28 SEPTEMBER / OCTOBER 2022 Does Indiana Law Recognize Cryptocurrency? Brett J. Ashton Partner Krieg DeVault LLP bashton@kdlegal.com Krieg DeVault LLP is a Diamond Associate Member of the Indiana Bankers Association. COMPLIANCE CONNECTION Question: A commercial customer recently asked if she could use bitcoin as collateral for a loan. Does Indiana law provide for any kind of security interest in cryptocurrencies? Are Indiana banks permitted to lend using bitcoin as collateral? Answer: Indiana law with respect to cryptocurrencies, including bitcoin, is in its infancy. A new law1 that became effective July 1 of this year, however, created a basic framework for establishing a security interest in a controllable electronic record (CER) that may be used to establish an interest in cryptocurrencies in the future, but unfortunately not today. Indiana Senate Enrolled Act 351, enacted by the 2022 General Assembly, amended the secured transactions section of the Indiana Uniform Commercial Code2 to create state law definitions of a “controllable account,” “controllable electronic record” and “controllable payment intangible,” and added a new chapter to the IUCC titled Controllable Electronic Records.3 While these recent amendments to the IUCC are technical, they provide a mechanism for you to establish a secured interest in a variety of electronic records aside from bitcoin itself, including evidence of right to payment or performance of services by a third party. The IUCC defines a CER as a record stored in an electronic medium that can be subjected to control under the Controllable Electronic Records chapter4 but does not include, among other entities, electronic money. This does not exclude cryptocurrencies such as bitcoin, however, because the IUCC defines “money” to mean “a medium of exchange authorized or adopted by a domestic or foreign government [emphasis added] and includes a monetary unit of account established by an intergovernmental organization or by agreement between two (2) or more nations.”5 This information is provided for general education purposes and is not MRXIRHIH XS FI PIKEP EHZMGI 4PIEWI GSRWYPX PIKEP GSYRWIP JSV WTIGMƤG guidance as to how this information applies to your institution’s circumstances or situation. 1 P.L. 110-2022. (Senate Enrolled Act 351) 2 I.C. § 26-1 3 I.C. § 26-11 4 I.C. § 26-1-11 5 I.C. § 26-1-1-201(24) Unfortunately, this definition does not explicitly include cryptocurrencies such as bitcoin, meaning that while a bank can now perfect its security interest in a CER under the IUCC by filing a financing statement, the effectiveness of applying this section of the code to establish a secured interest in cryptocurrency itself is uncertain. An electronic record, however, containing cryptographic keys to cryptocurrency would fall squarely within the scope of a CER. These recent amendments to the IUCC were prompted by updates to the model Uniform Commercial Code from the Uniform Law Commission. The ULC has proposed further amendments to the model UCC that specifically address the issue of secured interests in cryptocurrencies that may be considered in future sessions of the Indiana General Assembly. Until that time, though – or unless the Indiana attorney general exercises its existing rulemaking authority to adopt regulations adding bitcoin to the scope of a CER – any loan made using cryptocurrency as collateral runs the risk of being considered unsecured. Regardless of the ability to adequately establish a security interest in a loan using bitcoin as collateral, as is true for all credits, you should carefully examine the borrower’s ability to repay regardless of the value of the underlying security. Note that state-chartered banks interested in providing custodial services for a CER should check with the Indiana Department of Financial Institutions before offering these services. HB
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