Law Commission proposes revolutionary rules for ownership of crypto tokens and NFTs
A significant earthquake is now occurring in the realm of digital assets, and it is anticipated to send shockwaves that will affect technology both in the real world and the metaverse.
The Law Commission of England and Wales, the public agency responsible for legal reform in the U.K., released a consultation document titled “Digital Assets: Consultation paper” that appears to be unassuming yet contains these potentially revolutionary developments.
The proposal in this article is to recognise digital assets as a new type of personal property, potentially resulting in the creation of a “internet of property,” which might have significant ramifications for the U.K.’s status as a centre for distributed ledger technology (DLT) and fintech.
What makes property rights so crucial?
In order to generate and use capital, property rights are essential. The creation of security over digital assets, which means they can be used as collateral for loans, increased protection for individuals or businesses in the event of fraud, and the ability to distribute digital assets like other property in the event of insolvency are just a few of the real-world implications of a sound legal foundation for ownership of digital assets.
For instance, if someone steals your NFT, you could wish to file a lawsuit to get it returned, try to stop them from moving it to another account, file a theft complaint against them with the police, or take legal action against anybody who assisted them. Without a clear understanding of digital assets as property, none of this is feasible. Should the innocent buyer receive your NFT if it is later transferred to them? Without understanding what kind of property a digital asset is, there is no way to respond to this.
Transferring cryptocurrency assets to other accounts allows them to be used in line with smart contracts or other regulations, which is the foundation of the whole decentralised finance (DeFi) sector, which includes cryptocurrencies like bitcoin.
Do these actions constitute any kind of custody agreement, security arrangement, or formal transfer of the asset? When everything is going well, these questions might not seem like a big deal, but as soon as something goes wrong, participants will suddenly care a lot about them. They will decide who receives any leftover assets and who may be held accountable for losses, such as bitcoin exchanges, developers, and others. Again, until the issue of whether digital assets qualify as personal property is resolved, there is no definitive solution to any of these questions.