Free software and fiduciary duty

By Jonathan Corbet
February 9, 2023

Serial litigant Craig Wright recently won a procedural ruling in a London court that allows a multi-billion-dollar Bitcoin-related lawsuit to proceed. This case has raised a fair amount of concern within the free-software community, where it is seen as threatening the "no warranty" language included in almost every free-software license. As it happens, this case does not actually involve that language, but it has some potentially worrisome implications anyway.

Wright is known for, among other things, claiming to be Satoshi Nakamoto, the author of the original paper describing Bitcoin, and for filing numerous lawsuits within the cryptocurrency community. In the case at hand, he (in the form of his company "Tulip Trading Limited") claims to own about $4 billion in Bitcoin sitting in the blockchain — a claim that, like his others, is not universally acknowledged — but to have lost the keys giving access to that Bitcoin after his home network was broken into. It is, Wright claims, incumbent upon the maintainers of the Bitcoin network software to develop and merge a patch allowing the claimed Bitcoin to be transferred to a key that he controls.

The various Bitcoin developers, it turns out, are unconvinced by Wright's claim to that Bitcoin and even less convinced that the Bitcoin miners would accept a software update that included such a patch. Wright, allegedly backed by some deep pockets with eyes on part of a $4 billion prize, has taken 15 of these developers (and one organization) to court. The case fared poorly in in its first round, but now an appeals court has issued a ruling allowing an appeal to proceed, saying that there are issues of interest to be litigated.

At a first look, this case appears to be a warranty issue, and many observers have seen it that way. Wright is asserting that a bug in the Bitcoin system is keeping him from getting his hands on his well-earned billions, and that the maintainers of that code owe him a fix. The code in question is covered by the MIT license, which explicitly disclaims the existence of any warranty; if the court were to find that a warranty obligation exists anyway, the resulting precedent could put free-software developers at risk worldwide. It is not surprising that people are concerned.

The appeals-court ruling, though, makes no mention of warranties. The question of whether Wright is entitled to a "fix" hinges on a different issue:

The essence of Tulip’s case is that the result of all this is that the developers, having undertaken to control the software of the relevant bitcoin network, thereby have and exercise control over the property held by others (i.e. bitcoin), and that this has the result in law that they owe fiduciary duties to the true owners of that property with the result that, on the facts of this case, they are obliged to introduce a software patch along the lines described above, and help Tulip recover its property.

In other words, it is not the software license that might possibly create an obligation here. It is the control over software that manages somebody else's assets that might. Note that this ruling does not reach any conclusions regarding whether Wright's claim to the Bitcoin is valid.

In your editor's opinion, though, the court misunderstands the nature of the control that the Bitcoin network developers have:

Without the relevant password (etc.) for the bitcoin software account in Github, no one else, such as a concerned bitcoin owner, could fix the bug. If a bitcoin owner identified a bug and wrote the code to fix it, that fix could still only be implemented if the developers agreed to do so in the exercise of their de facto power. In a very real sense the owners of bitcoin, because they cannot avoid doing so, have placed their property into the care of the developers. That is, in my judgment, arguably an "entrustment".

The crucial point that has been missed here, of course, is that nobody can prevent others from applying a fix to the code — that is part of the fundamental freedom that comes with free software. If the maintainers of a given repository refuse to apply needed fixes, the community can fork the project and route around those maintainers. Wright, as the alleged creator of Bitcoin, should certainly be capable of writing this patch and convincing the mining community — which is where the real power to decide which software is run lies — that it should be applied.

Similarly, and importantly, a code fork could also happen if those maintainers were to merge a hack that somehow forced a transaction into the blockchain despite the absence of the private key controlling the Bitcoin in question, handing control of a contested resource to an actor seen by many as, at best, a scammer. Such an act would be highly likely to cause those maintainers to lose control over the software entirely. Even if Wright were to somehow win a ruling compelling the developers to apply an unwanted patch to a specific repository, the chances of that change being deployed to the network of Bitcoin miners seem small.

The appeals court, seemingly, fails to understand that aspect of how free software works and attributes a power to the maintainers of a specific repository that they do not, in fact, have; therein lies the risk from this case. If, somehow, maintenance of a body of software that is used to maintain assets owned by others — whether those assets are cryptocurrency, social-media posts, cat videos, or indeed software repositories — can be seen to create some sort of fiduciary responsibility toward the users of that software, our community's maintainer shortage will get significantly worse. Maintainership can be a thankless job as it is; the prospect of being sued for failing to write or apply a given "fix" would certainly push many maintainers over the line and out the door.

This ruling is just a preliminary allowing the case to proceed; the real trial is yet to happen. Hopefully some sense will be applied there, preferably before the defendants are bankrupted by legal fees (the newly created Bitcoin Legal Defense Fund is now handling their defense). Yes, we place trust in our maintainers, but we do so in an environment that limits just how much trust is required and gives us recourse should a maintainer fail to live up to that trust. A ruling that maintainers owe us more than they already give will not do the community — or almost anybody else — any good.

[Thanks to Paul Wise for a heads-up on this topic.]

to post comments

Free software and fiduciary duty

Posted Feb 9, 2023 17:14 UTC (Thu) by KJ7RRV (subscriber, #153595) [Link] (4 responses)

So he's claiming to have invented Bitcoin, and saying that he made a mistake in its design that resulted in him losing money, and is now suing other developers to force them to "fix" "his" "mistake"?

