The Law Commission of England and Wales published a consultation document on proposed reforms to the Digital Assets Act, including determining ownership. With the expansion of the metaverse, blockchain technology, and the growing use of cryptocurrency and NFTs, the law needs to be updated to reflect their unique characteristics. A consultation on the subject seeks responses by November 4.
“It is 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 Law commercial and common law.
Legal title issues on cryptocurrencies have come to the fore with the current wave of bankruptcies following the crypto crash.
These recommendations will make it possible to adapt the law to these new technologies and to protect its users. It is hoped that they will help the UK become a global hub for digital assets.
The main proposal is to adopt a third category of personal property called “data objects”. English law currently recognizes two categories of personal property, things in possession (tangible objects) and things in action (property claimable by legal action or proceeding). Since digital assets are intangible and do not fit neatly into either group, a third category that directly addresses their attributes will more clearly define their nature and adapt future legal developments to the needs of the digital space. .
The report continually refers to cryptographic tokens, but is meant to apply to all forms of digital property that fall under the definition of data objects, including databases, software, digital records, and domain names. . If implemented, specific property rights would apply to crypto tokens, providing owners with greater protection over these digital assets.
The law relating to the ownership of digital assets is clarified. He suggests that the concept of control rather than possession should be used for data objects. Since intangibles such as NFTs cannot be physically owned, but owners can transfer them using private keys, the Commission argues that control is a better analogy for the relationship between an object of data and its owner.
It makes proposals regarding the transfer of digital assets. The report suggests that title transfer rules in existing ownership should apply to crypto-tokens even if the transfer creates a new or modified crypto-token. It distinguishes the factual transfer of crypto-tokens on a distributed ledger and the transfer of legal ownership which are not necessarily the same.
Another suggestion is that if a buyer purchases a token in good faith, unaware of another party’s claim, they will retain ownership of the token.
In situations where owners cede some control of their crypto to another party, an existing law must be applied that requires this to be in writing.
It proposes to clarify the custody requirements of crypto-tokens. How these devices are to be authenticated and legally recognized is another area of legislative reform.
Beyond crypto-tokens, the Law Commission is also working on digital issues as part of electronic business documents. He released a bill that would legally recognize bills of lading and exchange in electronic form. The bottom line is that owning an electronic bill of lading is equivalent to owning a paper version. These issues are critical for blockchain-based supply chain and trade finance applications.