When Digital Assets Meet Physical Property

What does The Digital Assets (Scotland) Act 2026 have to do with Wine?

There’s so much discussion about AI at the moment that it’s easy to lose sight of other technology which will become increasingly important and which will start to feature in Scottish litigation and executories.

I’ve written before about The Digital Assets (Scotland) Act 2026 and how this represents a significant development in Scots law. For the first time, it expressly recognises certain digital assets as objects of property and provides rules relating to ownership, transfer and control. The legislation was primarily designed with blockchain-based assets such as cryptocurrencies and similar digital-native assets in mind.

However, an interesting question arises when blockchain technology is used not as the asset itself, but as a means of evidencing ownership or provenance of a physical asset. Increasingly, collectors of high-value wines, luxury watches, artwork and other collectible items are being provided with blockchain-based tokens that record an item’s history, authenticity and chain of custody.

In such cases, what exactly is the asset? Is it the physical object, the token, or both?

What is a Blockchain Token?

Put in simple terms, Blockchain is an electronic ledger.  It is very difficult, if not impossible, to hack, modify, or steal.  It’s what’s used in cryptocurrencies.  These tokens are held in electronic wallets and can be transferred from one account to another.  It’s essentially electronic banking taken to the next level.

The Growing Importance of Provenance

For many luxury and collectible goods, provenance is almost as important as the item itself.

A bottle of rare wine, a high-end watch, or a valuable piece of artwork can derive a substantial proportion of its market value from the ability to demonstrate where it came from, who has owned it, and that it is genuine. Historically, provenance has been established through paper certificates, expert reports and documentary records. Increasingly, blockchain technology is being promoted as a more secure and reliable way of recording that information.

A blockchain token linked to a watch or bottle of wine can create a record of transactions and ownership history. The technology offers an attractive solution to problems of forgery, lost paperwork and uncertainty regarding authenticity.

Yet from a legal perspective, it is important to distinguish between evidence of ownership and ownership itself.

Ownership of the Physical Asset

As a matter of Scots law, ownership of a watch remains ownership of a watch. Ownership of a bottle of wine remains ownership of the wine.

The mere existence of a blockchain token associated with an asset does not automatically transfer ownership of the underlying physical object. Nor does possession or control of the token necessarily establish legal title to the physical asset.

In many cases, the token may amount to little more than a sophisticated certificate of authenticity. It may be compelling evidence that a person owns an asset, but evidence and ownership are not the same thing.

This distinction is important. If a collector transfers a token associated with a particular watch to another person without delivering the watch itself, it does not necessarily follow that ownership of the watch has transferred. The ordinary rules of Scots property law relating to corporeal movables continue to apply to the physical asset.

The legal questions surrounding ownership of the watch and ownership of the token may therefore be entirely separate.

Is the Digital Assets (Scotland) Act 2026 Engaged?

On one view, the Act may have only limited application in these circumstances.

The principal asset being bought and sold is the physical item. The economic value lies predominantly in the watch, wine or artwork itself. The blockchain token merely functions as supporting evidence regarding authenticity and provenance.

Where that analysis is correct, the main legal issues remain those associated with the underlying corporeal moveable. Questions of transfer, ownership, risk and possession will ordinarily be determined by reference to the physical asset rather than the digital record associated with it.

In that sense, the Act may not significantly alter the legal position. The token is ancillary to the primary asset and does not determine ownership of it.

But the Token May Have Independent Value

The position becomes more interesting when one considers that the token itself may possess economic value.

A provenance token can add substantial value to the underlying asset. A rare watch accompanied by a complete, verifiable blockchain record may command a significantly higher price than an otherwise identical watch lacking such a record.

Indeed, in some circumstances the token may become a valuable asset in its own right. Collectors may place considerable value on the certainty and trust generated by a tamper-resistant record of authenticity.

The Digital Assets (Scotland) Act 2026 recognises certain digital assets as incorporeal movables and establishes a framework for ownership and transfer based upon control of those assets.

A blockchain token that satisfies the statutory criteria could therefore potentially fall within the Act, regardless of the fact that it relates to a separate physical object. The token may itself be a digital asset capable of ownership under Scots law, even if ownership of that token does not necessarily equate to ownership of the underlying watch or bottle of wine.

Two Assets Rather Than One?

It may be helpful to think of these arrangements as involving two separate assets.

The first is the physical asset: the watch, wine, artwork or other collectible.

The second is the digital asset: the blockchain token that records provenance and authenticity.

Although connected, they are legally distinct.

Ownership of the physical asset will usually be determined under the traditional rules of Scots property law relating to corporeal movables. Ownership of the token may be governed by the Digital Assets (Scotland) Act 2026 if it falls within the scope of the legislation.

In practice, commercial arrangements may seek to ensure that both assets move together. Contractual provisions may provide that transfer of the physical asset requires transfer of the token and vice versa. However, such arrangements do not eliminate the conceptual distinction between the two forms of property.

Potential Areas for Future Disputes

As adoption increases, disputes may emerge in situations where the ownership of the physical asset and the ownership of the token become separated.

For example:

• Who owns the watch if the token is transferred but the watch is not?
• Who owns the token if the watch is sold privately without access credentials being passed on?
• What happens if the token is lost, stolen, or transferred fraudulently?
• Can a token holder compel delivery of the physical asset?
• Does the token create proprietary rights in the asset or is it merely evidential?

These are questions which courts may increasingly be asked to address as blockchain-based provenance systems become more widespread.

Conclusion

The Digital Assets (Scotland) Act 2026 is a landmark piece of legislation that brings much-needed clarity to the status of digital assets in Scots law. However, its application to provenance tokens linked to physical objects is likely to be more nuanced.

In many cases, the real asset remains the underlying watch, bottle of wine or artwork. The blockchain token does not itself confer ownership of that asset; rather, it serves as evidence supporting claims of authenticity and ownership.

Nevertheless, such tokens may possess independent economic value. To the extent that they constitute digital assets recognised by the Act, they may themselves be separate items of property capable of ownership, transfer and protection under Scots law.

The most convincing analysis may therefore be that provenance arrangements create two distinct assets: a physical asset governed principally by traditional property law, and a digital asset governed by the new statutory framework. Understanding the relationship between those two assets may become one of the more interesting legal questions arising from the Digital Assets (Scotland) Act 2026 in the years ahead.

The information and opinions contained in this blog are for information only.  They are not intended to constitute advice and should not be relied upon or considered as a replacement for advice.  Before acting on any information contained in this blog, please seek solicitor’s advice from Gilson Gray.