A legal statement, published this week by the UK Jurisdiction Taskforce of the Lawtech Delivery Panel, which is chaired by Sir Geoffrey Vos, clarifies that smart contracts are enforceable agreements and cryptoassets are tradeable property. It also answers questions regarding their classification and characterisation under English law.
The statement is significant because legal uncertainty surrounding the status of smart contracts and cryptoassets is often cited as the biggest obstacle to their use under English law. The taskforce’s statement could revolutionise their use. For example, smart contracts could be applied to mortgage transactions, allowing both parties to digitally agree to the sale before processing the payment, making the process more secure and reducing the likelihood of fraud.
It will also encourage investment, giving investors more confidence of their rights.
Sir Geoffrey said: ‘In legal terms, cryptoassets and smart contracts undoubtedly represent the future.
‘I hope that the legal statement will go a long way towards providing much needed market confidence, legal certainty and predictability in areas that are of great importance to the technological and legal communities and to the global financial services industry.’
Globally, the smart contract market is expected to reach $300m by 2023, and the World Economic Forum predicts 10% of global gross domestic product will be stored on the blockchain by 2027.
Simon Davis, president of the Law Society (pictured) said the clarification would be ‘gladly received by the profession’.
‘Under English common law, cryptoassets should be treated in principle as property and smart contracts considered capable of meeting the requirements for contract formation until such matters can come before the courts,’ he said.
‘Once again, this demonstrates the renowned flexibility of English common law to grow and adapt. It will increase confidence among law firms to adopt new technologies and among investors to invest. The adoption of new technologies could drive productivity growth in the legal sector up from 1.3% per year to 2.7% per year. And every £1 spent on legal services supports £1.39 in spending across the entire UK economy.’
Tim Snaith, partner at law firm Winckworth Sherwood, added a note of caution: ‘Whilst this may be a step forward, the laws surrounding cryptocurrencies and other digital assets, particular on death, are a long way behind. These types of assets are less than a generation old, so the issues that can (and will) arise when someone dies holding them are only just coming to light.
‘As with any asset, it is so important to plan and think about what might happen to the asset in the event of death or loss of mental capacity. For many assets (for example bank accounts), there are established systems and processes in place to assist in these circumstances. In the case of digital assets, however, these systems are only just being designed or thought about, so a lot of care is needed.’
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