Law Commission Called for a Third Property Category for Crypto-Tokens

The Law Commission’s final report on digital assets was ordered printed by the House of Commons on June 27, 2023. It recommended legislation confirming that an asset need not be a traditional “thing in possession” or “thing in action” to attract personal-property rights under the law of England and Wales.

That deliberately narrow proposal was significant for crypto-tokens. Bitcoin and ether do not represent tangible objects, and the tokens themselves need not constitute legal claims against an identifiable person. The Commission concluded that assets with those characteristics could fall within a distinct third category already emerging through common-law decisions.

The recommendation did not make cryptocurrency legal tender, classify tokens as securities or create a licensing regime. It addressed private-property law: the rules that help determine ownership, transfers, custody relationships, collateral rights and remedies when assets are stolen or an intermediary becomes insolvent.

Confirmation without a fixed definition

The two conventional categories are “things in possession,” generally tangible objects, and “things in action,” generally rights or claims enforceable through legal action, such as debts. The Commission found that some digital assets fit neither category but can still be objects of property rights.

Its proposed statutory confirmation was technology-neutral. Rather than defining every qualifying digital asset, Parliament would confirm that falling outside the two established categories was not itself a barrier to property status. Courts would then continue deciding which assets qualified by examining their specific features.

The Commission considered a rigid statutory definition counterproductive. Digital assets vary across public and private networks, token designs and technical control structures. A list could exclude new forms unintentionally or treat unlike assets as legally equivalent. The report identified crypto-tokens manifested through distributed, public and permissionless systems as a clear core example, while declining to declare that every token, digital file or data record was property.

This was therefore a recommendation to reinforce the common law, not a declaration that Parliament had enacted a third category on June 27. The report said the common law had already moved toward recognizing such assets and that legislation would remove lingering uncertainty created by older authority suggesting the two traditional categories were exhaustive.

Why property status mattered operationally

Property rights can change the position of customers, custodians and creditors. If a crypto-token is an object of property rights, courts can address questions involving title, trusts, tracing and proprietary remedies rather than treating every dispute solely as a contractual claim against an intermediary.

The report nevertheless rejected automatic solutions for custody failures. It did not recommend a general statutory presumption that intermediaries hold crypto-token entitlements on trust. Nor did it propose a universal pro-rata rule for allocating shortfalls when commingled holdings prove insufficient. It concluded that existing trust principles could support many custody structures but that outcomes depended on the legal arrangement and facts.

That qualification mattered after the failures of several centralized crypto businesses in 2022. Recognizing a token as property does not establish that a particular customer retained beneficial ownership, that assets were segregated or that an insolvent estate holds enough tokens to satisfy claims.

A separate collateral-law problem

The Commission also found inadequate certainty around using crypto-tokens and related digital assets as collateral. It recommended a multidisciplinary government project to design a bespoke statutory framework covering the creation, operation and enforcement of qualifying collateral arrangements.

That was a request for further policy work, not an immediately usable collateral regime. The report said many crypto-tokens likely fell outside the existing Financial Collateral Arrangements framework and warned that static definitions of technical control could age poorly. Any new regime would need to address both intermediated book-entry structures and transactions executed directly on-chain.

Later context

The UK government introduced the Property (Digital Assets etc) Bill on September 11, 2024 to implement the third-category recommendation. That later legislative step was not knowable on June 27, 2023 and does not change the event-day status: the Commission had delivered an authoritative reform proposal, but Parliament had not enacted it.