UK provides legal certainty on smart contracts and cryptoassets

Insurers are likely to welcome a landmark legal statement published this week that provides long-awaited clarity on how cryptocurrencies, distributed ledger technology (DLT) and smart contracts might be treated under English law. That is the view of Karen Boto, legal director of global law form Clyde & Co.

Following several rounds of public and private consultation, the legal statement recognises that cryptoassets, including but not limited to, digital currencies, can be treated as property. The statement also makes clear that smart contracts are capable of satisfying the requirements of contracts in English law, making them enforceable by the courts.

Boto said the statement is likely to be welcomed by insurers who may be providing crime cover to crypto-related businesses for hacking incidents as it may increase the prospects of recovering losses, which may, in turn, reduce the losses being claimed from insurers in the first instance and/or pave the way for subrogated recoveries to be made in future.

“Cryptocurrencies and blockchain undoubtedly represent potential areas of growth for the insurance industry,” she said. “As we enter a new decade, we can expect to see insurance demands increase, especially if the legal statement has the desired effect of promoting further utilisation of these technologies going forward.”