The Law Commission of England and Wales has published a consultation paper on a draft bill that would classify crypto assets as property under the law. The bill aims to provide clarity and certainty for the use and ownership of digital assets in various contexts, such as insolvency, theft, and inheritance. The commission is inviting responses from the public and stakeholders until March 22, 2024.
Why Crypto Needs a Legal Definition
Crypto assets, such as bitcoin, ether, and non-fungible tokens (NFTs), are digital representations of value that are stored and transferred on a blockchain network. They have unique features that distinguish them from traditional forms of property, such as physicality, tangibility, and exclusivity. Because of these differences, crypto assets do not fit neatly into the existing categories of personal property under the common law of England and Wales.
This creates legal uncertainty and risks for the users and holders of crypto assets, especially in situations where property rights are important, such as insolvency, theft, or inheritance. For example, if a person dies without leaving a will, their crypto assets may not be distributed according to their wishes, or may be lost altogether. Similarly, if a person’s crypto assets are stolen or hacked, they may not be able to recover them or claim compensation.
To address these issues, the Law Commission has proposed a draft bill that would define crypto assets as property under the law, and provide a framework for their recognition and protection. The bill is based on the recommendations of the UK Jurisdiction Taskforce, which published a legal statement on crypto assets and smart contracts in 2019. The bill would also align with the international standards and best practices on crypto regulation.
What the Draft Bill Says
The draft bill defines a crypto asset as “a digital asset that is recorded on a distributed ledger and uses cryptography to secure its integrity and authenticity”. It also specifies that a crypto asset is property if it meets the following criteria:
- It is capable of being owned
- It has some degree of permanence
- It has some degree of stability
- It has some degree of transferability
- It has some degree of value
The bill also clarifies that a crypto asset is not property if it is:
- A mere contractual right or obligation
- A mere representation of another asset
- A mere record of information
The bill further provides that a person has a property right in a crypto asset if they have the exclusive power to dispose of it, or to control its disposition by others. This power is determined by the rules of the relevant distributed ledger, and not by the possession or control of any device or software that enables access to the ledger.
The bill also sets out the rules for the creation, transfer, and extinction of property rights in crypto assets, as well as the remedies and defenses available in case of infringement or interference. The bill also covers the aspects of crypto assets that are relevant for private international law, such as jurisdiction, choice of law, and recognition and enforcement of foreign judgments.
How to Respond to the Consultation
The Law Commission is seeking views and feedback on the draft bill from the public and stakeholders, such as crypto users, holders, service providers, regulators, lawyers, academics, and others. The commission has prepared a questionnaire that covers the main issues and questions raised by the bill, and invites responses by email or post. The deadline for responses is March 22, 2024.
The commission will analyze the responses and publish a report with its final recommendations and a revised draft bill later in 2024. The commission hopes that the bill will be introduced in Parliament and enacted as soon as possible, to provide legal certainty and protection for the crypto industry and its users.
