FSMA<\/a>) on June 19 \u2014 a comprehensive bill allowing regulators increased oversight over digital assets, among other measures \u2014 the report provided the second thrust in a double-pronged breakthrough for the U.K.\u2019s logjammed crypto conversation.<\/p>\nGreen spoke to Forkast editor Will Fee about the legal theories behind the Law Commission report, breaking down the reasoning for categorization of digital assets as a separate \u201cthird category thing\u201d for personal property.\u00a0<\/p>\n
The Q&A has been edited for clarity and length.<\/em><\/p>\nWill Fee<\/strong>: The Law Commission\u2019s digital assets report focuses on establishing a legal basis for the asset class as personal property. Why is the issue of personal property rights so central to the ongoing digital asset debate?<\/p>\nSarah Green<\/strong>: What\u2019s really interesting about property rights in this area is that, if you\u2019re not a lawyer or you haven\u2019t had reason to think about the legal implications, then it might be a strange question to ask. And that\u2019s because fundamentally it really isn\u2019t clear that, as a matter of the law of England and Wales, these digital assets can in fact be somebody\u2019s property. Which is a pretty scary thing for somebody to realize if they\u2019ve just invested a huge amount of money \u2014 or even any amount of money \u2014 in these assets.\u00a0<\/p>\nBut that is still arguably the case to some extent. If you don\u2019t have a property right in something as a matter of law, then the point is that it isn\u2019t protected in the way that one would assume one\u2019s property rights would be. If you lose it, if it gets taken from you in some way, if you don\u2019t have a property right, you can\u2019t necessarily get the law to help you out when things go wrong.<\/p>\n
Fee<\/strong>: The Law Commission report concludes that the current legal framework in England and Wales is flexible enough to cope with any legal challenges posed by digital assets. Why is that?<\/p>\nGreen<\/strong>: One of the main legal challenges in this area is that the technology changes a lot \u2014 sometimes slightly, sometimes quite dramatically. And that obviously can have knock on effects for how the law should treat it. If you\u2019re going to put something in a statute you\u2019d need an act of parliament \u2014 a digital assets act. That provides a huge amount of certainty on the one hand, because it sets out a list of rules and a list of conditions. But it also takes a long time to get through Parliament. That can be a number of years depending on all sorts of other conditions. But once it\u2019s there, it sort of ossifies the setup and the framework and the rules.\u00a0<\/p>\nWhereas, if you use the common law \u2014 a judge in a court making informed decisions based on established precedent \u2014 that of course can change. It can be a lot more nimble and agile. It\u2019s sensitive to really quite subtle differences between different technologies, platforms and protocols. It can just mold to those different requirements in a way that statute law can\u2019t. And actually English law is very used to doing that. It\u2019s one of its great strengths and it\u2019s what it is known for. So that\u2019s a particular sort of appeal of the law of England and Wales for people who are transacting with digital assets.<\/p>\n
Fee<\/strong>: The report goes on to say that, despite that flexibility, there remains residual legal uncertainty and complexity. Where do those concerns lie?<\/p>\nGreen<\/strong>: Despite what I\u2019ve just said, there are parts of the law of England and Wales which do require and have been bolstered by statutory intervention. There are specific rules that have arisen for protection in specific areas. For example if you want to use your digital assets as collateral. And obviously once you start doing that, there need to be protections in place.\u00a0<\/p>\nSo it\u2019s not as easy in those situations for the common law just to step in and mold around those protections. The common law actually can\u2019t prevail over a statutory rule. So that\u2019s a particular area where it\u2019s clear that, if we were to adapt to using digital assets in that way, parliament would need to intervene and update those rules.\u00a0<\/p>\n
So obviously, to some extent what we\u2019ve done here is said to the judges and the common law courts: \u2018Right, over to you. You need to develop these rules.\u2019 And of course not every judge in that situation is going to have a strong grasp of what this technology is and how, in fact, those legal principles can be developed to accommodate them. So what we suggest in the report is to set up a panel of legal and technological experts who can provide ongoing factual guidance to say to a court \u2018this is what control looks like\u2019 in relation to a particular digital asset.\u00a0<\/p>\n
So to use NFTs as a very commonly known digital asset in the current environment, the panel would show a judge: \u2018This is how you control an NFT. This is what the technology allows you to do. This is how you can acquire it, maintain it, transfer it, destroy it \u2014 whatever it is that someone might want to do.\u2019 And it\u2019s that sort of factual information that courts need in order to adapt the legal principles appropriately.<\/p>\n
Fee<\/strong>: The report says that certain digital assets, including crypto tokens, are a category of personal property distinct from other things that can be owned. Why don\u2019t digital assets fit into existing categories of common law?\u00a0<\/p>\nGreen<\/strong>: This to me is one of the most interesting questions of the whole thing. Why are we even given this project when actually the common law of England and Wales has developed over centuries to deal with lots of new things? Why are we now intervening?\u00a0<\/p>\nWell, the amazing thing about digital assets is that until now, personal property has been divided into two categories: things in action or things in possession. The difference being that if something is a thing in possession, you can hold it. That applies to obvious things like a pen or a watch or a bag of gold or even something like a horse \u2014 although maybe you can\u2019t hold a horse, but you know what I mean.\u00a0<\/p>\n
