No case in this District, Minnesota state courts, or elsewhere in the
Eighth Circuit has considered whether digital assets, such as crypto
tokens, are covered by an insurance policy’s provision for “direct
physical loss” of property.

…

The Rosenbergs lost crypto tokens—a purely digital asset. Nothing in
the record suggests that a crypto token has any physicality that could
satisfy the requirements of Minnesota law.

Those two critical and necessary facts are missing here. First, unlike
in Hartford, where the deletion of files resulted in computer damage,
plaintiff here does not allege that theft of his cryptocurrency resulted
in [**10] any damage to any computer system or any tangible
property. This difference between the instant case and Hartford is
important because it was the damage to the computer system in
Hartford—damage not present here—that allowed the court in Hartford
to conclude that there had been a “direct physical loss” to property
as required by the policy at issue in Hartford. Second, according to the
Amended Complaint, plaintiff’s cryptocurrency was stored not on
plaintiff’s own computer but rather on APYHarvest’s computer system.
Thus, even if there were some “direct physical loss,” that loss
occurred to APYHarvest’s servers, not to the plaintiff’s computer or
server. This fact is different from Hartford where the deletion of files
occurred on the plaintiff’s computer. Accordingly, the Amended
Complaint here alleges no facts demonstrating that plaintiff suffered a
“direct physical loss” when his wholly-virtual cryptocurrency was
stolen, a requisite condition of recovering under the insurance policy.
Thus, the Fourth Circuit’s decision in Hartford, although not directly
applicable to the cryptocurrency context, persuasively suggests that the
theft of plaintiff’s cryptocurrency here did not involve a “direct
physical loss” as required by the Policy.

The California [**7] Supreme Court has yet to decide whether
Bitcoins can be specifically recovered in a conversion action. Based on
our review of California authorities, however, we conclude that they
cannot. Specific recovery is unavailable when the converted property is
intangible. . . . Because the converted property here, cryptocurrency,
is intangible, Ox Labs cannot specifically recover its Bitcoins from
BitPay.”

that digital assets held in Wallet Accounts by customers were not
property of the bankruptcy estate and should be distributed to the
appropriate account-holder. Order Authorizing the Debtors to Honor
Withdrawals from Wallet Accounts, ECF No. 923.

the Debtors had administrative rights to direct cash movements, but that
is all. The funds held in the FBO accounts therefore are not “property
of the estate.”

Although the statute does not define “property,” property has a plain
meaning: It is capable of being owned.

First, take dictionary definitions contemporaneous with the statute’s
passage in 1977.42 Property includes “everything which is or may be the
subject of ownership, whether a legal ownership, [*22] or whether
beneficial, or a private ownership.”43 Similarly, it is “the condition
of being owned by or belonging to some person or persons”44 and
encompasses “the right to possess, use, and dispose of something.”45
It also includes the right “to exclude everyone else from interfering
with it.”46 And even the Department seems to agree:

The term “property” refers to “the rights in a valued resource such
as land, chattel, or an intangible,” and can be applied “to every kind
of valuable right and interest that can be made the subject of
ownership.” The term “ownership” refers to “[t]he bundle of rights
allowing one to use, manage, and enjoy property.”47

Sure, “[o]wnership does not always mean absolute dominion,”48 but it
at least requires some dominion.

The Supreme Court—and a long history of scholarship, beginning with
William Blackstone—has reaffirmed this ordinary meaning. The Supreme
Court has defined property as “all objects or rights which are
susceptible of ownership.”49 Indeed, when someone has a property
interest, he or she typically has the “rights of possession and
control.”50 And “one of the most essential sticks in the bundle of
rights that are commonly characterized as property” is “the right to
exclude others.”51

The immutable smart contracts at issue in this appeal are not property
because they are not capable of being owned. More than one thousand
volunteers participated in a “trusted setup ceremony” to “irrevocably
remov[e] the option for anyone to update, remove, or otherwise control
those lines of code.” And as a result, no one can “exclude” anyone
from using the Tornado Cash pool smart contracts. [*24] In fact,
because these immutable smart contracts are unchangeable and
unremovable, they remain available for anyone to use and “the targeted
North Korean wrongdoers are not actually blocked from retrieving their
assets,” even under the sanctions regime. Simply put, regardless of
OFAC’s designation of Tornado Cash, the immutable smart contracts
continue operating. And furthermore, because the software continues to
operate regardless of the sanctions, and the blockchain technology
“allows peer-to-peer transfers . . . without requiring the recipient to
consent to transfer,” some users may become liable whenever someone
transfers them digital assets via Tornado Cash, even without their
knowledge or consent.

