updated texas cryptocurrency laws
regulation of digital currencies: cryptocurrency, bitcoins, blockchain technology
hb 4774: the texas virtual currency act (tvca)
Reading: Texas bitcoin bill
on June 15, 2021, specific cryptocurrency legislation was passed under the laws of texas when governor abbott signed house bill 4474 into law. specifically, the bill adds amendments to state business & trading code to deal with virtual currency. The short title of the bill is the “Texas Virtual Currency Bill” (TVCB). In general, the law specifically addresses cryptocurrencies by: (1) recognizing the legal status of virtual currency, (2) ensuring that cryptocurrencies are subject to trade laws under Texas regulations, and (3) granting legal rights to cryptocurrencies. cryptocurrency holders. Under article 12 of the tvca, the law enters into force on September 1, 2021.
First, the act legitimizes the legal status of cryptocurrency by providing it with a legal definition. Under hb 4774, virtual currency is defined as “a digital representation of value used as a medium of exchange, unit of account, or store of value” that is not legal tender. The legal definition of virtual currency does not include: (1) a transaction in which a merchant grants value that cannot be exchanged with the merchant for legal tender, bank credit, or virtual currency as part of a rewards program; or (2) a digital representation of value issued by or on behalf of a publisher and used solely within an online game, gaming platform, or family of games sold by the same publisher or offered on the same gaming platform.
Second, the law requires crypto businesses and investors to follow existing Texas business laws, such as state and state business laws. Trading Code Accordingly, a cryptocurrency company that offers an ICO to the public must comply with the Texas Securities Act (TSA). Specifically, the TSA applies to companies and individuals that sell securities or provide investment advice in Texas. In general, the TSA prohibits: (1) fraud in the offer or sale of securities, and (2) fraud in the provision of investment advice services. Cryptocurrency companies that violate the TSA are subject to administrative, civil, and criminal penalties for violations of the Texas Securities Act. By subjecting cryptocurrency businesses to TSA liability, the act incorporates cryptocurrency oversight into the broader framework of Texas business law.
third, section 12.003 grants legal rights to investors in cryptocurrencies. specifically, section 12.003 provides that virtual currency purchasers acquire all rights to the virtual currency that the transferor had or had the power to transfer. if only a limited interest in a virtual currency is purchased, then the buyer acquires rights to the extent of the interest purchased in cryptocurrency. For example, if a buyer buys 33% of a single bitcoin, or .33 of a bitcoin, then he only has rights to 33% of a single bitcoin. consequently, it is possible for several different investors to have ownership rights in a single cryptocurrency.
In addition, Section 12 grants special rights to qualified buyers. a qualified buyer is defined as “a buyer who obtains control of a virtual currency for value and without notice of any adverse claims.” These buyers are analogous to bona fide buyers under property law. Section 12 defines an adverse claim as “a claim that a claimant has an ownership interest in a virtual currency and that it is a violation of the claimant’s rights for another person to hold, transfer, or deal in the virtual currency.” There are two situations that indicate a buyer has notice of an adverse claim: (1) the person knows about the adverse claim; or (2) the person is aware of facts sufficient to indicate that there is a significant probability that the adverse claim exists and deliberately avoids information that would establish the existence of the adverse claim. when applying the law of property, the first is similar to real knowledge and the second is similar to constructive knowledge.
In conclusion, TVCA: (1) recognizes the legal status of virtual currency, (2) regulates cryptocurrency under Texas Business Law, and (3) provides legal rights to cryptocurrency holders. TVCA therefore makes cryptocurrencies safer for investors by legally recognizing virtual currency, subjecting cryptocurrency firms to trading regulations, and providing token investors with legal rights over their investments.
texas date of birth – memorandum 1037
On April 1, 2019, the Texas Department of Banking (DOB) issued a revised supervisory release known as Memo 1037. The memo was titled “Regulatory Treatment of Virtual Currencies under the Texas Money Services Act.” According to the DOB, a virtual currency is an electronic medium of exchange that: (1) is used to purchase goods and services from certain merchants or to exchange for other currencies, whether virtual or sovereign; (2) it does not have legal tender status in any jurisdiction, and (3) it is not issued by a government central bank. According to the DOB’s definition of virtual currency, cryptocurrencies currently exist outside the systems of established financial institutions.
