Originally from World Arbitration and Mediation Review (WAMR)

ABSTRACT

This article analyzes if and to what extent expenditures in the cryptocurrency economy can be considered as protected investments under Bilateral Investment Treaties (“BITs”) and article 25 of the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (“ICSID Convention”). After a synthetic description of the cryptocurrency economy and its stakeholders (Section I), the article addresses the challenges of applying the prevailing definition of “investment” to the cryptocurrency economy (Section II). To this end, this article distinguishes between economic activities within the cryptocurrency economy (such as cryptocurrency mining; Section III) and direct investments in digital currencies (Section IV). In particular, the article focuses on the challenge of establishing a territorial link with a host State in an economy that is defined by deterritorialization. Finally, to negotiate the requirement of territoriality, the article draws a parallel with arbitral jurisprudence on financial instruments (Section V).

I.  INTRODUCTION

The recent collapse of FTX Trading Ltd. is drawing regulators’ attention to cryptocurrencies. While usually moving in cycles, the market value of digital currencies—worth trillions globally—has been roller-coasting vertiginously since late 2022.  Countries like China, Russia and Qatar regulated digital currencies heavily or banned them altogether. These and other circumstances have brought recent commentators to foresee an imminent wave of international investment disputes, and to predict that cryptocurrencies will replace solar and renewable energy as the new frontier of investment arbitration.

The goal of this article is to analyze if and to what extent expenditures in the cryptocurrency economy can be considered as protected investments under BITs and article 25 of the ICSID Convention. Some initial clarifications are warranted. The cryptosphere is wide and complex, and legal authority distinguishes between several types of crypto assets.  This paper concentrates only on payment tokens (as opposed to investment tokens, utility tokens, asset tokens and non-fungible tokens), and specifically on traditional digital currencies, which are not issued by a particular entity (as is the case of Central Bank Digital Currencies, or CBDCs, and Initial Coin Offerings or ICOs).

II.   THE CRYPTOCURRENCY ECOSYSTEM

At the most basic level, a cryptocurrency is a virtual representation of value, or, more specifically, a cryptographically secured, privately issued digital money. It is a digital asset and, as such, is intangible and exists only in the digital world.  More precisely, cryptocurrencies are represented on a digital database in ledger form known as the blockchain, whose defining characteristic is to be distributed or decentralized.  Instead of storing data centrally (like ordinary databases), data is stored in a distributed manner on a series of computers linked to each other in a peer-to-peer network.  In this way, tasks, and functions otherwise centralized and performed by a single entity, such as a bank, are distributed among multiple actors.  This detachment from States is not only technical, but also ideological. Cryptocurrencies emerged from an anarcho-capitalist movement known as cypherpunk, whose members were interested in using cryptography to wrest control and power from States.