A Practice Note addressing the evolving legal framework for taking security interests in digital assets like cryptocurrencies and non-fungible tokens (NFTs). This Practice Note focuses on the significant changes introduced by Article 12 of the Uniform Commercial Code (UCC) and the related amendments to UCC Article 9 in the 2022 amendments to the UCC. It examines the processes for obtaining and perfecting security interests in the new collateral categories created by Article 12, including controllable electronic records (CERs), controllable accounts, and controllable payment intangibles.

This Practice Note explains how perfecting a security interest through control provides priority over competing claims and outlines new protections for transferees, such as the qualifying purchaser concept. It also explores the uncertainties for digital assets that do not fall under these new categories or are located in jurisdictions that have not yet adopted Article 12 and discusses the ongoing jurisdictional and regulatory risks facing the digital asset financing market.