Asset Tracing and Recovery of Cryptocurrencies - Journal of Enforcement of Arbitration Awards, Vol. 1, No. 1
Originally from the Journal of Enforcement of Arbitration Awards
From the now well-known Bitcoin, to hundreds of lesser-known examples of cryptocurrencies and other digital tokens (all with their own distinctive features), cryptocurrencies have grown from a fringe curiosity to a widespread financial phenomenon in just a few short years. As of April 2018, the total estimated market capitalization of cryptocurrencies globally was about US $285 billion. Approximately US $40 billion worth of cryptocurrencies are traded on an average day.
With the rapid growth of cryptocurrencies, so too have cryptocurrency-related fraud, theft and hacking incidents increased, with an estimated US $9 million lost every day. The industry has already experienced large-scale, cross-border bankruptcies. Cryptocurrencies may be subject to the same types of disputes and legal devices as any other form of property, including enforcement by judgment-creditors against cryptocurrencies in which a debtor has interests.
There is increasing demand for effective means to trace and recover value from cryptocurrencies that have been stolen, improperly transferred away from an insolvent debtor, or for the benefit of creditors, including judgment creditors and arbitration award creditors. As in any other sector of the economy, mechanisms for private dispute resolution and asset recovery are essential to the long-term adoption and growth of the cryptocurrency industry.
The nature of the technology underlying cryptocurrencies, and their still-evolving legal and regulatory status, presents both opportunities and difficulties for parties seeking to locate and recover assets. This article considers these opportunities and challenges, and some of the practical lessons learned from disputes involving this increasingly important asset class.