A Bill has been introduced to Parliament aimed at clarifying the legal status of digital assets such as cryptocurrencies, NFTs, and carbon credits.

The Property (Digital Assets etc) Bill follows the detailed work of the Law Commission in this area and their recent report (on which we commented here) recommending the introduction of statute to confirm the existence of a ‘third category’ of personal property rights to accommodate emerging digital assets.

The Law Commission’s recommendation was based on its conclusion that certain types of digital assets are things to which property rights relate, but that they do not easily fit within the two categories of personal property that the law has traditionally recognised (i.e. things in action and things in possession). The Law Commission also noted that while English courts already recognise certain digital assets as third category things, the absence of an appellate court ruling on the status of digital assets inevitably brings a considerable level of uncertainty as to its legal position. Much time has been spent debating whether and how digital assets could or could not fall within existing personal property categories, including whether it was even possible for the law to recognise personal property that did not fit within these existing categories.

The Government has taken up the Law Commission’s recommendation to bring legal certainty to this area and adopted in full the wording of the draft bill that was included alongside the Law Commission’s report. As we have previously commented, the proposed Bill is deliberately agnostic about the characteristics of third category things, and is intended to unlock the further development of the common law enabling it to respond to technological developments and the varied ways that digital assets may be used now and into the future. The wording in the draft Bill takes into account consultation responses to clear the way for the recognition of third category things that do not fall into existing categories, rather than defining whether (or what) digital assets would be a third category thing.

The rather brief Bill as drafted as follows:

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 –

a thing in possession, nor

a thing in action.

The press release announcing the introduction of the Bill states that “the Bill will ensure Britain maintains its pole position in the emerging global crypto race by being one of the first countries to recognise these assets in law…The new law will therefore also give legal protection to owners and companies against fraud and scams, while helping judges deal with complex cases where digital holdings are disputed or form part of settlements, for example in divorce cases.”

Commenting on the Bill’s introduction, the Justice Minister, Heidi Alexander, said “our world-leading legal services form a vital part of our economy, helping to drive forward growth and keep Britain at the heart of the international legal industry. It is essential that the law keeps pace with evolving technologies and this legislation will mean that the sector can maintain its position as a global leader in cryptoassets and bring clarity to complex property cases.”

While much of the heavy lifting is to be done by the further development of the common law, the Bill is an important step in the direction of providing legal certainty that certain digital assets are capable of having personal property rights despite not falling into existing categories of personal property.

We await the announcement of the date for the Bill’s Second Reading in the Lords. In the meantime, it can be found here.