I. Introduction

“[Virtual Currency], and the ideas behind it, will be a disrupter to the traditional notions of currency. In the end, currency will be better for it.”[1]

– Edmund C. Moy, 38th Director of the U.S. Mint

Whether a fervent advocate, a bitter critic, or simply agnostic, almost everyone has come across information relating to the blockchain or virtual currency in recent years.[2] Frankly, it is quite challenging to peruse news developments without seeing strange words such as Bitcoin, Ethereum, or Dogecoin, just to name a famous few of the thousands of virtual currencies now present across hundreds of digital market exchanges.[3] While early players primarily invested in virtual currencies like securities, such as stocks, these assets can also function as a medium of exchange like cash.[4] More corporations accepting payments in virtual currencies have further facilitated their use as a payment system.[5] This wide-scale use as a payment system has prompted progress in the legal classifications of virtual currency.[6] However, will virtual currency ever replace, or even supplement, traditional fiat currencies’ use as collateral in secured lending?[7]

Currently, the Uniform Commercial Code (UCC) cannot handle enforcing security interests in privately created virtual currencies in a way that effectively promotes their use in financial transactions.[8] The UCC is the primary source of federal commercial law in the United States. While secured lending is primarily a state law concern, all fifty states’ legislatures have adopted the UCC with slight variations.[9] Article 9 of the UCC governs secured transactions by establishing the different requirements for various classes of assets necessary for a lender to cause an otherwise valid security interest in an asset to be enforceable against third parties under a lending arrangement.[10] This process of making the security interest enforceable is called “perfection.”[11] Developments such as El Salvador’s adoption of Bitcoin as a fiat currency may have presented more significant concerns outside of practical issues with applying prior UCC provisions to virtual currencies, like entirely preventing the perfection of virtual currency security interests through these provisions and causing these treatments of virtual currencies under such prior UCC to moot.[12] Without perfection, lenders would be unable to enforce these security interests and thus unwilling to lend against these assets.[13] Potential lenders would see no value in a security interest that they could not enforce, and potential borrowers holding virtual currencies would be unable to pledge such assets as collateral.[14] Even worse, existing lenders worldwide hold massive security interests in virtual currencies, the continued enforceability of which was heavily brought into question.[15]

These significant consequences quickly garnered the attention of authorities. The Permanent Editorial Board for the Uniform Commercial Code (PEB) revised UCC Article 9’s official comments stating that the UCC’s drafters intended “money” only to include tangible, physical currency.[16] This response seems to have then allowed Bitcoin and other privately created virtual currencies to resume treatment as a general intangible under the UCC, protecting existing and future security interests in such assets if perfected under the UCC correctly.[17] Additionally, the Uniform Law Commission (ULC) has held numerous committee meetings to hear scholarly and practitioner insights and evaluate how commercial law should be updated to handle digital assets, guided by the PEB’s commentary.[18] These bodies ultimately sided with the creation of UCC Article 12—Controllable Electronic Records, with additional revisions to existing Articles, including Article 9, to clarify the treatment of digital assets.[19] However, their actions have failed to correct the issue despite the effort. Instead, they appear as a politically motivated attempt to subjugate privately created virtual currencies to their government-backed counterparts.[20]

The ULC drafters’ favorability of government-backed virtual currencies, evidenced by their incorporation of the PEB’s commentary on El Salvador, is ultimately a short-term solution that hinders privately created virtual currencies. The PEB’s official UCC commentary may provide some valuable instruction, but it does not govern in a court of law.[21] Courts may find difficulty weighing the admittedly practical logic of the PEB’s patch against the unignorable plain language of the statute that has further support in court holdings classifying virtual currency as money under other legal and statutory regimes.[22] While the ULC has sought to provide an optimal long-term solution for digital assets in its new Article 12, it fails to address virtual currencies adequately. These additions fail to tackle crucial lender concerns and provide for these assets’ most effective use in secured lending.[23] Continued failure to solve these issues could ultimately lead to corporations and financial institutions losing faith in the practical utility of investing in virtual currencies, negatively impacting their value and use worldwide if institutional backing wavers.[24]

Addressing these problems requires scrutinizing the operational deterrents with the ULC’s 2022 changes and the policy considerations implicated by expanding the breadth of the UCC’s money classification to a potentially volatile and unregulated asset class like privately created virtual currencies.[25] However, ideal provisions can be crafted by explicitly considering the digital characteristics of virtual currencies, how these unique characteristics interact with traditional perfection methods, and whether a proposed classification should extend to privately created virtual currencies such as Bitcoin.

Ultimately, UCC Article 9 must be updated to include workable provisions addressing these concerns. Part II of this Comment begins this endeavor by providing an overview of virtual currencies, the world of blockchain technology, and these assets’ treatment in secured lending transactions under UCC Articles 8 and 9 before the creation of Article 12.[26] Part III then analyzes how these existing methods raise significant problems for practical use in secured financial transactions.[27] Sovereign government adoption of privately created virtual currencies and how such circumstances affect these assets’ treatment under the UCC is also analyzed.[28] With these concerns in mind, Part IV will evaluate amending UCC Article 9 further to allow for the efficient and effective use of virtual currencies in secured lending.[29] Part V summarizes the critical considerations of commercial legislation and policy necessary to promote the best use of virtual currencies in secured lending markets and how the ULC can seek to effectuate these changes to benefit the ever-growing, ever-integrating world economy.[30]

II. Virtual Currency, the Blockchain, and the UCC

Virtual currency, in the decentralized, encrypted forms that it appears as on the blockchain today, originated as Bitcoin late in the first decade of the twenty-first century.[31] The anonymous Bitcoin creator, Satoshi Nakamoto, described the core idea of its Bitcoin project as “an electronic payment system based on cryptographic proof instead of trust.”[32] These technologies were created and have evolved to establish a more transparent, more efficient, and less restrictive method to facilitate transfers of value or payments.[33] In the fourteen years since the emergence of blockchain technology, virtual currencies have grown from an anarchist’s pipe dream to household names.[34] This expanding public acceptance has led to the possibility of virtual currencies taking on a pivotal role in the secured lending industry and finance markets.[35] Global corporations and financial institutions have followed suit by showing considerable interest in these assets.[36] Terms such as virtual currency and the blockchain may be familiar to those holding such assets or well versed in related technology. However, they are often subject to misconceptions and invested in without sufficient precursor research.[37] Although lenders and investors should not let the jargonistic nature of these terms deter, these denominations boil down to a few simple, core concepts.

A. Virtual Currency & the Blockchain

The “blockchain” is the underlying technology supporting virtual currencies and other digital assets.[38] The term generally refers to a shared network containing an unchangeable virtual ledger that facilitates asset tracking and transaction recording, viewable by all participants on the network.[39] This ledger eliminates duplication of transactions because it can only record each transaction once.[40] The ledger’s immutable characteristics also prevent transactions and records from being further tampered with once entered.[41] The applications of this technology are virtually limitless.[42] For example, the blockchain can streamline transactions using smart contracts.[43] Smart contracts apply a set group of rules or terms to a transaction, automatically executing it per these applied guidelines.[44] Use of smart contracts with virtual currency in secured lending functions as automation of the typical financial institution’s role in a syndicated financial transaction. This technology can forever change the commercial lending industry by promoting efficiency and cost reduction, reducing error-related and bank-intermediary-fee-related overhead, and providing a transparent chain of record ownership for various assets and transactions.[45]

“Virtual currency,” on the other hand, refers to digital exchange mediums existing on the blockchain, a specific application of blockchain technology.[46] The characteristics of individual virtual currencies may vary, but their key aspects are encryption and decentralization.[47] The encryption of virtual currency provides heightened security because of how the assets are accessed and held.[48] Virtual currencies are generally contained in a digital wallet, either offline or online, accessed by a set of keys.[49] In order to access their virtual currencies, holders have a public key used to transact and a private key that is essentially the secure password to one’s digital wallet.[50] The decentralization of virtual currency that provides for its autonomy from government control arises because no central bank holds the existing assets.[51] Instead, they are “distributed across a network of computers via” the blockchain.[52]

Regarding how virtual currencies and the blockchain interact, one exchanges virtual currencies as an asset with inherent value on a blockchain-based virtual currency exchange or for separate commodities in a commercial marketplace.[53] These assets’ advantage over traditional cash is blockchain technology, giving them heightened transparency and security from the permanent ledger and key encryption.[54] In other words, virtual currencies are digital assets with inherent value that can be exchanged on the blockchain with commodities per the virtual currency’s market value while also being free of a centralized entity imposing control and influencing prices.[55] Blockchain technology is constantly evolving, with new uses and applications always coming into play.[56] However, commercial law has primarily ignored these assets thus far despite this technology’s innovation and potential utility.[57] Given increased public enthusiasm and corporate support for these assets, the application of unrelated or outdated provisions of the UCC is no longer sustainable for the continued growth and success of virtual currencies overall.[58]

B. Virtual Currency Secured Lending Under UCC Articles 8 & 9

With a growing number of companies now holding significant interests in virtual currencies, an imminent need has arisen to update commercial law to precisely handle and fully maximize the benefits of privately created virtual currencies’ use in secured financial transactions.[59] A secured transaction is a lien agreement that connects a debtor’s debt to a creditor’s interest in the property used to secure the loaned funds.[60] Before the 2022 UCC amendments created Article 12, the core of virtual currencies’ treatment in a secured lending transaction laid in UCC Article 9, which generally governs parties’ interests in secured transactions.[61] Article 8 could also be applied if the circumstances of the lending arrangement warranted treating the virtual currency like securities.[62] Unfortunately, the previous UCC did not provide a direct classification for virtual currency or any specifically applicable operational provisions under Articles 8 or 9.[63] However, zealous legal representation generated patchwork methods to secure virtual currency financial interests in secured transactions under these UCC Articles.[64]

The previous lack of express classification for virtual currencies in the UCC forced commentators and practitioners to treat these assets as a “general intangible[]” under UCC Article 9.[65] Article 9 pertains to creating and enforcing security interests in various assets, generally within the categories of moveable or intangible property or fixtures.[66] Its operation determines the legal right of ownership of a piece of property in a secured transaction if the debtor cannot meet its obligations under the lien agreement.[67] Generally speaking, an asset’s classification under the UCC would determine the proper method to perfect a security interest in such asset, making the security interest enforceable by a lender in the event of a borrower’s default under the parties’ financial lending arrangement.[68] A lender perfects a general intangible security interest by filing a UCC financing statement, which is relatively simple with digital assets like virtual currencies.[69] While perfection of a virtual currency security interest, classified as a general intangible, with a UCC financing statement is theoretically functional, it is unclear whether virtual currencies are intangible and thus qualified for this treatment.

