The burgeoning importance of digital assets in our modern world cannot be overstated. Their use has expanded far beyond mere value representation, serving as modes of payment and being linked to various rights or things.
Their inherent flexibility and the technologies surrounding them have significantly transformed how we perceive property and property rights.
Harnessing flexibility of the law
The UK Law Commission, in its response to the UK Government’s request, has presented an enlightening perspective on how the nation can manage this technological evolution.
The Commission places its confidence in the flexibility of common law. It suggests that this flexibility can recognize and protect digital assets, including crypto-tokens and cryptoassets, under a distinct category of personal property.
In the past decade and a half, personal property law in England and Wales has displayed a remarkable ability to adapt to the emerging digital asset market.
Despite this, there are lingering doubts and complexities, given the relentless evolution of the market and associated technology. To combat this, the Commission proposes legislation to firmly establish the existence of this new category of personal property, thus eliminating any uncertainties.
The Commission further recommends the creation of a panel consisting of industry experts. This panel would be instrumental in offering guidance on technical and legal matters related to digital assets, helping courts navigate the maze of emerging technology.
The objective is to ensure a responsive and sensitive legal approach to the evolving complexities presented by digital assets. Another aspect of the Commission’s recommendations focuses on equipping market participants with innovative legal tools.
This includes unique ways of securing crypto-tokens and tokenized securities, which are not currently available in England and Wales. A multidisciplinary project team would undertake this work, introducing a fresh perspective on these issues.
Promoting a favorable legal framework
The overarching goal of the UK Law Commission’s recommendations is to establish a clear and consistent framework for digital assets. It aims to offer greater clarity and security for users and market participants alike, allowing the technology to flourish.
These recommendations align with the UK Government’s objective of attracting technological development and establishing England and Wales as a global financial hub for crypto-tokens and crypto-assets.
The Commission’s report highlights the need for a dynamic, globally competitive, and flexible private law that fosters further technological innovation.
It notes that digital assets differ significantly from physical and rights-based assets like debts and financial securities. Because they lack tangibility, they fail to fit into traditional categories of personal property.
However, the Commission argues that the flexibility of common law can accommodate these unique features, and calls for legislation to confirm this new category. The formation of an expert panel would ensure that courts can respond aptly to the complexities of emerging technology.
The UK Law Commission’s recommendations have been hailed as a pioneering move to balance regulation and innovation in the crypto sphere. The challenge now lies with the UK Government, to decide whether it will accept and implement these recommendations.
In doing so, the UK can set a new benchmark in digital asset regulation, demonstrating to the world that it is indeed possible to embrace the future of digital assets without compromising legal integrity and security.
