Disclosure Crypto - The Meta Economist

Cryptocurrencies and foreclosure

21 June 2022


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We are increasingly asked whether a cryptocurrency sum held in a wallet may or may not be
subject to foreclosure in a context linked to our legal system.
Whatever the prerequisite of a pecuniary obligation, deriving from a contract or from family law
relationships, the peculiarities of cryptocurrencies and the blockchain as the underlying
technology, require a difficult reflection and a necessary rethinking that does not have an ad hoc
legislative solution, but that must adapt codicistic tools and procedures to new factual situations.

For example for italian legal system Cryptocurrencies are "digital representations of value" that are not subject to issuance, guarantee or control by central banks or public authorities. These are currencies typically issued by private
issuers on the blockchain. Their management usually takes place via virtual wallets called e-
wallets . This definition was introduced into our legal system by Legislative Decree 90/2017, then amended by the subsequent Legislative Decree 125/2019, as part of the broader program of
implementation of the IV and V Anti-Money Laundering Directive of the European Union, issued in
on the prevention and countering of money laundering and terrorist financing. A peculiar feature
is that cryptocurrencies are not issued by central banks or public authorities, but as they are
created on the blockchain, they assume all the characteristics of disintermediation, transparency
and traceability.

From here the next step is linked to the compliance obligations of KYC and AML to which
exchanges are required and will also be required. This provides services related to
virtual currencies. Exchanges are websites where it is possible to buy cryptocurrencies and their
main source of income is to allow users to trade and for this reason these platforms also store
cryptocurrencies on behalf of users by providing their own reference wallet . When registering
with a centralized exchange , in fact, you must prove your identity by sending documents through
the KYC procedures.
In the crypto sector a decentralized cryptocurrency exchange, on the other hand, allows users to
buy and sell cryptocurrencies through a direct peer-to-peer transaction, in a decentralized
manner, without a central authority and without previous user identification procedures.
A Dex shares some similarities with a centralized Cex exchange since it allows users to trade
cryptocurrencies with other assets which may be fiat currencies or other cryptocurrencies, but it is
that in the case of the Dex , the third parties who oversee the transfer of assets and security are
replaced by distributed ledger or blockchain.

Types of wallet

Here, therefore , is the further question of the type of wallet that should not be confused with the
centralized exchange since in any case, to have a wallet , no document is needed except for the
KYC / AML procedure of the exchanges: cex.
In fact, wallets have the function of virtual wallets and are software or devices that have
different characteristics that affect not only the security of crypto holding, but also the presence
or absence of third parties in the possession of public and private keys .
In fact, the functioning of the wallets is based on a system of "keys", one public and one private
and both necessary:

  • Private key : it is the access key to your wallet , it is personal and should not be shared with
    anyone in any way (a bit like the PIN of the ATM or the security token of online banking).
  • Public key : represents your receiving address. It is sent to the sender when you want to receive
    Broadly speaking, there are two types of wallets : cold wallet that is not connected to the Internet
    and hot wallet , which is.
  • Hot wallet : it is connected to the Internet and strongly encrypted. We rely on platforms to store
    and protect our private and public keys. By being online , you can more easily access your
    cryptocurrencies, even as the risk of hacker threats increases.
  • Cold wallet : it is stored and kept offline , but you are the holder of all the keys and no one
    knows or keeps them for you.
    When using any service dedicated to the creation of the wallet , all we do is ask the same service
    to generate an alphanumeric string . Basically, the service uses various inputs, encrypts them
    using the cryptographic hash function and the final result is that alphanumeric string, what we
    define as a private key . From this new data that we have obtained, we generate another through
    the calculations of an algorithm and what we will get will be a second alphanumeric string, what
    we define as a public key.
    The type of cryptography used is asymmetric cryptography , that is, we can generate a data by
    encrypting another but once done we cannot go the other way around . From this it follows the
    fact that it is not possible to trace the private key starting from the public key, which is the address
    of our wallet . A wallet does not really contain cryptocurrencies that are "written" only in the
    blockchain and are only within the blockchain . The wallet contains only the private key and when
    we use it to access our funds we are going to recall a memory of the network . We are telling him
    that that private key is ours and the blockchain will remember that it is associated with that
    precise amount of coins which we will have freely available once the private key has been entered.
    From what has been said we can immediately understand one thing: that the true owner of those
    certain funds associated with that particular wallet (identified by a public key) is the one who can
    access them through a private key . This means that when we use wallets custodial (where we
    delegate the responsibility of keeping the private keys to third parties) , technically we cannot be
    defined as the true owners of those coins, unlike when we are using non - custody wallet l , where
    only we have a copy of the private key.

Therefore, everything comes around the total independence and decentralization of the
creation of the wallet linked to the blockchain (characteristics) and the absence of any
identification data during the wallet creation phase.
In case of exchange dex and non- custodial wallets , therefore, a series of transactions and
custody of cryptocurrencies will be carried out in total autonomy and without third parties
involved in the creation of the wallet, transaction and holding of cryptocurrency .
Therefore, if it is hypothetically possible (but highly unlikely) that a judicial authority could request
a centralized exchange to know the holder of a wallet custodial or where a third party holds the
private key of the same wallet (highly unlikely because these companies have their registered
office abroad, often outside the European Union with the complication of international legislation
compared to simple credit recovery according to our Italian legislation), not it is absolutely
possible to do so if the wallet held is non - custodial or the holder is the only one who holds the
private key and no other third party can have knowledge of it .
Only after having briefly examined and retraced these issues can we therefore address the issue of
the attachment of the contents of a wallet.

