Blockchain Tokenisation: ‘NFTy’ trick or Griftonomics?

*
Timothy Chan and Kelvin F.K. Low

The widespread hype of blockchain technology over the past decade or so has sparked a wave
of interest in ‘tokenisation’. Borrowing an expression from data security in which sensitive
information such as credit card details were tokenised through substitution with non-sensitive
information, blockchain tokenisation refers not so much to the desensitisation of sensitive
information intended to be repeatedly used, but the use of a blockchain ledger entry to represent
property rights in an off-chain asset. This trend began with the initial coin offering (‘ICO’)
boom of 2017, which envisaged unregulated ICOs as an alternative fund-raising mechanism to
initial public offerings. This phase of excitement involved tokenisation through the launch of
an independent blockchain on which said tokens would be issued. With the recent mania
surrounding non-fungible tokens (‘NFTs’), tokenisation is now envisaged to deploy on
blockchains with smart contract functionality such as Ethereum. It is claimed that literally any
type of asset, from land to art and shares to bonds, can be ‘tokenised’ in this fashion. The
benefits of tokenisation, according to its advocates, include the ability to sell fractional interests
in otherwise extremely expensive assets such as real estate and art as well as increase
transactional security and transparency, create greater liquidity, and facilitate trade. This article
critically examines these claims and exposes the flaws in the reasoning in support of this fad,
concluding that tokenisation, like so much of the crypto space, is mostly predicated on grifting
rather than a true innovation.

INTRODUCTION
The term ‘tokenisation’ became something of a buzzword in late 2021 and early 2022 amidst
massive hype over anything remotely blockchain-related. While that mass hysteria was
significantly dampened over late 2022’s long and harsh ‘crypto winter’, 1 2023 has seen a
discernible resurgence of interest in blockchain projects. Hong Kong, in particular, has pivoted
to a crypto-friendly stance,2 with significant institutional players expressing interest in entering
the crypto market there.3 Interest in ‘tokenisation’ is again on the rise.4

*
This draft paper is to be presented at the Fraud and Risk in Commercial Law Conference at the National
University of Singapore on 15 and 16 June 2023. Please cite the final version where possible.
1
Pak Yiu, D Loh and F Regalado, ‘‘Crypto winter’ to ‘ice age’? What 2023 holds for digital assets’ (Nikkei, 30
December 2022) at https://asia.nikkei.com/Business/Business-Spotlight/Crypto-winter-to-ice-age-What-2023-
holds-for-digital-assets.
2
C Mellow, ‘Hong Kong Is Now Courting Crypto. What’s Behind the Switch.’ (Barron’s, 11 April 2023) at
https://www.barrons.com/articles/hong-kong-crypto-bitcoin-3be92a76.
3
D Wee, ‘DBS Plans to Apply For License to Offer Crypto in HK’ (Bloomberg, 13 February 2023) at
https://www.bloomberg.com/news/articles/2023-02-13/dbs-plans-to-apply-for-license-to-offer-crypto-to-hk-
customers.
4
See most recently Citigroup, ‘Money, Tokens, and Games: Blockchain’s Next Billion Users and Trillions in
Value’ (30 March 2023) at https://icg.citi.com/icghome/what-we-think/citigps/insights/money-tokens-and-
games. See also, eg, W McCurdy, ‘BlackRock CEO Says ‘Next Generation for Markets’ Is Tokenization’
(Yahoo Finance, 1 Dec 2022) at https://finance.yahoo.com/news/blackrock-ceo-says-next-generation-
120411520.html; Boston Consulting Group, ‘Relevance of on-chain asset tokenization in ‘crypto winter’’
(August 2022) at https://documents.addx.co/relevance_of_onchain_asset_tokenization_in_crypto_winter.pdf.

Electronic copy available at: https://ssrn.com/abstract=4459873

 The term ‘tokenisation’ within crypto generally refers to the process of ‘digitally
representing assets or items of value through a smart contract on a blockchain’.5 Proponents
contend that the assets that can be thus ‘represented’ include not only intangible asset classes
which have traditionally been securitised (such as mortgages and other receivables)6 but also
high-value physical assets, such as land and chattels like wine and art. The tokenisation of the
former asset class is relatively unproblematic since dematerialisation has already allowed the
widespread and efficient trading of securities through intermediaries. 7 It is therefore the latter
claim about the tokenisation of physical assets that is often presented as revolutionary. It is said
to have the potential to lower barriers to investment, improve transparency and security,
increase liquidity, and facilitate trade. 8 Such statements emanate not only from industry players
who are naturally interested in promulgating the purported advantages of such technology but
also from regulators such as HM Land Registry9 and the Monetary Authority of Singapore
(‘MAS’).10 The impression given to the public, therefore, is that the tokenisation of physical
assets is not only legally effective but holds the promise of a revolutionary new medium of
investment for the future.
This paper questions both of these assumptions. We seek to demonstrate that the idea
that some form of ownership interest in off-chain physical assets can be ‘represented’ by and
traded as a crypto-token in fact faces many obstacles of both a legal and practical nature. We
begin in the second section by exploring the development of today’s tokenisation phenomenon,
first tracing the origins of the concept in data security before examining the ‘initial coin offering’
(‘ICO’) wave in 2017 and the more recent ‘non-fungible token’ (‘NFT’) mania in 2021. In the
third section, we examine the claim that interests in real-world physical assets can be
‘represented’ by blockchain tokens. Contrary to popular belief, it is unlikely that property
interests in such exogenous assets can be transmitted at all through the proxy of blockchain
transactions in the absence of significant legislative reform. Further, and regardless of reform,
insofar as legal relationships can be structured to achieve such effects, they require the
interposition of intermediaries. With this in mind, we consider in the fourth section the extent
to which blockchain tokenisation is truly a salutary development. Here we examine the various

5
Monetary Authority of Singapore, ‘MAS Partners the Industry to Pilot Use Cases in Digital Assets’ (Media
Releases, 31 May 2022) at https://www.mas.gov.sg/news/media-releases/2022/mas-partners-the-industry-to-
pilot-use-cases-in-digital-assets.
6
See eg JK Thompson, Securitisation: An International Perspective (Paris: OECD, 1995); L Lan,
‘Securitisation’ in D Neo, H Tjio and L Lan (gen eds), Financial Services Law and Regulation (Singapore,
Academy Publishing, 2019) para 11.27.
7
See eg G Morton, ‘Historical Introduction: The Growth of Intermediation and Development of Legal
Analysis of Intermediated Securities’ in L Gullifer and J Payne, Intermediation and Beyond (Oxford, Hart,
2019).
8
See eg MAS, ibid; B Vagadia, Digital Disruption (Cham, Springer, 2020), 159; R Ramakrishnan and BE Raj,
‘The World of NFTs (Non-Fungible Tokens): The Future of Blockchain and Asset Ownership’ in AB Mnaouer
and LC Fourati (eds), Enabling Blockchain Technology for Secure Networking and Communications
(Pennsylvania, IGI Global, 2021) 99; Schindlers Attorneys, ‘Tokenisation of Property’ (29 September 2021) at
https://www.schindlers.co.za/news/tokenisation-of-property/; Baker Tilly, ‘What to know about real estate
tokenization’ (17 March 2022) at https://www.bakertilly.com/insights/what-know-about-real-estate-
tokenization.
9
HM Land Registry, ‘HM Land Registry to explore the benefits of blockchain’ (1 October 2018) at
https://www.gov.uk/government/news/hm-land-registry-to-explore-the-benefits-of-blockchain.
10
Monetary Authority of Singapore, n 5 above.

Electronic copy available at: https://ssrn.com/abstract=4459873

purported advantages of blockchain tokenisation and contend that, far from being a
revolutionary concept, tokenisation simply reinvents existing fractionalisation mechanisms in
a manner which provides dubious benefits and instead multiplies risks. In the result, we argue
that tokenisation is essentially the equivalent of a nifty party trick whose popularity is more
hype than substance. Given the prevalence of fraud in this space, by extolling the potential of
‘tokenisation’, regulators and established financial service providers alike are playing straight
into the hands of modern-day grifters.

