A landmark “Legal Statement” published this week provides long-awaited clarity on how cryptocurrencies, distributed ledger technology (DLT) and smart contracts might be treated under English law.
Following several rounds of public and private consultation, the statement recognises that cryptoassets, including but not limited to, digital currencies, can be treated as property. The statement also makes clear that smart contracts are capable of satisfying the requirements of contracts in English law, making them enforceable by the Courts.
Commenting on the statement, Karen Boto, Clyde & Co Legal Director, said:
“It is important to determine whether a cryptoasset is capable of being property because, as the Panel highlights, it means that it can be owned, which may give rise to important proprietary rights that can be recognised against the whole world. It may mean that important proprietary remedies can be relied upon more readily where cryptoassets are lost or stolen. There are a number of complex legal issues that will need to be decided upon by the Courts or legislators, in future, but the Legal Statement is encouraging.
The Legal Statement also clarifies that there is no reason why a smart contract cannot create a binding legal relationship that has contractual force, and that a statutory ‘signature’ requirement could be met by using a private key. This is also encouraging and reflects the reality of modern-day commerce.
“The Legal Statement does indeed demonstrate the ability of English law to respond consistently and flexibly to new commercial mechanisms, and hopefully it will provide a foundation for the responsible future utilisation of cryptoassets and smart contracts as the Panel envisages.”
The statement is likely to be welcomed by insurers who may be providing crime cover to crypto-related businesses for hacking incidents as it may increase the prospects of recovering losses, which may, in turn, reduce the losses being claimed from insurers in the first instance and/or pave the way for subrogated recoveries to be made in future.
“Cryptocurrencies and blockchain undoubtedly represent potential areas of growth for the insurance industry. As we enter a new decade, we can expect to see insurance demands increase, especially if the Legal Statement has the desired effect of promoting further utilisation of these technologies going forward.”