UK Law May Treat Bitcoin, NFTs as Personal Property

A new bill from the UK government to Parliament would add new legal rights for digital assets like carbon credits, cryptocurrency, and non-fungible tokens (NFTs)

The bill comes at a time when the crypto industry is facing several governmental challenges: There is a group in the United States called the Securities and Exchange Commission (SEC) that says some crypto assets are securities—earlier this year, the SEC allowed the first exchange-traded fund (ETF) in the U.S. to track Bitcoin. At the same time, the European Union (E.U.) is passing new laws to control cryptocurrencies and make it easy to track transactions.

The U.K. is working on similar rules, but the new Property (Digital Assets, etc.) Bill is more about making digital assets legal as “personal property,” which means they are treated like other assets.

A report from the Law Commission in 2023 said that the current laws on personal property rights needed to be updated. This is why the suggested law was made. The report said:

As technology advances and humans spend increasing amounts of time online, our relationships with digital assets will become ever more important…our recommendations also aim to ensure that the private law of England and Wales remains a dynamic, globally competitive and flexible tool for market participants in the digital asset space.

The idea of “personal property” is crucial in the law because it is at the heart of cases involving bankruptcy, insolvency, theft, inheritance, divorce, etc. At the moment, the law in England and Wales (Scotland and Northern Ireland have their legal systems) covers two types of property: “things in possession,” which are things like cars, jewelry, and cash, and “tangible goods.” “Things in action” protects things that can’t be seen or touched, like shares, bills, and intellectual property.

This makes a massive hole for “digital” assets like Bitcoin and other cryptocurrencies and non-fungible tokens (NFTs) like digital art, which have changed hands for a lot of money in the last few years. It would be easier for courts to decide on disputes if this new third group became law because it would clarify what kinds of things are personal property.

A court could, for example, issue a freezing injunction to stop someone from losing a digital asset until a disagreement is settled. This is similar to what courts do with physical goods. Some people may be able to get more robust legal help if their digital asset is stolen as part of a scam.

Also, if there was such a rule, digital assets could be considered part of a person’s estate when they die or file for bankruptcy.

What will happen next?
The bill was first released as a draft in July. It has now hit the first reading stage in the House of Lords, where it will be debated and changed many times before it moves on to the House of Commons.

The bill still has a ways to go before it becomes law, but the U.K. has a majority Labour Government, so it will likely be passed eventually. It’s not clear how or what features it will have, though.

In this case, what will be considered a “digital asset” under the new law? This term could mean many different things, like email accounts and files, carbon credits, and digital goods used in games. The Law Commission agrees with this and says there will probably be “boundary issues” across the range of digital assets. It also suggests a so-called “common law” method, which means that the law might have to be tested in court, with the judge making a case-by-case decision on whether an asset should have personal property rights in a particular situation.

On the other hand, the Ministry of Justice and the Law Commission clarify that they think crypto tokens, like cryptocurrencies and NFTs, are the “main” digital assets the law should protect.