The definition of general intangible under UCC Article 9 is quite broad and thus might reasonably be argued as applicable to virtual currencies.[70] However, the drafters implemented this definition when virtual currencies did not exist.[71] Additionally, caselaw outside the UCC context, specifically conversion, has held that virtual currency is actually “quasi-tangible.”[72] Indeed, virtual currency is not intangible when considering its presence on the shared blockchain ledger, visible on a physical computer screen.[73] While possibly semantical, these interpretations cast growing doubt on the viability of virtual currencies’ treatment as a general intangible, further indicating the need for UCC amendments addressing these assets.

Applications of UCC Article 9 are less than ideal for creating enforceable security interests in privately created virtual currencies. However, Article 8, which pertains to investment property, may provide a viable alternative depending on the parties’ specific goals.[74] In the financial lending industry, lenders often use Article 8 for security interests in securities such as stocks, denoted as “financial assets.”[75] Using Article 8 for virtual currency secured lending might be the best choice in certain situations, like when the volatility of certain virtual currencies may render it ideal for treating such security interests as a security account. In practice, a borrower would open a securities account with an intermediary and transfer the assets used to secure the loan, here virtual currency, to such an account.[76] A subsequent agreement between the parties would require the account-holding intermediary to treat the virtual currency as a financial asset, defined under Article 8.[77] Under such agreement’s terms, the borrower now holds a securities entitlement in the deposited virtual currency.[78] Typically, a diligent lender would then require an additional control agreement, under which the borrower gives the intermediary the right to authorize the movement of the assets.[79] Use of Article 8 has additional benefits, such as utilizing super-negotiation rules not applicable to Article 9 general intangibles.[80] These super-negotiation rules allow the lender to receive the virtual currency free and clear of all liens if the borrower’s default under the agreement caused the intermediary to authorize the transfer of the assets.[81] However, while this method provides the previously lacking control and liquidity, it also comes with additional problems.[82]

III. Lender Concerns for Virtual Currency Secured Lending

With virtual currencies becoming a more significant part of individuals’ and corporations’ investment portfolios, the need to solve the problems surrounding these assets’ use in secured lending has become increasingly important.[83] There have been classification and perfection methods previously available for virtual currency under UCC Articles 8 and 9.[84] However, such methods are either functionally impractical when applied to corporate finance or eradicate some of the most beneficial aspects of selecting virtual currency over actual cash for use as collateral.[85] Moreover, political developments have legitimized concerns about whether these prior methods even apply and 2022 UCC updates further deter the practical function of security interests in privately created virtual currencies, preferring their government-backed analogs.[86]

A. Functional Issues with UCC Articles 8 & 9 Virtual Currency Secured Lending

Applying the discussed provisions of UCC Articles 8 and 9 to security interests in virtual currency gives rise to practical hurdles that would likely deter sophisticated lenders. For instance, an analysis of the secured lending process for UCC Article 9 general intangible assets proves that this outdated provision should not control virtual currencies, evidenced by the 2022 UCC updates. It is difficult, if not impossible, to obtain an unencumbered security interest in a general intangible.[87] General intangible security interests are attached to and thus follow the asset’s disposition, such as its sale or license.[88] However, such attachment will not occur if the existing secured party consents to the asset’s transfer free of their interest or the security interest has terminated, such as by satisfaction of the underlying loan obligations.[89] Still, a lender seeking a first-priority security interest in such an asset will likely encounter significant difficulty. Any prior security interest granted by the borrower to any other party would remain after transfer to the lender, leaving the asset encumbered and thus illiquid.[90] What lender would loan funds secured by cash in a bank account subject to prior security interests? Indeed, any sophisticated lender would find it unacceptable for a security interest serving as cash collateral to be encumbered by prior interests because the primary appeal of liquidity is absent.[91] Senior security interests are not always present, and if they are, a lender may compensate for such with favorable terms in the underlying loan agreement. However, even this possibility is likely a significant lender deterrent.

The ULC drafters responded to this concern by allowing take-free rules to apply to their definition of virtual currencies in their 2022 amendments.[92] These rules allow a lender to take a security interest in certain virtual currencies clear of any prior security interests if perfected by control.[93] Perfection by control is also necessary for using these assets as original collateral, such as cash collateral, in secured lending.[94] Still, the committee excluded privately created virtual currencies from the money definition and thus this provision’s effect.[95] The drafters have created analogous rules for privately created virtual currencies, conditionally applicable if perfected by control.[96] However, this separate asset classification still allows perfection by filing, adding another layer of burden on lenders with a hierarchy of operational provisions.[97] Still, even if a lender can get a first- or senior-priority lien in virtual currency, proper asset control remains an issue.[98] In a secured financial transaction, a degree of control is necessary for both the lender and the borrower. If default occurs, the lender must be able to enforce its rights under the agreement by taking possession of the collateral, liquidating it, and applying the proceeds to the underlying debt.[99] However, in the absence of default, the borrower needs access to and control of its assets to continue operations while being restricted from unauthorized transfers.[100] This control balance was essentially unobtainable for virtual currencies under prior law.[101] Virtual currency is held in digital wallets, protected by extensively encrypted keys.[102] A borrower relinquishing or sharing their key with a lender would potentially place all assets in their wallet beyond the desirable or practical level of control necessary for secured lending. Each party would have unlimited access with no limitation on transferability.[103] Without a restriction on the borrower’s access, a lender cannot enforce their agreement and liquidate the asset in the event of default beyond the unlikely possibility of voluntary cooperation.[104]

As expected, the ULC has provided for shared control provisions in its UCC revisions to deal with this concern without imposing the obligation of additional agreements.[105] Still, the volatility of virtual currencies presents further concerns with the possibility of margin calls on borrowers, potentially requiring more legal structure or agreements.[106] Applying Article 8 also has practical hurdles; like general intangibles under UCC Article 9, enforcement of a properly perfected security interest under Article 8 requires the borrower to release control of the virtual currency.[107] While an underlying control agreement would likely be in place here to protect the parties’ previously unprotected interests, surrendering this information can be a considerable deterrent for a borrower. Placing virtual currency in these accounts and giving up the encryption keys makes such assets susceptible to concerns plaguing traditional deposit accounts, such as hacking.[108] Also, courts have viewed relinquishing wallet keys as a full release of rights in the withheld assets.[109] If these asset security concerns were not enough, this method also requires that the assets be held by an intermediary, eradicating the decentralized benefits of virtual currencies.[110]

The functional issues present when applying these UCC Article 8 and 9 provisions to virtual currency security interests are likely enough to prevent these assets’ widespread use in secured lending. Like the lack of super-negotiation rules for general intangibles, the committee’s treatment of privately created virtual currencies under UCC Article 9 also restricts their utilization as collateral by conditioning super-negotiation applicability.[111] Lenders’ lack of enforceability guarantees due to the possibility of being unable to liquidate the collateralized assets only perpetuates their concerns. Additionally, using Article 8 to create security interests in virtual currencies is amusingly pointless. Perfecting virtual currency security interests under Article 8 may destroy virtual currencies’ desirable characteristics that primarily make them an attractive asset for use in the financial lending industry: decentralization.[112] These prior methods and updated provisions are thus inadequate; for a lender to secure against privately created virtual currencies confidently and benefit from its qualities, the UCC needs to be further updated.

B. Emergent Issues with UCC Article 9’s Definition of “Money”

Previous UCC applications to perfect security interests in virtual currency give rise to practical hindrances. However, the more significant issue is that prior to the 2022 UCC updates, they had likely become no longer applicable.[113] With sovereigns worldwide moving to implement their own virtual currencies or adopt existing virtual currencies as legal tender, these assets potentially shifted to fit within the UCC definition of money, raising further questions about perfecting and enforcing security interests in such assets.[114] UCC Article 1 defines “money” as:

[A] medium of exchange that is currently authorized or adopted by a domestic or foreign government. The term includes a monetary unit of account established by an intergovernmental organization or by agreement between two or more countries. The term does not include an electronic record that is a medium of exchange recorded and transferable in a system that existed and operated for the medium of exchange before the medium of exchange was authorized or adopted by the government.[115]

Although the relatively unambiguous language of section 1-201(b)(24) of the UCC does not lend itself to much flexibility, it may not be absolute. Previously, virtual currencies did not fit this definition because no official government was backing any of these assets.[116] However, the trend of governments adopting existing virtual currency as legal tender prior to the 2022 UCC updates cast considerable doubt on this once-absolute statement, as there was previously no qualification of a government being the original issuer of the virtual currency.[117] The ongoing confusion on classifying these assets and perfecting such security interests is likely enough to deter any sophisticated lender. Before the 2022 updates, government adoption of virtual currency alone, such as El Salvador’s adoption of Bitcoin as legal tender, likely qualified such assets as money under the UCC, necessitating the revisions because underlying security interests would no longer be enforceable under now-inapplicable Article 8 and 9 methods.[118] Still, the question remains whether classifying virtual currencies as money under commercial law is the best way to promote these assets’ use in secured lending effectively.

