Since the publication of Satoshi Nakamoto's bitcoin white paper in October 2008, the digital asset space has seen exponential adoption and growth. From crypto tokens to NFTs, citizens around the world are continuing to show a deep interest in possessing digital assets.
In 2021, the Law Commission of the United Kingdom began considering how principals of personal property law interact with the ever-growing digital asset space. Traditionally, the law of England and Wales recognizes two distinct categories of personal property rights:
- Rights relating to things in possession (tangible things); and
- Rights related to things in action (legal rights or claims enforceable by action)
In February 2024, the Law Commission put forth a draft legislative proposal and bill that aimed at statutorily recognizing a third category of property rights. The Law Commission explained that over the last 10 years, common law has moved toward the recognition of a third category of personal property rights that does not easily fall within either of the two traditional categories. Notably, digital assets do not sit easily in either of the traditionally recognized categories of things in possession or things in action. For this reason, the Law Commission recommended legislation to confirm the existence of a third category of personal property rights, capable of accommodating certain digital assets, including crypto tokens.
Then, on July 29, 2024, the Law Commission published a supplemental report in which it put forth amendments to the draft legislation and provided further explanations behind its proposals. Under this report, a new Property Act (Digital Assets etc.) would be implemented to "make provision about the types of things that are capable of being objects of personal property rights."
The Property Act provides that "a thing (including a thing that is digital or electronic in nature) is not prevented from being the object of personal property rights merely because it is neither a thing in possession, nor a thing in action"―leaving it to the courts of England and Wales to further define what "things" would qualify for this third new category of property over time.
The draft bill is not intended to confirm that any particular type of thing is the object of third category of personal property rights or set out the implications of any such property rights. Rather, it merely clarifies that things other than things in possession or things in action are capable of being the object of property rights. Broadly speaking, however, a thing will fall within the third category if it:
- Is functionally analogous to those things that attract property rights and is itself capable of attracting property rights; and
- Is not comfortably either a thing in possession or thing in action.
Further, the supplemental report acknowledges that some things will not fall within this criteria. For example:
- Pure information, being the intangible, abstract thing that is information, distinct from the means by or on which that information is recorded;
- Certain digital assets, such as digital files and records, email accounts and certain in-game assets and domain names.
The legislation landscape for the digital asset space continues to evolve rapidly every year. In 2024, the European Union passed a landmark set of rules, Markets in Crypto-Assets (MiCA), which created an expansive and rigorous regulatory framework for virtual value, including financial crime compliance duties, for crypto assets, service providers and currency exchanges. The U.K. Law Commission's policy support for crypto shows key global support for crypto.
Meanwhile, in the United States, the House of Representatives passed a bill in May 2024 seeking to create a legal framework for digital assets, the Financial Innovation and Technology for the 21st Century Act (H.R. 4763). There has been no movement on this since May.
As such, it is anticipated that perhaps in 2025 we may see legislation in the U.S., which will signify the maturation and legitimacy of the crypto markets.
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