Second part of French Legal Aspects of Cryptocurrencies - Introduction 1/2.
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10. The first manifestation of this phenomenon is that at the heart of the concept of money, payment . The transfer of "traditional" capital to crypto-assets is a source of concern for States, which see their hold on the economy diminishing in favour of the cryptographic sector. This lack of state control over crypto-assets is the advantage of this technology, since the capture of values in crypto-assets is facing serious feasibility problems. While a judgment may force a banking institution to pay the amount of a conviction, to the winner of a lawsuit, or to the tax authorities, it seems impossible to seize stored values by means of a smart-contract. Moreover, the absence of any obligation on operators in the cryptographic sector has certainly allowed a number of illicit operations to pass under the radar of the States concerned. Although the problem now seems to have been taken head-on by public operators, the existence of previous illegal operations, whether in terms of money laundering or fraud, is beyond doubt. Some crypto-assets are moreover specialised in the opacity of the operations carried out.
11. While the risks associated with the use of crypto-assets should not be underestimated, it is also important not to paint a completely black picture of this technology. It seems that it is the lack of regulation rather than the technology itself which has led some unscrupulous users to misuse it. In addition to these illicit phenomena of capital transfer, many actors are engaged in a healthy use of the technology behind crypto-assets. The registration aspect alone offers a large number of possibilities since it is forgery-proof.
12. Other more recent events, in particular "smart-contracts", allow certain services to be opened up to the greatest possible number of people at the lowest possible cost. The second main use of the currency is, logically, the offers of financing which are beginning to emerge, both in terms of mechanism, through the ICO, and in terms of use. In the case of ICOs, the issue of the nature of the tokens is of prime importance, as is that of the cryptomoney when they were created. However, the problem would be the same: the counterpart of financing should, in principle, be financial securities. Like the currency, it is difficult to transpose the regulations, and would harm the attractiveness of this method of financing, and therefore the revenues of a State benefiting from an overly restrictive regulatory framework. Grouped together in the category of crypto-assets, cryptomoney and tokens nevertheless follow different logics, the only common nature of which is the dematerialization mode recognized for its reliability.
13. This solution is a clever way to kick in on the nature of each right thus dematerialized, while moving towards an attractive regulation in order to capture the activity generated by the cryptographic sector. Far from being limited to the amounts, which are certainly impressive in terms of volume, a number of services originate from this technology. Thus, companies providing advice and assistance to ICO initiators are emerging, as well as legal consulting firms specialising in this sector and even some stand-alone "legal-tech" projects.
14. Although the future applications are interesting, they stray from the subject of this brief. Indeed, only these crypto-assets in themselves will be dealt with, and not "smart-contracts" which would require a specific and in-depth study. Nevertheless, crypto-assets being the "currency" of these applications, and these also using a smart-contract, a slight detour will sometimes be necessary. The prism of the study will be the crypto-assets in all that they encompass in 2018, i.e. a multitude of "currencies", operators and operating modes.
15. The will of the parties to a convention is more than ever renewed when a new legal object is used so rapidly and massively. Without being able to qualify it legally, it is difficult to provide a legal framework for the object itself without dwelling on its functions. The study of the real uses and practices of users of crypto-assets has proved difficult until now, but various private actors are tending to democratize and show pedagogy with regard to market practices. Apart from these private initiatives, it is difficult to easily find studies or documentation on the real functioning and uses of this sector. As for the technical aspects, although they are essential to the understanding of the legal mechanisms implemented autonomously, it is impossible for the programming neophyte to verify them. Thus, if it is possible to understand how such or such protocol works, this will most of the time depend on the veracity of the claims of the creator of the smart-contract.
16. However, it emerges that one of the common elements of the set of crypto-assets is its method of storage, which is not smart-contract, but the account into which the units of the crypto-assets are incorporated: the "wallet". The wallet is similar to an account denominated in crypto-assets, as could be a scriptural currency. Each unit has an account, linked to its smart-contract by a unique identification key. These "wallets" are mostly managed by the exchange platforms, although alternatives, outside networks, exist. The role of these platforms, as intermediaries between the blockchain and the owner of the crypto-assets, is important and is at the centre of management projects. Since they handle non-monetary and monetary units of value, it is on them that existing obligations must be placed, more than on the owners of the crypto-assets themselves.
17. Once the elements relating to the prefix "crypto" have been set out, the core of the notion remains, namely the nature of the crypto-assets. The monetary aspect was the first to be discussed, and then, as the prices of the main crypto-assets rose and the markets became increasingly interested, the aspect of financial instruments. Cryptomoney, tokens and crypto-assets are all names given to this technology, which is constantly evolving, without it being possible to classify it clearly and unequivocally.
18. This is because the nature of crypto-assets is such as to renew the classical conception of many of the existing categories, from money to financial instrument, until the next application which will emerge from smart-contracts (the very nature of smart-contracts is also the subject of various legal debates .
The nature of money is the most blatant illustration. However, this legal asset with a very specific and well-supplied regime has continued to evolve in its nature, to the point of losing its substance. However, the dematerialization of money is not likely to call it into question, but its foundations, i.e. the state monopoly, are more fragile than ever to the point of seeing currencies competing with their cryptographic cousins. The concept of money depends on its use as a means of payment, and therefore not necessarily on a sovereign hold as it is developed today.
19. The persistent, but distended, link between state and currency has today allowed the emergence of an international non-state currency. It must be said that the creator of Bitcoin sought to create a decentralized electronic money system. If it is not used and decently usable as a currency, it is indeed the basis of the economy of crypto-assets, any operation of which requires the use of the first crypto-assets, those having sought to become currency. Those that have not sought to become currency are based on the same technology, but use other functions than that of a register. Thus Bitcoin is a simple transaction register, where Ethereum is a register, allowing the creation of crypto-assets sub-registers. If Bitcoin is a cryptomony, Ethereum is also a cryptomony, but integrates the possibility to create one.
20. This illustration highlights the fact that, like money, crypto-assets have different functions from those of payment, but follow a similar logic: to serve as a basis for exchanges. It is in this characteristic that we find the link with money, imposing the study of alternative currencies, proof of the ability of a state to control competing monetary manifestations without concealing their nature.
However, the diversity of crypto-assets and the impossibility of banning their circulation on a national level deserves to welcome the general recognition of crypto-assets. It makes it possible to group together a diversity of assets, but presupposes a case-by-case analysis of the rights incorporated in each type of unit. As a specific mode of dematerialization, crypto-assets can only be functional assets.
21. Since any theoretical demonstration needs to be tested in practice, the functions of crypto-assets will then be used to illustrate the current and potential uses of the technology in order to establish a coherent and realistic legal regime. This last condition implies decomposing the mechanisms, complex and technical, behind the functions of various crypto-assets. Since the law must be realistic, this qualification will have to be tested against the actual use of the technology.
Is crypto-assets usable as functional currency in French law?
22. To answer such a question, the very nature of crypto-assets must be analysed in order to extract the common elements and provide a common qualification. This requirement, although it does bring to light a common nature, is however difficult to reconcile with a single legal regime in view of the varied functions of crypto-assets. It emerges from this that crypto-assets are more a particular form of dematerialised asset than a fixed category, so that the qualification of a functional asset, under the regime dependent on embedded rights, seems inevitable.