Analyzing how different areas of the law have historically treated virtual currencies may conclusively determine whether virtual currencies should be classified as money under UCC Article 9. In the context of commercial law, some commentators insist on the classification resting in virtual currencies’ irreconcilability with money’s perfection requirements.[119] However, this assumes that possession under the UCC denotes physical custody, a rigid interpretation of the law against the plain statutory language.[120] Federal courts have expressly recognized virtual currency as “a digital representation of value” that “functions as a medium of exchange”; the only aspect differing from that language and UCC’s definition of money is government adoption and creation.[121] The Bank Secrecy Act also treats virtual currencies as money under its statutory regime.[122] Similarly, a landmark virtual currency criminal case involving one of its earlier fraudulent uses explicitly held that virtual currency qualified as money.[123] While the analyses and classifications of virtual currency in these situations may not have hinged directly on an interpretation of the UCC, their reasonings are logically sound. The PEB’s official commentary even declared that El Salvador’s actions had not changed the applicable law to sidestep this issue, until the 2022 UCC revisions later solidified this distinction for privately created virtual currencies due to their lack of original government issuance.[124]

Commercial law can no longer toss privately created virtual currencies aside. Virtual currencies qualifying as money under the prior UCC in situations like El Salvador brought the PEB’s concerns into actuality, rendering legal treatments of these assets in secured lending under prior UCC provisions inapplicable and necessitating the response in the 2022 UCC updates.[125] Should the arbitrary distinctions in the 2022 UCC control the treatment of security interests in privately created virtual currencies, especially given the court precedent to the contrary? The UCC can no longer handle these assets this way; it needs to be further amended to solve the problems surrounding privately created virtual currencies’ use in secured financial lending.[126]

IV. Updating UCC Article 9 for Virtual Currency Secured Lending

Perhaps the most considerable difficulty in addressing virtual currencies and blockchain technology under the law is how much remains unknown. While lawmakers likely never conceptualized virtual currencies like Bitcoin before they came into play, were more emergent blockchain technologies even imagined two years ago? Blockchain technology was and continues to be revolutionary. The many evolving uses of the blockchain were a figment of a distant imagination before legal and technological innovators uncovered its potential uses, like Non-Fungible Tokens (NFTs) recording various property rights and smart contracts governing transactions.[127] Thus, one of the more critical considerations when crafting laws governing virtual currencies in secured transactions is these assets’ history and potential future. Ideal provisions must balance specific and broad applicability to grow with the technology and operate effectively in the long term.[128] Additional considerations may also be quite significant, such as how virtual currency’s digital nature impacts its operational provisions, the political and economic undertones involved in treating privately created virtual currencies as money rather than as a commodity, and protecting consumers from harm.[129]

Most commentators, the PEB responsible for the UCC’s official comments, and evidently the drafters of the 2022 UCC revisions agree that the previous UCC definition of money was sufficiently broad to pertain to virtual currencies once adopted by a government.[130] Still, as provided by the 2022 UCC updates, privately created virtual currencies could be classified under an entirely separate article on digital assets.[131] After all, virtual currencies falling within the definition of money still have unique digital characteristics that make them function differently than traditional money.[132] However, the traditional form of virtual currencies is not the sole utilization of blockchain technology.[133] With frequent innovations in such technology, the concern arises as to how narrow this subset of money should be. These notions considered, the best solution is to alter the current UCC’s definition of money to include a subset under which privately created virtual currencies explicitly qualify, along with a tailored perfection provision.

The ULC responded quickly to ongoing developments in El Salvador and has considered many of the above concerns in their deliberations. As noted, their contemplation led to supporting a hybrid proposition that separates privately created virtual currencies and other digital assets from traditional money.[134] The committee also explicitly recognizes governments creating virtual currencies with existing blockchain technology, like the Digital Yuan, qualifying as money.[135] However, privately created virtual currencies like Bitcoin are not subject to the exact perfection requirements and take-free rules as traditional money and government-backed virtual currencies.[136] Thus, the ULC’s propositions may ultimately be insufficient in maximizing virtual currencies’ utility in secured lending by excluding privately created virtual currencies. Still, whether the drafter’s approach in the 2022 UCC updates is ideal requires a more thorough analysis of which specific assets to include in the subset of money and the ideal method of perfection for security interests in such assets.

A. Classifying Virtual Currencies as a Subset of UCC Article 9’s “Money”

Creating a subset of the UCC’s money classification is necessary to refer to monetary exchange medium assets with specific digital characteristics, such as many privately created virtual currencies. The differentiation indicates their designation as virtual currency and the application of tailored operational provisions such as perfection. This distinction could be accomplished relatively simply due to the scope of the existing UCC money definition, perhaps by adding and defining a modifier such as “electronic,” as was done in the 2022 UCC updates.[137] The rationale backing this simplicity is that the modifier positions virtual currencies expressly within the definition of money and the relevant operational provisions for that subset.[138] The straightforward language also allows for broad, long-term application because virtual currency’s uses and technology continue to evolve.

This method appears to be most in line with promoting the efficient use of virtual currencies in financial transactions. If a sovereign government adopts a given privately created virtual currency, it falls under the defined qualifier subset of money and operates as a medium of exchange; then, the classification is simple.[139] While ideal, this is not the committee’s approach. Instead, they only included virtual currencies created by governments, excluding privately created virtual currencies like Bitcoin altogether, whether adopted ex ante by a government or not.[140] Separating virtual currency from money is necessary, but this approach has the effect of putting a band-aid on a bullet wound. The committee’s exclusion of privately created virtual currencies from the definition of money explicitly avoids the surmounting issues surrounding security interests in virtual currency that have continued to perpetuate confusion and error.[141] While evolving uses of virtual currency and blockchain technology have made it clear that there is a need for provisions specifically addressing related assets, the best way to do so is not in a way that hinders the commercial utility of these assets and further befuddles regulatory measures.

Virtual currencies are defined by evolving technology, and the success of laws governing them will ride on how these laws can flex and retain function while rising to the times. The committee’s distinction may be helpful while blockchain technologies’ applications expand.[142] However, excluding privately created virtual currencies from the UCC’s definition of money and instead classifying them alongside other digital assets like NFTs discourages privately created virtual currencies’ use in secured financial lending. Emergent blockchain technology, such as NFTs, may someday have a place in commercial law.[143] Nevertheless, even with NFT technology constantly evolving, it is challenging to foresee using these assets, which are distinctively more like commodities than virtual currencies, on a large scale in secured lending arrangements.[144] There is no immediate need to treat such assets similarly to virtual currencies in secured financial lending; this subset of money should exclude blockchain technologies that do not operate as a medium of exchange, and it is improper to classify privately created virtual currencies alongside these other digital assets. After all, the word currency is in “virtual currency”; these assets are designated as currency because they act as a medium of exchange, and the law should treat them as such.[145] However, implementing the committee’s structure of separating money and government-backed virtual currencies from privately created digital assets does nothing to solve the more prominent issues encompassing virtual currencies’ use as collateral in secured financial transactions. Distinguishing between traditional money, virtual currency, and other digital assets is necessary. Although, it should be done by addressing the problem head-on and thus promoting the use of privately created virtual currencies and their benefits rather than eliminating their utility through capricious distinctions that discourage their use and thus further regulation.

Still, for quite some time, a hot debate has been whether virtual currencies function as an exchange medium or are instead a commodity that rises and falls in price based on demand.[146] A further issue with the committee’s distinction here is that it tends to indicate that virtual currencies are not a medium of exchange unless adopted and created by a government. Instead, their treatment renders these privately created assets more akin to digital property.[147] A government creating a virtual currency would likely have their central bank backing it with traditional currency, establishing a CBDC; the lack of such backing is a genuine concern when evaluating the price fluctuations of privately created virtual currencies without such guarantee and a potentially justifiable reason for the separation.[148] However, the committee’s differentiation seems arbitrary considering the lack of operational differences in privately created and government-backed virtual currencies.[149] The committee treats virtual government currencies based on existing blockchain technology significantly more favorably by including them in the money subset.[150] Regardless of how agreeable one views this distinction, it undeniably hinders the utility of privately created virtual currency in secured financial transactions, with little evidence that government-backed analogs would behave differently.[151]

The committee’s lack of enthusiasm for these privately created assets may be intentional, as the Biden Administration seeks to impose federal regulation on the emerging virtual currency industry.[152] Indeed, these provisions favoring government-backed virtual currencies are not surprising considering President Biden’s Executive Order on the subject.[153] While the Order alluded to creating a digital U.S. dollar and future aspirations to establish U.S. supremacy in global virtual currency markets, potentially indicating a desire to reduce private competition, the vaguely noted need for security and consumer protection should arguably overshadow these considerations.[154] While President Biden’s stance on virtual currency regulation may be in response to other countries like China taking similar actions, among other concerns, the ULC’s provisions purport to protect consumers from unregulated investments more specifically.[155] Still, it is hard to ignore the undertone of the provisions seeking to displace privately created virtual currencies. By subjecting them to unideal commercial law provisions while applying the ideal provisions to government-backed virtual currencies, they blatantly hinder previously existing virtual currencies like Bitcoin for use in secured lending.[156] There may be credence to the Biden Administration’s and drafters’ concerns with assets like Bitcoin; criminals have used such assets in shocking crimes and consumer harm.[157] However, the government’s imposition into virtual currencies is akin to mixing oil and water: it does not work.[158] For the United States to truly cement its place as a virtual currency hub and attract investment from corporations interested in such assets, the UCC should be further updated to include privately created virtual currencies in the subset of money classification so that these assets can benefit from perfection solely by control and automatically applicable take-free rules.

Regulation to protect consumers from harm is necessary but should be done in a way that does not eliminate the decentralized benefits of privately created virtual currencies. The imposition of a perfection hierarchy with filing and control with conditional take-free rules only stirs confusion, deterring lenders from taking the chance on these emerging assets. The committee’s differentiation of privately created and government-backed assets functionally eliminates the ability to use existing, privately created virtual currencies in secured commercial lending, despite marginal differences in these assets with their government-backed counterparts.[159] The political and security motivations seem to be the only reasonable explanation for this approach. However, the ideal solution outside these policy concerns is to instead classify virtual currency as a subset of money defined by its digital or virtual characteristics, with related perfection provisions, specifically inclusive of privately created virtual currencies.

B. Enforcing Security Interests in Virtual Currency by Control

Before the 2022 UCC updates, virtual currencies fell within the UCC’s definition of money in official government adoption circumstances, preventing the perfection and enforcement of such security interests under that law.[160] With the UCC then requiring perfection of security interests in money by possession, inherent issues arose because the digital nature of virtual currency renders it inherently incapable of being physically possessed by a secured lender.[161] Considering the digital nature of virtual currencies, perfection by control seems like the obvious alternative to possession, as adopted in the 2022 UCC updates for digital assets.[162] However, a control-type perfection method still needs to address issues stemming from the private and public keys system that authorizes the use of virtual currencies and recording blockchain transactions.[163] Following adding the discussed subset of money to include privately created virtual currencies, UCC Article 9 should be further amended to include specific perfection provisions for that subset, with the unique characteristics of virtual currencies close in mind.

