UK legal reforms may support crypto ambitions but provide little relief for Bitcoin developers facing lawsuits from Craig Wright.

UK legal reforms may support crypto ambitions but provide little relief for Bitcoin developers facing lawsuits from Craig Wright.

The Blockchain Industry: Addressing Legal Uncertainties and Embracing New Opportunities

The blockchain industry has been gaining significant attention in recent years, with its potential to revolutionize various sectors. However, despite the promises of decentralization and smart contracts, there are still legal uncertainties surrounding the industry. A recent paper on crypto ownership rights from the Law Commission of England and Wales has aimed to provide clarity on some of these issues, but it alone may not be enough to address all the concerns.

The Weight of the Proposals

Politicians and the legal sector have welcomed the Law Commission’s proposals, seeing them as a step towards legal certainty in the blockchain industry. The recommendations have been embraced by the cross-party parliamentary group known as the APPG on Crypto and Digital Assets, which has been exploring legal classification issues in the industry. Lisa Cameron, the group’s chair, believes that the proposals could provide further clarity for the sector, regulators, and the legal system, ultimately helping the UK become a global hub for cryptocurrencies and digital assets.

The Law Commission’s proposals offer a sense of certainty to industry participants. Etay Katz, partner and head of digital assets at Ashurst law firm, views the proposals as a categorical statement of what the law is and should be, similar to a statute. This clarity can provide a solid foundation for the development of the industry, as demonstrated by the Commission’s previous success with the draft bill on using blockchain for trade documents, which has now passed through Parliament.

However, while the proposals are a significant step forward, there are still several unresolved issues in the blockchain industry that need to be addressed.

Wright V. Bitcoin Devs: A Case Study

One notable case that highlights the complexities of the blockchain industry is the legal battle between Craig Wright and a group of Bitcoin developers. Wright claims to be the real author of the Bitcoin white paper and has sued the developers, demanding access to 111,000 bitcoins allegedly stolen from him. The Law Commission’s report refers to this case, suggesting a rule of thumb for developer liability. However, it’s important to note that the report does not directly affect the question of developers’ claimed fiduciary duties.

The Bitcoin Legal Defense Fund, a nonprofit organization established by former Twitter chief Jack Dorsey, sees the Law Commission’s report as undermining the central claims made by Wright in his case. While the report may offer helpful guidance, it primarily focuses on the ownership of assets rather than the underlying networks. It’s clear that there is still much to be resolved in terms of legal certainty for developers and other industry participants.

Legislation: Nailing Down the Details

The Law Commission’s proposals lay the groundwork for future legislation in the blockchain industry. One key aspect is clarifying the legal status of digital assets, ensuring that individuals can own them, even if they don’t fit into the traditional legal categories. Additionally, the Commission suggests reviewing laws related to the tokenization of equity and securities to determine if they need to be extended to cover permissionless ledgers.

There are several specific areas that require attention in legislation. For example, the treatment of crypto posted as surety for a loan needs clarification. Etay Katz suggests adding digital assets to the existing legislative list of permitted collateral. Another area of concern is the obligations of crypto custodians. Jurisdictions like the European Union have already legislated on this issue, but the UK risks falling behind by relying solely on individual contracts.

To position itself as a leader in the blockchain industry, the UK needs to take more decisive action. While the Law Commission’s findings are a positive step, there is a need for comprehensive policies on companies legislation, regulation, taxation, and other important aspects of the ecosystem. Without swift action, the UK may lag behind other regions, such as Europe, Singapore, and Hong Kong, where significant activity in blockchain and DLT is already taking place.

Embracing the Future

The blockchain industry holds immense potential for various sectors, offering transparency, security, and efficiency. However, to fully realize this potential, legal uncertainties must be addressed. The Law Commission’s proposals are a significant move towards providing clarity and certainty in the industry. Still, it’s important to recognize that there is more work to be done to ensure legal certainty, protect participants, and make the UK a global leader in the blockchain space.

By embracing comprehensive legislation and regulations, the UK can foster an environment that encourages innovation and attracts blockchain businesses. The industry is evolving rapidly, and it’s crucial for policymakers, legal experts, and industry participants to collaborate and adapt accordingly. Only through proactive measures and a clear legal framework can the blockchain industry reach its full potential and revolutionize various sectors of the economy.

Edited by Sandali Handagama.