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England and Wales legal reform body says digital assets are personal property
There is a big earthquake taking place in the realm of digital assets, which is expected to create shockwaves that will affect technology not only in the real world, but also in the metaverse.
These potentially revolutionary changes appear in an innocuous-looking, albeit lengthy, consultation paper entitled “Digital Assets: Consultation paper” published by The Law Commission of England and Wales, the UK’s public law reform agency.
What this paper proposes is that digital assets be recognized as a new form of personal property, potentially creating an ‘internet of ownership’, which could have huge implications for the UK’s position as a hub for distributed ledger technology (DLT) and fintech.
Why are property rights important?
Property rights are indispensable for creating and deploying capital. A good legal basis for ownership of digital assets will have a host of real-life ramifications, such as enabling security over digital assets – meaning they can be used as collateral for loans – giving people or businesses more protection in the event that fraud and allowing digital assets to be distributed like other properties in the event of insolvency.
The Law Commission consultation paper has considered the many opposing views and decided on one option: treating digital assets as a new form of ownership.
For example, if someone seizes your NFT, you may want to start legal proceedings to get it back, try to prevent the taker from transferring it to another account, report the theft to the police or take action against someone who has them. helped. None of this is possible without clear recognition of digital assets as property. If your NFT is subsequently transferred to an innocent buyer, are they allowed to keep it? There is no answer to this without knowing what kind of property a digital asset is.
The entire decentralized financial (DeFi) industry, including cryptocurrencies like bitcoin, is based on transferring crypto assets to other accounts where they can then be deployed in accordance with smart contracts or other rules.
Do these movements count as a kind of legal transfer of the property or a security arrangement or a form of custody? These questions may seem unimportant when everything is running smoothly, but as soon as something goes wrong, the participants suddenly start to care deeply. They will determine who gets back the remaining assets and whether anyone else – cryptocurrency exchanges, developers and so on – can be held liable for any losses. And again, there is no clear answer to all of this until the nature of digital assets as personal property is settled.
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