From Cryptic To (some) Clarity: English Law And Policy Rising To The Challenge Of Cryptoassets (Part 1)

• Published date: 05 May 2022
• Law Firm: Proskauer Rose LLP
• Author: Mr Steven Baker and Julia Bihary

Sir Geoffrey Vos, the Master of the Rolls, wants English law to be at the forefront of developments relating to cryptoassets and smart contracts. In his thought-provoking foreword to the government-backed UK Jurisdictional Taskforce's (UKJT) Legal Statement on Cryptoassets and Smart Contracts, he explained that English law should aim to provide "much needed market confidence, legal certainty and predictability in areas that are of great importance to the technological and legal communities and to the global financial services industry" as well as to "demonstrate the ability of the common law in general, and English law in particular, to respond consistently and flexibly to new commercial mechanisms." He returned to the same theme in a speech on 24 February 2022 at the launch of the Smarter Contracts report by the UKJT in which he said "[m]y hope is that English law will prove to be the law of choice for borderless blockchain technology as its take up grows exponentially in the months and years to come".

The law defines whether and how an owner can find and recover a stolen asset, whether a contract about an asset can be enforced and whether rights are owed between parties in relation to an asset. English law has traditionally been very flexible in fashioning remedies to uphold contracts and to allow parties to preserve and follow (trace) assets - by interim protective relief in the form of injunctions, disclosure orders against third parties (Banker's Trust orders), by recognising trusts over assets and by the English Courts accepting jurisdiction over claims in the first place. If English law allows owners of cryptoassets to access these remedies, it should provide the "market confidence, legal certainty and predictability" described by Sir Geoffrey Vos. In this article, we explore the extent to which recent developments in English law have furthered these objectives and address in turn:

• Are cryptoassets property?
• Can cryptoassets be held on trust?

In the second part of this series, we will review recent developments concerning jurisdictional issues relating to digital assets and in the third part we will preview key legal and policy developments which are in the pipeline.

Key regulatory developments announced by the UK Government as part of the same initiative to establish the UK as a crypto-hub, are reported on here.

1. Are cryptoassets property?

As noted above, the gateway question of whether cryptocurrencies (and certain other forms of digital assets) can be regarded as property is important because its resolution helps define the nature and scope of potential rights, remedies and defences under English law in disputes concerning cryptocurrency (and some other digital assets). Until relatively recently, the issue had been the subject of some technical debate. English law traditionally recognises two classes of property (i) a thing (or "chose") in possession (anything tangible that can be possessed); and (ii) a thing (or "chose") in action (a right that can be legally enforced). This immediately creates a perceived difficulty for cryptoassets as they are not tangible and ownership of them may not create legally enforceable rights.

Prior to the...