Finance World Magazine| Edition: April 2024

Digital assets, constituting a trillion-dollar
asset class, present
vast potential for future innovation
and market opportunities. While many
jurisdictions have primarily focused on
regulating and enforcing sanctions related
to practical applications of this asset
class within regulated financial services,
the fundamental benefits facilitated by
blockchain technology and the diverse
range of digital assets it enables are
poised to expand significantly.
The Digital Assets Law delineates the
legal attributes of digital assets, recognising
them as a form of property and providing
guidelines on their control, transfer, and
management by stakeholders. In conjunction
with the Digital Assets Law, DIFC
has introduced a complementary Law of
Security, patterned after the UNCITRAL
Model of Secured Transactions, and implemented
corresponding amendments
to existing statutes.
Characteristics of Digital Assets
According to the Digital Asset Law
2024 a Digital Asset is intangible property
and is neither a thing in possession
nor a thing in action. It is defined as a
digital asset if:
(a) it exists as a notional quantity
unit manifested by the combination of
the active operation of software by a
network of participants and network-instantiated
data;
(b) it exists independently of any
particular person and legal system; and
(c) the thing is not capable of duplication
and the use or consumption of the
thing by one person or specific group of
persons necessarily prejudices the use
or consumption of that thing by one or
more other persons.
Control and Title:
The Digital Asset Law specifies that
an individual has control over a Digital
Asset if the asset or its relevant protocol
grants them exclusive abilities to prevent
others from benefiting from it, to obtain
substantial benefits from it, and to transfer
these abilities to another person, termed
as a ‘change of control’.
Additionally, the individual must be
able to identify themselves as possessing
these abilities. A change of control
encompasses various actions such as
replacement, modification, destruction, or
elimination of the Digital Asset, resulting
in the creation of a new asset under the
control of another individual.
Moreover, control need not be exclusive
if the Digital Asset or its protocol
restricts use or the individual in control
agrees to share their abilities with others.
Regarding title, the law states that a
person or group obtains legal ownership
of a Digital Asset upon gaining control
and intending to exercise control over it.
In the absence of evidence suggesting
otherwise, the individual or group in
control is presumed to hold superior legal
title. In certain agency relationships, if an
agent controls a Digital Asset on behalf
of a principal and intends to exercise
control on the principal’s behalf, the
principal holds legal title.
Once the title is acquired, it remains
with the individual or group until transferred
or the Digital Asset is destroyed.
Obligations
The Digital Asset Law imposes obligations
concerning the impairment of
digital assets. An individual’s impairment
of a digital asset is considered reckless if
they are aware of the risk of impairment
and unreasonably proceed to take that
This legislation is
groundbreaking
for being
the first to
comprehensively
define the legal
attributes of
digital assets in
property law.”
risk, especially if they know of another
party’s superior interest in the asset.
However, impairment is not intentional
unless the individual is aware of another
party’s interest and the superiority of
that interest. Liability arises if an individual
impairs the use of a digital asset
in which another party has an interest,
intentionally or recklessly causing loss
to the latter.
Consent from the affected party serves
as a defence against impairment, as does
the likelihood of reasonable consent.
Co-owners may recover damages proportionate
to their interest in the asset
and can bring actions against fellow
co-owners.
Additionally, if a person is found liable
to one claimant but another claimant is
subsequently found to have a superior
legal title to the asset, the former is
accountable to the latter.
Furthermore, the law grants individuals
the right to recover control of a digital
asset if it is under another party’s control
and the latter has no legal title to the
asset or has an inferior title.
The law also provides the Board of
Directors of the DIFCA with the authority
to make regulations to further the purpose
of the law or facilitate its administration,
including the imposition of fines for
contraventions and procedures for fine
imposition and recovery.
By delineating the legal attributes of
digital assets and recognising them as
a form of property, the law establishes
clear guidelines for their management
and administration.
This clarity is essential in an era where
digital assets play an increasingly prominent
role in various aspects of commerce
and finance. With this legislation, stakeholders
can navigate the complexities
of digital asset ownership, transfer, and
control with greater confidence and legal
certainty, fostering trust and facilitating
the growth of digital asset markets.
Moreover, by addressing legal questions
surrounding digital assets, such as control
and title, the law lays a solid foundation for
developing strong regulatory frameworks
that can adapt to the evolving landscape
of digital asset innovation and usage. In
an ever-evolving digital landscape, this
legislation lays a foundation for clear
regulations and fosters trust, crucial
for the growth and innovation of digital
asset markets.
April 2024 www.thefinanceworld.com 75