On September 11 a new bill to clarify the legal status of digital assets, including crypto-tokens, was introduced to the House of Lords.
Based on extensive work published by the
Law Commission of England and Wales earlier this year the bill proposes a “third category” of personal property rights.
Currently under UK law there are two traditional categories of personal property, either a thing in possession (tangible personal property that you can physically hold or control, e.g. gold) or a thing in action (intangible assets that you have a legal right
to, but do not have direct physical possession of, (e.g. debts, shares). How exactly a ‘digital asset’ fits in this legal framework is an interesting question, particularly for those involved in the industry.
In 2019, an influential legal statement by the UK jurisdiction taskforce of the LawTech Delivery Panel, chaired by Sir Geoffrey Vos, declared digital assets should be treated as property. The statement ruled that “cryptoassets have all of the indicia of
property” and novel features such as the use of distributed ledgers and their intangible nature “do not disqualify them from being property.”
Digital assets can of course describe a vast range of 'things' including digital files, digital records, email accounts, domain names, in-game digital assets, digital carbon credits, crypto-tokens, and non-fungible tokens (NFTs). All of which have different
characteristics and rely on different technology. Cryptography, distributed ledgers, smart contracts, and associated technology, in particular, have expanded the ways in which digital assets can be created, accessed, used, and transferred.
The new bill – the Property (Digital Assets etc.) Bill - seeks to provide further legal clarity that builds on this 2019 statement by establishing property rights for digital assets as things that are not
in possession or in action.
The entire bill consists of just two clauses, the first clause, which is the main body of the bill is itself just one line dealing with the objects of personal property rights; and setting out that “a thing (including a thing that is digital or electronic
in nature) is not prevented from being the object of personal property rights merely because it is neither a) a thing in possession, nor b) a thing in action.”
The bill is clearly intended to end uncertainty about the legal status of digital assets and promote market and consumer confidence. It feels like a positive next step on the long road towards encouraging innovation and unlocking the potential of such fundamental
new technologies.
Leadership is essential, and it is encouraging that the new government has introduced a bill that had been set in motion by the previous government. Indeed, when announcing the bill, justice minister Heidi Alexander stressed global leadership in crypto and
common law: “Our world-leading legal services form a vital part of our economy, helping to drive forward growth and keep Britain at the heart of the international legal industry. It is essential that the law keeps pace with evolving technologies, and this
legislation will mean that the sector can maintain its position as a global leader in cryptoassets and bring clarity to complex property cases.”
There are many questions, however, that the bill will not bring clarity on. The bill does not attempt to detail what the implications of such proprietary recognition would be (such as taxation, tortious liability, applicable remedies, etc.). These matters
will be left, as they are now, to development through common law.
Personal property rights are traditionally shaped by common law and have been developed by the courts over hundreds of years. The common law approach has allowed for a highly nuanced and flexible method which is not possible to achieve in statute. Whilst
I am positive about that flexibility and potential of common law, I wonder if further clarity on certain details might be of use in this bill.
I would love to hear people’s responses to the bill. Do you think it will it deliver the clarity, and confidence required to maintain the UKs position as a global leader in cryptoassets?