according to the dob, there are two basic forms of virtual currency: (1) centralized virtual currencies and (2) decentralized virtual currencies. centralized virtual currencies are created and issued by a specific source, usually the creator. a prominent subclass of centralized virtual currencies is called “stable currency”. these are considered centralized because they are backed by the issuer with sovereign currency, precious metals, or cryptocurrencies. therefore, centralized cryptocurrencies can have intrinsic value unlike decentralized cryptocurrencies. consequently, stablecoins give holders “redemption rights,” which give holders the right to redeem coins for the issuer’s sovereign currency.
In contrast, decentralized virtual currencies are not created or issued by a particular person or entity. consequently, decentralized cryptocurrencies do not have a central administrator or repository. Currently, the vast majority of cryptocurrencies are classified as decentralized virtual currency with the exception of stablecoins. Unlike centralized virtual currency, decentralized virtual currencies have no assets underlying their intrinsic value, and virtually none have any government or central bank authority that sets their value through laws or regulations. therefore, the value of decentralized virtual currencies is solely determined by what buyers are willing to pay.
according to the memo, an exchange of virtual currency for sovereign currency is not considered a currency exchange under the texas financial code (tfc). Under the TFC, “currency” is defined as “the currency and paper money of the United States or of any country that is designated as legal tender and is in circulation and customarily used and accepted as a medium of exchange in the country of issue.” “. therefore, virtual currencies are not considered “currency” under the code because neither centralized virtual currencies nor cryptocurrencies are currency and paper money issued by a country’s government. consequently, no currency exchange licenses are required for companies that exchange virtual currency with sovereign currencies.
In conclusion, the 1037 memorandum provides a legal definition of virtual currency. Furthermore, the memorandum differentiates between centralized and decentralized virtual currencies. The memo concludes by stating that virtual currency exchanges for fiat currencies are not considered currency exchanges under the TMSA because by legal definition, no virtual currency is considered “currency” under Texas law.
texas department of banking notice
on June 10, 2021, the texas department of banking (tdb) published industry advisory 2021-03. The notice provides cryptocurrency with a state definition under Texas law. specifically, the notice defines “virtual currency” as “an electronic representation of value intended to be used as a medium of exchange, unit of account, or store of value.” the notice states that virtual currencies include cryptocurrencies such as bitcoin. therefore, cryptocurrencies such as bitcoin are legally defined as virtual currency per industry advisory 2021-03.
In addition, the notice describes the legal obligations of Texas banks that choose to offer virtual currency custody services to the public. The notice states that banks chartered by the state of Texas are authorized to provide cryptocurrency services as long as the bank follows “proper” protocols. to be adequate, protocols must comply with applicable law and effectively manage the risks associated with cryptocurrency trading. If these conditions are met, Texas banks are legally permitted to accept virtual currency deposits from Texas citizens. In other words, banks can legally provide cryptocurrency services under Texas state law.
In addition, Texas banks are legally permitted to create cryptocurrency private keys and hold them on behalf of customers. A private key refers to a form of cryptography that allows a user to access their cryptocurrency. Essentially, private keys are similar to bank account passwords. however, individual banks intending to provide virtual currency custody services must evaluate and determine which storage options best suit their current circumstances. Since the notice does not designate a uniform storage option, Texas Banks have discretion to select the appropriate storage option that best serves the interests of its customers.
In addition, the notice provides different guidelines depending on whether a bank provides services in a trustee or non-trustee capacity. If it provides custody services in a nonfiduciary capacity, the bank acts as a depositary by taking possession of the client’s asset for safekeeping while legal title to that asset remains with the client. If a bank provides custody services in a trustee capacity, then that bank is legally required to possess trust powers. In other words, banks that choose to act as trustees will be appointed trustees under Texas law. Accordingly, banks purporting to act as trustees must have statutory amendments and compliance procedures for 7 Texas Administrative Code § 3.23 prior to providing trustee services.
