Digital Assets in Scots Private Law

David Fox1

1. Introduction
This paper sets out some of the main areas of legal uncertainty in accommodating digital assets
within Scots private law. It suggests some analyses for fitting them within existing legal
principles and areas where reform might be needed to allow that fit or give certainty to the
commercial actors who use them. The paper builds on work done by the UK Jurisdiction
Taskforce (“UKJT”) in their “Legal statement on cryptoassets and smart contracts” (2019)2
and by the Law Commission of England and Wales in their ongoing project on electronic trade
documents3 and digital assets.4 Both have considered fundamental questions about the status
of digital assets within the existing regime of private law. Outside the UK, UNIDROIT is
running a project on “Digital Assets and Private Law” which aims to draft system-neutral rules
to explain the holding and transfer of digital assets.5
The present project began as a rather narrower study of the place of cryptocurrencies in Scots
private law. The commercial and financial uses of blockchain technology have developed
quickly in the past few years. Those developments make it necessary to consider crypto-assets
more generally. These assets are not necessarily intended or used as functional equivalents of
means of payment, as bitcoin was when it was launched in 2009. More recent studies tend to
use the general term “digital asset”, of which crypto-assets would be one variety. The term
“digital asset” recognises many of the legally-relevant functional features of transferable asset
representations recorded on distributed ledger systems, without tying them to any particular
kind of cryptographic technology.

2. Approach in this paper and parallel developments

i. Developments in England and Wales

The work of the UKJT and the EWLC on digital assets has understandably concentrated on
English law, which includes general common law principles and their specialised applications
in statute law. Many of those common law principles have close parallels in the Scottish legal
tradition. The statutes apply across all UK jurisdictions.

1
School of Law, University of Edinburgh; dfox2@ed.ac.uk. In preparing this paper, I acknowledge especially
the assistance and contributions of Professor Louise Gullifer of the University of Cambridge. Sections 4-8 of the
paper derive from the joint responses of Professor Gullifer and myself to the Call for Evidence issued by the
England and Wales Law Commission project on Digital Assets. Professor Gullifer took the lead in drafting the
responses included in section 8.
2
Available at: https://35z8e83m1ih83drye280o9d1-wpengine.netdna-ssl.com/wp-
content/uploads/2019/11/6.6056_JO_Cryptocurrencies_Statement_FINAL_WEB_111119-1.pdf
3
See https://www.lawcom.gov.uk/project/electronic-trade-documents/
4
See https://www.lawcom.gov.uk/project/digital-assets/
5
See https://www.unidroit.org/work-in-progress/digital-assets-and-private-law

Electronic copy available at: https://ssrn.com/abstract=3914228

Both the UKJT and the EWLC have also explained in detail the technical, commercial and
financial background necessary to understand the creation and use of digital assets. I shall
therefore draw on their background work rather than repeat it in full, except to the extent that
it is necessary to understand specific points of Scots law.
I shall also adopt the same general structure to the legal explanation of digital assets as the
EWLC in their Call for Evidence on Digital Assets. Their approach to presenting the
fundamental private law questions about digital assets is to some extent system-neutral. It
corresponds to the order that a systematic treatment of the subject in Scots law might require.
I shall however add some comments on the work of the UKJT where their work would have
implications for understanding the state of the law in Scotland.
The EWLC’s approach to digital assets is also informed by their aim of enacting legislation
about “electronic trade documents”. This would amend the operation in England and Wales of
a number of statutes which are currently in force across all the constituent jurisdictions of the
United Kingdom, including Scotland. These statutes include the Bills of Exchange Act 1882
and the Carriage of Goods by Sea Act 1992. The EWLC’s proposal is to update the operation
of those statutes in England and Wales so that they would apply to electronic trade documents.
It is mindful however that the UK Government might consider implementing its proposed
reforms throughout the whole UK, after appropriate consultation with the devolved
administrations, including the Scottish Government.

ii. The projects of the Law Commission for England and Wales
To set the scene, I shall say something more of the EWLC’s project since it informs the
sequence of questions they have considered about the status of digital assets in private law. It
also provides a framework for points of possible convergence or divergence between English
and Scots law.
The EWLC has been tasked by the UK Ministry of Justice with two related projects on digital
assets: (1) to make recommendation for the possession of trade documents in electronic form
(“phase 1”); and (2) to review the law on cryptoassets and digital assets more generally,
including with regard to their possessibility, and to consider what reforms are needed to ensure
that the law of England and Wales can accommodate such assets (“phase 2”).
The aim of phase 1 is to create a series of rules that would extend the operation of some existing
statutes to permit the possession and transfer by electronic means of defined categories of
“trade documents”. This term includes bills of exchange, promissory notes, bills of lading and
marine insurance policies. Work on phase 1 has already led to a consultation paper and a draft
Electronic Trade Documents Bill.6 The bill provides a definition of “control” over an electronic
trade document and then provides that a person who has control of an electronic trade document
is the person who has possession of it for the purposes of any statutory provision or rule of law:
Draft Bill, cll 1(4), 2(1). This entails that the digital transfer of an electronic trade document
would become equivalent in effect to the delivery of a trade document in paper form. It enables

