A UK Legal Task Force Clarifies on Cryptoassets and Smart Contracts
A UK Jurisdiction Task Force has issued a legal statement on cryptoassets and smart contracts.
Issued under the aegis of the Law Tech Delivery Panel, the document is a result of the consultative process that commenced in May 2019. Its object was to clarify the status of cryptoassets, distributed ledger technology, and smart contracts in English private law.
The task force did not consider taxation, criminal law, partnership law, data protection in the context of cryptoassets and smart contracts. The task force also excluded intellectual property, consumer protection, settlement finality, regulatory capital, anti-money laundering, and counter-terrorist financing.
Cryptoassets are property
The Task Force determined that cryptoassets have all of the “indicia” of property.
“The novel or distinctive features possessed by some cryptoassets—intangibility, cryptographic authentication, use of a distributed transaction ledger, decentralization, rule by consensus—do not disqualify them from being property,” says the document.
Again, cryptoassets are not classifiable as things in possession, or as things in action. They are also often considered as “pure information.” However, they still qualify as property.
Accordingly, cryptoassets are, in principle, property.
Further, since cryptoassets are purely virtual they cannot be the object of a bailment. They are also not documents of title, negotiable instruments, or instruments under the Bills of Exchange Act.
The Task Force opined that a smart contract is capable of satisfying the requirements of a contract as in English law:
- two or more parties have reached an agreement,
- they intend to create a legal relationship by doing so, and
- have each given something of benefit.
In principle, a smart contract can be identified, interpreted, and enforced using ordinary and well-established legal principles.
The task force also clarified: “In principle, a statutory “signature” requirement can be met by using a private key which is intended to authenticate a document. Also, a statutory “in writing” requirement can be met in the case of a smart contract whose code element is recorded in source code.”
This is a very significant clarification considering the exigencies of modern-day interactions.
The classification of cryptoassets as property in the UK paves the way for businesses to use digital assets on a blockchain.
It will also serve as a foundation for the mainstream adoption of cryptoassets and smart contracts in the UK.
The categorization of crypto assets as property has important implications in various legal statutes. These include succession on death, vesting of property in personal bankruptcy, and liquidation in corporate insolvency.
According to Director of the Lawtech Delivery Panel, Jenifer Swallow:
- The worldwide smart contract market may reach $ 300 million by 2023, and
- The World Economic Forum forecasts that 10% of global GDP will reside on the blockchain by 2027.
The clarification of the status of smart contracts by the task force is therefore particularly relevant.
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