Over the past decade, Bitcoin has persistently occupied an extreme position on the investment performance spectrum.  It is the best-performing asset in 2015, 2016, 2017, 2019, 2020, 2021, and 2023, but in the intervening years, the worst-performing asset.13 Reasons Advisors Should Consider Bitcoin, VanEck (Feb. 7, 2024), https://www.vaneck.com/us/en/blogs/digital-assets/3-reasons-advisors-should-consider-bitcoin.X1  This stark fluctuation underscores Bitcoin’s volatility and attracts millions of investments into this gold mine.  Yet this represents merely the tip of the iceberg within the burgeoning cryptocurrency ecosystem.  Coin Market Cap Research has recently reported a nominal total crypto market capitalisation of US$2.3 trillion, with crypto tokens trading at a volume of US$79.4 billion every 24 hours.2CMC Research, According to CMC 2024 H1, CoinMarketCap (July 3, 2024), https://coinmarketcap.com/academy/article/according-to-cmc-2024-h1.X2

Despite the efforts that states and regional organisations put in addressing the multifaceted implications of the distributed ledger technology (“DLT”) and cryptocurrencies, the general regulatory landscape remains lagging, fragmented and devoid of a cohesive international consensus.3Rosa Maria Lastra & Jason Grant Allen, Virtual Currencies in the Eurosystem: Challenges Ahead, 52 Int’l L. 177, 192-93 (2018).X3  Against this background, however, the ‘crypto fear and greed’ never rests a moment from propelling investors to excavate potential profits from the grey areas.  As states gradually catch on to the digital market, conflicts between sovereign states and foreign investors become not only foreseeable but, in some instances, inevitable.  When it lances the boil, how may the investors defend their legitimate interests gained in crypto investments?

One of the answers is for the investors to resort to international investment law (“IIL”). This approach is not novel in literature, but it is yet to be practiced.4See, e.g., Evgeniya Rubinina, Are Cryptocurrency Assets a Protected Investment Under Investment Treaties?, 89 Arb.: Int’l J. of Arb., Mediation & Disp. Mgmt. 3 (2023); Julien Chaisse & Cristen Bauer, Cybersecurity and the Protection of Digital Assets: Assessing the Role of International Investment Law and Arbitration, 21 Vand. J. Ent. & Tech. L. 549 (2019); Rodrigo Polanco, The Impact of Digitalization on International Investment Law: Are Investment Treaties Analogue or Digital?, 24 Ger. L.J. 574 (2023).X4  Surprised by their broad brushes, this article serves a detailed examination of the potential of IIL to address those disputes concerning investments in crypto tokens.  It starts with a nuanced explanation as a welcome to the crypto world in Section II, followed by an articulation of the jurisdictional hurdle for assets to be protected as investments in Section III. With those in mind, it marches on in Section IV to test the crypto investments made in the initial coin offerings (“ICOs”) against the jurisdictional hurdle, exploring whether they satisfy the legal and economical criterion.  In brief, despite several uncertainties, a crypto token purchased from an ICO can materialise into a protected investment.  In Section V, the “Unity of Investment” approach is considered to extend the protection of IIL to Bitcoins and Bitcoin mines.  In Section VI, this article concludes with implications of the rise of the digital economy to IIL.

The story starts with a pseudonym Satoshi Nakamoto.1The true identity of this pseudonym has been disputed. In March 2024, Justice Mellor of the English High Court held that Craig Wright was not Satoshi Nakamoto as there was no reliable evidence but documents forged by Wright on a grand scale.  See Crypto Open Patent Alliance v Wright [2024] EWHC 1198 (Ch), [2024] 5 WLUK 281.X1  In August 2008, in perception of the costs of ascertaining payments in online commerce, Nakamoto proposed the idea of using blockchain to create “a purely peer-to-peer version of electronic cash.”2Satoshi Nakamoto, Bitcoin: A Peer-to-Peer Electronic Cash System, Bitcoin (Oct. 2008), https://bitcoin.org/bitcoin.pdf.  Before Nakamoto, the concept of a decentralised electronic cash system had been raised and discussed by many scholars.  Most of the attempts, however, failed to properly balance the decentralisation and the control over illegal activities such as double spending.  See, e.g., David Chaum, Blind Signatures for Untraceable Payments, inAdvances in Cryptology: Proceedings of Crypto 82, at 199 (David Chaum et al. eds., 1983); Hua Wang et al., An Electronic Cash Scheme and its Management, 12 Concurrent Eng’g 247 (2004).X2  Five months later, this vision materialised with the launch of the first cryptocurrency, Bitcoin.

Traditionally, online payments are verified based on digital signatures by a financial institution.  Nakamoto envisioned a revolution using an electronic coin to represent a chain of digital signatures, where “each owner transfers the coin to the next by digitally signing a hash of the previous transaction and the public key of the next owner and adding these to the end of the coin.”3Nakamoto, supra note 6, at 2.X3  In this way the ledgers are distributed among the owners and are verifiable by everyone, thus rendering a central financial institution superfluous.  Vitalik Buterin, one of the co-founders of Ethereum, later expounded on this feature as constituting a “state transition system, where there is a ‘state’ consisting of the ownership status of all existing Bitcoins and a ‘state transition function’ that takes a state and a transaction and outputs a new state which is the result.”4Vitalik Buterin, Ethereum Whitepaper, Ethereum (Mar. 14, 2024), https://ethereum.org/en/whitepaper/#ethereum-.X4

In practice, the transactions would be broadcasted to all participants (the nodes) in the network.  Each node would collect and package those transactions into a block that contains a timestamp, a nonce, a reference to the previous block, and a list of all the transactions that have taken place since the previous block.5Id.X5  But as a rule of consensus, only the node that finds the “proof-of-work” may broadcast the block it created to the network.6Id.  See also Nakamoto, supra note 6, at 3.X6  This proof-of-work mechanism necessitates solving a dynamically adjusting math problem.  It ensures that creating and adding new blocks are “computationally hard,” thereby defending the network.7Buterin, supra note 8.  The security of the network relies on the proof-of-work competition, which transforms the collateral computational power of the network into a firewall against individual sybil attacks.  To understand this, a rule of blockchain shall be firstly observed:  “Nodes always consider the longest chain to be the correct one and will keep working on extending it.” Nakamoto, supra note 6, at 3. To hack a blockchain, a sybil attacker may create a block, parallel to the authentic one, where transactions are arranged in an order to his benefit (usually allowing him to spend the money twice), and chain it to the parent block, thereby creating a “fork” of the blockchain.  But for his limb to be recognised as the truth—so that his unwanted transactions could be overwritten—he must prolong it faster than everyone else combined in the network.  From here the proof-of-work mechanism effectively shifts itself into a race of computational power —as long as the sybil attacker possesses less than 51% of the computational power he would lose to the legitimate miners working for the authentic chain.  See Angela Walch, Deconstructing “Decentralization”: Exploring the Core Claim of Crypto Systems, in Cryptoassets: Legal, Regulatory, and Monetary Perspectives 57 (Chris Brummer ed., 2019).  This proof-of-work mechanism, nonetheless, is not bulletproof—rather, its vulnerability is inherent in its algorithm.  Over the years, the evolution of blockchain networks has led to the establishment of substantial mining pools, gradually amassing significant portions of the computational power required to maintain and secure these networks.  See Lin William Cong et al., Decentralized Mining in Centralized Pools, 34 Rev.  Fin. Stud. 1191 (2021).  The concentration of computational power within a few large mining pools raises serious concerns about the possibility of a “51% attack.”  Such an attack occurs when a single entity or a coalition of miners gains control over more than half of the network’s total computational power, thereby acquiring the ability to manipulate the creation and adding of blocks in the network.  One prominent example of this occurred in January 2019, when the distributed ledger for Ethereum Classic was compromised.  Attackers successfully rewrote the blockchain and the double-spending thereby created led to a loss exceeding US$1 million.  See Russell Brandom, Why the Ethereum Classic Hack Is a Bad Omen for the Blockchain, The Verge (Jan. 9, 2019), https://www.theverge.com/2019/1/9/18174407/ethereum-classic-hack-51-percentattack-double-spend-crypto.X7  Once validified and accepted by the network, the new block would be appended to the previous one and henceforth represents the latest state of the ledger for ten minutes until “chained after” by a newer block.8Nakamoto, supra note 6, at 3.X8

