Keys, Codes, and Canadian Property Law: Who Owns Your Crypto?

Introduction

Suppose you have a digital token worth thousands of dollars, but there is nothing to keep it safe other than a password-style private key.

In the world of crypto, we have a saying: "not your keys, not your crypto." In other words, if you don't have the secret key, you don't really own the coins. This slogan has a new spin to an old question: what does it mean to own something?

Traditionally, ownership of property represents a legal title to the property, or at least physical possession recognized by law. However, in the context of bitcoin and other crypto-assets ownership blurs into control over coding. If someone hacks your account and takes your keys, the blockchain would treat the hacker as the new owner, even if a court labeled it "theft." If you lost your own key, your asset could be lost forever, and there is no locksmith to help you. These issues force us to think about ownership, property, and the role of law in the digital age.

This article examines how digital assets such as cryptocurrency provide new provocations to the way we think about property and how Canadian law (common law and civil law in Québec) is responding. We will generally combine core legal insights with philosophy drawing from, among others John Locke, Jeremy Bentham, G.W.F. Hegel, and others; and see how ancient philosophies of property, value, and personhood translate when your "coin" is only bits and bytes on a blockchain.

Ultimately, the answer we give to the question "Who owns your crypto?" reveals deeper tensions between personal autonomy, technological code, and human legal reasoning.

Classical Theories of Ownership: From Locke to Hegel

Philosophical debates about ownership, and its significance, have raged for centuries. Philosophers' reflections may illuminate our analysis of crypto-assets now:

John Locke (1632-1704)

Locke argued that ownership was a natural right, and that ownership predates government. As for Locke, you own yourself, and if you own yourself, then you own the outputs of your labor. If you mix your labor into something in the commons (farming land, or, perhaps in some way gif, minting digital coins), then you have created a proper property right. The business of government, then, is to protect the pre-existing rights, i.e. not to create ownership or rights.

A crypto-believer could contend that by devoting time and computer-processing power to create crypto, it is a naturally their own: very much along the lines of Lockean ownership as one that is earned through self-directed action.

Jeremy Bentham (1748-1832)

Bentham had a rather different conception of ownership; Bentham argued that ownership is only the product of law. He famously ridiculed the idea of natural property rights as "nonsense upon stilts".

For Bentham, property is based on expectations protected by the state - "the idea of property consists in an established expectation" that one will be able to take advantage of a thing as guaranteed by law.

In short, no law, no property: "property and law are born together, and die together" (as Bentham wrote in Principles of the Civil Code).

To apply this to crypto would remind us that having a private key means nothing, if the law doesn' t recognise, or protect your interest. In the absence of some legal remedies (for theft, inheritances, etc), your title to digital assets is precarious. Code might help you keep control, but law alone can validate ownership and legally protect ownership in a social setting.

G.W.F. Hegel (1770–1831)

Hegel summed it up with a more human-centric justification: to own property is a necessary condition of being able to express freedom and personality. A person, he suggested, actualises their will by imprinting it on the external objects they come into contact with.

In Hegel's words, he insisted that everyone had a "right of putting his will into any and every thing and thereby making it his" an "absolute right of appropriation".

Property is not solely for the purpose of satisfying needs or state guarantees. Rather, it is a way for a person to come into being as a free, reasoning being into the world.

From this standpoint, cryptocurrencies might be considered a new frontier for personal freedom: owning your own digital wealth (by personal controlling your access via cryptographic keys) allows people to exercise their will as individuals, independent from the state and other institutions.

Nevertheless, Hegel acknowledged that in order for property rights to exist there had to be recognition by other people (ultimately, by the law and institutions in society). Freedom, for Hegel, is only real when ownership is acknowledged and respected by the community, not just yourself.

These two perspectives are certainly different, but both present useful insights into the crypto-property quandry.

Crypto advocates often sound akin to a Lockean libertarians, trusting in mathematics and told story of personal control. Crypto sceptics and regulators evoke Bentham and ask for legal frameworks to avoid chaos. And, looking through the lens of a Hegelian perspective reinforces the connection between property of digital assets and human agency whilst also reminding us that it is naive to not consider the nature of social and legal recognition.