THE RISE OF BLOCKCHAIN TOKENISATION

‘Tokenisation’ means ‘different things to different people’. 11 While commonly associated with
the blockchain movement in today’s headlines, the term in fact originated in data security,
where it refers to the ‘process of replacing actual sensitive data elements with non-sensitive
data elements that have no exploitable value for data security purposes’ 12 using various
encryption procedures.13 An example of such tokenisation is Visa’s security technology known
as ‘Visa Token Service’, which ‘replaces 16-digit Visa account numbers with a token that only
Visa can unlock.’ Tokenisation in this context enables ‘frictionless, card-free payments’
without exposing the sensitive card number which could create vulnerability to fraud.14 This
helps to facilitate e-commerce significantly and according to Visa, the number of Visa tokens
issued has outpaced the number of its physical cards in circulation. 15
With the advent of blockchain technology, the term ‘tokenisation’ took on a radically
new meaning, far divorced from its roots in data security. Bitcoin, the original cryptoasset, was
described as a version of ‘electronic cash’, 16 and was conceptualised to overcome perceived
weaknesses of existing electronic payment systems relying on trusted third parties. 17 Bitcoin
and other first-generation projects, by creating a public register of stored value, therefore
represented an early attempt to ‘tokenise’ currency, but did not allow for more sophisticated
applications.18 The true advent of blockchain tokenisation came with the development of the
Ethereum blockchain in 2015, which was designed to allow entire programs to be coded onto

11
C Kerrigan, ‘Tokenisation in the real estate industry’ (2020) 3 JIBFL 198
12
See T Winston et al, ‘How to use tokenization to improve data security and reduce audit scope’ (AWS
Security Blog, 25 Jan 2022) at https://aws.amazon.com/blogs/security/how-to-use-tokenization-to-improve-data-
security-and-reduce-audit-scope/; KFK Low, ‘The Emperor’s New Art: Cryptomania, Art & Property’ (2022)
86 Conveyancer and Property Lawyer 378.
13
See for example F Betül Durak et al, ‘FAST: Secure and High Performance Format-Preserving Encryption
and Tokenization’ in M Tibouchi and HX Wang (eds), Advances in Cryptology – ASIACRYPT 2021 (Cham,
Springer, 2021) 465.
14
See M Saini, ‘Visa tokens overtake payments giant's physical cards in circulation’ (Reuters, 24 August 2022)
at https://www.reuters.com/business/finance/visa-tokens-overtake-payments-giants-physical-cards-circulation-
2022-08-24/#sq_h5j2z0srzk.
15
Ibid.
16
S Nakamoto (pseudonym), ‘Bitcoin: A Peer-to-Peer Electronic Cash System’ (2009), available at
https://bitcoin.org/bitcoin.pdf.
17
Ibid.
18
See for eg T Gayvoronskaya and C Meinel, Blockchain - Hype or Innovation? (Cham, Springer, 2021) 38.

Electronic copy available at: https://ssrn.com/abstract=4459873

the blockchain using programming languages such as Solidity.19 In addition, it became possible
to create second-level token systems operating atop the Ethereum blockchain. 20 These token
systems were envisioned by Vitalik Buterin, the founder of the Ethereum blockchain, to have
‘many applications ranging from sub-currencies representing assets such as USD or gold to
company stocks’ and ‘individual tokens representing smart property’.21 In addition, they could
be used as ‘token systems with no ties to conventional value at all, used as point systems for
incentivization’.22
The architecture of the Ethereum blockchain provided the technical infrastructure
necessary for new applications, such as the initial coin offering, or ‘ICO’, where the eponymous
‘coins’ took the form of blockchain ‘tokens’. ICOs were regarded as ‘a new approach to
financing the development of a service offering,23 whereby project developers would create
blockchain tokens associated either with some interest in the future governance of the project
or some future utility.24 Such tokens would be offered to investors through a public sale and/or
a private presale, sometimes limited to accredited investors, usually backed only by a ‘white
paper’ containing a ‘general description of the project to be executed and the benefits and
disruption that project can bring to the table’.25 At the outset, it was thought that ICOs fell in a
regulatory grey area and therefore offered a flexible approach to corporate fundraising 26 and
attracted tremendous interest, to the extent that ‘[a]ccording to PWC, ICOs of cryptocurrencies
have raised over US$31 billion through late 2019 with more than 2000 projects funded’.27 But
the underregulation of the ICO sector brought with it significant risks: ICOs were often issued
without proper prospectus disclosure and featured little or no corporate governance
mechanisms.28 The ICO boom peaked in 2018 with some US$20 billion raised in that year, but
interest in ICOs waned drastically from 2019. The fall in interest is attributed in part to the
SEC’s 2017 ruling that the DAO’s ICO was a security offering, eliminating much of the desired
flexibility (or regulatory arbitrage) that had attracted issuers to this business model,29 and in
part to the revelation that a large proportion of ICO launches were outright scams. 30

19
See H Arslanian, The Book of Crypto – The Complete Guide to Understanding Bitcoin, Cryptocurrencies and
Digital Assets (Cham, Springer, 2022) 95; Ethereum Developer Resources, ‘Smart Contract Languages’
(updated 2 September 2022) at https://ethereum.org/en/developers/docs/smart-contracts/languages/.
20
See Etherscan, ‘Navigating the ERC-20 Token Standard’ (Information Center, updated May 2022) at
https://info.etherscan.com/erc-20-fungible-token-standard/.
21
V Buterin, ‘Ethereum: A Next-Generation Smart Contract and Decentralized Application Platform’ (2014),
available at https://ethereum.org/en/whitepaper/.
22
Ibid.
23
Arslanian, The Book of Crypto, 278.
24
See A Gurrea-Martínez and N Remolina, ‘The Law and Finance of Initial Coin Offerings’ in C Brummer (ed),
Cryptoassets: Legal, Regulatory, and Monetary Perspectives (Oxford, Oxford University Press, 2019) 120.
25
Ibid, 125.
26
See K Yeung, ‘Regulation by Blockchain: the Emerging Battle for Supremacy between the Code of Law and
Code as Law’ (2019) 82 MLR 207, 226–30.
27
R Rau, R Wardrop and L Zingales (eds), The Palgrave Handbook of Technological Finance (Palgrave
MacMillan, 2021), 175.
28
Gurrea-Martínez and Remolina, n 24 above.
29
Rau et al, 178.
30
R Rajbhandari, A Book About Blockchain: How Companies Can Adopt Public Blockchain to Leap Into the
Future (New York, Business Expert Press, 2021) 1.

Electronic copy available at: https://ssrn.com/abstract=4459873

 In the wake of the ICO crash emerged the non-fungible token (‘NFT’) bubble, which
inflated rapidly in 2021 and early 2022, with NFTs from the ‘Bored Ape Yacht Club’ (‘BAYC’)
collection reaching a record high of no less than $3.4 million in September 2021 31 and setting
an all-time high ‘floor price’ of over $400,000 in April 2022.32 NFTs, like ICO tokens, are
issued on blockchains with smart contract functionality such as Ethereum, but are christened
‘non-fungible’ because they are designed to be unique, in that they are serialised and often
linked to an image, either on the blockchain itself or via an IPFS link.33 Here, the term ‘fungible’
is used loosely and simply means ‘interchangeable’ rather than bearing its legal definition. 34
Many NFTs, such as the BAYC collection, purported to offer membership to holder
communities, some of which organised physical meetups. 35 Others offered the promise of
future utility in blockchain games, such as the BAYC-affiliated ‘Otherdeeds’, described as a
‘gamified, interoperable metaverse currently under development’.36 Given that many of these
use-cases function identically to securities, they have naturally drawn interest from regulators
like the US Securities Exchange Commission.37

Beyond such nebulous use-cases, however, one key theme of the NFT movement is the
claim that ‘anything can be tokenised’. It is said that NFTs make it possible to ‘tokenise things
like art, collectibles, even real estate’.38 This is because, ‘[a]s NFTs are essentially deeds, one
day you could buy a car or home using ETH and receive the deed as an NFT in return’.39
Tokenisation in this form (which we refer to as ‘blockchain tokenisation’) refers to the ‘process
of converting the value of a tangible or an intangible asset (any tradable object) into a digital
form (i.e., the token) that can be algorithmically generated, digitally represented, and traded
over a blockchain network.’ 40 Even regulators such as the MAS have endorsed the apparently
revolutionary promise of the technology, saying that tokenisation ‘allows high value financial
and real economy assets to be fractionalised and exchanged over the internet on a peer-to-peer
basis’. 41 Central to this claim is the idea that the trading of a digital token will be effective to
‘transfer the ownership of the physical asset from the seller to the buyer’.42 As mentioned above,
proponents of this technology claim that tokenisation will lower barriers to investment,

31
R Perper, ‘Rare Bored Ape Yacht Club NFT Sells for Record $3.4 Million USD’ (Hypebeast, 26 October
2021) at https://hypebeast.com/2021/10/bored-ape-yacht-club-nft-3-4-million-record-sothebys-metaverse.
32
Meaning the lowest price that a BAYC could be purchased for on NFT trading platforms: see D van Boom,
‘How Bored Ape Yacht Club NFTs Became $400K Status Symbols’ (CNet, 28 April 2022) at
https://www.cnet.com/culture/internet/how-bored-ape-yacht-club-nfts-became-400k-status-symbols/.
33
See Low, ‘The Emperor’s New Art’, n 12 above.
34
R Goode, ‘Are intangible assets fungible?’ [2003] Lloyd's Maritime and Commercial Law Quarterly 379.
35
Van Boom, n 32 above.
36
See Yuga Labs, ‘Otherside’ at https://otherside.xyz/.
37
M Robinson, ‘Bored-Ape Creator Yuga Labs Faces SEC Probe Over Unregistered Offerings’ (12 October
2022) at https://www.bloomberg.com/news/articles/2022-10-11/bored-ape-creator-yuga-labs-faces-sec-probe-
over-unregistered-offerings#xj4y7vzkg.
38
Ethereum.org, ‘Non-fungible tokens (NFT)’ (updated 18 October 2022) at https://ethereum.org/en/nft/.
39
Ibid.
40
MC Lacity and H Treiblmaier (eds), Blockchains and the Token Economy (Cham, Springer, 2022) 158.
41
Monetary Authority of Singapore, ‘MAS Partners the Industry to Pilot Use Cases in Digital Assets’ (Media
Releases, 31 May 2022) at https://www.mas.gov.sg/news/media-releases/2022/mas-partners-the-industry-to-
pilot-use-cases-in-digital-assets.
42
G Ferrara et al, ‘Physical Assets Tokenization for Blockchain Market’ in D Camacho et al (eds), Intelligent
Distributed Computing XIV (Cham, Springer, 2022) 274.

