Recently, the U.S. Court of Appeals for the Fifth Circuit (sits in New Orleans and covers the states of TX, LA and MS)* handed down a decision finding that an individual has no expectation of privacy when engaging in bitcoin (BTC) transactions, whether it be on the blockchain or through an exchange. (U.S. v. Gratkowski, No. 19-50492, June 30, 2020).
In the case, federal agents had traced a cluster of BTC wallet addresses on the blockchain to a website that was selling child-pornography. Having identified the website cluster, the federal agents served a subpoena on Coinbase for records of its customers that had sent BTC to such addresses. Coinbase identified the defendant as one of the customers.
The defendant moved to suppress the evidence because it violated his Fourth Amendment rights prohibiting illegal searches and seizures by the government. As support for his claim, the defendant cited Carpenter v. United States, 138 S. Ct. 2206, a 2018 Supreme Court case, which had held that individuals had a privacy interest in their cell phone location records (cell site locations records or “CSLI”). The Court in Carpenter had held that CLSI records, unlike bank or phone call records, were “an all-encompassing record of the holder’s whereabouts” and “provides an intimate window into a person’s life, revealing not only [an individual’s] particular movements, but through them [their] familial, political, professional, religious and sexual associations.”
Contrary to CLSI records, the transaction information contained on a blockchain or with respect to exchange activity (amount and the wallet addresses of each of the parties) was far more limited in nature. The transactions are much more akin to records of bank transactions and telephone numbers called, records that reveal very little in the way of identifying information and fall squarely under the third-party doctrine and outside 4th amendment protection. In addition, the user of the blockchain has no expectation of privacy, pointing to the fact that each transaction record is publicly available on the blockchain. Records of such transactions do not provide officers with the so-called “intimate window into a person’s life,” and they are only generated as an affirmative act of the user, unlike the passive and unsolicited collection of CLSI.
Interestingly, the Fifth Circuit concluded with the following observation:
“Bitcoin users have the option to maintain a high level of privacy by transacting without a third-party intermediary. But that requires technical expertise, so Bitcoin users may elect to sacrifice some privacy by transacting through an intermediary such as Coinbase. Gratkowski thus lacked a privacy interest in the records of his Bitcoin transactions on Coinbase.”
* Technically, the Fifth Circuit only speaks for the Fifth Circuit and other circuits are not bound by their decisions. However, well reasoned decisions tend to influence other circuits and are cited as precedent. If the circuits do not agree, the Supreme Court may eventually step in to decide the issue, but it is discretionary and not required.
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