Law Reform: International Law Cannot Keep Up With Crypto Assets
How the Law Commission is finally modernising private international law rules to regulate crypto asset transactions and digital trade.
The UK is undertaking a significant reform of outdated legal rules that impact cross-border disputes involving crypto, blockchain, and electronic trade documents. These digital assets are recognised across borders and there are no standalone rules that enable predictable mechanisms to resolve legal conflicts.
Why Digital Assets Need Legal Clarity
The Law Commission of England and Wales has been busy sorting out a very modern problem in the realm of digital assets involving crypto tokens, smart contracts, and electronic trade documents.
These are now being used in deals worth millions, even billions, and people buy and sell them across borders.
However, the law, especially when it comes to private international law, is still sitting in the past with paper files and dusty codes.
The first consultation launched by the Commission in February 2024 was designed to tackle a simple but serious issue: the current law cannot keep up with crypto technology.
The Law Commission wanted to know how courts should decide what country’s laws apply when a dispute involves something that does not exist in any one place.
The usual conflict of law rules depend on physical location, but digital assets are not physical. They are entries on databases. So when things go wrong, whose law applies? England? France? U.S.A.? Australia? Nigeria?
The Law Commission’s consultation paper makes it clear that we need legal certainty in choice of law when a conflict arises.
Businesses need to know what laws will apply to their digital contracts. Investors need to know their rights will be protected. Courts need a clear roadmap when something goes wrong. Otherwise, we are all just guessing.
The Law Commission is not trying to write brand new laws for the entire crypto economy but rather they are asking how we can update the current legal framework to deal with the reality of cross-border digital transactions.
The problem lies in how the law handles conflicts between different national laws, which is what private international law is all about.
When one country’s law says one thing, and another country’s law says the opposite, how do we choose which law will govern the crypto transaction?
Previously, this was fairly easy. If someone sold you a barrel of oil and it spilled in transit, the courts could figure out where the oil was, where it was going, and who was responsible in carrying it.
Whereas, with digital assets, there is no barrel. There is just code, sometimes stored across many nodes, often managed by no single person in particular.
The Law Commission has taken an approach that is practical. It is not trying to regulate digital assets directly. It is focusing on the rules that help judges decide what law to apply.
These are known as choice-of-law rules.
These may seem boring, until you are the one in court fighting over a digital asset that is worth thousands.
One of the key concerns is that the current choice-of-law rules often assume you can pin something to a particular country. That works fine with physical things like houses, cars, or even shipping containers.
It does not work with a decentralised digital asset. These assets are designed to be intangible and may exist in different places at the same time. That is part of its unique design which is also part of the legal chaos today.
Electronic trade documents face a same headache. Many of these are legally recognised now thanks to recent reforms, but the international rules on how to handle conflicts between different national laws were not built for PDFs, digital signatures, or smart document chains.
So the Law Commission decided it was time to ask the public, the experts, and those on the front lines of global trade and tech: what should the law look like in five years?
Jurisdiction Headaches: Which Court Should Hear a Crypto Dispute?
In a scenario where a Ether buyer is in New Zealand, the seller is in Dubai, the crypto exchange is registered in the Cayman Islands, the miners are located across the world, if the exchange has been hacked and someone has run off with the funds, where does the victim go to sue?
Which court can hear the case?
Which judge will be in charge?
These are serious questions.
The Law Commission in its 2024 consultation paper on digital assets and electronic trade documents in private international law makes it clear that the current rules are struggling.
They were built for a different world, one where transactions took place in specific places; one where assets had a physical location. Now, we have assets that do not live in any one place and can be accessed from almost anywhere.
The first problem is the fragmented nature of these assets. Crypto assets and other digital records are often held across decentralised networks. There is no single party in charge, and no central register.
The records can be distributed across multiple countries. Yet, courts still have to decide who owns what, and where the dispute belongs.
To help courts deal with this, the Commission has proposed a practical solution.
It is suggesting a new statutory rule to determine the applicable law for certain early-stage jurisdictional issues. These are called preliminary issues.
They come up before a court even starts hearing the full dispute.
