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The world of cryptocurrencies is constantly evolving and, with it, legal issues are constantly being updated. Did you know that it's possible to pledge bitcoin? Well, it's not something that's talked about, but it's been increasingly discussed in the courts and is already a reality in the Brazilian judicial system. If you have any doubts about how this works, don't worry: I'm going to explain everything in detail and in a very practical way!

Let's find out together how it is possible for an asset as innovative and virtual as bitcoin to be seized, and what the role of the courts is in this. You'll see that, even though it's something out of the ordinary, there are many things that are very familiar to other types of seizure.

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What is attachment anyway?

To understand how to seize bitcoin, it's important to first understand what seizure itself is. Attachment is when the courts decide to withhold assets from a person (or company) to guarantee payment of a debt. Do you know when the judge orders that someone's car or property be withheld to pay off debts? That's what we call attachment. And it's this same concept that applies to bitcoin, even if it seems a little different at first glance.

Now think about it: if the seizure of a car or a house is something tangible that can be easily found and valued, what about a digital currency? How can an asset that isn't physical and isn't in a safe or garage be held by the courts? Well, let's break it down.

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Bitcoin: how does the seizure of a digital asset work?

Here's the challenge: bitcoin is a cryptocurrency, i.e. a digital currency that isn't tied to a central bank or a specific country. This means that, unlike physical assets such as the car or house we mentioned earlier, there is no specific place where bitcoin is stored. It is registered on a blockchain - a type of public ledger, which is decentralized and difficult to manipulate.

So how can the judge order the seizure of bitcoins? The way usually involves notifying cryptocurrency brokers - the so-called exchanges - where these assets are usually stored. Exchanges act as a kind of bank for cryptocurrencies and can therefore be called upon to comply with a court order. If the debtor has a bitcoin balance on the platform, this balance is blocked and directed to guarantee payment of the debt.

If you're wondering: "But what if the debtor doesn't have their bitcoins on an exchange, but in a private wallet?", that's a good question! In this case, the situation gets a lot more complicated. Private wallets have keys that only the owner knows, and without this key no one has access to the funds. This is where legal pressure comes in: the debtor can be forced to hand over their cryptocurrencies under penalty of other sanctions.

What is the procedure like in practice?

Let's imagine a scenario to make things clearer. Suppose John owes Mary a considerable amount of money, and Mary decides to go to court to collect the debt. If the judge finds out that John owns bitcoins, he can order the seizure of these assets to pay off part or all of the debt.

First, the judge needs to locate where John's bitcoins are. In most cases, the court sends a letter to the main exchanges requesting information about João's assets. If he has bitcoins on any of them, they can be blocked and used for payment.

What if João doesn't want to cooperate? Well, then things get complicated for him. Like any other attachment, the debtor's non-cooperation can lead to severe consequences, such as fines or even imprisonment in some extreme cases. The idea is that the debtor, when pressured by the courts, hands over his assets voluntarily, as the penalty could be worse.

Is bitcoin pledging safe?

Another question that might be on your mind: is it safe for the creditor to receive payment in bitcoin? After all, we're talking about an asset that is known for its high volatility - its value can go up or down very quickly. This is definitely a point of attention.

Often, however, pawned bitcoin can be converted immediately into fiat currency - such as reais or dollars - to avoid risks. This way, instead of being subject to the fluctuations of the crypto market, the creditor receives a more stable amount. This is decided on a case-by-case basis, but it is a common strategy to avoid unexpected losses.

What does the future hold?

The attachment of bitcoins is a reflection of how the legal world is trying to adapt to the new digital reality. Cryptocurrencies are already part of many people's daily lives and, like any other asset, they can be used to guarantee payment of debts. Despite the challenges, the Brazilian legal system has been looking for ways to make this viable and fair for all parties involved.

But, of course, there are still many questions without definitive answers. How do you ensure that all of a debtor's bitcoin is located? How do you deal with private wallets and keys that only the owner knows about? And, perhaps most intriguingly: how do we ensure that new technologies don't make this process even more difficult? These are questions that the courts will have to answer over the next few years.

See also: The new rules of the Federal Revenue Service in Brazil on the declaration of cryptocurrencies

December 7th, 2024