6
Available at: https://www.lawcom.gov.uk/project/electronic-trade-documents/

Electronic copy available at: https://ssrn.com/abstract=3914228

parties to dispense with paper trade documents and instead make legally equivalent transactions
using digital media, generally through distributed ledger technology systems.
The Scottish Government may wish to take a view on whether it would like to participate in
this proposed reform to statutes since they are also in force in Scotland.
Phase 1 however is not the main focus of the present paper.
The EWLC’s work on phase 2 is at an earlier stage and has so far only led to a Call for Evidence
on certain questions.7 The EWLC contemplates however that its work on possession of
electronic trade documents might inform a more general inquiry into the nature of property in
and possession of other kinds of digital asset. Its work on phase 2 therefore touches more
directly on some of the fundamental private law questions that are the concern of this paper.
I shall therefore concentrate on some of the main questions in the Call for Evidence, drawing
attention to any differences of approach between them and a systematic approach to related
questions in Scots law. This is very far from saying that I treat the Scots law analysis of digital
assets as a mere appendix to the EWLC’s explanation of the English law. It is only to recognise
that their work is further ahead than ours and that there may be some advantages in keeping
each jurisdiction’s work moving in parallel tracks.

3. Are digital assets property and can they be possessed in Scots law?

i. The relevance of the question

This is the fundamental question relevant to the status of digital assets in private law. While it
is clear that many commercial users treat digital assets as objects of value, their recognition as
property is essential if those assets and users’ dealings with them are to fall within ordinary
private law categories of analysis. Their relationship with legal categories such as real right,
possession, patrimony, and the application to them of the law of transfer, trusts, security,
insolvency and succession all depend on their first being recognised as property in private law.
It is unclear how digital assets fit within Scots property law. On a narrow historically-based
view of the law, they may not be property at all. Nor could they be possessed. On a more
progressive view, the traditional conceptions of property might still be regarded as open and
capable of a principled development that would encompass digital assets. The narrow view of
property law might be treated as expressing the thinking of an earlier period before the
invention of digital assets. It is arguable that traditional legal conceptions of property should
be open to a principled reconsideration that would accommodate changes in commercial and
digital practice.
On this different view, we might either accept that Scots law, understood flexibly and in a
principled way, already accommodates digital assets, or that legislation is necessary to confirm
that digital assets are property. Either way, it is essential to take a principled view of
definitional minima for digital assets to be recognised as property in law.

7
Available at: https://www.lawcom.gov.uk/project/digital-assets

Electronic copy available at: https://ssrn.com/abstract=3914228

 ii. Technical analysis of digital assets
It is first necessary to explain some of the technical features of digital assets since these affect
their categorisation in the law of property.
The term digital asset is not a term of art. The variety of digital assets and the uses they are
put to is very wide.8 They extend from so-called “native” assets originally designed for use as
means of payment (bitcoin is one of the earliest and best-known examples) to assets designed
to implement complex financial or investment transactions. Among the latter are so-called
“tethered” assets represented by a token on the ledger. An example of a tethered asset are
tokenised securities. Conventional legal securities are issued on a blockchain and transfer of
the token is treated as transferring the title and right to payment due under the security.
Digital assets have certain technical features in common. A digital asset is an ideational
construct rather than anything with a tangible existence or single location in space. 9 The asset
is represented by a string of data, manifested in a readable sequence of characters, which have
been generated by transactions between participants on a distributed ledger system. In its
“Legal Statement” the UKJT explained how participants carry out transactions on the system:
Functionally, [the asset] is typically represented by a pair of data parameters, one public
(in that it is disclosed to all participants in the system or to the world at large) and one
private. The public parameter contains or references encoded information about the
asset, such as its ownership, value and transaction history. The private parameter—the
private key—permits transfers or other dealings in the cryptoasset to be
cryptographically authenticated by digital signature. Knowledge of the private key
confers practical control over the asset; it should therefore be kept secret by the holder.10
An important point to take from this description is that the person who has access to or
knowledge of the private key has the practical power of control over the digital asset.
The asset is something more than the mere ledger data that record it. (For this reason, legal
problems about treating information as property are, in my view, strictly out of place.) The
asset is perhaps best conceptualised as one person’s exclusive power to make transactions
which will be treated as valid according to technical rules of the system in question. The asset
is in a sense an exclusive transactional power. It is practically transferable from one user of
the system to another. The programming features which protect the holder’s exclusive control
over transactions protect the value of the asset and any rights, such as securities, which may be
associated with it.

iii. Categories of property in Scots law

8
See generally UKJT, “Legal Statement”, paras 24-34.
9
See further D Fox, ch 6 in D Fox and S Green, Cryptocurrencies in Public Law and Private Law (2019), paras
6.11-6.19.
10
UKJT, “Legal Statement”, para 28.

