The commitment of cryptocurrency has emerged as a significant legal concern, particularly with the rise in utilizing digital assets for investment purposes.
Cryptocurrencies, being valuable assets, can be used as collateral in legal proceedings, but the lack of regulation in Brazil poses unique challenges due to their decentralized nature.
This article will discuss the functioning of cryptocurrencies, their unique aspects in legal proceedings, and provide useful advice for lawyers handling cryptocurrency-related cases.
How does the system of goods pity function according to Article 835 of the Civil Procedure Code?
What do cryptocurrencies refer to?
Cryptocurrencies are virtual assets built on blockchain technology, offering transaction security and transparency without the involvement of conventional financial organizations.
Common examples include Bitcoin, Ethereum, and other alternative cryptocurrencies.
Cryptocurrencies are not centrally registered like mobile or real estate assets; instead, they are stored in digital wallets that require private keys for access.
This characteristic creates difficulty in its placement and legal confiscation.
A vehicle can be used as collateral on behalf of others when possession is transferred.
Can cryptocurrencies be converted back?
The cryptocurrency pawn process is akin to traditional pawning but has unique features because of blockchain technology.
Observe its functioning.
- The initial stage involves identifying the debtor’s cryptocurrencies by obtaining information on registered accounts and balances through a court order for exchanges.
- The judge has the authority to block cryptocurrency on exchanges after identification, thereby preventing the debtor from transferring the funds.
- Cryptocurrencies are sometimes converted into currency to make it easier to carry out credit transactions, taking market fluctuations into account.
- The pledge is executed by transferring the acquired values to the judicial account or directly to the creditor, as decided by the judge.
Legal foundation: Although there is no specific regulation in Brazil, Article 835 of the Civil Procedure Code states that, in general, all debtor assets, including cryptocurrencies, can be used as collateral.
The order for the pawn will be given priority as follows according to Article 835 of the Civil Procedure Code.
I can receive payment in cash, goods, or deposited in a financial institution.
Bonds from the national debt of the Union, States, and the Federal District with market value.
III – stocks and securities with quoted market prices;
Terrestrial vehicles – IV
V – possessions;
VI – general mobile merchandise.
VII – without moving.
Ships and airplanes;
Shares in simple and business companies.
X represents the portion of company revenue that is in debt.
XI – valuable gems and metals;
Purchasing rights from a promise of purchase and sale and fiduciary alienation in guarantee.
XIII – additional rights.
What is the duration of digital currencies?
The cryptocurrency guarantee mostly aligns with the Civil Procedure Code (CPC) but is also influenced by judicial interpretations.
The borrower has 5 business days, as specified in Article 854, §3 of the CPC, to raise objections or dispute any irregularities concerning the assets, with the same principle possibly applicable to cryptocurrencies due to their financial nature.
Compliance can differ, particularly with international or unregulated exchanges in Brazil, making it challenging to promptly fulfill court orders due to operational or legal obstacles.
The CPC legal foundations offer general guidelines for enforcing the pawning of assets, despite the lack of uniformity in the process.
Challenges in cryptocurrencies include obstacles and difficulties that arise in their use.
- Digital wallets, unlike bank accounts, do not have a central registry, which makes it challenging to track assets.
- Many debtors opt to utilize external wallets that are not within the purview of regulated exchanges for privacy reasons.
- Cryptocurrency prices are unstable, which can make it difficult to assess their value accurately in pawn transactions.
- Blockchain technology ensures a certain level of anonymity, making it challenging to identify the owner of the asset.
- Lack of precise regulation remains a challenge despite progress made with PL 4.401/2021 in Brazil, which aims to regulate cryptocurrencies.
CPC’s Comprehensive Guide for Enrolling in Benefits
Practical advice for lawyers on handling cryptocurrency transactions.
Practical advice for lawyers on managing cryptocurrencies.
Include particular provisions in contracts.
Advise your clients to include specific clauses in contracts that anticipate the use of cryptocurrencies in the event of a breach of contract.
This makes legal arguments easier and shows the parties’ past intentions.
Identify exchanges that are subject to regulation.
Ask the judge to contact Brazilian exchanges like Binance, Bitcoin Market, or others registered with the Central Bank to confirm the presence of cryptocurrency.
Utilize tracking mechanisms
Consider utilizing specialized blockchain tracking tools to find cryptocurrencies outside of regulated exchanges.
These solutions assist in tracking transactions and pinpointing portfolios associated with the borrower.
Ask for the transfer to a legal account.
Ask the judge to transfer the frozen funds to an online portfolio managed by the Judiciary Branch to safeguard the assets’ integrity throughout the procedure.
Evaluate if something is financially feasible
Assess if the estimated value of the cryptocurrency justifies the costs and time involved before initiating the pawn process.
Monitor regulations consistently.
The cryptocurrency market is always changing. It is important to stay updated on legal and judicial developments that may affect digital currencies.
Out-of-court agreements
The potential for a delay in cryptocurrency transactions can motivate debtors to negotiate an agreement instead of going through the costly and complex legal process.
The significance of having expertise in cryptocurrency technology
The commitment to cryptocurrency is a legal innovation that demands lawyers to be technically and strategically prepared.
Growing regulation of cryptoassets and the utilization of advanced technology are enhancing the viability and efficiency of the process, despite the obstacles.
Staying informed about new laws and industry standards is crucial for effectively navigating this area, guaranteeing protection of creditors’ rights and efficient debt collection.
Check out another blog post: Understanding the Protection of Family Assets [Law no 8.009/90].
