Virtual currencies (and other digital assets) under the UCC

Virtual currencies continue to be accepted in commercial transactions. As a result, financial institutions are starting to accept these currencies as collateral for financing. However, section 9 of the Uniform Commercial Code (UCC) does not provide adequate guidance on how to create or supplement collateral in these currencies. This uncertainty, and the attendant risks for lenders, is further exacerbated by the lack of meaningful case law and inconsistent state laws. Recognizing this problem, the Uniform Law Commission and the American Law Institute convened the Uniform Commercial Code and Emerging Technologies Committee (the Committee) in 2019 to consider changes to UCC aimed primarily at addressing “digital assets” (a term used but not defined by the drafters of the Code), such as certain virtual currencies. This article examines the scope of UCC Article 9 with an emphasis on virtual currencies, taking into account issues of classification and perfection, but also how the Committee attempts to resolve these outstanding issues. by modifying existing provisions and, in some cases, adding new ones. .

What is virtual currency?

Generally speaking, virtual currency is currency available only in electronic form. Currency can be a government-authorized medium of exchange (see UCC definition of “money” in §1-201 (a) (24)), or it can exist through a decentralized system, without a central administrator. controlling the supply of foreign exchange. Decentralized currencies, which include Bitcoin, are not generated or supported by any central bank or other government agency; instead, transactions are recorded through ledger entries on decentralized computer networks called blockchains. Once verified, transaction information becomes part of a permanent, non-modifiable “block”. Owners of virtual currencies can transfer units of these currencies through the ledger system that records ownership and transfers, serving as a database of financial transactions, which creates transparency between different parties.

Virtual currency and article 9