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ONTIER Senior Associate, Simon Cohen, discusses what Tulip
Trading is seeking to achieve through ground-breaking legal
proceedings and what it means for law enforcement and investors in
blockchain digital assets.
“The design of crypto assets may create some practical
obstacles to legal intervention, but that does not mean that crypto
assets are outside the law.”
The legal status of so-called “cryptoassets”, such as
Bitcoin, has become an increasingly important question as the
number of investors (both individual and institutional) in these
assets has risen in recent years.
Thankfully, various courts in common law jurisdictions around
the world – including England and Wales, Singapore, New
Zealand and Canada – have answered that question by
consistently finding not only that blockchain-linked digital assets
are property, but also that they are capable of being subject to
proprietary injunctions, proprietary freezing orders, worldwide
freezing orders and trusts.
Many of those cases have arisen from the theft of digital
assets, either following hacks on online exchanges or following
ransomware attacks. However, the courts have yet to consider
whether – and, if so how – lost, stolen or
misappropriated digital assets can be recovered. But now that may
be about to change.
In February, letters before action were sent on behalf of Tulip
Trading Limited (“TTL”) to the developers of Bitcoin
Satoshi Vision (“BSV”), Bitcoin Core (“BTC”),
Bitcoin Cash (“BCH”) and Bitcoin Cash ABC (“BCH
ABC”) requesting that they enable TTL to regain access to and
control of its Bitcoin (the private keys to which were stolen) on
the grounds that they owe all Bitcoin owners both tortious and
fiduciary duties under English law. TTL, a Seychelles company, is
ultimately beneficially owned by Dr Craig Wright, the computer
scientist many believe to be the person behind the pseudonym
‘Satoshi Nakamoto’, the inventor of Bitcoin.
Since Bitcoin was first launched in January 2009, it has been
widely assumed that a person who loses their private keys also
loses access to and control of the associated underlying digital
asset. TTL contends that this assumption is incorrect because the
Bitcoin developers (i.e. those individuals and entities who control
the software code) have both the legal obligation and the practical
and technical ability to restore those lost coins to their legal
owners – provided, of course, that those legal owners can
prove ownership to the required standard.
If successful, TTL’s action will have profound – and
immensely positive – implications for those interested in
blockchain-linked digital assets including, in particular, law
enforcement agencies and investors.
Historically, Bitcoin and other digital currencies / assets have
been widely used by criminals and criminal organisations, and
various law enforcement agencies have successfully seized such
Bitcoin. In April 2017, for instance, Surrey Police, whilst
searching the home of Sergejs Teresko, found and seized a recovery
phrase for Mr Teresko’s Bitcoin private key which they used to
seize the 295 Bitcoin held at the associated address. The seizure
of Mr Teresko’s Bitcoin was sought and authorised pursuant to
sections 47A – 47S of the Proceeds of Crime Act 2002. The
Crown Prosecution Service subsequently obtained an order pursuant
to section 41(7) POCA, permitting the Police to convert those
Bitcoin into sterling (then totalling £1.2 million). However,
in that case the Police were only able to covert the seized Bitcoin
because they were in possession of Mr Teresko’s recovery
If successful, TTL’s claim will enable law enforcement to
access illegally acquired Bitcoin without needing the associated
private key(s) or recovery phrase(s). The benefit to law
enforcement – and the public purse – is obvious.
On the other end of the spectrum are investors, some of whom
(and, if recent media reports are to be believed, an ever-growing
number) have lost or may lose their private keys. If TTL’s
claims are upheld, then this will be of profound importance to
people who would otherwise lose access to their potentially very
Consider the example of an individual (A) who, through the
years, has bought enough satoshi12 to make 3 BTC (currently valued
at over £120,000). A has kept the private keys to their BTC
in a hard copy printout which they have filed away at home.
However, A has not told anyone where the printout is or even that
it exists. A dies leaving their entire estate to B who is suddenly
the legal and beneficial owner of a very valuable asset but with no
knowledge of where A stored the private keys. While B knows they
have been bequeathed 3 BTC, and they know the public addresses,
they have no means to access their inheritance.
If TTL is correct and successful, then B – and all others
in the same position – will have a path to recovering and
realising their assets. As with law enforcement, the real-world
implications and benefits are obvious and significant.
The courts have repeatedly recognised Bitcoin and other
blockchain-linked digital assets to be a form of property capable
of being the subject matter of various judicial and equitable
In bringing this action, TTL is essentially asking the High
Court to recognise that the proprietary rights in such digital
assets also extend to enabling their legal owners to recover those
assets where and when access to them has been lost, stolen or
transferred by fraud.
As a matter of equitable principle, that must be correct and
those with legitimate (and no doubt many with nefarious) interests
in the technology and in the development of blockchain-linked
digital assets will be following the case closely. It could be a
Note – this article first appeared in Fraud Intelligence and
was published 16.3.2021.
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.