Electronic copy available at: https://ssrn.com/abstract=3914228

The question is how such an asset can be accommodated in the law of property. A standard
definition of the subject of property law is given by Professor Reid:
“Property law is the law of things, and of rights in things (real rights) … In Scots law
… things (res) are classified in two different ways. In the first place, all things are
either corporeal or incorporeal; and in the second place, all things are either heritable
or moveable. Corporeal things are things with a corpus or body, or in other words
tangible things. Incorporeal things are rights, and have no physical presence.”11
The first limb of this classification, relating to corporeals and incorporeals, is relevant to the
way we place digital assets in the scheme of Scots property law.
The difficulty is immediately apparent from the classification. Digital assets do not fall
obviously in the category of corporeal things since they lack any tangible existence. Nor do
they obviously fall in the category of incorporeal things since, although they have no physical
presence, they do not necessarily consist in a legal right enforceable by its holder against
another person or persons who owe corresponding legal duties.12 They are in this sense
different from conventional money held in a bank account: the depositor’s money is a jus
crediti. It consists in the depositor’s right to enforce the corresponding debt owed by the bank
to pay legal tender to him or her.

iv. Possible categories of analysis

There are various possible solutions to this problem of categorisation. All have common
elements although each differs slightly in its approach.
The first is to recognise that Scots law must recognise an intermediate category of thing, which
is neither corporeal in the specific sense of having a tangible existence nor incorporeal in the
sense of being a legal right. Statutory examples of such things could be posited, such as
intellectual property rights. This seems to be the view taken of English law by the UKJT.13
There is some authority that this is the emerging view in English law and in other related
jurisdictions.14
The second would be to recognise that digital assets are corporeal things in that they share
many of the features that make tangible things suitable subjects for the law of property. On
this view, physical tangibility would be a contingent criterion for recognising that an asset has
some corporeal existence. It would not be an essential feature of corporeality. The law might
recognise the existence of a digital corpus.
The third possible solution, which is a variant on the second, might be to recognise that digital
assets are incorporeal things but that they do not consist in networks of legal rights operating
between persons. While the data representing each asset might be the subject of real rights
held by a person, the data themselves would not themselves embody or represent legal rights

11
K G C Reid et al, The Law of Property in Scotland (1996), para 11.
12
I return in section 7 to discuss so-called “tokenised assets” which operate as digital means of representing and
transacting with underlying assets.
13
UKJT, “Legal Statement”, para 85.
14
AA v Persons Unknown [2019] EWHC 3556 (Comm); [2020] 4 WLR 35, at [59]; Ruscoe v Cryptopia Ltd (in
liq) [2020] NZHC 728.

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in the way, for example, that a company share comprises rights to participate in the governance
of, and benefits generated by, the company’s activities.
I turn now to the merits of each possible solution.
The first solution, recognising an intermediate category of property, is perhaps the least good
of the three. It may describe accurately enough the status of a digital asset when a person holds
it but it does not explain the legal process by which a person would transfer the asset to another
person. Corporeal moveables are generally transferable by delivery. Incorporeal things are
generally transferable by assignation (or possibly by novation). But there is no default form of
transfer generally available for things that fall into neither one nor the other of those categories.
The third solution, which is to treat them as a kind of incorporeal, has its problems too. As
noted, the default form of transfer for incorporeal things is by assignation (or possibly by
novation of rights between the parties to the transaction). A process of assignation would not
work for many kinds of digital asset. Completion of an assignation requires that an intimation
be given to the debtor who owed the obligation to the assigning creditor. Many digital assets
do not embody any legal right enforceable against a debtor. Analysis of digital assets as
conventional incorporeals would again leave the parties to transactions without any effective
legal means of transferring them.
Some parts of the UKJT’s report seem to favour this analysis of digital assets in English law.
The report speaks of “things in action” (which is a close analogue in English law to the Scots
conception of a right) being “used more broadly as a ‘catch all’ to refer to any property that is
not a thing in possession” [that is, a tangible moveable].15 The difficulty with this analysis is
that legal assignments of choses in action in English law also require intimation (or “notice”)
to the debtor.16
The second solution, treating digital assets as corporeal but intangible things, is not legally
perfect but it is perhaps the one that corresponds most closely to ordinary commercial usage.
Digital assets show many of the same features of tangible moveables that make them suitable
subjects of property rights. This explanation would require some extension by analogy from
existing definitions of corporeality that have been developed for tangible moveables. It would
also require the recognition of a more general concept of exclusive control over an asset rather
than one that depended on traditional notions of possession. On orthodox legal definitions,
possession is confined to tangible things under the control of a legal or natural person.

v. Digital assets as corporeal things

I shall develop more fully the idea that digital assets might be seen as things with a corporeal
identity despite being intangible. On this view, tangibility is just one feature of a thing that
would make it a suitable subject of property. But digital technology can be used to create
things which are corporeal in an expanded sense although lacking tangibility.

15
UKJT, “Legal Statement”, para 69.
16
Law of Property Act 1925, s 136. An assignment without notice might be complete in equity but an analysis
which only allowed the assignment of digital assets in equity rather than at law would seem to run contrary to the
ordinary commercial understanding of their operation.

