September was an exciting month in the digital asset space with developments in both Parliament and the Courts. Both venues have made strides to establish digital assets as property in England and Wales. With these developments come a raft of property rights for the owners of such assets, such as the benefit of various consumer protection measures and availability of certain legal mechanisms, such as tracing, injunctive relief and enforcement.
On 11 September 2024, the Property (Digital Assets etc) Bill was introduced in the House of Lords. Once it comes into force, it will confirm in statute that digital assets can constitute property, a position that has been embraced in common law in recent years.
As a bit of a primer on property, there are two types of property that exist in English law: things in possession (i.e. tangible things) and things in action (personal property that can be claimed or enforced through a court action). Before being tested in the courts, digital assets did not sit easily in one category or another, so judges grappled with whether owners of digital assets were entitled to property rights.
Interestingly, the bill does not expand things in action to include digital assets nor does it open a third category in which digital assets could sit. Rather, it states that things are not prevented from being the object of personal property rights merely because they do not fit either of the two established categories.
This open wording is intentional – it leaves the status of (and associated rights attached to) digital assets (and any future permutations) to be developed further by the common law. This is key as the digital asset space is constantly shifting. However this does now create some level of certainty concerning property rights relating to digital assets that were not present a few years ago.
In the same week, the judgment for D’Aloia v Persons Unknown Category A & Ors was handed down. Following a full trial dealing with one of the defendants (a crypto exchange), the court confirmed the status of USD Tether (or USDT), a form of cryptocurrency, as property, reiterating previous interim decisions, such as AA v Persons Unknown [2020]. In it, the judge found that USDT “can be the subject of tracing and can constitute trust property in the same way as other property.” However, the Claimant ultimately could not prove his USDT could be traced to the exchange and so his claim against the Defendant had failed.
Updates in this space appear to coming thick and fast. This is unsurprising as developments like these bring the UK closer to its goal of becoming a global hub for cryptoasset technology and investment. As such, we are expecting to see more developments in the near future as the technology marches on and the law catches up.