Fork aftermath? Bitcoin split could spark legal chaos

Rage Comment : As the Bitcoin fork situation intensifies, both camps have stated that if either party takes radical actions, they may resort to legal means for recourse. However, legal experts say that the idea of ​​going to court may encounter many difficulties. Since miners and developers are scattered all over the world, the confirmation of jurisdiction in the lawsuit is the biggest obstacle. However, there are still legal experts who say that this is not impossible. Combined with the lawyer's rich imagination and the client's resources, it may be worth a try.

Translation: Clover

If the Bitcoin network were to suddenly split into two competing networks, the network that was negatively impacted by the shakeup might not be able to turn to the courts for recourse.

In an interview with CoinDesk, the legal expert detailed one of the more notable claims that has emerged amid the escalating discussion of a potential bitcoin hard fork — the ongoing process of migrating a portion of the network to new software, potentially creating two separate blockchains and two bitcoin tokens.

Bitcoin miners and developers have become increasingly determined in recent times to separate the paths of their technology's development, claiming that certain actions by either side could lead to legal consequences.

On one hand, miners indicated that they could bring legal action against developers if they changed the Bitcoin consensus algorithm and it did not work effectively. On the other hand, developers hinted that miners could face retaliation if they took aggressive or malicious actions to undermine either of the two blockchains after the fork.

But first, lawyers CoinDesk consulted said that because the major players in bitcoin are located in different places, jurisdiction could be the biggest hurdle if a lawsuit arises.

Attorney Andersen Kill of Washington law firm told CoinDesk:

“The legal theory isn’t the headache here; jurisdiction is. Since there’s no express contract between the people who own the bitcoin and the people who can change the rules, this gets into the realm of implied contracts and equitable remedies.”

Andrew Hinkes, an attorney at Florida law firm Berger Singerman, raised similar questions.

Andrew Hinkes

He noted that internet-based economic networks connected by blockchains are not bound by geographic location for any given party, but courts are.

“You can only sue a certain set of people in Miami court. But the court has to have subject matter jurisdiction, and secondly, there has to be the right people to sue here,” he said.

Hinkes went on to point out the difficulty of proving jurisdiction if one cannot first establish identity, using the example of an anonymous developer named Voldemort, best known for proposing Bitcoin’s MimbleWimble proposal.

He continued: “I don’t know who Voldemort is, and that’s a problem. A lot of the developers are outside the United States, and if I want to sue someone in China, then I have to go to China to sue. But the problem is that most miners are in China.”

However, lawyers involved in the investigation have raised more questions that suggest that such legal action, if not impossible, could fall into a Byzantine Generals Problem if the fork does in fact lead to legal action.

Developer risk is low

One trend that emerged from this series of discussions is that miners are likely unable to sue protocol developers due to the absence of a clear contract between the two parties.

According to Marco Santori, head of financial technology at law firm Cooley, such legal action would be thwarted, at least in the United States.

Marco Santori

He told CoinDesk:

“Pure economic damages are the only damages I can imagine miners suffering, and a lawsuit for such damages requires a contract between the plaintiff and the defendant. To my knowledge, no such contracts have been signed between miners and protocol developers.”

Hinkes agreed that the lack of a direct contract between the two parties would be a significant problem if a miners group (for example) tried to file a lawsuit.

“This was all done with the tacit understanding that the algorithm could be changed, and no one ever made any promises that the consensus algorithm wouldn’t change,” he said. “In any case, they had a hard time finding anyone who would make that promise.”

Hinkes then brought up the fact that while developers can release new code to the bitcoin network, they cannot force anyone to run it, meaning proving the connection would be problematic.

Possible options

Nevertheless, there are several methods to choose from.

Hinkes provided perhaps the most in-depth assessment of the situation, laying out three potential ways that developers could be sued.

These include claims for tortious interference (where a party not party to an existing contract intentionally takes action to undermine it), equitable estoppel (a legal form in which one party relies on the other party's words and actions to not go back on their word), and injunctions (where a court expressly prohibits a party from taking certain actions).

Of the three approaches, Hinkes believes that the tortious interference claim may have the most advantages, but he again said that the issues of jurisdiction and identity may be very complicated.

He said:

“Spreading new code can be said to be directly damaging my rights, but first I need an agreement. So if I am a miner, who do I have to reach an agreement with? What about investors, who do they have to reach an agreement with? This is the problem.”

He held that equitable estoppel would not work if the party seeking recovery could not prove that the defendant had a preconceived position on an issue and that a direct change in that position resulted in economic loss.

Likewise, he said an injunction would be virtually ineffective because it would require finding developers in hard-to-define locations and establishing that they provide services there.

Miners are under great threat

Of the two parties, lawyers involved in the investigation believe that the miners are more likely to be liable for the lawsuit, but they believe that depends on how the malicious nature of the measures taken is judged.

Santor said:

“It depends on these malicious actions. It’s not enough to just move hash power from one fork to another.”

However, Hinkes noted that even if the malicious nature of the measures taken can be proven, there are still obstacles to justice. That is, law enforcement officials need to accept the case and be willing to try to resolve its complexity, and believe that on this basis, future case law can be fruitful.

He also said that precedent in this area is unclear, as the common view is that if a fork occurs, the so-called minority blockchain camp (which is very small and therefore easy to be attacked and forced offline) is expected to gradually disappear.

He asked:

“Any time you attack someone else’s assets, you still have to prove it and then get compensation. So, does the minority blockchain still have value?”

However, Hinkes and Palley believe that even if these actions can be interpreted as criminal behavior, jurisdiction may be another difficult barrier to overcome.

Palley said:

“Assuming you can convince a U.S. court that you are entitled to relief, can’t miners in China or elsewhere abroad do the same? It’s not impossible, but the odds are slim.”

Ambitious people

However, some believe that the right amount of creativity (and the right context) can combine to achieve effective legal action.

Carol Van Cleef

For example, Carol Van Cleef, head of financial technology at BakerHostetler, believes that criminal prosecution is also possible, depending on the economic interests involved and the degree to which both parties would be upset by any outcome.

Van Cleef puts it succinctly:

"Legal theories can be constructed from existing law. Imaginative lawyers and clients with resources can work together to make this happen."