Electronic copy available at: https://ssrn.com/abstract=3914228

Things which are the subject of property tend to be transferable from person to person;
specifically separable in their identity from other things; and capable of “rivalrous” use by one
person to the exclusion of others. Tangible things, whether heritable or moveable, tend to show
all those features, which is one reason why it is relatively straightforward to treat them as
subjects of property in which people hold real rights. Thus, tangible things, such as coins, can
be transferred from holder to holder, and, although all coins tend to be struck with an identical
physical appearance, any one piece is specifically separable in its physical identity from any
other.
The notion of “rivalrousness” calls for some explanation. The term refers to exclusivity of use.
An asset is rivalrous if it is incapable of being copied or if one person’s uncontrolled use of the
asset would necessarily interfere with the use of it by another. In relation to tangible things,
rivalrousness is seen in the criterion that one person’s possession of a thing is generally
exclusive of other unauthorised and competing uses of the same thing. Apart from legally more
sophisticated constructions, such as pro indiviso possession or the recognition of divided civil
and natural possession, only one person can be in possession of property at any one time.
Exclusivity is said to be the essence of possession.17
Some intangible entities can be rivalrous too, which also allows them to be used exclusively
by one person. Digital assets, such a bitcoin, are good examples. Digital assets are designed
with cryptographic protections that prevent copying of the power to make valid ledger
transactions.
These protections are commonly said to prevent the “double-spend” problem. The holder of a
digital asset can spend it only once. The asset cannot be copied to enable it to be spent by the
same person a second time. The power of transacting with them is confined, by digital design,
to the person who has practical control over the private key. Use of the private key allows the
holder of the asset for the time being to execute effective transactions on the system.
Returning to the other characteristic features of things which are subject of property, digital
assets are transferable – indeed it is inherent in their technical design that they should be so.
They are also specifically separable in their identity. They are manifested in a unique string of
data that associates the power to make transactions affecting them with a distinct private key
on the system.
Seen in this way, the tangibility of corporeal things is just one means of satisfying the
requirement of rivalrousness, and digital assets might be analysed along the same lines as
corporeal things.
The EWLC take a similar view although their analysis is mediated through the idea of
possession. In their work, the EWLC have identified the salient properties of physical things
that make them possessable and then sought to generalise from these properties to digital
assets.18 They propose that tangibility is not a necessary criterion for possessability. Intangible
digital assets could be possessed, in their view. The reasons for this approach are perhaps
motivated by the terms of reference given by the Ministry of Justice and by the phased order
of their work. Phase 1 of the EWLC project has sought to bring electronic trade documents –

17
Reid et al, The Law of Property in Scotland (1996), para 118.
18
Para 5.10, 5.37.

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which are one kind of digital asset – into the legal framework for existing paper documents
which depends on notions of physical possession and delivery of possession on transfer.
Scots law need not take quite the same approach to defining how digital assets can be brought
within its own categories of property. English property law gives more weight to notions of
possession and title than Scots law does. In the Scots property law, the primary inquiry focuses
on the identification of things which are the subject of real rights, notably ownership.
Questions of possession tend to be secondary.
Nonetheless, the EWLC’s proposed criteria for the possessibility of electronic trade documents
would provide a useful starting point in defining the kinds of digital asset that might be treated
as corporeal subjects of property in Scots law. The Commission has proposed that three criteria
would need to be met:
(1) [The digital asset] has an existence independent of both persons and the legal system:
it is not a bare right [such as the right to enforce the legal obligation of another person];
(2) It is capable of exclusive control: the nature of the [digital asset] does not support
concurrent assertions of occupation or use. This quality is sometimes described as
“rivalrousness”.
(3) It is fully divested on transfer: that is, if A transfers the [digital asset] to B, A must not
longer be able to access or use the [asset].19
Clause 1(3)(c), (4) of the Commission’s draft Electronic Trade Documents Bill provides a
statutory form of words for these criteria.
One legal advantage of treating digital assets as species of corporeal moveables is that the
methods for transferring them correspond closely to the methods for transferring real rights in
tangible moveables. Tangible moveables are transferred by delivery. The transferor delivers
possession of the moveable to the transferee with an intention that the real right should pass
with it. The delivery of possession satisfies the publicity principle by signalling to third parties
that ownership is now in the transferee.
Transactions with digital assets on a ledger work in the same way. The parties contemplate
that ownership of the asset passes when, and only when, the transaction on the ledger is
complete. The transaction passes control over the asset from the transferor to the transferee.
Subject to some exceptions discussed below arising from the effect of the nemo plus rule,20 the
ledger provides publicity to third parties about the location of ownership of the asset. Indeed,
this is one of its main functions. Ideally, transactions on the ledger should be the exclusive
means of transferring ownership of the asset. If ownership of the assets could be transferred
by off-ledger transactions then the certainty of the ledger would be undermined. Its usefulness
as indictor of title would be diminished.

vi. Possession or control of digital assets?

