What Does It Mean to “Own” Crypto?

Protecting Property is a Complicated Game When Decision-Making is Distributed

Sponsor Every!

Every is now accepting select sponsors. We’re looking for companies who want to bring new tools, systems, and technology to our audience of 45,000+ founders, investors, and operators in tech.


From multimillion-dollar digital art sales to multibillion-dollar blockchains inspired by dog memes, 2021 generated some truly outrageous crypto headlines. Occasionally, though, a story arises that is as thought-provoking as it is bewildering. Take this one: German prosecutors seized a large cache of stolen Bitcoin from a man imprisoned for fraud. However, law enforcement officials couldn’t access the money because they didn’t know the “private key”––a kind of cryptographic password that allows the funds to be moved—and the jailed fraudster wouldn’t give it to them. 

Besides coming across as slightly comical, the impasse that the German authorities and their close-lipped man found themselves in also reveals the highly complicated nature of digital asset ownership. As long as the fraudster refused to give up the password—while the government kept him imprisoned without Internet access—neither side could truly lay claim to the seized Bitcoin, which at one point last year was valued at more than $100 million. Does this mean criminals who would otherwise be forced to surrender stolen property can now get away on a technicality? How do we know our stuff is ours, when no centralized authority exists to enforce ownership rights on the blockchain? Furthermore, the crypto world has continued to evolve at its signature warp speed in the last year. We’ve since seen the meteoric rise of NFTs (non-fungible tokens) and, with this, a new and fervent interest in tokenizing everything—from music royalties to works of art to sports collectibles. Unlike simple currency, a non-fungible token might hold value beyond its market price, whether because it represents the copyright to a creative work or because it has a certain sentimental meaning to the holder. Clarifying what it really means to own virtualized—yet irreplaceable—property has never been more important. If your NFT is stolen, how can you be justly compensated—and who should arbitrate this process? 

Over the years, a number of high-profile hacks in crypto have raised these same questions—and the resolutions of these incidents tell us quite a bit about current thinking around digital asset ownership. So far, the precedents set by these cases have fallen in line with our intuitive understanding of fairness. We know that the right thing to do when a theft happens is to return the stolen property to its rightful owner—and, perhaps, to punish the thief—and that’s usually the consensus reached in the aftermath of a major hack. However, when decision-making power on the blockchain is distributed by design, enforcing a system of restitution and retribution isn’t always possible—or even clearly preferable. In each of the cases I examine, the approaches taken to uphold these fairness rules come with significant tradeoffs that were deemed necessary in the face of crisis, but wouldn’t make sense if applied as policy.

As blockchain technology continues to mature, we will need to contend with this question: How can we effectively protect ownership rights of digital assets? 

What the (blockchain) record shows

Technically speaking, you own your cryptocurrency simply because you possess the ability to spend it. As the German authorities discovered, accessing funds requires you to supply a private key. Provided the private key is correct, a transaction to move your crypto will be recognized as valid on the blockchain, without the need for any other kind of proof of ownership. This makes crypto a “bearer instrument”––an asset whose holder is presumed to be its rightful owner. In the non-crypto world, cash and bonds would both be considered examples of bearer instruments.

However, in the non-crypto world, we don’t conflate practical control with rightful ownership––even when the asset in question is a bearer instrument. I could steal the cash in your wallet, but you would still have plenty of channels at your disposal––from local police to the court system––to compel me to recompense you for your property. 

In contrast, it is nearly impossible to force a thief to return stolen crypto to their rightful owner. Blockchain history is designed to be immutable, such that changing a single past transaction will invalidate all the transactions that occur after it. This feature is vital to being able to maintain a trustworthy public ledger. 

However, this also means that a fraudulent transaction initiated by a hacker to drain your wallet would be virtually irreversible. The only way to initiate a “clawback” would be to essentially turn back time, and have every transaction that happened since the moment your assets were stolen be erased. This is not just a huge headache that requires coordination of a majority of network participants––it’s a costly one. Everyone else on the network would need to redo their transactions for you to make this change. Now, imagine if someone else also had a transaction that they’d like to undo, and then someone else after that––and, well, you get the idea. 

And it’s not just users who are impacted. Since rolling back blockchain state undoes the intensive computational work required to produce these blocks in the first place, such an action is highly unpopular with miners, who take a monetary loss as a result. As a result, instances of a network-wide rollback are extremely rare. 

The most notable example of this happened in 2016, when a hacker siphoned off close to $60 million from The DAO—a smart contract designed for collectivized, ETH-based investment. In the aftermath of the hack, the Ethereum community was faced with a choice: restore the stolen funds to the project’s investors by forking or allow the funds to remain in the possession of the attacker. Though a majority of the network ultimately agreed to a hard fork, a portion of the community refused to adopt the change. As a result, the move effectively split the Ethereum network into two separate blockchains—Ethereum (ETH) and Ethereum Classic (ETC)—each representing not only two different versions of chain history but also two competing philosophies about how a dispute of ownership on the blockchain should be resolved. While Ethereum reverted blockchain state to a point in time prior to the hack before allowing investors to transfer their funds from the vulnerable smart contract, Ethereum Classic continued along the pre-fork version.

Even more interestingly, the perpetrator of the DAO attack (or someone posing as the hacker) published an open letter to the Ethereum community in the midst of the incident. In an undeniably audacious move, he declared that he had “rightfully claim[ed]” the funds by “making use of [an] explicitly coded feature”. He threatened to take legal action against anyone attempting to seize his property, warning that a fork would irreparably damage trust in the Ethereum network and blockchain technology.

Though their prediction hasn’t come true, it’s tough to argue with our marauder’s logic. Smart contract code is deployed publicly, and this attacker had leveraged a legitimate feature available to everyone in order to pull off his heist. In a sense, he was simply advocating that the system continue to function as it was designed to, without inappropriate third-party intervention.

At the center of this controversy is a complex question: when criminals successfully steal crypto from honest users, who should be recognized as the rightful owner of these assets? The answer we give could decide who has a legitimate claim to tens of billions of dollars’ worth of cryptocurrency. In the meantime, it is highly unlikely that such a large-scale rollback of blockchain state would ever happen again. The DAO hack affected a significant portion of the Ethereum community at a relatively early point in the blockchain’s history. Coordinating a rollback today would come at a much steeper cost––one which the network would almost certainly be unwilling to bear. In light of this fact, we need to consider alternative approaches to restoring fairness in the aftermath of a hack.

Sanctions, sanctions, sanctions

Questions about ownership rights become much more poignant when we consider a class of digital assets that has risen dramatically in popularity this year: NFTs. If the kinds of cryptocurrency we’ve discussed so far are like cash in a safe, then NFTs are more like heirloom jewels or property deeds. Different NFTs can have drastically different market values—and, as is increasingly the case in certain communities, NFT owners often attach significant sentimental value to these digital assets.

Learn more

This post is for
paying subscribers

Subscribe →

Or, login.

Sponsor Every!

Every is now accepting select sponsors. We’re looking for companies who want to bring new tools, systems, and technology to our audience of 45,000+ founders, investors, and operators in tech.


Understand AI

Get one actionable essay a day on AI, tech, and personal development


Already a subscriber? Login