No case in this District, Minnesota state courts, or elsewhere in the
Eighth Circuit has considered whether digital assets, such as crypto
tokens, are covered by an insurance policy’s provision for “direct
physical loss” of property.

…

The Rosenbergs lost crypto tokens—a purely digital asset. Nothing in
the record suggests that a crypto token has any physicality that could
satisfy the requirements of Minnesota law.

Those two critical and necessary facts are missing here. First, unlike
in Hartford, where the deletion of files resulted in computer damage,
plaintiff here does not allege that theft of his cryptocurrency resulted
in [**10] any damage to any computer system or any tangible
property. This difference between the instant case and Hartford is
important because it was the damage to the computer system in
Hartford—damage not present here—that allowed the court in Hartford
to conclude that there had been a “direct physical loss” to property
as required by the policy at issue in Hartford. Second, according to the
Amended Complaint, plaintiff’s cryptocurrency was stored not on
plaintiff’s own computer but rather on APYHarvest’s computer system.
Thus, even if there were some “direct physical loss,” that loss
occurred to APYHarvest’s servers, not to the plaintiff’s computer or
server. This fact is different from Hartford where the deletion of files
occurred on the plaintiff’s computer. Accordingly, the Amended
Complaint here alleges no facts demonstrating that plaintiff suffered a
“direct physical loss” when his wholly-virtual cryptocurrency was
stolen, a requisite condition of recovering under the insurance policy.
Thus, the Fourth Circuit’s decision in Hartford, although not directly
applicable to the cryptocurrency context, persuasively suggests that the
theft of plaintiff’s cryptocurrency here did not involve a “direct
physical loss” as required by the Policy.

The California [**7] Supreme Court has yet to decide whether
Bitcoins can be specifically recovered in a conversion action. Based on
our review of California authorities, however, we conclude that they
cannot. Specific recovery is unavailable when the converted property is
intangible. . . . Because the converted property here, cryptocurrency,
is intangible, Ox Labs cannot specifically recover its Bitcoins from
BitPay.”

that digital assets held in Wallet Accounts by customers were not
property of the bankruptcy estate and should be distributed to the
appropriate account-holder. Order Authorizing the Debtors to Honor
Withdrawals from Wallet Accounts, ECF No. 923.

the Debtors had administrative rights to direct cash movements, but that
is all. The funds held in the FBO accounts therefore are not “property
of the estate.”

Although the statute does not define “property,” property has a plain
meaning: It is capable of being owned.

First, take dictionary definitions contemporaneous with the statute’s
passage in 1977.42 Property includes “everything which is or may be the
subject of ownership, whether a legal ownership, [*22] or whether
beneficial, or a private ownership.”43 Similarly, it is “the condition
of being owned by or belonging to some person or persons”44 and
encompasses “the right to possess, use, and dispose of something.”45
It also includes the right “to exclude everyone else from interfering
with it.”46 And even the Department seems to agree:

The term “property” refers to “the rights in a valued resource such
as land, chattel, or an intangible,” and can be applied “to every kind
of valuable right and interest that can be made the subject of
ownership.” The term “ownership” refers to “[t]he bundle of rights
allowing one to use, manage, and enjoy property.”47

Sure, “[o]wnership does not always mean absolute dominion,”48 but it
at least requires some dominion.

The Supreme Court—and a long history of scholarship, beginning with
William Blackstone—has reaffirmed this ordinary meaning. The Supreme
Court has defined property as “all objects or rights which are
susceptible of ownership.”49 Indeed, when someone has a property
interest, he or she typically has the “rights of possession and
control.”50 And “one of the most essential sticks in the bundle of
rights that are commonly characterized as property” is “the right to
exclude others.”51

The immutable smart contracts at issue in this appeal are not property
because they are not capable of being owned. More than one thousand
volunteers participated in a “trusted setup ceremony” to “irrevocably
remov[e] the option for anyone to update, remove, or otherwise control
those lines of code.” And as a result, no one can “exclude” anyone
from using the Tornado Cash pool smart contracts. [*24] In fact,
because these immutable smart contracts are unchangeable and
unremovable, they remain available for anyone to use and “the targeted
North Korean wrongdoers are not actually blocked from retrieving their
assets,” even under the sanctions regime. Simply put, regardless of
OFAC’s designation of Tornado Cash, the immutable smart contracts
continue operating. And furthermore, because the software continues to
operate regardless of the sanctions, and the blockchain technology
“allows peer-to-peer transfers . . . without requiring the recipient to
consent to transfer,” some users may become liable whenever someone
transfers them digital assets via Tornado Cash, even without their
knowledge or consent.