This process of block creation and validation is called mining.  This nomenclature captures the feature that the creator of the new block would be remunerated with new coins.9Id. at 4.X9  This mechanism is crucial for Bitcoins to be circulated without a centralised controller or issuer:  not only does it incentivise the nodes to compete in validating the transactions and thereby ensures the functioning of a system without a centralised controller, it also constitutes the sole tunnel for new Bitcoins to enter into circulation in such a system without a centralised issuer.  In Nakamoto’s words, “[t]he steady addition of a constant of amount of new coins is analogous to gold miners expending resources to add gold to circulation.”10Id.X10  Many therefore invest in building mining pools.  And given the tremendous amount of computational power required, they tend to pick the states with low prices for electricity.11Fatih UlaÅŸan, The Environmental Effects of Cryptocurrency Mining in the World, 3 J. Sustainable Econ. & Mgmt. Stud. 1, 9 (2022).X11  In recent years, those mines have gradually attracted notice of the host states for the environmental concerns they post and could be the first batch to lift the peaceful masquerade between the host state and the crypto investors.12Id. at 12.X12

This mining mechanism predetermined that a Bitcoin possesses no intrinsic value or physical backing, making it particularly vulnerable to inflationary pressures.  To mitigate this vulnerability, Nakamoto embedded into the source code a hard cap on the total supply of Bitcoins, limiting it to no more than 21 million.13Can Bitcoin's Hard Cap of 21 Million Be Changed?, River Fin. Inc.: River Learn, https://river.com/learn/can-bitcoins-hard-cap-of-21-million-be-changed(last accessed July 31, 2024).  See also Nakamoto, supra note 6, at 4 (“Once a predetermined number of coins have entered circulation, the incentive can transition entirely to transaction fees and be completely inflation free.”).X13  This hard cap is enforced through the process of halving, which refers to a periodic reduction in the remuneration for mining new blocks and would last until the last Bitcoin is issued, estimated in 2140.14See UlaÅŸan, supra note 15.X14

Yet not all cryptocurrencies are, like Bitcoin, circulated without a centralised issuer.  Rather, many crypto tokens are issued via an ICO. This idea stems from the potential of the blockchain community to raise funds for some early-stage initiatives or the development of new technologies.  In practice, ICOs can serve myriad underlying objectives, with the distributed coins or tokens conferring various rights or entitlements, including the ability to vote, proprietary rights over digital assets, and membership rights that may include dividends and/or the right to exchange the coin for goods or services.15Dirk A. Zetzsche et al., The ICO Gold Rush: It’s a Scam, It’s a Bubble, It’s a Super Challenge for Regulators, 60 Harv. Int’l L.J. 267, 288–93 (2019). See also Jason Allen, What’s Offered in an ICO? Digital Coins as Things’ (2018) (manuscript), https://ssrn.com/abstract=3140499.X15  Compounding regulatory concerns arise from such diversity, exacerbated by the fact that ICO issuers frequently leave the nature and rights associated with their tokens undefined in the whitepapers.

Yet disproportionately, ICOs are subject to very limited legislative control and supervision, leading to the widespread impression among issuers that blockchain-based fundraising activities lie beyond the jurisdiction of national laws and courts.16Zetzsche et al., supra note 19, at 283-84.X16  Indeed nearly all pre-2018 ICOs have exploited some legislative loopholes or operated in some legal grey areas.17Id.X17  Part of the reason for this is that before 2018, most regulators had adopted a “watch and wait” strategy in order not to stifle those profitable innovations as the market developed.18Lastra & Allen, supra note 3, at 8.X18  This strategy made sense in the growing phase of this cross-border phenomenon.  In recent years, however, as the market is fully matured and starting to cause some chaotic and economically or environmentally destructive problems, many states have stepped in to regulate, imposing, inter alia, duties of registration and disclosure on the ICO issuers.19See, e.g., Virtual Financial Assets Act 2018 (Malta) (Malta established a regulatory framework applicable to ICOs and exchanges of digital assets); Regulation (EU) 2023/1114 of the European Parliament and of the Council of 31 May 2023 on Markets in Crypto-Assets, and Amending Regulations (EU) No 1093/2010 and (EU) No 1095/2010 and Directives 2013/36/EU and (EU) 2019/1937, 2023 O.J. (L 150) 40 (In the European Union, the Markets in Crypto-assets Regulation (MiCA) imposes requirements for organisations engaged in the issuance and trading of crypto assets. The regime places a particular focus on asset-backed and e-money tokens and imposes licensing, incorporation and whitepaper publication obligations on certain crypto asset issuers.); cf People’s Bank of China, Public Notice of the PBC, CAC, MIIT, SAIC, CBRC, CSRC and CIRC on Preventing Risks of Fundraising through Coin Offering (Sept. 8, 2017) (banning fundraising through coin offerings and directed any individuals or organisations who had completed ICOs to arrange the return of the funds raised out of concern over the economic and financial order); Up, et al., Securities Act Release No. 11179, Exchange Act Release No. 97401 (2023)(implementing a cease-and-desist order by the U.S. Securities and Exchange Commission (SEC) of Up, Global SEZC, and Coinme Inc. for conducting unregistered offers and sales of securities in the form of “UpToken” and for making false disclosure regarding the amount raised in the offering); FINMA, Guidelines for Enquiries Regarding the Regulatory Framework for Initial Coin Offerings (ICOs) (Feb. 16, 2018) (clarifying that Swiss Financial Market Supervisory Authority (FINMA) regulations are based on the underlying economic purpose of an ICO and is prepared with impose securities law on the asset tokens).X19  But the legal vacuum remains on the international plane, as questions of how to ascertain the applicable governing law and jurisdiction for disputes over the cross-border transactions of these new financial instruments still beg answers.20See David G. Post, How the Internet is Making Jurisdiction Sexy (Again), 25 Int’l J. L. & Info. Tech. 248 (2017).X20

Before we dive into the detailed examination of the crypto investments, we must firstly set out the threshold for one asset to fall within the ambit of protected investments in the system of investment treaty arbitration.  This is important as it forms part of the quid pro quo between a foreign investor and the host state:  for the investor to acquire rights and protection under the investment treaty, he must have committed an investment to the host state as envisioned by the latter.1Zachary Douglas, The International Law of Investment Claims 162 (2009).X1

