The ownership, as you may know, is what jurists call a property right. In Spanish Law, we can distinguish between personal and property rights, the latter being those involving a right over an object, over a “good”. This is the case with Bitcoin: if you have bitcoins in your wallet, you own them. As stated in a previous article, although this issue may be insignificant to some, particularly to non-lawyers, the truth is that it is not; the protection that the law gives to each person differs entirely.
In my opinion, qualified as a property right, it is time to ask how this right is transmitted. This article comes from a discussion about the operation of the blockchain and the possibility to place it on the transmission of traditional ownership, which comes from the Spanish Civil Code of nineteenth century. It happens very often, in fact, that rather than trying to invent a new legal formula for Bitcoin, what is done is to adapt it to the existing law. So, what does Spanish Law say about the right of ownership and its associated legal business?
In short, in our country, to effectively produce the transmission of ownership of a good, from one person to another, you must meet two requirements; this is what is known as the “teoría del título y el modo" ("title" and "mode"). According to this, the two abovementioned requirements are, a contract transferring the ownership (which may take many forms: sale, exchange, contribution to a society, etc.) and the socalled “tradition”, by which the transferor satisfies the obligation he has contracted by actually giving the good[1].
As stated in the aforementioned article, the property right allows the holder, among other things, to have (and therefore transmitting) their bitcoins. In a transaction with bitcoins between two users, according to this theory, each party must prove its right, this is, the one owning the bitcoins must first prove his title to the other party, and then transmit it.
Therefore, in my opinion, whether in a swap or a sale of bitcoins, between two users a real transmission of ownership (or effective displacement of the good) takes place, though not physically, of course. I understand that the exhibition of the public key is equivalent to the title, that is, the exhibition of the title on bitcoins, just as would be the display of a sale contract, an inheritance or an accredited possession of a property showing that it really is one's property. Thus, the Bitcoin address wouldm in a bank transfer, equal to the account code, or IBAN. Of course, the owner of bitcoins is the only one empowered to show that the public key matches the private key, which is known as a "zero-knowledge proof", so named because it only shows that one is an owner, but nothing else.
In turn, confirmations that are made in the blockchain work as a kind of public record in which some people (like notaries), are responsible for confirming the transaction, checking that everyone owns their respective address and that the transferor owns that particular number of bitcoins, to finally carry out the transaction. These people are, indeed, the “miners”. Then, the registration in the blockchain would ultimately work as the “mode”, just as the delivery of the good would be the “mode” in a sale property or delivery of the keys of the house would be in a real state contract. Thus, the record in the blockchain acts as “traditio simbolica”, just as the keys of a house would do in the transmission of real estate: as there is no way possible to physically deliver it, we use an instrument that symbolizes the delivery itself.
Without any further formalities (except from those confirmations required by the "miners") the property is transmitted and the operation will become "complete":
- The transferor writes his password on his or her computer;
- He or she transmits that password, which is the electronic key that entitles a certain number of bitcoins, to the other user;
- The change in ownership is recorded in the blockchain;
- The transaction is completed.
It is true that somehow, the bitcoins never leave the blockchain and, therefore, some people may consider that no displacement occurs, either physical or virtual. However, the fact that it does not leave the chain, in my opinion, does not affect transmission. The blockchain would work, in the case of Bitcoin, as the market (in the most general terms) in the “real”, non-virtual world. For example, if I sell you my apartment, it does not leave the real estate property market. In the same way, if I give you my bitcoins, they do not leave the blockchain, which is the Bitcoin virtual market. Simply, in both cases, the ownership thereof is changed (from one address to the another) but the goods always remain inside the market.
Something similar happens with book-entries; the transfer of shares of a company does not occur through physical delivery, but only after a change of ownership of those shares in the accounting records. This method, and not the registered shares’ one, has long been the most widely used by listed companies.
As you can see, it is not necessary to invent anything, not even to be original. Two very different worlds, such as Civil Law and virtual currencies, are joined together, and unexpectedly, they get along.
[1] Instituciones de Derecho Civil y Foral. TOMO I: Parte General y Derechos Reales, GOMÁ SALCEDO, JOSÉ ENRIQUE
La entrada The transmission of ownership in Bitcoin aparece primero en Law & Bitcoin.