Crypto-Recovery: Bitcoin Association Produces Software to Freeze Coins

As reported in a blog post earlier this year, the High Court of England and Wales held in Tulip Trading Limited v Bitcoin Association for BSV & Others[1] that software developers do not owe a legal duty of care to assist owners in recovering lost or stolen cryptocurrency. Despite the High Court’s decision, Bitcoin Association agreed a settlement with Tulip Trading, which included a commitment that it would release software making it possible for bitcoin to be frozen where a court order has been issued to this effect. Last month, Bitcoin Association announced that it has now done so.

Bitcoin Association will not be involved in installing or implementing the software, instead it will be up to each miner to install the software and comply with any court order.

The steps required to make use of this software are as follows:

  1. The person asserting legal ownership of the coins (the claimant) would need to obtain a judgment from the competent legal body with jurisdiction.
  1. Following a successful judgment, the onus will be on the claimant to pass on the court order to a Notary Service Provider who will be required to:
    • verify the court order;
    • translate the order into machine readable language; and
    • broadcast it to the mining network.
  1. Bitcoin miners will thereafter decide if they trust the information received from the Notary Service Provider and if the court order is indeed applicable to them. If the answer to both questions is yes, the miner will need to take the necessary actions to freeze the coins in accordance with the court order.
  1. If Bitcoin miners fail to act on the information received from the Notary Service where applicable to them, they will be in breach of the network rules. Further, their blocks may be orphaned and they may be held in contempt of court.

While we must wait to see how this plays out in practice, in particular how miners respond to notifications, this is a significant addition to the legal and technological armoury available to those seeking to recover stolen digital assets.

[1] [2022] EWHC 667 (Ch)


Alicia Johnson-Cole