The ULC committee attempted to solve this issue by drawing upon existing Article 9 provisions and likening the historical perfection of money by possession to control in the case of digital assets.[164] Under the 2022 UCC updates, control is now seemingly outcome determinative because possession of keys dictates access to digital assets based on blockchain technology.[165] Moreover, in terms of virtual currency custody, caselaw has established “not your keys; not your coins” as precedent, expected to be adopted nationwide, which declares that control of digital assets’ keys is conclusive in proving ownership rights.[166] If control of the keys is definitive in proving ownership, it may logically follow that it should also be so for perfecting a security interest in such an asset, as further evidenced by the 2022 UCC additions. Nevertheless, practical secured financial lending with virtual currencies as collateral would require additional agreements that do not wholly relinquish asset control to ensure optimal protection of both parties.[167] The drafters remedied the practicality of enforcing such an agreement or involving an intermediary to facilitate the proper control mechanisms by allowing for shared control.[168] However, the pinnacle issue is not the substance of these provisions but to which virtual currency assets they apply. These provisions are adequate but are only applicable to government-backed virtual currencies; their privately created counterparts are subject to conditional provisions that confuse rather than promote these assets.

Perfecting security interests in virtual currency by control is the best method when considering the keys system governing these assets’ use. However, with judicial interpretations of control remaining unclear with overly complex proposed statutory schemes, reliance on a single perfection method could be unwise.[169] Including an additional option for lenders to perfect a virtual currency security interest by filing a UCC-1 financing statement could remedy these concerns; this dual perfection method is indeed the avenue the committee took in their UCC revisions.[170] However, the drafters establish a hierarchy for perfection methods, stating that perfection by control will trump security interests perfected by filing.[171] Additionally, the take-free rules are conditional on perfection by control, as opposed to perfection by filing.[172] Notably, this is only the case for privately created virtual currencies.[173] Even if both are created on the blockchain, government-backed virtual currencies are alone subject to automatic take-free rules and perfection solely by control.[174]

While the ULC drafter’s approach with multiple perfection methods is not unheard of, it may present undue burdens on lenders.[175] Certain assets lend themselves more readily to specific methods of perfection, and potential lenders seeking to confirm their interest should not bear the burden of analyzing more than one system. It is hard to justify the committee’s different methods approach for these two nearly identical assets aside from an attempt to limit the use of privately created virtual currencies in financial markets. Government-backed virtual currencies benefit from a straightforward method of enforcement and ideal rules for securing against cash collateral.[176] However, privately created virtual currency security interests would burden lenders with opting to perfect in one way over the other, causing lenders to potentially secure against assets that could become subject to a senior security interest based only on the perfection method.[177] While the simple answer appears to be choosing the superior method, perfection by control, as established in the 2022 UCC updates, would require searching the blockchain for individual digital asset wallets or establishing some kind of database that tracks this information, an incredible burden and thus deterrent for lenders.[178] These hurdles are simply incongruent with establishing the United States as a haven for virtual currencies and only serve to limit privately created virtual currencies’ use in secured lending.

Ultimately, privately created virtual currencies’ behavior in market exchanges may be the reason for the drafter’s caution surrounding them. The volatility of many virtual currencies is a crucial differentiator when defining them relative to stable fiat currencies like the U.S. dollar.[179] This issue extends into secured lending with virtual currencies as collateral. When the market value of a virtual currency serving as collateral drops overnight, the lender needs assurance that it will have something valuable to enforce against and recover if a default occurs. This circumstance implicates margin lending that could result in a margin call obligation of the borrower and is dealt with by complicated federal margin regulations.[180] If burdensome regulations’ imposition was not deterring enough, thousands of privately created virtual currencies are present on digital exchanges.[181] Each of these individual coins’ volatility varies widely; a simple formula for determining how much surplus capital needs to be held in an account to prevent this is not simple here as it may be with reputable securities traded on the S&P 500.[182] Indeed, the answer may be that there is no specific formula. The problem may be handled by freedom of contract, with the parties responsible for negotiating the binding terms of their loan arrangement. However, this requires acknowledging the necessary additional steps or agreements the parties need to take or account for in a secured lending transaction to secure their property interests adequately.[183] Still, large corporations’ ability to meet their debt obligations directly impacts consumers, and some legal requirements should be in place to protect consumers and the entire market.

Amending the UCC to create a subset of money that includes privately created virtual currencies appears to be the least disruptive and most effective way to address their legal treatment while efficiently promoting their use in secured financial transactions.[184] These revisions would also require a tailored perfection method, made difficult by conflicting legal interpretations impacting how the law classifies virtual currencies and evaluates their characteristics.[185] Perfection of security interests in virtual currencies seems to be most adequately handled by control. While the ULC drafters’ 2022 UCC updates reach this determination, their perhaps cursory conclusions effectively prioritize government-backed virtual currencies over their privately created counterparts and fail to optimize these assets’ use in secured lending transactions. This may be due to legitimate policy concerns, but it is inadequate. Instead, the subset of money should include privately created virtual currencies and benefit from a straightforward perfection by control method and automatic take-free rules, with further regulations established to protect consumers rather than exclusionary commercial laws.

V. Conclusion

Do virtual currencies have the potential to revolutionize finance and the secured lending industry? Global corporations have begun to hold significant virtual currency investments, with underlying security interests continuing to face substantial concerns. While some virtual currencies have been temporary trends, others have existed for years and have proven growth and value. Such assets can no longer be tossed aside through ineffective treatment or disregard under commercial law. Specific laws promoting privately created virtual currencies in secured transactions are necessary for use of these assets as collateral in financial lending to succeed and flourish.

The best legal treatment of this asset class in secured lending ultimately ensures the ability of a lender to gain full access to the virtual currencies pledged as collateral in the event of the borrower’s default. Updating UCC Article 9’s money definition to include a subset specific to privately created virtual currencies and a related perfection method would be the most worthwhile measure to achieve this mark. Still, this requires careful accounting of the unique characteristics of privately created virtual currencies and the residual effects of applying money’s operational provisions to a much larger, much more volatile asset class. While the ULC implemented a separation of privately created virtual currencies into the new Article 12 designated for digital assets, privately created virtual currencies need to be treated as money under UCC Article 9 for lenders to accept their use in secured lending on a large scale. Indeed, virtual currencies have the defining capability of functioning as a medium of exchange; the UCC amendments should not differentiate between privately created and government-backed virtual currencies in this regard. Instead, they should handle all virtual currencies apart from other digital assets more akin to commodities, like NFTs. The ULC’s differentiation approach burdens privately created virtual currency secured lending such that lenders will likely find it unacceptable on their threshold for ensuring access to the secured assets upon default in a lending arrangement. If a digital asset qualifies under this encompassing virtual currency subset, it should be subject to perfection by control alone and automatically applicable take-free rules.

The free market should be the final judge, jury, and executioner for the trial on whether these assets have a role in the future of global secured lending markets. Corporations and financial institutions must weigh the benefits of efficiency and cost reduction against the drawbacks of implementing new systems and overcoming unknown legal hurdles. However, inefficient and arbitrary laws should not be the straw, or rather the boulder, that breaks the camel’s back in this balance. Instead, further additions to the UCC addressing digital assets should seek to promote privately created virtual currencies’ use as a medium of exchange in the world economy by allowing for their effective utilization in secured lending.

Brock C. Jones

  1. Edmund C. Moy, The Currency Revolution, Courtesy of Bitcoin, edmoy (May 23, 2014, 9:25 AM), https://edmoy.com/the-currency-revolution-courtesy-of-bitcoin/ [https://perma.cc/7YS5-H36Q]. All references to virtual currency in this Comment refer to what is traditionally known as cryptocurrency, such as Bitcoin. Virtual currency renders itself to broader applicability, such as privately created or government-backed coins. A generic term is more appropriate to avoid misinterpretation and limitation of use. Some virtual currencies commonly referenced as cryptocurrencies may not be encrypted. Digital Yuan: What Is It and How Does It Work?, Deutsche Bank (July 14, 2021), https://www.db.com/news/detail/20210714-digital-yuan-what-is-it-and-how-does-it-work [https://perma.cc/W22H-NSWT] (describing China’s government-created digital yuan as “controllable anonymity” that still allows substantial government oversight).

  2. Even five years ago, headlines reported that Merriam-Webster was late with adding Bitcoin to its unabridged dictionary, nearly three years after the Oxford English Dictionary took such action. William Suberg, Merriam-Webster Adds ‘Bitcoin’ to Unabridged Dictionary, Bitcoin (Apr. 20, 2016), https://news.bitcoin.com/merriam-webster-adds-bitcoin-dictionary/ [https://perma.cc/Y2QY-7VPK]. Additionally, dictionary-publisher Collins named “NFT,” one of the most prominent blockchain trends of 2021, as the word of the year, beating out “crypto.” Jack Guy, ‘NFT’ Is Collins Dictionary’s Word of the Year for 2021, Beating Out ‘Crypto’ and ‘Cheugy,’ CNN (Nov. 24, 2021), https://www.cnn.com/style/article/nft-word-of-the-year-collins-scli-intl-gbr/index.html [https://perma.cc/K594-NS5N].

  3. Virtual currency market trackers report that as of September 2022, there were 21,006 virtual currencies present on the worldwide market across 509 exchanges. All Cryptocurrencies, CoinMarketCap, https://coinmarketcap.com/all/views/all/ [https://perma.cc/69MC-UR85] (last visited Sept. 18, 2022). However, it is worth noting that due to their relatively unregulated and straightforward creation process, “it is believed that the top 20 cryptocurrencies make up nearly 90 percent of the total market.” Raynor de Best, Number of Cryptocurrencies Worldwide from 2013 to February 2022, Statista (Mar. 22, 2022), https://www.statista.com/statistics/863917/number-crypto-coins-tokens/ [https://perma.cc/9U8V-SW4X].

  4. Kate Ashford, What Is Cryptocurrency?, Forbes, https://www.forbes.com/advisor/investing/what-is-cryptocurrency/ [https://perma.cc/T92W-93BR] (June 6, 2022, 7:23 PM).

  5. Companies accepting virtual currency payments vary from tech titans like Microsoft to grocery giants like Whole Foods. Andrew Lisa, 10 Major Companies That Accept Bitcoin, Yahoo! (Aug. 25, 2021), https://www.yahoo.com/now/10-major-companies-accept-bitcoin-190340692.html [https://perma.cc/B9BE-R4J4]. However, some of these companies use third-party applications that convert these virtual currencies immediately to cash upon customer payment, with the company never receiving the virtual currency. Id. Controversy has slowed progress in this area, with auto-giant Tesla retracting its virtual currency payment program just three months after it began. Id. Tesla CEO Elon Musk specifically cited concerns about the substantial fossil fuel consumption necessary for virtual currency technology and transaction facilitation. Id.

