The Property (Digital Assets etc.) Bill: Navigating the Future of Ownership

The government introduced the Property (Digital Assets etc.) Bill to the House of Lords on 11th September 2024 to reform the law concerning personal property. The bill aims to address the concept of “digital assets”, which encompasses cryptocurrencies, non-fungible tokens (NFTs), and other digital assets, whether they currently exist or are yet to be developed.

Given the complexity of the cryptocurrency landscape, this article will focus on the background of the legislation and highlight a key proposed change to property ownership law. The rapid advancement of technology necessitates the introduction of legislation in this area.

What is a cryptocurrency?

A cryptocurrency is a type of digital or virtual currency that relies on cryptography for security. Unlike traditional currencies issued by governments, cryptocurrencies operate on decentralised systems, often built on blockchain technology. This decentralisation allows cryptocurrencies, such as Bitcoin, Ethereum, or Solana, to function independently of central banks.

These digital assets can serve various roles, including as a medium of exchange, a store of value, or an investment vehicle, with some being recognised as legal tender in certain jurisdictions. The Property (Digital Assets etc.) Bill seeks to clarify the legal status of digital assets within the UK's legal framework.

What is an NFT?

An NFT (non-fungible token) is a digital asset that signifies ownership of a unique item or piece of content, such as art, music, virtual land, or other media. NFTs differ from cryptocurrencies in that they are non-fungible; one NFT is not interchangeable with another, as each has a distinct identifier.

NFTs gained significant popularity in 2021, leading to substantial investments in digital artwork, collectible moments, and virtual real estate. The legal classification of NFTs as property remains complex, and the Property (Digital Assets etc.) Bill aims to address uncertainties surrounding the ownership, transfer, and protection of these assets.

How did this bill come about?

The Property (Digital Assets etc.) Bill follows a report from the Law Commission, an independent body responsible for reviewing and recommending legal reforms. In 2023, the Law Commission published a report emphasising the need for updated laws to keep pace with the growth of digital assets. As digital property gains value and complexity, current legal frameworks governing tangible assets may not adequately address the nuances of intangible digital property.

The Law Commission recommended the creation of a new category of personal property to accommodate the unique features of digital assets, ensuring clarity regarding ownership and transfer whilst providing necessary protections for those engaging in the digital economy.

What does the Property (Digital Assets etc) Bill aim to achieve?

The primary objective of the Property (Digital Assets etc.) Bill is to establish a clearer legal framework for the ownership, transfer, and protection of digital assets. The bill proposes recognising digital assets as personal property, granting them the same legal status as tangible property, such as real estate or physical goods.

Moreover, the bill aims to provide a framework for resolving disputes related to digital assets, which are increasingly common in the legal system. By offering clearer definitions and protections, the government aims to facilitate the legal resolution of these disputes and create a more secure environment for digital innovation.

What is the specific effect of the bill should it pass?

If enacted, the bill would grant legal protections to owners—both individuals and businesses—of certain types of digital assets. These protections would include:

• The ability to pursue legal action in instances of fraud or theft.
• Rights in disputes involving interference, with legal mechanisms such as freezing injunctions applicable to digital assets.
• Inclusion of digital assets in bankruptcy and insolvency proceedings, allowing these assets to be considered part of an estate that can be liquidated to repay creditors.

The bill explicitly states that a "thing"—including digital or electronic assets—can be recognised as subject to personal property rights, regardless of whether it meets traditional legal definitions. Specifically, it clarifies that a digital asset:

• Does not have to be a "thing in possession" (a physical object under someone's control).
• Does not have to be a "thing in action" (a right to recover an asset through legal action).

This clarification ensures that digital assets are treated as personal property under the law, expanding property ownership rights to include virtual items.

Conclusion

The Property (Digital Assets etc.) Bill represents a significant development in property ownership, aiming to align legal principles with the realities of the digital age. As technology continues to evolve, there is a need for laws that reflect these changes. By recognising digital assets as personal property, the bill aims to provide clarity for individuals and businesses engaged in the digital economy. While the integration of these changes into legal practice may take time, the bill’s introduction marks an important step in adapting property law to contemporary challenges.