[The curious case of Bitcoin lien.. and you can hardly do anything about it]
Imagine..
You are a happy owner of a Bitcoin. You own a piece of 21 million that will ever be ! Each passing day you check the price of the coin in hope of it getting escalated, and it actually does ! Wow! Perfect. Isn’t it ?
Lets imagine again.
You just got an email today from some John’s lawyer claiming that the Bitcoin that you own is actually his and you are unrightfully holding possession of it. He is the "True owner" ! Gosh! Can this be true ?
Let’s understand what happened here :
Jack had purchased a certain Bitcoin against a payment made for it.
He knows he is truly the "owner" of the coins.
Remember. Not your keys not your coins ! Proof of Keys !
One day, Jack urgently needs cash, so he decides to sell the coins to you.
You are a methodical, prudent buyer so you do a KYC check on Jack and also ensure to pay via bank transfer and also keep a transaction hash of the transaction. You played safe. Didn’t you ? Good !
But today you get an email from some John’s lawyer that you are unrightfully in possession of a bitcoin and you are legally not the owner of it. And that you should return it immediately. Wait! What? How? Why? Whom? Who is John ?
Turns out that Jack had bought the Bitcoin from John’s sister to whom he had paid money, however the "true owner" of that coin was John and not his sister. You think.. So what ? I still paid for it. Didn’t I ?
Here is what the law books tells you – S.27 Sales of Goods Act of India ( similar laws in many other countries) – If the title (i.e ownership) of seller (i.e John’s sister) was defective (i.e she was not the owner hence could not sell the coins) and if this defective title is passed on to a buyer (i.e Jack), then the Buyer’s (i.e Jack) title to the goods would also be defective (i.e Jack would not receive a clean title to goods( I.e Coins)) and he (i.e Jack) would have no rights on the goods despite the fact that he (i.e Jack) acted in good faith and paid the price for the goods
Wait. Are you telling me that Jack despite the payment for the Bitcoin may not be the owner of the coins? And that you, who has purchased from Jack against a proper receipt of transaction of coins are also not the true owner since Jack himself had a bad title to coins ? Short Answer – Yes.
So you paid for the coin to a person ( Jack) who himself wasn’t aware that he was not the true owner of the coins hence he himself could not have validly sold the coins to you. Really ? Yes.
A Latin maxim in this context says: ‘Nemo dat quod non habet’ which means that no one (Jack) can give what he doesn’t have ( a clear title to Goods (coins)).
Similar laws in USA – an analysis of Uniform Commercial Code suggests : as long as Bitcoins are classified as general intangible goods, no one can be absolutely sure that some John can knock at your door and claim an encumbrance or a title to your Bitcoin !
And we did not even add custodial staking yet ! Wooh !
Hence, there is a theoretical possibility that any Bitcoin may have a pending lien or right of title by some one else instead of you, who is possessing it, and that your coin in this case can be legal snatched back from you. And really, as per the current law, there isn’t much that you can do about it.
Solution for the future :
Define Laws of "How to acquire clean title and ownership for bitcoins. May be, make all Bitcoins lien free if there are no claims for 90 days after acquiring.
Re classify bitcoins from general intangible to may be, Property, to avoid application of general intangible asset laws in this case.
In any case, hold your keys to the coins and hodl safe !
Team
Blockchain Lawyer
hello@blockchainlawyer.in