  6. For instance, in early 2022, California assembly member Jordan Cunningham proposed a bill allowing all corporate entities to accept payments in “virtual currenc[ies].” A.B. 2689, 2022 Leg., Reg. Sess. (Cal. 2022). The proposed assembly bill defines virtual currencies as “a digital representation of value that functions as a medium of exchange, unit of account, or store of value, and is often secured using blockchain technology.” Id. One commentator notes the possible conflict such a law would have with existing state laws prohibiting corporations from circulating nonlegal tender. See Keith P. Bishop, Bill Would Allow Acceptance of Virtual Currency, Cal. Corp. & Sec. L. (Feb. 28, 2022), https://www.calcorporatelaw.com/bill-would-allow-acceptance-of-virtual-currency [https://perma.cc/J6KG-RDL4].

  7. As one commentator noted even several years ago, “for [B]itcoin to live up to its full potential as a payment system, [UCC] Article 9 would need to be amended.” Jeanne L. Schroeder, Bitcoin and the Uniform Commercial Code, U. Mia. Bus. L. Rev., Spring 2016, at 1, 9.

  8. See infra Parts III–IV.

  9. See Daniel Seale et al., The Legal 500 Country Comparative Guides: United States Lending & Secured Finance 2–3 (2021), https://www.lw.com/admin/upload/SiteAttachments/Latham-Legal500-USA-LendingandSecuredFinance-2021.pdf [https://perma.cc/5G8U-39Z9]; Bob Lawless, Is UCC Article 9 the Achilles Heel of Bitcoin?, Credit Slips (Mar. 10, 2014), https://www.creditslips.org/creditslips/2014/03/is-ucc-article-9-the-achilles-heel-of-bitcoin.html [https://perma.cc/35ZA-29VM]. UCC updates would likely be adopted nationwide and thus are the focus of this Comment as opposed to individual states that have differing commercial codes, some treating virtual currencies and digital assets more favorably than others.

  10. Geoffrey R. Peck & Steven J. Bleiberg, Security Interests: Bitcoin and Other Cryptocurrency Assets 1 (2019), https://assets.contentstack.io/v3/assets/blt5775cc69c999c255/blt82e79e1b2e20fb82/190424-security-interests-bitcoins-cryptocurrency.pdf [https://perma.cc/33XY-HK4C]; see also Kristin N. Johnson et al., (Im)Perfect Regulation: Virtual Currency and Other Digital Assets as Collateral, 21 SMU Sci. & Tech. L. Rev. 115, 120 (2020).

  11. Peck & Bleiberg, supra note 10, at 1.

  12. For instance, foreign government adoption of virtual currencies as legal currency likely placed such assets under UCC’s money classification prior to the 2022 amendments, causing perfection of security interests in these assets to appear impossible. See Renee Levin, Impact of El Salvador’s Adoption of Bitcoin on U.S. Lending Market, Fordham J. Corp. & Fin. L. (Nov. 16, 2021), https://news.law.fordham.edu/jcfl/2021/11/16/impact-of-el-salvadors-adoption-of-bitcoin-on-u-s-lending-market/ [https://perma.cc/3A8S-KPL5] (analyzing issues surrounding security interests in virtual currencies that followed El Salvador’s adoption of Bitcoin as legal tender); see also Permanent Ed. Bd. for the Unif. Com. Code, Perfection of a Security Interest in Intangible Money & Related Choice-of-Law Rules 3 (2021) (on file with the Houston Law Review) (discussing the considerations necessary when updating the UCC for emerging financial technologies); Joe Carlasare & Eric Fogel, The Impact of El Salvador Recognizing Bitcoin as “Legal Tender” on U.S. Law, JD Supra (June 8, 2021), https://www.jdsupra.com/legalnews/the-impact-of-el-salvador-recognizing-7997113/ [https://perma.cc/CVW3-ZTR5].

  13. Perfection is the general term for the legal process through which a lender makes their security interest in an asset known to the rest of the world by attaching a secured obligation to it. See U.C.C. § 9-203 (Am. L. Inst. 2021); see also Peck & Bleiberg, supra note 10, at 1. Practical perfection of a security interest allows a lender to access the secured collateral underlying the loan agreement in the event of a borrower’s default. U.C.C. § 9-312 (Am. L. Inst. 2021).

  14. Deric Behar et al., El Salvador Christens Bitcoin as Legal Tender, JD Supra (June 25, 2021), https://www.jdsupra.com/legalnews/el-salvador-christens-bitcoin-as-legal-5761391/ [https://perma.cc/8JBU-D39P].

  15. For example, lenders worldwide in 2021 held security interests in over $30 billion worth of just Bitcoin alone. See Arcane Rsch., Banking on Bitcoin: The State of Bitcoin as Collateral 3 (2021), https://static.coindesk.com/wp-content/uploads/2021/02/TheStateofBitcoinasCollateral.pdf [https://perma.cc/ZA8P-H2HB] (projecting the virtual currency lending market to soon exceed $1 trillion).

  16. Permanent Ed. Bd. for the Unif. Com. Code, supra note 12, at 3.

  17. See Schroeder, supra note 7, at 38–40.

  18. The National Conference of Commissioners on Uniform State Laws develops the UCC and its periodic amendments. See Levin, supra note 12. Here, they are represented by the ULC in partnership with the American Law Institute. See generally Unif. L. Comm’n, Uniform Commercial Code and Emerging Technologies, March 7–8, 2022 Committee Meeting (Feb. 28, 2022); see also Levin, supra note 12.

  19. See generally U.C.C § 12 (Am. L. Inst. 2022).

  20. See Unif. L. Comm’n, supra note 18, at 136–38. The U.S. Federal Reserve has since denoted certain government-backed virtual currencies that act “as a digital liability of a central bank” as central bank digital currencies, or “CBDCs.” Central Bank Digital Currency (CBDC), Fed. Rsrv. Sys. (Nov. 4, 2022), https://www.federalreserve.gov/central-bank-digital-currency.htm [https://perma.cc/DB69-PFJZ].

  21. See Sean M. Hannaway, The Jurisprudence and Judicial Treatment of the Comments to the Uniform Commercial Code, 75 Cornell L. Rev. 962, 967 (1990).

  22. See infra Part III.

  23. See infra Part III.

  24. This is just one of many hurdles necessary to overcome for virtual currency to have a long-term impact on financial lending. Many other concerns, like political impacts on regulations, have the potential to be determinative as well. Prominent critics often stand in the way of these assets’ immediate success, such as President Joe Biden when he declared virtual currencies and other blockchain technology a matter of national security with his announcement of upcoming regulations. Jack Kelly, President Joe Biden Is Going After Bitcoin, Other Cryptocurrencies and NFTs, Forbes (Jan. 28, 2022, 7:57 AM EST), https://www.forbes.com/sites/jackkelly/2022/01/28/president-joe-biden-is-going-after-bitcoin-cryptocurrencies-and-nfts/?sh=3cd3969d57b9 [https://perma.cc/S3RN-TTGM]. Legally and ethically complicated uses of this technology may indeed bring credence to critics’ claims, like the emergent technology company that intends to allow people to invest in a gambling-like fashion on the outcome of civil litigation. Maxwell Strachan, Tech Startup Wants to Gamify Suing People Using Crypto Tokens, Vice (Jan. 7, 2022, 3:53 PM), https://www.vice.com/en/article/v7d7x3/tech-startup-wants-to-gamify-the-us-court-system-using-crypto-tokens [https://perma.cc/YLA4-CKVK].

  25. See infra Part IV.

  26. See infra Part II.

  27. See infra Section III.B.

  28. See infra Section III.B.

  29. See infra Part IV.

  30. See infra Part V.

  31. The debut of Bitcoin in 2008 is commonly regarded as the first public implementation of blockchain technology. Bernard Marr, A Very Brief History of Blockchain Technology Everyone Should Read, Forbes (Feb. 16, 2018, 12:28 AM EST), https://www.forbes.com/sites/bernardmarr/2018/02/16/a-very-brief-history-of-blockchain-technology-everyone-should-read/?sh=ec4f75b7bc47 [https://perma.cc/J2GL-98D8].

  32. Id.; Satoshi Nakamoto, Bitcoin: A Peer-to-Peer Electronic Cash System 1 (2009), https://bitcoin.org/bitcoin.pdf [https://perma.cc/6NV9-UNFJ].

  33. Nakamoto, supra note 32, at 5–6.

  34. As one author observed: “The initial price of [B]itcoin, set in 2010, was less than 1 cent. Now it’s crossed $16,000. Once seen as the province of nerds, libertarians, and drug dealers, [B]itcoin today is drawing millions of dollars from hedge funds.” Olga Kharif, All You Need to Know About Bitcoin’s Rise, from $0.01 to $15,000, Bloomberg (Dec. 7, 2017, 11:04 AM CST), https://www.bloomberg.com/news/articles/2017-12-01/understanding-bitcoin-s-rise-0-01-to-11-000-quicktake-q-a [https://perma.cc/RE62-WZPN]. In November of 2021, Bitcoin exceeded a value of $68,000, after the price dropped below $30,000 in July of 2021, just four months before. Ryan Haar, Bitcoin Is Down from Its Latest All-Time High Over $68,000. Here’s What Investors Should Do Now, Time (May 5, 2022), https://time.com/nextadvisor/investing/cryptocurrency/bitcoin-record-high-price/ [https://perma.cc/9RYP-BHZ9].

  35. Large Wall Street banks like Goldman Sachs have shown interest by exploring client offerings of virtual currency options and other derivative assets. Yueqi Yang, Goldman Sachs Explores Offering New Options for Cryptocurrencies, Bloomberg L. (Mar. 9, 2022, 4:19 PM), https://news.bloomberglaw.com/banking-law/goldman-sachs-explores-offering-new-options-for-cryptocurrencies [https://perma.cc/7LNW-93WD].

