Policy paper

Property (Digital Assets Etc.) Bill: factsheet

Updated 6 November 2024

Applies to England and Wales

Overview

This short bill clarifies that certain digital assets, such as crypto-tokens, can be recognised as property, even if they do not fit into the 2 traditional categories of personal property in English and Welsh law.

This will help provide certainty and protection for people and businesses who own and transact with these assets.

What does the bill do?

The bill confirms that certain digital assets – such as crypto tokens – can attract property rights even if they do not fit into the 2 traditional categories of personal property in English and Welsh law (please see details in the policy context section below).

In doing so, the bill is responding to technological developments so that people and businesses who use these assets have appropriate legal protections. This will bring practical benefits for those individuals and businesses (detailed below).

This bill deliberately does not state what digital assets fall within a “third category” of personal property rights or how the law will treat them. Instead, these details will be developed by the courts, who can deal with issues on a case-by-case basis. This is preferable to setting out firm rules in legislation, which would be less able to respond flexibly to new circumstances and technological developments. Personal property law has always been developed by the courts through our common law rather than in legislation. The bill supports this established approach.

What are the benefits of the bill?

There are several practical advantages to the bill, including:

1. Ensuring that crypto-tokens and potentially certain other digital assets can be properly recognised by the law as personal property. This helps provide certainty and protection for people and businesses who own and transact with such assets. Property rights are important in achieving this. If personal property is stolen, its owner will have rights and remedies under the law. Personal property can also be part of a person’s estate for inheritance purposes, be available to creditors if a business goes bust, or be used as security for a loan.

2. Decreasing litigation costs by removing the need to decide whether something can be property even if it does not fall into the traditional categories of property in England and Wales;

3. Ensuring that the jurisdiction of English law continues to be an attractive place to deal with and litigate in respect to crypto-assets and other “third category” things. It is in line with international approaches and other jurisdictions including Singapore, New Zealand, the United States, the Dubai International Financial Centre and the UNIDROIT Principles on Digital Assets.

Policy context and bill development

Traditionally, the law of personal property in England and Wales has been split into 2 categories:

1. things in possession (generally, tangible things like gold bars), or

2. things in action (personal property that can only be claimed or enforced through a court action, like a debt or contractual right).

Certain digital assets, particularly crypto-tokens, display the characteristics of property under the common law. For example, the technology used to create crypto-tokens means that they cannot be duplicated or “double spent”, which makes them different from other data. However, they do not easily fit into either traditional category of personal property. Because they cannot be physically possessed, they do not fall into the category of things in possession. However, they also cannot be things in action because their existence is not dependent upon their recognition by a legal system and claims made in relation to them.

Although there is some case law in the High Court that has found that certain digital assets, specifically crypto-tokens, can be property even if they are neither a thing in possession nor a thing in action, this is not definitive for the common law. There remains lingering uncertainty caused by comments in old case law that said the 2 categories of personal property are exhaustive, and that there can be no “third category”.

In response to this uncertainty, the Ministry of Justice commissioned the Law Commission for England and Wales to consider this issue. The Law Commission undertook extensive consultation on the issue of whether the law does or should regard crypto-tokens and potentially certain other digital assets as property.

A majority of consultees who responded to the Law Commission, including senior and specialist judges, lawyers, and technology companies, supported legislation in this area, on the basis that it would facilitate the law’s continued development in this area.

Following this consultation, the Law Commission published this bill in draft form, which confirms that a thing can attract property rights even if it is not a thing in possession or a thing in action. The Bill is a means of ‘unlocking’ the development of the common law. It confirms the approach taken in recent High Court judgments^{[footnote 1]}.

There are many different kinds of digital assets with different features, including crypto-tokens, non-fungible tokens, virtual carbon credits, digital files and domain names. The common law tests for property will be applied by the courts to each specific digital asset. This means that only things with the necessary characteristics of property will be recognised as attracting property rights. The Law Commission identified crypto-tokens as the main type of digital asset likely to fall into the third category.

1. For example, D’Aloia v Persons Unknown [2024] EWHC 2342 (Ch) and AA v Persons Unknown [2019] EWHC 3556. ↩