On November 18, 2019, Geoffrey Vos, Chancellor of the UK High Court, announced the launch of a “Legal Statement on Crypto Assets and Smart Contracts,” which he described as a “watershed moment” for English Law. The statement, which can be found here, brings new clarity to the likely status of both smart contracts and cryptocurrencies under English law.
A committee of experts has prepared the statement and, although technically it carries no binding legal authority, it is likely to be regarded as the most authoritative position available until the matters it covers are dealt with specifically by the English courts or by revised legislation.
Key takeaways from the statement regarding crypto assets are:
- Crypto assets have the legal indicia of property, and under English law are to be treated as property, even though such assets are intangible, and may work on a decentralized or distributed ledger.
- It is knowledge of the private key that confers practical control over the asset, which is one of the indicia of property.
- Accordingly, crypto assets are subject to the protection of English law with respect to insolvency, succession, theft and fraud.
- Because there is no physical possession of crypto assets, there can be no “bailment” of crypto assets, or pledge or lien granted over crypto assets. Moreover, standing alone, crypto assets do not constitute documents of title, documentary intangibles or negotiable instruments.
- However, “some types of security” may be applied to crypto assets.
Key takeaways from the statement regarding smart contracts are:
- Smart contracts, which involve some level of automated performance, are recorded on “computer-readable code” using decentralized distributed ledgers.
- A smart contract has all the attributes of a contract under English law: (i) two or more parties have reached an agreement; (ii) the parties intend to create a legal relationship; and (iii) the terms of the relationship depend on the parties’ words and conduct “just as it does with any other contract.”
- The contract terms can be identified and enforced using “ordinary and well-established” legal principles.
- Where rules require a written signature, those requirements can very likely be met using a private key, or a code element “recorded in source code.”
- Overall, “there is no reason why the normal rules should not apply just because a potential contract is a smart contract.”
While these results may appear to be common sense and almost obvious, having the statement issued by the UK Jurisdiction Taskforce is nevertheless very helpful, and shows the in-built flexibility of English law to adapt to new technologies.