  36. The analytics platform company MicroStrategy had the largest virtual currency value on its balance sheet for any publicly traded company in 2021. Ines Ferré, Companies with the Most Bitcoin on Their Balance Sheets, Yahoo! (Aug. 27, 2021), https://news.yahoo.com/companies-with-the-most-bitcoin-on-their-balance-sheets-165302396.html [https://perma.cc/Q9MW-4HYT]. MicroStrategy and its subsidiaries held “an aggregate purchase price of approximately $2.741 billion” worth of Bitcoin as of June 21, 2021, the value of which more than doubled at one point in time, with the company’s purchase on such date representing more than a 14% increase in its Bitcoin holdings then. MicroStrategy Acquires Additional Bitcoins and Now Holds Over 105,000 Bitcoins in Total, MicroStrategy (June 21, 2021), https://www.microstrategy.com/en/investor-relations/press/microstrategy-acquires-additional-bitcoins-and-now-holds-over-105000-bitcoins-in-total_06-21-2021 [https://perma.cc/2B5R-MSU8]. Other companies holding some of the most significant interests in virtual currencies include car manufacturing company Tesla and digital payments company Square. Ferré, supra.

  37. A study conducted by Cardify in February of 2021 reported that 33.5% of the surveyed virtual currency investors had no knowledge of the investment sector or would qualify their knowledge as “emerging.” Nicolas Vega, More than 1 in 3 Cryptocurrency Investors Know Little to Nothing About It, Survey Finds, CNBC (Mar. 4, 2021, 3:35 PM), https://www.cnbc.com/2021/03/04/survey-finds-one-third-of-crypto-buyers-dont-know-what-theyre-doing.html [https://perma.cc/KD4E-YU9W]. Evidently, this has not stopped new investors from jumping feetfirst into the sector, because the survey also reported that over 40% of the aggregate new virtual currency purchases originates from new investors, often motivated by impulse. Id.; see also Eswar Prasad, Five Myths About Cryptocurrency, Wash. Post (May 20, 2021, 12:38 PM), https://www.washingtonpost.com/outlook/five-myths/cryptocurrency-yths-bitcoin-dogecoin-musk/2021/05/20/1f3f6c28-b8ad-11eb-96b9-e949d5397de9_story.html [https://perma.cc/WMJ9-HRJJ] (discussing common falsities surrounding virtual currency in popular media).

  38. What Is Blockchain Technology?, IBM, https://www.ibm.com/topics/what-is-blockchain [https://perma.cc/2HL9-S36A] (last visited Sept. 14, 2022).

  39. Id.

  40. Id.

  41. Id. However, if there is an error in a recorded transaction, the only way to correct it is with an additional record on the same chain. Both transaction records would then remain visible on the ledger to all, increasing accountability and transparency. Id.

  42. The potential uses of blockchain technologies are vast; they are not limited to exchange- or investment-related purposes. Aaron Wright & Primavera De Filippi, Decentralized Blockchain Technology and the Rise of Lex Cryptographia 3 (2017), https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2580664 [https://perma.cc/QN5N-FQZX] (discussion of the various uses of blockchain technology). It may be used for almost anything requiring records or ownership proof. See id. at 28.

  43. See What Is Blockchain Technology?, supra note 38.

  44. Id.

  45. Schroeder, supra note 7, at 6 (likening the potential of virtual currencies in financial transactions to the “holy grail of commerce”); see also Michael J. Casey, Ex-J.P. Morgan CDS Pioneer Blythe Masters to Head Bitcoin-Related Startup, Wall St. J. (Mar. 11, 2015, 12:41 AM), https://www.wsj.com/articles/ex-j-p-morgan-cds-pioneer-blythe-masters-to-head-bitcoin-trading-platform-1426048878 [https://perma.cc/V8YU-ZH9W] (highlighting financial companies seeking to bring virtual currencies to Wall Street and streamline transactions within the lending industry).

  46. See Ashford, supra note 4.

  47. Carla Tardi, Understanding the Different Types of Cryptocurrency, SoFi (July 12, 2022), https://www.sofi.com/learn/content/understanding-the-different-types-of-cryptocurrency/ [https://perma.cc/E2ZT-NAHZ].

  48. What Is Cryptography?, Coinbase, https://www.coinbase.com/learn/crypto-basics/what-is-cryptography [https://perma.cc/BDA8-REE6] (last visited Dec. 28, 2022).

  49. What Is a Private Key?, Coinbase, https://www.coinbase.com/learn/crypto-basics/what-is-a-private-key [https://perma.cc/J8U7-9BTN] (last visited Sept. 22, 2022).

  50. Id.

  51. Id. However, this is not the case for government-backed virtual currencies that may be held by a central bank. See Central Bank Digital Currency (CBDC), supra note 20.

  52. What Is a Private Key?, supra note 49.

  53. See Ashford, supra note 4.

  54. See What Is Blockchain Technology?, supra note 38.

  55. See Ashford, supra note 4.

  56. Since 2014, the separation of blockchain technology from Bitcoin has generated countless innovations, giving blockchain technology the “potential to impact every industry from financial to manufacturing to educational institutions.” Marr, supra note 31. For example, Non-Fungible Tokens (NFTs) have been touted as a revolutionary way to permanently record and maintain property records. See Wright & De Filippi, supra note 42, at 28.

  57. See Schroeder, supra note 7, at 9.

  58. Id. at 43; see supra notes 35–36.

  59. Virtual currency and blockchain technology have the potential to streamline financial transactions by eliminating bank intermediaries, reducing fees, implementing smart contract technology, and reducing mistakes due to human recording errors. See Shawn Bayern, Of Bitcoins, Independently Wealthy Software, and the Zero-Member LLC, 108 Nw. U. L. Rev. 1485, 1491–92 (2014). Even individuals with an apparent interest in banks retaining dominance in overseeing the lending industry cannot deny the virtues that virtual currencies can provide. Former chairman of the Federal Reserve Ben Bernanke recognized years ago that “[virtual currencies] may hold long-term promise, particularly if the innovations promote a faster, more secure and more efficient payment system.” John Phillips, Bitcoin Breaks $1,000 Barrier for First Time, CNBC (Apr. 24, 2014, 9:17 PM), https://www.cnbc.com/2013/11/27/bitcoin-hits-1000-for-first-time.html [https://perma.cc/UTL4-TGJU].

  60. See generally Adam Hayes, Article 9, Investopedia (Oct. 28, 2021), https://www.i
    nvestopedia.com/terms/a/article-9.asp [https://perma.cc/YAP5-ZWAB] (discussing UCC Article 9’s role in governing secured transactions).

  61. See U.C.C. § 9-109 (Am. L. Inst. 2021).

  62. Lance P. Martin, Can I Secure a Loan with Bitcoin? Part II, Nat’l L. Rev. (Apr. 8, 2018) [hereinafter Martin, Part II], https://www.natlawreview.com/article/can-i-secure-loan-bitcoin-part-ii [https://perma.cc/V5HW-3HEH]; see also U.C.C. § 8-101 (Am. L. Inst. 2021).

  63. See Schroeder, supra note 7, at 10.

  64. See supra Section II.B; see also Carla L. Reyes, Creating Cryptolaw for the Uniform Commercial Code, 78 Wash. & Lee L. Rev. 1521, 1535–36, 1544–45 (2021) (outlining an updated UCC financing statement filing system to optimize the use of smart contracts in secured lending).

  65. See Schroeder, supra note 7, at 10. General intangibles under UCC Article 9 are a sort of catch-all category, covering “any personal property” other than a few excluded categories. U.C.C. § 9-102(42) (Am. L. Inst. 2021).

  66. See U.C.C. § 9-109 (Am. L. Inst. 2021).

  67. See generally Hayes, supra note 60 (discussing legal uses of UCC Article 9).

  68. Id.

  69. U.C.C. § 9-310(a) (Am. L. Inst. 2021).

  70. This definition applies to “any personal property” other than specifically listed exclusions; it appeared to be broadly inclusive of virtual currency prior to the 2022 amendments for digital assets. See supra note 65 and accompanying text.

  71. See U.C.C. § 9-102(42) (Am. L. Inst. 2021); Ashford, supra note 4.

  72. Ox Labs, Inc. v. Bitpay, Inc., No. CV 18-5934-MWF, 2020 WL 1039012, at *6 (C.D. Cal. Jan. 24, 2020) (equating the intangible to an idea, such as a business proposition, while finding virtual currency more analogous to a tangible payment instrument such as a check).

  73. Virtual currencies have code, programming, and many other aspects that, while digital, are arguably not “entirely divorced from any physical form.” Id.

  74. Martin, Part II, supra note 62; see also U.C.C. § 8-101 (Am. L. Inst. 2021).

  75. Martin, Part II, supra note 62; U.C.C. § 8-102(a)(9) (Am. L. Inst. 2021).

  76. Martin, Part II, supra note 62.

  77. Id.; see also U.C.C. §§ 8-501, 8-504 (Am. L. Inst. 2021).

  78. U.C.C. §§ 8-501, 8-504 (Am. L. Inst. 2021).

  79. Martin, Part II, supra note 62.

  80. See Schroeder, supra note 7, at 9.

  81. Martin, Part II, supra note 62.

  82. See infra Section III.A.

  83. See supra notes 4–5 and accompanying text.

  84. See supra Section II.B.

  85. See infra Section III.A.

  86. See infra Section III.B.

  87. Schroeder, supra note 7, at 8.

  88. Lance P. Martin, Can I Secure a Loan with Bitcoin? Part I, Nat’l L. Rev. (Mar. 18, 2018) [hereinafter Martin, Part I], https://www.natlawreview.com/article/can-i-secure-loan-bitcoin-part-i [https://perma.cc/MJ85-EN3R]; see also Andrew Helman & Carl Wedoff, When Blockchain Meets Article 9 and Bankruptcy, Law360 (Feb. 9, 2018, 4:47 PM), https://www.law360.com/articles/1011153 [https://perma.cc/7EHN-G6VP].

  89. Martin, Part I, supra note 88.

  90. This same hurdle is encountered even when the virtual currency is acquired after a borrower grants a security interest in “all [their] assets whether now owned or acquired later.” Id. While a lender could overcome these issues by confirming the absence of prior liens through a UCC financing statement search in all fifty states, this could be seen as overly burdensome for lenders. Id. More serious, however, is that it would also fail to indicate the presence of any international liens, which are common in the cross-border financial transactions engaged in by large corporations. Id.

  91. See id. Prior to the 2022 UCC updates, one could not accept virtual currency as payment, let alone as collateral for a loan, without worrying that the asset may be subject to prior security interests, rendering it illiquid and useless. See Schroeder, supra note 7, at 8.

  92. See Unif. L. Comm’n, supra note 18, at 4. The ULC classifies virtual currencies as money under a subset denoted as “electronic money,” which does not include privately created virtual currencies like Bitcoin. Id. at 8.

