UK Law Commission proposed a new property category for digital assets

The Law Commission of England and Wales published a consultation on July 28, 2022 proposing explicit recognition of a third category of personal property capable of accommodating qualifying digital assets, including some crypto-tokens.

The proposal addressed a foundational private-law question: whether an asset recorded and transferred through an electronic system can attract property rights even when it is neither a tangible object nor a conventional legal claim against another person. The Commission called its proposed category “data objects.”

This was not a cryptocurrency licensing regime, a securities classification or enacted legislation. It was a provisional law-reform proposal intended to clarify how ownership, transfers, custody, collateral and remedies could operate under the law of England and Wales.

A category beyond the traditional two

English personal-property law traditionally distinguished between things in possession, such as physical goods, and things in action, such as debts or contractual rights enforced through legal proceedings. The Commission said certain digital assets did not fit comfortably within either category but could nonetheless possess characteristics suitable for property rights.

Its proposed data-object test had three principal elements. The object would be composed of data represented in an electronic medium; it would exist independently of particular persons and of the legal system; and it would be “rivalrous.” In the Commission’s usage, rivalrousness meant that one person’s use of the asset prevented others from making an equivalent simultaneous use.

That description did not mean every database entry, digital file, token or non-fungible token automatically qualified. The consultation applied its criteria across different digital-asset types and treated “digital assets” as a broad umbrella term. Whether a particular object attracted property rights would depend on its technical and legal characteristics.

Control mattered more than physical possession

The consultation provisionally concluded that “control” was more appropriate than possession for qualifying digital assets. Physical possession assumes an object that can be held. Control instead addressed a person’s practical ability to use a crypto-token or prevent others from using it through the relevant technical system.

Property status could matter when assets were stolen, transferred, held through a custodian, used as collateral or caught in insolvency. Property rights can generally be asserted against parties beyond a contractual counterparty, making their recognition important for trusts, succession, secured transactions and proprietary remedies.

The Commission did not reduce those disputes to control of a private key. Its analysis distinguished factual control from legal title and considered multiple custody structures, including exchanges, intermediaries, bridges and wrapping arrangements. A party’s technical capacity to direct a token did not necessarily resolve who owned it or what obligations applied.

Custody questions remained arrangement-specific

The Commission declined to propose a default rule that every direct crypto-token custody arrangement created a trust. It said custody could involve an outright transfer of title, a contract or a trust, depending on the particular relationship.

That distinction was institutionally important in July 2022, when failures and withdrawal suspensions at centralized crypto businesses had made customer ownership and insolvency treatment immediate concerns. The consultation did not decide claims against any specific company. It instead examined the legal tools courts and market participants could apply to such relationships.

The paper also considered targeted reform concerning transfers of equitable interests, shortfalls in commingled custodial holdings, crypto-token collateral and the possibility of court awards denominated in certain crypto-tokens. These remained consultation questions or provisional proposals, not available remedies created on July 28.

What the event-day record established

The verified development was a formal consultation from an independent statutory law-reform body. It demonstrated that crypto-token property treatment had moved from abstract debate into a detailed institutional reform process supporting the UK government’s stated ambition for a digital-assets hub.

The consultation supplied no cryptocurrency price, trading-volume or market-capitalization measurement, and this reconstruction assigns no market reaction to it. Its significance was legal infrastructure: the proposal sought a framework under which qualifying digital assets could be owned and protected without forcing them into categories designed for physical goods or conventional claims. On July 28, 2022, however, that framework remained provisional and subject to consultation.