The UK government has introduced new legislation to Parliament proposing new legal protections for digital assets such as cryptocurrencies, non-fungible tokens (NFTs) and carbon credits.
The bill comes as the crypto industry faces a variety of regulatory headwinds. In the United States, the Securities and Exchange Commission (SEC) has ruled that certain crypto assets are securities, and earlier this year the SEC approved the first U.S.-listed exchange-traded fund (ETF) tracking Bitcoin. Meanwhile, the European Union (EU) is also introducing new legislation to regulate cryptocurrencies and make transactions easier to track.
The UK is also working on similar regulation, but its new Property (including Digital Assets) Bill is focused on legalising digital assets as “personal property” and putting them on an equal footing with traditional assets.
The bill was proposed following a 2023 Law Commission report which outlined the need to update current legal provisions regarding individual property rights.
As technology advances and people spend more time online, their relationship with digital assets will become increasingly important. Our recommendations also aim to ensure that private law in England and Wales remains a dynamic, globally competitive and flexible tool for market participants in the digital asset sector.
Legislative Commission: Digital Assets — Summary of Final Report
The concept of 'personal property' is important in law as it plays a central role in litigation relating to bankruptcy, insolvency, theft, inheritance and divorce proceedings. Currently, the law in England and Wales (Scotland and Northern Ireland have different legal systems) provides for two categories of property. Tangible goods such as cars, jewellery and cash are called 'property', while 'deeds' are intended to protect intangible assets such as shares, debts and intellectual property.
This leaves a large gap for “digital” assets like Bitcoin and similar cryptocurrencies, and NFTs, such as digital art, which have traded for significant amounts in recent years. If this new third category is passed into law, it would bring greater clarity to what constitutes personal property and make it easier for courts to adjudicate disputes.
For example, courts could issue injunctions to prevent someone from squandering digital assets before a dispute is resolved, similar to how they already do for physical products, or those whose digital assets are stolen as part of a fraud could have stronger legal remedies.
Moreover, such laws would mean that digital assets could become part of a person's estate for the purposes of inheritance or bankruptcy proceedings.
What's next?
The Bill was first published in draft form in July but has now reached first reading stage in the House of Lords and will need to go through various debates and iterations before it progresses to the Commons.
The bill has some time to become law, but with the Labour Party currently in power with a majority in the UK, it is likely to eventually pass – though in what form and what provisions it will include is unclear.
For example, what counts as a “digital asset” under the new law? In theory, the term covers a wide range, including email accounts and files, carbon credits, and in-game digital assets. The Law Commission acknowledges this, noting that “boundary issues” are likely to arise across the entire range of digital assets. It also recommends a so-called “common law” approach, suggesting that the law may need to be tested in courts, with judges deciding on a case-by-case basis to set precedents on whether assets in particular cases should be granted personal property rights.
However, the Ministry of Justice and the Legislative Commission have clarified that the “main” digital assets protected by the law are cryptocurrencies and crypto tokens such as NFTs.