Electronic copy available at: https://ssrn.com/abstract=4459873

improve transparency and security, increase liquidity, and facilitate trade. 43 The extent of the
optimism surrounding blockchain tokenisation is demonstrated in a report by the Boston
Consulting Group forecasting that the tokenisation of global illiquid assets will be a ‘$16
trillion business opportunity’ by 2030. 44 More recently, despite dampened expectations
following the crypto crash of 2022, Citigroup in a March 2023 report estimated the value of
the tokenisation market to be $4 to $5 trillion by 2030.45

In view of these widespread claims of tokenisation’s revolutionary potential, it is

unsurprising to find that various attempts have been made to implement the tokenisation and
fractionalisation of exogenous physical assets. Yet, none have achieved mainstream adoption.
Real estate, in particular, has always been of key interest to the tokenisation movement,46 but
early initiatives to develop blockchain registries in countries such as Honduras and Sweden
came to nought. 47 In England, from March 2019, HM Land Registry conducted a prototype
‘digital transfer’ via a blockchain transaction,48 but as of 2022, there was no concrete role for
blockchain tokenisation in the Land Registry’s latest strategy documents. 49 More recent
applications of tokenisation in this context are self-evidently securities, such as SDAX’s
recently reported offering of a tokenised residential development in Melbourne 50 and Kasa’s
‘digital asset-backed securities’, which are intended to be launched in Singapore.51 Similarly,
Roofstock’s attempts to tokenise rental homes in the United States involve the interposition of
incorporated companies to hold title to those properties. 52 In contrast, non-institutionally
backed attempts to conduct tokenised land transactions through a peer-to-peer NFT transfer are
patently gimmicky and border on the absurd.53

43
See fn 8 above.
44
Boston Consulting Group, ‘Relevance of on-chain asset tokenization in ‘crypto winter’’ (August 2022) at
https://documents.addx.co/relevance_of_onchain_asset_tokenization_in_crypto_winter.pdf.
45
Citigroup, n 4 above, 4.
46
Eg C Kerrigan, ‘Tokenisation in the real estate industry’ (2020) 3 JIBFL 198; O Konashevych, ‘General
Concept of Real Estate Tokenization on Blockchain’ (2020) 9(1) European Property Law Journal 21.
47
See R Thomas and C Huang, ‘Blockchain, the Borg collective and digitalisation of land registries’ (2017) 1
Conveyancer and Property Lawyer 14; A Proskurovska and S Dörry, ‘The blockchain challenge for Sweden’s
housing and mortgage markets’ (2022) 54(8) Economy and Space 1569.
48
L Tombs ‘Could blockchain be the future of the property market? (HM Land Registry, 24 May 2019) at
https://hmlandregistry.blog.gov.uk/2019/05/24/could-blockchain-be-the-future-of-the-property-market/.
49
HM Land Registry, ‘HM Land Registry Strategy 2022+’ (31 August 2022) at
https://www.gov.uk/government/publications/hm-land-registry-strategy-2022/hm-land-registry-strategy-
2022#who-we-are; HM Land Registry, ‘Business Plan 2022–2025’ (31 August 2022) at
https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/1101703/HM
LR_Business_Plan_2022_to_2025.pdf
50
B Cher, ‘SDAX Financial raises S$24m in Series B round led by Straits Trading and PSA’ (Business Times,
21 December 2021) at https://www.businesstimes.com.sg/garage/sdax-financial-raises-s24m-in-series-b-round-
led-by-straits-trading-and-psa.
51
T Tay, ‘Kasa gets ready to launch fractional investing of Singapore properties’ (EdgeProp Singapore, 22 April
2022) at https://www.edgeprop.sg/property-news/kasa-gets-ready-launch-fractional-investing-singapore-
properties.
52
B Liu, ‘Roofstock Sells Alabama Rental Property Via NFT’ (Blockworks, 4 February 2023) at
https://blockworks.co/news/roofstock-sells-property-via-nft.
53
See E Tan, ‘A Manhattan Landlord Listed His Office Building in ETH as an NFT. Then Its Price Dropped
$12M’ (Coindesk, 16 June 2022) at https://www.coindesk.com/business/2022/06/15/a-manhattan-landlord-
listed-his-office-building-in-eth-as-an-nft-then-its-price-dropped-12m/.

Electronic copy available at: https://ssrn.com/abstract=4459873

 Attempts have also been made to tokenise unique chattels, such as paintings, wine,
whisky 54 and diamonds. Relying on crypto-friendly legislation, a Swiss company called
Sygnum Bank AG in 2021 tokenised a Picasso known as Fillette au beret as well as a bottle of
Chateau Latour 2012,55 and Liechtenstein-based VP Bank is developing custodial tokenisation
services for artwork and other physical assets. 56 Surprisingly, the fact that the tokenisation
process for art (which necessarily involves the reproduction of the painting in digital form) 57
in these cases likely amounts to a breach of copyright has received little attention.58 In the US,
Icecap Diamonds offers tokenised diamonds for sale, claiming that ‘[i]f you buy the token you
own the diamond’.59 But in Commonwealth jurisdictions such as England, attempts to tokenise
artwork have thus far required the interposition of a trust structure using an independent
professional trustee as an intermediary. 60 Some offerors on the other hand tout the typical
benefits of tokenisation such as fractional ownership, enhanced liquidity and transparency but
are ironically far less transparent about the rights that will accrue to investors, despite claiming
that tokenisation is a ‘method to change the ownership rights of an asset into a digital token’. 61

LEGAL RISKS IN ASSET TOKENISATION

It is striking that, despite the numerous benefits claimed by proponents of asset tokenisation,
no such projects to date have achieved mainstream adoption. Tokenisation evangelists
generally assume that property interests in exogenous assets can be passed effectively via
blockchain transactions. Naturally, the claimed benefits can only be reaped if that is true. In
other words, the transaction of a blockchain token must be effective to transfer legal (or
equitable, depending on how the transaction seeks to be structured) title in an exogenous asset.

54
See C Dolghier, ‘Zilliqa Tokenises Rare Single-Malt Scotch Whisky Casks, Now Available To Accredited
Investors on Hg Exchange’ (The Tokenizer, 21 January 2021) at https://thetokenizer.io/2021/01/21/zilliqa-
tokenises-rare-single-malt-scotch-whisky-casks-now-available-to-accredited-investors-on-hg-exchange/.
55
M L Rivers, ‘The Art Of Tokenization: How A Picasso Painted Itself Onto The Blockchain’ (Forbes Digital
Assets, 27 April 2022) at https://www.forbes.com/sites/martinrivers/2022/04/27/the-art-of-tokenization-how-a-
picasso-painted-itself-onto-the-blockchain/?sh=37414c877290.
56
See Tatler Singapore, ‘Asset appreciation: VP Bank is transforming the investment landscape with
tokenisation’ (31 December 2022) at https://www.tatlerasia.com/power-purpose/wealth/asset-appreciation-vp-
bank-is-transforming-the-investment-landscape-with-tokenisation; E Reguerra, ‘Liechtenstein’s VP Bank taps
Metaco to expand custody and tokenization services’ (Cointelegraph, 4 April 2023) at
https://cointelegraph.com/news/liechtenstein-s-vp-bank-taps-metaco-to-expand-custody-and-tokenization-
services.
57
See Low, ‘The Emperor’s New Art’, n 12 above.
58
A Chinese court reportedly decided that the reproduction of a painting in the form of an NFT amounted to
copyright infringement: see P Culjkovic, ‘NFTs and the copyright dilemma’ (Lexology, 23 September 2022) at
https://www.lexology.com/library/detail.aspx?g=83b86e8b-5a92-40b9-9326-fa3840f9c110.
59
Icecap, ‘Terms & Conditions Governing Icecap Diamond Tokens’ (25 July 2022) at
https://icecap.diamonds/terms/.
60
See Wassielawyer, ‘The NFT-linked Trust’ (20 February 2022) at
https://cryptoconsigliere.substack.com/p/the-nft-linked-
trust?r=18x1cq&utm_campaign=post&utm_medium=web&s=r (the author identifies himself as a ‘London
Finance Lawyer’).
61
See eg https://shamlatech.com/nft-art-tokenization/.

Electronic copy available at: https://ssrn.com/abstract=4459873

But to what extent do institutions and investors participating in tokenisation structures run the
legal risk of transactions failing to allocate title in the intended manner?62

Assets subject to registration regimes

At the outset, it is clear that in the case of property subject to a registration regime, such as land
and shares, tokenisation will be ineffective to transfer title to the extent of non-registration in
the relevant register. Blockchain transactions cannot of themselves effect discrete physical
operations in the real world, such as an entry on a land register.63 So the claim that land can be
straightforwardly tokenised and reduced to an NFT, in the absence of significant reform of land
registration regimes,64 is simply misguided. In one example, a Manhattan landowner claimed
to have listed an office building ‘as an NFT’ for 15,000 ETH. Yet, the description of the NFT
purported only to give the purchaser ‘exclusive rights to acquire the building’; it also caveated
that ‘[d]ue to the nature of real estate sales, the sale of the NFT does not warrant the completion
of the real estate transaction, or reflect the transfer of the deed or title. The traditional real estate
process must still be complete (sic).’65 The interposition of the NFT here was nothing short of
bizarre. Registered land is not the only asset to which such restrictions apply – legal title to
certificated shares passes only upon registration. 66 Therefore, legal interests in registered assets
simply cannot pass automatically with the sale of a blockchain token. Of course, it may be
possible to effect tokenisation through the medium of a trust, as elaborated upon further in
relation to chattels below. It suffices here to note that the use of a trust structure makes the
tokenisation process functionally indistinguishable from existing modes of securitisation, save
that the interposition of the blockchain introduces various risks instead of creating efficiencies,
as we discuss in the penultimate section.

