A law reform body in England and Wales says digital assets are personal property.
There is a main An earthquake is happening in the sphere of digital assets, which is expected to create shock waves that affect not only the real world of the technology, but also the scale.
These potentially revolutionary changes are outlined in a seemingly innocuous, if lengthy, consultation paper entitled “Digital Assets: A Consultation Paper”, published by the Law Commission of England and Wales, the UK’s public body for law reform.
What this document proposes is that digital assets are recognized as a new form of private property, potentially creating an “Internet asset”, which could have huge implications for the UK’s center for distributed ledger technology (DLT) and fintech.
Why are property rights important?
Property rights are important for creating and deploying capital. A proper legal basis for ownership of digital assets will have a host of real-life problems, such as creating security for digital assets — meaning they can be used as collateral for loans — protecting people or businesses against fraud and allowing digital assets to be classified as other assets in bankruptcy.
The Law Commission’s consultation paper considered many opposing views and settled on one option: treating digital assets as a new type of property.
For example, if someone takes your NFT, you may want to initiate legal action to recover it, prevent the recipient from transferring it to another account, report the theft to the police, or take action against the person who assisted. None of this is possible without clear acknowledgment of digital assets as their property. If your NFT is then transferred to a pure buyer, do they have to keep it? There is no answer to this without knowing what kind of property a digital asset is.
The entire decentralized finance (DeFi) industry, which includes cryptocurrencies such as Bitcoin, relies on the transfer of crypto assets to other accounts, which can then be deployed according to smart contracts or other rules.
Are these activities considered a legal transfer of property or a guardianship arrangement or form of guardianship? These questions may seem unimportant when everything is going smoothly, but as soon as something goes wrong, participants suddenly care. They decide who gets the rest of the assets back and who else — exchanges, developers, and so on — can be held liable for any losses. And again, there is no clear answer to this until the nature of digital assets as private property is settled.