Despite the recent turmoil in the cryptocurrency market, digital assets of all kinds seem to be taking hold. Bitcoin, stablecoins, non-fungible tokens a/k/a NFTs and even digital currencies exchanged in the “metaverse” are now included in security contracts, asset purchase contracts and mortgages. . After all, digital assets are “property”. However, the increasing influx of digital assets into commercial life has not resulted in a unified approach to transferring ownership of digital assets. Also, existing federal laws regarding securities and commodities, as they relate to the digital asset market, are (at best) vague and subject to significant changes in the near future.

These issues may be resolved soon. In July 2022, the Uniform Law Commission (“ULC”) announced two significant amendments to the Uniform Commercial Code (“UCC”) (“2022 rectification”) has been finalized. newly promulgated UCC Article 12 governing digital assets, or what the UCC calls “manageable electronic records”, and (ii) obtaining and perfecting security interests in manageable electronic records; Amendment to Article 9 of the UCC detailing the process for[1] These amendments address two fundamental issues related to commerce involving digital assets.

• To what extent do digital asset purchasers keep their assets free and free from third-party claims?
• How do protected parties perfect and enforce the security interests of their digital assets?

The ULC promulgated UCC Article 12 and amended UCC Article 9 in response to rapid technological progress and increased commercial transactions involving digital assets. In fact, the UCC Article 12 Introductory Commentary anticipates a further evolution of digital assets, with “broader applicability than electronic (intangible) assets created using existing technologies such as distributed ledger technology. Create a Legal System Intended to (DLT) includes blockchain technology that records transactions in Bitcoin and other digital assets, and technology not yet developed or even imagined. It also aims to apply to electronic assets that may be created using sought to provide a legal framework for digital commerce.

So far, two state legislatures, North Dakota and New Mexico, have enacted the 2022 Amendment, and another 23 legislatures have introduced the same bill.[2]

Article 12 – Manageable Electronic Records[3]

Section 12-102(a)(1) of UCC Article 12 defines controllable electronic records as “records stored on controllable electronic media.”[4] The basis of Section 12 of the UCC is the “control” of controllable electronic records. Such control may imply the extent of controllable ownership of electronic records. Also, new amendments to UCC Article 9 (discussed below) provide that a security interest in controllable electronic records may, among other things, be completed by “control” under UCC Article 12.

Control. Section 12-105 of UCC Article 12 provides that controllable electronic records may be “controlled” if: (ii) the exclusive right to prevent others from exploiting substantially all benefits from the electronic records; (iii) the exclusive right to transfer custody of the Electronic Records to another person or cause another person to acquire custody of the Electronic Records;[5] In addition, the person must be able to “readily identify themselves in any way, such as by name, identification number, encryption key, office, or account number,” to demonstrate controllable control over electronic records. must be[6]

buyer. Section 12-104(d) of UCC Article 12 states that a “purchaser” of a controllable electronic record “is a controllable electronic record that the transferor has or was authorized to transfer. acquire all rights of record.” Controllable electronic records are entitled only to the extent of the purchased interest. “[7] However, “qualified purchasers acquire rights in controllable electronic records without claiming property rights in controllable electronic records.”[8]

Section 12-102(a)(2) of UCC Article 12 defines an “qualified purchaser” as (i) for a fee, (ii) in good faith, (iii) without a charge, in a manageable electronic record. Defined as a person of interest. Notice of Proprietary Claims in Controllable Electronic Records.[9] The concept of “qualified purchaser” of controllable electronic records under UCC Section 12 is the “rightful owner” of a transferable instrument (i.e., check, promissory note, or money order) under UCC Section 3. is similar to . Just as the “legitimate owner” of a check or money order is free to take ownership and clarify previous ownership, the “qualified purchaser” of a controllable electronic record is release you from all proprietary rights claims.

UCC Article 9 as amended – Security Interests in Manageable Electronic Records

Section 9-102 of UCC Article 9 provides that “general intangible property” includes controllable electronic records as defined in UCC Article 12.[10] Therefore, with the enactment of the 2022 Amendment, security agreements encumbering “general intangibles” will cover all forms of digital assets contemplated by Article 12 of the UCC.

Section 9-312 of UCC Article 9, as amended, provides for a security interest in controllable electronic records by (a) filing a UCC-1 Statement or (b) managing controllable electronic records in accordance with It stipulates that the completion of the Section 12-105 of Article 12 of the UCC.[11] However, and importantly, a security interest perfected by maintaining controllable electronic records takes precedence over other security interests granted in the same property.

In effect, the UCC Article 9 amendments weave controllable electronic records into the already well-functioning UCC system. A party seeking to obtain a security interest in controllable electronic records may consider the same factors as when obtaining a security interest in other common intangibles, such as intellectual property and other payment stream interests. there is. However, there is now a new consideration of integrity by “control” under UCC Article 12.

Conclusion

ULC’s amendments to UCC provide welcome uniformity and clarity as digital assets become ubiquitous in our commercial systems. With the existing conceptual framework well-entrenched under the traditional concept of commercial law, the new amendments will further strengthen the baseline criteria for incorporating cryptocurrencies and other emerging technologies into everyday transactions. help.

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