The Law Commission of England and Wales’ paper on crypto-ownership rights has been praised by politicians and legal professionals, but it won’t solve other legal uncertainty like developer liability as some industry participants hope.

Decentralization advocates believe that the code underlying digital asset transactions enforces laws and regulations. As the victims of crypto frauds, hacks, and bankruptcy have discovered, the only way they can get their assets back is through the courts. The Law Commission’s proposed new legislation may offer them another way, according to lawyers at CoinDesk.

The report of the Commission is also comforting to some parties in crypto litigation. They believe it could tip scales in favor a group Bitcoin developers who are being targeted by Craig Wright. Wright is an infamous crypto scientist, claiming to be the author of the Bitcoin White Paper attributed to Satoshi.

Lawyers say that the proposal does not address any other legal concerns, beyond token ownership. They also claim that much work remains to be done to create legal certainty in the U.K. and to make it a crypto hub.

Weight of proposals

The proposals of the Commission are welcomed by politicians, including a cross-party parliamentary committee known as the APPG on Crypto and Digital Assets. This group examined legal classification questions in a recently conducted inquiry.

Lisa Cameron, chair of the APPG, said in a CoinDesk statement that the group “welcomes the Law Commission’s work in this important field.” She urged the government to move quickly in defining the legal classification for these assets, which could provide more clarity to the sector, regulators, and legal system.

Cameron, a Westminster member for the Scottish National Party and a Westminster legislator for the opposition, said that legal reforms could help the U.K. achieve its goal to become a hub for digital assets and cryptocurrency. He cited the ambitions originally voiced by Prime Rishi sunak in April last year when he served as finance minister.

Etay Katz is a partner at Ashurst and the head of digital assets. She told CoinDesk that a clear position by the Law Commission would help to provide greater clarity for those working in the industry.

Katz stated, “We have a very categorical description of what law is and how it should be.” It’s almost as good as a law.

It’s not impossible to believe that the Commission’s vision will come true. Its bill on the use of Blockchain for trade documents passed through the Parliament and could now have a worldwide impact.

Katz added that the new report of the Commission “paves way for further developments and for English Law and English Courts to become seminal on matters of digital assets going forward” – though he warned there were still many issues which needed to be addressed.

Read more about UK Trade Groups Seize Opportunity in Document Bill Debated in Parliament

Wright V. Bitcoin devs

The Commission’s paper recommends that, with minor exceptions, the treatment of cryptography should be left up to common law rather than hoping legislators can anticipate every possible scenario in an all-encompassing piece of legislation.

Common law, <a href="https://www.iclr.co.uk/knowledge/topics/the-english-legal-system/#:~:text=Common%20law%20rules%20may%20be,precedence%20over%20the%20common%20law. Common law, a href="https://www.iclr.co.uk/knowledge/topics/the-english-legal-system/#::text=Common%20law%20rules%20may%20be,precedence%20over%20the%20common%20law.

The legal status of digital currencies is still not fully resolved. Lizzie Williams, a managing attorney at Harbottle & Lewis told CoinDesk that the Commission has, at best, set a legal position in a certain direction, but it is not yet finalized. The process will take time.

The Bitcoin Legal Defense Fund – a nonprofit founded by Jack Dorsey, former Twitter CEO, to help developers facing lawsuits – insisted on a blog post on July 4, that the Commission report has far-reaching consequences in Wright’s U.K. suit against a dozen Bitcoin Core Developers and “undermines” the central claims of the case.

Tulip Trading’s Craig Wright has sued the developers. He claims they must rewrite their code to allow him to access 111,000 bitcoins ( BTC), whose private keys he alleges were stolen.

The U.K. Court of Appeal has agreed that there is a serious question to be decided, but it has not yet rendered a substantive decision on the case. The Law Commission report mentions the case and suggests a rule-of-thumb for when developers can be held liable. It implies that there is no case if the developer does not retain control of tokens. However, the implications aren’t as broad as the defendants claim.

A Law Commission spokesperson said in an email that the conclusions of the report did not directly impact the issue of developers’ alleged fiduciary duty, though a project on decentralized autonomous organisations (DAOs), is underway and may have a bearing on the topic.

Louise Abbott of Keystone Law, a partner, said that while the report could be helpful, the Law Commission was more concerned with the ownership of assets rather than the networks they are based on.

Read more: Craig Wright’s UK case against 16 Bitcoin developers to go to full trial

Legislation

Some details need to be clarified in law. The Commission is asking lawmakers to pass a law that clarifies that digital assets can be owned by anyone, even if the legal classification of these assets differs from other items like debts or cars.

The report also recommended reviewing laws regarding tokenization and equity to determine if they should be expanded to include permissionless ledgers. This is a topic that has also attracted the interest of lobbyists like UK Finance .

Katz prefers to add digital assets, along with cash and securities, to an existing list of allowed collateral. One way to improve consistency is by requiring crypto custodians to adhere to the same obligations. Katz is concerned that the U.K. will fall behind if it leaves the issue to individual contracts.

He said that the U.K. has been talking big but is doing little to push itself and position itself as a policy leader. The EU’s MiCA legislation is finalized and will take effect in 2024. However, the U.K. Treasury has yet to provide detailed proposals on how it intends to regulate the crypto industry.

Read more: Crypto Industry asks UK Government to Think Globally As Government Closes Consultation On Proposed Rules

Katz stated that “as a consequence, the majority of activity in traditional finance that uses DLT now is taking place in Europe and Singapore and Hong Kong…I say that with trepidation,” he said.

He believes that the Law Commission’s findings are good, but not enough. Katz stated that “we need to move quickly to tax and companies legislation as well as any other areas which are fundamentally important for the ecosystem.”

Cameron said that in May, there was more “scope” to get comprehensive policies on innovative technology such as blockchain and Web3.

Learn more about how crypto might change England’s ancient property laws

Sandali Handagama is the editor.