UK the Most Favourable Jurisdiction for Cryptoassets and Sma
The UKJT’s legal statement considered two main questions:
- Under what circumstances, if any, would the following be characterised as personal property:
- A cryptoasset; and
- A private key?
- In what circumstances is a smart contract able to giving rise to binding legal obligations, enforceable in accordance with its terms?
These questions underpin the legal status from the technology under English law, and a quantity of practical consequences flow using their answers. Numerous ancillary questions were also considered, including how transfers will be affected if cryptoassets are considered to become property under English law.
Cryptoassets
The UKJT concluded that cryptoassets have the indicia of property and should be treated as personal property under English law. No issue is brought on by the distinctive and novel options that come with cryptoassets, such as their being held on a decentralised ledger, nor is there every other reason why they must be disqualified from proprietary status. The legal statement affirms that there's “no doubt” that cryptoassets are property under both common law and under s436 from the Insolvency Act 1986 . However, a personal key is not considered to be property but instead simply a string of data.
This conclusion is anticipated to inspire the proliferation of cryptoassets, especially in the financial services sector, and to increase the investment in potential use installments of the blockchain technology which underpins them. It's worth considering, for instance, that whilst cryptoassets are purely virtual and therefore can't be the object of pledges or liens, the UKJT “see[s] no obstacle towards the granting of other kinds of security“. Cryptoassets could, therefore, form part of security packages in financial transactions.
Despite this welcome conclusion, further adoption of cryptoassets can lead to a rise in sophisticated fraud and attempted theft as this new asset class is opened to some wider pool of investors of different amounts of sophistication. The recourse available in the event associated with a wrongdoing is something that investors should keep in mind, as we are yet to determine how the English courts will cope with enforcement of any awards over cryptoassets .
Smart contracts
The UKJT’s statement also confirms that a smart contract is capable of giving rise to a legally binding contract which there is no reason why the standard rules of contractual interpretation should not be applied. The UKJT concludes that “there is certainly not novel in this: it is precisely what judges do on a regular basis when determining the foundation which parties have contracted“.
Any requirement that particular documents must be “signed” or “in-writing” could be met by using a private answer to fulfil these requirements.
Concluding comments
Despite the UKJT statement, there remain questions as to identifying and transferring ownership of cryptoassets. For example, cryptoasset transfers usually occur via on-chain transactions registered on the ledger. However, these ledgers aren't currently considered as a legitimate sign up for the purposes of transferring legal title to assets.
The UKJT considers that control and knowledge of the private key happens to be an indication of ownership. However, when the cryptoasset is a member of a business, the individual that has control and knowledge of the private key may not in fact function as the legal owner of the asset. It remains to be seen how this evidential question is decided through the courts.
There offer a similar experience practical difficulties with respect to smart contracts. For instance, there is no legal requirement of parties to know each other’s true identity. Whilst this isn't a unique issue, it remains seen how this might complicate a possible breach of contract claim and if the English courts is going to be flexible enough to deal with such questions.
Whilst it might take future court decisions to finally determine these problems, the UKJT’s statement clarifies these, still new, assets generally fall within established legal principals. This will provide comfort to market participants, as their rights and obligations in respect of those new technologies are, under English law a minimum of, now much more clearly defined. A method which affords market participants adequate legal remedies when disputes arise is a crucially important factor in the united kingdom being seen as an attractive jurisdiction for brand new technologies to flourish.
[1] Robertson v Person Unknown
