Bitcoin In The Dock – Cryptocurrency Too Risky To Cover Winning Party’s Court Costs –

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Bitcoin In The Dock – Cryptocurrency Too Risky To Cover Winning Party’s Court Costs

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Are cryptocurrencies as trustworthy as traditional money?
It’s a question increasingly asked in business and policy
circles given the boom in crypto assets over the last two years.
But for the purposes of litigation – specifically payments or
guarantees to cover the successful party’s legal costs – the
High Court has just found Bitcoin to fall short in what will be a
closely watched ruling.

In the case, Tulip Trading Limited v Bitcoin Association for
BSV
, in granting security for costs against a claimant
company, the High Court refused to allow security to be paid in
Bitcoin as that would not result in protection equal to a payment
into court or a first class bank guarantee.

The claimant is the holding company of Dr Craig Wright – who
claims to be the creator of the Bitcoin system. Wright is pursuing
a group of developers to help regain access to $4.5 billion worth
of Bitcoin he claims to own, maintaining that his access to the
funds was compromised when secure private keys were deleted by
hackers in 2020.

This judgment marks an important step in a case that could be of
vital interest to cryptocurrency holders and developers. At the
centre of the claim lies the question of whether an owner of
cryptocurrency has any recourse against the developers of the
cryptocurrency systems if they lose control of the assets, either
accidentally or due to a hacking incident. It brings to the fore a
fundamental question of the nature and scope of any fiduciary duty
on the part of developers, either to restore access, or at least
take all necessary steps to do so.

One of the defendants in this case, the BSV Bitcoin Association,
released a statement that the “digital currency and blockchain
industry should strive to develop technical mechanisms and industry
best practices to provide remedies, upon valid proof of ownership
and with judicial due process, to restore control of lost or stolen
coins to their rightful owner – just as there are remedies
available for any asset or property (physical, digital, intangible
or otherwise)”. The statement further mused that the
introduction of such solutions would only build trust in Bitcoin
and may lead to its wider adoption. It could be seen as a stepping
stone towards building an honest and transparent “lawful
digital currency ecosystem”. The Association does not,
however, accept that the defendants owed the claimant company the
duties alleged in this case.

This is, to our knowledge, the first time a party to litigation
has sought to offer Bitcoin as security for costs. The court’s
principal focus in refusing to allow the use of cryptocurrency was
on Bitcoin’s volatility, rather than the principle of using
non-fiat currencies as security for costs. It would be interesting
to see what the court would do if a claimant offered security in
the form of a more substantial deposit of cryptocurrency, or a
stablecoin (a non-fiat currency specifically designed to have a
relatively stable price, typically backed by a reserve asset like a
government-issued currency).

So fundamental are the issues at play, not to mention the
considerable sums of money at stake, that the courts will doubtless
soon be called on again.

Click here for an in-depth briefing
on the case and its implications in our litigation
blog.

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.

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