The concept of “investment,” however, has been defined by ambivalence.  This stems partly from the lack of international consensus, as reflected in the drafting history of the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (“ICSID Convention”).  Article 25 of the ICSID Convention demands the existence of an investment as the bedrock for the Centre to assert jurisdiction but left blank as to the definition of the term “investment.”2International Centre for Settlement of Investment Disputes (ICSID), Report of the Executive Directors on the Convention on the Settlement of Investment Disputes between States and Nationals of Other States 27 (1968) (“No attempt was made to define the term ‘investment’ given the essential requirement of consent by the parties, and the mechanism through which Contracting States can make known in advance, if they so desire, the classes of disputes which they would or would not consider submitting to the Centre (Article 25(4)).”).X2  As Prof. Schreuer noted, this is

the product of a compromise between the interests of capital-exporting countries, who favoured a broad jurisdictional grant that was limited only by the disputing parties’ consent, and capital-importing countries who favoured a much stricter limitation of the types of disputes that the Centre could take up.  The compromise ultimately cast into the text of the Convention consisted of, on the one hand, limiting ICSID’s jurisdiction to “investment” disputes, without defining that notion, and, on the other, providing for several mechanisms for States to tailor the Centre’s jurisdictional reach over disputes involving them, including in particular the scope of consent given and notifications under Art. 25(4).3Stephan W. Schill et al., Article 25, in Schreuer’s Commentary on the ICSID Convention 163 (Stephan W. Schill et al. eds., 3d ed. 2022).X3

Nonetheless, the most commonly used “mechanism,” investment treaties, do not help much in clarifying the mist.  In the majority of bilateral investment treaties (BITs) one finds no specific criteria for the ambit of “investment,” instead relying on an asset-based definition which “embraces everything of economic value, virtually without limitation.”4U.N. Trade & Dev., Scope & Definition: A Sequel, Series on Issues on International Investment Agreements II, at 24, U.N. Doc. UNCTAD/DIA/IA/2010/2, U.N. Sales No. 11.II.D.9 (2011).  See also Dmitry Pentsov, The Concept of “Investment” at the Dawn of Digital Era, 51 Ga. J. Int’l & Compar. L. 155, 158 (2022).X4  The UK Model BIT serves a typical example, which provides

Article I Definitions

For the purposes of this Agreement:

(a) “investment” means every kind of asset, owned or controlled directly or indirectly, and in particular, though not exclusively, includes:

(i) movable and immovable property and any other property rights such as mortgages, liens or pledges;

(ii) shares in and stock and debentures of a company and any other form of participation in a company;

(iii) claims to money or to any performance under contract having a financial value;

(iv) intellectual property rights, goodwill, technical processes and know-how;

(v) business concessions conferred by law or under contract, including concessions to search for, cultivate, extract or exploit natural resources.

A change in the form in which assets are invested does not affect their character as investments and the term “investment” includes all investments, whether made before or after the date of entry into force of this Agreement . . . .5UK Model Bilateral Investment Treaty, art. 1(a) (2008).X5

This definition ascertains the proprietary nature of investments but provides less help with distinguishing “investments” from “non-investments”.  Indeed, even the ordinary meaning of “investment” would intuitively circumscribe this legal definition.  Professor Douglas illustrates it vividly:  “The right to performance embodied in a metro ticket cannot qualify as an investment [despite its being an asset with economic value].”6Douglas, supra note 25, at 164.X6

In comparison, the US Model BIT proffers some more clarity.  In addition to an illustrative list, an investment shall have “such characteristics as the commitment of capital or other resources, the expectation of gain or profit, or the assumption of risk.”7U.S. Model Bilateral Investment Treaty, art. 1 (2012).X7  The problems remain, however, as to whether those characteristics form a cumulative threshold and how they could be ascertained.  The burden hence falls upon the shoulders of tribunals to ascertain the meaning of “investment” in the specific treaty on a case-by-case basis.

In this respect, many tribunals hold the view that an asset must pass a double-barrel test to become a protected investment:  on the one hand, it must fit into the definition of investment provided by the relevant BIT as it reflects the ambit of consent proffered by the state; on the other hand, it must simultaneously accord with the inherent meaning of investment under the ICSID Convention, which circumscribes the jurisdiction of the Centre.8See generally Campbell McLachlan et al., International Investment Arbitration: Substantive Principles 217-64 (2d ed. 2017).X8  And this inherent meaning should be an objective one independent of the state contracting parties’ dispositions in their investment treaties.9See Schill et al., supra note 27, at 179.  See also Joy Mining Mach. Ltd. v. Arab Republic of Egypt, ICSID Case No. ARB/03/11, Award on Jurisdiction, ¶ 50 (Aug. 6, 2004); Glob. Trading Res. Corp. & Globex Int’l, Inc. v. Ukraine, ICSID Case No. ARB/09/11, Award, ¶ 43 (Dec. 1, 2010).  Cf ATA Constr., Indus. & Trading Co. v. Hashemite Kingdom of Jordan, ICSID Case No. ARB/08/2, Award, ¶¶ 111-14 (May 18, 2010).X9

In ascertaining the inherent meaning of investment under the ICSID Convention, the tribunal in Salini Construttori v. Morocco distilled the following four mandatory characteristics:  (a) a contribution of resources, (b) a certain duration, (c) an assumption of risk, and (d) a contribution to the economic development of the host state.10See Salini Construtorri S.p.A & Italstrade S.p.A v. Kingdom of Morocco, ICSID Case No. ARB/00/4, Decision on Jurisdiction, ¶¶ 50-58 (July 23, 2001).X10  This Salini test has been widely touted for pioneering in the excavation for an objective approach, but subsequent tribunals have often not fully adopted its formulation of the characteristics.  For example, the tribunal in L.E.S.I. v. Algeria dispensed with characteristic (d), holding that it becomes redundant when the first three are present.11Consortium Groupement L.E.S.I.-DIPENTA v. People’s Democratic Republic of Alg., ICSID Case No. ARB/03/8, Award, ¶ 13(iv) (Jan. 10, 2005).X11  The tribunal in Romak v. Uzbekistan, though not an ICSID tribunal, equally trimmed the Salini test to the first three characteristics and developed further, more stringent requirements for each.12See Romak S.A. v. Republic of Uzbekistan, PCA Case No. AA280, Award, ¶¶ 198-208 (Nov. 26, 2009). See also Christian Doutremepuich & Antoine Doutremepuich v. Republic of Mauritius, PCA Case No. 2018-37, Award on Jurisdiction, ¶¶ 117-120 (Aug. 23, 2019).X12

Moreover, the ad hoc Committee in the case of Malaysian Historical Salvors v. Malaysia has argued that the Salinicriteria are not mandatory requirements for what constitutes a “protected investment.”13Malaysian Historical Salvors SDN, BHD v. Gov’t of Malaysia, ICSID Case No. ARB/05/10, Decision on the Application for Annulment, ¶¶ 77-79 (Apr. 16, 2009).X13  It emphasised that the drafters of the ICSID Convention did not differentiate among investments and cherry-pick the ones with certain credentials; rather, the drafters used the term “investment” to “exclude[] a simple sale and like transient commercial transactions from the jurisdiction of the Centre.”14Id. ¶ 69.X14  The ad hoc Committee then annulled the award on the ground that the sole arbitrator applied the Salini test as jurisdictional requirements, thereby manifestly exceeded its power.15Id. ¶ 80.X15

