The Law Commission has issued a call for evidence on digital assets. It says that digital assets are increasingly important in modern society. They are used for an expanding variety of purposes, including as means of payment for goods and services or to represent other things or rights, and in growing volumes. In addition, cryptoassets, smart contracts, distributed ledger technology and associated technology have broadened the ways in which digital assets can be created, accessed, used and transferred.
Digital assets are generally treated as property by market participants. Property and property rights are vital to modern social, economic and legal systems and should be recognised and protected as such. While the law of England and Wales is flexible enough to accommodate digital assets, certain aspects of the law need reform to ensure that digital assets are given consistent recognition and protection.
For example, the law recognises that a digital asset can be property and that a digital asset can be “owned”. However, it does not recognise the possibility that a digital asset can be “possessed” because the concept of “possession” is currently limited to physical things. This has consequences for how digital assets are transferred, secured and protected under the law.
According to the Law Commission, reforming the law to provide legal certainty would provide a strong foundation for the development and adoption of digital assets. It would also provide incentives to use English and Welsh law and the jurisdiction of England and Wales in transactions concerning digital assets.
The UK government has asked the Law Commission to recommend reforms to ensure that the law is capable of accommodating both cryptoassets and other digital assets in a way which allows the possibilities of this technology to flourish. Its work will consider whether digital assets should be “possessable”. This could have significant consequences for the functioning and development of the market in digital assets.
The call for evidence is the first step in the digital assets project. Its primary function is to seek views about, and evidence of, the ways in which digital assets are being used, treated and dealt with by market participants. It also seeks views on the potential consequences of digital assets being “possessable”. The next step will be a consultation on digital assets, which will make proposals for law reform.
The call for evidence ends on 30 July 2021.
