This blog article has been written by Dr Alisdair MacPherson and Professor Burcu Yüksel Ripley. As part of a SPICe academic fellowship, they have previously written a briefing on Digital Assets in Scots Law considering the treatment of digital assets in Scotland and with reference to developments in other countries and internationally.
What follows are the views of the authors, not of SPICe, or the Scottish Parliament, or any other organisation or group to which the authors are affiliated.
Tokenisation
Tokenisation is ‘the process of linking physical or intangible assets and digital tokens, which are a type of digital asset recorded on a distributed ledger. These tokens represent ownership, contractual rights, or other value’ (UNCITRAL (2025), paragraph 92).
Tokenisation has become increasingly common, particularly in the world of finance, and the tokenisation market is experiencing significant growth. It has been contended that tokenisation supports the ease of transferability of assets and allows for ‘broader access to diverse asset classes’. Larry Fink, Chairman and CEO of BlackRock, recently stated that: ‘Every stock, every bond, every fund—every asset—can be tokenized.’ However, there remain questions as to the legal effectiveness of tokenisation transactions, including for Scots law.
The Digital Assets (Scotland) Bill does not address tokenisation specifically, with the Explanatory Notes stating that ‘the Bill has nothing to say about whether and how digital assets can be tokenised’ (paragraph 25). Of course, if a token meets the test of being a digital asset, the Bill's provisions will apply to it, including in relation to acquisition of ownership (see further A MacPherson and B Yüksel Ripley, “An Introduction to the Digital Assets (Scotland) Bill”). But it does not determine what impact such acquisition will have on assets that are linked to digital tokens.
The Bill’s Explanatory Notes suggest that ‘it may come to be accepted that transferring a certain kind of digital asset will be treated as an effective proxy for transferring the legal right that is “stapled” to it’ and an analogy is drawn with negotiable instruments that use paper ‘as proxies for debt obligations’ (paragraph 25). This raises questions as to whether ownership of an asset linked to a token can be transferred by transferring the token, and what the applicable rules for transfer would be.
This blog article examines these matters with reference to various types of property.
Applicable rules for transfer of linked assets
A digital token can represent another asset, and this may give its holder contractual rights against its issuer, as well as providing evidential value if there is a dispute about rights in relation to an asset. However, there is not yet direct authority in Scots law as to whether the transfer of tokens will also transfer ownership of linked assets.
While there may be some comparability with negotiable instruments, and custom and usage may further strengthen this, significant doubts remain as to whether (some) tokens will or should receive equivalent special treatment without legislative provision. Statutory intervention by the Electronic Trade Documents Act 2023 has been considered necessary to give certain electronic trade documents the equivalent effects of their paper counterparts, including for bills of exchange and promissory notes.
For tokens, it seems that at present the question of whether a linked asset is transferred by transferring the token probably has to be determined with reference to the normal rules of transfer for the asset in question. Consequently, transfer rules must be considered for various types of property, whether heritable (land or rights in relation to land), corporeal moveable (e.g. goods), or incorporeal moveable (e.g. claim rights for the payment of money).
Transfer of land?
The transfer of a token would not transfer linked land in Scotland (or another real right in such land). There are formality requirements for contractual and conveyancing documentation under the Requirements of Writing (Scotland) Act 1995, which are unlikely to be met in many such transactions. In addition, the Land Registration etc (Scotland) Act 2012, section 50, provides that registration of a disposition (deed) in the Land Register of Scotland is necessary to transfer ownership, and registration is also generally required to transfer or create other real rights in land (such as standard securities and long leases).
Registration is used to fulfil the publicity principle, which requires a public act to notify third parties of rights that may affect them. In a general sense beyond land, publicity may still not be achieved by transferring a token. Under the Digital Assets (Scotland) Bill, a token could simply involve the giving of exclusive control to a transferee and may therefore involve no publicity whatsoever. Even if an “on-chain” transfer of the token is completed (i.e. is recorded on the ledger of the relevant system), this is not enough to meet the requirements for the transfer of land due to the land registration rules.
The problems regarding the effective tokenisation of land have been recognised in relation to Scots law and the law elsewhere. Nevertheless, there may be alternative ways in which technology connected to digital assets could be helpfully used in land transactions.
Transfer of corporeal moveables?
The legal prospects for the tokenisation of corporeal moveables are more favourable. The Sale of Goods Act (SOGA) 1979 would apply to the linked asset and section 17(1) provides that ownership passes “at such time as the parties to the contract intend it to be transferred”. In determining this, regard is to be had to the contract’s terms, the parties’ conduct and the wider circumstances (s 17(2)).
