The future is here. Cryptoassets are property and smart contracts are binding – so says the UK Jurisdiction Taskforce (UKJT), one of the six taskforces tasked with supporting the digital transformation of the UK legal services sector.
What has happened?
In May 2019 the UKJT issued a consultation paper on the status of cryptoassets, distributed ledger technology and smart contracts in English private law. The overriding message coming out of that process was that legal uncertainty was undermining confidence among market participants and investors and UKJT was, therefore, asked to step in a consider a number of legal questions concerning those areas of uncertainty. On 18 November 2019, UKJT published its Legal Statement.
In the Legal Statement UKJT confirmed that, on cryptoassets:
- cryptoassets have all the indicia of property;
- the novel or distinctive features possessed by some cryptoassets – intangibility, cryptographic authentication, use of a distributed transaction ledger, decentralisation, rule by consensus – do not disqualify them from being property;
- cryptoassets are not disqualified from being property as pure information, or because they might not be classifiable either as things in possession or as things in action;
- cryptoassets are therefore to be treated in principle as property.
and on smart contracts:
- a smart contract is capable of satisfying the requirements for valid creation of a contract (i.e. where two or more parties have reached an agreement, intend to create a legal relationship by doing so, and have each given something of benefit);
- parties’ contractual obligations may be defined by computer code, or the code may merely implement an agreement whose meaning is to be found elsewhere.
Are there are limitations?
There are some limitations to the UKJT’s conclusions regarding the status of cryptoassets as property. For instance, although they are considered to be property, cryptoassets cannot be physically possessed – so it is not possible for certain proprietary remedies, such as conversion or liens, to be available to holders. Similarly, because cryptoassets cannot be physically possessed or transferred, they can not also be treated as a document of title or as goods under the Sale of Goods Act 1979.
The conclusions on smart contracts are much more wide ranging. Smart contracts can be legally binding as agreements as long as all elements for a contract are met, and they will be treated the same as any other contract when being interpreted by a court. Finally, and perhaps most importantly, a smart contract that is entirely in code can be considered to be 'in writing' as long as the code represents of reproduces words – even if it is unintelligible to untrained people.
Is the Legal Statement conclusive?
In a word, no. Whilst the Legal Statement provides helpful guidance and a legal foundation for the interpretation at law of both cryptoassets and smart contracts, it is still subject to any future judicial decisions. Until such decision is reached, either affirming or contesting the conclusions of UKJT, then market participants can take comfort from the conclusions of the Legal Statement when assessing how to deal with cryptoassets and smart contracts.
The full statement can be found here.