New Zealand-based cryptocurrency exchange Cryptopia, which suffered a $16 million hack in January of 2019. This hack crippled the exchange and forced it into liquidation that May, leaving the customers of the exchange in the dark, and without their funds.
The liquidation process saw the funds of affected users tied up in the lengthy process that had the liquidators pouring over transaction histories and detailed wallet reports to make a decision on what to do with the funds accumulated from liquidation.
However, it has now been reported that the funds locked up in the liquidation process are in fact due to the account holders of Cryptopia after the liquidators went to the High Court in Christchurch in March asking for guidance.
Justice David Gendall found in favour for the account holders, saying Cryptopia held the digital assets on trust by way of a separate trust for each cryptocurrency.
Returned to the people
This judgment will be well met by the cryptocurrency community as it further legitimizes the coins, including a myriad of altcoins which are still circumspect in their designation generally. The court’s decision was predicated on the fact that all cryptocurrencies on Cryptopia were held in special trusts (each trust deemed to be a different crypto) created for the holders’ benefit and those account holders are the co-beneficiaries of those trusts.
In this instance, the funds do not belong to Cryptopia as the company acted only as a trustee in the case.
“Cryptopia essentially fulfilled the role of a bare trustee in relation to the account holders. Cryptopia’s trust duties, therefore, were somewhat confined. Its principal role was to hold each group of digital assets as trustee for the account holders, to follow their instructions, and to let individual account holders then increase or reduce their beneficial interest in the relevant trusts in accordance with the system Cryptopia had created for that purpose,” the judgment expressed.
At the time of the hack, the exchange was holding cryptocurrencies worth about $101 million and had 800,000 account holders with positive coin balances. Creditors were owed about $7 million, including Inland Revenue claiming about $3 million. A decision for the account holders meant creditors would get about half of what they were owed.