The U.K. government has introduced a new bill in Parliament. This bill aims to provide legal protections for digital assets. These assets include cryptocurrencies, non-fungible tokens (NFTs), and carbon credits.

Why is this important? The crypto sector is facing various regulatory challenges. In the U.S., the Securities and Exchange Commission (SEC) has classified some crypto assets as securities. Earlier this year, the SEC also approved the first U.S.-listed exchange traded fund (ETF) for Bitcoin. Meanwhile, the European Union is working on new laws to regulate cryptocurrency and improve transaction traceability.

The proposed Property (Digital Assets etc) Bill is about recognizing digital assets as “personal property.” This would place them on the same level as traditional assets. The move follows a 2023 report from the Law Commission. The report highlighted the need to update legal frameworks for personal property rights. It stated that as technology evolves, our relationship with digital assets will become increasingly significant.

Understanding “personal property” is crucial. It plays a key role in legal matters like bankruptcy, theft, inheritance, and divorce. Currently, English law divides property into two categories: tangible goods (like cars and cash) and intangible assets (like shares and debts). This leaves a gap for digital assets, such as Bitcoin and NFTs, which have seen significant transactions in recent years. If the new category is established, it would clarify what counts as personal property and help courts resolve disputes.

For example, courts could issue freezing injunctions. This would prevent someone from selling a digital asset during a dispute, similar to how they handle tangible goods. If someone has their digital asset stolen, they could seek legal remedies more easily. Plus, digital assets could be included in a person’s estate for inheritance or bankruptcy cases.

What’s next? The bill was first published as a draft in July. Now, it has reached the first reading stage in the House of Lords. It will go through debates and revisions before moving to the House of Commons. While it’s not guaranteed to become law, the current Labour Government suggests it has a good chance of passing. However, the specifics of the final legislation are still unclear.

A key question remains: what will count as a “digital asset” under this law? The term could cover a wide range of items, from email accounts to in-game assets. The Law Commission acknowledges that there may be “boundary issues” in defining digital assets. They recommend a “common law” approach, meaning the law might need to be interpreted on a case-by-case basis in court to establish precedents.

Importantly, the Ministry of Justice and the Law Commission have indicated that the primary focus will be on protecting crypto tokens, including cryptocurrencies and NFTs.