Digital assets in Scots private law: consultation

Section 1: Digital Assets – the Legal Landscape

What are Digital Assets?

Before we consider how best Scots private law should accommodate digital assets as property, it is first necessary to identify what is meant by a “digital asset.”

The term digital asset is primarily a descriptive term used to refer to a wide variety of things including digital records, email accounts, information on social media accounts, crypto-assets and non-fungible tokens. Importantly, some types of digital asset are increasingly relevant to financial markets, being used for an expanding variety of purposes, including payments, investments, and linking to, or embodying, debt, and equity securities.

From a technological perspective, a digital asset can be characterised as a string of data, manifested in a readable sequence of characters. Digital assets can be generated by transactions between participants on a distributed ledger system, such as a blockchain. The participants treat the assets as digital forms of value which they trade among themselves by making transactions on the blockchain.

One of the most well-known examples of a digital asset is cryptocurrency, which facilitates payment transactions, and which is used as a kind of investment; however, digital assets are not only used to make payments and can be used as a means of storing intangible content, such as computerised artwork, video or contract documents. The variety of digital assets and the uses they are put to are wide and likely to continue to expand and develop alongside technological advances and commercial innovation.

In this consultation we are seeking views on the types of digital assets that should engage property rights in Scots private law, as well as proposed rules to help establish ownership.

What is Property in Scots Private Law?

Property law has been described in case law and by legal writers as the law of things, and of rights in things. To enjoy the full protections of Scots private law, digital assets must be recognised as property. Traditionally, our private law has recognised two overarching types of property – heritable property (which relates to land, buildings and rights in these) and moveable property (which relates to everything that is not heritable). These two types of property are then further divided into sub-categories depending on whether they can be classified as either corporeal property or incorporeal property.

Corporeal property means things with a tangible existence in space (e.g., coins or banknotes). Incorporeal property refers to all other kinds of thing or right which lack that characteristic of tangibility. One of the most common kinds of incorporeal property consists in networks of legally constituted rights between persons. An example is bank money, which is the account-holder’s right against the bank to draw funds from their account. Identification of the relevant legal classification for an asset informs what rights and obligations may attach to property and consequently what rules become applicable, for example in relation to transfers of ownership, trusts, security and succession.

If digital assets were to have a place in the larger scheme of property law, then it seems they would be treated as a kind of incorporeal moveable property. Like other incorporeals, they lack a tangible existence in space. But they are different from many familiar kinds of incorporeal moveables, such as bank money, in that they do not consist in networks of legally constituted rights between persons. In some respects, there are similarities between the way people deal with digital assets and the way they deal with corporeal moveables. These differences and similarities may make it helpful to clarify the kinds of property rules that should apply to them.

The Importance of Legal Certainty

Digital assets are often recorded on and transferred through distributed ledger technology, such as a blockchain. With estimates that the value of the blockchain technology market in Scotland is likely to reach £4.48 billion by 2030^[1], the Scottish Government places importance on ensuring that the legal system can adapt to new challenges and opportunities in this area.

In September 2024, Scotland’s key financial centres moved up rankings in the internationally recognised Global Financial Centres Index^[2], with Edinburgh moving to #29 while Glasgow moved to #37 The Scottish Government wishes to maintain and develop a business-friendly environment and to encourage economic growth, including across the FinTech sector, specialist digital asset trading businesses and asset management.

If there is a lack of legal certainty about whether digital assets clearly fall within the existing legal categorisations of property, there is a risk that this legal uncertainty could deprive such businesses of value which contributes to the profitability of their operations, as well as leading to uncertainty for their creditors that digital assets can be a means of obtaining payment of debts. It is important that investors and innovators have legal clarity and confidence, otherwise asset owners may choose to locate in other jurisdictions or, should they remain in Scotland, agree that their dealings are governed by laws other than Scots law.

Advice and Research - Expert Reference Group

In 2019, at the request of Scottish Ministers, an Expert Reference Group^[3] (“ERG”) was set up to provide legal clarification on Scotland’s path to accommodating digital assets within Scots private law, including the status and treatment of crypto assets and related technologies. The ERG, chaired by the Rt Hon Lord Hodge, Deputy President of the UK Supreme Court, was comprised of a range of legal and academic stakeholders, including representation from FinTech Scotland (Scotland’s award winning FinTech Cluster Management Organisation) and from the Financial Conduct Authority.

The ERG worked closely with the Law Commission of England and Wales, which at the time was undertaking its own project on digital assets, which concluded with the publication of its final report in June 2023^[4]. The Law Commission of England and Wales proposed primary legislation to address a similar lack of legal clarity in England and Wales through the establishment of a ‘third category’ of personal property rights capable of accommodating certain digital assets such as crypto-tokens.

Having regard to developments in England and Wales and the historically separate and distinct legal system in Scotland and having carried out a consultation with interested parties, the ERG submitted its findings and recommendations to the Scottish Government. The ERG’s primary recommendation is that Scotland develops its own legislation to clarify the status of digital assets as property in Scots private law. The purpose of such legislation would be to ensure that Scots private law can appropriately support the needs of Scotland’s fast-growing financial services and digital sectors.

The ERG proposed that an Act of the Scottish Parliament could clarify the kinds of digital asset that can be objects of property in Scots private law and outline key features of how this would operate in property law. The Expert Reference Group on Digital Assets in Scots Private Law’s recommendations have been welcomed by Scottish Ministers.