A further obstacle to the tokenisation of registered property is that such property is often
also subject to additional restrictions on property ownership. For example, the fractionalisation
of real estate beyond 4 owners is not possible at law in England since what is contemplated is
the creation of multiple legal tenancies in common, which has not been possible since 1926.67
Under Singapore law, although there is no objection to the creation of a legal tenancy-in-
common, there are multiple restrictions on the ownership of property which apply to residential

62
See the definition of ‘defective transaction’ in the International Bar Association, ‘The Management of Legal
Risk by Financial Institutions’ (2003) Draft Discussion Paper, Working Party on Legal Risk; V Dixon, ‘The
Legal Nature of Intermediated Securities: An Insurmountable Obstacle to Legal Certainty?’ in Gullifer and
Payne, n 7 above, 54.
63
Eg RM Garcia-Teruel and H Simón-Moreno, ‘The digital tokenization of property rights. A comparative
perspective’ (2021) 41 Computer Law & Security Review 105543, 7.
64
And such reform may be far from desirable: see eg V Ooi, KP Soh, and J Soh, ‘Blockchain land transfers:
technology, promises and perils’ (2022) 45 Computer Law & Security Review 105672.
65
Opensea, ‘One Eleven | 109-111 West 24th Street, NYC’ at
https://opensea.io/assets/ethereum/0x495f947276749ce646f68ac8c248420045cb7b5e/101384670028251040624
379703957067301496215794066136880463632652255105021640705.
66
Ireland v Hart [1902] 1 Ch 521; J Sainsbury Plc v O’Connor (Inspector of Taxes) [1991] 1 WLR 963, 977.
67
LPA 1925, s 36(2).

Electronic copy available at: https://ssrn.com/abstract=4459873

property68 and public housing69 and which may prohibit foreigners from becoming owners or
co-owners of such property.

Chattels

In relation to valuable chattels, the position is complex. In the analysis below, we seek to
demonstrate that as the law stands, there are grave doubts about the viability of passing title to
a chattel via a crypto-token transaction, and that attempts to bypass these legal obstacles
through law reform or the devices of equity will not remove the need for an intermediary.

At law, the passing of title to chattels outside of a sale of goods generally requires
delivery or deed.70 The transaction of a crypto-token clearly will not satisfy the requirement of
delivery. As was said in the context of smart contracts: ‘few contractual obligations can be
automated or enforced ‘by’ a smart contract. Logically, the ‘smart contract’ will not move
trucks or build houses.’ 71 Nor can such a transaction conceivably constitute a deed under
English law, given the statutory requirements of attestation 72 and delivery (of the deed). 73
Attestation in this context requires that witnesses be ‘present’, 74 which (at least in the context
of wills) traditionally involved the witnesses being in the ‘visual presence’ of the person
executing the document.75 ‘Delivery’ refers not to physical delivery but rather an ‘act done so
as to evince an intention to be bound’,76 which must be separate from the mere execution of
the deed by signature.77 At common law, while there was no requirement of attestation, deeds
must be executed in ‘paper or parchment’, ‘sealed’, and delivered.78 In the absence of statutory
reform, therefore, the mere execution of a blockchain transaction is unlikely to constitute a
deed.
Where the Sale of Goods Act applies, the general rule is modified such that property
passes when intended to pass.79 It has been assumed that the Act would apply to the sale of a
tokenised chattel. 80 But this overlooks the crucial question of whether the transfer of a co-
ownership interest, including a fractional interest, is a ‘sale’ for the purposes of the Act. A

68
Residential Property Act 1976 (Rev Ed 2020 Sing).
69
Housing and Development Act 1959 (Rev Ed 2020 Sing)
70
Cochrane v Moore (1890) 25 QBD 57; Bridge et al, [29-001].
71
KFK Low and E Mik, ‘Pause the Blockchain Legal Revolution’ (2020) 69 ICLQ 135, 170.
72
Law of Property (Miscellaneous Provisions) Act 1989, s 1(3)(a).
73
Ibid, s 1(3)(b).
74
Ibid, s 1(3)(a).
75
See eg A Learmonth et al, Williams, Mortimer and Sunnucks on Executors, Administrators and Probate, 21st
edn (London, Sweet & Maxwell, 2018) para 9-20. Note that regulations were passed during the COVID-19
pandemic to include ‘presence by means of videoconference or other visual transmission’ in the context of wills,
but no equivalent proviso has been made in the context of deeds. See the Wills Act 1837 s 9(2) as amended by
the Wills Act 1837 (Electronic Communications) (Amendment) (Coronavirus) Order 2020 (SI 2020/952).
76
Vincent v Premo Enterprises (Voucher Sales) Ltd [1969] 2 QB 609, 619.
77
Bibby Financial Services Ltd v Magson [2011] EWHC 2495 (QB), [335].
78
See HW Tang and KFK Low, Tan Sook Yee's Principles of Singapore Land Law, 4th edn (Singapore,
LexisNexis, 2019) at 264. The requirement of ‘sealing’ has recently been affirmed in Lim Zhipeng v Seow Suat
Thin [2020] 2 SLR 1151; it is unclear whether a seal can be affixed electronically.
79
Sale of Goods Act 1979, s 17.
80
H Liu, ‘Digital assets: the mystery of the “link”’ (2022) 3 JIBFL 161, 165.

Electronic copy available at: https://ssrn.com/abstract=4459873

fractional interest in specific goods would indeed qualify as ‘goods’ for the purposes of the
Sale of Goods Act.81 However, given that tokens will typically be purchased using cryptoassets
such as Bitcoin, Ethereum or USDC, there is serious reason to doubt that the requirement of a
‘money consideration called the price’ will be satisfied. Notably, a ‘clear and liquidated
financial advantage accruing to the seller’, such as the forgiveness of indebtedness, is not
sufficient.82 A suggestion that ‘open source’ digital currencies like Bitcoin ought to qualify as
money for this purpose 83 rests upon what we think is a questionable analogy between
cryptoassets like Bitcoin and trading checks, which in Davis v Customs and Excise
Commissioners84 were accepted to be ‘money consideration’ such that there was a sale for the
purpose of levying value added tax. The problem is that the trading checks tendered by the
buyers in Davis represented a claim against the issuing company denominated in fiat
currency.85 They were therefore no different from bank cheques or banker’s drafts, which are
treated as money for the purposes of the definition of ‘sale’: ‘[t]he instrument itself may not be
money but it is the means by which the seller obtains money.’ 86 Such forms of payment are
therefore not analogous to cryptoassets such as Bitcoin, Ethereum and USDC, which do not
represent a claim against an issuer, but simply consist of an entry recorded on a distributed
ledger. The better view, therefore, is that cryptoassets do not qualify as a ‘money consideration’
for the purposes of the Sale of Goods Act. This conclusion would be consistent with prevailing
views that cryptoassets do not constitute ‘currency’ 87 and with a recent Singapore decision
holding that a USDC ‘debt’ did not constitute a money debt for the purposes of a statutory
demand in insolvency proceedings. 88

If a transaction involving a token sale in exchange for a cryptoasset consideration is not

a sale of goods, it is then likely to be characterised as a barter contract. It has on occasion been
suggested that the rules of title transfer under the Sale of Goods Act might apply by analogy. 89
Koppel v Koppel 90 provides an example of such reasoning, where the Court of Appeal
suggested that the property rules in the Sale of Goods Act applied to any ‘document evidencing
a transaction for consideration’, in that case a contract for the transfer of chattels in

81
S 61(1), definition of ‘goods’.
82
M Bridge, The Sale of Goods, 3rd edn (Oxford: Oxford University Press, 2014), para 2.28; cf VFS Financial
Services Ltd v JF Plant Tyres Ltd [2013] 1 WLR 2987, [14].
83
Bridge, The Sale of Goods, ibid, para 2.30.
84
Davis v Customs and Excise Commissioners [1975] 1 WLR 204.
85
Ibid, 205.
86
Bridge, The Sale of Goods, n 82 above, para 2.28.
87
See, eg, D Fox, ‘Cryptocurrencies in the Common Law of Property’ in D Fox and S Green (eds),
Cryptocurrencies in Public and Private Law (Oxford, Oxford University Press, 2019) para 6.61; KFK Low and
E Teo, ‘Legal Risks of Owning Cryptocurrencies’ in D Lee and R Deng (eds), Handbook of Blockchain, Digital
Finance, and Inclusion: Cryptocurrency, FinTech, InsurTech, and Regulation (London, Academic Press 2017)
241.
88
Algorand Foundation Ltd v Three Arrows Capital Pte Ltd (HC/CWU 246/2022, unreported); see D Chan,
‘Crypto Debt Not Money Debt For Purposes of Statutory Demand, Singapore High Court Rules
(WongPartnership, May 2023) at
https://www.wongpartnership.com/upload/medias/KnowledgeInsight/document/18683/CaseWatch_CryptoDebt
NotMoneyDebtForPurposesofStatutoryDemand_SingaporeHighCourtRules.PDF.
89
S Zogg, Effects of Mistake and Other Defects on the Passage of Legal Title (Cambridge, Intersentia, 2019) 58;
Bridge, The Sale of Goods, para 3.05.
90
Koppel v Koppel [1966] 1 WLR 802.

