/>iIn Philip K. Dick’s novel Ubik, the sci-fi legend warned the world of the dangers of inanimate objects that could violate our privacy.[1] In a virtual nod to Ubik and Dick, the Fifth Circuit Court of Appeals ruled the privacy protections of the Fourth Amendment to the U.S. Constitution do not apply to records of Bitcoin transactions held by a major digital asset trading platform. Faced with the novel question of whether an individual has a Fourth Amendment privacy interest in the records of their Bitcoin transactions, the Fifth Circuit, in United States v. Gratkowski, found that Bitcoin data akin to bank records does not have a constitutional right to privacy or unreasonable search.
In United States v. Gratkowski, federal agents analyzed the publicly viewable Bitcoin blockchain and subpoenaed a leading digital asset trading platform for all information on the customers of the trading platform whose accounts had sent Bitcoin to a child-pornography website. In response to the subpoena, the trading platform identified Gratkowski as one of these customers. Federal agents then obtained a search warrant for Gratkowki’s house, which resulted in the discovery of child pornography in his possession.
Generally, a person must have a reasonable expectation of privacy in an item for Fourth Amendment protections to attach.[2] Under the third-party doctrine, a person generally has no legitimate expectation of privacy in information he voluntarily turns over to third parties.[3] Gratkowski argued that his Bitcoin information should receive the same protections as those set out in Carpenter v. United States, which expanded Fourth Amendment protections by limiting the applicability of the third-party doctrine in the context of cell phones.[4]
Relying on the United States Supreme Court’s ruling in Carpenter,[5] which limited the applicability of the third-party doctrine in the context of cell phones, Gratkowski claimed that the federal agents infringed upon his Fourth Amendment protection against unreasonable searches. Gratkowski argued the Government violated his reasonable expectation of privacy in the records of his Bitcoin transactions recorded on the Bitcoin blockchain that were executed at the crypto trading platform.
The Fifth Circuit, affirmed the decision of the district court, rejected Gratkowski’s argument, and concluded the information on the Bitcoin blockchain is analogous to bank records which are subject to the third-party doctrine and not protected under the Fourth Amendment. The court reasoned that like bank records, the Bitcoin blockchain identifies (1) the amount of Bitcoin transferred, (2) the Bitcoin address of the sending party, and (3) the Bitcoin address of the receiving party. The court also opined that since every Bitcoin user has access to the public Bitcoin blockchain which is a not a permission based distributed ledger technology and can see every Bitcoin address and its respective transfers, Bitcoin users are unlikely to expect that this information will be kept private.
The Fifth Circuit also held the records at the digital asset trading platform were akin to bank records, finding no reason for treating these records and records at other trading platforms any differently than traditional banks. The court reasoned the trading platform and traditional banks both are subject to the Bank Secrecy Act (“BSA”) as regulated financial institutions, whose records provide only limited information about a person’s virtual currency transactions. The court also suggested that Bitcoin users have the option to maintain a higher level of privacy by transacting without a third-party intermediary exchange, albeit this would require greater technical expertise.
Despite the fact that Bitcoin users enjoy a greater degree of privacy than those who use other money-transfer means, transaction information under this ruling is not protected under the Fourth Amendment. It is unclear how the Fifth Circuit would have ruled if the defendant’s data had been stored in a permissioned blockchain. However, the determination of the court that a digital asset trading platform is deemed a financial institution, does not bode well for the argument that digital assets stored on a permissioned blockchain will be protected by the Fourth Amendment.
The Fifth Circuit’s conclusion that the records of crypto currency trading platforms are not protected by the Fourth Amendment because the trading platform is a regulated financial institution could also possibly open the door to the argument that records maintained by digital asset trading platforms are subject to the protections of the federal Right to Financial Privacy Act of 1978 (“RFPA”).[6] Subject to certain limitations such as national security subpoenas, RFPA requires federal government officials to follow certain procedures when seeking customer financial information from a financial institution. RFPA also requires financial institutions to take a number of steps before releasing the information. The customer must receive a written notice of the government’s desire to obtain the records, the customer must be told why the records are being requested, and the customer must told the steps they can take to protect the information. RFPA includes a number of exceptions to when the customer must be given notice and places restrictions on a customer’s ability to prevent the information from being released.
If digital asset trading platforms are deemed financial institutions by virtue of being subject to the BSA, the records of clients at such institutions may be subject to the protections of RFPA discussed above.
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[1] Philip K. Dick, Ubik (196); see also April Glaser, Philip K. Dick Warned Us About the Internet of Things in 1969, Slate (Feb. 10, 2015), available at: https://slate.com/technology/2015/02/philip-k-dick-s-1969-novel-ubik-on-the-internet-of-things.html.
[2] United States v. Jones, 565 U.S. 400, 406 (2012)
[3] Smith v. Maryland, 442 U.S. 735, 743–44 (1979)
[4] 138 S. Ct. 2206 (2018),
[5] Carpenter v. United States, 138 S. Ct. 2206, 2217 (2018)
[6] 12 U.S.C. ch. 35, § 3401 et seq.
