Digital Assets as Property in the United States

Scope of the chapter. This chapter examines whether, and in what sense, a digital asset is property under the law of the American states. It sets out the general test that courts apply to decide whether an intangible interest is property, applies that test to native tokens and other digital assets, and then follows the question through the bodies of law in which it has been litigated: the torts of conversion and trespass to chattels, the definition of property of the estate in bankruptcy, the definition of money and currency, the statutes by which some states have declared the property status of digital assets, the division of marital property, the law of unclaimed property and the criminal law of theft, fraud and forfeiture. It closes with drafting guidance and a checklist for the practitioner who must take a position on the question in a transaction, an instrument or a pleading.

Why the question matters. Whether a digital asset is property determines which remedies are available when it is taken, whether it passes to a trustee in bankruptcy, whether it can be reached by a creditor, whether a spouse has a claim to it, whether a holder must deliver it to the state when the owner disappears, and whether its theft is a crime against property. The answer also decides what a holder owns when the asset sits in an account at an exchange or other intermediary. A customer who owns tokens held for the customer by a custodian stands in a different position from a customer who holds a contractual claim against the platform for the delivery of tokens of the same kind. The first may recover the tokens in the custodian's insolvency; the second ranks as an unsecured creditor. The characterization question is therefore litigated most often when something has already gone wrong.

State law governs. Property interests are created and defined by state law. The Supreme Court so held for bankruptcy purposes in Butner v. United States, 440 U.S. 48, 55 (1979), and the principle applies across federal law except where a federal statute supplies its own definition. Federal statutes that use the word "property" or "money" or "funds" are construed according to their own terms and purposes, and the answer under one statute does not carry over to another. The Internal Revenue Service treats convertible virtual currency as property for federal tax purposes. I.R.S. Notice 2014-21, 2014-16 I.R.B. 938. Courts have held bitcoin to be "funds" for purposes of the federal statute that prohibits unlicensed money transmission and "money" for purposes of a local money-transmission statute. Each of these holdings answers the question the particular statute asks. The characterization of digital assets by purpose is introduced in chapter 1 and is developed here at ¶ 340. See supra ¶ 170.

The sources. No American jurisdiction has enacted a general statute declaring that digital assets are property for all purposes. The sources are instead (1) the common law of personal property and of the property torts, which the courts have extended to intangibles case by case; (2) Article 12 of the Uniform Commercial Code, which since its promulgation in 2022 supplies a commercial-law framework for controllable electronic records without deciding whether they are property in every other sense; (3) state statutes that classify digital assets for particular purposes, of which the Wyoming statute is the most developed; (4) the federal and state statutes that use property, money or funds as operative terms; and (5) the decisions of bankruptcy courts construing customer agreements. The chapter draws on each. Article 12 is the subject of chapter 6, and the question which jurisdiction's law governs a digital asset is the subject of chapter 5. See infra chs. 5, 6.

Summary of conclusions. Five propositions emerge from the authorities.

1. A native token whose holder can transfer it by using a private key satisfies the test that courts apply to decide whether an intangible interest is property: it is capable of precise definition, it is capable of exclusive control, and its holder can establish a legitimate claim to exclusivity (¶ 310).
2. In jurisdictions that do not require an intangible to be merged in a document before it can be converted, the wrongful exercise of dominion over a token supports a claim for conversion, though a plaintiff must still show ownership or a right to possession and an affirmative act by the defendant (¶ 320).
3. Whether tokens credited to a customer's account at a platform belong to the customer or to the platform is decided by the customer agreement read against the applicable law, and the decisions so far have enforced terms that transfer title to the platform (¶ 330).
4. Native tokens are not money for purposes of the Uniform Commercial Code as amended in 2022, though they have been held to be money or funds under particular regulatory and criminal statutes (¶ 340).
5. In the remaining fields examined here, marital property, unclaimed property and criminal law, the courts and legislatures have treated digital assets as property and have turned their attention to valuation, tracing and the mechanics of delivery (¶¶ 360–380).

A note on terminology. The chapter uses the vocabulary set out in chapter 1. See supra ¶ 180. A token is a unit of value recorded on a distributed ledger. Key material means the private keys, seed phrases and key shares that permit a transaction to be signed. A holder in factual control is a person able to sign a transaction that the network will accept. Control in the Article 12 sense is a legal relation defined by U.C.C. § 12-105 and is distinguished from factual control. A platform is an exchange, lender, broker or other intermediary that credits digital assets to customer accounts.

Plan of the chapter. Paragraph 310 sets out the concept of property and the three-part test. Paragraph 320 treats conversion, trespass to chattels and replevin. Paragraph 330 examines the bankruptcy and civil decisions on whether tokens held through a platform belong to the customer. Paragraph 340 addresses money, currency and commodity status. Paragraph 350 examines statutory declarations of property status. Paragraphs 360, 370 and 380 treat marital property, unclaimed property and criminal law. Paragraph 390 draws the threads together and offers drafting guidance and a checklist.