As Professor Fox notes, the parties’ intention in relation to the transfer of a linked gold coin (that does not qualify as money) would likely be evidenced by the conclusion of a contract of sale on the relevant ledger (or by the final record of the transfer on the ledger), at which point ownership of the item would transfer. If the token qualifies as a digital asset, then the moment of transfer of ownership as identified by the Bill, may be considered the relevant point, subject to what the parties may agree.
The same would be true for goods more broadly, including paintings and other artwork. This would facilitate not only onward transfers but also the fractionalisation of ownership, allowing many parties to potentially have a share of ownership of a valuable Picasso, Eardley or Raeburn.
Challenges with corporeal moveables
There would, however, be challenges. For while the tokenisation process and some transactions involve the alignment (or combined duality) of the physical asset and the token(s), there could also be misalignment or dealignment.
By way of example, someone who has sold a painting (or other goods) using tokenisation, and is no longer owner, but remains in possession can still validly sell the property to a good faith acquirer for value (or pledge it) (SOGA 1979, s 24). A purchaser dealing with the painting may have no reason to know of the earlier tokenisation or the transfer of the token(s). If this were to happen, the token could be an empty one, with its owner blissfully unaware, and this could be true of later purchasers too.
As is the case when a physical work of art is sold directly, the transferee of a token would need to be aware that they would not necessarily be acquiring accompanying intellectual property rights. Yet the transfer of copyright via tokens may be achievable within the same token as the artwork itself or using separate tokens (see below).
A further point to note is that tokens would not allow for transfer of corporeal moveables by donation because it requires delivery. This is true even if the token qualifies as a digital asset under the Bill and so giving exclusive control of the token to the donee would be the equivalent of giving possession of a corporeal moveable. That is because the corporeal moveable is still a separate item of property, and its rules of transfer differ from those of the token (at least for now).
Transfer of incorporeal moveables?
Various types of assets with their own transfer rules fall under incorporeal moveable property. This includes claim rights (e.g. for payment of money), company shares, intellectual property rights (such as patents, trademarks and copyright) and indeed digital assets (which will be confirmed by section 2 of the Bill - but note the implications of section 4).
As is the case with tokenisation of other property, there may also be different types of arrangement and structure used, e.g. with the tokens representing pro indiviso shares of linked property (such as an IP right) or instead each one corresponding to a particular portion (such as a percentage of a fund or (other) claim rights).
Claim rights
A claim right is the classic example of incorporeal moveable property, and could arise from e.g. a standard loan or a bond. For example, Alexa owes Bob £200, and so Bob has the right to receive this money. The transfer of the right, e.g. from Bob to Charlie requires assignation along with intimation to the debtor (Alexa) or registration in the Register of Assignations, the latter having been introduced by the Moveable Transactions (Scotland) Act 2023.
Consequently, the transfer of a token would transfer a linked claim only if the requirements of assignation with intimation or registration are fulfilled. Under section 1 of the 2023 Act, an assignation document is necessary and must be executed in accordance with the Requirements of Writing (Scotland) Act 1995 (see also s 120 of the 2023 Act). This will prove challenging for a transaction involving a token.
Even if the writing requirements could be considered met, the registration formalities would not be complied with by the transfer of a token alone. Consequently, intimation would have to be relied upon. As provided in the 2023 Act, section 8, this is achieved only by:
- the assignor (Bob in the example above) or assignee (Charlie) serving notice of the assignation on the debtor (Alexa); or
- the debtor (Alexa) acknowledging to the assignee (Charlie) that the claim is assigned; or
- intimation to the debtor (Alexa) in judicial proceedings to which the debtor is a party, that the assignation is founded on in the proceedings.
There are formality rules for a relevant notice, including that it must be in writing, but it does not need to be executed or authenticated and can be served by transmission to a provided address for electronic communication (or by personal delivery or postal services). To facilitate transfers of claim rights using tokens, it seems that the tokenisation mechanism would have to build in a notification system for debtors in compliance with the intimation requirements. Beyond this, reform would appear necessary to allow for such transfers.
Alternative analysis for transfer of claim rights?
Professor Fox has suggested an interesting alternative analysis, whereby novation of contracts is used to explain how a “transferee” of a token may have a right to, for example, enforce an issuer’s obligation in relation to a bond. Of course, this would not technically involve a transfer, instead consisting of the creation of replacement rights/obligations in place of those that existed when the “transferor” held a relevant token.
