The British government has introduced a new proposal to Parliament, aiming to provide legal protections for digital assets like cryptocurrency, non-fungible tokens (NFTs), and carbon credits.

This move comes as the cryptocurrency industry faces various regulatory issues. For instance, in the U.S., the Securities and Exchange Commission (SEC) has classified certain crypto assets as securities. Also, earlier this year, the SEC gave the green light to the first U.S.-listed exchange-traded fund (ETF) that follows Bitcoin. Similarly, the European Union (EU) is laying down new laws to govern cryptocurrency and facilitate easier tracing of transactions.

The U.K. is also working on comparable regulations. However, the new Property (Digital Assets etc) Bill primarily seeks to recognize digital assets as “personal property,” putting them on an equal footing with conventional assets.

The proposed legislation is a response to a 2023 report from the Law Commission. The report highlighted the need to revise current legal protections around personal property rights, stating that as technology progresses and we spend more time online, our relationships with digital assets will become increasingly crucial.

In legal terms, the concept of “personal property” is crucial as it features prominently in court cases related to bankruptcy, insolvencies, theft, inheritance, divorce proceedings, and more. Currently, the law in England and Wales categorizes property into two types: tangible goods such as cars, jewelry, and cash, known as “things in possession.” In contrast, “things in action” aims to safeguard intangible assets like shares, debts, and intellectual property.

However, this leaves a significant gap for “digital” assets like Bitcoin and other cryptocurrencies, as well as NFTs like digital art. This new, third category, if enacted into law, would bring more clarity to what constitutes personal property and would simplify the court’s role in settling disputes.

For instance, a court could issue a freezing injunction to stop someone from dissipating a digital asset before a dispute is resolved. Or, if someone’s digital asset is stolen as part of a scam, they could have access to more legal remedies.

Additionally, this law would mean that digital assets could be considered part of a person’s estate for inheritance or bankruptcy proceedings.

The bill, first published in draft form in July, has now reached the first reading stage in the House of Lords. It will undergo various debates and iterations before it progresses to the House of Commons.

Despite the long journey before the bill becomes law, with a majority Labour Government currently in the U.K., there is a decent chance it will ultimately be passed. However, the exact form and provisions are still unclear.

For instance, what will be considered a “digital asset” under the new legislation? The term theoretically encompasses a wide range like email accounts and files, carbon credits, and in-game digital assets. The Law Commission acknowledges this ambiguity, suggesting there will likely be “boundary issues” across the digital asset spectrum. Yet, the Ministry of Justice and the Law Commission are clear that the primary digital asset they foresee the law protecting is crypto tokens, such as cryptocurrencies and NFTs.