That said, the common understanding that “investment” has an inherent meaning which comprises at least “a contribution by the investor, a certain duration, and economic risk” has persuaded most tribunals.16See, e.g., Raymond Charles Eyre & Montrose Dev. Ltd. v. Democratic Socialist Republic of Sri Lanka, ICSID Case No. ARB/16/25, Award, ¶ 293 (Mar. 5, 2020); Joy Mining, Award on Jurisdiction, ¶ 50; Standard Chartered Bank (Hong Kong) Ltd. v. United Republic of Tanzania, ICSID Case No. ARB/15/41, ¶¶ 198-201 (Oct. 11, 2019).X16  This common understanding is equally well-received among scholars.17See, e.g., C.L. Lim et al., International Investment Law and Arbitration: Commentary Awards & Other Materials 276-98 (2d ed. 2021); Michael Waibel, Investment Arbitration: Jurisdiction and Admissibility, in International Investment Law: A Handbook (Marc Bungenberg et al. eds. 2015).X17  On the basis that an inherent meaning of the term “investment” could be objectively ascertained under the ICSID Convention, Pentsov even argues such an objective meaning should continue to help in ascertaining the meaning of “investment” under investment treaties.18See Dmitry Pentsov, Contractual Joint Ventures in International Investment Arbitration, 38 Nw. J. Int’l L. & Bus. 391 (2018).X18  In his framework, the interpretation of the specific investment treaty shall start with the analysis of the wording of the definition of “investment,” especially the composition of its illustrative list.  If the treaty identifies certain characteristics of investments, they shall be drawn on to distinguish the ambit.  But if the treaty is bereft of any identification, the term “investment” should be interpreted in accordance with its ordinary meaning, which then harks back to the three most frequently cited Salini characteristics:  contribution, duration, and risks.19Pentsov, supra note 28, at 167.X19

This article however avers for less intermingling between the interpretation of an investment under the treaties and the inherent meaning of “investment” under the ICSID Convention.  A boundary in between would be beneficial for a clear differentiation between the legal form and economic nature of an investment.  In this vein the tribunal in Abaclat v. Argentinaproffers a compelling explanation.20Abaclat & Others v. Argentine Republic, ICSID Case No. ARB/07/5, Decision on Jurisdiction and Admissibility (Aug. 4, 2011).X20

The Abaclat tribunal observed that in the juncture of an investment treaty and the ICSID Convention, there are differences between the purposes and functions of the two:  “whilst BITs in general … address both substantive investment protection rules and dispute resolution procedure, the ICSID Convention is concerned mainly with dispute resolution rules.”21Id. ¶ 348.X21  As they are set to focus on different aspects of an investor-state dispute, the definitions of “investment” contained therein produce different perspectives of an investment.  Specifically, the definition in the BITs focuses on “what is to be protected, i.e., the fruits and value generated by the investment,” whereas the definition under the ICSID Convention focuses on what “constitute[s] the investment and creates the fruits and value.”22Id. ¶ 350.X22

Regarding the definition under the ICSID Convention, the tribunal read the silence of the ICSID Convention in defining “investment” as indicative of its aim, which is “to encourage private investment while giving the Parties the tools to further define what kind of investment they want to promote.”23Id. ¶ 364. See also Biwater Gauff (Tanzania) Ltd. v. United Republic of Tanzania, ICSID Case No. ARB/05/22, Award, ¶¶ 312-13 (July 24, 2008).X23  Hence it would be against the aim of the ICSID Convention if the Salinicharacteristics are taken as harsh and concrete limits.  Rather, the only criteria it distilled from the ICSID Convention is a requirement for a contribution.24Abaclat, Decision on Jurisdiction and Admissibility, ¶ 365.X24  To clarify, this approach should be distinguished from the subjective approach:  the Abaclattribunal endorsed that the term “investment” under the ICSID Convention has an objective meaning which restricts the Centre’s jurisdiction, but argued that this confinement should not be overly draconian as defined by the Salini tribunal.

Then the Abaclat tribunal studied the definition under the BIT.  In this case, the relevant BIT merely proffers that “investment includes, without limitation,” followed by a list of illustrative subsections including, inter alia, movable and immovable goods, shares, and right to performances.25Id. ¶ 336.X25  The tribunal examined the structure of the subsections and concluded that it “reflect[s] a categorisation of various types of investments from the perspective of rights and values that they generate.”26Id. ¶ 353.X26  Hence, putting the two pieces of definition together, the requirement for “investment” emerges:  a contribution as required by the ICSID Convention, that is “apt to create the value that is protected under the BIT.”27Id. ¶ 365.X27

This article further elaborates the difference between the jurisdictional hurdle under the investment treaty and the ICSID Convention as follows:  when drafting a BIT, the state contracting parties’ primary concern dwells on the value an investment might generate on their respective lands.  To attract the investors and the value, they promise to respect the investor’s rights over the values generated on their territory in certain proprietary forms, hence an illustrative list is commonly inserted.  This statement is corroborated by the fact that the form of how rights and values are protected is the margin left open by the ICSID Convention for states to define in their treaties.  Nonetheless, unless expressly articulated, those treaties do not and should not serve to explain how those values could be generated (i.e., what constitutes the economic activity called “investing”). This is because defining “investing” is like walking on a tightrope, with one side stifling the variety of investments and the other subjecting them to potentially abusive interpretations by a host state.  It works better for the ICSID Convention to formulate a minimax definition independent of the contracting parties’ dispositions.  And in this process, for the ICSID Convention to promote international investments, it must lay down a set of objective rules that are widely accepted that defines the economic nature of “investing,” so as to eliminate the informational barriers for international investors.  It necessarily follows that a full adoption of the Salini test would be unsuitable, as the characteristic of “a contribution to the economic development”’ could hardly be assessed objectively or explained in a manner that is universally authentic.28See Deutsche Bank AG v. Democratic Socialist Republic of Sri Lanka, ICSID Case No. ARB/09/2, Award, ¶ 306 (Oct. 31, 2012).X28

An important credential that must be reflected in both the legal form and economic nature of “investments” is the territorial nexus.  In the legal limb, a state may only promise proprietary protections over rights and values established within its prescriptive jurisdiction, which is presumptively territorial.29See, e.g., Treacy v DPP [1971] AC 537 (HL), [551].X29  Hence to acquire the legal form of investments, the asset must be recognised on the territory of the host state so as to come within its prescriptive jurisdiction.  In fact many investment treaties expressly require such a territorial nexus.30See, e.g., Agreement Between the Government of the Republic of Finland and the Government of the Republic of Tunisia on the Promotion and Protection of Investments, Fin.-Tunis., art.1(1), Apr. 10, 2001, 2225 U.N.T.S. 505,  (“The term ‘Investment’ means every kind of asset established or acquired by an investor of one Contracting Party in the territory of the other Contracting Party (host Party) in accordance with the laws and regulations of the latter Contracting Party including . . . .”).X30  On the other hand, in the economic limb, for an economically certified investment to qualify as the quid pro quo from the side of investors, it must be addressed towards the counterparty, i.e., the host state. Therefore, the territorial nexus is a fundamental piece in the jigsaw of “protected investments” in both respects.

This article therefore prefers the formula proffered by Prof. Douglas, which divides the requisites for a protected investment as follows:

The legal materialisation of an investment is the acquisition of a bundle of rights in property that has the characteristics of one or more of the categories of an investment defined by the applicable investment treaty where such property is situated in the territory of the host state or is recognised by the rules of the host state’s private international law to be situated in the host state or is created by the municipal law of the host state. The economic materialisation of an investment requires the commitment of resources to the economy of the host state by the claimant entailing the assumption of risk in expectation of a commercial return.31Douglas, supra note 25, at 163.X31

An investment would fall within the protection of investment treaty arbitration if and only if both the legal and economic materialisation are satisfied.32See id. at 164.X32  With this formula in mind, we march on to analyse the potential disputes that could arise and the possibility for crypto investors to resort to investment treaty arbitration to defend their interests.