With these theories as our backdrop, let us delve into how the spectacle of "who owns your crypto" is being played out between code and the law.

“Not Your Keys, Not Your Crypto”: Code and Control as Ownership

Cryptocurrencies (especially Bitcoin) replace many of our standard intermediaries (banking institutions, public registers, and courts) through the use of cryptographic code. Indeed, the prior intermediary have been replaced by a bevy of characters, in the form of the public key and private key (one of which is an address and the other is secret password to your assets).

If you control your private key of your crypto wallet, you can authorize transactions (spend or transfer the coins) : without it, you have no access to the asset, which is why many people have the notion that controlling the key is implicitly ownership of the asset.

Here is a good summary of the above from the research staff of the U.S. Congress: "private keys secure ownership of cryptocurrency and allow owners to transact…” Keys represent ownership - which is why the industry mantra is 'not your keys, not your crypto.'

From a practical (and ownership) perspective control is king. Your crypto asset does not sit in some bank or vault, it is an entry on a distributed ledger file, a blockchain ledger. So, the only thing that makes it you using the crypto is the knowledge of the secret key, which means the ownership is effectively digital.

One lawyer was adamant about this point, where defending your Bitcoin is less about physical fences or locks, and much more to do with math. Just as safety of tangible property relies on a joined deadbolt or well illuminated hood, the defense of your bitcoin is some 64-bit cryptographic key, plus the encrypting.

So your code is the new lock, and you are your own locksmith. There is a lot to love about this type of coded ownership model. It offers people tremendous control in terms of using and holding their wealth. Let's say you want to withdraw money from a bank. You don't need permission to put it in your pocket and walk out; besides, no government can just freeze your account in an instant (at least not with tech) if you custody your own crypto.

On a philosophical level, it fits with Hegel's position regarding people possessing property provides people freedom similar to Locke's idea of individuals operating in a "natural" world before the existence of state authorities.

Sadly, that property = control goes both ways. If someone assumes possession of your private key (i.e., hacking, phishing, etc.), the system perceives them to be the owner.

Blockchain does not care how someone gained possession of your private key - there is no cop in the code that can say, "stop thief!" This mindset has enabled some tech enthusiasts to push the infamous phrase, "code is law." In a counter to support for this position, if a smart contract/logical error gives me an opportunity to take your crypto, I've not actually "stolen" anything based on the rules of that ecosystem. I've just executed the code based on what it was emplored to do. In real terms, if the code allows me to do this, then it is allowed in digital space.

Critics have dubbed this self-serving excuse for bad behaviours a "cloak for bad actors" because it overlooks actionable concepts for theft and fraud in reality. It is perspective that has made it easy to see why human-led legal systems are not even close to adopting code should govern. A recent Canadian case demonstrates this clash.

In 2021, a hacker took advantage of a smart-contract vulnerability in a DeFi (decentralized finance) platform and stole millions in crypto. When sued, the young defendant essentially raised the code is law doctrine, arguing that it wasn’t theft because the platform's code allowed it. The plaintiffs, naturally, claimed theft. An Ontario court subsequently issued broad orders to freeze and trace the assets; it even granted an Anton Piller order (a civil search warrant) to secure evidence.

The willingness of the judge to apply traditional legal tools to digital assets was notable. One lawyer commented that here was a demonstration of how flexible and adaptable the law can be: Posited with "private wallets and keys" on a blockchain, the judge therefore treated the crypto no differently than any other form of property to be preserved and eventually returned.

Equally significant, in effect the Canadian court did not accept "code is law" as a get-out-of-jail-free card; it applied real law to virtual assets. The larger point, as the case illustrates, is that there is a tension between code-ownership and legal ownership. In ordinary usage of crypto, having the keys gives you the ability to exercise effective custodial agency (a Lockean sort of possession).

However, in extreme scenarios (hacks, loss of access, dispute) individuals invariably revert to the traditional legal system for recourse. If you lose your retirement savings because you forgot a password, or were scammed, there is no algorithmic safety net.

