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Property Nature of Crypto-Assets Under Turkish Law

10.04.2023

The increasing use of crypto-assets as an instrument of investment and their significant valuation requires the recognition of these assets by the legal systems. This is because the economic popularity of crypto-assets has brought about the need for regulation on how to safely handle the transactions on these assets and to protect the interests of those who make such transactions. In this context, the questions of which legal framework crypto-assets will be subject to and how the right holders will be protected have been raised, and discussions on whether crypto-assets are property or the applicability of the legal frameworks applicable to properties have also emerged.

Definition of Crypto-Assets

Crypto-assets refer to the representation of values in a blockchain[1] environment.[2] Although crypto-assets are not defined in a limited way, according to the Regulation on the Disuse of Crypto-assets in Payments ("Regulation"), "crypto-asset refers to intangible assets ... that are created virtually using distributed ledger technology or a similar technology and distributed via digital networks" which is the first and only definition of crypto-asset in Turkish legislation. Similarly, the European Union's directive "Markets in Crypto-assets, and Amending Directive (EU) 2019/1937", which regulates crypto-assets, defines crypto-assets as "digital assets that are created virtually using distributed ledger technology or a similar technology and distributed and transmitted through digital networks".[3] In parallel, MICA defines crypto-assets as "the equivalent of rights or assets that can be distributed and stored electronically using distributed ledger technology or similar technology". Although these definitions seem to be coherent with each other, there is no clear consensus on the definition of crypto-assets in the literature and each country defines crypto-assets according to its own legal regulations.

Crypto-assets can be categorized into two types: “cryptocurrencies/coins” and “tokens” due to their nature.[4] Cryptocurrencies are virtual assets that have their own blockchain network, have economic value, and can be used as a medium of exchange within their network.[5] They are created using cryptographic methods and are divided into Bitcoin and Altcoins (alternative coins). Additionally, stable coins, which have been created to prevent the value fluctuations of cryptocurrencies and are indexed to a certain asset, are also included under the title of cryptocurrencies.

Tokens, on the other hand, can be defined as crypto-assets that do not have their own blockchain network and can be used for payment purposes issued within the scope of a blockchain project.[6] They can be used not only as a means of payment, but also for other purposes, such as for the utilization of a right, offering of a product or service, or for a share in the revenue stream of the relevant project. Furthermore, tokens can be based on a specific asset (e.g. "BiLira", "BiGa", etc.), as well as assets such as NFTs (non-fungible tokens or "qualified intellectual property"), which stand out with their uniqueness, are also considered as tokens.

The Definition of Property under Turkish Law

The concept of " property" is not explicitly defined under Turkish Law. Considering the fact that the concept of property is dynamic and may vary according to time and needs, the doctrine only seeks that it possesses certain qualities. A common understanding in the doctrine is that the things that are tangible, "corporeal", "can be possessed", " non-personal" and " have economic value" shall be considered properties. If we examine these aspects for a moment, for something to qualify as property in terms of the corporeality aspect, it must occupy a concrete place in the universe and have a three-dimensional material existence.[7] For this reason, natural forces or independent and perpetual rights cannot be classified as property. However, pursuant to Articles 704, 762, and 998 of the Turkish Civil Code ("TCC"), the legislator has recognized these concepts as subject to the property-like regime.

In terms of " possession", a tangible thing must be capable of both de facto and de jure possession. Things such as celestial bodies, mountains, and seas which actual possession cannot be exercised, cannot be classified as property. On the other hand, if the law does not allow the establishment of legal possession over a thing that is capable of actual possession, then legal possession is not possible.[8]

Regarding the aspect of "non-personality," it should be noted that elements that make up a person's identity and personality, such as the human body, limbs, and artificial attachments[9], are not considered property.[10]

The economic value aspect is a subject of discussion in the doctrine, as to whether things without economic value can be classified as the property in legal terms. Some authors argue that economic value is a prerequisite for something to be regarded as property, while others contend that meeting a material or immaterial human need is sufficient for it to be legally considered property, regardless of its economic value.[11]

Can Crypto-Assets be Classified as Property?

Based on the definition under the Regulation, no crypto-asset can be considered a property due to the term "intangible asset" in the Regulation and the absence of a law and an exempt regulation on this subject. However, assuming for a moment that the Regulation does not apply, we can evaluate crypto-assets in terms of the above-mentioned aspects of the property. It should be noted that this assessment should be made separately for each crypto-asset.

