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As you all know, the organizers of this event chose a topic of burning interest when they selected crypto-currency as the focus of this year’s panel. Fortunately, unlike most of the similar events at which the author has been asked to speak, we have not been asked to talk about Bitcoin as the currency of the future; my doubts about the ability of Bitcoin to succeed as a currency of routine use – as opposed to a speculative investment vehicle – dampen my interest in talking repeatedly about that subject. The task they have set for the speakers is one that involves a transactional development with much more potential for widespread deployment: transactions in which lenders extend loans in return for an interest in some form of crypto-currency as collateral.

That topic sidesteps the indeterminate speculation about the future development of Bitcoin in favor of something of commercial immediacy. Crypto-currencies, in fact, have present value on the balance sheets of commercial borrowers, and all signs suggest that, in the years to come, investments in one or another form of crypto-currency will become more routine and more substantial. To be sure, that value might be volatile, and it might or might not be useful to think of it as currency, but from the perspective of lenders, it represents value that would enhance the borrowing base of their customers if lenders could capture it reliably.

This article considers that topic. The author proceeds in three steps. First, the author considers the simple straightforward approach of perfecting a security interest under existing legal rules. Recognizing the obvious weaknesses of that approach in cabining transfers of collateral to pseudonymous purchasers, the author turns in the second part of the article to a more capacious use of institutional arrangements that should give the lender a more effective control of the asset – transactions using what the author calls “quasi-control.” Finally, the third part of the article briefly considers technological advances that would use blockchain-based smart contracting tools to perfect the lender’s interests more elegantly, namely the development of a “smart” lien that integrates the respective rights of the borrower and lender directly into the mechanism of the blockchain.


Banking and Finance Law | Law | Science and Technology Law


This article was originally published in the SMU Science & Technology Law Review.