Bitcoin developers have no fiduciary duty to Bitcoin owners, judge rules

Bitcoin developers have no fiduciary duty to Bitcoin owners, judge rules

Craig Wright, who claims to be Bitcoin creator Satoshi Nakamoto, has suffered a new legal setback as a London court judge governed Developers have no fiduciary responsibility to help the Australian computer scientist access two wallets containing approximately $3.9 billion worth of Bitcoins.

Wright, whose company Tulip Trading Limited (TTL) brought the lawsuit, said he lost his private keys after a hack and wants Bitcoin developers to help him regain control of the assets. Judge Sarah Falk of London's High Court rejected that suggestion on Friday.

The 16 defendants are all developers of Bitcoin-related software, and 12 are Bitcoin Core developers, the chain widely considered to be the canonical Bitcoin, or BTC. Wright’s company also filed suit against developers of several forks: Bitcoin Cash, Bitcoin ABC and Bitcoin SV (the fork that Wright himself refers to as “Satoshi’s Vision”).

Wright maintains the two Bitcoin wallet addresses he owns through a series of shell companies and trusts in the Seychelles and Antigua, for which he and his wife Ramona Ang are beneficial owners.

Wright claims he stored the private keys in a password-protected file with backups on two cloud storage servers, but both the file and its backups were removed or deleted in a hack before February 8, 2020.

The assets have not been moved since the alleged hack. Wright wants the Bitcoin developers to push through a software update that will restore his access to the wallets. In fact, he offered to pay her for it.

“Other than their shared interest in digital assets, there is very little in common between plaintiff and defendants,” Judge Falk wrote, adding: “There is a significant level of animosity, much broader than, and whose origins predate, the particular dispute before this court.”

For example, the judge wrote, Wright's claim that Bitcoin developers have the power to do what he asks is controversial.

The defendants point out that Bitcoin development takes place among “a very large and changing group of contributors with no organization or structure” and that even if miners and full node operators could simply ignore such a change, it contradicts the community’s core values. At best, it would lead to further network forks, but wouldn't actually allow Wright to access the value locked in the Bitcoins he's seeking.

The extent of the actual power of the Bitcoin developers is directly related to the key question in this case – whether the role and work of the Bitcoin developers themselves creates a fiduciary duty to TTL, assuming Wright was indeed the victim of a fraudulent hack (which the developers also dispute).

“It is very difficult to see how TTL’s case on fiduciary duty can be seriously argued,” Judge Falk wrote.

“I do not believe that Bitcoin owners can realistically be described as entrusting their ownership to a fluctuating and unidentified group of developers of the software, at least in the spirit and scope alleged by TTL.”

Even if TTL could prove the facts on which it relies in the course of a trial, the judge said, there is no realistic prospect of proving a breach of fiduciary duty by the developers to TTL.

Although the relationship between developers and Bitcoin owners “generally has a fiduciary quality,” the judge wrote, their duty is not to one particular owner to the detriment of others.

"It is undisputed that a fundamental feature of the networks, at least in their existing form, is that digital assets are transferred using private keys. TTL effectively seeks to circumvent this."

The judge was unconvinced by TTL's claim that Bitcoin developers owed a "duty of care" that was breached by allowing the network to operate in such a way that the private keys could be lost in the first place. Such a claim, she wrote, was “not realistically justifiable.” You would have to have a contractual relationship with Wright or his companies. Otherwise, she noted, “the potential class in this case is by definition unknown and potentially unlimited.”

In other words, it would be ridiculous to put Bitcoin developers at legal risk from anyone whose private keys have ever been lost or stolen. The fact that TTL would pay them to try to gain access to the wallets “underscores the weakness of their case,” Falk wrote.

Last December, after a trial in Florida, Wright was found guilty of conversion - a form of theft - and ordered to pay $100 million to a company controlled by Ira Kleiman, the brother of Wright's former business partner David Kleiman, with whom Wright once mined bitcoins.

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The post “Bitcoin developers have no fiduciary duty to Bitcoin owners, judge rules” is not financial advice.