Bank duties vary and are determined by custody agreements between banks and clients. In other words, the relationship between banks and individual customers is based on the principles of freedom of contract because both can contractually agree to limit the bank’s obligations. accordingly, whether a bank acts as a trustee or a non-trustee will be determined by the contract between the bank and the customer. Even if they are operating as non-trustees, Texas banks generally have a duty of care to customers to keep assets safe and promptly return them when requested, whether they are trustees or not.
in texas, the tdb requires banks seeking to enter a new line of business to conduct adequate due diligence and carefully examine the risks involved in offering a new product or service through a methodical evaluation process of risks. therefore, banks intending to enter new lines of business offering cryptocurrency services must exercise due diligence. due diligence requires banks to methodically conduct a risk assessment process. Banks that choose to offer cryptocurrency services without exercising due diligence and implementing risk assessment procedures violate Texas law.
If a bank decides that the benefits of offering cryptocurrencies outweigh the risks, then the bank must implement effective risk management systems and controls to measure, monitor and control the relevant risks associated with cryptocurrencies. Necessary controls include: (1) administrative controls, such as policies and procedures; (2) technical controls, such as access controls and authentication mechanisms; (3) physical controls, such as the protection of hardware and data specific to the virtual currency held; and (4) confirmation of adequate coverage with your insurance company. Presumably, these controls are designed to protect both banks and customers from the risks associated with cryptocurrencies.
Under Texas law, banks cannot escape liability by outsourcing their functions to third parties. Even if a bank does not have cryptocurrency expertise, Texas banks cannot outsource banking functions to service providers experienced in handling cryptocurrencies without violating state law. however, banks can still use third party expertise as long as they do not delegate their banking functions. The TBD states that banks that choose to establish a relationship with such service providers are legally required to implement a robust service provider supervision program that addresses the risks associated with a relationship with service providers. a bank’s supervisory obligations remain throughout the beginning and the end of relationships with third parties. In other words, a bank’s supervisory program must be in place from the very first steps of due diligence to a possible termination of the relationship with the service provider.
In conclusion, industry advisory 2021-03 legally defines cryptocurrencies and details the legal obligations of banks providing cryptocurrency services. In doing so, the industry advisory regulates cryptocurrency under the general banking laws of Texas. Accordingly, banks that provide cryptocurrency services are subject to the existing Texas legal framework.
Texas State Securities Board: The Investor’s Guide to Cryptocurrency Offerings
The Texas State Securities Board (TSSB) formally published an article titled “The Investor’s Guide to Cryptocurrency Offerings.” overall, the tssb states that most cryptocurrency investors are speculators, details the differences between fiat and virtual currencies, explains the inner workings of cryptocurrencies, explains initial coin offerings (icos), warns investors investors about the risks associated with cryptocurrencies and mentions notable past crypto scams and enforcement actions.
In the introduction, the tssb differentiates between speculating and investing. according to the tssb, speculators are attracted to opportunities that promise significant profits in a relatively short time with little or no risk. according to the tssb, cryptocurrency investors are speculators because they are similar to the tech speculators of the 1990s. your favorite software stocks were going to the moon, few of today’s investors in cryptocurrency-related offerings can explain how cryptocurrencies work or why.” they are important.” according to the tssb, bitcoin aroused great interest as a speculative instrument after reaching a market capitalization of 127,000 million dollars in less than a decade.
Furthermore, the tssb memo states that “with great speculation comes great fraud”. the tssb warned that “vast hype, combined with a lack of understanding by investors, has made investments related to digital currencies particularly susceptible to fraud.” To combat fraud risks, the TSSB intends to educate investors by explaining the difference between fiat currencies and virtual currencies. fiat currencies are trusted means of exchange issued by a recognized government authority. Since they are backed by the government, fiat currencies constitute legal tender. Prominent examples of fiat currencies include dollars, euros, pounds, or yen. fiat currencies operate through intermediaries that authorize transactions, such as banks. Furthermore, the supply of fiat currencies is theoretically unlimited because governments are allowed to increase the amount of currency in circulation by printing more money.
