Topic: California Court of Appeal / Coinbase: not your keys, not your (forked) coins? (Read 217 times)

I think the exchange is being reasonable. They don't write that they are not going to support any forked coins, only that they are under no obligation. What would you rather they do? They can't make a list of future forks. They can't support all forks. So, the reasonable action is to decide on a case-by-case basis, which is exactly what they do.

If a customer wants forked coins or air-drops that the exchange won't support, then it is easy enough to withdraw the bitcoins to a wallet, receive the forked or air-dropped coins, and then put the bitcoins back.

I don't like this slippery slope argument. Sure, there are a lot of forked coins, but we can be reasonable here. Some exchanges refused to credit their users with BSV. BSV is #14 in market cap. This is significant. Just because you allow a user to use their #14 ranked coin does not mean you need to give them access to #1,400. I am not opposed to a reasonable handling fee by the exchange that covers the costs associated with crediting their users the coins from the split.

We'll know soon enough.

I must admit I'm a bit surprised about the lack of discussion or interest on this subject. As soon as Paypal's crypto adventure launches, mass possession -- and soon thereafter: mass adoption -- will take a giant leap. I expect the number of crypto lawsuits to explode exponentially and I expect it to happen very, very soon.

The courts will inevitably have an influence that should not be underestimated on the level of (non-)regulation of crypto transactions (like it or not).

That's a good point. There is nothing that prevents a regulator from dictating how the custodian must operate.

Atm you are completely right (by lack of any other different decision). Just understand that I'm trying to analyze the content of the decision; this is not about my personal opinion on forks or custodians or whatever.

In the Cryptopia case (NZ, not USA), the crypto you own has been formally recognized as property and there's no certitude at all that by some decision in the future, the ownership/property of these coins, and the fact that the exchanges are acting in a so-called "unregulated" market, wouldn't lead to people having the right to access their property at any time (again: unless of course stated otherwise in the exchange's Terms, which would then surely need to become a standard phrase in the User Agreement).

As said before, by quoting "(...) plaintiff argues nothing advises the customer he may not be able to access the private keys (...)", I believe this judge seriously hints in that direction.

If such decision were to be pronounced in the future, its effect on exchanges could be very disruptive, and understanding or misunderstanding "how custodians work" would in that case be completely irrelevant. The only question left would then be "how custodians must work".

That question shows a misunderstanding of how custodians work. There is no such thing as "your private keys" at a custodian. An account may have a deposit address associated with it, but the bitcoins that are deposited at that address do not remain there.

As for "not your keys, not your coins", I wouldn't take that too literally. All it means is that you do not have actual possession of any of the coins held by the custodian, regardless of whether or not you may have some legal claim to coins held by the custodian.

You're pointing out a lot of interesting things there, @20k20:


... or maybe the exact opposite? Since you're the owner of the keys, you have the right to have the privkeys, unless specified differently in the contract?

Exactly why I called it a "missed chance": I was very curious as to hear if the judge would decide that the privkeys are an integral part of your crypto property. The decision does repeat the Plaintiff's statement that "nothing advises the customer he may not be able to access the private keys for his forked digital currency", so in a way it feels as if the judge would have accepted that he indeed has the right to have access to his privkeys (unless stated otherwise), but since the Plaintiff is asking for his forked coins and not for his keys, the judge doesn't (and doesn't have to) answer this big question


I concur: while BTC gets integrated in society, I'm quite sure that a large majority of people will prefer to keep it on user-friendly wallets and leave the risks of security breaches in the hands of insurance companies and governments. In the end, this is largely a discussion of freedom vs. security, I guess. No need to say that I have my own ideas and preferences on this subject, but I think everybody should be free to decide and pick his own way of saving his coins, just like we should be able to be free to do as we please with ANY of our property assets, be it your furniture, your house, your clouds, your car, or your crypto coins.

I could perfectly imagine exchanges giving people access to their privkeys if they want to. Of course, these users cannot expect insurance companies to cover all security risks, should they choose to have unlimited access to their keys. I see no legal or practical obstacle to this, as long as both parties agree, of course. In that way, the difference between fiat banks, who decide if and when you can get your money back vs. crypto exchanges, who hand out your privkeys if wanted, couldn't be accentuated more beautifully

The only true problem is, if the large majority is using exchange wallets without privkeys, most governments will be drooling to invent new rules and regulations, which will eventually count for ALL users, even those who do use their privkeys responsibly...


Maybe the Plaintiff only discovered about this fork when it was too late, price too low already etc. As he had over 300 BTC on Coinbase, trying to get the coins at a price of $5-10 would probably not have been worth the shot. Trying to get an indemnity at the ATH value of almost $500 is a bit more interesting, heh

Again, I'm absolutely guessing, as I do not know if this is the real reason and I haven't read the trial judgment either, as stated above. Let's call it a rather educated guess


There's so many people who repeat over and over again, that this market is unregulated, and there's thousands of shit threads on this forum that "Bitcoin will need some regulation sooner or later", and many many more.

