On January 12th, 2009, Satoshi Nakamoto initiated the first Bitcoin transaction. Since then, the blockchain technology rapidly rose in popularity and distribution. Not only Bitcoin, but also numerous other cryptocurrencies gained a lot of users since this first crypto transaction over 13 years ago. This tremendous success is most likely based on the technical feature of blockchain units to grant to the respective holder an absolute power of disposition. From a technical point of view, the person disposing over the associated private key to the current blockchain address is the only one being able to initiate a transaction of blockchain units to another blockchain address. But is this factually safe bearer position reflected in German civil law?
Legislator Primarily Focuses on the Regulatory Aspects of Cryptocurrencies
Right from the beginning, the discussion and legislative actions regarding the legal handling of cryptocurrencies in Germany primarily revolved around and focused on the handling of cryptocurrencies with regards to financial supervisory law. BaFin, as the competent authority issued a public statement in 2013 in which it qualified Bitcoin and comparable blockchain units as units of accounts and therefore as financial instruments in the sense of German banking regulations. The former German Federal Government, which according to its coalition treaty intended to turn Germany into a blockchain hotspot, followed suit in 2020 when it introduced crypto assets as a new category of financial instruments into the German Banking Act (KWG). Further regulatory measures in the financial supervisory sector followed with the introduction of crypto securities in the Electronic Securities Act (eWPG) and the Crypto Asset Transfer Regulation. Whereas, when it comes to regulating blockchain units under civil law, the German legislator has up to now been rather reluctant. Solely for the aforementioned crypto securities – which are to this date only issuable in the form of tokenized bonds – there are civil regulations with regards to the possibility of transferring them to the bona fide transferee and the option to establish ownership. For other kinds of blockchain tokens, there have not been any specific civil law rules in Germany since 13 years now.
Ownership Under German Civil Law Only Possible on Tangible Items
The German civil law has not yet entirely arrived at the digital age. The basis for the German civil law is the German Civil Code (BGB) which went into effect on January 1st, 1900. Even though the BGB has been regularly updated and extended, e.g. by introducing consumer protection regulation, so that parts of it comprehend phenomena of the digital era, ownership rights are still solely regulated in the part that regulates property law and therefore relate primarily to tangible items. Blockchain units such as Bitcoins, Utility Tokens or NFTs are intangible and therefore the establishment of ownership rights in the sense of the German civil law on them is generally not possible.
Would Ownership Rights Be Suited for Crypto Tokens?
Bearers of blockchain tokens are obviously not completely unprotected under the current law. Blockchain units are – at least according to the prevailing opinion in literature – qualified as other intangible assets, so that claims for damages can for example also be targeted at the transfer of crypto tokens. Since the property law relates to tangible items, it regulates cases that require the tangibility of the item. E.g. the owner of an item has the right to defend himself against an unauthorized removal of his item. This provision is not suited for tokens which exist exclusively virtually. The German property law on the other hand also regulates that the ownership of an object can be transferred to the acquirer without any potential third-party rights, if the acquirer blamelessly did not know of the associated third-party rights. Just as a bona fide acquirer may effectively acquire ownership of an object, if the seller was not authorized to transfer the ownership of the object. Comparable legal mechanisms for crypto tokens would surely lead to more legal certainty for everyone involved. An application by analogy of the property law to crypto tokens would only make sense in certain partitions of the problem. It would therefore be better, if the German legislator on the way to a German blockchain-hotspot created specific civil law provisions for blockchain tokens which are tailored to the technical specifics and the respective market needs of the industry.
Attorney Lutz Auffenberg, LL.M. (London)