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Digital assets have soared in popularity, with waves of innovation outpacing legislation and regulation. To try to narrow the gap, the Uniform Law Commission has urged U.S. states to change commercial law governing the transfer of these digital assets. Here’s a look at the proposed changes:
The Uniform Law Commission (Commission) recommended changes in 2022 to the Uniform Commercial Code (UCC) to govern the transfer of digital assets, including cryptocurrency, digital tokens and non-fungible tokens (NFTs). The proposal envisions adding a Chapter 12 to the UCC and other changes.
Virtual currency and other digital assets based on blockchain have spread quickly. In 2019, the Commission and the American Law Institute began considering whether to recommend changing the UCC to accommodate emerging technologies, including artificial intelligence, distributed ledger technology and virtual currency.
The Commission’s recommended changes address questions such as whether cryptocurrency is “money,” how digital assets can be transferred to lenders and buyers and how people or companies that buy digital assets can protect themselves from adverse claims.
Despite market upheaval affecting crypto, the NFT market is not a passing fad or limited to the crypto market. NFTs allow anything digital to be “tokenized” – represented in a digital record stored on the blockchain, including files containing images, videos and music. NFTs will encompass a range of assets such as virtual games, virtual real estate and virtual claims. The proposed changes are intended to facilitate transactions involving virtual currency, NFTs and other digital assets, including:
All 50 states, Washington, D.C., and U.S. territories will consider the recommendations. Several states have already adopted the changes; others plan to do that soon. The effective date of the proposed changes will vary by state.
The Commission has proposed a grace period to let lenders who hold a security interest in digital assets renegotiate terms. That period is called the “adjustment date.” Each state will choose an adjustment date of January or July 1, 2025, or, if later, the one-year anniversary of an act’s effective date.
Article 12 introduces a few new terms. Here are four terms you’re likely to hear:
Examples include bitcoin, stablecoin and other cryptocurrencies as well as digital art and music, digital coupons, hybrid tokens and security tokens.
Cryptocurrencies are not considered “money” mainly because private parties – not governments – create them. Cryptocurrency is not considered “money” even if a country authorizes or adopts it as a medium of exchange, as El Salvador did in 2021.