(In fact, some estimate that 20% of all Bitcoin is stranded in inaccessible wallets due to lost keys or passwords … a very modern property tragedy.)

This is the point at which Bentham's lens of property is useful; without a legal framework to retreat to, property rights in crypto can feel precarious. The challenge is achieving the equilibrium; we want the independence and efficiency that self-custodied digital assets promise, but we also want to have recourse if things do go south.

How are Canadian legal frameworks addressing this?

Crypto as Property in Canadian Law: Common Law and Civil Law Approaches

Canadian Common Law (all Provinces, and Territories except Québec).

There is no statute, convention or classification system to state unequivocally what a crypto-asset is in Canada’s common-law provinces and territories.

Traditionally, the law has separated property into two distinct realms: “real property” (the land) and “personal property”, the latter of which is further separated into either physical items (chattels), as well as certain intangibles (contract rights or shares).

Where does Bitcoin fit into this category? It’s not a tangible item, and it does not seem to create a conventional legal claim or contract right against a person. It is often referred to as sui generis, meaning that it does not fit neatly into any specific legal category.

Yet, despite this context, courts have consistently treated cryptocurrency as some form of property. For example, Canadian courts have issued injunctions and freezing orders to protect crypto-assets that had been misappropriated in the course of litigation.

This suggests the individuals in question were seen by the courts as having something that they could legally recover, which is the essence of property. Even so, this is stretching some of the fine print of the common law.

A good example of the way existing principles are being tested is with regard to the tort of conversion (the civil law equivalent of theft that allows an owner to sue someone who has wrongful taken or otherwise dealt with property). The tort of conversion has been limited in its application previously to physical items, and not to intangibles such as information.

Interestingly though, in a recent 2021 decision (Ramirez v. Ledn), an Ontario judge stated:

"Bitcoins are intangible property." From this, it follows that the tort of conversion does not apply ... This claim should be struck."

In other words, since you cannot take physical possession of a bitcoin, it is not possible to sue someone under the old rules for converting it. However, some other courts have taken a more lenient approach. Even in Ontario, judges have suggested that if the right case presents itself, they will be willing to extend conversion or account for similar remedies to digital assets.

And, in British Columbia, a court in 2020 treated control of a website domain (also digital) in a way that was analogous to possession, stating that it would be "incongruous" for conversion not to apply to such modern intangibles.

The law is trending towards modernizing property law to accommodate crypto even if it bends a few traditional doctrines in the process.

Importantly, outside of the courtroom, Canadian regulators and agencies are actually treating crypto-assets as property. The Canadian Revenue Agency (CRA), for example, taxes cryptocurrency as if it were a commodity or investment. They made it clear that crypto is not legal tender and is treated as a commodity for income tax purposes - meaning the selling will result in a capital gains or income, and it is treated as property for inheritance (yes, when you die, your bitcoin will all will be in your estate, just like your stocks or jewelry)

If you are holding crypto on a foreign exchange, the CRA requires you to report it over $100K as “specified foreign property”

All of this to say that, essentially, Canadian common law systems recognize crypto in its form of intangible personal property - ie. property you can own, transfer, inherit, and secure loans against (even if the legal mechanics are still catching up). The lawyers have established work-arounds to treat crypto as an asset in financing transactions; for example, lenders perfect security interests in crypto (usually by getting “control” of the collateral (often this means that they get the private keys held in escrow).

In summary, while you will not see “cryptocurrency" listed in 300 year old property statues, the systems adapts: if it walks like property and quacks like property, it's property.

Québec Civil Law

In Québec, with its civil law tradition, property is recognized a little differently. The Québec Civil Code does not list all the property forms; it describes the broad principles. Property (biens) can be movable or immovable, corporeal or incorporeal.

As such, it was relatively easy to fit cryptocurrencies into that framework. They are not physical property in any real sense (so we classify them as incorporeal, movable property (biens meubles incorporels)).

Revenu Québec, back in 2017, stated clearly not that since crypto is not legal tender and does not fulfill the traditional functions of money, it is considered "comme un bien meuble incorporel"; a form of intangible movable property.

