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Cryptocurrency and Blockchain
Cryptocurrencies are an exciting emerging asset class, and blockchain technology has the potential to re-invent many aspects of business and ownership of assets. However, the rapid pace of innovation in the sector has resulted in the applicable law being unclear and moving goalposts in terms of regulation.
Our team of cryptocurrency solicitors has experience in advising on the UK law aspects of cryptocurrencies, including providing advice on the legal and regulatory statuses of cryptocurrencies, and advising on crypto fundraisings, such as initial coin offerings.
To find out more about the services we offer in relation to cryptocurrencies and blockchain, please contact our London office on 0203 675 7500, or fill in our online enquiry form and we will get back to you.
The Law Related to Cryptocurrencies
Since cryptocurrencies first emerged, the question of what they actually are, legally speaking, has remained open. In an effort to clarify the position the UK Jurisdiction Taskforce (UKJT), which is part of the LawTech Delivery Panel consulted on this question and the status of Smart Contracts under English law, and has recently issued a statement of its findings.
This statement summarises what the UKJT believes the law to be now, rather than how they consider it should develop in the future. Their key findings included cryptocurrency being property under English law.
The novel features of cryptocurrency, such as public/private keys, use of blockchain technology, and not being tangible, are not relevant to the question of whether or not they are property. Instead, the classic tests of whether or not something is property apply. Cryptos are:
- Definable and certain, because of the public element of the blockchain
- Exclusive and capable of being controlled by virtue of the private key being needed for transfers of the asset
- Capable of being owned and transferred, using the mechanisms typically built into the relevant blockchain
- They have some degree of permanence or stability, in that they will continue to exist until they are burnt
This means they satisfy the required tests.
One question that was considered by the UKJT was whether cryptocurrencies would be disqualified from being property by virtue of just being information - which the courts have historically been reluctant to treat as property. Following the consultation, the UKJT formed the view that the real value of cryptocurrencies is not in the public and private data they contain, but instead in the fact that possession of that data allows the owner to transfer and otherwise use the crypto in accordance with the rules of the relevant system. Therefore, cryptocurrencies are not pure information - as they allow the holder to do things.
Finally, the UKJT noted that cryptocurrencies are virtual property and cannot be physically possessed. While this may seem obvious, it does have some significant implications. In particular, cryptocurrencies cannot be “goods”, so the Sale of Goods Act 1979 does not apply. Also, security by way of pledge or lien cannot be granted over them, and they are not “instruments” for the purposes of the Bills of Exchange Act 1882.
The Law Related to Smart Contracts
There is no clear definition of a smart contract at the moment. However, they do tend to have features such as operating (at least in part) without the need for human input, and their terms being recorded in machine-readable form.
The UKJT’s key finding was that smart contracts are capable of being legally-binding contracts under English law, which is positive in developing new use cases for them, as it suggests they would be enforceable in the English courts.
The UKJT’s report is not legally binding, and ultimately, either the courts will need to determine these issues or legislation will be required to give total certainty. However, it does demonstrate how judges might apply existing legal concepts to this new asset class. This will be particularly important for events such as the death or bankruptcy of the holder of cryptocurrency, or where the holder faces issues around breach of trust, fraud or theft.
This is general guidance only and should not be used for any other purpose. It does not constitute and should not be relied upon as legal advice.