Florida Bitcoin Case Challenges Big Tech’s Desire to Stay Deregulated

Rayaan Hossain – Decentralized, digital commodities have transformed our understanding of the monetary system. Bitcoin’s allure comes not only from its novelty (and sometimes anarchy) but also from its perceived anonymity. That anonymity extends to Bitcoin’s creator—Satoshi Nakamoto. Although general consensus held that Satoshi Nakamoto was only a pen name, many people have claimed to be Nakamoto over the years. One such claimant is Dr. Craig Wright, an Australian computer scientist. His claim has caused controversy among journalists and on social media. Wright’s claim resulted in a legal dispute over ownership of more than one million Bitcoins allegedly belonging to Nakamoto. In a case brought against Dr. Wright, the Southern District of Florida provided insight into how Florida state courts might decide cryptocurrency ownership disputes. 

In an investigation conducted by Wired and Gizmodo, a large amount of evidence initially suggested Wright had conceived of Bitcoin, released it, and mined over one million coins. That investigation found these coins were associated with a wallet owned by Nakamoto. Gizmodo also reported that David Kleiman, a computer forensics expert, assisted Wright’s efforts. Still, many remain skeptical of Wright’s claim because he has failed to show he owns the private keys associated with the coins. Bitcoin private keys are a secret number—similar to a password—that allows a user to sign off on transactions and prove ownership. 

In a related dispute, David Kleiman’s estate filed a lawsuit on February 14, 2018, against Wright for half of the Nakamoto Bitcoins. Since meeting in 2003, Wright and Kleiman apparently maintained a working relationship, despite Wright referring to Kleiman as no more than a good friend. According to the WiredGizmodo investigation, Kleiman allegedly helped Wright conceal his identity and assisted in Bitcoin’s invention. Kleiman passed away in April 2013. His estate alleges that since the coins have not been moved, Wright has been perpetrating “a scheme against Dave’s estate to seize Dave’s [B]itcoins and his rights to certain intellectual property associated with the Bitcoin technology.” 

In late 2021, the court hearing Kleiman v. Wright determined that if Wright and Kleiman had a partnership while creating Bitcoin, then they shared ownership of those mined coins. Consequently, Wright was ordered to pay $100 million in compensatory damages for a breach of intellectual property rights related to their joint venture. However, a federal jury declined to award any of the Bitcoin to Kleiman’s estate. Post-judgment, Wright claims he will prove his ownership of the Bitcoin. Under oath, Wright asserted that an “encrypted file” exists, containing private keys with access to the contested Bitcoin. Even more peculiar, Wright’s statement filed in the Southern District of Florida does not even claim to currently own the private keys that Nakamoto mined in Bitcoin’s early phases. Rather, he will confirm receipt of the keys at a later date. 

Both Kleiman and Wright assert that Wright is indeed Nakamoto and the owner of the coins, thus, the Southern District of Florida simply assumes this as a statement of fact. Many of Wright’s supporters argue this vindicates their belief that Wright created Bitcoin. Even before this case, Wright was well established in the Bitcoin world, giving high-profile talks that demonstrated an early and deep understanding of Bitcoin. Further, he retains support from noteworthy figures such as the former head of the dissolved Bitcoin Foundation Jon Matonis, and the lead developer for the Bitcoin digital currency project Gavin Andresen—both of whom believe Wright’s story. Nonetheless, major crypto figures have harshly criticized Wright’s claims. Jameson Lopp, an executive at the Bitcoin storage application Casa, argues Wright has failed to substantiate his story. Ethereum creator Vitalik Buterin has personally called Wright a fraud to his face.  

While Wright prevented the forced transfer of the coins to Kleinman, courts have arrived at an obvious implication: cryptocurrency shall be treated like any other property. This suggests that a court has the authority to order another party to turn over cryptocurrency like Bitcoin after establishing true ownership of such disputed coins. Had the Southern District ordered a judgment against Wright to move the coins, future miners and owners of cryptocurrency would have to comply with similar orders. Anonymity would not shield any Bitcoin from the court system. 

The court’s decision comes on the heels of increasing federal scrutiny and regulation of cryptocurrencies.  The SEC flatly declared it would not treat cryptocurrency like securities. As of now, the SEC is also looking into whether another blockchain-reliant technology should be treated as securities—nonfungible tokens (NFTs). The inquiry focuses on using NFTs to raise money similar to traditional securities. The IRS regards crypto as capital assets taxed similarly to equities. Further, the Commodity Futures Trading Commission refers to virtual currencies as commodities even though crypto itself is not usually an input or raw material used to make other products. 

Ultimately, Bitcoin’s design was meant to grant users autonomy from government oversight. The court’s ability to reach blockchain assets disappoints technology experts and programmers who suggest that code will soon displace the rule of law. Lawrence Lessig first coined the phrase “code is law” to describe the view that constitutional principles should govern the internet and software. Most legal experts seem to follow Lessig’s view. For example, CFTC Commissioner Brian Quintenz state that software code fails to fully represent a party’s activities, contracts, or agreements. 

We will see how tech leaders respond to government efforts to control “decentralized” monetary systems. Naturally, Silicon Valley tends to prioritize its goals over government regulatory concerns. However, one thing is for certain: the code is not law, and such monetary systems are not above the reach of regulatory bodies. Regulators and courts must unequivocally declare that they can interpret and enforce disputes within traditional legal concepts, in consideration of a set of facts, and in recognition of particular inequities. 

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