When you exchange one cryptocurrency for another, legally, it is barter (an exchange of two goods), not purchase/sale, because it has no currency (ex/ lawful currency) in an exchange.

The tax treatment in Québec also flows along that logic: transactions involving crypto are either barter exchanges, business income or capital transactions; not currency transactions.

Quebec's civil law system had thus less conceptual angst recognizing crypto as property since it fit their definitions easily enough. However, civil law also faces practical difficulties of enforcement and control. One interesting aspect of civil law theory is patrimony: basically, the sum total of a person's rights and obligations actually assessable in economic terms. Crypto-assets, as property, just become part of an individual's patrimony.

This means they could potentially be inherited, used to satisfy creditor demands or otherwise treated in accordance with general property characteristics.

Obviously, to cite just one example (of many), Québec notaries and estate planners are now regularly considering crypto for successions, to the point that they actively solicit clients leave instructions for heirs to access crypto keys. Legally, an heir is entitled to a decedent's bitcoins (it's an assignable asset, like any incorporeal good), but his practical ability to access it will entirely depend on whether he knows the keys - a perfect example of how human law and code can diverge. Law may say "Alice's bitcoins go to her son Bob", but unless Alice shared her keys or created a smart contract related to the inheritance, Bob may be out of luck.

The law in Québec is confronting these issues, along with all other jurisdictions: traditional legal principles (property) recognise the right to property but new legal solutions must be developed to narrow the divide between the right to, and the control of the property (e.g. courts can compel a person with knowledge of the key to disclose it, or hold an exchange accountable for moving the holdings).

In both Canadian legal systems, converse and civil, the pattern is inescapable: we are seeing a convergence of digital assets into the property idea, by analogy and adaptation. Generally, they are not "money" in the sense of law (no fiat currency status) but a thing you can have, and others cannot wrongfully steal or manipulate or interfere with.

Canadian courts and legislators are making incremental progress through the various sources of legitimacy amassed and developing the legal infrastructure (case law, securities regulations, tax rules, etc.) to provide crypto owners and custodians alike legal entitlements and obligations that resemble traditional property.

Personhood, Value, and Recognition in the Crypto Era

Apart from the specifics of law, the rise of crypto raises some fascinating wider philosophical issues regarding ownership:

Autonomy and Personhood:

To own cryptocurrency, particularly in a self-custody way, can feel liberating. It is somewhat like being your own bank. This relates to Hegel’s claim that to own property is to be a free person.

Many crypto-enthusiasts believe that controlling their funds without intermediaries is a more fulfilling mode of enjoying their fundamental autonomy as a person, and that they are trying to assert their autonomy in the economic sphere in the world around them. This is consistent with, might in fact be, a particular sense of self (for instance, one might feel more safe or autonomous to hold value and know you are holding that value in Bitcoin that no government can directly freeze). Hegel would remind us that pure autonomy is just an abstraction; we are fundamentally already part of communities. In the end, what we are looking for seems to be a recognition other-regarding our rights.

The same applies in the crypto-owner context: while Bitcoin's network might confer ownership of your coins by virtue of holding the keys, the society is still comprised of people who have power and authority to the coins' usefulness and value (for example you still need to have acceptance of your coins in an exchange, perhaps courts to enforce contracts that refer to it , etc.).

So while pure individual autonomy exists in crypto, this exists as it relates to a need in the society and legal framework to continue to recognize ownership. The most salient way to own an asset is when you are recognized as the owner both by the consensus of the network and the community's legal framework.

Value and Trust:

What gives value to a crypto-asset? Beginning with Aristotle many philosophers have acknowledged the value of money is largely social construct… it works because people believe it works. Crypto takes this construct to the max. These tokens are just string of code with no inherent value, but communities give them value.

Outside of the technical and regulatory differences, everyone in crypto is challenged to consider the real difference between value in design (rules of supply etc set out in the code) and value in trust (belief and adoption).