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consideration for housekeeping and other services. But in Flynn v Mackin & Mahon91 it was
held that s 18 of the Sale of Goods Act did not apply to a contract of barter, and elsewhere
Koppel v Koppel has been suggested to have been decided per incuriam.92 It is therefore not
safe to assume that a token sale purporting to pass property in a chattel will be saved by the
Sale of Goods Act unless it expressly falls under the Act.
Even if it is possible to pass legal title to chattels via a blockchain transaction (either
via the Sale of Goods Act or the generous approach in Koppel v Koppel), two obstacles remain.
First, a co-ownership interest cannot be precluded from selling their interest without selling the
token. 93 This has been termed the requirement of a ‘negative link’: 94 in order for asset
tokenisation to work, a token transaction must not only be effective to transfer title in the asset
(what he terms the ‘positive’ link) but must be the only way to transfer title in the asset. The
issue this raises is obvious: if it is possible to transfer title in the asset independently of the
token, then a subsequent purchaser of the token has no way of ascertaining whether the seller
of the token has good title to the asset, and it is not possible to achieve commercially workable
fractionalisation through blockchain tokenisation. The numerus clausus principle prevents
attempts to circumvent this difficulty through contract: ‘incidents of a novel kind’ cannot be
‘devised and attached to property at the fancy or caprice of any owner.’95 While it has been
suggested that this difficulty might be circumvented by amendment to the Sale of Goods Act,96
it is far from clear whether such a crypto-friendly amendment is desirable. 97
Second, such an amendment would not resolve another commercial impediment to
tokenisation, at least on a peer-to-peer level: the seller-in-possession exception to the nemo dat
rule. Even if it is possible for a buyer to be confident in acquiring property rights to an
exogenous asset via an on-chain transaction, the buyer runs the risk of the seller, whilst he
remains in possession of the asset, fraudulently reselling the goods to a third party. 98 This is a
crucial problem for the notion of peer-to-peer asset tokenisation because any such system
makes it incredibly easy for sellers to commit fraud. Should Alice purchase from Bob a bottle
of Château Lafite via a token transaction, on Bob’s promise to thereafter deliver the bottle to
her order, Alice runs the risk that Bob will happily turn around and resell the bottle to Carol,
who, assuming she takes in good faith and without notice of the sale of Alice, will take free of
Alice’s interest. One may say that the risk exists in every sale of goods involving a prepayment.
But bearing in mind the cryptoverse’s obsession with pseudonymity, Alice will have far greater
difficulty tracking Bob down and pursuing legal action than the typical defrauded purchaser.
Importantly, this difficulty cannot be overcome by amending the SGA to disapply the nemo

91
Flynn v Mackin & Mahon [1974] IR 101.
92
C Twigg-Flesner, R Canavan and H MacQueen, Atiyah and Adams’ Sale of Goods (Edinburgh, Pearson, 13th
ed, 2016) 31.
93
See L Gullifer and D Fox, Response: Digital assets Call for evidence (30 July 2021), available at https://s3-
eu-west-2.amazonaws.com/lawcom-prod-storage-11jsxou24uy7q/uploads/2022/10/Digital-assets-call-for-
evidence-responses.pdf, at 27–28; H Liu, ‘Digital assets: the mystery of the “link”’ (2022) 3 JIBFL 161.
94
Liu, ibid.
95
Keppell v Bailey (1834) 2 My & K 517.
96
Liu, n 93 above, 165.
97
See the penultimate section below.
98
Sale of Goods Act 1979, s 24.

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dat exceptions in the tokenised asset context, as Liu suggests. 99 Liu recognises that such
situations involve the rights of innocent third parties, who cannot be expected to investigate
title. 100 But this is not merely, as Liu suggests, a matter of security of title which can be
‘balanced’ against the ‘need’ to ‘maintain the integrity of the blockchain as a register’. The
nemo dat exceptions were incrementally developed at common law 101 and represent a carefully
calibrated balance between dynamic and static security that avoids imposing excessive
transactional costs on purchasers. How can the seller-in-possession exception be abolished only
in the context of tokenised goods? Carving out such an exception-to-the-exception would
require all purchasers of chattels (particularly valuable ones) to investigate whether the chattel
in question had previously been tokenised, and radically unbalance the law governing the sale
of chattels.102

Invoking the flexibility of equity

The above discussion demonstrates extensive difficulties with the claim that land and valuable
chattels can be straightforwardly tokenised and owned at law. In fact, the commercial adoption
of such processes faces multiple legal obstacles, and as the law stands, it is very doubtful that
a blockchain token transaction can be used reliably to convey an interest in an exogenous asset.
So, barring significant legislative overhaul, proponents of tokenisation should retreat from the
claim that legal interests can be tokenised and focus on the tokenisation of equitable interests.
Given the flexibility of the English trust, it seems likely that it is possible to structure
blockchain transactions to transfer an equitable interest in land or chattels. Even here, the
position is not straightforward in view of s 53(1)(c) of the Law of Property Act (which requires
a ‘disposition’ of an equitable interest to be in ‘signed writing’).103 Whether the sale of a token
representing an exogenous equitable interest qualifies as a ‘disposition’ may depend on how
the transaction is structured. 104 Admittedly, electronic signatures have been held to satisfy
statutory references to ‘signed writing’ for the purposes of s 4 of the Statute of Frauds 105 and s
6(d) of Singapore’s Civil Law Act.106 In the context of s 53(1)(c), the Law Commission’s view
that electronic signatures qualify as ‘signed writing’ 107 is likely broad enough to apply in the s
53(1)(c) context,108 and in Singapore s 8 of the Electronic Transactions Act 2010 expressly
provides for the validity of electronic signatures without excluding dispositions of equitable

99
Liu, n 93 above, 165.
100
Ibid.
101
M Bridge, L Gullifer, KFK Low and G McMeel (eds), The Law of Personal Property, 3rd edn (London:
Sweet & Maxwell, 2022) para [31-002].
102
Cf TW Merrill and HE Smith, ‘Optimal Standardization in the Law of Property: The Numerus Clausus
Principle’ (2000) 110 Yale Law Journal 1.
103
The equivalent in Singapore being s 7(2) of the Civil Law Act 1909.
104
H Liu, ‘Transfers of equitable interests in the digital asset world’ (2022) 5 JIBFL 325, 327.
105
WS Tankship II BV v Kwangju Bank Ltd [2011] EWHC 3103 (Comm); J Pereira Fernandes SA v Mehta
[2006] 2 All ER 891.
106
SM Integrated Transware Pte Ltd v Schenker Singapore (Pte) Ltd [2005] 2 SLR(R) 651; Joseph Mathew v
Singh Chiranjeev [2010] 1 SLR 338.
107
Electronic execution of documents (Law Com No 386, 2019) ch 3.
108
See ibid, para 1.14–1.15. 3.3.

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interests.109 But there is still some uncertainty, and indeed in a recent interlocutory decision the
English High Court held that an email did not comply with the signature requirement of s
53(1)(c).110 To this extent, the residual uncertainty over compliance with s 53(1)(c) remains a
commercial obstacle to the use of trust structures to effect blockchain tokenisation, at least until
further clarification. Any such clarification, whether from the courts or through legislation, 111
should apply to s 53(1)(c) as a whole, since it affects not only interests tokenised on blockchains
but also the existing market for dematerialised securities, which is far larger and more
established.112

The insurmountable legal limits to blockchain tokenisation

What becomes clear is first that whether or not asset tokenisation is effective to achieve its
purported effect is, contrary to popular perception, heavily dependent on the type of asset in
question, as well as the way the tokenisation framework is structured. This is a trap for unwary
investors, who regardless of accreditation are unlikely to be equipped to price in the resulting
legal risks. Certainly, any claim that a linked token transfer is presently effective to convey a
legal interest in land or chattels should be viewed with circumspection; even where a trust
structure is used, some doubt remains. Perhaps this legal uncertainty is giving pause to even
the most forward-looking institutions who might otherwise have proposed blockchain
tokenisation projects. Perhaps some of these impediments, even to the passing of legal title,
can be resolved with the support of a sufficiently entrepreneurial legislator. But, as
demonstrated above, even where it is possible to achieve the desired transactional effect (either
in law or in equity), the interposition of an intermediary will remain necessary. Thus, more
circumspect commentators suggest that ‘[a] trusted caretaker, curator, or other conventional
intermediary is required to uphold the tokenized ownership claims that are stored on the
distributed ledger and registered to an investor’s digital wallet address’,113 and a recent article
suggesting a process architecture to support asset tokenisation proposed using a trusted
warehousing intermediary. 114 These views are comparatively rarely juxtaposed against the tide
of euphoria surrounding tokenisation but represent a more accurate description of the
insurmountable limits of blockchain tokenisation.

