The Law Commission has published a paper setting out its proposals for reform of the laws relating to digital assets. It has identified many areas of law that need reform in order to recognise and protect the rights of users and maximise the potential of digital assets.
The paper looks at how digital assets differ from physical ones and how, as a result, many digital assets cannot fit within current laws governing private property. The suggestions include:
- creating a category of personal property to add to the two current categories of “things in possession” and “things in action” that would be called “data objects”, considering the various assets comprised under the term “digital asset” such as databases, software, digital records, domain names, cryptocurrencies and other crypto-tokens including NFTs. The paper proposes some criteria that a “thing” will need to exhibit to fall within this category, and suggest that the concept of “control” may be the best description between data objects and persons;
- clarifying the law around ownership and control of digital assets, and around transfers and transactions involving them. Having concluded that crypto-tokens satisfy these proposed criteria, it then looks at how the rules of derivative transfer of title might apply to the transfers;
- that a reform of the law clarifying and simplifying the apportionment of shortfall losses arising from commingled crypto-token holdings held on trust by an insolvent custodian could be helpful; and
- extending the tort of conversion to data objects – although it acknowledges this would be a radical change.
The paper is conscious of not discouraging the use of new technologies yet wants to make “foundational” changes, which means this is one of the rare instances when the Law Commission is actually proposing law reform.
Consultation closes on 4 November.