Assets such as bitcoin rooted in blockchain encryption technology may need to be classified as a new type of personal property in law, financial law experts have proposed. The suggestion appears in the City of London Law Society’s response to a consultation on whether 'cryptoassets' can be treated as property in England and Wales private law and on the legal status of self-executing 'smart contracts'.
In its response, the society's financial law committee, chaired by Dorothy Livingston, consultant at international firm Herbert Smith Freehills, says that encrypted 'exchange tokens' such as bitcoin fall under neither of the classic common law categories of property. Such an intangible token cannot be a 'chose in possession' - but neither can it be classified as a 'chose in action' as it is recorded on a distributed ledger that is not enforceable against any person. This places it in a different category to intangible assets such as debts or company shares, the response suggests.
'We consider that it would be open to the Supreme Court to recognise a third category of personal property,' the response states. 'The question of policy is whether it should.'
It adds that: 'If the Supreme Court were to hold in the near future that exchange tokens recorded on a blockchain or distributed ledger were not property, then we would favour targeted legislation to deem them personal property as is the case with patents.'
However the 56-page response stresses that different types of cryptoasset may need different treatment in law.
On the enforceability of smart contracts, including those written entirely in computer code, the response states that in general a smart contract is capable of giving rise to binding obligations in the same circumstances, and subject to the same limitations, as any other contract. However difficulties may emerge; for example where there is a statutory requirement for a signature or where clauses purport to oust the jurisdiction of the court.
The consultation is being carried out by the UK Jurisdiction Taskforce of the government-backed LawTech Delivery panel following concerns raised by Sir Geoffrey Vos, chancellor of the High Court, that legal uncertainty in the UK is holding back the exploitation of cryptoassets and smart contracts. Last week web giant Facebook announced that it had picked Switzerland as the base for its planned cryptocurrency Libra.