From a lawyer’s standpoint, one of the most fascinating things about the evolution of technology is how it requires us to go back to basics with core legal concepts. In the context of smart contracts, lawyers are once again having to grapple with the question – ‘what is a contract?’, while cryptoassets are causing us to re-evaluate the even more fundamental question – ‘what is property?’.
But far from being just discussion points for legal academics, the answers to these questions will have a significant bearing on the viability of smart contracts and cryptoassets around the world. The legal system that gets this right will be at an advantage. Getting it wrong could put a serious dent in a country’s attempt to become a global hub for innovative technologies.
We therefore welcome the UK Jurisdiction Taskforce’s (UKJT) new consultation paper – available here – which offers the industry the chance to shape the legal response to developments in cryptoassets, distributed ledger technology (DLT) and smart contracts. The UKJT consultation goes to the heart of issues we’ve raised in recent blog posts and briefings:
- Can a cryptoasset be owned (and by extension, issued / bought / sold / borrowed / stolen)? Should the answer differ for native vs. non-native tokens, or for different DLT models (eg account-based vs. unspent transaction output models)?
- Does holding a private key amount to ownership of a cryptoasset?
- Is it possible to take security over a cryptoasset?
- How should cryptoassets be treated when the person holding them becomes insolvent?
- Are smart contracts legally enforceable?
- (How) should the law step in when a smart contract does not function as intended?
It seems increasingly unlikely that, in 10 years from now, any of our clients’ businesses will remain entirely unaffected by how legislators answer the above questions. So please do get in touch if you have any concerns about the issues raised in the UKJT paper, or would like further information on how to respond to the consultation (the deadline is 21 June 2019).
Needless to say, we’ll be staying close to this topic as it develops, so look out for further updates on Freshfields Digital.
Smart contracts will only finally take off when market participants and investors have confidence in them. Mainstream investors still need to be convinced that their legal rights can be protected when they trade in cryptoassets and enter into smart contracts.