Some intangible assets are subject to the same legal regime as movable property, just as stated in Article 762 of the TCC. With the statement in Article 762 of the TCC that "the subject matter of movable property ... are natural forces that are not within the scope of immovable property", the legislator makes an exception and states that natural forces can also be regulated within the scope of the property. It is known that computer programs are used to access crypto-assets and a high amount of energy is used during the formation of crypto-assets (especially cryptocurrencies). It is argued by some authors that if it is accepted that energy is within the scope of "natural power" and is suitable for use and benefit, crypto-assets will also fall within the scope of Art. 762[12] of the TCC and the rules regarding the law of property can be applied by analogy.[13] However, the prevailing view is that the concept of property should be understood narrowly and the aspect of corporeality should not be in question in terms of natural powers.[14]

When examined in terms of establishing possession over it, although we emphasize that it should be examined separately for each crypto-asset, as we have stated, when examined within the scope of cryptocurrencies, it can be said that de facto possession has occurred in terms of cryptocurrencies, considering that access to the cryptocurrency can only be made by the private key holder.[15] In the context of NFTs, possession can be mentioned if there is a similar encryption method or if they are stored in cold wallets.

There is no dispute that crypto-assets have no personal value. In addition, it should be accepted that they have economic value since they are used as investment instruments.

When looking at how different legal systems treat the classification of crypto-assets as property, there have been some positive developments in the United Kingdom. In November 2019, the UK Jurisdiction Task Force recognized crypto-assets as property in a published decision.[16] Unlike Anglo-American law, the fact that crypto-assets do not comply with classical definitions and are characterized as data does not mean that crypto-assets are no longer considered property. In another court decision, crypto-assets were subject to an interim injunction subject to the provisions of property law. However, in German law, the dominant view is that crypto-assets do not have the status of property due to the narrow interpretation of the corporeality aspect of the property.[17]

In Turkish Law, the interim injunction granted by the Istanbul 3rd Civil Court of Intellectual and Industrial Rights is the first interim injunction granted in the context of crypto-assets. The court issued a preliminary injunction blocking access to the platforms where Cem Karaca's portrait was used without permission and preventing the sale of Cem Karaca's NFT on the Opensea platform. The lawsuit was filed on the grounds that the artist's personal and intellectual rights were violated by using Cem Karaca's portrait without permission and selling it as NFT on the Opensea platform.[18] An appeal was filed against the interim injunction, but the Court of Appeal rejected the defendant's appeal on the merits.[19]

Conclusion

In summary, the classification of an asset as property in a legal sense varies based on different legal systems. In Turkish Law, the property is defined as assets that have material existence, can be possessed, have economic value, and are independent of personality. Currently, crypto-assets are not considered tangible assets as defined in the Regulation. Therefore, they cannot be characterized as property, even though there is some controversy about this in the doctrine.

However, it is possible that crypto-assets may be recognized as property in the future, once the term "property" is broadly evaluated and adapted to developing technology. If crypto-assets are accepted as property, the consequences of this acceptance will need to be evaluated separately. In such a scenario, individuals who lose their private key may file entitlement or prevention of seizure lawsuits within the scope of Article 683/2 of the TCC. However, it remains unclear to whom the claim will be directed and how the decision will be executed given the current technological limitations.[20]

References

ARAALAN, Cemal, “Kripto Varlık İlk Arzı (ICO) ve Konunun Türk Hukuku ve Bazı Ülke Uygulamaları Açısından Değerlendirilmesi”, Journal of Banking and Finance Law, Vol.: 10, Issue.: 40, 2021, p. 877-912

ARAALAN, Cemal, “Ödemelerde Kripto Varlık Kullanılmamasına İlişkin Yönetmelik Hakkında Değerlendirmeler”, Informatics and Technology Law Association, https://bthukuku.org/2021/04/19/odemelerde-kripto-varlik-kullanilmamasina-iliskin-yonetmelik-hakkinda-degerlendirmeler/

ÇAĞLAYAN AKSOY, Pınar “Medeni Hukuk Açısından Kripto Varlıklar”, Workshop on the Search for Regulation in Crypto-assets, Faculty of Political Sciences Publications Banking and Commercial Law Research Institute, Ankara 2022, (“Çağlayan Aksoy”), p. 189-202

Mesut Serdar Çekin, “Kripto Varlıklar Üzerinde Gerçekleştirilen İşlemlerin Borçlar Hukuku ve Eşya Hukuku Açısından Değerlendirilmesi”, Istanbul Medipol University Journal of Faculty of Law, Vol. 9, Issue 1. 2022; https://doi.org/10.46547/imuhfd.2022.09.1.01

ÖZDEMİR Gençer; “Kripto Paraların Eşya Niteliği”; SDÜHFD.; Vol.11; Issue .1; 2021; p. 289-306.

TEKELİOĞLU Numan; “Eşya Kavramını Yeniden Düşünmek: Nft’lerin Eşya Niteliği ve Eşya Hukuku Bakımından Geleceği Üzerine Bir İnceleme”; SÜHFD.; Vol. 30; Issue.3; 2022; p. 1301-1329.