No case in this District, Minnesota state courts, or elsewhere in the
Eighth Circuit has considered whether digital assets, such as crypto
tokens, are covered by an insurance policy’s provision for “direct
physical loss” of property.

…

The Rosenbergs lost crypto tokens—a purely digital asset. Nothing in
the record suggests that a crypto token has any physicality that could
satisfy the requirements of Minnesota law.

Those two critical and necessary facts are missing here. First, unlike
in Hartford, where the deletion of files resulted in computer damage,
plaintiff here does not allege that theft of his cryptocurrency resulted
in [**10] any damage to any computer system or any tangible
property. This difference between the instant case and Hartford is
important because it was the damage to the computer system in
Hartford—damage not present here—that allowed the court in Hartford
to conclude that there had been a “direct physical loss” to property
as required by the policy at issue in Hartford. Second, according to the
Amended Complaint, plaintiff’s cryptocurrency was stored not on
plaintiff’s own computer but rather on APYHarvest’s computer system.
Thus, even if there were some “direct physical loss,” that loss
occurred to APYHarvest’s servers, not to the plaintiff’s computer or
server. This fact is different from Hartford where the deletion of files
occurred on the plaintiff’s computer. Accordingly, the Amended
Complaint here alleges no facts demonstrating that plaintiff suffered a
“direct physical loss” when his wholly-virtual cryptocurrency was
stolen, a requisite condition of recovering under the insurance policy.
Thus, the Fourth Circuit’s decision in Hartford, although not directly
applicable to the cryptocurrency context, persuasively suggests that the
theft of plaintiff’s cryptocurrency here did not involve a “direct
physical loss” as required by the Policy.

The California [**7] Supreme Court has yet to decide whether
Bitcoins can be specifically recovered in a conversion action. Based on
our review of California authorities, however, we conclude that they
cannot. Specific recovery is unavailable when the converted property is
intangible. . . . Because the converted property here, cryptocurrency,
is intangible, Ox Labs cannot specifically recover its Bitcoins from
BitPay.”

that digital assets held in Wallet Accounts by customers were not
property of the bankruptcy estate and should be distributed to the
appropriate account-holder. Order Authorizing the Debtors to Honor
Withdrawals from Wallet Accounts, ECF No. 923.

the Debtors had administrative rights to direct cash movements, but that
is all. The funds held in the FBO accounts therefore are not “property
of the estate.”

Although the statute does not define “property,” property has a plain
meaning: It is capable of being owned.

First, take dictionary definitions contemporaneous with the statute’s
passage in 1977.42 Property includes “everything which is or may be the
subject of ownership, whether a legal ownership, [*22] or whether
beneficial, or a private ownership.”43 Similarly, it is “the condition
of being owned by or belonging to some person or persons”44 and
encompasses “the right to possess, use, and dispose of something.”45
It also includes the right “to exclude everyone else from interfering
with it.”46 And even the Department seems to agree:

The term “property” refers to “the rights in a valued resource such
as land, chattel, or an intangible,” and can be applied “to every kind
of valuable right and interest that can be made the subject of
ownership.” The term “ownership” refers to “[t]he bundle of rights
allowing one to use, manage, and enjoy property.”47

Sure, “[o]wnership does not always mean absolute dominion,”48 but it
at least requires some dominion.

The Supreme Court—and a long history of scholarship, beginning with
William Blackstone—has reaffirmed this ordinary meaning. The Supreme
Court has defined property as “all objects or rights which are
susceptible of ownership.”49 Indeed, when someone has a property
interest, he or she typically has the “rights of possession and
control.”50 And “one of the most essential sticks in the bundle of
rights that are commonly characterized as property” is “the right to
exclude others.”51

The immutable smart contracts at issue in this appeal are not property
because they are not capable of being owned. More than one thousand
volunteers participated in a “trusted setup ceremony” to “irrevocably
remov[e] the option for anyone to update, remove, or otherwise control
those lines of code.” And as a result, no one can “exclude” anyone
from using the Tornado Cash pool smart contracts. [*24] In fact,
because these immutable smart contracts are unchangeable and
unremovable, they remain available for anyone to use and “the targeted
North Korean wrongdoers are not actually blocked from retrieving their
assets,” even under the sanctions regime. Simply put, regardless of
OFAC’s designation of Tornado Cash, the immutable smart contracts
continue operating. And furthermore, because the software continues to
operate regardless of the sanctions, and the blockchain technology
“allows peer-to-peer transfers . . . without requiring the recipient to
consent to transfer,” some users may become liable whenever someone
transfers them digital assets via Tornado Cash, even without their
knowledge or consent.