A. Legal Materialization

The first task is to ascertain in which category (or categories) listed in an investment treaty a token may fall.  In other words, what rights does an investor acquire when purchasing a token?  This question builds on the general premise that digital tokens carry with them rights in property, a presumption that can only be verified against the municipal law of the host state.1Douglas, supra note 25, at 171. See also Monique Sasson, Substantive Law in Investment Treaty Arbitration: The Unsettled Relationship between International Law and Municipal Law (2nd edition, Kluwer Law International 2017).X1  It has been widely accepted, at least in the common law world, that cryptocurrencies should be treated as property.2AA v Persons Unknown [2019] EWHC 3556 (Comm), [2020] 4 WLR 35 (Bryan J confirming the understanding of crypto tokens as things to which personal property rights could relate).  This jurisprudence is followed by courts from other common law jurisdictions.  See, e.g., Chen v Blockchain Global Ltd [2022] VSC 92; Re GateCoin Ltd (In Liquidation) [2023] HKCFI 914, HCCW 18/2019; Ruscoe v Cryptopia Ltd (In liquidation) [2020] NZHC 728; B2C2 Ltd v Quoine Pte Ltd [2020] SGCA(I) 02; B2C2 Ltd v Quoine Pte Ltd [2019] SGHC(I) 03.X2  On this basis we move on to examine the proprietary rights a token may contain.

The category that tokens may straightforwardly fit in is investment securities.  Different jurisdictions define investment securities differently.  For example, under U.S. law there are two kinds of investment securities, in equity and in debt, the former of which includes shares or other interests in the risk-bearing part of an enterprise’s capital, and the latter includes bonds, loan, and debentures;3See U.S. Securities Act of 1933, 15 U.S.C. § 77a et seq.X3 the EU adds on an additional residual category;4See Directive 2004/39/EC of the European Parliament and of the Council of 21 April 2004 on Markets in Financial Instruments Amending Council Directives 85/611/EEC and 93/6/EEC and Directive 2000/12/EC of the European Parliament and of the Council and Repealing Council Directive 93/22/EEC, 2004 O.J. (L 145).X4 and English law differentiates between debt securities and other transferable securities equivalent to shares.5Financial Service & Markets Act 2000, § 102A (UK).X5  But they share a common conceptual core, that is, a claim to money.6See Douglas, supra note 25, at 180.  The logic here deserves a cautious note in practice:  if in a BIT, “bonds, shares, and others” are listed as examples of investment, then it is fair and reasonable to deduce that the BIT recognises that the acquisition of a claim to money could legally materalise into an investment.  However, if on the reverse, the BIT includes “the acquisition of a claim to money” as one example of investment, a tribunal should not automatically expand this language as encompassing bonds and shares.  See Poštová banka, a.s. and ISTROKAPITAL SE v. Hellenic Republic, ICSID Case No. ARB/13/8, Award, ¶ 342 (Apr. 9, 2015).X6  Can a crypto token carry with it a claim to money?  Hinman answers positively in one of his speeches:  “The digital asset itself is simply code. But the way it is sold—as part of an investment; to non-users; by promoters to develop the enterprise—can be, and, in that context, most often is, a security—because it evidences an investment contract.”7William Hinman, Director, Div. of Corp. Fin., SEC, Digital Asset Transactions: When Howey Met Gary (Plastic), Remarks at the Yahoo Finance All Markets Summit: Crypto (June 14, 2018), available at https://www.sec.gov/newsroom/speeches-statements/speech-hinman-061418.  Note that the investment contract is a concept under U.S. securities law rather than an investment contract between an investor and the host state under the IIL.  An investment contract in that sense is an investment of money in a common enterprise with the expectation of profits from the efforts of others.  See generally SEC v. W.J. Howey Co., 328 U.S. 293 (1946).X7  Take the example of the MUN token to elaborate.  Munchee was an early-stage start-up business that developed a restaurant review application.  In 2017 it decided to raise funds through an ICO to finance the development of the application and its operational expenses.  In its whitepaper, Munchee promised the following utilities of MUN token:  (a) tradeable with dollars or other cryptocurrencies; (b) useable for in-app purchases; and (c) useable as a method of payment for restaurant meals.8See Matthew Higgins, Munchee Inc.: A Turning Point for the Cryptocurrency Industry, 97 N.C. L. Rev. 220, 223 (2018).X8  It also touted the MUN token for its potential to appreciate over time.  This ICO nonetheless only lasted two months until called down by the U.S. Securities and Exchange Commission (SEC).  The SEC found that Munchee offered, and investors purchased, MUN tokens as securities rather than unites of exchange as labeled by Munchee.9Munchee Inc., Securities Act Release No. 10445, 118 SEC Docket 5, at 1-2 (Dec. 11, 2017).  The SEC came to this conclusion as the following observations satisfied the Howey test:  first, both the whitepaper and the sales literature stressed the appreciation potential in the tokens.  Second, at the time of offering, no utilities were made available for users.  Third, the ICO was conducted to attract cryptocurrency investors rather than application users.  Fourth, the company had made efforts to increase the value of the token. See Higgins, supra note 64, at 225-29.X9  And given that Munchee did not file a registration statement with the required disclosure, it had violated Section 5 of the U.S. Securities Act.10See Higgins, supra note 64, at 229-30.X10

After the Munchee case, it is envisaged that most cryptocurrencies acquired via an ICO would be taken as investment securities in equity under the U.S. law—even tokens of utility may be taken as forming a passive investment.11Id. at 230.  See also Lastra & Allen, supra note 3, at 211-12; Rubinina, supra note 4, at 10.X11  The two most prominent cryptocurrencies, Bitcoin and Ethereum, however, stand as exceptions.  As noted, they are so decentralised that there is “no central third party whose efforts are a key determining factor in the enterprise.”12See Hinman, supra note 63.  Cf Walch, supra note 11.  Walch argues against Hinman, drawing attention to the instance of the bug discovery and fixing in Bitcoin software in Fall 2018.  A group of core developers at Bitcoin Core discovered a bug and realised its potential to render critical inflation.  They immediately released a fixing patch but only disclosed the potential of the bug three days after the release.  Walch argues that “it shows a coordinated group that is working actively to develop or guide the development of the infrastructure of the network.”X12  Hence they are more in the nature of digital commodities or speculative assets.13See Lastra & Allen, supra note 3, at 219.X13

In a similar vein, Switzerland adopted a new category of “ledger-based securities.”14The Act to Adapt Federal Law to Developments in Distributed Ledger Technology, AS 33 (2021) (Switz.).X14  Cryptocurrencies are differentiated into normal intangible assets and those registered on a security ledger.  The latter would be officially taken as a ledger-based security by all relevant authorities and could thereby be exercised and transferred through this “tamper-resistant” ledger.15Koji Takahashi, Blockchain-based Negotiable Instruments: with Particular Reference to Bills of Lading and Investment Securities, in Blockchain and Private International Law 503 (Bonomi et al. eds., 2023).  See also Francesca C. Villata, Cryptocurrencies and Conflict of Laws, in Blockchain and Private International Law 325 (Bonomi et al. eds., 2023).X15  German law, after the enactment of the Act on Electronic Securities in 2021, equally affirms that securities may be issued as “electronic securities” by effecting an entry in an “electronic securities register,” and thereby enjoy the same legal effect as traditional securities.16Takahashi, supra note 71, at 503.X16

In contrast, Lastra and Allen aver that from a European perspective generally, cryptocurrencies are distinguishable from conventional types of financial instrument, because of

(i) their use of DLT to facilitate peer-to-peer exchange, (ii) their issuance by an entity outside the traditional monetary system of central banks, commercial banks, and licensed financial intermediaries; and (iii) their denomination in a novel unit of account rather than a fiat monetary unit.17Lastra & Allen, supra note 3, at 184.X17

It is submitted, however, those are reasons for active and detailed regulation on the financial market to address the peculiarities posed by the ICOs, rather than recoiling from qualifying the cryptocurrencies as investment securities.  Indeed, the former is what most states are starting to grapple with.18See supra note 23.X18

Therefore, cryptocurrencies acquired via an ICO would probably be recognised as investment securities by most host states and thereby fall within the illustrative list of most investment treaties.

