Proposals for Crypto to be Recognised as Personal Property under UK Law

The emergence and development of cryptocurrencies and other digital assets have posed a problem for English law. Informally, crypto, NFTs and the like are treated by people as property, as things that are owned, and as (digital) assets, but they don’t fit neatly into either of the two categories of personal property recognised by English law. This means that when digital assets holders face issues surrounding their ownership of those assets, the legal position is insufficiently clear to assure them that their rights will be protected. A new bill proposed by the UK government is seeking to clarify the position and officially recognise digital assets as a legal form of property. 

The problem has been that English law only recognises two forms of property - choses in possession, which are physical items capable of being touched, and choses in action, which are legal rights that are capable of being enforced by action. A piece of art is a chose in possession; a share in a company or a debt is a chose in action. Taking crypto as an example, it cannot be touched or held, but it can be stolen. Similarly, a crypto token may entitle the holder to voting rights, but it cannot be claimed through a legal traditional legal process such as debt recovery, and would continue to exist even if a law prohibited its existence. This means that while crypto tokens are widely seen as property, they don’t conform to the definitions of choses in action or choses in possession.

English law develops and adapts through a common law system, through court decisions, and over the past years judges have been moving towards the recognition of a third type of personal property. This started with decisions involving carbon credits and milk quotas, but has more recently involved crypto. One such decision was made in the High Court case of AA v Persons Unknown [2019] EWHC 3556, in which the judge concluded that bitcoin did constitute property despite not fitting either of the traditional categories. A similar decision was reached in the Court of Appeal in Tulip Trading v van der Laan [2023] EWCA Civ 83, and in cases involving Tether in 2021 (Reyes v Persons Unknown [2021] EWHC 1938) and NFTs in 2023 (Osbourne v Persons Unknown [2023] EWHC 39). 

Most of these cases, along with others such as Fetch.AI v Persons Unknown [2021] EWHC 2254, involved fraud and/or theft of cryptocurrency, with the claimants seeking English law remedies for the return of the crypto. In order for such remedies, such as freezing orders, to be granted by the court, it was necessary to establish that the crypto was proprietary in nature. In light of these developments and the growing popularity of crypto (and unfortunately of crypto scams and frauds), the UK’s Law Commission published a report on digital assets, with the aim of making recommendations of how English law could be developed by statute to ensure that digital assets and their owners could be provided legal status and therefore legal protection. 

The Law Commission noted the pragmatism, commerciality and adaptability of the English common law system (which we have written about here) to “recognise certain digital assets as things to which personal property rights can relate”. It noted that the decisions mentioned above had brought certain to the question of whether cryptocurrency and other digital assets could be seen as personal property, but recommended that legislation be made to confirm the point that digital assets fall within a third form of personal property, somewhat vaguely expressed as a “third category thing”. 

The Property (Digital Assets etc) Bill is currently only a draft piece of legislation that must be approved by both houses of the English Parliament before taking effect, but its function is to create this third category. The Bill is incredibly short, containing only one substantive provision which does not even mention cryptocurrency: 

1. Objects of personal property rights
   A thing (including a thing that is digital or electronic in nature) is not prevented from being the object of personal property rights merely because it is neither— 
   1. a thing in possession, nor 
   2. a thing in action.

However, the effect of this one provision would be far reaching - digital asset owners would be able to be sure that they have recourse to various legal remedies, such as enforceable action in the event of fraud and theft (if, of course, the fraudster or thief can be identified), freezing injunctions in the event of disputes over the ownership of digital assets and the inclusion of cryptocurrency in bankruptcy proceedings, meaning more funds available to debtors. 

Of course, this Bill also forms part of a general global movement towards governmental and judicial involvement in the world of crypto, which some may view as contrary to the industry’s spirit of autonomy and decentralisation. Still, both the government and many law firms are keen to paint this development as a net good for digital asset holders, and as a step in the right direction towards making the UK a friendly jurisdiction for crypto assets. 

It is true that, if this Bill passes, it will be one of the first laws in the world to officially recognise the legal status of digital assets as property, simplifying enforcement in cases involving crypto. If nothing else, this development serves to highlight that English law is a world leader in global law making and adaptation to new technologies. It will also be yet another reason why it is beneficial to have digital asset-related contracts governed by English law. We will continue to monitor the Bill as it progresses through Parliament.

Do you need help with English law contracts in your crypto business or personal investments? Contact us today for a free, no obligation consultation.