The English legal system is the most commonly adopted and pervasive legal system in the world today. In 2019 English law governed around £250bn of global mergers and acquisitions, and 40% of global corporate arbitrations; in 2020, around $11.6trn in global metals trading. And closer to home, the UK’s legal sector generates around £60bn for the domestic economy, with exports worth around £5bn.
English Judges embrace crypto
Since November 2019 the English legal system has been impressive in its recognition of both the importance and legal status of cryptoassets. Led by the avowedly crypto-enthusiast Sir Geoffrey Vos (the head of the English civil courts) the judiciary has co-sponsored a body named the UK Jurisdiction Taskforce. This taskforce created an authoritative statement on the legal status of cryptoassets which has been wholesale adopted by the English legal sector. This has paved the way for impressive further legal analyses on smart contracts from the Law Commission and the world’s most authoritative legal textbook on cryptocurrencies in private and public law, edited by two of Britain’s finest legal minds.
Equipped with these important tools the English courts have signaled that they will assist victims of crypto frauds. They have issued judgments recognising the legal status of crypto, issued worldwide freezing orders in respect of stolen crypto to overseas exchanges and even issued orders requiring exchanges to provide details of the wallets that misappropriated crypto has been sent to. They have also reached a decision on the key internet-inherent question of the geographical location of cryptoassets.
Not content with this impressive list, the English legal sector has also created the Digital Dispute Resolution Rules – a world-leading alternative form of dispute resolution which is tailored precisely to the needs of the cryptosphere, and which benefits from the certainty and maturity of English law.
Enter Satoshi Nakamoto
The reputation of the English Courts is of such high quality that the creator of Bitcoin, Satoshi Nakamoto, has now brought a claim in the Chancery Division of the High Court (Tulip Trading Limited v Bitcoin Association for BSV [2022] EWHC 2 (Ch)). Well, in fact it is Dr Craig Wright who has issued the claim. He claims to be the man behind the most famous pseudonym in the history of crypto. Whether that claim is true is a matter of hot debate in uncountable Discord servers and internet chatrooms. It is also going to be hotly debated in the English High Court in a trial that has been listed for 23 and 24 May 2022. Not content with having one lawsuit on foot in the English courts, Dr Wright has also issued defamation proceedings against a crypto podcaster who made clear his views as to the legitimacy of Dr Wright’s claims that he is Nakamoto. This means that an English judge will have the honour of being the person who decides whether Dr Wright’s version of the history of crypto is correct. No doubt we will all be able to stream a televised version of these events on-demand by early 2023.
In summary, Dr Wright’s claim made against the Bitcoin Association for BSV and others, is that in February 2020 hackers maliciously deleted encryption keys that allowed him to access a wallet in which he held alt-coin Bitcoin SV with a value of around £3.3bn and the 16 defendants to his claim have a legal duty to rewrite the Bitcoin SV code so that he can regain access to his crypto.
In January 2022 the Judge ordered that Dr Wright should make a payment into court to provide security for the defendant’s costs of the case. Dr Wright proposed to the judge that he would make that payment in in Bitcoin. Unfortunately for Dr Wright, she ordered that the payment be made in good old-fashioned fiat currency (in this case, Pounds Sterling) because of the inherent volatility in the value of Bitcoin. It seems that for now at least there are still limits to the English judiciary’s embracing of crypto.
Legal Strength v Relative Economic Weakness
Notwithstanding the activities of Dr Wright/Nakamoto, why are there not more household name crypto lawsuits being brought in the English courts? I refer to the sorts of large claims that one would expect to be made at this stage in the development of the cryptosphere. Claims such as, for the malfunctioning of the world’s largest NFT platforms, for example McKimmy v Opensea (Civil Action Number 4:22-cv-00545 in the United States District Court for the Southern District of Texas), the most high-profile case to arise from February’s multimillion dollar hack which was allegedly caused by failures in Opensea’s security. Or, breach of duty of care claims made by victims of scams, which are dependent upon the operation of crypto exchanges to facilitate theft. That is likely because the vast majority of the largest and most economically significant actors in the cryptosphere are based either in America or other offshore jurisdictions.
Crypto is now so enmeshed in American society that there are thousands of Bitcoin ATMs in Walmart branches and the 2022 Super Bowl was so saturated with crypto advertising that it has been dubbed the “Crypto Bowl.” That alone is hard to compete with, despite the UK economy’s many strengths.
Unless and until the UK can attract the key players, or nurture its own domestic equivalent, we will at least in part be watching the development of the cryptosphere from the sidelines.
How does English law become the bedrock of the cryptosphere?
Sir Geoffrey Vos recently asked an audience “what do we need to do to ensure that English law is the bedrock of the world of crypto?”. The answer may well be to speed up the FCA’s process of registering crypto companies and to simplify HMRC’s tax code as it relates to crypto (particularly in relation to staking). In short, we must make the existing regulation better and the UK economy generally more attractive to the cryptosphere. If we do not then we will find ourselves beaten in the race by low tax, low regulation offshore jurisdictions such as Portugal and Gibraltar, all whilst standing in the shadow of the giant American crypto economy.
Author
Tom Spiller, Senior Associate (tom.spiller@rosenblatt.co.uk)
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