The next question is whether a crypto token, purchased as investment securities, is situated in the territory of the host state.  Given the intangible nature of the token, this question must be answered with resort to the rules of private international law of the host state, under which the token may acquire a fictitious situs.19See Douglas, supra note 25, at 171.X19  Under U.S. law, despite the lack of specific rules for cryptocurrencies, a close analogy could be drawn from other investment securities such as shares.20Mark J. Deal et al., Mining Your Own Business: Tax and Estate Planning with Crypto, Dechert LLP: Dechert News & Insights (Feb. 13, 2024), https://www.dechert.com/knowledge/onpoint/2024/2/mining-your-own-business--tax-and-estate-planning-withcrypto.html.X20  The majority of cases have confirmed that the situs of shares is at the jurisdiction of incorporation, “even where the shares are bearer shares and their certificates located elsewhere.”21Maisie Ooi, Shares & Other Securities in the Conflict of Laws 21 (2003).X21  Hence it is likely that in the United States, a token purchased from an ICO resides in the place of the underlying enterprise or with the coin issuer.

Under English law, the general principle applicable to a chose-in-action is that it is situated where it is properly recoverable or can be enforced.22See Dicey, Morris, & Collins on the Conflict of Laws (Lord Collins of Mapesbury & Jonathan Harris eds., 15th ed. 2012).X22  Specifically, for registrable financial instruments, the situs is the place where the register is maintained.23Amy Held, Cryto Assets and Decentralised Ledgers: Does Situs Actually Matter?, in Blockchain and Private International Law 213 (Bonomi et al. eds., 2023).X23  A similar approach is adopted in the European Union.24Id.X24  Therefore in Europe, tokens purchased from a registered ICO would probably have its situs at the place where the registration is maintained.  For a token purchased from an unregistered ICO, applying the general principle, its situs would most likely be the place of underlying enterprise or business or the residence of coin issuer, similar to that in the United States.  The question left becomes a matter of fact:  the coin would obtain the required situs if the coin issuer was incorporated or kept the registration files within the host state, assuming whose domestic laws follow suit.

A more interesting issue arises in the latter scenario.  Suppose the BIT circumscribes that the investment shall be made ‘in accordance with the host state law,”25Andrea Carlevaris, The Conformity of Investments with the Law of the Host State and the Jurisdiction of International Tribunals, 9 J. World Inv. & Trade35, 36-37 (2008).X25 would that entitle the host State to invoke the illegality defence on the basis that the coin was purchased from an unregistered ICO?  The answer is likely to be negative for two reasons.  First and foremost, the illegality may nullify a protected investment if and only if it is imputable to the investor.26Id. at 45.X26  The purchasers of the coins are not connected to the illegality in this situation.  Second, leaving investors aside and looking solely at the investment, the deprivation of investment protection seems disproportional as a punishment for the lack of registration and disclosure. An analogy could be drawn from the case of Metalpar v. Argentina, in which the tribunal held that

the lack of timely registration [of a company] could be sanctioned by a denial of the inscription of certain documents of the society, by a warning or the imposition of a fine to the company or its officials, but it would be disproportionate to punish this omission with denying an investor an essential protection as the access to ICSID arbitration.27Metalpar SA and Buen Aire SA v. Argentine Republic, ICSID Case No. ARB/03/5, Decision on Jurisdiction, ¶ 84 (Apr. 27, 2006).  See also Tokios Tokelés v. Ukraine, ICSID Case No. ARB/02/18, Decision on Jurisdiction, ¶ 151 (Apr. 29, 2004).X27

Therefore, it is safe to conclude that the purchase of cryptocurrencies at an ICO can legally materialise into an investment so long as the investment treaty in question covers investment securities or, more generally, financial instruments.

A remaining problem is, what about other tokens that are circulated without an ICO, such as Bitcoin?  To the first question (proprietary categorisation), the tokens would squarely fall within the category of intangible property.  To the second question (territorial situs), it is likely that these tokens would not be subject to the general rules applicable to chose-in-action28The English law recognises crypto-tokens as things which are capable of being objects of personal property right, distinct from the traditional chose-in-possession and chose-in-action.  See Digital Asset: Final Report [2023] Law Com No 412, 3.42.X28 and that there might be multiple and conflicting situs for them.29See, e.g., Andrew Dickinson, Cryptocurrencies and the Conflict of Laws, in Cryptocurrencies in Public and Private Law (David Fox & Sarah Green eds., 2019) (arguing that the situs of Bitcoin is the place where its owner is domiciled); Philipp Paech, The Governance of Blockchain Financial Networks 80 Modern L. Rev. 1073 (2017) (arguing for the location of nodes); Held, supra note 79, at 215 (arguing for the primary residence of the original coder).X29  However, this article deems a detailed analysis in this respect unnecessary because purchasing tokens like Bitcoin has no addressees on the state level as it is entirely disconnected from the economy of any States.  A fortiori, it lacks the territorial nexus required for the economic materialisation, as will be explained in the next subsection.

B. Economic Materialisation

The first question that could arise with the economic materialisation of a token acquired via an ICO is whether it is a contribution or commitment of resources. In this respect the Poštová banka case produces a useful yet stringent starting point. The case concerned Greek Governments Bonds (“GGBs”) purchased by Poštová banka, a Slovak bank, and the tribunal’s jurisdiction hinged on whether the GGBs were protected investments.  The tribunal therefore made the following observations:

If an “objective” test is applied, in the absence of a contribution to an economic venture, there could be no investment. An investment, in the economic sense, is linked with a process of creation of value, which distinguishes it clearly from a sale, which is a process of exchange of values or a subscription to sovereign bonds which is also a process of exchange of values i.e. a process of providing money for a given amount of money in return.30Poštová banka, Award, ¶ 361.X30

The tribunal then examined whether the purchase of the GGBs was merely a subscription to sovereign bonds or linked with a process for the creation of value.  It held that the focal point here is a link to some economic venture, thereby distinguishing sovereign bonds used for public works and services from those for general funding purposes.31Id. ¶ 364-65 (also referring to Fedax N.V. v. Republic of Venezuela, ICSID Case No. ARB/96/3, Decision of the Tribunal on Objection to Jurisdiction (July 11, 1997) and Ceskoslovenska Obchodni Banka, A.S. v. Slovak Republic, ICSID Case No. ARB/97/4, Decision of the Tribunal on Objections to Jurisdiction (May 24, 1999) [hereinafter CSOB]).X31  On the finding that the GGBs are predominately used for budgetary purposes, the tribunal held that there was no contribution of resources.32Id. ¶ 371.X32

Two additional notes should be appended to this stringent test. First, the contribution to an economic venture would not be disqualified by the result of the venture.33Saba Fakes v. Republic of Turk., ICSID Case No. ARB/07/20, Award, ¶ 111 (July 14, 2010) (“Certain investments expected to be fruitful may turn out to be economic disasters. They do not fall, for that reason alone, outside the ambit of the concept of investment.”).X33  This is corroborated by the juxtaposition with the assumption of risk that no benefits could be reaped.  Second, there are no formalistic requirements.  In L.E.S.I. v. Algeria, the tribunal held that the contribution of resources may “consist of loans, materials, works, services, as long as they have an economic value. In other words, the contractor must have committed some expenditure, in whatever form, in order to pursue an economic objective.”34LESI, S.p.A. & ASTALDI, S.p.A. v. People’s Democratic Republic of Alg., ICSID Case No. ARB/05/3, Decision on Jurisdiction, ¶ 73 (July 12, 2006).  This view is confirmed by many later tribunals.  See, e.g., Deutsche Bank, Award, ¶ 297.X34

Therefore, the purchase of most crypto tokens should be able to answer positively to this first question as the tokens are connected to the underlying initiative of the ICO.  That said, this threshold would tick out those pure-utility tokens that are purchased not for economic or commercial purposes.  An interpretation that allows them to acquire the status of investment would do violence to the ordinary meaning of the word—think about the metro ticket.