Like fiat currency, virtual currencies are intended to be used as a medium of exchange. however, virtual currencies do not have physical coins or bills and are therefore not legal tender. consequently, cryptocurrencies are not regulated and do not provide consumer protection. In addition, there are no intermediaries that authorize transactions between parties in virtual currency transactions, such as banks. instead, cryptocurrency transactions use a decentralized computer network that does not involve banks or other intermediaries. consequently, cryptocurrency transactions are decentralized. Unlike fiat currencies, there is a limited supply of virtual currency. for example, the mathematical formula used to generate bitcoins gradually reduces the number of new bitcoins that are produced over time. In general, a maximum of 21 million bitcoins can be in circulation at any given time.
after describing the differences between fiat and virtual currencies, the tssb explains how cryptocurrencies work. according to the memo, cryptocurrencies allow two parties to transact business outside of the banking system. the cryptocurrencies are stored in a digital wallet that contains the private keys of the parties. private keys allow parties to spend bitcoins from your account. In other words, private keys are similar to bank account passwords that allow users to spend their funds. Furthermore, the underlying technology that runs the cryptocurrency is called a “blockchain.” the blockchain works as a public ledger that records bitcoin transactions and legitimizes the transactions.
then the tssb details how icos are regulated. Icos are typically used in startups because entrepreneurs can issue virtual tokens to raise capital. Under Texas securities law, ICOs are similar to stock types. for icos, the issuer sets the price of the token, which then fluctuates based on market demand.
Because of their similarities to IPOs, one question in securities law is whether virtual currencies are classified as securities or currencies. The SEC argues that ICOs are securities and must comply with the same rules and regulations as shares. Under the SEC’s reasoning, ICO issuers must: (1) be licensed, (2) provide required disclosure information, and (3) refrain from providing misleading information to market their offerings.
Despite the SEC’s perspective, various groups have lobbied Congress and regulators in an effort to exempt digital currencies from SEC regulations. According to these groups, cryptocurrencies are not the equivalent of real currencies because some cryptocurrencies, such as bitcoin and ether, function as “utility tokens” in business transactions and are not primarily bought and sold as securities. under this reasoning, the icos should not be subject to the same laws and regulations that govern traditional values. however, this argument is presumed to be unconvincing.
There are three types of cryptocurrencies: (1) payment tokens, (2) utility tokens, and (3) ico tokens. According to webster’s dictionary, a utility token is a “cryptocurrency digital token that is issued to fund the development of cryptocurrency and can then be used to purchase a good or service offered by the issuer of the cryptocurrency sold utility tokens as a method of raising funds for the start-up.” consequently bitcoin and ether tokens are probably not utility tokens because they can be used to buy goods and services from thousands of different companies and not just from the issuer hence the argument that icos should not be regulated by the Securities law likely fails because this argument misclassifies bitcoin and ether as utility tokens when they are instead supposed to be payment tokens or ico tokens.
However, the tssb states that icos should be subject to the same regulations as ipos because investments in cryptocurrencies are presumably riskier due to the newness of the crypto market. Like other investments, cryptocurrency investments may lose some or all of their value and may not provide anticipated returns. however, the tssb stated that certain cryptocurrency investments carry more risk than traditional investments. First, the value of cryptocurrency is highly volatile. In particular, cryptocurrencies are especially volatile due to noticeable changes in value over short periods and the speed at which a change in price can occur. In the past, the value of bitcoin fluctuated by more than $26,000 in just over four months.
