November 20, 2019
The UK Jurisdiction Taskforce has issued a statement on cryptoassets and smart contracts. The statement clarifies that one can legally ‘own’ cryptoassets such as Bitcoin and that Smart Contracts can be legally binding, which is good news.
I like to see the further proliferation of the term “cryptoasset”, which is much better than terms “virtual currency” or “virtual asset”, which are still being used by organizations such as the FATF. A good definition of cryptoasset (or “Kryptowert” in German) is: a cryptoasset is an asset that can be controlled cryptographically. The report mentions that this form of cryptographic control comes close to the concept of “possession”, but cannot legally be applied due to a lack of physical tangibility. This mirrors the legal situation in Switzerland, where “possession” also requires a physical item.
An interesting approach is their interpretation of what legally happens during a transfer of cryptocurrencies: according to the UK Jurisdiction Taskforce, Bitcoins are not really transferred during a transfer. Instead, the Bitcoins owned by the sender are “spent” and the same number of new Bitcoins created on the receivers account. This is a pretty weird view and I feel that this will lead to problems sooner or later.
One consequence of this, which they give as an example in paragraph 47, is that if I buy stolen Bitcoins, the rightful owner cannot not demand them back (which he could with a physical object like a bycicle), because the Bitcoins I have are not the same as the ones he had!
I my opinion, this view stems from confusing the entries in the blockchain with the Bitcoins themselves. Trying to logically locate Bitcoins in the blockchain is like Derek Zoolander and Hansel trying trying to physically locate a digital file “in the computer”. The Bitcoins are not in the blockchain. They are completely abstract, virtual items that only exist by convention. The blockchain tells you which address they are assigned to, but it does not contain them in the form of zeroes and ones.
Generally, it is nice to see that the British are moving forward with the correct legal classification of what can be technically done with cryptoassets and smart contracts. This puts them ahead of most countries, but not ahead of Switzerland. :)