For there to be a novation, the debtor (e.g. issuer of a bond or Alexa in the example above), the holder of the token and the purported new holder would all have to give their consent. As such, tokenisation transactions would have to be constructed in a way that gives effect to this, and the use of terminology such as “transfer” could undermine a novation analysis. There may also be unanticipated consequences where a debt is extinguished and replaced with another, such as in cases involving accessory security rights including guarantees, i.e. caution. A security right (whether personal or real) ordinarily becomes ineffective upon the extinction of the (original) secured obligation.
Shares
The tokenisation of shares also poses challenges as regards transfer. The transfer of certificated shares, i.e. those that are not transferred via CREST, requires an instrument of transfer and for the transferee to be entered as a shareholder in the company’s register of members (Companies Act 2006, ss 112 and 770). There would be significant difficulties for a transfer of tokens to comply with this, without legislative intervention.
As Fiona Henderson, Bruce Harvie and Euan Reid from CMS write, share tokenisation may be achievable in Scots law by the use of trusts or contractual mechanisms. However, any transfers of rights represented by the tokens would need to satisfy the rules of transfer, whether for a beneficiary’s rights under a trust or contractual rights against the issuing company. The mechanisms of English law, especially in equity, seem to support tokenisation of shares more than Scots law. That also appears to be true for the tokenisation and transfer of rights more broadly in English law, even if there are still challenges (see the UKJT Legal Statement on the Issuance and Transfer of Digital Securities under English Private Law).
Intellectual property rights
For intellectual property rights, the position regarding tokenisation differs depending on which type of right is involved. The use of tokens for transfer of copyright would require a written assignation signed by the assignor (or on their behalf), under the Copyright, Designs and Patents Act 1988, s 90. The requirements for registered IP would be significantly more challenging for token transfers to meet, given the need not only for writing but also for registration of the assignation of IP (e.g. in the register of patents – see Patents Act 1977, ss 32-33).
Summary of current law
Tokens may represent rights and can have contractual and evidential value. It is also usually straightforward in a legal sense for them to be created to provide a representational function. However, unless they are accepted in law as akin to negotiable instruments, which is at least uncertain and may bring its own problems, or there is statutory intervention, their value for transfer purposes is curtailed by the law that applies to the transfer of linked assets. This is true even if the Digital Assets (Scotland) Bill will clarify how tokens (if qualifying as digital assets) may be transferred.
Ownership of land cannot be transferred by the transfer of tokens. For incorporeal moveable property, it appears challenging. It would involve careful construction of tokenisation transactions to ensure that certain types of such property could be transferred via tokens, and would be more difficult still if transactions involve pseudonymity. The picture for corporeal moveables seems to be more promising due to the ease of transfer under the SOGA 1979, but there are pitfalls to be wary of in that context too.
Reform?
Given the issues identified, if there is a policy and/or financial imperative to facilitate the transfer of assets by tokens, then reform via legislation seems desirable. As a starting point, this appears most pressing in the context of financial instruments, including shares and debt instruments, due to the importance of ease of transferability for those assets. For this, legislation at UK level would be most suitable and potentially necessary, but consideration of reform at the Scottish level for other property types should also be undertaken.
Other jurisdictions may offer templates for reform. Liechtenstein was the first country to have a comprehensive regulation of the token economy, with the enactment of the Act on Tokens and Trustworthy Technology Service Providers (TVTG) in 2019 (in force from 1 January 2020). It uses the “token container model”, under which a token is a legal object that can represent other rights of all kinds, including as regards land, shares, bonds, and gold. Alternatively, the token can simply relate to digital code, as with cryptocurrencies, thus leaving the container empty. In principle, the disposal of a token results in the disposal of represented rights. However, if the law requires a further step to transfer a represented right (i.e. an attempted disposal via a token is considered insufficient), the person responsible for the obligation in the token has to ensure that the disposal takes place (see Article 7), e.g. by having represented goods deposited somewhere.
Swiss law has also been reformed to enable the use of tokenisation. The Federal Act on the Adaptation of Federal Law to Developments in Distributed Ledger Technology of 2020 (in force as of 1 February 2021) enabled the tokenisation of rights through ‘ledger-based securities’ (Article 973 onwards of the Code of Obligations). A wide range of rights that can traditionally be incorporated into (paper-based) securities can be incorporated into ledger-based securities, such as claims, shares, and some intellectual property rights (see further here). There are various requirements for such securities, including (1) an agreement between relevant parties that the right is to be registered on the ledger and can only be transferred in this way, and (2) a ledger that meets certain conditions, including that the content of the rights must also be available from the ledger.
These jurisdictions and others can provide useful reference points for future legislation which would help to resolve some of the challenges highlighted for Scots law. The Digital Assets (Scotland) Bill will provide greater clarity on the law relating to tokens themselves; however, attention may have to then turn to the question of transferring linked assets along with those tokens.