A COST–BENEFIT ANALYSIS OF TOKENISATION

The previous section demonstrated the extensive risks attaching to blockchain tokenisation as
the law currently stands. Equally significantly, it demonstrated that no amount of legislative
reform can enable the peer-to-peer trading of interests in exogenous assets – such reform can

109
Electronic Transactions Act 2010 s 4 read with the First Schedule.
110
Bay Mining Consultants Ltd v Patel and others [2021] EWHC 1304 (QB), [16].
111
See the Consultation Paper on Digital Assets (Law Com No 256, 2022) paras 17.36–17.57.
112
See the Law Commission, ‘Intermediated securities: who owns your shares? A scoping paper’ (11 November
2020) paras 7.41–7.63.
113
MC Lacity and H Treiblmaier (eds), Blockchains and the Token Economy (Cham, Springer, 2022) 221.
114
G Ferrara et al, n 42 above, 278.

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at most reduce existing recharacterisation risks and therefore facilitate tokenisation within
structures featuring a trusted intermediary such as a custodian or trustee.

What this means is that blockchain tokenisation really only achieves two things, and
even then only through the use of trusted intermediaries: the fractionalisation of interests and
the provision of liquidity. So limited, tokenisation is far less groundbreaking than it has been
made to appear. In fact, the fractionalisation of physical assets is nothing new. Fractionalisation
has been possible at law for centuries and is commonly seen in the syndicated ownership of
racehorses.115 In Marson v Short, Park J entertained ‘no doubt that, in a general sense, a sale of
a share in a horse falls within the exception of the statute applicable to sales of goods, wares,
or merchandizes’,116 and in Ellis v Leader a half share in a colt devolved as property by will. 117
Today, the British Horseracing Authority defines syndication as an arrangement where
members ‘share the ownership [of] the horse’. 118 Notably, such arrangements are generally
governed by contract and regulated by the Authority, which stipulates that certain mandatory
terms must be included by syndicates open to the public. Fractional ownership is of course
possible not only in relation to racehorses, and commonly features in relation to other valuable
chattels such as ships. 119 Apart from direct fractional ownership, it is also possible to
fractionalise interests through the medium of a company, as often done in the United States, 120
or a trust. As for the second achievement of blockchain tokenisation, liquidity can be created
in relation to any type of asset through existing methods of securitisation.121 While the assets
securitised are often receivables, theoretically ‘any kind of asset can be securitised’: 122 it is
equally possible to securitise commercial real estate and stands of timber 123 and even the
entirety of a business through whole business securitisation. 124 We also have market
intermediaries such as broker-dealers, which provide the general public easy access to over-
the-counter derivative trading of a wide range of commodities from gold to oil.125 The idea of
fractionalising the ownership of physical assets and providing liquidity is far from
revolutionary in itself.

115
See for eg Equivend, ‘First Time Racehorse Ownership FAQs’ at https://www.equivend.co.uk/racing/1st-
time-owners-buying-shares-in-a-racehorse/; Atiyah, n 92 above, 276.
116
Marson v Short (1835) 132 ER 47, 49.
117
Ellis v Leader [1949] Ch 99.
118
See the British Horseracing Authority, ‘Syndicate Code of Conduct’ (March 2021) at
http://media.britishhorseracing.com/bha/rules/Ownership/Syndicate_CoC.pdf.
119
Bridge et al, para 2-037.
120
Where shares in a racehorse would be issued through a holding company and considered securities in some
jurisdictions: see S Dhue, ‘Owning a racehorse in the Belmont Stakes is more attainable as fractional ownership
platforms grow’ (CNBC, 5 June 2021) at https://www.cnbc.com/2021/06/05/belmont-stakes-investing-in-a-
racehorse-is-more-attainable.html.
121
See for eg H Beale et al, The Law of Security and Title-Based Financing, 3rd edn (Oxford, Oxford University
Press, 2018) para 2.26.
122
P Wood, Project Finance, Securitisations, Subordinated Debt, 3rd edn (London, Sweet & Maxwell, 2019)
para 6-010.
123
Ibid, para 6-011; see also Lan, n 6 above, para 11.15.
124
Beale et al, n 121 above, para 2.28.
125
Which creates its own risks: see eg H Dempsey, ‘LME finds bags of stones instead of nickel in metal
warehouse’ (Financial Times, 18 March 2023) at https://www.ft.com/content/a8c4d8d5-7c81-4c54-a90a-
9f3f60d1bdd2.

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 There is nothing stopping intermediaries today (provided they are sufficiently
trustworthy) from offering services by which they undertake to custody high-value assets, list
fractional interests on a bespoke exchange, and allow them to be traded. Such a business model
can easily be executed using traditional accounting processes. The true question is whether the
use of blockchain technology for accounting and settlement offers any advantages over existing
methods, to the extent that it ought to be facilitated by significant legislative overhaul. That
claim is one we dispute.

The fable of improved security

Given the hype in the popular media surrounding cryptoassets, it is unsurprising that one of the
purported advantages of blockchain tokenisation is the promise of improved security, a veneer
which perhaps stems from the supposedly ‘immutable’ blockchain married with the origins of
tokenisation in data security. The Royal Institute of Chartered Surveyors, for example, suggests
therefore that the ‘[b]lockchain is considered secure and, if used in transactions across the real-
estate market, could significantly reduce the instance of property fraud.’126 Elsewhere, it is
suggested that tokenisation offers ‘unparalleled security, as the distributed nature of its ledger
inherently better prevents any forms of forgery or record tampering’ 127 and ‘aids in preventing
fraud and may be able to prevent erroneous payments’.128 But the idea that blockchains
provide improved security, unfortunately, is nothing more than a myth. Blockchain technology
is focused on ledger security, not systemic security. The fact that an intermediary uses a
blockchain does not say anything about the trustworthiness – or creditworthiness – of the
intermediary itself.
More crucially, the end-user is always the weakest link: the ‘vast majority of land title
frauds today target the end user rather than the registry’. 129 A customer seeking to trade
interests in a Picasso will be equally vulnerable to phishing whether the intermediary uses
blockchain technology or traditional record-keeping methods. In fact, blockchain technology
in itself falls short of modern payment services standards. The EU Payment Services Directive
2 130 (‘PSD2’) generally mandates Strong Customer Authentication, 131 defined as ‘an
authentication based on the use of two or more elements categorised as knowledge (something
only the user knows), possession (something only the user possesses) and inherence (something
the user is)’.132 This accounts for most of the two-factor authentication technologies we are
familiar with today. In contrast, blockchain security relies wholly on the private key, which is
a single point of failure. When tokens are traded through regulated exchanges, such exchanges

126
Royal Institute of Chartered Surveyors, ‘Blockchain and tokenisation in the property sector’ (News &
opinion, 5 April 2019) at https://www.rics.org/asean/news-insight/future-of-surveying/data-
technology/blockchain-and-tokenisation-in-the-property-sector/.
127
Tatler Singapore, n 56 above.
128
Schindlers Attorneys, ‘Tokenisation of Property’ (29 September 2021) at
https://www.schindlers.co.za/news/tokenisation-of-property/.
129
Low and Mik, n 71 above, 159.
130
Directive (EU) 2015/2366 of the European Parliament and of the Council on payment services in the internal
market [2015] OJ L337/335.
131
Article 97 (save for excluded transactions).
132
Article 4(30).

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may have implemented 2-factor authentication in compliance with PSD2. But to the extent that
asset tokenisation is envisaged to allow direct, peer-to-peer trading of asset-backed tokens on
the blockchain, the security of end users is significantly diminished. This risk is exacerbated
by the fact that blockchain projects have often proven to be the province of fraudsters. Reports
indicate that more than $100 million worth of NFTs have been misappropriated since July
2021.133 While such fraud is often perpetuated by tried-and-tested methods such as phishing134
and social media impersonation,135 blockchain technology grants fraudsters a wider range of
tools to ply their trade. For example, the so-called ‘Trojan horse NFT’ is programmed to ‘create
a booby-trapped token: if the user accepts it, it can immediately drain their account’. 136
Admittedly, such programs do not of themselves enable fraud; it is still necessary to deceive
the end user into accepting the program, which is likely to take place through a phishing or
impersonation attack. However, these programs supercharge the ability of fraudsters to
automatically empty victims’ accounts. The ‘immutability’ of the blockchain is not designed
to prevent fraud on end-users. It is designed to prevent ex post modifications of the ledger –
registry fraud – which is incredibly rare.
But even from that perspective, it is hard to see how there is a gain in efficiency from
using a blockchain ledger instead of traditional record-keeping methods. Should there be a real
need to prevent tampering with the record, this can be done by mandating, and if necessary
encrypting, regular backups. Using blockchain ledgers for record-keeping purposes in fact
exposes intermediaries to a plethora of new risks. For example, while it is generally thought
that an attacker must take over more than 50 per cent of the nodes to gain control of the network
in a proof-of-work system, it has been shown that it is sometimes possible to undermine the
blockchain with just 25 per cent of the nodes.137 Nor is the 51 per cent attack so daunting if a
blockchain only has a small number of nodes, as the Axie Infinity hack vividly demonstrated. 138
In the case of permissioned systems that use a permissioned Byzantine fault tolerance
consensus algorithm, they are only secure up to one-third of their nodes.139 And in the event of
fraud, the blockchain’s tamper resistance makes it incredibly difficult to carry out rectification
when this is in fact desirable (either as a response to fraud, as with the Bangladeshi Central
Bank heist of 2016,140 or simply due to inadvertent internal errors). In short, not only does

