The UK Jurisdiction Taskforce (UKJT), a taskforce of the UK’s Lawtech Delivery Panel, has published an expert legal statement recognising crypto-assets as property and smart contracts as enforceable agreements under English law.
The adoption of crypto-assets and smart contracts was being held back due to uncertainty over their legal status, so this statement is crucial for this fast-growing sector of the economy.
The UK is the first jurisdiction to provide legal certainty on these issues so it is expected to boost England and Wales as the jurisdiction of choice for agreements based on encryption technologies.
What were the main conclusions of the legal statement?
The legal statement on crypto-assets and smart contracts has concluded that assets and contracts created with Blockchain and similar technologies are valid under existing English law, meaning that:
- Crypto-assets, including but not limited to virtual currencies, can be treated in principle as property. They are not disqualified from being property by their distinctive features (intangibility, cryptographic authentication, use of a distributed transaction ledger, decentralisation, rule by consensus), nor by the fact that they are “pure information”.
Why does the property classification matter? Because proprietary rights are recognised against the whole world, whereas other rights (eg, personal) are recognised only against someone “who has assumed a relevant legal duty”.
Moreover, the statement said proprietary rights are of particular importance in an insolvency, where they generally have priority over claims by creditors, and when someone seeks to recover something that has been lost, stolen or unlawfully taken. They are also relevant to the question of whether there can be a security interest in a crypto-asset and whether a crypto-asset can be held on trust.
- A smart contract (characterised by its “automaticity”) is capable of having contractual force, although whether the requirements for an enforceable contract are met in a given case will depend on the parties’ words and conduct.
‘‘In legal terms, crypto-assets and smart contracts undoubtedly represent the future,” said Hon Sir Geoffrey Vos, chair of the UKJT.
Next steps for crypto-assets and smart contracts
This legal statement is expected to provide much needed market confidence, legal certainty and predictability in areas that are of great importance to the technological and legal communities and to the global financial services industry.
Moreover, Hon Sir Geoffrey Vos, chair of the UKJT, added that by setting out that smart contracts exist as agreements that can be identified, interpreted and enforced using ordinary and well-established legal principles, the industry now has the certainty needed to push ahead with innovations to revolutionise the legal agreement lifecycle and arbitration processes.
However, the statement has no binding legal force, so it is unlikely to be the final word. According to the UKJT there are several next steps for the UK:
- Now that the legal status of crypto-assets and smart contracts has been confirmed, the stage is set for regulators to consider what specific regulation is necessary, and for the courts to consider what remedies are appropriate in disputes.
- Although the report concludes that the legal status of crypto-assets and smart contracts is clear under English common law, the next step is for the UK Law Commission to consider whether legislation in this area is necessary.
The above information is just a brief overview of the legal statement. For further information, you can read the full legal statement here.
In the meantime, Linkilaw can inform you about how this document clears the path for businesses to use digital assets on a blockchain and how the law will catch up to adapt.
If you have any legal query regarding crypto-assets and smart contracts or need legal advice for your business, book a call with our legal team and we’ll guide you through every stage of your legal needs.