The UK government says the new Property (Digital Assets etc) Bill’ will, for the first time in British history, give protection to digital holdings, including cryptocurrency, non-fungible tokens such as digital art, and carbon credits by considering them as “personal property” under the law.
What’s Been Happening Up Until Now?
At the moment, UK law doesn’t clearly recognise digital assets (like cryptocurrencies and NFTs) as “personal property”, i.e. they’re not included in the scope of English and Welsh property law. Currently, there are only two categories of property, namely “things in possession” (e.g. gold, money, cars) and “things in action” (e.g. debts, shares).
This means that digital assets don’t receive the same legal protections as traditional assets like cash or shares. This creates uncertainty in legal cases involving digital assets, such as theft, inheritance, or bankruptcy, making it harder for courts to enforce rights or resolve disputes. This grey area / lack of clarity around ownership and protection of digital assets is the key issue the new bill aims to address, ensuring they are treated more like other recognised assets in legal contexts.
The new bill addresses this issue by introducing a third category of “thing” which will mean that (certain) digital assets will attract personal property rights.
Also, More Fraud & Scam Protection For Businesses
The government says the new bill (when it becomes law) will also “give legal protection to owners and companies against fraud and scams, while helping judges deal with complex cases where digital holdings are disputed or form part of settlements, for example in divorce cases”.
Pole Position
The announcement from the UK government about the bill says it will also help Britain to maintain what it says is “its pole position in the emerging global crypto race” because Britain will be one of the first countries to recognise these assets in law.
Which Digital Assets Will It Protect?
Since ‘digital asset’ is a broad term that encompasses a range of things such as digital files, digital records, email accounts, digital carbon credits, cryptoassets and non-fungible tokens (NFTs), the Law Commission’s recommendations will only apply to a “subset of digital assets”. The government says, “the main one” that the Bill applies to (and the subsequent law will apply to) is “cryptotokens” (digital assets created and managed on a blockchain). The term “cryptotokens” can refer to a variety of digital assets, including cryptocurrencies like Bitcoin, or digital items like non-fungible tokens (NFTs), which are unique and can’t be exchanged on a one-to-one basis (because they represent ownership of a specific item, like digital art, music, or virtual collectibles).
A Better Response To New Technologies
The Bill should also mean the UK legal sector will be better equipped to respond to new technologies, attracting more business and investment to the UK’s legal services industry (which is currently worth £34 billion a year to the economy).
It is estimated that English law governs £250 billion of global mergers and acquisitions, and 40 per cent of global corporate arbitrations. The UK government, therefore, takes the view that keeping the law up to date using this new bill is likely to be vital if the UK is to remain “the law of choice internationally”.
Essential To Maintaining Global Cryptoassets Leadership Position
Justice Minister Heidi Alexander said of the new Bill: “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”.
Downsides?
There have, however, been some criticisms of the ‘Property (Digital Assets etc) Bill’ and some downsides that have been highlighted. These include:
– The legal uncertainty. For example, there is some ambiguity over exactly what qualifies as a “digital asset,” leaving courts to decide perhaps on a case-by-case basis, potentially causing confusion.
– The broad definitions. Even though there is an initial recommendation about what it could cover, in reality, the bill’s wide scope may cover not just cryptocurrencies and NFTs but also email accounts and in-game items, complicating enforcement.
– The regulatory complexity it will create. By adding a third property category legal processes may become more complex, particularly for cross-border transactions.
– Challenges in enforcement. Freezing or tracking decentralised digital assets, like cryptocurrencies, could be quite difficult in practice.
What Does This Mean For Your Business?
The introduction of the ‘Property (Digital Assets etc) Bill’ (which may, of course, be altered before it becomes law), marks a significant step forward for businesses dealing in digital assets like cryptocurrencies and NFTs. By recognising these assets as personal property, the UK is paving the way for stronger legal protections and clearer regulations in a rapidly evolving sector.
This new (as yet unset) legislation should offer businesses greater certainty in managing digital holdings, reducing risks related to fraud and disputes, and enhancing the security of investments in the digital realm.
Another benefit could be that as the UK aims to maintain its leadership in the global crypto race, the introduction of the bill could send a signal to investors and entrepreneurs that the UK legal system is prepared to adapt and respond to emerging technologies. However, businesses should be mindful of the potential complexities the bill introduces, such as ambiguities around what qualifies as a digital asset and challenges in enforcing decentralised assets like cryptocurrencies.
Despite these hurdles, the bill promises to strengthen the legal framework surrounding digital assets and, as such, it could encourage innovation while protecting owners and help businesses to more confidently navigate the digital economy.