Free software and fiduciary duty

Posted Feb 10, 2023 0:35 UTC (Fri) by gmaxwell (guest, #30048) [Link] (3 responses)

Even worse,

He claims he was storing billions of dollars worth of Bitcoin-- which he claims belongs to a trust for the benefit of his family-- on his desktop with no backups and that intruders broke into his home to plant a "wifi pineapple" to break into his computer where he presumes they copied the data. He claims they they deleted the data from the computer and the MSFT cloud storage connected to the computer and that when he discovered the compromise he wiped the computer completely to be sure that the compromise was cleared, helpfully destroying any evidence of the hack and making any recovery of deleted files even harder. He then made no attempt to recover the data from the cloud storage (even though it should be recoverable for at least 30 days).

He then waited six months and had his trust filed a lawsuit against a dozen free software devs who currently or previously had contributed to Bitcoin-- software he claims to have been the original author and designer of--, alleging that they have a fiduciary duty to users of the software (and him specifically) to write functionality (a backdoor) to allow parties who lost their coins to recover them and that because they haven't done so they were already in breach of this duty and liable for billions of dollars in damages.

The bitcoins in question haven't moved since 2011. (The entity, a seychelle shell corp that supposedly owns them was purchased by him off a list of preformed companies in (IIRC) 2014.) Of the 111k BTC 80k of them are the unmoved coins stolen from the MTGox exchange, well known to most people long before Wright showed up. The reason he's claiming to own them is that in 2014 the AU tax office nailed him for some tax credit fraud where he needed to prove he could have spent money on R&D and he appeared to have picked 5 addresses at random off a bitcoin rich address list. AU concluded that he was full of crap and found against him. After this came out the owners of several of those addresses came out and made statements (including a digitally signed message using one of the addresses) saying that their coins weren't Wright's. For this lawsuit Wright claimed to own two of the addresses that hadn't published such statements-- presumably because it was obvious that their owners weren't going to speak up. Of course, when the defendants asked for a copy of a police report they were told it wasn't any of their business.

So: The coins were obviously never his and weren't stolen in 2020. If they had been stolen from him it would have been substantially due to his own negligence, including keeping them online, not having backups, and not attempting to recover from the cloud provider (and so the trust should be suing him; the police should also be asking how he had possession of billions of dollars worth of stolen mtgox coins). Ignoring that, if it could be said that there is some fault in Bitcoin that fault would be a consequence of the creator's design decisions, as Satoshi said: “Lost coins only make everyone else's coins worth slightly more. Think of it as a donation to everyone.” -- and, of course, Wright claims to *be* Satoshi though only people who know nothing about this stuff think isn't laughable, esp since all the 'proof' he's put up has been shown to be forgeries or nonsense.

But for some reason the UK courts think that this fairy tail is a reasonable enough justification for individual volunteer developers, some of whom-- like me!-- haven't worked on bitcoin for many years, to face millions of dollars of legal costs under a potential threat of billions of dollars in damages and potential imprisonment.

Free software and fiduciary duty

Posted Feb 10, 2023 12:23 UTC (Fri) by Wol (subscriber, #4433) [Link]

> But for some reason the UK courts think that this fairy tail is a reasonable enough justification for individual volunteer developers, some of whom-- like me!-- haven't worked on bitcoin for many years, to face millions of dollars of legal costs under a potential threat of billions of dollars in damages and potential imprisonment.

You're also missing a major DIFFERENCE between the UK and US systems. The UK system tends to work in "bite size" chunks, so it's quite likely there will be a mini-trial on "do the bitcoins even belong to the defendant?". Hopefully that will be amenable to summary judgement, especially if the defendants can show the provenance of said coins.

And once the plaintiff loses credibility with the Judge, the whole mess is likely to be dismissed very quickly.

Cheers,
Wol

Free software and fiduciary duty

Posted Feb 16, 2023 0:12 UTC (Thu) by cortana (subscriber, #24596) [Link] (1 responses)

I'm no lawyer but I know that courts take a dim view of those who sue people without taking steps to mitigate their own losses.

Free software and fiduciary duty

Posted Feb 16, 2023 13:14 UTC (Thu) by Wol (subscriber, #4433) [Link]

And, in the UK, without taking steps to mitigate THE OTHER SIDE'S losses.

If he tries forcing the defendants to run up their own costs, he will get slammed.

Cheers,
Wol

Free software and fiduciary duty

Posted Feb 9, 2023 17:56 UTC (Thu) by NYKevin (subscriber, #129325) [Link] (2 responses)

Something important to keep in mind while reading this decision, is that this is (effectively) a summary judgment ruling:

> 12. The merits test can be summarised as being whether there is a serious issue to be tried,
> which is the same as there being a real as opposed to fanciful prospect of success, and
> is the same as the test for summary judgment

Summary judgment works differently to regular judgments. Summary judgment is basically the court saying "Even if all of party X's factual allegations are true, party Y would still win anyway." So, in order to issue a summary judgment in favor of Y (here, the developers), you have to presume that all of X's (here, Tulip/Wright's) factual allegations are true, and then decide whether X would win in that situation.

> 33. The defendants challenge this description of the developers’ position and of the
> likelihood that software updates would be accepted. The debate involves the concept
> of “decentralisation”, which includes the suggestion that the developers are better seen
> as a large and shifting class, and the idea of “forks”. It is summarised in the judgment
> at paragraphs 34 and 35:
>
> [snip]
>
> 39. One aspect of the defendants’ case is that if such a patch was added to the bitcoin
> network source code at the relevant GitHub database, then the miners might not accept
> it and a fork would or may occur, but the likelihood of that happening is an aspect of
> the dispute on decentralisaton which cannot be resolved without a trial.

