According to the commission, the presumably pro-crypto proposal is intended to aid the U.K. government’s effort to establish the nation as a major hub for the industry. Nevertheless, since Scotland and Northern Ireland have their legal systems, the commission’s recommendations would not be applicable there.
Financial regulators also put up legislation before Parliament last week that would recognise stablecoins, which are digital currencies backed by physical assets, as legitimate payment methods. The government is considering a consultation on cryptocurrencies as investment assets by the end of the year, and more stablecoin restrictions are on the way.
Based on a consultation paper published on Thursday, the Law Commission of England and Wales, a constitutionally independent agency tasked with evaluating and updating the law, seeks to expand property regulations to embrace cryptocurrencies and non-fungible tokens (NFT).
In addition to formally designating digital assets as personal property, the proposed changes may make it simpler for crypto investors to pursue legal claims for losses incurred as a result of thefts or frauds.
“A lot of people just invest in NFTs, but they don’t ask the question ‘what happens when things go wrong?’ It’s not clear at all what happens if you hack into my wallet and take my bitcoin or if … this system fails and I can’t access my bitcoin.
The document states that there are currently two categories of personal property recognised by English and Welsh property law: “things in the possession,” which includes tangible items like a “bag of gold,” and “things in action,” which refers to property like a stock that can “only be claimed or enacted through legal action.”
The Law Commission is recommending the development of a new category called “data objects” to account for things made of data in an electronic form including databases, software, digital records, domain names, and cryptocurrency to accommodate digital assets.
The study also claims that due to their “many different features” and “unique qualities” when compared to conventional physical assets, digital assets cannot be adequately protected under current property rules.
“The law must therefore go further to acknowledge these unique features, which in turn would provide a strong legal foundation for the digital assets industry and users.”
As stated in the document, adding a third category would enable a more complex analysis of new, emergent, and unique items. When appropriate, it would enable the law to be developed by comparison with things in possession or things in use, while also acknowledging that some objects do not perfectly fit into either category.
The commission came to the conclusion that the current legal framework can support smart contracts, which will automatically execute and record digital transactions between authorized parties, in a project that finished in 2021.
Additionally, the committee has been tasked by the government with studying the regulations governing decentralised autonomous organisations (DAO), which are blockchain-based governance entities. Once the digital assets project is over, it will look into DAO laws.
The Law Commission is halfway through its initiative to develop regulations for digital assets, which it has been working on since last year. Usually, commission evaluations are finished in 18 months. The rules period for public comments will close on November 4th.