The Legal Nature of Blockchain Securities

Abstract

This thesis explores the legal nature of regulated debt securities held on a blockchain. It is argued that there are two possible conceptualisations of these securities. First, they can be conceived as analogous to a documentary intangible, which is a paper document representing an underlying chose in action. Secondly, they can be viewed as analogous to a registration system in respect of the underlying debt. The crucial difference between the two conceptualisations (or ‘models’) lies in the fact that under the documentary intangible model, the blockchain securities ‘token’ functions as a separate item of property, whereas under the registration model, it functions as an item of information about the quantum of the bondholder’s debt. Although both conceptualisations are possible, it is concluded that the registration model is the preferable starting point. Not only does it explain more, but it is also simpler, more consistent with the current law, and easier to implement. Furthermore, it causes less disruption to existing legal doctrine. This thesis addresses a topical issue as blockchain has been heralded as the technology that is set to revolutionise the operation of many industries. In particular, there are many proclaimed advantages of deploying blockchain technology in the securities markets, such as increased speed, reduced cost, reduced risk, and shorter settlement times. Yet, if blockchain securities are to be traded, investors need certainty as to their legal entitlements. Otherwise, they may be deterred from trading blockchain securities altogether, for fear that their rights and remedies turn out to be inadequate. Apart from investors, important societal players such as regulators, accountants and financial institutions also need to know what legal rights and obligations can arise over the securities, in order to plan their affairs and act accordingly. As such, it is necessary to ascertain what blockchain securities are in legal terms.