Chamber and committees

The subject of my first question has already been touched on, but I will ask the minister to extrapolate a bit. It is about what regulations or legislation might be needed to apply to digital assets in the future, in order to protect institutions such as banking systems, to support Scottish or European Union interests, to hinder bad-faith actors, to protect investments, and so on. As I understand it, the bill simply makes digital assets exist in Scots law; it does not provide any further regulations for the protection of anybody. What intentions does the Scottish Government have to consider such regulations in the future?

Thank you for that explanation. I understand that the regulation-making powers in the bill are relatively narrow in order stay within the scope of the bill. As you suggest, allowing powers to modify regulations that might affect the whole banking sector would not be within the competence either of this Parliament or of the bill. That is helpful. Thank you.

My second line of questioning is about environmental concerns. The generation of some digital assets requires an enormous amount of energy—for example, because of the amount of number crunching that is required to generate bitcoins. I realise that the bill would not, by itself, make digital assets exist, because they already exist and all that we are doing is recognising that. However, other stakeholders and witnesses have told us that they want the sector to grow and that recognising digital assets will prompt investment, which implies that there will be environmental overheads and an environmental impact from energy generation. Has the Scottish Government considered that? Where do environmental concerns sit in relation to digital assets?

Thank you. I understand that.

While I have the floor, I will ask some other questions on the same themes. We have narrowed in on particular definitions of digital assets. Professor Buchanan advocates that only crypto-style tokens and that technology should be the basis for the definition on the basis of immutability. How do Mr Ferry and Mr Gray feel about restricting the definition or using the more broad definition that the bill uses?

That is how I have understood it. Thank you.

We have touched on this already, so I will not go over the same ground, but I want to get your general thoughts on the record about how future proofed the bill is. If I understand the bill’s intention properly, it is a starting point. It establishes the existence of digital assets in Scottish law, and from that point onwards, we have the opportunity to bring in regulations, definitions, guidance and that kind of thing if we want. Given that it is just a starting point and the technology is emerging very quickly, what are your thoughts on the definition of digital assets and how future proofed it is? Have we largely got it right?

Just to clarify, do the electronic trading documents that Professor Yüksel Ripley mentioned exist separately from the law, or would that point need to be clarified in guidance or elsewhere?

Are housing deeds an example, or is that a totally different thing? I am sorry; I am opening up a whole thing—do not go there. [Laughter.]

I can certainly do that, convener.

Professor Buchanan, I want you to help me to understand something that we discussed with our witnesses in committee last week, which is the nature of the term “immutable”. In the case of this bill, it is probably a legal term rather than a technical one. If I understood what was being said, “immutable” in this context does not mean that it cannot ever be changed; it means that it can only be changed in a tracked way. It seems to me that that would apply to both the distributed ledger and the permissive ledger, as long as you knew who had permission to change it, as opposed to a mechanism in which anybody could change it and where there is no traceability of those changes. Is that your understanding of the term “immutable”?

I understand that completely. My question is in relation to the bill, which does not, as far as I am aware, restrict itself strictly to blockchain technology and therefore also covers items that would be in a permissive ledger or some other record-keeping mechanism, provided that changes are tracked. I understand that blockchain technology is rigidly immutable in that way, but other technologies that would be covered by the bill are not. Is it an issue that the scope of the bill is broader than just the particular type of technology that includes blockchain and crypto?

I am interested in hearing from Mr Ferry and Mr Gray, but my understanding is slightly different. The original question was about the bill not dealing with tokenisation directly and whether you think that that is an issue. My understanding is that the bill seeks to give legal reality to something that currently does not have it—a digital asset. Given that tokens can represent digital assets or physical assets, tokenisation is kind of by the by, and I am not clear why legislation would be required on that. It sounds as if the current system works fine but people need to sign up to it. As I understand it, the bill is about establishing digital assets in law, but I might have misunderstood. Perhaps you can clarify.