A benthamite utilitarian may ask 'does recognizing crypto as property produce good outcomes for society?'; does it create incentives to innovate and transact? If the answers are 'yes', then law will generally allow it to happen; if it produced artifice (fraud, instability etc) law will step in and protect the greater good. The equilibrium reflects what we see in Canada, a jurisdiction letting crypto innovation happen but also forcing rules of anti-fraud and anti-money-laundering or treating crypto like other intermediaries.

And value isn't just a function of market price here: there's also the value of legal certainty. To have crypto recognized as property likely serves to increase value, because it is more likely people will take capital risks if they know courts are available to address rights in a crunch. In an economic sense, clear property rights (even on digital things) reduce risk and encourage a diverse range of participants.

Law vs. Code: a new balance

To the extent these conflicting forms of legal (or quasi-legal) "law" can coexist in crypto, this may signal a new model of hybrid governance. While blockchains allow systems of trust created by technology: you no longer simply need to trust people when an algorithm does the rule enforcement.

This is powerful, but of limited use to solve all purposes for human conduct. There will always be difficult cases manipulate boundaries of what code can resolve: ambiguities, scams taking advantage of them, lost credentials, etc. Human legal reasoning can always step in for code; When more equity and discretion is needed ("the court can compel an undo of a transaction ordered based upon a consequence of fraud even where the blockchain does not care, or can't").

The challenge is addressing new examples of human conduct and the mischief it brings (in all these areas) while also not overstepping the benefits of the technology. We would not want law to step in so heavily that it removes or undermines the features of crypto (like decentralization, censorship-, neutral platforms, etc) that are attractive to people. The notional consensus appears to be that code will assert itself as ruling on-chain, by default; then law will be able to operate as a safety net at the same time. When someone uses "code is law" to absolve him or herself of wrongful conduct, legal systems will push back, like we are starting to see in the Canadian example above.

In many respects, this is reminiscent of older philosophical debates: are laws just the mechanical imposition of rules (a bit code-like?) or should they be informed by metapranary notions of justice and human purpose? crypto makes this abstract consideration occur in real time in finance and property.

Ultimately, we are coming to understand that we might want the certainty of a code, and the flexibility of human notion of judgment, in their respective business models.

Conclusion: Evolving Ownership in the Digital Age

The advent of cryptocurrency began as an initiative of the cypherpunks but has now morphed into a new asset class, evolving both legally and philosophically.

The inquiry "Who owns your crypto?" opens Pandora's box: Is it the person who possesses the range of cryptographic keys (practically yes, if not always)? Or is it the person who has a right legally recognized? (legally yes ... but ideally these would be the same person)? What happens when they are not?

It has transpired that Canadian property law, both by common law and Civil Code in Québec, has been exceedingly versatile, reorienting old concepts to embrace new digital realities. Crypto-assets are now eliciting treatment as property that may be bought, sold, inherited, stolen, or held in trust, even if they don’t fit neatly into the 19th century legal pigeonholes.

This evolution is just as philosophically interesting. Locke might look at a Bitcoin miner and see someone acting with their labor (electricity, computing), mixing with the digital commons to rightfully mix that labor with a coin. Bentham would likely approve of Parliament or the courts establishing that crypto is property to cement expectations and social order. Hegel, upon seeing a person signing a transaction with their private key, could appreciate an act of will turning an idea (value on the ledger) into a reality, thus enhancing that person's freedom; and yet Hegel would insist that the person's freedom can only be fully realized when the common good of the community validates the person's claims to their digital property (through law and mutual recognition).

The aphorism "not your keys, not your crypto" remains an essential truth, denoting the significance of individual due diligence and technological ownership and control. Yet we may see the emergence of an equally important adage: "not your law, not your crypto".

In world void of legal legitimacy, self-sovereign assets can easily become dangerous. Ownership will likely continue to have decentralized assets alongside legitimate legal regulatory oversight. As we shift into this new domain of understanding we are in fact, renegotiating our social contract representing property.

The domain of ownership is adjusting to accommodate both autonomous code, and human values. And in this, we rediscover that property has always been much more than a 'thing': it's a relationship existing at the intersection of the individual and society, which now pertain to cyberspace.