Bitcoin Ownership and its Impact on Fungibility

Tatiana Cutts, a university law lecturer, examines the subject of bitcoin ownership and whether it impacts the fungibility of the digital currency.

AccessTimeIconJun 14, 2015 at 2:00 p.m. UTC
Updated Mar 6, 2023 at 3:13 p.m. UTC

Tatiana Cutts is a lecturer in law at the University of Birmingham, UK, and a doctoral researcher at the University of Oxford. Her interest in bitcoin stems from prior research into private law aspects of money and tracing. Here, in an article co-authored by David Goldstone QC, of Quadrant Chambers, she examines the subject of bitcoin ownership and whether this impacts the fungibility of the digital currency.

There is an often tacit assumption in discussions of traceability in the bitcoin sphere that bitcoins can, in some sense that is meaningful to all those who use the term, be “owned”. So, people wonder what will happen if the arms race between tracking techniques and evasion capabilities is won, even temporarily, by the tracer: won’t that impair the fungibility of bitcoins, they ask, and thus undermine the effective circulation of funds?

Legal ownership

In fact, both the assumption and conclusion require delicate treatment. To start with, it is important to note that the term “ownership” has a peculiar meaning in private law. At its heart is the idea that a limitless category of other people have an obligation to “stay away” from whatever is the subject matter of one’s claim.

If that obligation is breached, the remedy is an action in tort law. So, if you steal my chair, I can sue you, and – crucially – anyone to whom you give or sell it.

Money has a special place in law. We often focus on its status as “legal tender”, by which cash is transformed into a mechanism for final settlement. But the principles applicable to the transfer and protection of ownership of cash also differ from other physical commodities. In particular, whilst (practical matters aside) you can always sue an innocent recipient of a physical thing stolen, you cannot do so if the thing is money, and the recipient is an innocent purchaser.

The current possessor has the best claim. Why? Because the costs associated with figuring out whether the money is “good” or “bad” would stultify the circulation of cash. This is the second important point: it is not practical fungibility that money requires to circulate, but economic fungibility: there must be no reason for the payee to prefer the receipt of certain coins or notes over others of an equivalent nominal value.

 It is not practical fungibility that money requires to circulate, but economic fungibility.
It is not practical fungibility that money requires to circulate, but economic fungibility.


The application of property principles to the digital sphere has proven difficult, particularly in the UK. It is clear that pure information cannot be owned, because it is replicable or “inexhaustible”: if you “steal” the password for my phone, you have not removed it from me. Rather, we both now have the password, and can access the phone.

Indeed, often the purpose of creating information-media is sharing: music exists to be heard, books to be read, plays to be acted. We therefore have rules for the protection of private and public information that are independent of the law of property, and do not share its basic tenet: they are rules that manage data dissemination and protect private information, not rules that build a legal fence around particular things.

But some digital assets, such as domain names, are both exhaustible and can be controlled exclusively. In coping with these assets, English law has taken a different approach from some US circuits: thus far, so-called “intangible” assets (although this term is  fraught with difficulty have fallen outside the sphere of property protection. Development has been actively opposed by the Court of Appeal, and is likely – by analogy with the treatment of contractual rights – to be knocked back at a Supreme Court level.

Of course, contractual rights and digital assets are not identical. We do not apply property principles to contractual rights, not because they are not exhaustible or intended to be held exclusively (they are), but because the information costs associated with figuring out whether one’s actions interfere with another’s contractual rights are too high. That simply will not wash with an asset such as a domain name, in which details are stored in a central registry that links a name clearly to a real-world identity.

Bitcoin and property

In this regard, bitcoin is particularly interesting. Questions of proximity of user control aside, in its present form, the supply of bitcoins is exhaustible, and outputs are intended to be controlled exclusively. But, whilst some have argued that property principles are required to encourage and support digital development, it cannot be assumed that the economic incentives will all always travel in one direction.

In particular, we have already seen that if money is to circulate, it must be possible for the payee to acquire the confidence, cheaply and easily, that the value of those outputs in his hands is at least as good as any others. Doubt incites gridlock. There is, therefore, a good policy reason for the conclusion that one cannot, in a private law sense, “own” bitcoin.


So, whilst the law of confidence may provide a remedy to a user for interference with his or her private key, it is much less clear that the law of tort should provide remedies for remote recipients. If we do apply property protections to bitcoin, it will be necessary to embrace wholeheartedly the exception for money media.

This is certainly possible: there is no doubt that bitcoin it is a negotiable payment mechanism (or, in economic-speak “medium of exchange”) with a supportive structure of accounting, its value scale calibrated in accepted units. But now we have come full circle: even if bitcoins are property, they ought not to be protected by the regime applicable to other commodities.

In fact, this approach – which might well require an intensive investigation into the information of which a payee might have availed himself about the transactional history of the output, had he so tried – might prove equally cumbersome, and less predictable. As growth of heuristics linking transactions to one another, and users to transactions, starts to yield more substantial information, so the difficulty of confidently asserting that a purchaser who does not inquire is truly “innocent” increases.

The wrong tool?

Perhaps most importantly, we must not assume that legal protections are necessary to drive a particular digital economy. Copyright law is the most obvious example of a tool that has fallen far behind in the search to secure sufficient protection to support industry growth. Access to online newspapers, music, audiobooks, images – the list goes on – is restricted not by the law of copyright, but by code.

Bitcoin has built-in cryptographic protections, a plethora of offline storage options, and it seems increasingly likely that the transactional record provided by the blockchain will itself disincentivise abuse. And, after all, the ability to exercise practical exclusive control over some asset must trump the ability to pay lawyers to chase it around the globe.

Bitcoin lock image via Shutterstock


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