On enforcement in digital assets

Abstract

Digital assets are becoming increasingly important in today's society. Crypto currencies and crypto-tokens are considered as property by market participants and, more recently, by the courts. Recognition of the economic value of digital assets has also raised the issue of the possibility of forced execution on this subject - matter. As of 2020, digital property in the Republic of Serbia is regulated by a special law, including the collection of claims secured by digital assets. However, for the execution of unsecured claims on digital assets, the legislator refers to the general rules of the Law on Enforcement and Security. Such a legislative approach raises numerous dilemmas. It remains unclear: which enforceable title can be used as a basis for execution against digital assets; what kind of claims can be settled in this way; how the creditor has to specify the subject - matter of the enforcement; how to prevent the debtor from disposing of digital assets despite the commencement of enforcement procedure; how to secure the cooperation of debtors as well as third parties (i.e. custodians) in terms of information disclosure, transfer of private key etc. The very nature of crypto assets implies decentralisation, volatility and the ability to vanish ("disappearability"). These inherent characteristics make cryptoassets the challenging subject for enforcement. Accordingly the legal rules in this case should be fine-tuned in a way that is to a reasonable extent creditor-friendly in terms of efficiency, without neglecting the appropriate balance with the principle of proportionality in enforcement, as well as the compliance of enforcement agents' actions with fundamental rights and ethical principles, such as the protection of privacy etc. Digital assets can easily be transferred - "in the blink of an eye" - from one account to another, from an online wallet to an offline wallet, from one owner to another or (divided into smaller parts) to multiple owners, from one digital assets to another, from one jurisdiction to several etc., which makes the enforcement process extremely complex and, in some cases, even impossible. Therefore, enforcement procedure on digital assets must be particularly urgent. In this context, it is common for the creditor to request some form of interim measure - a pre-judgment attachment of digital assets - which the court should decide on in a short period of time. Ideally, this measure should have global effect, not limited to a single state or jurisdiction. In legal literature, such a measure is generally referred to as a "worldwide freezing order", which is intended to be universally enforceable without prior recognition by national courts. In addition, the law should allow the creditor to seek an injunction in respect of specific digital assets without identifying the holder(s) - in relation to unknown person(s).

Keywords

• digital assets
• enforcement procedure
• unsecured claim
• freezing order
• private key control