The American Bar Association's Corporate Counsel Division recently published the third installment in a series of articles authored by New York Associate Steven Aquino. In "Crypto, Part III: Securing Interests in Digital Assets—The Proposed UCC Article 12," Steven details the proposed UCC amendments and explores potential implications. His series for the ABA looks at the basics of cryptocurrency and its regulation. Read Part 1 and Part 2 here.
In this installment, Steven explains that the proposed amendments aim to establish a "legal regime" not only for existing electronic assets on distributed ledgers (blockchains) but also for assets that may be created using future technologies.
"For any practitioner dealing in digital assets, secured transactions, and priority of liens, the new provisions are a must know update to the familiar Article 9 perfection and priority scheme," Steven wrote.
Steven explains how a proposed addition to the UCC, Article 12, aims to address issues by establishing a new system for securing digital assets called "controllable electronic records," or CERs. Control over CERs is crucial for establishing a security interest.
Steven elaborated on the relationship between Article 12 and Article 9, highlighting that Article 12 grants super-priority status to "qualifying purchasers" who gain control over a CER in good faith and for value.
However, he points out a notable aspect of the new Article 12's definition of CER.
"Somewhat counterintuitively, that definition does not necessarily capture the cryptocurrencies we all know: The amendments note that "money" is a medium of exchange that is currently authorized or adopted by a domestic or foreign government. . . . The term does not include an electronic record that is a medium of exchange recorded and transferable in a system that existed and operated for the medium of exchange before the medium of exchange was authorized or adopted by the government," Steven said.
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