ABSTRACT
This paper investigates whether entitlements in cryptocurrencies should be protected as property rights from a law and economics perspective. Legal rulings in the federal courts have yielded inconsistent policies regarding the applicable remedy for infringements of rights in cryptocurrencies: some adopt a property rule, enabling also enforcement against third parties, whereas some restrict the remedy to damages. However, all rulings share one problematic feature: a lack of distinction between types of tokens, resulting in an implicit one-fit-all policy. Economic theory suggests that the choice between a property rule and a liability rule should depend on transaction costs, but such costs typically differ across cryptotokens, given that the tokens are diverse and customizable. Thus, I propose to exploit the common taxonomy of cryptotokens, which distinguishes between security, utility, and currency, as a proxy for transaction costs. My analysis then suggests that security tokens should be protected by property rules, whereas currency tokens are better protected by liability rules.
Sarel, Roee, Your Bitcoin Is Mine: What Does Law and Economics Have to Say about Property Rights in Cryptocurrencies? (February 21, 2020).
First posted 2020-02-26 08:36:47
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