Australian court allows crypto to be used as security—although they don’t share same properties

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A court in the state of New South Wales has allowed a cryptocurrency exchange account to be used as security for legal costs.

During a defamation claim hearing, the NSW District Court was asked to force the plaintiff to put A$20,000 (US$13,000) into a court-controlled bank account to be able to cover the defendant’s legal costs in the event that the plaintiff loses or withdraws the lawsuit.

Judith Gibson was prepared to accept this as a legitimate security to cover the costs, even if cryptocurrency was volatile and acknowledged the defendants concern that it was a ‘highly unstable investment.’

“However, this is a recognised form of investment,” she said in a judgement this week.

To counter for the volatility issue, the plaintiff will have to provide monthly statements to the defendant’s solicitor to track the investment account and alert them if the value drops below A$20,000.

“I can see the desirability of the defendant receiving prompt notification of any drop in the value of the account. These are uncertain financial times,” Gibson said.

Whilst this is a huge positive step forward and can be considered a landmark case as it provides legitimacy for future legal cases, it is unclear whether the judges are able to distinguish between Bitcoin and other cryptocurrencies in regards to what is considered a legitimate security and what isn’t.

Bitcoin is commodity money and can be considered as a security. An example of this is a precedence set previously in 2013 with a United States District Court agreeing with the SEC for the purposes of the definition of a security:

“The term “security” is defined as “any note, stock, treasury stock, security future, security-based swap, bond…[or] investment contract…” 15 U.S.C. § 77b. An investment contract is any contract, transaction, or scheme involving (1) an investment of money, (2) in a common enterprise, (3) with the expectation that profits will be derived from the efforts of the promoter or a third party. SEC v. W.J. Howey & Co., 328 U.S. 293, 298–99 (1946); Long v. Shultz Cattle Co, 881 F.2d 129, 132 (1989). First, the Court must determine whether the BTCST investments constitute an investment of money. It is clear that Bitcoin can be used as money. It can be used to purchase goods or services, and as Shavers stated, used to pay for individual living expenses. The only limitation of Bitcoin is that it is limited to those places that accept it as currency. However, it can also be exchanged for conventional currencies, such as the U.S. dollar, Euro, Yen, and Yuan. Therefore, Bitcoin is a currency or form of money, and investors wishing to invest in BTCST provided an investment of money.”

The properties of Bitcoin that gives it real world utility as commodity money is the use of ledger space and settlement is reached without an intermediary and instead through proof of work computation.

This is not the same properties shared with other cryptocurrencies that exist today. The majority of these are fraudulent offerings that range from being pre-minted tokens with no utility or ICO’s offered as illegal securities through fund raising under the false pretense that a product will be delivered.

These schemes have bypassed law and regulations illegally for a reason. With this in mind, it is absolutely critical that there is distinguishable difference on what can be used as a security in such legal matters. Bitcoin falls under the definition as a security, whereas the majority of cryptocurrencies which are illegal securities that offer no utility will inevitability be cracked down on by the regulatory bodies like the SEC, which will not only inevitability tank the fiat value but will bring reputational damages to the legal systems for not conducting the appropriate due diligence and clearly outlining this to begin with.