French court clarifies the nature of bitcoin

On 26 February 2020, the Commercial Court of Nanterre has adopted a landmark decision on the future of bitcoin (BTC) in the context of a dispute over the repayment of loans on such cryptocurrency.

The most striking contribution of this decision lies in the consular judges’ legal characterisation of such bitcoin,  qualified as a fungible, expendable and intangible asset in a very similar way as money and thus analysing such bitcoin loans as loans of fungible assets (prêt de consommation) (within the meaning of article 1892 of the French Civil Code).

The court ruled that:

• the BTC is consumed when it is used (i.e., as an exchange against a the provision of a service or the delivery of an asset); and
• the BTCs are fungible because they are “of the same kind and quality” as they should all be based on the same computer protocol which makes them “equivalent” in line with the definition of fungibility set forth in article 1347-1 of the French Civil Code. A BTC may be to a certain extent “traceable” but this does not mean one BTC created through the blockchain is different as such from a BTC created at some other point (node) in the blockchain (or even in between BTCs pertaining to the same block).

As a result of the court’s analysis of a loan on BTCs being generally a loan of fungible assets, legal title on BTCs should pass by operation of law to the borrower which should be entitled to receive any proceeds from such loans, including, as in the contemplated case, Bitcoin Cash (BCC) allocated following the fork. Indeed, transfer of title of an asset should entail a transfer of the legal and economic risks entailed by such transfer and asset. It is however questionable whether any fork or event / subdivision of a cryptocurrency, as in the contemplated fork should amount to a “proceed” benefiting to the borrower of such cryptocurrency.

This decision may entail new questions amongst academics and practitioners and may be on the top of the to do list which amendments should be provided to sale, exchange or loan on crypto-currencies or derivatives (not just BTCs!), including any segregation requirements (addressing fungibility issue) or property of proceeds (in the context of a fork event or other types of events which may arise during the execution of the loan).