  93. Id. at 4, 11–12.

  94. Id. at 12.

  95. Id. at 8, 11–12.

  96. Id. at 137–38.

  97. See id. at 3.

  98. See Martin, Part I, supra note 88.

  99. See id.

  100. See id.

  101. See id.

  102. See Nathan Reiff, Protect Your Bitcoins Against Theft and Hacks, Investopedia (June 24, 2022), https://www.investopedia.com/tech/ways-protect-your-bitcoin-investment-against-theft-and-hacks/ [https://perma.cc/W5CF-6FSJ].

  103. See Martin, Part I, supra note 88.

  104. Holding the virtual currency with a third-party entity that allows for exchanging virtual currency with traditional money, such as Coinbase, may help alleviate liquidity concerns. Id. However, this would require the third-party agreement to have some form of restriction on the borrower’s transfer of assets. Id. Third-party control agreements may prevent further issues too. Caselaw has established that outside of a contractual agreement to the contrary, relinquishing control of one’s keys is the equivalent of giving up all rights in the assets held within the underlying wallet. See Archer v. Coinbase, Inc., 267 Cal. Rptr. 3d 510, 515–16, 519 (Ct. App. 2020).

  105. See Unif. L. Comm’n, supra note 18, at 95, 114.

  106. See infra Section IV.B.

  107. U.C.C. § 9-305 (Am. L. Inst. 2021). Here, a borrower must turn over its private keys to either the intermediary or the lender. Martin, Part II, supra note 62.

  108. Martin, Part II, supra note 62. There are ways to alleviate these concerns, like storage within wallets accessible on protected exchanges or saved to a computer’s offline hard drive. Reiff, supra note 102. Still, with limited regulations on virtual currency exchanges, storage with such entities presents its own serious concerns. See generally Matt Egan, Bankrupt Crypto Exchange FTX Is Under Criminal Investigation in the Bahamas, CNN (Nov. 14, 2022, 11:58 AM EST), https://www.cnn.com/2022/11/13/business/ftx-bahamas-criminal-investigation/index.html [https://perma.cc/M39X-UM96] (discussing top cryptocurrency exchange FTX’s unforeseen collapse that locked up countless customers’ assets within the exchange).

  109. Archer, 267 Cal. Rptr. 3d at 515–16, 519.

  110. See Bayern, supra note 59, at 1487. After the borrower turns over the virtual currency to the intermediary, they hold a securities entitlement in the financial asset. U.C.C. §§ 8-501, 8-504 (Am. L. Inst. 2021). This securities entitlement is essentially the borrower indirectly holding the virtual currency through the intermediary. Id.

  111. See Schroeder, supra note 7, at 18; Unif. L. Comm’n, supra note 18, at 12.

  112. Still, this method of perfecting security interests in digital assets could be quite helpful with other circumstances or uses of blockchain technology where the release of control is not as detrimental. See Schroeder, supra note 7, at 24, 44–45, 47–48, 65, 78.

  113. See supra Sections II.B, III.A.

  114. In June of 2020, following an announcement by El Salvador’s president, the country’s legislature passed a law facilitating the adoption of Bitcoin as its legal tender, in supplement to the U.S. dollar, potentially altering worldwide financial markets forever. See Stuart Russell, Coercion and Coexistence: How El Salvador’s Bitcoin Law May Change Global Finance, CoinTelegraph (July 20, 2021), https://cointelegraph.com/magazine/2021/07/20/how-el-salvadors-bitcoin-law-change-global-finance [https://perma.cc/MJ67-HJ5E]; see also Levin, supra note 12; Digital Yuan, supra note 1.

  115. U.C.C. § 1-201(b)(24) (Am. L. Inst. 2022).

  116. See, e.g., George K. Fogg, Bloomberg BNA, The UCC and Bitcoins: Solution to Existing Fatal Flaw 1 (2015), https://www.perkinscoie.com/images/content/1/1/v2/118701/George-Fogg-Bloomberg-BNA-4-1-15.pdf [https://perma.cc/ATH7-FABD].

  117. See supra note 12 and accompanying text; Digital Yuan, supra note 1. Some commentators have urged that this circumstance alone does not place virtual currency under the money classification because it cannot be physically possessed; perfection under previous UCC provisions is impossible with such a classification. See Schroeder, supra note 7, at 20. However, even the PEB saw the concerns with El Salvador’s situation under a plain interpretation of the prior UCC and responded by issuing an official comment stating that virtual currency is still not money because it cannot be physically possessed. See generally Permanent Ed. Bd. for the Unif. Com. Code, supra note 12, at 1–3.

  118. See supra notes 21–25 and accompanying text; see, e.g., Levin, supra note 12; Permanent Ed. Bd. for the Unif. Com. Code, supra note 12, at 2 n.1, 3.

  119. See Schroeder, supra note 7, at 14, 20.

  120. See Permanent Ed. Bd. for the Unif. Com. Code, supra note 12, at 2.

  121. Balestra v. Cloud With Me, Ltd., No. 2:18-CV-00804, slip op. at 5 (W.D. Pa. July 2, 2020) (quoting Audet v. Fraser, 332 F.R.D. 53, 59 (D. Conn. 2019)).

  122. Dep’t Treasury Fin. Crimes Enf’t Network, FIN-2013-G001, Application of FinCEN’s Regulations to Persons Administering, Exchanging, or Using Virtual Currencies 1, 3–5 (2013); see also New FinCEN Guidance Changes Regulatory Landscape for Virtual Currencies and Some Prepaid Programs, Perkins Coie (Mar. 22, 2013), https://www.perkinscoie.com/en/news-insights/new-fincen-guidance-changes-regulatory-landscape-for-virtual.html [https://perma.cc/DZR6-NTW6].

  123. See generally United States v. Ulbricht, 31 F. Supp. 3d 540, 547 (S.D.N.Y. 2014). Here, defendant Ross Ulbricht attempted to refute money laundering claims because virtual currencies are “not monetary instruments.” Id. at 569. However, the court held that the money laundering statute, which regulated movement of “‘funds’ by any means, or monetary instruments,” was broad enough to encompass virtual currency because the plain definition of “funds” includes money. Id. at 570.

  124. Specifically, this is the argument that no matter how much the definition seems to match, it would be absurd for the law to subject such assets to a nonoperational perfection provision of the prior UCC that rendered security interests unenforceable. See Schroeder, supra note 7, at 19–20. See generally Permanent Ed. Bd. for the Unif. Com. Code, supra note 12, at 1 n.2.

  125. See generally Permanent Ed. Bd. for the Unif. Com. Code, supra note 12, at 3.

  126. Noted previously, a security interest in money under UCC Article 9 must be perfected by possession. U.C.C. § 9-312(b)(3) (Am. L. Inst. 2021). Virtual currency, by nature, cannot be possessed. See Schroeder, supra note 7, at 17, 43–44. Its inherent digital nature, which allows for enhanced transparency, security, and transferability over traditional cash collateral assets, is irreconcilable with physical possession. See id. at 17, 42.

  127. Farah Mukaddam, NFTs and Intellectual Property Rights, Norton Rose Fulbright (Oct. 2021), https://www.nortonrosefulbright.com/en/knowledge/publications/1a1abb9f/nfts-and-intellectual-property-rights [https://perma.cc/BY5Z-2HY8]; Stuart D. Levi & Alex B. Lipton, An Introduction to Smart Contracts and Their Potential and Inherent Limitations, Harv. L. Sch. F. on Corp. Governance (May 26, 2018), https://corpgov.law.harvard.edu/2018/05/26/an-introduction-to-smart-contracts-and-their-potential-and-inherent-limitations/ [https://perma.cc/WPY7-QDL5].

  128. See Unif. L. Comm’n, supra note 18, at 75, 77.

  129. See infra Sections IV.A–B.

  130. A little clarification can only help. E.g., Unif. L. Comm’n, supra note 18, at 8; Permanent Ed. Bd. for the Unif. Comm. Code, supra note 12, at 2; Fogg, supra note 116, at 2.

  131. Adding a modifier to create a subset of money with respective operational provisions is admittedly insufficient alone to address the evolving legal issues surrounding all digital assets. The committee agrees because they have added a new Article 12 to the UCC, entirely focused on digital assets and their legal treatment in commerce. See Unif. L. Comm’n, supra note 18, at 136. Separating the definitions and treatment of digital assets into the new Article 12 accomplishes the task of creating a long-lasting piece of law that will grow as digital assets continue to innovate. See id. at 136, 142–43. However, designating privately created virtual currencies under Article 12 may hinder their utility as collateral in secured lending transactions by denoting them as a commodity. See infra Section IV.A. Nevertheless, it is important to include provisions to handle the evolving uses of new and existing blockchain technology.

  132. See What Is Blockchain Technology?, supra note 38.

  133. Blockchain technology constantly changes, with new commodity markets taking over the digital asset community overnight. See supra note 127 and accompanying text.

  134. See Unif. L. Comm’n, supra note 18, at 11–13.

  135. Id. at 12.

  136. Id. at 8.

  137. This was the approach discussed in the March 7–8, 2022, ULC meeting, with the modifier “intangible” suggested previously. See id. at 2–3, 7.

  138. See id. at 8; Permanent Ed. Bd. for the Unif. Com. Code, supra note 12.

  139. See U.C.C. § 1-201(b)(24) (Am. L. Inst. 2021). For example, if a digital nature defined this subset of money, Bitcoin would qualify because it has been adopted as legal tender by El Salvador’s government and functions as a medium of exchange. See Levin, supra note 12; Balestra v. Cloud With Me, Ltd., No. 2:18-CV-00804, slip op. at 5 (W.D. Pa. July 2, 2020).

  140. See Unif. L. Comm’n, supra note 18, at 7–8.

  141. See, e.g., id.; Permanent Ed. Bd. for the Unif. Com. Code, supra note 12, at 1; Levin, supra note 12.

  142. See Unif. L. Comm’n, supra note 18, at 136–38.

  143. See Mukaddam, supra note 127 and accompanying text.

  144. The name “NFT” tells the whole story: they are non-fungible, or one-of-a-kind, virtual assets, like a digital piece of artwork. Rakesh Sharma, Non-Fungible Token (NFT): What It Means and How It Works, Investopedia (June 22, 2022), https://www.investopedia.com/non-fungible-tokens-nft-5115211 [https://perma.cc/Z44C-YBKA]. This technology is currently not intended to function as a marketplace medium to facilitate exchanges for goods. Id.