Secondly, cryptocurrencies are easily liquidated. Unlike stocks, cryptocurrencies cannot be easily converted into cash. consequently, cryptocurrency investors run the risk of not being able to withdraw their investments immediately. Third, cryptocurrency exchanges are largely unregulated. Consequently, virtual currencies are incredibly vulnerable to hacking attacks and trading irregularities, including price manipulation efforts by major cryptocurrency investors. four, cryptocurrency accounts are vulnerable to hacking or malware attacks. consequently, holders face the possibility of their cryptocurrency holdings being stolen or lost. As if that were not enough, there is no insurance that covers the loss of the virtual currency. As a result, crypto investors who have their investments stolen or lost are often left without legal recourse to fair compensation.
five fraudulent cryptocurrency offerings have become prominent in recent years. Investors in these crypto scams are often left with “worthless or non-existent holdings and significant, often irreplaceable, losses of their hard-earned and much-needed money.” One scam is called “cryptomarketing,” which involves a scheme where promoters recruit investors to launch investments. recruits often promote cryptocurrency investments to friends, family, and on social media. Investors are promised significant profits and commissions on their sales. however, these investors are not licensed to sell securities and are therefore in violation of securities laws. consequently, they may inadvertently expose themselves to criminal liability due to their involvement in “cryptomarketing”.
Due to the increasing number of fraudulent crypto offerings, the texas commissioner has issued 26 administrative orders involving 79 individuals and entities. In 2017, the TSSB became the first state securities regulator to implement an enforcement order against a cryptocurrency company. In 2020, Texas authorities cracked down on fifteen alleged cryptocurrency scams. ten of these scams were operated by a single texas man. According to the tssb, these scams made false claims by offering lucrative, low-risk investment options.
In addition, the tssb notes that several statements made by cryptocurrency companies have been revealed to be false. for example, a cryptocurrency company called genuisplanfxpro falsely claimed to have several international financial licenses. in reality, they were not licensed by any government entity. however, there is a common denominator in all tssb claims filed against fraudulent cryptocurrency companies. In general, these fifteen companies show a common pattern: all fifteen companies use their knowledge of social networks to “attract investors and drain them.”
According to the tssb, various criminals use their social media and internet savvy to make their operations appear legitimate and reach large numbers of potential victims. typically, “once they raise capital, their websites often go down, social media often goes down, and scammers often disappear. in many cases, the money is gone.” the number of businesses that were prosecuted by the tssb in the year 2020 alone suggests the prevalence of cryptocurrency scams and suggests that they are growing in frequency. therefore, the tssb intended to warn the public and educate investors on how to identify fraudulent public offerings.
In conclusion, the tssb article aims to inform and protect investors from the risks associated with cryptocurrencies by: (1) comparing investing with speculation regarding cryptocurrencies, (2) detailing the differences between fiat currencies and virtual currencies, (3) explain how cryptocurrencies work, (4) explain initial coin offerings (ICOs), (5) warn investors about the risks associated with cryptocurrencies, and (6) mention Notable past crypto scams and enforcement actions. therefore, the goal of the tssb article is presumably to lessen the frequency of cryptocurrency scams that have risen prominently in recent years by educating investors about the nature and risks of virtual currency.
united states v. gratkowski, 964 f.3d 307 (5th cir. 2020)
In 2020, the 5th Circuit considered Gratkowski’s case and resolved the legal question of whether the 4th Amendment applies to cryptocurrency transactions. in particular, the court addressed “whether an individual has a fourth amendment privacy interest in their bitcoin transaction records.” The court responded in the negative, holding that the fourth amendment does not protect the identity of parties to bitcoin transactions because people are not given a reasonable expectation of privacy in their transaction records.
The factual background that led to the court’s decision involves facts that can shock the conscience. Specifically, Richard Gratkowski was arrested after being investigated in connection with a child pornography website on the darknet, also known as the “dark web.” The dark web refers to websites that do not show up in search engines like google. The dark web is often used to create an online market for drugs and other illegal goods or services. Since the dark web provides users with more anonymity than regular search engines, the dark web often facilitates terrible crimes like child abuse and murder for hire. most of the time, these heinous crimes are financed with cryptocurrencies. In fact, a Florida court found that cryptocurrency is “one of the most common forms of payment within darknet markets” because “little or no personally identifiable information about the sender or receiver is revealed in a BTC transaction.” recipient”.
in the case at hand, gratkowski used the dark web to purchase child pornography using bitcoin on what the case calls “the website”. the website contained more than 125,000 videos available for download, most of which consisted of child pornography. Surprisingly, the website explicitly instructed its users “not to upload adult porn.” In order to download the illegal videos from the website, each user must spend “points”, which can be purchased through the website by paying in bitcoin.
