Digital assets are increasingly important in modern society. They are used for an expanding variety of purposes — including as valuable things in themselves, as a means of payment, or to represent or be linked to other things or rights — and in growing volumes. Electronic signatures, cryptography, smart contracts, distributed ledgers and associated technology broaden the ways in which digital assets can be created, accessed, used and transferred. Such technological development is set only to continue.
Some digital assets (including crypto-tokens and cryptoassets) are treated as objects of property by market participants. Property and property rights are vital to modern social, economic and legal systems and should be recognised and protected as such.
Over the last 15 years, personal property law in England and Wales has proven sufficiently flexible to accommodate digital assets. However, as the digital asset market and related technology continue to change, there remains some residual legal uncertainty and complexity.
The draft Bill confirms the existence of a “third category” of personal property rights, capable of accommodating certain digital assets including crypto-tokens. The supplemental report explains the basis of the draft Bill, detailing the unique features of digital assets that mean they fall outside of the two traditional categories of personal property (“things in action” and “things in possession”). The supplemental report also highlights that the draft Bill leaves it to the courts to develop this “third category” of personal property by delineating its boundaries and the rights that attach to “third category” things.