What kind of role do "intangible assets" play?

Enforcement of intangible assets (also called foreclosure) is a procedure whereby a creditor can
obtain ownership of non-material assets owned by his debtor; it is opposed to the procedure
concerning material assets, which may be subject to standard foreclosure.
The term "non-tangible assets" refers to properties that can be physically claimed. The attachment
of intangible assets takes place in different ways.
Returning to the first definition of cryptocurrency , this can be classified as an intangible asset,
that is, among those assets that have no corporeal materiality and are therefore not perceptible to
the human senses. For our legal system, for example, financial instruments, rights that can be
negotiated, patents, trademarks, company shares, money are intangible assets.
Consequently, provision has been made - Article 34, Legislative Decree 213/1998 - for the
establishment of restrictions on financial instruments through registration in a specific account
held by the intermediary. In this case the attachment is carried out in the forms provided for by
the expropriation from third parties .
The system for establishing constraints, including attachment and seizure, on dematerialized
financial instruments is contained in Article 34 of Legislative Decree no. 213 of 1998 and in
articles 45 and following of the regulation adopted by CONSOB with resolution 11768 of 23
December 1988, and subsequent amendments. The general principle affirmed by article 34 is that
the constraints of any kind on dematerialized financial instruments, both public and private, are
established solely with the registrations in specific accounts held by the intermediary who must
communicate the registrations to the issuer in the cases and in the terms provided by law.
The attachment deed from third parties has the function of imposing a destination constraint on
the debt of the executed debtor for the satisfaction of the expropriation proceeding.
In the attachment of mutual investment funds, the placing bank can be identified as a third party
attachment, and therefore as the recipient of the assignment order, only if it also plays the role of
intermediary, i.e. the subject at which the account referred to in art. 83-quater of Legislative

Decree 24/02/1998, n. 58 and, therefore, obliged to note on it the restriction of unavailability
deriving from the attachment.
But in the case of cryptocurrency held in a wallet , there is no authority, intermediary or third
party that can intervene either with an effective provision of the crypto sum, much less with a
seizure or with a specific registration.
The use of the indirect coercive measure referred to in art. 161 bis of the Italian Civil Code which
may impose an obligation on the holder of the wallet (only if known) to make the crypto sum
available, perhaps converted into Fiat currency, available for the forced execution procedure.
But as we know the art. 161 bis cpc refers not to payment obligations, but to obligations of facere
or non-infungible, where for example the judge with conviction orders the return or delivery of
Duque this type of procedure could not be correctly used for a credit recovery of a sum held in
cyptocurrency. Territorial jurisdiction concluded that, in the case of foreclosure of the domain name, one
falls within the hypothesis of the attachment of movable property. Now the book I title I chapter I
section II of the code of civil procedure bears jurisdiction by subject and by value. To art. 26 cpc,
we find the discipline on the forum of forced execution, defined by the doctrine, "exclusive
forum". And here we read "for the forced execution on movable things … the judge of the place where the things are found is competent".
So this is a further problem and unresolved issue since intangible real estate and specifically
cryptocurrencies held in a wallet are in a sort of "no place".
To trace the boundaries with the Italian jurisdiction in executive matters, in the absence of
provisions expressed in EU regulation no. 1215 of 2012 and in law no. 218 of 1995 (regulatory
sources both limited to the jurisdiction of cognition and precautionary), it is necessary to start
from the peaceful affirmation that the Italian jurisdiction exists if and insofar as the assets to be
expropriated are located in the Italian territory, insofar as only with respect to the things located
in one's own territory. territory the State has that coercive power, of which forced execution
represents a form of exercise.
In the aforementioned sentence no. 5827/1981, the SC argued as follows: "the sovereignty of the
State in the sector of forced execution can be expressed if the phenomenal reality, to be
transformed to adapt it to the legal situation, is found in its territorial context […] General
connection criterion , in order to determine the Italian jurisdiction in forced executions of any
kind, is, therefore, the location of the phenomenal reality, on which the forced execution must
affect, in the territorial context of the sovereignty of the State ".
Cass., Section Un., N. 5827/1981 solved the problem of the localization of the credit (intangible
asset) on the basis of the regulations governing its genetic obligation, that is, with reference to art.
4, paragraph 2, cod. proc. civ. (then in force) and art. 1182 cod. civ .: "therefore Italian jurisdiction
exists if the credit object of the obligation has arisen or must be satisfied, with the fulfillment of
the obligation, in the territory of the State
As has been clarified above, the place where the related obligations must be fulfilled, by virtue of
conventional agreements or legal provisions, is of decisive importance: if it is located in the
territorial area of the Italian State, the Italian jurisdiction can be considered to exist. and,
therefore, an expropriation procedure from third parties to be promoted, not operating the rule
sanctioned by art. 26-bis cod. proc. civ., before the Court of the place of fulfillment of the

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