  145. See, e.g., Balestra v. Cloud With Me, Ltd., No. 2:18-CV-00804, slip op. at 1, 5 (W.D. Pa. July 2, 2020).

  146. Whether virtual currencies are a currency or are instead a commodity (and improperly named) should determine their treatment as a digital analog to traditional money or a general digital asset under the UCC, not whether such assets are government backed. However, virtual currencies’ benefits to secured lending are premised on characterizing these assets as a currency or medium of exchange in a marketplace. See George Friedman, Why It Matters if Bitcoin Is a Currency or a Commodity, MarketWatch (Dec. 13, 2017, 4:07 PM ET), https://www.marketwatch.com/story/why-it-matters-if-bitcoin-is-a-currency-or-a-commodity-2017-12-13 [https://perma.cc/CU4D-VYAC]. This could be seen as the ultimate foundation of the issue. However, courts have not provided much clarity in this context. See, e.g., Commodity Futures Trading Comm’n v. McDonnell, 287 F. Supp. 3d 213, 228 (E.D.N.Y. 2018) (finding that the CFTC can regulate virtual currencies like commodities because there are “‘goods’ exchanged in a market for a uniform quality and value”); James J. Benjamin, Jr. et. al, Federal Judge Adopts CFTS Position That Cryptocurrencies Are Commodities, ABA (Apr. 20, 2018), https://www.americanbar.org/groups/business_law/publications/blt/2018/04/crypto/ [https://perma.cc/49EU-UPPW] (noting how the SEC has classified virtual currencies as securities and the IRS as property to claim regulatory jurisdiction).

  147. The new Article 12 indicates certain digital assets as a right to the asset’s value or a right to payment under the asset record. See Unif. L. Comm’n, supra note 18, at 7–8, 145–46. In contrast, the proposed money subset refers to a digital exchange medium but only encompasses government-backed virtual currencies. Id. at 7–8.

  148. For instance, while virtual currencies created by domestic or foreign governments may be technologically analogous to their private counterparts, they may have instead been developed per underlying regulations that provide more protections for security interests or value fluctuations, or even backed by a central bank. See Digital Yuan, supra note 1; Central Bank Digital Currency (CBDC), supra note 20.

  149. Considering how volatile some countries’ legal currencies are, it seems even more questionable. For instance, a study published in 2017 found that the legal currencies of five developing countries had volatility exceeding Bitcoin’s for more than 10% of the analyzed time frame. Jochen Kasper, Evolution of Bitcoin: Volatility Comparisons with Least Developed Countries’ Currencies, J. Internet Banking & Com., Dec. 2017, at 1, 9, https://www.icommercecentral.com/open-access/evolution-of-bitcoin-volatility-comparisons-with-least-developed-countries-currencies.pdf [https://perma.cc/W3HP-E65J]. A similar study published the year before found that the volatility of the Russian Ruble exceeded that of Bitcoin for 14.2% of the analyzed time frame. Eduardo Gavotti, Bitcoin As a Currency: A Volatility Comparison Against Emerging Market Currencies, London Metro. U., at 2, 25–27 (2016), https://www.slideshare.net/eduardogavotti/egavotti-2016-bitcoin-as-a-currencya-volatility-analysis [https://perma.cc/VT3J-XGNA].

  150. See generally Unif. L. Comm’n, supra note 18, at 8 (stating concerns that the committee believes require delineation between privately created and government-backed virtual currencies).

  151. UCC Article 9’s treatment of money is understandably the most ideal for financial lending. See Schroeder, supra note 7, at 17–18.

  152. See Allyson Versprille, Biden Pushes for Coordinated Approach to Crypto Oversight (2), Bloomberg L. (Mar. 9, 2022, 11:31 AM), https://news.bloomberglaw.com/banking-law/biden-pushes-for-more-coordinated-approach-to-crypto-oversight [https://perma.cc/4HKP-DJCM].

  153. Industry leaders interpreted President Biden’s Executive Order on virtual currencies as the Administration’s positive stance on digital assets. Id. While the order was also seen as vague, Biden specifically called for studying the positives and negatives of a U.S. dollar virtual currency, including environmental concerns with virtual currency procurement, consumer fraud protection, and maintaining U.S. leadership in global finance initiatives through responsible financial innovation and inclusion. Id.

  154. Akayla Gardner & Vildana Hajric, Crypto Executive Order ‘Short on Clarity’ Hailed by Sector (1), Bloomberg L. (Mar. 9, 2022, 12:25 PM), https://news.bloomberglaw.com/banking-law/crypto-executive-order-short-on-clarity-still-hailed-by-sector [https://perma.cc/B924-9CFE].

  155. Versprille, supra note 152; see also Unif. L. Comm’n, supra note 18, at 136–38. Decentralized currency is political by nature, exemplified by the Russian invasion of Ukraine raising congressional outcry of virtual currencies, allowing the Kremlin to escape sanctions while also being touted as a savior for Ukraine amidst financial system shutdowns. Tim Culpan, Bitcoin May Serve Many Masters in the War in Ukraine, Bloomberg L. (Mar. 8, 2022, 4:30 PM), https://news.bloomberglaw.com/us-law-week/bitcoin-may-serve-many-masters-in-the-war-in-ukraine-tim-culpan [https://perma.cc/XGF6-7XGN].

  156. See generally Unif. L. Comm’n, supra note 18, at 8, 136–38.

  157. See Angus Berwick, At Least $1 Billion of Client Funds Missing at FTX, Reuters, Nov. 12, 2022, https://www.reuters.com/markets/currencies/exclusive-least-1-billion-client-funds-missing-failed-crypto-firm-ftx-sources-2022-11-12/ [https://perma.cc/RB2L-96NC]. See generally United States v. Ulbricht, 31 F. Supp. 3d 540, 546–47, 570 (S.D.N.Y. 2014).

  158. Government-backed virtual currencies with central bank backing, or CDBCs, purport to eliminate the need for intermediaries while replacing them with direct government oversight and control. See Cryptocurrencies: The Gold Standard of the 21st Century?, DFCM Cap. & Mgmt., https://dfcm.eu/en/aktualnosci/475-2/ [https://perma.cc/5GZ4-E8MD] (last visited Sept. 18, 2022). However, these assets are an emerging concept, and much is still unknown as research continues. Id.

  159. The decentralized nature of the blockchain and deregulation of virtual currencies are the exact qualities that make them an attractive alternative to cash collateral, qualities that would likely be eradicated in any virtual currency initially created by a government. See Gardner & Hajric, supra note 154; see also Digital Yuan, supra note 1. That is not to say that regulation is not necessary or even proper, just that privately created virtual currencies benefit from lack of government control opposed to management regulations.

  160. See supra Section III.B.

  161. U.C.C. § 9-312(b)(3) (Am. L. Inst. 2021); see also Levin, supra note 12.

  162. See, e.g., Schroeder, supra note 7, at 44–45; Levin, supra note 12.

  163. Steven L. Harris et. al, The ALI/ULC Project on Emerging Technologies and the UCC: Proposed 2022 Amendments to the UCC (Sept. 9, 2021) (on file with the Houston Law Review).

  164. While one cannot hold a piece of virtual currency in their hand, they can have control over the keys that authorize the use of the assets. Id. at 15; see also Unif. L. Comm’n, supra note 18, at 73–74.

  165. See Archer v. Coinbase, Inc., 267 Cal. Rptr. 3d 510, 516 (Ct. App. 2020); Alexander Behrens, “Not Your Keys; Not Your Coins” Enshrined in US Case Law, Says Lawyer, Decrypt (Aug. 23, 2020), https://decrypt.co/39574/not-your-keys-not-your-coins-enshrined-in-us-case-law-says-lawyer [https://perma.cc/MWD3-7WSJ].

  166. In other words, the pinnacle evidence of virtual currency ownership is control of the keys that access the wallet they are held in; relinquishment of one’s keys gives up one’s rights in the digital assets contained within. Archer, 267 Cal. Rptr. 3d at 513, 516; Behrens, supra note 165.

  167. A borrower needs to ensure their ability to use and not lose their rights in their collateralized assets outside of default. See generally Martin, Part II, supra note 62. This could be accomplished with the borrower retaining possession in some form while relinquishing control in another. See generally Unif. L. Comm’n, supra note 18, at 114.

  168. See Unif. L. Comm’n, supra note 18, at 114.

  169. See id. at 73–74; see also Archer, 267 Cal. Rptr. 3d at 513, 516; Ox Labs, Inc. v. Bitpay, Inc., No. CV 18-5934-MWF, 2020 WL 1039012, at *7 (C.D. Cal. Jan. 24, 2020).

  170. See Unif. L. Comm’n, supra note 18, at 3–4, 11–13, 136–38.

  171. Id. at 119–20.

  172. Id.

  173. Id. at 118–20.

  174. Id. at 11–13.

  175. See id. at 136–38.

  176. See id. at 11–13.

  177. See id. at 3–4, 11–13, 108, 136–38.

  178. See Martin, Part I, supra note 88.

  179. See supra note 149 and accompanying text.

  180. Corporations playing their hand with these regulations has resulted in significant penalties, such as the SEC imposing $100 million in fines on BlockFi Lending LLC for allowing margin borrowing against virtual currency deposit accounts in violation of several provisions of the Securities Act and Investment Company Act. Robert Kim, BlockFi Order Sets SEC’s Regulation of Crypto Lending, Bloomberg L. (Mar. 1, 2022, 4:00 AM), https://news.bloomberglaw.com/bloomberg-law-analysis/analysis-blockfi-order-sets-secs-regulation-of-crypto-lending [https://perma.cc/V6XF-MKMM].

  181. See de Best, supra note 3.

  182. See Fabian Woebbeking, Cryptocurrency Volatility Markets, 3 Digit. Fin. 273, 273, 275 (2021), https://www.ncbi.nlm.nih.gov/pmc/articles/PMC8326316/ [https://perma.cc/3XEB-39M6].

  183. See Martin, Part I, supra note 88; Unif. L. Comm’n, supra note 18, at 15, 73–74.

  184. The 2022 UCC amendments added a definition of “electronic” defined by the digital characteristics of virtual assets. Unif. L. Comm’n, supra note 18, at 7–8. However, these changes also excluded privately created virtual currencies like Bitcoin from such provisions. Id.

  185. See supra notes 163–64 and accompanying text.