Although cryptocurrencies are supposed to be anonymous, government agents can identify the parties to cryptocurrency transactions by analyzing the blockchain. They can also determine the identities of cryptocurrency users by issuing grand jury subpoenas on cryptocurrency exchanges, such as coinbase. In the present case, Gratkowski was identified as one of the website’s clients after federal agents subpoenaed Coinbase “to obtain all information about Coinbase clients whose accounts had sent bitcoins to any of the addresses in the group of the website”. Unfortunately, a Florida court noted that government authorities discovered that more than 4,000 different accounts were associated with the website.
After determining Gratkowski’s identity, federal agents obtained a search warrant for his home. During the search, agents found a hard drive containing child pornography that was downloaded from the website. Following the discovery and a subsequent confession, the government charged Gratkowski with one count of receiving child pornography and one count of accessing websites with the intent to view child pornography.
During the trial, the Fifth Circuit addressed the question of “whether a person has a fourth amendment privacy interest in their bitcoin transaction records.” the text of the fourth amendment establishes that “the right of the people to the security of their persons, houses, papers and effects against unreasonable searches and seizures shall not be violated, and no warrants shall be issued except for probable cause, supported by oath or affirmation , and in particular describing the place to be searched, and the persons or things to be seized”. Essentially, the intent of the fourth amendment is to protect us. citizens from unreasonable searches and seizures by the government. The crux of Gratkowski’s argument is that he was subjected to unreasonable US search and seizure. uu. government when they used his bitcoin records as evidence against him. however, this argument is wholly unconvincing because gratkowski’s bitcoin purchases did not give him a reasonable expectation of privacy under fifth circuit law.
For the fourth amendment to apply, citizens must have a “reasonable expectation of privacy” in the items in question. In other words, there is no fourth amendment violation when officers search and seize an item that does not provide the owner with a reasonable expectation of privacy. Examples of cases where the reasonable expectation of privacy does not apply include items that are on display or items that are provided to third parties, such as banks. In the present case, Gratkowski argued that the government’s search violated his Fourth Amendment rights because of his reasonable expectation of privacy in the records of his Bitcoin transactions on (1) the public Bitcoin blockchain and (2) Coinbase. . however, the court found that gratkowski’s argument failed due to the “third party doctrine”.
The third party doctrine is a product of case law that functions as an exception to the reasonable expectation of privacy violations. the doctrine holds that people have no reasonable expectation of privacy in information provided to third parties, such as banks. specifically, people do not have a reasonable expectation of privacy for bank records because “they are not confidential communications but negotiable instruments” and are “voluntarily transmitted” to banks.
Beyond bank records, the third-party doctrine has been extended to phone call records. The Supreme Court has previously held that there are no privacy interests in telephone numbers when people “voluntarily transmit” dialed numbers to telephone companies when placing a call. Through this reasoning, individuals do not need to make explicit declarations to voluntarily transmit information to third parties. under supreme court precedent, individuals may voluntarily transmit information simply by using third-party services.
However, later Supreme Court precedent held that not all information resulting from the mere act of sharing information through the use of third-party services eliminates privacy interests. For example, the preceding case distinguishes between phone call logs and cell phone GPS coordinates. The court reasoned that, unlike bank records and phone calls, GPS tracking provides “a complete record of the owner’s whereabouts” and “provides an intimate window into a person’s life, revealing not only particular movements [ of an individual], but through them [their] family, political, professional, religious and sexual associations.”