This analogy with delivery requires that some legal notion of possession or control could be
developed for digital assets. As noted, the EWLC would propose to extend the existing English

19
Consultation Paper, para 5.47.
20
See section 7.

Electronic copy available at: https://ssrn.com/abstract=3914228

law principle of possession to explain the holding and transfer of digital assets. The concept
of “control” is a key element of possession for this purpose. This approach is understandable
since their main concern in phase 1 of their work has been to create a parallel legal regime for
electronic trade document that fits into the rules governing paper trade documents, all of which
depend heavily on the traditional concept of possession over tangible things.
But thinking specifically of Scotland and the law for digital assets more generally, extending
notions of possession to intangible things would present some doctrinal and practical problems.
First, there is the long tradition of legal reasoning, which is true of most legal systems including
Scotland, that identifies possession with a state of exclusive control over tangible things. While
it is true that for limited purposes, such as the law governing the prescriptive acquisition of
servitudes, Scots law recognises a fictitious notion of possession of incorporeals,21 this
exception would not provide a strong foundation on which to build a more general legal concept
of possession over intangible entities such as digital assets.
On one view, it may be argued that the prevailing legal notion of possession which limits it to
tangible things is historically determined rather than something essential to the definition of
the concept. This is the view of the EWLC. Even if this were so, it would require legislation
or a judicial decision at the highest appellate level to overturn a view that is so well entrenched
in Scots property law.
A notion of possession of digital assets may present other problems of doctrinal fit. The legal
concept of possession does not depend on a simple notion of exclusive factual control over a
thing. Scots law common law has developed subtly different grades of possession (such as
natural and civil possession, and the distinction between possession of a thing and detention of
it on behalf of another person). It may well be that such legal specialities would be misplaced
in the law governing transactions with digital assets. If the main reason for relying on
possession in digital asset transactions is only to explain how rights can be transferred then a
concept of control may be the more direct and natural way to achieve that end.
A practical reason about the functionality of digital ledger systems also supports this view.
Possession requires animus possidendi. The determination of possession in law depends as
much on the intentions of the parties to the transaction as it does on the fact of exclusive control
over the thing in question. But many digital transactions are entirely automated in their
operation. They execute in the way their programmers designed them to. To search for an
element of human intentionality, which may be what a notion of possession would require,
risks introducing an unreal element into what is often an automatic process.
The alterative way to explain the holding and transfer of digital assets would be to provide for
a legal concept of digital control applying to digital assets. Legislation would be needed to
achieve this. Other jurisdictions which have developed legal regimes applying to varieties of
digital asset have proceeded in this way. The UNCITRAL Model Law on Electronic
Transferable Records established exclusive control as the concept to govern the creation and
transfer over so-called “electronic records” (which are the functional equivalents of the
EWLC’s proposed electronic trade documents). The Model law leaves “control” undefined,

21
Prescription and Limitation (Scotland) Act 1973, s 3.

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recognising that is a mainly factual state of affairs that depends in the digital design of the
recording system and on the intentions of the parties who make transactions on it.22
Similarly, the UNIDROIT digital assets project, which is still in progress, proposes to use the
factual control over digital assets as its primary concept to explain the legal effect of
transactions with them. It has deliberately preferred control to possession. It recognises that
in many jurisdictions possession has taken on a specialised legal meaning associated with
tangible things. The concept of control is more likely to be neutral between legal systems.

4. Do you consider a transfer of a digital asset to be more analogous to a transfer of a

tangible moveable, such as cash, or a transfer of a right, such as bank money?
This is the second of the EWLC’s main questions in their Call for Evidence. It raises important
questions about the correct form of property analysis that should apply to digital assets.
In my view, the correct answer to this question in Scots law is the transfer of a digital asset is
more analogous to the transfer of a tangible moveable, such as cash, at least as far as the law
of property is concerned. The technical methods of recording the transfer may show some
features analogous to a transfer of bank money but these should not affect their legal analysis
in property law.
The background to the question lies in the technical features of digital asset transfers made on
a ledger system. As noted above, a digital asset is represented by a string of data generated by
transactions between participants on a distributed ledger system.23 When the asset is
transferred, a new data entry appears at the transferee’s public key. The data entry recording
the asset at the transferor’s public key continues to exist but it is spent in its effect. It is not
available to be transferred again by the transferor. What moves between the parties is only the
power to make transactions on the system. The complication is that the movement of the asset
is represented by two distinct data entries on the system.24
The existence of these distinct data entries raises the analogy with transfers of bank money
through a payment clearing system. A payment of bank money from transferor to transferee
consists in the simultaneous extinction and creation of personal rights against the parties’
banks. If A transfers £100 to B, then the debt owed by A’s bank to A is reduced by £100 and
the debt owned by B’s bank to B is correspondingly increased. Although there is a flow of
monetary value between A and B, there is no thing that passes between them, as there would
have been if A had delivered £100 in cash to B. B’s right against his or her bank is a legally
distinct thing from the right that A once had against his or her bank.
The question is how an ordinary theory of derivative acquisition of ownership would apply to
such a system of transfer. On one view, it might be thought that the conventional rules of
derivative property transfer would have no application to transfers of digital assets. If the data
recording the transaction at the transferee’s public key were newly created, then any real right
that the transferee had in it could not derive from the transferor. Every new transaction on the

22
See paras 5.131-39, discussing MLETR, art 10(1)(b)(ii).
23
See section 3(ii).
24
See EWLC, “Call for Evidence”, paras 2.29-35; and D Fox, ch 6 in D Fox and S Green, Cryptocurrencies in
Public Law and Private Law (2019), 6.12-19.