In other words: For the purposes of summary judgment, we have to assume that the developers can merge whatever they damn well want, and the miners will just take it as a fait accompli, because that is a factual issue, not a legal issue. Whether that's actually true will be decided at trial, not at summary judgment.

Free software and fiduciary duty

Posted Feb 9, 2023 23:35 UTC (Thu) by gmaxwell (guest, #30048) [Link] (1 responses)

Indeed, it's a summary judgement. However, in terms of the peril created for software authors that hardly matters from a practical perspective:

The cost of taking this to trial will be many millions of dollars.

If the defendants run out of funding along the way they will lose. Assuming they don't and they win, they still lose: In the UK the loser pays motion by motion, but usually only 70% (and even that diminished by earlier arguments that you weren't successful with). That might sound good until you realize that if you're on the hook for 10 million in trial costs and only recover 70%-- that would still leave most ordinary individual defendants completely bankrupt. All on account of contributing to some free software without remuneration.

We're extraordinarily fortunate to have sponsorship from the Bitcoin community for the time being-- though it can't be guaranteed to continue because there is no bound on the upper cost to the trial or the number of additional cases he can file (and, in fact, he's just filed a second lawsuit). This isn't merely a hypothetical, for example a journalist/podcaster that Wright sued was forced to abandon his defense mid-trial as a result of his sponsorship running out when he hit a million GBP in legal costs. But our good fortune this is a bit of historical accident, not a guarantee... and someone else in a similar situation might not be so fortunate.

Because of this, as an individual the outcome of going to trial is easily lose/lose: you're bankrupt regardless of if you win or lose. The plaintiff in this case was well away of this, bragging on social media long before filing the case that his goal was to ruin the defendants financially and destroy their families and that they would either way by the costs of the case. Because of this *it's* critical that free software authors have the greatest chance possible of being able to discharge spurious claims on a summary basis: after there isn't income from the work that would allow for absorbing legal costs as a "cost of doing business". If you can't discharge spurious legal attacks on a summary basis, -- then participating in the first place is a bad idea.

Going back to the article,

> The appeals-court ruling, though, makes no mention of warranties.

It's an error to read the appeals decision in isolation however, as it's effectively a diff of the lower court decision, where the subject is addressed https://www.bailii.org/ew/cases/EWHC/Ch/2022/667.html

It didn't arise in the appeal because that point wasn't being appealed. The original decision was made on the basis that this would just be a contrived application of fiduciary duties in the abstract. Unsurprising, it's not like you can allege that thieves stole a billion dollars from you and now the federal reserve has a duty to void the stolen bills by serial number and print you new bills. :) Positives duties are quite rare in the law, even a police officer holding a rope that could save your life as you fell off a cliff is not obligated to hand it to you.

> In other words, it is not the software license that might possibly create an obligation here.

Indeed, it doesn't create it but I would argue that it failed to disclaim it effectively enough.

Since the plaintiff claims to have used the system by way of the MIT (expat) licensed software written by the defendants (and the owner of the plaintiff actually redistributes that software) and the software formed the only basis of connection between the parties, I think there clearly was an opportunity to have more forcefully protected from this outcome: The trial court wrote, "It is true that the disclaimer is in broad terms, but it is not clear to me that it would reasonably be understood to mean that controllers of the BTC Network assume no responsibility for any aspect of its operation." but of course that *is* the intent, because who would publish their work for free to the world if it meant taking on potentially millions of dollars in liability for other peoples errors? We certainly wouldn't have.

So I agree with Corbet on the court's fundamental misunderstanding-- but that "misunderstanding" was very likely at this juncture by virtue of this being a summary determination: the court was constrained to find the facts in the plaintiff's favor. It wouldn't have been impossible for them to be wise enough to the free software to see through his control allegation, but in this case they weren't. But even in the (untrue) hypothetical world where the imagined control actually did exist, we would have expected the license we offered (and the plaintiff accepted) to form a serious shield against these claims.

Now, if that could be clarified while also staying within the norms of open source software or if doing so would be of general benefit (rather than just helping with this particularly weird case) I'm less sure of.

Free software and fiduciary duty

Posted Feb 10, 2023 8:43 UTC (Fri) by Wol (subscriber, #4433) [Link]

> Because of this, as an individual the outcome of going to trial is easily lose/lose: you're bankrupt regardless of if you win or lose. The plaintiff in this case was well away of this, bragging on social media long before filing the case that his goal was to ruin the defendants financially and destroy their families and that they would either way by the costs of the case. Because of this *it's* critical that free software authors have the greatest chance possible of being able to discharge spurious claims on a summary basis: after there isn't income from the work that would allow for absorbing legal costs as a "cost of doing business". If you can't discharge spurious legal attacks on a summary basis, -- then participating in the first place is a bad idea.

Sounds like the defendants should use this (together with the evidence that the coins aren't the plaintiff's etc etc) and file to have him declared a "vexatious litigant".

Cheers,
Wol

Free software and fiduciary duty

Posted Feb 9, 2023 20:36 UTC (Thu) by flussence (guest, #85566) [Link] (1 responses)

A man storms into the Mos Eisley Cantina and tells everyone he owns this town and to pay up or he'll call the cops and rat them out. He gets carried out a few minutes later in several trash bags. The cops keep his wallet.