133
A Hern, ‘More than $100m worth of NFTs stolen since July 2021, data shows’ (The Guardian, 24 August
2022) at https://www.theguardian.com/technology/2022/aug/24/nfts-stolen-non-fungible-tokens-criminals-
scam-cryptocurrency.
134
J Crawley, ‘OpenSea Says Phishing Attack Impacted 17 Users’ (CoinDesk, 21 February 2022) at
https://www.coindesk.com/business/2022/02/21/opensea-says-phishing-attack-impacted-17-users/.
135
J Coghlan, ‘Targeted phishing scam nets $438K in crypto and NFTs from hacked Beeple account’
(CoinTelegraph, 23 May 2022) at https://cointelegraph.com/news/targeted-phishing-scam-nets-428k-in-crypto-
and-nfts-from-hacked-beeple-account.
136
A Hern, ‘More than $100m worth of NFTs stolen since July 2021, data shows’ (The Guardian, 24 August
2022) at https://www.theguardian.com/technology/2022/aug/24/nfts-stolen-non-fungible-tokens-criminals-
scam-cryptocurrency.
137
Low and Mik, n 71 above, 157.
138
Where US$625 million was lost after hackers gained access to 5 out of 9 nodes: see A Robertson and C
Faife, ‘A hacker stole $625 million from the blockchain behind NFT game Axie Infinity’ (The Verge, 30 March
2022) at https://www.theverge.com/2022/3/29/23001620/sky-mavis-axie-infinity-ronin-blockchain-validation-
defi-hack-nft.
139
KFK Low, ‘Confronting cryptomania: Can equity tame the blockchain?’ (2020) 14 J Eq 240, 250.
140
See Low and Teo, n 87 above, 225.

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blockchain immutability not protect end users from the real world frauds that are actually
commonplace, it hinders the typical response to ameliorate such frauds.

Fractionalisation and liquidity

The second advantage that blockchain tokenisation is commonly claimed to offer is increased
liquidity, both through fractionalisation and through the possibility of trading through
decentralized exchanges. 141 It is said that this will benefit both ‘investors who consequently
have more freedom and sellers because the tokens benefit from the “liquidity premium,”
thereby capturing greater value from the underlying asset.’142 But fractionalisation may not
always be desirable for its own sake, for it creates problems of management. Condominium143
owners are often reluctant to contribute for repairs, 144 a problem exacerbated when interests of
investors and owners diverge. Disputes of this nature cannot be resolved purely by majoritarian
rule, which explains why legislation is required to govern strata management and the British
Horseracing Authority deems it necessary to regulate the syndication of racehorses for the
protection of participants. 145
Even where fractionalisation is commercially sensible, it does not follow that
fractionalisation will achieve liquidity benefits. As we have pointed out, it has always been
possible for intermediaries to allow the trading of fractional interests. Does anyone really
believe that just because an intermediary uses blockchain technology for its back-end processes,
a thriving market of investors will appear, eager to invest in a Picasso painting or Birkin bag?
In existing examples of intermediated tokenisation using private blockchains, take-up rates
have been low. Swiss-based Sygnum in 2021 fractionalised a Picasso and a bottle of Chateau
Latour 2012 into 1000 tokens each. But trading volumes have been low, with only 19 trades
for the Picasso and none for the Chateau Latour in all of 2022 and 2023 to date146 – hardly
inspiring.

A tokenisation proponent may suggest that the low volume is because these tokens are
tradable only on Sygnum’s in-house trading venue, known as SygnEx, rather than on larger
NFT platforms like Opensea, where they will be accessible to large numbers of investors (or

141
Tatler Singapore, n 56 above; M Ozair, ‘What Tokenization Is and How It Can Unlock Illiquid and Opaque
Markets’ (Nasdaq.com, 6 March 2023) at https://www.nasdaq.com/articles/what-tokenization-is-and-how-it-
can-unlock-illiquid-and-opaque-markets?amp; D Jocham, ‘Tokenization – Potentials, Challenges and Use Cases
in the Financial Industry Environment’ (CC Ecosystems News, 14 February 2023) at
https://ccecosystems.news/en/tokenization-potentials-challenges-and-use-cases-in-the-financial-industry-
environment/.
142
Deloitte Tax & Consulting, ‘The tokenization of assets is disrupting the financial industry. Are you ready?’
(2018) 19 Inside Magazine 62 at https://www2.deloitte.com/content/dam/Deloitte/lu/Documents/about-
deloitte/Inside/lu-inside19-full.pdf. See also R Bala, ‘Tokenization of Assets’ in D Tran, M Thai and B
Krishnamachari (eds), Handbook on Blockchain (Cham, Springer, 2022) 585.
143
The origin of which term is in fact the Latin for ‘co-ownership’: see A Christudason, ‘Subdivided Buildings
– Developments in Australia, Singapore and England’ (1996) 45 ICLQ 343.
144
See N Crooks, ‘Florida to Tackle Condo Reform After Surfside Building Collapse’ (Bloomberg, 25 May
2022) at https://www.bloomberg.com/news/articles/2022-05-24/florida-to-tackle-condo-insurance-reform-after-
surfside-collapse#xj4y7vzkg.
145
British Horseracing Authority, n 118 above, 3.
146
See https://www.sygnum.com/sygnex/.

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speculators). Even if this is true, participation in a market like OpenSea brings with it a
multitude of problems. In the first place, OpenSea charges a significant transaction fee of 2.5
per cent,147 which during the NFT boom of 2021 and 2022 led OpenSea to achieve a valuation
of more than $13 billion.148 Yet, OpenSea’s customer support is notoriously poor 149 and it has
been the subject of huge data leaks.150 Its smart contracts are known to have been exploited by
fraudsters, leading to the hacks of valuable NFTs.151 Institutional intermediaries therefore are
hardly likely to be thrilled by the prospect of working together with such trading platforms.
Moreover, OpenSea only provides support for tokens traded on established chains, such as
Ethereum, Polygon, and Solana.152 The liquidity benefits (if any) associated with decentralised
trading will therefore not be available to tokens issued on private permissioned blockchains.

Efficiency and speed of clearing

The third and final claim which will be debunked here is that replacing existing intermediated
securities trading infrastructure with blockchain technology will reduce latency 153 and allow
‘speedier deal execution and lower transaction fees’.154 A recent research bulletin published by
the Bank for International Settlements claims that, ‘[b]y moving assets recorded on separated
traditional ledgers to a common programmable platform, tokenisation could unlock benefits
through greater automation, including faster, cheaper and more convenient transactions.’155
And the Law Commission’s report on Smart Legal Contracts found that ‘[a]lmost all consultees
said that smart legal contracts may increase efficiency and lower transaction costs because they
can be performed automatically without the need for human intervention.’156

It is often assumed that this is a good thing. ‘Imagine,’ Fairfield writes, ‘a database for
deeds to land that would permit anyone to transmit land ownership to anyone else with the
bump of a smartphone.’ 157 He suggests that in NFT adoption, ‘science is doing the hard work

147
OpenSea.io, ‘What are OpenSea’s fees?’ at https://support.opensea.io/hc/en-us/articles/14068991090067-
What-are-OpenSea-s-fees-.
148
BBC.com, ‘NFT marketplace OpenSea valued at more than $13bn’ (6 January 2022) at
https://www.bbc.com/news/technology-59880739.
149
A Lusina, ‘As Theft Thrives, Artists Say OpenSea Does Little to Protect Copyrights’ (PetaPixel, 20
December 2021) at https://petapixel.com/2021/12/20/as-theft-thrives-artists-say-opensea-does-little-to-protect-
copyrights/; R Nayyar, ‘NFTs Tank on OpenSea as Crypto Winter Continues’ (Hyperallergic, 8 September
2022) at https://hyperallergic.com/759136/nfts-tank-on-opensea-as-crypto-winter-continues/.
150
E Curryer, ‘NFT giant OpenSea admits data breach and warns of phishing attacks’ (Techinformed, 4 July
2022) at https://techinformed.com/nft-giant-opensea-admits-data-breach-and-warns-of-phishing-attacks/.
151
M Clark, ‘OpenSea fixes vulnerabilities that could let hackers steal crypto with malicious NFTs’ (The Verge,
13 October 2021) at https://www.theverge.com/2021/10/13/22723092/opensea-nft-vulnerability-gift-security-
researchers-wallet-hack.
152
Opensea.io, ‘Which blockchains are compatible with OpenSea?’ at https://support.opensea.io/hc/en-
us/articles/4404027708051-Which-blockchains-are-compatible-with-OpenSea-.
153
C Twemlow, ‘Why are Securities Held in Intermediated Form?’ in Gullifer and Payne, n 7 above, 105.
154
Bala, n 142 above, 585.
155
I Aldasoro et al, ‘The tokenisation continuum’ (BIS Bulletin No 72, 11 April 2023) at
https://www.bis.org/publ/bisbull72.htm.
156
Smart Legal Contracts (Cm 563, 2021), para 2.105.
157
J Fairfield, ‘Tokenized: The Law of Non-Fungible Tokens and Unique Digital Property’ (2022) 97 Indiana
Law Journal 1261.