The second question is whether there is a territorial nexus between the commitment of resources and the economy of the host state.  If an individual purchased a MUN token from Munchee in its ICO, for example, a territorial nexus between his contribution of capital and the enterprise of Munchee located in the United States seems self-explanatory.  Equally straightforward is the case with Bitcoin, which may only be mined or bought on the secondary market.  No matter how many Bitcoins one purchases on the secondary market, no investment enterprise is formed in any state.35Mining Bitcoins is different and will be discussed in section V below.X35  Complexity lies in the scenario where one acquires a MUN token from a cryptocurrency exchange platform, believing in its potential of appreciation.

Here a close analogy could be drawn from the case of Fedax v. Venezuela.36Fedax, ICSID Case No. ARB/96/3, Decision of the Tribunal on Objection to Jurisdiction.X36  The case concerns some promissory notes issued by the Venezuela government to a local company that were later acquired by Fedax by way of endorsement after a long chain of transactions.  Venezuela challenged the tribunal’s jurisdiction on the grounds that inter alia, the endorsement did not amount to a foreign direct investment and no investments were made in its territory.37Id. ¶ 19.X37

In response, the tribunal reasoned that “credit facilities” such as loans and promissory notes are investments within the Centre’s jurisdiction.38Id. ¶¶ 36-38.X38  The fact that they are intended to be traded between investors and are often employed in offshore financial operations indicates that the key hallmarks of investments might be established from the continuous credit benefits enjoyed by the issuer until due.39Id. ¶¶ 40-41.X39  Therefore, the Tribunal determined that despite the multiple references to territoriality requirements contained in the relevant BIT, “[t]he important question is whether the funds made available are utilized by the beneficiary of the credit, as in the case of the Republic of Venezuela, so as to finance its various governmental needs.”40Id. ¶ 41.X40  On that basis it asserted jurisdiction.  This “ultimate beneficiary” approach has been adopted by several tribunals facing investments of purely financial nature.41See, e.g., Abaclat, Decision on Jurisdiction and Admissibility; Ambiente Ufficio S.P.A. & Others v. Argentine Republic, ICSID Case No. ARB/08/9, Decision on Jurisdiction and Admissibility (Feb. 8, 2013).X41  As put by the tribunal in Abaclat, “the relevant criteria should be where and/or for the benefit of whom the funds are ultimately used, and not the place where the funds were paid out or transferred.”42Abaclat, Decision on Jurisdiction and Admissibility, ¶ 374.X42

Though this approach may conveniently connect the purchaser on the secondary market to the ultimate beneficiary, i.e., the coin issuer, its rationale deserves some caution.  Indeed, Prof. Douglas criticised the test of “ultimate beneficiary” as “an idiosyncratic test” applicable only to those bonds with unjustifiable ignorance over principles of both private and public international law.43Zachary Douglas, Property, Investment, and the Scope of Investment Protection Obligations, in The Foundations of International Investment Law: Bring Theory into Practice 384 (Douglas et al. eds., 2014).X43  Pentsov also identified its shortcoming as driving a wedge between the rules for establishing the territorial nexus for tangible and intangible assets.44See Pentsov, supra note 28, at 172.X44

The problem becomes apparent in the case of crypto tokens.  Importantly, the beneficial relationship inherent in a crypto token between its owner and issuer is different from that observed by the Abaclat majority between a bond creditor and a bond debtor.  A crypto token has no due date, and once successfully offered, the issuer, without any obligation to buy back the tokens, often fades away from the secondary market.  This suggests that the issuer enjoys a seemingly perpetual credit benefit against the first-hand investor who bought the token.  The beneficial relationship stops there and could not be extended to the subsequent transactions.  Therefore, it becomes far-fetched to allege that purchasing a crypto token on a secondary market entails a link to the original issuer, let alone the proposition that a territorial nexus between the token and the host State where the issuer resides could be established therein.

This view partly explains the high volatility of crypto tokens in the secondary market—there is no beneficial relationship backing the value but only the frenzy and popularity.  In other words, the purchases of crypto tokens on the secondary market are at best investments in the value of the crypto tokens.  Yet an “investment-as-value” by itself cannot materialise into a protected investment from which the jurisdiction of an investment tribunal could be established.45Douglas, supra note 99, at 385.X45  This is because while property is a legal creation (a bundle of rights enforceable against the world), value is matter of fact over which no rights could be acquired—one may only claim a personal interest for appreciation.46Id. at 402.X46  Harking back to the rules of legal materialisation, such a personal interest in a value lacks a proprietary basis and cannot materialise into an investment.

A theoretical salvation from this Fedax-Abaclat line of jurisprudence exists in the dissenting opinion of Prof. Abi-Saab, who adamantly argued:

The security entitlements in question are free-standing, and totally unhinged.  They do not form part of an economic project, operation or activity in Argentina.  Nor are they issued in support of a public project or a commercial undertaking there.  In other words, they have no specific economic anchorage in Argentina, allowing them to be seen and considered as an investment “in the territory of Argentina”.47Abaclat, & Others v. Argentine Republic, ICSID Case No. ARB/07/5, Dissenting Opinion by George Abi-Saab, ¶ 82 (Aug. 4, 2011).  See also, Ambiente Ufficio S.P.A. & Others v. Argentine Republic, ICSID Case No. ARB/08/9, Dissenting Opinion of Santiago Torres Bernárdez (Feb. 8, 2013).X47

Here Prof. Abi-Saab proposed a comprehensive approach instead.  Similar to the forum non conveniens test searching for the “natural forum” with which a claim has “the most real and substantial connection,”48Spiliada Maritime Corp. v. Cansulex [1987] AC 460.X48 the comprehensive approach takes into consideration factors including the situs of the investment under private international law, the governing law of the investment, the currency used for transaction, and other features denoting the appropriate jurisdiction.  Following this approach, absent a strong contradicting factor, it is likely that the second question—whether there is a territorial nexus between the commitment of resources and the economy of the host state—could be answered in the positive based on the situs of crypto tokens.

Given the volatility in the value of cryptocurrencies, it is self-evident that the factors of risk and expectation of a commercial return are satisfied.  The third question arises, nevertheless, with regard to an important credential that implicitly exists beneath the two factors:  duration. “Investment” in the economic context originates from the idea of giving up contemporary consumption in exchange for a possible increase in future consumption.49See Pentsov, supra note 28, at 165.X49  The need for a certain duration of an activity or transaction is one of the main criteria to distinguish investments from short-term economic exchanges that are not subject to the jurisdiction of the Centre.50See Schill et al., supra note 27, at 182.X50

However, there has been no consensus as to how short a period of time may deprive the status of an otherwise protected investment.  The Salini tribunal suggested two to five years,51See Salini, Decision on Jurisdiction, ¶ 54.X51 whereas the tribunal in Deutche Bank found 12 months to be long enough.52See Deutsche Bank, Award, ¶ 304.X52  Among the jurisprudences two cases deserve special attention of a crypto investor.