10

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system would operate as an original means of acquiring a right in a newly created asset.
Recording of a transaction on the system would become constitutive of a person’s title to the
digital asset. The fact of recording, rather than the validity of the preceding transaction, would
determine the transferee’s title to the asset. The UKJT seems to have come close to this view
in explaining the property effect of transfers with digital assets.25
If that view were correct, it would have important consequences for security of title and the
vindication of ownership. It is familiar experience that digital assets are stolen. A hacker may
get access to the owner’s private key and transfer the asset to another person. Alternatively, a
person may use fraudulent misrepresentations to deceive an owner into transferring the asset
to another. The conventional understanding in property law is that theft operates as a real vice
which prevents the transfer of any real right in the stolen thing to the next person. The victim
may vindicate the thing from the person who holds it without lawful title. Fraudulent
transactions are voidable, in the sense that the victim of the fraud has a right to reduce the
transaction to the transferee. He or she has a personal action against the transferee to restore
the thing in specie (provided that the transferee did not acquire it in good faith and for an
onerous consideration).
If it were true that a transfer of a digital asset operated as an original means of acquisition, then
it might be harder to explain these rights of recovery after an impeachable transaction. In my
view, however, this conclusion need not follow.
If we treat the subject of the transfer as the specific power to make transfers on the system,
rather than the data entries that record it, then it becomes easier to explain the transaction as
derivative in its legal effect. This one consequence of treating the asset as a kind of corporeal
thing which is transferred by the delivery of control from one person to another. The victim
from whom a digital asset is stolen would remain owner although the factual control over the
asset would be in the transferee. A transferee who received a digital asset in a fraudulent
transaction would only have a voidable title to it. The transferee would be liable to an action
for reduction. He or she could be required to retransfer the asset to its original owner.

5. Are there practical circumstances in which it would be useful to distinguish, or to

separate, the ownership and possession (or control) of a digital asset, particularly in
relation to transfers?
It is useful to distinguish between the ownership and possession of a digital asset, although for
the reasons given above it may be more appropriate for Scotland to legislate for a definition of
digital control than to rely on its existing common law concept of possession.
The main reason is for making the distinction is that the state of transactions recorded on the
ledger should not be taken as an unchallengeable record of the legal state of ownership of the
assets on it. As noted above, the separation between ownership and control of digital assets is
essential to applying a derivative theory of property acquisition to them. If some vice affects
the transaction with the asset, then the transferee may only acquire the practical power of
control over it. Ownership would remain with the former holder of the asset.

25
See UKJT, “Legal Statement”, para, 86(c). The EWLC’s “Call for Evidence” indicates that the Commission is
less convinced that this is the correct legal analysis.

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Another reason for recognising a distinction between ownership and control of a digital asset
may be to accommodate certain kinds of custodianship arrangement. It is relatively common
for a client to give custody of their digital assets to another person to hold for safekeeping or
to make transactions with those assets on the client’s behalf. One reason which explains the
EWLC’s preference for extending the common law notion of possession to digital assets is that
some custody arrangements could be explained as bailments. A bailment in English common
law is an arrangement where an owner of property transfers possession of it to another person,
often for safekeeping or to allow that other person to use it temporarily. A bailment would
provide a ready legal category to explain the operation of some commonly used custody
arrangements.
This reason would be less strong in Scots law. Many custody arrangements already in place
for conventional securities are instead explained by trusts. The ownership of the assets is in
the custodian/trustee who holds them subject to duties of fiduciary management for the
clients/beneficiaries. The trust ensures that the assets are not included in the insolvent estate
of the trustee. Provided that digital assets are recognised as property, orthodox trust law
principles could explain the duties of a custodian to its clients in Scots law.
Granted, certain custody arrangements for digital assets might be treated as contracts of deposit
where the person with the power of practical control over the assets was treated as custodier
for the client. But this might require a notion of civil and natural possession of digital assets,
or, on other analyses of the transaction, a distinction between natural possession and mere
custody on behalf of the client. A functional distinction between practical transactional
control and the ownership of the asset may be more straightforward to apply. As noted above,
the artificiality of analysis required to bring digital assets within all existing principles of
possession may be one reason against using possession as the operative legal concept for them.