Therefore, there are situations where an individual does not voluntarily share information with third parties simply by using a company’s services. The Supreme Court reasoned that GPS coordinates are not voluntarily shared for two reasons: (1) “cell phones and the services they provide are such a pervasive and insistent part of daily life that carrying one is indispensable to participating in modern society ”; and (2) csli does not require “any affirmative action on the part of the user”.
in deciding the gratkowski case, the fifth circuit held that bitcoin records do not provide a privacy interest because they are more analogous to bank records and call records. Unlike GPS coordinates, blockchain records do not provide the government with “a complete record of the holder’s whereabouts” or an “intimate window into a person’s life.” instead, blockchain records are limited in that they simply indicate (1) the amount of bitcoin transferred, (2) the bitcoin address of the sending party, and (3) the bitcoin address of the receiving party. furthermore, blockchain logs are distinguished from gps logs because the use of bitcoin is not “a pervasive [or] insistent part of daily life”, and the transfer and receipt of bitcoin requires an “affirmative act” on the part of the user. holder of the bitcoin address. therefore, the Fifth Circuit reasoned that blockchain records are more akin to bank records and call records, which by analogy do not provide a reasonable expectation of privacy.
To no avail, Gratkowski also argued that he had a reasonable expectation of privacy in Coinbase’s records documenting his Bitcoin transactions. this argument lacks merit because it is even more akin to bank records than records stored on the blockchain. Just like banks, Coinbase is a financial institution. The only difference is that Coinbase is a virtual currency exchange that provides bitcoin users with a method to transfer bitcoin and other cryptocurrencies. Although virtual currency exchanges deal with virtual currency while traditional banks deal with physical currency, they are both financial institutions and therefore subject to bank secrecy law. Just like traditional banks, virtual currency exchange houses are required to keep records of customer identities and currency transactions. Consequently, Coinbase is similar to bank records in that neither provides users with a reasonable expectation of privacy.
An ambiguity issue raised by the gratkowski case is whether all virtual currency exchanges provide zero privacy interests, or whether holding is strictly limited to the particular coin base. This topic is important because Coinbase is not the only virtual currency exchange on the market. in fact, there are currently more than 500 virtual currency exchanges available. Some may argue that Gratkowski’s case is strictly limited to the coin base and does not extend to the hundreds of other virtual currency exchanges on the market. however, such a narrow reading is not convincing. A broader interpretation of the gratkowski case is warranted because virtual currency exchanges function like financial institutions.
furthermore, limiting gratkowski to just coinbase to the exclusion of hundreds of other virtual currency exchanges directly contradicts the text of the case. In particular, the text of the Fifth Circuit’s decision states that Coinbase and “other virtual currency exchanges” do not provide users with privacy interests. therefore, the restricted reading offered above directly contradicts the text of the judicial precedent. Under the principles of stare decisis, the gratkowski decision extends to other exchanges and is not strictly limited to Coinbase. therefore, other virtual currency exchanges such as binance and robinhood are assumed to be controlled by gratkowski under fifth circuit law.
a broad interpretation of the gratkowski decision is also supported by other cases addressing issues related to the internet and the reasonable expectation of privacy. these cases often distinguish between content open to the public and private content. in crispin v. christian audigier, inc., the district court held that emails and private messages are “inherently private” and therefore represent a privacy interest because these “stored messages are not readily accessible to the general public “. In contrast, messages posted publicly on Facebook are not protected by a reasonable expectation of privacy because “Facebook allows anyone with access to the user’s profile page to view the messages on the wall.” these cases are comparable to information on the blockchain because they are not “inherently private” and are “readily accessible to the general public” through blockchain analysis. Accordingly, a broad reading of Gratkowski is consistent with judicial precedent addressing Internet issues and the reasonable expectation of privacy.
In conclusion, the gratkowski case held that there is no fourth amendment violation when the government subpoenas virtual currency exchanges to determine the identity of parties to cryptocurrency transactions because the information on the blockchain does not is protected by a reasonable expectation of privacy. While crypto advocates may prefer a narrow interpretation of the Gratkowski case, such a reading is inconsistent with both the text of the Fifth Circuit’s decision and internet precedent. therefore, gratkowski should be extended to all virtual currency exchanges and should not be limited to just the coin base. consequently, information on the blockchain does not provide a reasonable expectation of privacy and subpoenaing virtual currency exchanges does not trigger fourth amendment protection. rather, these subpoenas are presumed to be reasonable under constitutional law.
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