This is hilarious on so many levels. If (*if*) this particular scammer succeeds, everyone else with skin in the game will simply fork the main Bitcoin blockchain and codebase to revert the change and the consensus will follow them automatically. It doesn't matter even if he succeeds in getting a court to compel the maintainers of the main bitcoin repository to insert his chosen malware into the code. What then, hunt down and sue every other cryptocurrency grifter on earth to force them to attend his party? What's a self-proclaimed god to a non-believer?

No living person is going to lay claim to those bitcoins ever again, and with the audience this stuff is known to draw, nobody *smart* would try to. Even if he didn't stick a laser dot target on his forehead for the dark web he'd spend the rest of his life being hounded by a million of his panhandling conmen peers each expecting a payout. Here's hoping he gets the victory he deserves, we all need a laugh.

Once again we have a rich moron trying to litigate his way into having friends. Elon Musk couldn't manage that and he *started* with 10 times as much money as this guy's demanding.

Free software and fiduciary duty

Posted Feb 9, 2023 20:46 UTC (Thu) by Wol (subscriber, #4433) [Link]

Don't forget, if this is in the UK courts, the defendants should at least offer to settle for tuppence ha'penny. That way, he'll also end up paying their legal bills if he loses.

Okay, they pretty much certainly won't get everything back, but a large chunk of it ...

Cheers,
Wol

Free software and fiduciary duty

Posted Feb 9, 2023 23:15 UTC (Thu) by apoelstra (subscriber, #75205) [Link] (2 responses)

To add to Jon's point that the Bitcoin Core Github repo is nothing special, and that no changes could take effect unless the miners were to pull them in and run them -- in fact, in Bitcoin it would take much more than just the **miners** to upgrade for a change to take effect.

For a change to take effect across the Bitcoin network, all validating nodes would need to upgrade their software. Or if you'd like, an "economic majority" would need to upgrade. If miners were to change something by themselves, the rest of the network would simply reject their blocks and they would be wasting electricity. There's a similar story if any small faction of users change the rules -- they would then have forked the chain, not just the software, and as a result created an entire new copy of Bitcoin that was only recognized by themselves, while the rest of the network continued on entirely unawares.

This case is indeed very concerning -- but because Bitcoin is a consensus system whose reference software has no auto-update mechanism and whose users are disproportionately obsessed with issues of personal sovereignty, it's perhaps the strongest possible case that could be made on behalf of FOSS for the claim that "the main repo does not dictate what people run".

(There is such a thing as a "soft-fork" which can be enforced by miners alone, but reassigning coins, almost by definition, would not be a soft fork.)

Free software and fiduciary duty

Posted Feb 9, 2023 23:56 UTC (Thu) by gmaxwell (guest, #30048) [Link] (1 responses)

> For a change to take effect across the Bitcoin network, all validating nodes would need to upgrade their software.

Instead of saying "all" I think it's probably better to not privilege one version vs another. Instead it's better to say that when there are irreconcilable incompatibilities in the consensus rules that the participants will form a network only with those participants they're compatible with. So by definition "all" the users in each of two resulting systems would have applied that system's rules, but its more clear that the "all" applies within the subset.

So the any change implementing such an incompatibility will only have a direct effect on the parties that run it. If someone were to run publish a version with a backdoor for Wright then any people (who? lol) who ran it would see Wright with those coins and anyone who didn't wouldn't and the result would be two distinctive currencies.

Now, you and I both believe that the non-backdoored version would be the legitimate one and the backdoored version is a joke that essentially no one would adopt or care about (just like Wright's existing alternative version "Bitcoin SV")-- but that's just our (informed) opinion and not itself a consequence of how the system operates, it's just a consequence of the change being obviously bad.

And then as you say you get into questions like economic majorities: In this example any user could participate in either or the sets of rules (or both, if they like) but that's only considering them in isolation. Money like goods get their value from network effect, so if you're alone in whatever rule's you're on the whole thing won't be very useful to you.

Due to Bitcoin being free software software engineers don't have control over what the software people are running is doing but they especially don't control public opinion... except to the extent that they have a good reputation and could make a compelling argument on logical grounds that persuaded people. But I think even the UK courts are not derranged enough to try to order someone to shill in favor of some conman's heist attempt. :)

Free software and fiduciary duty

Posted Feb 10, 2023 9:22 UTC (Fri) by NYKevin (subscriber, #129325) [Link]

Well, there's a bit of a caveat here.

In the hypothetical where part A of the network allows some transaction that is not acceptable to part B, but the reverse isn't true (i.e. B is more restrictive than A), then:

* Blocks produced in A can be rejected by B out of hand (if they violate B's more restrictive rules).
* Blocks produced in B will only be rejected by A if they aren't on the longest chain (B's rules are a superset of A's rules, so all valid-according-to-B blocks are also valid according to A).
* Therefore, if A has less hashing power than B, in the long run, A will not be able to function as a hard fork, because it will continue to validate and accept blocks from B, which will outcompete any valid-to-A blocks that violate B's rules.
* Furthermore, even if A does have marginally more hashing power, there will be a "tug of war" in which A and B are both refusing to recognize each others' blocks. At times, B will have a longer chain than A, purely by chance (or because some miners may not be running at 100% all the time? Electricity prices vary significantly if you buy it on the spot market...). Whenever that happens, A will effectively concede the tug of war automatically, retroactively invalidating any blocks that were previously validated on A's fork of B. So A will be a very unpleasant chain to live on, unless it has a quite healthy majority of the hashrate.
* This is why you can't make a hard fork just by making the client code more permissive. You have to explicitly program it to reject blocks that don't conform to some rule (e.g. "Chain must contain block X"). If the court fails to do that, then Wright won't even get the satisfaction of a "real" hard fork.

