HomeInsightsUK Jurisdiction Taskforce publishes Legal Statement on the Status of Cryptoassets and Smart Contracts

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The UK Jurisdiction Taskforce (UKJT), which is a taskforce of the Law Society’s LawTech Delivery Panel, has published a statement on the legal status of cryptoassets (such as Bitcoin) and smart contracts.

Launching the Legal Statement, Sir Geoffrey Vos, Chair of the UKJT, said that the Statement was “a watershed for English law and the UK’s jurisdiction” and was “genuinely ground-breaking” as no other jurisdiction has attempted to define the legal status of cryptoassets and smart contracts.

Sir Geoffrey noted that cryptoassets are “not all about Bitcoin and Bitcoin mining” as there is “an endless spectrum of types of cryptoasset and cryptocurrencies, many of which already are or certainly will be designed for use as wholesale and retail payment mechanisms”.

Following “rigorous legal analysis”, the Statement concludes that, in general terms, cryptoassets have all the legal indicia of property and are, as a matter of English legal principle, to be treated as property. Further, it concludes that there can be no bailment over a virtual cryptoasset, which cannot be physically possessed. Cryptoassets are not documents of title, documentary intangibles or negotiable instruments. Nonetheless, the Statement concludes, some types of security can be granted over cryptoassets.

As for smart contracts, the Statement describes rather than defines a smart contract as having a characteristic feature of automaticity. It suggests that a smart contract is performed, at least in part, automatically and without the need for, and in some cases without the possibility of, human intervention. This means that the terms of the smart contract must be recorded in computer-readable code.

The statement concludes that a smart contract is capable of satisfying the basic requirements of a legal contract under English law — two or more parties have: (i) reached an agreement; (ii) intend to create a legal relationship by doing so; and (iii) have each given something of benefit. Whether the requirements are in fact met in any given case will depend on the parties’ words and conduct, just as it does with any other contract.

In other words, the legal statement concludes that a smart contract can be identified, interpreted and enforced using ordinary and well-established legal principles. Where a legal rule requires documents to be signed or in writing, this can in principle be met by using a private key or by a smart contract whose code element is recorded in source code.

Sir Geoffrey concluded the launch by saying he hoped that the document would be “hugely influential on legal thinking across the common law world”.

The next step is for the Law Commission to consider whether any legislation might be desirable in this area. To access the Legal Statement in full, click here.