6. In what circumstances are digital assets analogous to “goods”, as currently defined in

the Sale of Goods Act 1979?
I strongly doubt whether it would be legally correct or practically appropriate to treat digital
assets as “goods” or analogous to “goods” within the meaning of the Sale of Goods Act 1979.
Fundamentally, a digital asset is not a “good”. Although I have suggested that digital assets
may be characterised as a kind of corporeal thing, this is not enough to bring them within the
more specialised understanding of “personal chattel” that would bring the regime in the Act
into play. The statutory word “good” does not so easily lend itself to expansive interpretation
as the common law notion of a thing.
Even putting this to one side, the regime of implied terms and the rules for passing of property
in the Act would make a poor fit with digital assets, so poor in fact that they confirm the view
that the Act can only have been intended to apply to tangible moveables.
I would single out the rules of passing of property in sales of goods. The effect of sections 17
and 18, rule 1 of the Act is that property in goods can pass when the contract of sale is formed.
This rule would be inappropriate for any sale of a digital asset. The great advantage of making
transactions with digital assets on a blockchain is that any change in ledger state generally
corresponds to a change in the real right in the asset. A regime that allowed property in the

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asset to pass by contract alone would undermine the transparency of the ledger. It would open
to the door to off-ledger transfers of digital assets.
This is not to say that the Sale of Goods Act would have no relevance at all to transaction with
digital assets. Some digital assets can be used like money. An agreement to transfer a car in
return for bitcoin is arguably a sale of goods. The point is however that the bitcoin is not a
“good” in this transaction: it is the monetary price paid in return for the good, which is the car.

7. What practical difficulties or problems (if any) do you encounter with the application
of the principle nemo plus juris transfere potest quam ipse habet in respect of a transfer of
digital assets?
The nemo plus principle should generally apply to transfers of digital assets. That is to say, the
mere recording of transaction on the ledger should not be sufficient to confer on the transferee
an indefeasible title to the asset. The transaction ledger is legally neutral and cannot of itself
confer a title on the transferee regardless of the general rules of property law. As noted above,
the existence of newly-created data recording the transaction at the transferee’s public key is
not sufficient to exclude the ordinary principles of derivative acquisition of ownership.26
A practical problem is that, on this view, the digital ledger would not always represent an
accurate or complete record of the state of the parties’ title to the asset. I take each problem in
turn.
The problem of accuracy is that the ledger may record a transaction which is technically
complete but which is legally defeasible. The transferee may, for example, have procured the
transfer to himself or herself by a transaction which was void or voidable according to general
property law rules.
The problem of completeness is that state of the ledger may not indicate the effect of off-chain
dealings with the asset. The recorded holder of the asset may for example hold it subject to a
trust or a security right.
Neither of these problems is peculiar to digital assets. They would also arise with corporeal
moveables transferable by delivery. The holder’s possession of the property satisfies the need
for publicity in completing a property transfer transaction. It also creates a default presumption
of lawful title and ownership in the holder. The effect is to shift the burden of proof on to a
competing party who sought to challenge the holder’s title.
An analogous principle would apply to the ledger records of digital asset transfers. The state
of the ledger record should create an evidential presumption that the holder is owner of the
asset. It would tend to displace the risk that the ledger may not be wholly accurate in indicating
the legal efficacy of transactions between the parties. It would at least place an evidential
burden on to the party who wanted to challenge the legal efficacy of the transaction.27
The theory of digital possession supported by the EWLC would go some way to support this
presumption of ownership from the ledger record of the digital asset. Use of the term

26
See section 4.
27
See further D Fox, ch 6 in D Fox and S Green, Cryptocurrencies in Public Law and Private Law (2019), paras
6.6.50-6.52.

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“possession” to explain the holder’s control over the asset would suggest the analogy with the
presumption of title from possession in English law and the presumption of ownership from
possession of moveables in Scots law.28
But the presumption of ownership would operate without resorting to an extended concept of
digital possession. It would also work if control rather than possession were used as evidence
of ownership. Even without relying on the language of presumptions, the state of the ledger
still serves as circumstantial evidence of the holder’s title to the asset. Lawful title and
ownership could be inferred from control. The great majority of transactions made on the
ledger would be legally effective to transfer ownership to the recorded holder in control of the
asset. Their collective effect would be to support an inference that the transaction in question
was legally effective too.
Some exceptions to the nemo plus rule might apply to digital assets.
First are those exceptions that would apply from the characterisation of digital assets as
property in the general law. For example, a right of reduction against a holder of the asset
would be extinguished when the asset was transferred to a good faith acquirer for onerous
consideration.
Secondly, it may be appropriate for the law to develop a more general good faith acquisition
rule depending on the function and nature of the digital asset in question. An asset which the
parties treated as money should benefit from the common law rule of good faith acquisition for
value. The same might be true of tokenised securities which benefit from a good faith
acquisition rule in the current transfer regimes that apply to them. Tokenised securities should
benefit from the same nemo plus exceptions that would apply to them in non-tokenised form.

8. How do you typically characterise the relationship between a digital asset token and
the underlying tokenised asset?
In answering this question, I quote from the joint response of Professor Louise Gullifer and
myself to the EWLCs call for evidence on Digital Assets. Professor Gullifer was mainly
responsible for drafting this response.
“In our view, there are a number of possible analyses.
1. “A statute provides for the relationship. This could either be on the ‘container’ lines
of the Lichtenstein statute, or the blockchain can serve as a statutory register (as is the
case for share registers in Delaware, for example). The effect of an entry on the register
is whatever effect the statute provides for. The ‘register’ analysis, whereby the
blockchain merely serves as a record of other off-chain transactions, could be limited
to these specific statutory situations (see the discussion later on in the response to this
question).
2. “The parties agree that the relationship is that of a documentary intangible, and statute
provides that a digital record can be such a documentary intangible. This would be the

28
For the presumption that possession signifies ownership, see K G C Reid et al, The Law of Property in Scotland
(1996), para 130.