And so there are things in possession and there are what\u2019s referred to as things in action. Now, those things in action only exist because they can be enforced at law. So the obvious example is a debt. It\u2019s intangible. You can\u2019t see it, hold it, touch it, but you nonetheless want a property right in it because you want it to be protected. So you\u2019ve got that dichotomy. But digital assets don\u2019t really fit in either of those two categories. And until relatively recently, the idea always was that if you didn\u2019t get a thing within those two categories, it couldn\u2019t be property.\u00a0<\/p>\n
Fee<\/strong>: Given that lack of fit, the report recommends creating a \u2018third category thing\u2019 for digital assets in personal property law. What would that look like?<\/p>\nGreen<\/strong>: The first thing you have to ask yourself is, why do digital assets not quite fit in either of the existing categories? Well, I suppose the easiest thing to start with is you. You can\u2019t perceive a digital asset with the unaided senses. You can\u2019t hold them and touch them in the way that you can with a pen or a laptop. But actually they\u2019re not things in action either because they do have an existence in the world. So what we use in the report is an idea known as independence of persons in the legal system. That states that without a legal system and without anyone to lay claim to a debt, it doesn\u2019t exist.\u00a0<\/p>\nOf course, you can\u2019t say that about a horse. But a digital asset is the same in that sense. You might not be able to perceive it with the unaided senses, but it does have an existence in the world. If we didn\u2019t have people, if we didn\u2019t have a legal system, that digital asset would remain. And so it has that independence and it has that total transferability.\u00a0<\/p>\n
In all these questions of tangibility \u2014 is it tangible? Is it not tangible? \u2014 digital assets sit somewhere in the middle. What we could have done in the report is say these things are more like things in possession, so let\u2019s just treat them in the same way as we treat pens and laptops. But actually that\u2019s probably not the cleanest way of doing it, particularly given all the historical baggage involved in establishing private property law.\u00a0<\/p>\n
So we actually just came to the conclusion that it would be cleaner to say that digital assets are quite distinct, or what lawyers would call sui generis<\/em> \u2014 as in they have their own rules. And, you know, why not? We\u2019re definitely at a point now where we can consider DLT (distributed ledger technology) a real technological seachange. So why not have a legal seachange to match it? That\u2019s really where we ended up.<\/p>\nFee<\/strong>: Finally, now that the report is out there, what kind of timeframe are you looking at for your recommendations to be put into practice?\u00a0<\/p>\nGreen<\/strong>: Our consultation paper, which preceded the report, has already been mentioned in several cases and referred to by judges. So in that sense, it\u2019s already happening and hopefully that will continue to happen. As I mentioned,\u00a0 common law can be very agile and can get to work on our proposals and recommendations straight away.\u00a0<\/p>\nI\u2019m fairly optimistic that within 12 months we could have an expert panel that could produce the recommended guidance. But the statutory reform that we refer to would take a bit longer given the convoluted nature of the parliamentary process and how supreme something is once it\u2019s on the statute books.\u00a0<\/p>\n
Of course the government also has a lot of work to do in parliament and there\u2019s a lot of congestion. So I think we\u2019re looking at something like a five year plan. But, ultimately, we need to capitalize on this soon because now is a very auspicious time.<\/p>\n<\/div>\n","protected":false},"excerpt":{"rendered":"
Imagine if your car was stolen. Or your watch, a guitar, your pet hamster, or anything else in your possession that you value. You could go to the police to report it missing. You might not get it back, but at least no one would question the validity of your claim to ownership. The same […]<\/p>\n","protected":false},"author":2,"featured_media":140548,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[173],"tags":[201,248,251,246,257,255,250,252,247,253,249,256,254],"class_list":["post-140547","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-others","tag-blockchain","tag-bsc","tag-chainlink","tag-coin","tag-cryptocurrency","tag-gta","tag-looks-rare","tag-oracle","tag-polygon","tag-quickswap","tag-safe-moon","tag-wallet","tag-wordpress"],"_links":{"self":[{"href":"https:\/\/dripp.zone\/news\/wp-json\/wp\/v2\/posts\/140547","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/dripp.zone\/news\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/dripp.zone\/news\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/dripp.zone\/news\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/dripp.zone\/news\/wp-json\/wp\/v2\/comments?post=140547"}],"version-history":[{"count":2,"href":"https:\/\/dripp.zone\/news\/wp-json\/wp\/v2\/posts\/140547\/revisions"}],"predecessor-version":[{"id":147301,"href":"https:\/\/dripp.zone\/news\/wp-json\/wp\/v2\/posts\/140547\/revisions\/147301"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/dripp.zone\/news\/wp-json\/wp\/v2\/media\/140548"}],"wp:attachment":[{"href":"https:\/\/dripp.zone\/news\/wp-json\/wp\/v2\/media?parent=140547"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/dripp.zone\/news\/wp-json\/wp\/v2\/categories?post=140547"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/dripp.zone\/news\/wp-json\/wp\/v2\/tags?post=140547"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}