Digital assets including cryptoassets are becoming increasingly widespread as smart contracts, distributed ledger and other technologies enable them to be created, accessed and transferred.
English law traditionally recognises two types of property: things in possession (any object that can be physically possessed), and things in action (something which embodies a legally enforceable right or obligation). The UK Jurisdiction Taskforce's (UKJT) Legal Statement on cryptoassets and smart contracts found in 2019, that digital assets were neither.
Despite this, the courts have recognised digital assets as property. The recent case of AA v Persons Unknown, found that cryptocurrencies were a form of property.
The courts have not, however, considered whether a third category of property – neither things in possession nor things in action exists. Nor have they considered whether a digital asset can be "possessed", a legal concept currently restricted to things in possession. This ambiguity has an impact on the way digital assets can be transferred, secured and protected under the law.
What's the development?
The Law Commission of England and Wales began working on analysing English law with respect to digital assets and smart contracts in September 2020.
It has now published a call for evidence on the way in which digital assets are being used, treated and dealt with by market participants together with views on the consequences of digital assets being "possessable" in law. The Law Commission will next make recommendations to resolve problems caused by the law's approach to possession of crypto/intangible assets issues and smart contracts in order to ensure certainty of their legal status.
The call for evidence (which closes on 30 July 2021) looks at issues including:
- digital assets and possessability
- transferability of digital assets
- ownership and possession of digital assets
- classifying digital assets as goods
- digital asset tokens
- bailment of digital assets
- security over digital assets
- conversion of digital assets.
A consultation will be published towards the end of this year.
What does this mean for you?
As the Commission comments, the purpose of the call for evidence is to give stakeholders and market participants the opportunity to provide input ahead of the upcoming consultation.
At the heart of the call for evidence is the issue of possessability as that impacts across ownership, transfer and securitisation. The aim is, ultimately, to provide legal certainty as a foundation for the development and adoption of digital assets.
