This posting concerns two recent developments relating to the commercial law rules for digital assets such as virtual currency, electronic promissory notes and securities maintained electronically on a distributed ledger (often called a “blockchain”). The first development is the formation of a study committee (the “Study Committee”) by the American Law Institute and the Uniform Law Commission to examine whether any amendments to the Uniform Commercial Code (the “UCC”), enacted in all states and the District of Columbia, are needed to accommodate emerging technological developments including digital assets. The second relates to initiatives already undertaken or being considered by a number of states to enact digital asset legislation impacting on the UCC and otherwise establishing commercial and property law rules for digital assets.
The ULC recommends states refrain from enacting digital asset legislation pending the work of the Study Committee. To ensure the continued uniformity of state commercial laws, states are instead encouraged to send representatives to join in the work of the Study Committee and in the drafting of any legislation recommended by the Study Committee.
Choice of law. Digital assets are electronic records accessible via the internet and are not physically located in any jurisdiction. Addressing the commercial law rules for digital assets requires the formulation of uniform choice of law rules among all states. Otherwise, results among the states may differ depending on the state in which a dispute arises. Differing results leads to forum shopping and general commercial uncertainty, creating greater risks among transacting parties, discouraging some transactions, and in any event increasing transaction costs. There is a long history of the states cooperating on the timing of the effective date of amendments to the UCC for precisely these reasons.
Substantive law. Addressing the commercial law rules for digital assets requires uniform substantive law rules that take into account areas in which existing law is adequate and areas in which it needs to be improved. Providing new legislation where existing law is already adequate may lead to confusion and uncertainty. Improving existing law will require a deliberative process that integrates the new legal rules into the system without disrupting the rules that have worked well for decades. The formulation of uniform substantive law rules, like the formulation of uniform choice of law rules, will create greater commercial certainty and will reduce commercial risks and transaction costs.
Ease of understanding and accessibility. Digital asset legislation that has the effect of modifying the rules of the UCC as, for example, by providing new rules for perfection or priority of security interests in digital assets, will be more difficult for practitioners to find and consider if the new rules are not integrated into the UCC itself. Integration within the UCC is especially important when transactions span areas of commercial law that include digital asserts but cover other areas of commercial law as well.
Process. The Study Committee process, together with any resulting process for actually drafting amendments to the UCC for consideration by the states on a uniform basis, is a deliberative one that is open to all who wish to participate. The process takes into account diverse views and perspectives, practical applications, and the likelihood of uniform enactment, and it draws from a wide range of skills and expertise. The Study Committee welcomes participants from states that wish to participate in its work, including state experts that wish to offer their views and insights. The process is especially relevant where some technologies are at early stages and creative approaches need to be devised in anticipation of, and not to stifle, future transactions and developments.
Further information concerning the work of the Study Committee and its participatory process may be obtained by contacting the Uniform Law Commission’s Chicago office at (312) 450-6600.