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 position if the proposals in the consultation paper on electronic trade documents were
enacted.
3. “The blockchain record of transactions relating to the token is evidence of ownership
of the underlying tokenised asset. How strong the evidence would be would depend
on the arrangement between the parties and the nature of the asset. Two examples
follow.
a. If, for example, the tokenised asset was a bond, the terms of the bond could
provide that interest and capital was only payable to the person who controlled
the digital asset token. Providing that this provision was enforceable under the
applicable law, the tokenised bond could not be successfully transferred to any
person except the person who controlled the token, and if the token was
transferred, this would (if an effective transfer) transfer all the rights under the
bond.
b. If, however, the tokenised asset was a tangible asset, it would be much more
difficult to structure the transaction to make it legally impossible for the
tokenised asset to be transferred except by transfer of the token. This is because
ownership in tangible movables can be transferred by the intention of the
parties, and any restriction on transfer cannot bind a transferee who is not party
to that restriction.29 It is possible, however, to make it commercially very
unlikely that anyone would accept a transfer of a tangible linked to a token, for
example, by the tangible being in the custody of a custodian who was instructed
only to deliver the tangible to the person who controlled the digital token.
Someone could buy the tangible without being the transferee of the token, but
would not be able to take delivery of the tangible, so would be unlikely to enter
into this transaction.
“A related point is whether a token related to an underlying asset has any existence in itself
other than as a record of a transaction involving the underlying asset. Are there two assets or
just one? This point is most significant in relation to the analysis in 3. above (but could also
explain conceptually the ‘container’ approach adopted by Lichtenstein).
“Our tentative view is that it is better to recognise two distinct assets. In taking this view we
draw upon the reasoning we developed in explaining the nature of a digital asset (see [section
3(ii]). A digital asset may be best conceptualised as an exclusive power to make valid
transactions on the system. A system may also be designed so that that asset is linked to an
underlying off-chain asset. In that case, its value derives not just from the possibility that it
can be the subject of an exchange with another person but from the fact that it allows the holder
to access the value represented by the underlying asset. The digital asset can be a subject of
property that exists independently of the underlying asset. But its practical value in exchange
is contingent upon its relationship with the underlying asset.”

8. Security over digital assets

29
It should be noted that that many tokenisations involving tangible assets are actually effected by the transfer of
the asset to a SPV, and what is tokenised are the shares of the SPV.

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I shall touch on this question only briefly. It might require a separate study which could be
undertaken later.
For the present it is enough to say that if digital assets were recognised as property, then the
usual forms of non-possessory security and quasi-security available for corporeal moveables
would apply to them. The common commercial example would be floating charge or, in the
case of tokenised securities, repo arrangements. Possessory forms of security could only apply
to them if legislation enacted that the kinds of digital control exercised over them were to be
treated as the equivalent for possession for the purposes of taking security or more generally.
The possibility of fitting digital assets within an existing structure of security arrangements
might have some attractions. It might however create difficulties is digital notions of control
did not map easily only existing legal conceptions of possession.

9. Summary and conclusions

I summarise here my main conclusions and the remaining areas of legal uncertainty.
i. Taking a progressive and principled view of the existing Scots law, digital assets can
be the subject of property. They share many of the relevant features of corporeal
moveables in the way they are held and transferred.
ii. There would be some advantages in legislating to confirm this view. There would also
be advantages in enacting legislation that allowed them to be distinguished from other
digital representations that could not be the subject of property.
iii. The criteria in the draft cll 1(3)(c), (4) of the Electronic Trade Documents Bill would
provide a good starting point in defining the essential characteristics of digital assets
that could be the subject of property.
iv. Even if digital assets were analysed as species of corporeal moveables, there would be
doctrinal and technical difficulties about recognising that they could be possessed
according to existing principles. There may be some advantages instead in legislating
for a legal concept of digital control over them.
v. The transfer of digital assets on a ledger is analogous to the transfer of tangible
moveables, at least as far as the law of property is concerned. The usual property law
principles governing derivative acquisition of ownership would apply to them.
Recording of a transfer on the ledger is necessary to transfer ownership of the assets
but it is not sufficient to constitute an indefeasible title as owner in the transferee.
vi. It is useful to distinguish between ownership and practical control of a digital asset.
The person in control of the asset is not necessarily its owner. But a person’s control
of the asset would be evidence that he or she held the asset with a lawful title as owner.
vii. Digital asset are not goods as currently defined in the Sale of Goods Act 1979.
viii. The nemo plus principle would generally apply to digital assets. It follows the ledger
is not necessarily an accurate or complete record of the state of real rights in the digital
asset shown there.
ix. There are a number of possible analyses to explain the relationship between digital asset
tokens and underlying tokenised assets. Despite this variation, there are some
advantages in treating the token and the asset it is linked to as distinct subjects of
property

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