For example, is the case even in the right country?
Does the court have the power to hear it?
Is the digital asset located in a way that justifies bringing the case in this jurisdiction?
Right now, these kinds of questions are answered by applying general legal principles. With digital assets, those general rules are unpredictable.
The Law Commission’s proposal is to introduce a rule that helps courts identify the law that should govern questions like transfer, control and ownership, even before the case gets fully underway.
This may sound like a dry technical fix but it has big consequences. If a court cannot confidently say it has jurisdiction, it may refuse to hear the case.
That leaves parties without a forum to resolve their dispute. It also creates incentives for fraud and abuse since people who want to avoid the law can exploit these gaps.
The proposed solution would not solve everything overnight but it would give judges a clearer framework to make early decisions.
It would also help lawyers advise their clients on where to bring a claim, and what the outcome might look like. That kind of predictability is essential when the assets in question might be worth a lot of money.
The Law Commission has taken a careful approach by not rushing into radical reform.
They are aware that crypto assets are increasingly being used by businesses, investors and ordinary people. If a digital wallet is hacked, or a smart contract fails which leads to loss of funds, the victim should not have to spend months figuring out which country’s court can hear the case.
The Law Commission is trying to provide courts worldwide with the tools they need to deal with cross-border crypto assets legal issues.
The goal is simple which is to make sure justice can still be done, even when the dispute involves intangible assets.
Section 72 of the Bills of Exchange Act
Section 72 of the Bills of Exchange Act 1882 is at the centre of a conversation about the future of electronic trade documents.
This law, written when steam trains were still considered cutting-edge, sets out the basic rules for how a person can legally transfer rights under a bill of exchange or promissory note.
These instruments were the lifeblood of trade in the 19th century. If someone wanted to get paid for delivering goods, they often used a piece of paper to prove it.
Section 72 told courts how to handle cases where someone lost that paper or where rights to it were disputed.
Fast forward to today, paper cheques are mostly gone. Trade documents are digital and cargo delivery is booked online.
Banks now use encrypted messages instead of inky signatures, but Section 72 still exists in the law books.
The problem is not that it exists, but that courts still have to rely on it when handling trade-related disputes.
The Law Commission looked closely at this section in its consultation.
The question is whether Section 72 is fit for purpose in a world where trade documents are electronic, transferrable, and used across borders.
The answer, not surprisingly, is that it needs work.
One issue is that Section 72 refers to documents as if they can only exist on paper.
That was fine when all commerce was conducted with paper, seals and signatures, but now, documents can exist entirely in digital form.
Electronic trade documents are becoming more common because they are faster, cheaper and more secure.
They are also recognised under the UK’s Electronic Trade Documents Act 2023. That Act gives electronic versions of trade documents the same legal status as paper ones.
But here is the issue: if a legal dispute arises involving one of these digital documents, the courts might still fall back on old legal principles built around paper.
That includes Section 72, and Section 72 is not ready for that kind of responsibility.
The Law Commission is not proposing a radical reform, but instead, it wants to review how it applies to modern documents.
There is a real concern that the current version of Section 72 could block the smooth use of electronic trade documents in international transactions.
If businesses are unsure about how courts will treat a lost or disputed digital asset, they may hesitate to use digital assets at all.
That would be a setback for global trade. It would also be out of step with reforms happening in other countries.
Many jurisdictions are moving to recognise electronic documents more clearly. The UK has already taken some big steps, but the supporting legal rules need to keep up.
This is where the Law Commission is being cautious but clear by saying the law must evolve to meet current realities because trade no longer travels with a paper trail.
Section 72 is one of those critical pieces that could either smooth the road ahead or leave traders stuck in the past.
At the heart of this review is a basic idea: laws should not become museum pieces. If a legal rule written in 1882 is still being used, it had better work for the world of today. The Law Commission’s review is a chance to make sure it does.
Section 72 might soon get the legal update it needs, and for anyone moving goods across borders using digital paperwork, that would be a very good thing.
The consultation is open until 8 September 2025.
If you have experience with or interest in this area of law, your views are welcome by the Law Commission.
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