The emergence of digital assets has profoundly altered the wealth landscape, creating new forms of wealth based on complex technological foundations. As lawyers, we have observed that the ownership and transfer of these intangible assets raises unprecedented legal issues. The particularity of these assets is that their legal regime cannot be dissociated from the technology that underpins them. De facto power, i.e. effective technical control, often precedes and conditions de jure power. Understanding this dynamic is essential for any owner, investor or professional. This complex world, at the frontiers of law and information technology, is the subject of our article on digital assets: legal challenges and practical solutionswhich lays the foundations for a line of thinking that we will explore in greater depth here.
Technology at the heart of the definition of digital assets
A purely legal analysis is not enough to understand digital assets properly. The legal classification of digital assets is a first step, but it must be complemented by an analysis of their technical functioning. Technology is not simply a medium; it is an essential component that defines the real prerogatives of its holder. It is this inextricable link between code and law that requires us to rethink some of our traditional legal tools.
The concept of 'control' in unidroit principles
Aware of this reality, the intergovernmental organisation UNIDROIT has drawn up principles relating to digital assets and private law. Rather than being confined to strict legal qualifications, these principles introduce a central concept: "control". A digital asset is defined as an electronic record that can be subject to such control. This factual concept is distinct from ownership or possession in the traditional sense.
Control is characterised by the combination of three exclusive abilities: the ability to benefit from the asset, the ability to prevent others from benefiting from it, and the ability to transfer these same two abilities to others. This is a state of affairs that has major legal consequences. For example, the person who has control of a digital asset is presumed to be the bona fide purchaser, a mechanism not unlike the rule in article 2276 of the Civil Code: "in movable property, possession is equivalent to title".
The technological translation of the notion of control
The notion of "control" is given concrete expression in asymmetric cryptography technology, which underpins most digital assets such as crypto-currencies. De facto power is directly linked to ownership of the technical tools that enable interaction with the asset on a distributed register (blockchain). In practice, whoever masters the technology of the asset has legal control over it. For a lawyer, this means that any transaction, whether it involves a sale, a donation or the creation of a guarantee, must secure this transfer of technical control if it is to be fully effective.
Cryptographic keys: the foundation of technical control
The technical control of a digital asset relies almost exclusively on the management of cryptographic keys. These instruments are not the assets themselves, but the essential tools for accessing them and exercising rights over them. Their nature and the way in which they are held determine who really wields power.
Private and public keys: how they work and what's at stake
To simplify matters, we can compare the pair of keys to an email account. The public key is the equivalent of an email address (or an IBAN): it can be shared publicly to receive assets. The private key, on the other hand, is the password: it must remain secret and is used to sign transactions, i.e. to authorise the sending of assets from its address. The private key is the one and only instrument that confers the power to act. Its loss or theft leads to the irreversible loss of access to the associated assets. It is therefore essential to understand that the legal ownership of a digital asset is emptied of its substance without control of the corresponding private key.
Direct ownership of keys and use of wallets (hardware, software)
Users can choose to hold their private keys directly. In this case, they have total sovereignty over their assets. This is done through "wallets". Contrary to what their name suggests, these wallets do not contain the assets themselves (which are registered on the blockchain), but the keys that give access to them.
The main distinctions are :
- The software wallets (software wallets): these are applications installed on a computer or smartphone (known as a "hot wallet" because they are connected to the Internet). They are practical but more exposed to the risk of piracy.
- The hardware wallets (hardware wallets): these are physical devices, similar to a USB key, which store private keys offline ("cold wallet"). They offer a much higher level of security because the keys are never exposed to a connected device.
In this case, the holder is their own banker. They have complete control, but also bear full responsibility for the security and transmission of their keys.
Indirect ownership of keys via storage platforms
The alternative is to entrust the safekeeping of their keys to a third party, usually a custodian or exchange platform. In this model, users only need a login and password to access their account on the platform. It is the platform that holds and manages the private keys on behalf of its customers. While this system is simpler for users, it radically changes the nature of their rights. They no longer have a direct right to their assets, but a claim against the platform. If the platform goes bankrupt, as the high-profile cases of Celsius and Voyager have shown, customers risk being treated only as unsecured creditors, with little chance of recovering their assets. The de facto power is entirely in the hands of the Conservative.
The influence of de facto power on legal power
The pre-eminence of roadworthiness testing has direct repercussions on many areas of law. Practitioners must adapt their reasoning and their tools to take account of this new reality, in which facts implacably condition the law.
De facto power and legal power in matrimonial property and joint ownership law
The management of digital assets poses a number of challenges for couples married under a joint or undivided ownership regime. The spouse or undivided partner who holds the private keys alone has de facto exclusive power over the assets, even if they are legally joint or undivided. He or she can transfer or conceal them without the consent of the other party. To overcome this difficulty, technical solutions exist, such as "multi-signature" portfolios, which require the approval of several key holders to validate a transaction. Implementing such a solution should be a matter of course for joint management or to comply with undivided management rules.
De facto power and the distinction between title and finance
Case law has developed a distinction between "title" (the status of shareholder and the political rights attached to it) and "finance" (the asset value of the shares), particularly in the case of company shares. This distinction could be transposed to digital assets. The spouse who created and controls the assets (by holding the keys) would retain the "title", i.e. the prerogatives of exclusive management. On the other hand, the "finance", i.e. the value of these assets, would fall to the community. This approach, based on "intuitu potentia" (a consideration of technical power), would make it possible to reconcile the reality of control with the rules for the liquidation of matrimonial property regimes.
De facto power and the notion of de facto universality (wallets)
A portfolio of digital assets, managed via a single wallet, could be analysed as a de facto universality, like a portfolio of securities. This classification would make it possible to apply unified legal regimes to all the assets it contains. For example, the rules of real subrogation could be applied more simply: the specific or common nature of the portfolio would determine that of the new assets that enter it, facilitating asset management and the traceability of funds within a family estate.
De facto power, de jure power and creditors' rights (seizures)
Creditors' rights are also affected. Seizing digital assets is complex. If the assets are held by a storage platform, the seizure can be carried out in the hands of this third party in a relatively standard way. The situation becomes much more complicated when the debtor holds the private keys himself. Without the debtor's cooperation, it is technically almost impossible for a judicial officer to seize the assets. The debtor's de facto power defeats traditional enforcement methods. These complex situations illustrate the importance of guarantees and availability of digital assets that take account of this technical reality to be truly effective.
Given the complexity of these issues, which combine technicality with far-reaching legal implications, support from a lawyer with expertise in commercial law and new technologies is a major asset. To secure your digital assets and anticipate the risks associated with their management and transfer, contact our firm.
Sources
- Unidroit principles on digital assets and private law
- Monetary and Financial Code
- Civil Code
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