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of turning science fiction into reality’. 158 But it is not at all clear that Fairfield’s vision is a
utopia. To the contrary, given the significance of land transactions, one wonders how fraud will
be prevented and/or reversed. As Low and Mik have said elsewhere:159
It is not obvious … that speed is necessarily desirable for certain transactions. Conveyancing
is, in many jurisdictions, a multi-stage transaction mired in formality. This can make it appear
outmoded and unnecessarily complicated. Yet, on closer examination, such formalities, to the
extent that they are slowing down the transaction, may be serving their intended function. Many
jurisdictions require contracts relating to transfers or other dealings in land to take on written
form because the formal documentation serves a cautionary function… The time taken between
contract and conveyance also facilitates fraud detection.

Beyond this cautionary function, 160 faster, immutable transactions hinder fraud detection and
are more difficult to reverse. An obsession with speed and convenience plays straight into the
hands of fraudsters and gives law enforcement less time to catch up. And, as already observed
above, rectification (today one of the law’s leading defences against fraud) is neutered. To the
extent that Fairfield depicts a utopia, it may be a utopia only for fraudsters.
In any event, the claim that tokenisation promotes efficiency is open to doubt. Where
the relevant tokens are deployed on busy permissionless chains, the entire token system
becomes subject to network fees and delays on those chains. 161 In May 2022, Yuga Labs (of
notorious Bored Ape Yacht Club fame) launched an offering of ‘virtual land’ which ‘crashed
Ethereum’ for three hours. Competing buyers were bidding ever-higher prices for miners to
confirm their transactions, putting so much stress on the entire Ethereum blockchain that
‘crypto traders were unable to buy, sell or send coins for hours.’162 Crucially, this affected not
only parties involved in the Yuga offering but anyone desiring to transact on Ethereum, as
experienced by one user who discovered that it would cost $1,700 in network fees to send a
transaction worth $100. 163 Such problems are not confined to permissionless chains. In an
episode said to ‘[raise] questions of a mismatch between the promises and reality of the
technology that underpins cryptocurrencies’,164 ASX Ltd, the operator of the Australian Stock
Exchange, has wholly abandoned attempts to replace its aging clearing software (known as
‘CHESS’) with a new blockchain-based solution.165 One reason for its failure was that ‘by
seeking to replicate all CHESS functions on a single system, ASX risked undermining an
158
Ibid.
159
Low and Mik, n 71 above, 160.
160
See also P Critchley, ‘Taking Formalities Seriously’ in Bright and Dewar (eds), Land Law: Themes &
Perspectives (Oxford, Oxford University Press, 1998), 514; B McFarlane, The Structure of Property Law
(Oxford, Hart Publishing, 2008), 104–110.
161
See Ethereum Developer Resources, ‘Gas and Fees’ (updated 12 September 2022) at
https://ethereum.org/en/developers/docs/gas/.
162
D van Boom, ‘How Bored Ape Yacht Club Broke Ethereum’ (CNet, 3 May 2022) at
https://www.cnet.com/personal-finance/crypto/how-bored-ape-yacht-club-broke-ethereum.
163
Ibid.
164
B Kaye, ‘Australian stock exchange says software overhaul won't involve blockchain’ (Reuters, 19 May
2023) at https://www.reuters.com/markets/australian-stock-exchange-says-software-overhaul-wont-involve-
blockchain-2023-05-19/.
165
This came after the failure of a 7-year, A$250 million project: see B Kaye, ‘Australian stock exchange's
blockchain failure burns market trust’ (Reuters, 20 December 2022) at
https://www.reuters.com/markets/australian-stock-exchanges-blockchain-failure-burns-market-trust-2022-12-
20/.

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advantage of blockchain, which was to reduce contact points that slow processing’.166 Other
attempts to develop permissioned chains have not fared better. The Tradelens collaboration
between Maersk and IBM was shut down, citing a lack of ‘commercial viability’167 and there
is little interest in the US Depository Trust & Clearing Corporation’s ‘Project Ion’ blockchain-
based prototype settlement platform.168

Forks: the unique problem of the blockchain

Far from promoting security, liquidity and efficiency, applications of blockchain technology to
date have only served to create new vulnerabilities. We have already mentioned that fraud is
rife in the cryptoverse. However, beyond individual instances of fraud, attempts to tokenise
physical assets on the blockchain will create a new systemic problem of blockchain forks. .
Forks are a well known problem. Random forks occur constantly on proof-of-work
chains and are usually regarded as being of little consequence, since they generally resolve
themselves when the longest blockchain is identified through majority consensus.169 But even
random forks are ‘less difficult to ignore for asset classes which are actively traded on a
consistent basis such as securities’,170 since the precise entitlement of any party must be capable
of determination at any given point in time. As opposed to random forks, hard forks (such as
the forks which gave rise to the Ethereum Classic and Bitcoin Cash chains)171 may result in
legitimate transactions becoming undone, ‘with the consequence that some innocent parties
may have suffered losses which was not compensated’.172 These problems are compounded
when the token in question is linked to an underlying exogenous asset. It has been written, in
not-exactly tongue-in-cheek fashion, that ‘a fork in a blockchain land registry does not create
a duplicate Blackacre Classic’.173 But the problem is a serious one that raises questions for the
commercial usability of asset-backed tokens on permissionless chains. When such a chain forks,
users will be able to transact their tokens on two different chains – who is to decide which
offshoot authoritatively represents title to the asset? If the consequence is that neither token
can safely be accepted as transferring title to the asset, then the entire tokenisation structure is
flawed from the outset.

166
Ibid.
167
L Cecere, ‘Tradelens Discontinues Operations. Why You Should Care.’ (Forbes, 5 December 2022) at
https://www.forbes.com/sites/loracecere/2022/12/05/tradelens-discontinues-operations-why-you-should-
care/?sh=414598324cec.
168
W Wong, ‘Cloud trumps blockchain: DTCC’s TIW goes live, and no one’s choosing the DLT option’
(Waters Technology, 9 March 2023) at https://www.waterstechnology.com/emerging-
technologies/7950677/cloud-trumps-blockchain-dtccs-tiw-goes-live-and-no-ones-choosing-the-dlt-option. There
is also no specific timeline for when Project Ion is intended to replace the current system: see Y Yang and A
Irrera, ‘Clearinghouse’s blockchain-based settlement system goes live’ (Bloomberg, 22 August 2022) at
https://www.bloomberg.com/professional/blog/clearinghouses-blockchain-based-settlement-system-goes-live/.
169
See A Summers, Understanding Blockchain and Cryptocurrencies (Oxford, CRC Press, 2022) ch 4.
170
Low and Mik, n 71 above, 163.
171
Ibid, 164.
172
Ibid.
173
Ibid.

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 CONCLUSION
This paper pushes back against resurgent tokenisation mania. First, blockchain tokenisation of
physical assets is impracticable on a peer-to-peer basis and faces obstacles that cannot be
resolved even through legislative intervention. Second, tokenisation via intermediaries is
nothing revolutionary in and of itself, and has indeed been done for centuries. Third, the oft-
touted benefits of tokenisation, namely security, liquidity and efficiency, are no more than
myths, and the use of blockchains for accounting and settlement in fact creates idiosyncratic
risks involving forks and bridges.

In the ultimate analysis, we do not see the widely-touted potential that blockchain asset
tokenisation is said to have. To the contrary, the extreme hype and lack of regulation in the
tokenisation sphere has allowed grifters to scam investors caught up in the hype. So-called ‘rug
pulls’ are extremely common 174 and have already led to prosecutions in the US. 175 For example,
a project called Realux claimed that it was ‘focused on making real estate open or accessible
to all consumers, at affordable costs in a very intuitive manner by using a system of digital
tokens that were supposed to be backed by real estate investments’, but in February 2022 the
project team dumped 70 million tokens on the market and disappeared. 176

With all of these difficulties, why are established institutions far and wide jumping on
the tokenisation bandwagon? With the lack of a genuine use-case for blockchain technology
that offers clear and tangible benefits over existing systems, it appears that much of the interest
in the technology at present is either due to the ‘fear of missing out’ or simply a marketing
gimmick. The belief seems to be that ‘if we tokenise an asset, people will want to buy it’. But
that is completely illogical. Yet, that belief is driving ongoing messaging to retail investors
from established financial institutions and regulators alike. Given the abject lack of benefits
that blockchain tokenisation offers, the latest wave of tokenisation must be recognised for what
it ultimately is – nothing more than a grifter’s paradise, a new string in the fraudster’s bow.

174
See for eg EJ Beyer, ‘The Biggest Rug Pulls in NFT History’ (NFTNow, 7 July 2022) at
https://nftnow.com/features/the-biggest-rug-pulls-in-nft-history/.
175
A Robertson, ‘Two men arrested for $1.1 million NFT ‘rug pull’ scam’ (The Verge, 25 march 2022) at
https://www.theverge.com/2022/3/24/22995107/us-arrest-charges-crypto-nft-rug-pull-frosties-ethan-nguyen-
andre-llacuna.
176
O Faridi, ‘Crypto Scam: Realux, a Real Estate and Tokenization Project, Takes Investors’ Funds, Then
Quickly Takes Down Website and Disappears’ (Crowdfund Insider, 3 February 2022) at
https://www.crowdfundinsider.com/2022/02/186497-crypto-scam-realux-a-real-estate-and-tokenization-project-
takes-investors-funds-then-quickly-takes-down-website-and-disappears/.

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