[1] Blockchain technology is a distributed ledger system that enables secure and transparent transactions between parties without a third-party intermediary (without the need for agents such as banks or governments). It is based on a decentralized network of computers that verify and validate each transaction in real-time using a consensus mechanism (cryptography). The data on the blockchain is recorded in a block, which is cryptographically linked to the previous block, creating an unbroken chain of data.

[2] ÇAĞLAYAN AKSOY, Pınar “Medeni Hukuk Açısından Kripto Varlıklar”, Kripto Varlıklarda Düzenleme Arayışı Çalıştayı, Faculty of Political Sciences Press Banking and Commercial Law Research Institute, Ankara 2022, (“Çağlayan Aksoy”), p. 189-202

[3] ARAALAN, Cemal, “Ödemelerde Kripto Varlık Kullanılmamasına İlişkin Yönetmelik Hakkında Değerlendirmeler”, Informatics and Technology Law Association, https://bthukuku.org/2021/04/19/odemelerde-kripto-varlik-kullanilmamasina-iliskin-yonetmelik-hakkinda-degerlendirmeler/

[4] ARAALAN, Cemal, “Kripto Varlık İlk Arzı (ICO) ve Konunun Türk Hukuku ve Bazı Ülke Uygulamaları Açısından Değerlendirilmesi”, Journal of Banking and Finance Law, Vol No.: 10, Issue No.: 40, 2021, p. 877-912

[5] ARAALAN, Cemal, “Kripto Varlık İlk Arzı (ICO) ve Konunun Türk Hukuku ve Bazı Ülke Uygulamaları Açısından Değerlendirilmesi”, Journal of Banking and Finance Law, Vol No.: 10, Issue No.: 40, 2021, p. 877-912

[6] ARAALAN, Cemal, “Kripto Varlık İlk Arzı (ICO) ve Konunun Türk Hukuku ve Bazı Ülke Uygulamaları Açısından Değerlendirilmesi”, Journal of Banking and Finance Law, Vol No.: 10, Issue No.: 40, 2021, p. 877-912

[7] ÖZDEMİR Gençer; “Kripto Paraların Eşya Niteliği”; SDÜHFD.; Vol.11; Issue No.1; 2021; (“Özdemir”), p. 289-306

[8] TEKELİOĞLU Numan; “Eşya Kavramını Yeniden Düşünmek: Nft’lerin Eşya Niteliği ve Eşya Hukuku Bakımından Geleceği Üzerine Bir İnceleme”; SÜHFD.; Vol. 30; Issue No.3; 2022; (“Tekelioğlu”), p. 1301-1329

[9] Özdemir, p. 289-306

[10] Tekelioğlu, p. 1301-1329

[11] Tekelioğlu, p. 1301-1329

[12] In the doctrine, Çağlayan Aksoy has rightly stated that some natural forces are subject to the provisions of the law that they are subject to movable property in accordance with Article 762 of the TCC, despite the fact that they do not have material existence, and that the concept of property should be interpreted broadly and a new category of intangible property should be applied by analogy to crypto-assets, on the basis of legal security and transaction security. For detailed legal assessments on this issue, see Çağlayan Aksoy, p. 199 et seq.

[13] ÖZDEMİR Gençer; “Kripto Paraların Eşya Niteliği”; SDÜHFD.; Vol.11; Issue No.1; 2021; p. 289-306

[14] ÖZDEMİR Gençer; “Kripto Paraların Eşya Niteliği”; SDÜHFD.; Vol.11; Issue No.1; 2021; p. 289-306

[15] ÖZDEMİR Gençer; “Kripto Paraların Eşya Niteliği”; SDÜHFD.; Vol.11; Issue No.1; 2021; p. 289-306

[16] ÇAĞLAYAN AKSOY, Pınar “Medeni Hukuk Açısından Kripto Varlıklar”, Workshop on the Search for Regulation in Crypto-Assets, Faculty of Political Sciences Publications Banking and Commercial Law Research Institute, Ankara 2022, (“Çağlayan Aksoy”), p. 189-202

[17] ÇAĞLAYAN AKSOY, Pınar “Medeni Hukuk Açısından Kripto Varlıklar”, Workshop on the Search for Regulation in Crypto-Assets, Faculty of Political Sciences Publications Banking and Commercial Law Research Institute, Ankara 2022, (“Çağlayan Aksoy”), p. 189-202

[18] https://www.polemikhaber.com/turk-mahkemelerinden-ilk-nft-karari-cikticem-karacaya-engel

[19] Istanbul Circuit Court of Appeals 16th Civil Chamber Decision No. 2022/1741, 22.12.2022

[20] TEKELİOĞLU Numan; “Eşya Kavramını Yeniden Düşünmek: Nft’lerin Eşya Niteliği ve Eşya Hukuku Bakımından Geleceği Üzerine Bir İnceleme”; SÜHFD.; Vol. 30; Issue No.3; 2022; (“Tekelioğlu”), p. 1301-1329