Fact correction

Posted Feb 10, 2023 13:20 UTC (Fri) by jejb (subscriber, #6654) [Link] (12 responses)

> The appeals court, seemingly, fails to understand that aspect of how free software works and attributes a power to the maintainers of a specific repository that they do not, in fact, have; therein lies the risk from this case. If, somehow, maintenance of a body of software that is used to maintain assets owned by others — whether those assets are cryptocurrency, social-media posts, cat videos, or indeed software repositories — can be seen to create some sort of fiduciary responsibility toward the users of that software, our community's maintainer shortage will get significantly worse. Maintainership can be a thankless job as it is; the prospect of being sued for failing to write or apply a given "fix" would certainly push many maintainers over the line and out the door.

This is not correct; it is specifically addressed at paragraphs 31-39 in the judgment with the conclusion being it was an issue that must be addressed at trial not in the preliminary hearing. Specifically there is a dispute, to be resolved at trial, over whether the named developers can actually force the miners to accept the change or whether the networks would simply fork the code. Essentially the fiduciary duty would not be incumbent on developers but the people who control the network and the point to be resolved at trial is whether this is the named developers or not. The actual issue now goes to the power of Maintainers over the network rather than to the liability of individual developers and that's a much different thing.

The case now at issue is over control points in open source systems and possibly, even, the power and liability of Maintainers. This may actually help open source in the long run because there have always been players in the ecosystem who try to tip the balance of power in open source towards themselves or their company at the expense of "ordinary" contributors. If we had a ruling that says you become liable for product failures if you tip the balance towards yourself too far I think that might be good for better developer equity in contribution models.

Fact correction

Posted Feb 11, 2023 10:21 UTC (Sat) by lmb (subscriber, #39048) [Link] (5 responses)

Yes, while I both abhor cryptocurrencies and think the claims to the BTC raised seem fraudulent, the part I find interesting here is the question of liability of *operating* a for-profit system (miners make "money", after all); regardless of whether that's based on Open Source or not, that aspect seems misguided and irrelevant.

It seems very naïve to operate a massive global financial/economic service and expect to not be in some form accountable for it. (Not being held accountable for their economic actions is the domain of billionaires and governments.) Finance is generally a fairly regulated space.

This seems similar to https://www.schneier.com/blog/archives/2021/03/illegal-co... in a way: taxation, liability, climate regulations, national interests, and illegal data in the chain might eventually add up to force a regulatory crack down.

They think a case in the UK is bad? Wait until someone brings a class action law suit in the US with their specific take on damages and juries.

Fact correction

Posted Feb 11, 2023 18:19 UTC (Sat) by garloff (subscriber, #319) [Link] (4 responses)

True point: Operating a network used for massive financial transactions is indeed something that one should expect fiduciary duties for...
I am reading though that the plaintiff has sued developers, not the operators of the network.

Fact correction

Posted Feb 11, 2023 18:41 UTC (Sat) by jejb (subscriber, #6654) [Link] (2 responses)

> I am reading though that the plaintiff has sued developers, not the operators of the network.

Yes but the plaintiff is specifically alleging that because of the distributed nature of the miner network on bitcoin, controlling the official release of code (the Github account) also makes them (really maintainers not general developers) the real controllers of the bitcoin network.

Fact correction

Posted Feb 11, 2023 21:03 UTC (Sat) by garloff (subscriber, #319) [Link] (1 responses)

It is the *choice* of the network operators. Thanks to open source, a choice with many options.

Fact correction

Posted Feb 11, 2023 22:35 UTC (Sat) by jejb (subscriber, #6654) [Link]

> It is the *choice* of the network operators. Thanks to open source, a choice with many options.

Well the maintainers argued something similar (they argued putting a patch in to favour tulip would lead to a fork of the repo).

The appeal court ruled that this point was a dispute of fact that must be decided at trial, but if the decision went Tulip's way they had a reasonable probability of proving the maintainers had fiduciary liability for the bitcoin network.

Fact correction

Posted Feb 11, 2023 22:31 UTC (Sat) by NYKevin (subscriber, #129325) [Link]

The problem is that the network is structured in such a way that even identifying who counts as an "operator" is complicated and messy. And it gets worse when you realize that miners are in all sorts of jurisdictions all around the world.

In the long run, I think the more productive way forward is for regulators to target the "other side" of the transaction - if you sent someone a cryptocurrency, you probably got something in return, and that "something" is often USD or another fiat. So now you have to contend with AML/KYC laws, and if those laws are restrictive enough, then conversion between BTC and fiat might become effectively illegal.

For example, a regulator might say "You cannot redeem any amount of BTC for USD if, tracing backwards through the UTXO chain, those particular BTCs were *ever* involved in a fraudulent transaction, unless you can prove that they were returned to their rightful owner. Also, if you cannot make that showing, then we're going to order you to surrender the BTCs to the government as stolen property." Then the regulator just has to make a list of fraudulent UTXOs every time somebody does a BTC fraud. Over time this "taint" will spread throughout the entire network and make it impractical for anyone to redeem any amount of BTC under any circumstances.

