Britain should create a new category of private property law for digital assets like cryptocurrencies, which are used to make payments or represent other assets, an independent body, the Law Commission, proposed on Thursday (28 July).
Authorities worldwide are taking steps to regulate the crypto asset sector, which has increased and been labelled a “Wild West” by European Union lawmakers.
Cryptocurrencies, such as bitcoin, surged in price in 2020 and 2021 but have fallen sharply this year. NFTs – blockchain-based assets representing digital files such as images have also increased rapidly.
When he was finance minister, Rishi Sunak said in April that he wanted to make Britain a global hub for crypto asset technology. He asked the Law Commission to review whether current laws accommodate digital assets.
The Commission said on Thursday many digital assets, such as non-fungible tokens or NFTs, do not fit easily into current private property law.
“Our proposals aim to create a strong legal framework that offers greater consistency and protection for users and promotes an environment that can encourage further technological innovation,” said Sarah Green, the Law Commissioner for commercial and common law.
The Commission proposed adding a third “data objects” category to the existing “things in possession”, or tangible assets like gold, and “things in action”, such as debt or shares in a company, categories of personal property.
To come under the new category, a digital asset must be composed of electronic data and meet other criteria, such as only being used by one person at a time, the Commission proposed in a paper put out to public consultation.
Last week Britain set out a draft law giving its regulators powers over the use of stablecoins in payments, with a further consultation on regulating other types of crypto assets due later this year.
The crypto market has fallen sharply in the past few months, with $1 trillion wiped off the global cryptocurrency market cap since early April, based on CoinGecko data, as the prospect of Federal Reserve rate increases to combat high inflation has prompted investors to ditch riskier assets.
Meanwhile, cryptocurrency companies will need a licence and customer safeguards to issue and sell digital tokens in the European Union under groundbreaking new rules agreed by the bloc to tame a volatile “Wild West” market.
Globally, crypto assets are mainly unregulated, with national operators in the EU only required to show controls for combating money laundering.
Representatives from the European Parliament and EU states thrashed out a deal late on Thursday (30 June) on its Markets in Crypto-assets (MiCA) law.
“Today, we put order in the Wild West of crypto assets and set clear rules for a harmonised market,” said Stefan Berger, a German centre-right lawmaker who led negotiations.
“The recent fall in the value of digital currencies shows us how highly risky and speculative they are and that it is fundamental to act,” Berger said.
The new law will need formal rubberstamping by the European Parliament and EU states to become law, followed by an implementation period.
It gives issuers of crypto assets and providers of related services a “passport” to serve clients across the EU from a single base.