter 51 (see infra ¶ 5170.06).