Free pass to bankrupt contributors

Posted Feb 19, 2023 21:24 UTC (Sun) by gmaxwell (guest, #30048) [Link] (5 responses)

Instead, it's the opposite of what you imagine: A free pass for those players to bankrupt ordinary contributors. The full cost to an ordinary contributor to go to trial to determine their obligation against a well funded opponent is in the seven to low eight figures. What ordinary contributor would participate at all with the specter of such a threat?

This is why this is already a serious blow to free software: if we can't get a case dismissed on a summary basis even when the plaintiff is a transparently obvious conman who's been adjudicated in multiple courts to have perjured himself and forged evidence-- then it's just not safe to participate at all.

Free pass to bankrupt contributors

Posted Feb 19, 2023 23:23 UTC (Sun) by Wol (subscriber, #4433) [Link] (4 responses)

> This is why this is already a serious blow to free software: if we can't get a case dismissed on a summary basis even when the plaintiff is a transparently obvious conman who's been adjudicated in multiple courts to have perjured himself and forged evidence-- then it's just not safe to participate at all.

In other words, it's not safe to participate in life ... might as well find a desert island and hope a lawyer doesn't end up there too.

Summary judgement can be summed up extremely simply:

Even if all the plaintiff's allegations are factually correct, would he lose anyway?

So all the Judge has said is "IF his allegations are true, THEN there IS a case to answer". It's not within the Judge's power to rule whether the allegations are true or not unless it's "impossible for the normal man to come to any other conclusion". Something like that anyway.

And unlike America, it's probable that the judge will say "I think the plaintiff will lose at trial, let's ask a jury about this before we go any further". Plus, if the defendants put into court all this stuff where he's been saying his aim is to bankrupt the defendants, he might find this sinks his case. The judge is supposed to ENTER the case unprejudiced. If he gets judiced by the evidence placed in front of him, that's his job!

Cheers,
Wol

Free pass to bankrupt contributors

Posted Feb 19, 2023 23:52 UTC (Sun) by gmaxwell (guest, #30048) [Link] (3 responses)

> In other words, it's not safe to participate in life ... might as well find a desert island and hope a lawyer doesn't end up there too.

When we publish free software we do so under licenses that have an extremely broad and forceful disclaimer against precisely this kind of liability specifically because work on free software is uncompensated and it would be both irrational and immoral to expose your family to ruin simply because you decided to engage in a public spirited and essentially charitable activity.

Unlike work done for employment there aren't revenues to cover random litigation as a cost of business-- working on free software isn't a necessary part of life. There is a simple cost benefit analysis: If publishing free software is an open invitation to bankrupt you with facially spurious litigation then you shouldn't do it.

> And unlike America, it's probable that the judge will say "I think the plaintiff will lose at trial, let's ask a jury about this before we go any further".

Absolutely not. There is no avenue to involve a jury in this process. Getting the case dismissed on a summary basis was the avenue available to potentially discharge the case without racking up millions in costs.

> Plus, if the defendants put into court all this stuff where he's been saying his aim is to bankrupt the defendants, he might find this sinks his case.

We did. So far, they haven't cared.

Free pass to bankrupt contributors

Posted Feb 20, 2023 0:51 UTC (Mon) by pizza (subscriber, #46) [Link] (1 responses)

> When we publish free software we do so under licenses that have an extremely broad and forceful disclaimer against precisely this kind of liability specifically because work on free software is uncompensated and it would be both irrational and immoral to expose your family to ruin simply because you decided to engage in a public spirited and essentially charitable activity.

Even $bigcorps are in the same boat here; Why release anything at all under an F/OSS license when your potential costs can be far in excess of your potential revenues?

Free pass to bankrupt contributors

Posted Feb 20, 2023 1:00 UTC (Mon) by gmaxwell (guest, #30048) [Link]

You're not wrong about the incentives there, but individual participants have an additional 0/1 problem. A common answer I've seen in threads on the subject is along the lines of "Whats the big deal, he's sure to lose at trial" -- but that doesn't fly if you'll be bankrupt and forced to default before you get that far... this boundary condition doesn't apply to $bigcorp, only the overall cost/benefit analysis.

Free pass to bankrupt contributors

Posted Feb 20, 2023 12:26 UTC (Mon) by Wol (subscriber, #4433) [Link]

> > And unlike America, it's probable that the judge will say "I think the plaintiff will lose at trial, let's ask a jury about this before we go any further".

> Absolutely not. There is no avenue to involve a jury in this process. Getting the case dismissed on a summary basis was the avenue available to potentially discharge the case without racking up millions in costs.

But this is the UK. It's not like America where you have to line up all your ducks at once. The Judge can call for a trial on whether the plaintiff owns the bitcoins in question. And if he thinks the jury will find for the defendants on the facts in summary judgement he probably will.

Yes it will run up costs, but on nowhere near the scale it would in America.

Unfortunately bullies will be bullies, and the job of the Judge is not take sides before considering the evidence. Given what's in front of him, he's probably even now trying to work out how to get rid of it as quickly as possible.

Cheers,
Wol

Free software and fiduciary duty

Posted Feb 22, 2023 20:50 UTC (Wed) by timrichardson (subscriber, #72836) [Link] (9 responses)

When does jurisdiction become relevant here? Who and where are the contracting parties? How would a UK court make a judgement that is enforceable on developers outside of the UK, or on github.com?

Free software and fiduciary duty

Posted Feb 23, 2023 10:59 UTC (Thu) by james (guest, #1325) [Link] (8 responses)

The ruling explains the question of jurisdiction: for example,

the judge's [Falk J, the first instance judge] now unchallenged conclusions that there was a good arguable case that the claim would fall within the court's jurisdiction. There was no dispute that the cryptocurrency in issue was property (paragraph 141) and there was a good arguable case that Tulip was resident in the jurisdiction (despite being a Seychelles registered company) and that the property was located here (see the passage from paragraph 142, concluding at paragraph 158). Therefore the property gateway 11 (CPR PD 6B) was satisfied. For similar reasons gateway 9(a) (damage within the jurisdiction) was satisfied (paragraphs 159-164). In terms of forum, the conclusion (paragraph 168) was that there was no other jurisdiction with which the dispute had a closer link than England, or was even arguably the proper forum.

Github isn't a defendant, so the court is unlikely to make an order enforceable on Github. (If it did, then Github does business in the UK: certainly its parent company does, and Tulip could try going after them.)

Enforcement of the judgments would be up to the developers' national courts and whether any reciprocal treaties were in force. This link deals with the subject from the other angle (enforcement of foreign judgments in the UK), but gives a brief overview of how it would be done.

Incidentally, in another ruling from English courts, Mr Justice Mellor spoke of:

four [actions] in the Business & Property Courts involving Dr Wright and there is a common issue in all four actions – what has been called 'the identity issue', namely, whether it was Dr Wright who adopted the pseudonym Satoshi Nakamoto when announcing his creation of the Bitcoin System or, perhaps slightly inaccurately, whether Dr Wright was or is Satoshi Nakamoto. That issue will be the subject of trial in due course.

(I probably ought to clarify that I am not a lawyer in any jurisdiction...)

Free software and fiduciary duty

Posted Mar 5, 2023 22:18 UTC (Sun) by nybble41 (subscriber, #55106) [Link] (7 responses)

> There was no dispute that the cryptocurrency in issue was property…

Why wasn't this disputed? Bitcoins are clearly *not* property. Elsewhere (paragraph 24) the ruling makes an argument that cryptoassets are property on the basis that they are rivalrous, but this is false. To begin with there is no such thing as "a bitcoin"; it's an abstract unit with no physical reality. What exists only in people's minds cannot be rivalrous; the number of bitcoins is limited only be imagination. What *is* limited by the system design is the set of unspent transaction outputs (UTxOs) at a particular block in a specific blockchain. However, while a given UTxO may be unique and only capable of being spent once within a particular chain, there can be infinitely many blockchains based on that block with the exact same UTxO set. Anyone can start their own fork, perhaps with modified rules, where they control those UTxOs. There is no guarantee that anyone else will recognize it, but recognition of your fork by others as the One True Bitcoin Blockchain is not something you can reasonably demand. Particularly when it goes against the set of rules by which Bitcoin has been defined since the beginning. To be non-rivalrous it suffices that everyone *can* have their own fork, if they so choose, where they are in control.

If Wright were to get his way and convince the court to compel the developers of (one version of) the Bitcoin client software to release a version which altered the rules to hand control over those UTxO to him that would create a fork of the blockchain. Putting aside the question of whether the altered fork has any chance of succeeding in gaining recognition, there would at least briefly be two copies of the UTxO, one which he controls and one which he does not. That alone is enough to prove that the bitcoins in question are non-rivalrous, as rivalrous goods can't simply be created out of nothing.

Free software and fiduciary duty

Posted Mar 6, 2023 11:28 UTC (Mon) by james (guest, #1325) [Link] (6 responses)

Lord Justice Birss, in the Court of Appeal in London, wrote:

There was no dispute that the cryptocurrency in issue was property...

nybble41 asked:

Why wasn't this disputed?

The case was between "Tulip Trading Limited, a company associated with Dr Craig Wright" and sixteen defendants, including Bitcoin Association for BSV and the developers who "control and run the four relevant bitcoin networks".

Which of them is going to argue that Bitcoin isn't property?

English civil law (IANAL) is adversarial, hence the Lord Justice's careful wording — "there was no dispute". English courts won't normally rule on questions that aren't before them. A judge might take the point if a case was clearly based on an incorrect premise, but that isn't the case here — it at least arguably passes the duck test for property. It's not that far from concepts such as copyrights, futures and derivatives¹.

As for the fork question, the judge wrote:

One aspect of the defendants' case is that if such a patch was added to the bitcoin network source code at the relevant GitHub database, then the miners might not accept it and a fork would or may occur, but the likelihood of that happening is an aspect of the dispute on decentralisaton which cannot be resolved without a trial

presumably because the court would need to hear evidence on it.

¹ "... trading in pork futures—in pork that doesn’t exist yet—led to the building of the warehouse to store it in until it does..." — Terry Pratchett, Men at Arms, a satirical fantasy novel.

Free software and fiduciary duty

Posted Mar 11, 2023 3:40 UTC (Sat) by nybble41 (subscriber, #55106) [Link] (5 responses)

> Which of them is going to argue that Bitcoin isn't property?

Any of the sixteen defendants would have a reason to make that argument. It would completely undermine the case against them. Would it serve them well elsewhere? Maybe not... but it's true nonetheless.

My concern is less about the defendants winning this particular case and more about the way this can lead to cryptoassets, and potentially other virtual "assets" such as game tokens, to become entrenched as a form of "property" despite lacking the requisite attributes (such as being rivalrous) to make that classification reasonable. Even if it's not taken as binding precedent, the more cases that are decided on the basis that cryptoassets are actually property the harder it gets to overturn that assumption in the future, even if the only reason the argument wasn't made is that it wasn't in the defendant's self-interest to challenge that point.

