UK Law Commission Proposes Changes to Accommodate Crypto Into Property Laws

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The Law Commission of England and Wales, a statutory independent body tasked with reviewing and updating the law, has been assessing existing legislation on digital assets in an effort to regulate a sector, which has grown so rapidly that it has been labelled as a “Wild West” by European Union officials. At the request of the British government, the Law Commission has proposed legislative reforms to provide wider recognition and legal protection for digital asset users. A consultation on the subject seeks responses by November 4.

“It’s important that we focus on developing the right legal foundations to support these emerging technologies, rather than rushing to impose structures that could stifle their development,” said Professor Sarah Green, Law Commissioner for Commercial and Common Law.

Issues of legal title to cryptocurrencies have come to the fore with the current spate of bankruptcies following the crypto crash.

These recommendations will adapt the law to these new technologies and protect its users. It is hoped they will help the UK become a global hub for digital assets.

The key proposal is that the third category of personal property called “data objects” should be adopted. English law currently recognises two categories of personal property, things in possession (tangible objects) and things in action (property claimable through legal action or proceedings).

Since digital assets are intangible and do not neatly fit in either group, a third category that addresses their attributes directly will define their nature more clearly and tailor future legal developments to the needs of the digital space.

The report continually references crypto-tokens, but is meant to apply to all forms of digital property that fall within the definition of data objects, including databases, software, digital records, and domain names. If implemented, specific property rights would apply to crypto tokens, giving owners more protection over these digital assets.

The law relating to ownership of digital assets suggests the concept of control rather than possession should be used for data objects. Since intangible objects like NFTs cannot be physically possessed, but owners can transfer them using private keys, the Commission argues that control is a better analogy for the relationship between a data object and owner.

It makes proposals regarding the transfer of digital assets. The report suggests that the rules of title transfer in existing property should apply to crypto-tokens even if the transfer creates a new or modified crypto token. It distinguishes between the factual transfer of crypto-tokens on a distributed ledger and the transfer of legal title which are not necessarily the same.

Another suggestion is that if a purchaser buys a token in good faith, unaware of any other party’s claim to it, they will retain ownership of the token.


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