Again, in the BDI CAPITAL, LLC v. BULBUL INVESTMENTS LLC case, the judge literally stated: "Bitcoin investors are aware they are operating in an unregulated market, and therefore it seems more reasonable to place the burden to ensure access to forked currency on the investors themselves. There is no requirement that investors keep their coins in exchanges; they can always withdraw the coins to their own private wallets. In the unregulated cryptocurrency market, potential investors are well advised to ensure that the terms of service of the exchange they are using clearly spell out what the exchange's obligations are with respect to forked cryptocurrency, if any."

Oh sure, if you mean their hundreds of specially invented codes and rules f.i. for banks, or companies that work with food, or hotels, etc., then, indeed, this market is unregulated. Or if you mean by "unregulated" that governments and corporations have not (yet) (completely) stuck their fingers in our crypto affairs to regulate us (and get taxes), then, indeed, this market is not regulated.

The truth is of course: this market is NOT unregulated. It's proven every day again on this forum: we have paid campaigns, loan sections, escrows, gaming and gambling sections, people who are buying and selling and trading in hundreds of ways constantly, etc. How could this be possible, if this market was unregulated? It's based on the right of private property (imo as a libertarian, it's the only rule that should exist and of which all agreements and decisions can be deduced). Of course, this also means users will have to take their responsibility and read the ToS, because there will be no government to "help" them out, if they missed out on the content in the contract they signed without reading. These people are indeed lazy and blind and will probably get poor fast, whilst hoping for the opposite.

Every day again, activity on this forum as well as elsewhere, and the huge amounts of successful crypto trades all over the world, are proof over and over again that WE DON'T NEED EXTRA REGULATION. (but this discussion would lead us too far off-topic, I guess...)

Honestly, as much as I hate Coinbase, this makes sense. There are a sh*tton of forks (I believe the website isn't even up to date) and if I owned Coinbase, I'd do either the same or allow the customer to take the forks with a little premium for my company's efforts of retrieving them (unless I directly gave the customer their privkeys).

Just as I said in the paragraph above, it'd become a crappy mess if all companies would be enforced to honor all forks out there.

In a fair world, the customers should have access to the privkeys. But we unfortunately do not live in a fair world, and if the contract doesn't specify the user has a right to the privkeys under custody, I guess the answer is "no"..

Bad strategy (imo) if so. Under the last instance, I would've at least tried to ask for the privkeys as a last resort.

If we take it as a comparison to banks, wouldn't privkeys be basically the backend of our bank accounts? I don't think handing out privkeys are an obligation to be honest, although I would highly prefer that to be the case. Handing out privkeys may also be bad from a security point of view..

Laziness. It's much easier to use Coinbase or other "user-friendly" wallets that look fancy but hold your assets under custody, isn't it? It scares me how people are lately giving up anything and everything for comfort. It's almost like they simply don't give a damn that someone else is the owner of their stuff.

Hehe, the old ToS problem.. To be honest, out of a million people, I'd be surprised to find out that 100 read the ToS of a software/website before registering. 100 may be a generous number. People sign bank contracts without reading a single word out of it. This is how bad the ToS reading situation is. Fortunately, there are a few websites that have been reviewed on ToS;DR. At least do that if you're lazy enough to read terms before signing them.

A few months ago, the Court of Appeal of the State of California published its decision in the case of Darrell Archer vs. Coinbase. Archer, a Coinbase user, filed suit against Coinbase for refusing access to his part of the forked Bitcoin Gold coins, which were forked from the BTC he owned on the Coinbase exchange. Archer lost both trial and appeal.

Following the publication of the Court's decision, self-declared "crypto lawyer" Justin Wales stated on Twitter that this case confirms the principle of "Not your keys, not your coins". While I can imagine his tweet no doubt got him the media attention he was hoping for this case does not confirm "Not your keys, not your coins" at all. What could be - maybe, carefully, cautiously - concluded at best from this decision, is: "not your keys, not your forked coins" (even though in reality, the Court simply does not deal with "the key issue" directly).


Here are the (imo) most important parts of the decision, with my (humble) personal analysis - let me clarify that I have not read the trial judgment, only the Appeal decision:


1. "It is undisputed that the User Agreement does not contain a provision requiring it to support or provide services for any particular digital currency created by a third party."

Forked coins are "third-party" coins even if they're forked from supported coins, and the exchange has no obligation to install its software or to provide services related to these third-party coins, if this is not marked in the User Agreement. The exchange has therefore no obligation to make forked coins available to its users.
(Judicially irrelevant, yet still mentioned in the decision - and interesting for us to know - is the fact that Coinbase did in fact consider a Bitcoin Gold integration and did evaluate its security risks)

Furthermore a judge confirmed in an earlier decision - also quoted in the present one - that, were the Court to acknowledge this obligation, then "The Court would be imposing a major new duty on all cryptocurrency exchanges (...) to affirmatively honor every single bitcoin fork." This point of view was shared by aesma in this post.


