The UK Provides Legal Certainty For Smart Contracts And Cryptoassets In Its Landmark Legal Statement

Earlier this week the UK Jurisdiction Taskforce (UKJT), part of the LawTech Delivery Panel of senior solicitors and barristers headed by Chancellor of the High Court, Sir Geoffrey Vos, published a landmark "Legal Statement" providing long awaited clarity as to how cryptocurrencies, distributed ledger technology (DLT) and smart contracts might be treated under English law.

The statement follows several rounds of public and private consultation, conducted to address the perceived legal uncertainties of these innovative technologies.

For the first time, the Panel has recognised that cryptoassets, including but not limited to, digital currencies, can be treated as property in principle, and that smart contracts are capable of satisfying the requirements of contracts in English law, making them enforceable by the Courts.

Cryptoassets

What is a cryptoasset?

The Legal Statement does not seek to define the term "cryptoasset", the Panel having recognised the wide variety of systems in use, and the kinds of assets represented. These range from purely notional payment tokens, such a Bitcoin, to tangible objects which are external to the system, such as a share or unit in a company or fund. Rather the Panel has sought to identify and describe, in broad terms, the features of cryptoassets which make them novel and distinctive from more conventional assets, to allow for a detailed consideration of their legal and proprietary status.

In summary, the Panel explains that a cryptoasset is defined by reference to the rules of the system within which it exists. It is typically represented by a pair of data parameters: one public (disclosed to all participants in the system) and one private. The public parameter contains encoded information about the asset, such as its ownership, value and transaction history. The private parameter (the private key) permits transfers or other dealings in the cryptoasset to be cryptographically authenticated by a digital signature. The private key should be kept secret to the holder.

Dealings in cryptoassets are broadcast to the entire network and, once they are validated, they are added to the digital ledger. Most commonly the ledger is decentralised meaning no one person or entity has control over it. It is also immutable and cannot be changed. The most common type of ledger being used today is blockchain, although other models do exist. The rules governing the system are established by the informal consensus of the participants.

The novel features of cryptoassets are therefore broadly summarised as follows:

intangibility; cryptographic authentication; use of a distributed transaction ledger; decentralisation; and rule by consensus. Can cryptoassets be characterised as property?

The Legal Statement focuses on the status of the cryptoasset itself (referred to as the "on-chain" asset), not any other asset it may represent (such as conventional assets linked to the system, which will already be classed as property).

The Panel has considered what property is, as a matter of English law. As no general or comprehensive definition of property exists in statute or case law, the Legal Statement focusses upon the necessary characteristics of property as identified in a number of authorities. The Legal Statement provides that before a right or interest can be admitted into the category of property: "it must be definable, identifiable by third parties, capable in its nature of assumption by third parties, and have some degree of permanence or...

To continue reading

Request your trial

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT