Legal statement on cryptoassets and smart contracts
A landmark statement issued on Monday 18th November 2019, by the UK Jurisdiction Taskforce of the Lawtech Delivery Panel, has concluded that cryptoassets can be recognised as tradable property, and smart contracts constitute enforceable agreements under English Law.
The statement brings much desired legal certainty and clarifies the following in relation to cryptoassets and smart contracts:
- Cryptoassets have all the distinctive marks of property, although whether they will be treated as property will depend on the nature of the asset, the rules of the system and the purpose for which the question is asked;
- Any novel features such as intangibility, cryptographic authentication, use of distributed ledger technology, decentralisation and rule by consensus do not disqualify them from being treated as property in principle;
- Cryptoassets are merely tokens that effect and authenticate dealings in accordance with the rules of the system. Their commercial value is not in the recorded data and therefore they are not disqualified from being property on the ground that they constitute information;
- As with other intangible assets, title can be vested or transferred by assignment or agreement of the owner;
- Cryptoassets cannot be classified as “goods” under the Sale of Goods Act 1979;
- If a cryptoasset is property then a mortgage or equitable charge can be created over it in the same way as other intangible property, and subject to the same requirements;
- Cryptoassets can be property for the purposes of the Insolvency Act 1986;
- A distributed ledger cannot be treated as a definitive record of legal rights unless statute has given it binding legal effect and therefore cannot be relied upon for the purposes of evidencing, constituting and transferring title to assets; and
- It is possible to create a proprietary right in a cryptoasset outside of the ledger, such as an interest under a trust or security arrangement, an interest acquired by tracing, or a title acquired “off-chain” by contract or succession.
- The ordinary rules of contract law apply to smart contracts;
- Statutory requirements for a signature “in writing” can be met by techniques such as private key encryption in principle; and
- A smart legal contract between anonymous or pseudonymous parties is capable of giving rise to a binding legal obligation as there is no requirement that parties know each other’s real identity under English Law.
Sir Geoffrey Vos, chancellor of the High Court, described the initiative as “a watershed for English law and the UK's jurisdictions”, noting that the statement can “provide a dependable foundation for mainstream utilisation of cryptoassets and smart contracts.”
While the Taskforce’s statement is most welcome and an important step forward in the quest for establishing a sure legal footing for cryptoassets and smart contracts, it is by no means the end point. Further statements from the Taskforce will need to follow on from this one and in short order, if we are to maintain the momentum. These further statements will need to effectively and robustly address the current legal uncertainty associated with cryptoassets, such as taxation, data privacy, intellectual property rights and money laundering.
Download the full statement here.