The first one is KT Asia v. Kazakhstan, in which KT Asia stipulated in its project plan to hold the alleged investments, which were shares, for “at least 3/4 weeks” before selling them on to other investors in a private placement.53KT Asia Inv. Grp. B.V. v. Republic of Kaz., ICSID Case No. ARB/09/8, Award, ¶ 210 (Oct. 17, 2013).X53  This placement was nevertheless hindered by a financial crisis, and, as a result, KT Asia held the shares for a much longer period.  The tribunal observed that the duration was intended to be merely transactional and the prolonged holding was not foreseen.  Hence it held that the duration envisaged within the meaning of an “investment” under the ICSID Convention and the BIT was missing.54Id. at 216.X54

The second case, in comparison, is Kim v. Uzbekistan.  The alleged investment at hand was the claimants’ interest in two cement plants located in Uzbekistan.  Regarding the issue of duration, the claimants admitted that their intention was to invest in the interest and then sell it on at an opportune time in terms of market conditions.55Vladislav Kim & Others v. Republic of Uzbekistan, ICSID Case No. ARB/13/6, Decision on Jurisdiction, ¶ 341 (Mar. 8, 2017).X55  The tribunal however found no basis from the ICSID Convention or the BIT to disqualify their investment; rather, it upheld that investments could be for a short term.  The tribunal also proffered an example when the requirement of duration would deprive the status of protected investments:  “where investors in a stock exchange briefly holds shares in an undertaking, in the midst of buying and selling.”56Kim, Decision on Jurisdiction, ¶ 343.X56

Apparently these two cases cannot help with a boundary between a short-term investment and some mere holdings of property.  Yet arguably, crypto investors tend to adopt a mindset that assimilates better to that of Kim:  given the volatile nature of crypto tokens, it is less likely that they would have some project planning on how long their holding would be;57See Rubinina, supra note 4, at 15.X57 rather, it all hinges on the appearance of “an opportune time in terms of market conditions.”

In conclusion, investments in the ICOs can potentially satisfy the legal and economical materialisations, and thereby receive protection from the investment treaty arbitrations.

This section serves as a residual approach for crypto investments that were deemed as incapable of materialising into a protected investment in the previous section.  Although not an investment in themselves, they may be attached to some general enterprise or business operation as an integral part.

The “Unity of Investment” approach originates from the case of CSOB v. Slovakia.1CSOB, ICSID Case No. ARB/97/4, Decision of the Tribunal on Objections to Jurisdiction.X1  The case concerned a complex structure of investment that could be summarised as the following chart.

Slovakia failed its obligation 1(b) while CSOB had assigned the loan to the Collection Companies under Contract 2.  Therefore, the dispute arose from an instrument different from the one according to which the contribution of resources was made.

The Tribunal however held that the loan and the obligation 1(b) were closely related and constituted integral parts to the overall operation, reasoning:

An investment is frequently a rather complex operation, composed of various inter-related transactions, each element of which, standing alone, might not in all cases qualify as an investment.  Hence, a dispute that is brought before the Centre must be deemed to arise directly out of an investment even when it is based on a transaction which, standing alone, would not qualify as an investment under the Convention, provided that the particular transaction forms an integral part of an overall operation that qualifies as an investment.2CSOB, Decision of the Tribunal on Objections to Jurisdiction, ¶ 72.X2

This jurisprudence was later developed into a “totality of the venture” approach allowing investors to finance their investment through “customary corporate structures.”3Cortec Mining Kenya Ltd., Cortec (Pty) Ltd. & Stirling Cap. Ltd. v. Republic of Kenya, ICSID Case No. ARB/15/29, Award, ¶ 299 (Oct. 22, 2018); see also Inmaris Perestroika Sailing Mar. Servs. GmbH & Others v. Ukraine, ICSID Case No. ARB/08/8, Decision on Jurisdiction, ¶ 92 (Mar. 8, 2010) (“[It] is presented with claims on behalf of all of the Inmaris companies, proceeding jointly, arising out of all of the interrelated contracts relating to the reconstruction and operation of the Khersones. Accordingly, the Tribunal can step back to consider their claimed investments as component parts of a larger, integrated investment undertaking. It is not necessary to parse each component part of the overall transaction and examine whether each, standing alone, would satisfy the definitional requirements of the BIT and the ICSID Convention. For purposes of this Tribunal’s jurisdiction, it is sufficient that the transaction as a whole meets those requirements.”).  Cf Joseph Charles Lemire v. Ukraine, ICSID Case No. ARB/06/18, Decision on Jurisdiction and Liability (Jan. 14, 2010) (concerning several unsuccessful applications for the allocation of new radio frequencies and broadcasting license made by a radio station in Ukraine, in which the Claimant held shares; the tribunal affirmed that those applications formed an integral part of the station’s business operation, which was in turn linked to the profitability of the Claimant’s investment; however, the tribunal was ambivalent as to whether, in its mind, the business operation as a whole constituted the investment orthe investment was the shares to which the disputes was linked via the profitability of the business; it remains uncertain if this unity would be recognised had the investment per se been not shares).X3

As noted earlier, an investment in Bitcoin (or any other crypto tokens obtained through mining instead of ICOs) would fail the economic materialisation and therefore remain unprotected by IIL.  However, the situation could change if the investor invests in a Bitcoin mine together with the Bitcoins he acquires thereby.

Out of doubt is that the investment in a Bitcoin mine can legally and economically materialise into a protected investment, as it entails (a) an acquisition of proprietary rights (b) located in the host state, to which (c) a contribution of funds and know-how and personnel was made (d) with the assumption of risks in expectation for a commercial return in the form of Bitcoins.  In this manner, the Bitcoins themselves become an integral part of the overall operation of Bitcoin mining.  Not only is it closely linked to the entire investment scheme, its value also has a critical implication on the profitability of the Bitcoin mine.  Therefore, investments in Bitcoin may obtain investment treaty protection if united with investments in Bitcoin mines.

Based on prior discussion, this article came to the conclusion that IIL could be invoked to protect investments in Bitcoin (in unity with Bitcoin mines) and in crypto tokens acquired from ICOs.  It must be admitted, however, that traditional investment protection mechanisms cannot adequately address all of the unique risks and concerns associated with these digital investments.1See generally Manole Decebal Bogdan, The Law of the Digital Economy a Reality for Legal Relations in the Future - New International Investment Protection, 3 Int'l Inv. L.J. 146 (2023).X1  And this is not a problem that the IIL system could fix by itself; rather, the municipal law on property and the private international law are all vital to the establishment of a protected investment, which happens to be the very first question awaiting answers in the world of IIL.  IIL is like a gear in the late sequence, waiting for the momentum to pass by from the front.

Fortunately, since 2018 states have shifted their opportunistic attitude towards the digital economy and begun to actively impose regulations over the grey and undefined areas.  From the states’ point of view, it must be reminded that the key functions of IIL is contingent on the nature of investment, which is, in turn, inevitably subject to states’ domestic legal systems.2See Stratos Pahis, Rethinking International Investment Law: Form, Function & Reform, 63 Va. J. Int’l L. 447, 451 (2022).X2  Therefore, states should now carefully amend and adjust their municipal law to cope with the digital economy, with thorough ponderance on the implications to their investment treaty commitments.