Cryptocurrency: Be a Control Freak

Mention the word ‘cryptocurrency’ in a room full of people and, almost certainly, you will get as clear dichotomy of opinion as if you asked for people’s views on capitalism and communism, Donald Trump, which North London football team is better, or whether they like Marmite (or Vegemite, if you’re Australian).

In the Red Corner will be those who readily discuss the merits of DeFi, Web 3, Ethereum or Solana blockchain, etc. Typically, people in this space are crypto bulls, vowing that Bitcoin is going to replace Gold, and talking up future token prices based on ETFs and nation states creating crypto reserves.

In the Blue Corner are the crypto bears. They will point to the collapse of FTX (and sentencing of owner Sam Bankman-Fried for fraud of up to 25 years), the guilt of CZ (shareholder and former CEO of Binance) for money laundering, the unregulated and volatile nature of crypto markets, and that tokens are worthless because there is nothing ‘real’ behind them.

It is certainly true that cryptocurrency is the first significant financial instrument that has come into the world from the ‘bottom up’ (i.e. retail) as opposed to ‘top down’ (i.e.  institutions like banks). However, in 2024 and 2025 this has rapidly changed, as institutions like Goldman Sachs and JP Morgan have started to invest heavily, and national governments have created strategic cryptocurrency reserves.

As a solicitor with experience representing international entities in high-value construction and technology disputes (e.g. oil and gas facilities, railways, water processing plants, defence systems, etc.), the question is not whether the industry is ‘good’ or ‘bad’, but what happens when clients need to operate at the intersection of the ‘real world’ and the electronic one.

Governments and regulators have been struggling at this nexus point for many years and most still cannot say whether cryptocurrencies are a currency, security, or commodity. Unfortunately, because there is often no clear answer, users need to judge each cryptocurrency individually, based on the terms of the smart contracts that govern them and what each regulator says about each token. This uncertainty is probably the biggest barrier to widespread cryptocurrency adoption.

The United Arab Emirates (UAE) seeks to lead the way globally by adopting blockchain, crypto, and a digital economy, and creating a clear legal and regulatory environment in which the cryptocurrency industry can thrive.

Within the UAE there are multiple freezones. These are physically and legally separate spaces within the UAE. The Dubai International Finance Centre (DIFC) is probably the most famous, as this is where many international banks, consultancies, law firms, and other companies are located within the UAE / Dubai. The DIFC has its own laws, regulator (The Dubai Financial Services Authority (DFSA)), and courts.

Right now, arguably, the DIFC leads the world with its incorporation of cryptocurrency into its jurisdiction. The DIFC recently passed Digital Assets Law No. 2 of 2024, which creates a legal framework for digital assets, setting out their legal characteristics as a matter of property law, and provides for how they may be controlled, transferred, and dealt with.

The DIFC also has a Crypto Token Framework and the DFSA provides that certain digital assets that it recognises can be traded within the DIFC. It also offers licenses for Virtual Asset Service Providers (VASPs) to provide financial services and / or engage in activities relating to digital assets.

Most notably, the DIFC has created the Digital Economy Court (DEC) which is a separate branch of its court system, that solely handles disputes related to the digital economy. The DEC aims to use information technology to reduce the time and cost of its operation. Parties may be requested to provide information through smart forms or decision tree software with the aim of resolving disputes faster.

Importantly, Registrar’s Directions Rules 58.11 states “The Court may at any time make an order authorising and directing the Registrar, a Judicial Officer or any other person in accordance with Rule 20.7 to operate, modify, sign or cancel any digital asset using any digital signature, cryptographic key, password or other digital access or control mechanism available to it”. This gives the DEC the power to instruct litigants what to do with digital assets.

The DEC, on 13 June 2024, handed down a landmark judgment in (1) Gate Mena DMCC (Formerly Known as Huobi OTC DMCC) (2) Huobi Mena FZE v (1) Tabarak Investment Capital Limited (2) Christian Thurner [2023] DIFC CA 002.

In this case, the DEC was required to consider what form of property digital assets are. It concluded that: (i) digital assets are a third, previously non-existent class of property, that is neither a thing in possession or a chose in action (a legal right to claim something); (ii) ownership is derived from ‘exclusive control’ rather than physical possession; and (iii) the concept of bailment (transfer of physical possession of an item but not legal ownership) may apply to cryptocurrency.

This judgment is crucial for all owning a digital asset because it establishes that ownership is derived from ‘exclusive control’. Therefore, if Party A passes control of a digital asset to Party B, for example by way of a cold storage wallet (an offline storage device for cryptocurrency), and Party A gives Party B the access codes for the digital assets within the cold storage wallet, then legal ownership of those digital assets may be deemed to have passed to Party B also.

This judgment could have wide ramifications for the industry as it potentially calls into question whether customers of platforms like Revolut (using Revolut as an example only, noting that it is regulated in the UK, and not in the DIFC) legally own the digital asset they paid for.

Following the logic of the Gate Mena judgment, customers of platforms like Revolut may believe they legally own the cryptocurrency they purchase on the platform, however, in fact, they may only be beneficial owners. This is because Revolut holds the digital keys to the tokens purchased, and therefore, has ‘control’.

It is advisable for all purchasers and owners of digital assets to be aware of the Gate Mena judgment and legal developments regarding crypto around the world. For a variety of reasons, digital asset owners should ensure they retain control over their assets. One mechanism to ensure control is always maintained is use of two-factor authentication (2FA).

Use of 2FA means that, before any crypto asset can be transferred, security checks must be passed on two different devices. For example, if a digital asset is on a password-protected cold storage wallet, anyone looking to remove the digital asset from the cold storage wallet would need: (i) the password to cold storage wallet; and (ii) access to, and password for, the 2FA device (e.g. mobile phone).

Whilst the Gate Mena judgment leads the way in this industry and highlights the importance of considering how you hold and own your digital assets, it is the law of only one small legal jurisdiction, within the UAE. We anticipate that disputes akin to Gate Mena will become more prevalent across the globe and people will need to be aware of the regulatory and legal environment of each jurisdiction in which they operate.

This article was first published on LexisNexis on 27 March 2025