Free software and fiduciary duty

Posted Mar 12, 2023 16:38 UTC (Sun) by kleptog (subscriber, #1183) [Link] (4 responses)

> My concern is less about the defendants winning this particular case and more about the way this can lead to cryptoassets, and potentially other virtual "assets" such as game tokens, to become entrenched as a form of "property" despite lacking the requisite attributes (such as being rivalrous) to make that classification reasonable.

Why would this be a problem, if I may ask? Is it more a language thing? In Dutch law we use "property" only to refer to physical objects, everything else you can own is defined as "rights" (like intellectual property rights). When you buy an apartment you are not buying property, but rather a bundle of rights (like the exclusive right to live there and shared responsibility for shared spaces).

It seems to me obvious that a Bitcoin is a sort of right since it gives you access to something is exclusive that can be traded. It's not terribly useful though as it can't be used as collateral since a judge cannot take it from you without your cooperation. Is the reason you don't want it to be called "property" because of the possible confusion?

As for judges deciding what is property, that's Common Law for you.

Free software and fiduciary duty

Posted Mar 12, 2023 18:46 UTC (Sun) by Wol (subscriber, #4433) [Link] (1 responses)

We have the term "chattel" which I thought translated into your "property" (except it doesn't). The joys of English, "chattel" excludes property namely land and buildings, but does include rights and leases.

But I would have thought, if nobody has addressed whether bitcoin is property, then at some point a plaintiff or defendant could ask the judge to decide and say "there is no precedent, regardless of what other courts have assumed, please do the right thing". If other courts haven't ruled, the Judge is free to rule how he pleases.

Cheers,
Wol

Free software and fiduciary duty

Posted Mar 12, 2023 19:12 UTC (Sun) by Wol (subscriber, #4433) [Link]

Following up myself, using that definition of property, bitcoin is clearly chattel but not property :-)

Cheers,
Wol

Free software and fiduciary duty

Posted Mar 14, 2023 20:27 UTC (Tue) by nybble41 (subscriber, #55106) [Link] (1 responses)

> It seems to me obvious that a Bitcoin is a sort of right since it gives you access to something is exclusive that can be traded.

Except it's not exclusive—that was the point of the explanation about it being non-rivalrous above—and bitcoins don't really exist either as a physical good *or* as a bundle of legal rights and obligations. What exists is one or more versions of the blockchain which say that a certain private key (identified by its public counterpart) can be used to sign a transaction which Bitcoin nodes following certain rules will recognize as valid and (probably, eventually) incorporate into future version(s) of the blockchain. Critically, they have no *obligation* to either to recognize that transaction as valid or to include it in the blockchain, even if it's properly signed. That's just a convention; the rules of a game, so to speak, in which no one is compelled to participate.

With that said, there can be rights closely related to the Bitcoin system which are not themselves bitcoins. For example if you have an account with an exchange then the exchange may have a contract with you to perform the service of signing and broadcasting a valid transaction according to the Bitcoin rules in response to your request to make a withdrawal. Alternatively, if you make a purchase with bitcoins the merchant agrees to provide you with goods or services in exchange for you signing and broadcasting such a transaction. Those contacts would classified as rights—having agreed to this exchange of goods and services (which does not include bitcoins per se, only the signed transactions) both parties have a legal obligation to uphold their end of the bargain.

Free software and fiduciary duty

Posted Mar 16, 2023 13:07 UTC (Thu) by kleptog (subscriber, #1183) [Link]

I don't see how the same argument doesn't apply to other fungible tokens, like shares in a privately-owned company. The shares are not numbered, the owners simply own a number of shares. The shares maybe be easy, or nearly impossible to buy/sell based on the statues of the company. Whether they afford you any rights is totally dependant on the statutes as well. Now, the valuation of the shares of private companies is a tricky business, but nobody would deny they are a form of property.

I guess at the very least they give you the right to say you own a share in the company.

Further rulings

Posted May 21, 2024 10:42 UTC (Tue) by james (guest, #1325) [Link]

I hadn't seen this news: in this first-instance judgment Mr Justice Mellor in the High Court in London found:

...the case that Dr Wright is not Satoshi Nakamoto is overwhelming.

and

I tried to identify whether there was any reliable evidence to support Dr Wright’s claim and concluded there was none. That was why I concluded the evidence was overwhelming.

and

... Dr Wright’s attempts to prove he was/is Satoshi Nakamoto represent a most serious abuse of this Court’s process ... it is clear that Dr Wright engaged in the deliberate production of false documents to support false claims and use the Courts as a vehicle for fraud. Despite acknowledging in this Trial that a few documents were inauthentic (generally blamed on others), he steadfastly refused to acknowledge any of the forged documents. Instead, he lied repeatedly and extensively in his attempts to deflect the allegations of forgery.

I haven't read all 200+ pages of the judgment, but:

the case in this LWN article is mentioned by case number in the judgment;
that case was docketed (scheduled to be heard by) the same judge;
the judge mentions "the claim brought by Tulip Trading Limited against the Developers" which can only refer to that case. He wrote: "As a postscript, whilst preparing this Judgment I have learned that that claim has recently been discontinued."

The Bitcoin Legal Defense Fund confirm that.

(Usual disclaimer: I am not a lawyer in any jurisdiction).