2. "(...) whether Coinbase could provide plaintiff with access to the forked currency is not dispositive; the pertinent question is whether Coinbase had a contractual obligation to do so, and the undisputed evidence submitted by Coinbase shows it did not"

A huge missed chance... The Court does not have to answer the important question if Coinbase should give the private keys to the client, if possible and when asked, because the Plaintiff is founding his defense on the principle of breach of contract (which it's not) and not on the principle of his (possible) property rights of the private keys. In other words, the important question if an exchange user has the right to have access to his private keys, is left unanswered because it's impertinent for this case.


3. "Though plaintiff argues nothing advises the customer he may not be able to access the private keys for his forked digital currency, plaintiff does not dispute he knew at the time of the Bitcoin Gold fork that Coinbase does not support every digital currency."

Again, oh-so extremely close... But no cigar. The Court does neither confirm nor deny the right to have access to your private keys. However, the Court does confirm that access to your private keys is not expressly excluded in Coinbase's User Agreement. Sadly, the Plaintiff apparently did not use the argument that he should receive his private keys, but that Coinbase should give him his Bitcoin Gold. Based on what I read in this decision, the Plaintiff actually never asked Coinbase to make the keys available prior to the fork either. We can of course not expect the Court to make a decision based on assumptions and hypotheses...

Now why did the Plaintiff choose this strategy and why he did not simply demand that Coinbase give him access to his private keys???

A possible explanation could be that in the meantime the Plaintiff's Bitcoin Gold value was way lower than at the moment of the fork. For this reason, having access to his private keys would have become less interesting anyway, from a financial point of view. Therefore, the argument of "Breach of contract" might have been preferred as a strategy of trying to get an indemnity from Coinbase with the BTCGold value at the time of the fork, instead of trying to obtain the private keys and those Bitcoin Gold coins, which had a much lower value now.

Of course, I'm only guessing, but my line of thought is probably not too absurd.


4. "(Plaintiff) contends Coinbase was required to provide “the usual and customary” services, including services for “ ‘fork’ occurrences,” but he identifies no basis for that alleged duty, nor evidence of any written or oral representation by Coinbase that it would provide such services (...)"

Another confirmation of the obligation to respect the mutual agreements between parties - nothing less, but also nothing more; so there's no obligation to provide services for "third-party" coins, even if these are forks from supported coins.

---

So my conclusion about the content of this decision: not your keys = not your forked coins, unless stated otherwise in the User Agreement.

In other words, in the end this decision is imo nothing more than a confirmation of the fact that agreements and contracts have to be respected by both parties. Nothing less, but also nothing more. So this decision's not very shocking as such, and it is simply confirming the "basic" Private Law "pacta sunt servanda" principle, meaning that "agreements have to be respected". Nonetheless, I can't help but feel that decision probably has missed out on becoming a landmark crypto decision only by a breath...

It does look as if we are close to answering the question if not owning your keys indeed means you're not owning your coins. Or put differently: (if not stated otherwise in the User Agreement and when asked) do exchanges have an obligation to provide you access to your private keys? To be continued soon...

Some of you probably already know, I've been an advocate for reading these Terms, and have been warning people quite often about the risks they are taking when trusting their coins to several low-quality exchanges. Sadly, many of the exchanges I was warning people for in the last months and years, have in the meantime closed shop or gone bankrupt, with little or no action possible, because users suddenly discover everything was mentioned in the Terms of Use (or they discovered the Terms were fishy as hell).

It's the main reason why I find it rather disturbing that this principle of "not your keys, not your coins" is used over and over, whether appropriate or inappropriate (even by this self-declared "crypto lawyer"). People will never blindly or unthinkingly accept or understand such advice - no matter how well meant it is - if they do not understand WHY. I'd like to urge members who have the knowledge and experience to not use this expression recklessly, because it's eroding its credibility and undermining the important message it really does contain.

My advice and the warning I am once more giving users of exchanges (and in this case specifically for people who want their forked coins), would therefore be:

1. Read the frigging Terms of Use, before transferring your coins and make sure they're watertight. Would you buy a car or a smartphone or a TV without reading any reviews? Same goes for an exchange. KNOW WHAT YOU USE BEFORE USING IT.
2. Ask yourself which issues could rise in the future (needless to say this forum is a treasured source of knowledge for all possible obstacles on your trading adventure). Since one of those "issues" could be the launch of forked coins: keep your coins on your own private wallet during the fork and avoid any discussion or problem.
3. Finally, taking into account the points above, ask yourself: would you trust this exchange with the keys of your car or your house, and what could be the possible consequences? The principle for your coins is exactly the same.

Hat tip: Last of the V8s.