Dealing With Cryptoassets: UNIDROIT Principles on Digital Assets and Private Law

The International Institute for the Unification of Private Law (UNIDROIT) has adopted legal guidance on how to approach private law transactions involving "digital assets", with examples. The principles are intended to be "guidelines for States to enable their private laws to be consistent with best practice and international standards in relation to the holding, transfer and use as collateral of digital assets", rather than covering financial or other ‘regulation’ or ‘regulatory law’, such as whether a person must be authorised to engaging in activities relating to digital assets or how digital assets should be 'held' for regulatory purposes. This is one of a number of such initiatives (such as the UK Law Commission consultation on "digital objects") that have been running in parallel for some time. There are some differences in approach, a key one being whether 'control' should be a distinguishing criteria for the purpose legal status or treatment.

The UNIDROIT Principles set out:

• The scope of private law principles in dealing a subset of digital assets that are capable of being subject to 'control', including definitions;

• the principal that a digital asset can be the subject of proprietary rights (without addressing whether they are considered ‘property’ under local law);

• the concept of linked assets;

• applicable private international law; 

• the concept of "control" of a digital asset and the factual 'abilities' needed to demonstrate control;

• identifying a person in control of a digital asset; 

• the rights of innocent acquirers who have 'control' and meet certain additional requirements;

• the rights of transferees from innnocent acquirers ('shelter rule');

• custody, including duties owed by a custodian to its client;

• insolvency of a custodian and related creditor claims;

• secured transactions, including control as a security method;

• priority of security rights (a secured creditor who has control of a digital asset will have priority over other secured creditors with a security right in the same digital asset who do not have control of the digital asset);

• enforcement of security;

• the application of laws to address procedural matters, including enforcement; and

• the effect of insolvency on proprietary rights in digital assets.

The UNIDROIT principles are aimed at gaps in typical state laws and stop short of addressing issues such as intellectual property rights, consumer protection, contract and property law, such as whether a proprietary right in a digital asset has been validly transferred, a security right validly created.