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Where Are The Bitcoins For Legal Purposes?

From a legal point of view any action taken would be dependent on the nature of the dispute, the jurisdiction of any agreement and the jurisdiction of the claimant and defendants.

Selachii LLP

Bitcoin is not a tangible asset. It is a piece of data, a number on the blockchain. To move that number to another wallet address on the blockchain the sender must have the 'private key'.

All bitcoin transactions are recorded on the blockchain (distributed public ledger). The person or entity that has access to the private key 'owns' the ability to send (or keep) those bitcoin to another wallet address.

For the purpose of legal action (to recover bitcoins / access to the private key) one would usually commence the action in the jurisdiction of the defendant entity. In the case of multi-signature wallets / private keys the objective of legal action would be the same (recover the private key).

The legal tool (court order etc) will differ on the jurisdiction and will be dependent on any local law regarding bitcoin and digital currency.

A bitcoin private key is information. It is data made up of numbers and letters.

If bitcoin is not legally defined in the jurisdiction one could consider using the same legal remedy that would be used to recover 'information'. Telephone records, company accounts and recorded music are examples of information. Music could be held on a usb stick or server as could bitcoin.

An example could be a multi-signature wallet made up of three keys with two keys required to make a transaction. If one key was in England, another in Germany and another in the United States one would need to take a view on the fastest, most cost effective jurisdiction(s) to commence legal action.

Let us consider however if a private key is copied and held in a variety of locations. It could be stored in a cloud service where the geographocal location is simply unknown. Where would the bitcoins then be for legal purposes?

I believe we then revert back to the point about bitcoins are always on the public ledger / distributed network / blockchain.

If the key or copies of the 'same' key are stored in more than one jurisdiction, this could potentially make any legal action 'easier' as there are more jurisdictions to issue proceedings / local police to become involved.

From a legal point of view we would advise clients to commence action in the fastest most cost effective jurisdiction, which assists the ultimate aim.

Does it therefore boil down to is the issue, where are the bitcoins being controlled from?

Well, again, private keys are just data / numbers and letters. In the first instance it would be usual to assume that the person can control the private key from their current location / jurisdiction. i.e. The person lives in London but logs in to a server in the USA to action bitcoin transfers with the private key.

If the dispute / contract is in England it would make sense to start the proceedings in London as we know that this is where the private key is controlled from.

If we went straight to the server co in USA it would take more time more risk and there is a very high chance the server is encrypted and can not be accessed without the details from the man in London.

How about if they are controlled from multiple locations? Well, the answer to this is fairly straightforward. Only one person can be in control of them at any one time. The location of the individual is the key to where litigation will be commenced unless there is a better jurisdiction and the court can be convinced that they have the authority to accept jurisdiction based on the private key location.

Bitcoin is a relatively new concept. As when the internet first started, the lawyers around the world (and the Judges and Courts) were in debate about how such multi jurisdictional issues could be resolved. There was lots of talk about regulation and one comprehensive 'internet law'... this never transpired as the law of contract (and logic) prevailed with any claims being brought generally in accordance with any contract or more specifically, the jurisdiction in which the breach of contract (or crime) occurred.

It is likely to be the same with bitcoin. When jurisdictional issues are clarified in the courts, it will provide useful guidance for both litigation and for tax purposes. In summary, due to the lack of regulation and understanding generally of crypto currency by the relevant authorities around the world, it is impossible to give a conclusive answer.

There is a massive difference between contractual claims and criminal claims. Quite often (as can be seen the Mt Gox matter), it is difficult to obtain enough information to encourage the police to bring a criminal prosecution. However, there are cases currently going through the courts, which may clarify certain important aspects in relation to accountability when it is clear a fraud has taken place.

Richard Howlett is a lawyer at Selachii LLP in London.

Disclaimer: This blog article should not be construed as legal or financial advice.

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