[2020-07-06] 4th Amendment Does Not Protect Bitcoin Data, 5th Circuit Court Rule

[bbc.reporter]

There is a lesson here for criminals hehehe. Never use Coinbase or any exchange or any bitcoin centralized service to make payments directly to a child pornography website. Are you stupid?



According to the ruling of a three-judge panel from the Fifth Circuit courts, the American government’s Fourth Amendment does not apply to bitcoin transactions used in a crime if they stem from virtual currency exchanges. Richard Gratkowski was charged with allegedly making payments to a child pornography website, and sent bitcoin (BTC) to the web portal via his Coinbase account.

Specifically, Gratkowski leveraged the 2018 Supreme Court ruling from Carpenter v. the United States. That particular case deemed cellphone data was personal and protected by Fourth Amendment protections.

However, Judge Catharina Haynes used an old Supreme Court decision from 1939 called the United States v. Miller. That particular ruling said that bank records are not protected by the Fourth Amendment. Judge Haynes ruled:

Coinbase is a financial institution, a virtual currency exchange, that provides Bitcoin users with a method for transferring bitcoin. The main difference between Coinbase and traditional banks, which were at issue in Miller, is that Coinbase deals with virtual currency while traditional banks deal with physical currency.

Read in full https://news.bitcoin.com/4th-amendment-does-not-protect-bitcoin-data-us-fifth-circuit-court-rules/

[Harlot]

His argument was straight out wrong to begin with, Gratkowski stated that his Bitcoin transactions are private and is violating his right to the 4th amendment. The problem is Bitcoin transactions are even if not handled with a custodial service will still be recorded in Bitcoin's blockchain which all transactions are shown publicly, it is just unfortunate that the judge didn't go to this route but instead point out that Coinbase is a financial institution where they can legally obtain particular transactions of a person.

[Kakmakr]

There is a lesson here for criminals hehehe. Never use Coinbase or any exchange or any bitcoin centralized service to make payments directly to a child pornography website. Are you stupid?


According to the ruling of a three-judge panel from the Fifth Circuit courts, the American government’s Fourth Amendment does not apply to bitcoin transactions used in a crime if they stem from virtual currency exchanges. Richard Gratkowski was charged with allegedly making payments to a child pornography website, and sent bitcoin (BTC) to the web portal via his Coinbase account.

Specifically, Gratkowski leveraged the 2018 Supreme Court ruling from Carpenter v. the United States. That particular case deemed cellphone data was personal and protected by Fourth Amendment protections.

However, Judge Catharina Haynes used an old Supreme Court decision from 1939 called the United States v. Miller. That particular ruling said that bank records are not protected by the Fourth Amendment. Judge Haynes ruled:

Coinbase is a financial institution, a virtual currency exchange, that provides Bitcoin users with a method for transferring bitcoin. The main difference between Coinbase and traditional banks, which were at issue in Miller, is that Coinbase deals with virtual currency while traditional banks deal with physical currency.

Read in full https://news.bitcoin.com/4th-amendment-does-not-protect-bitcoin-data-us-fifth-circuit-court-rules/

The thing that worries me the most about your post is not the ruling but rather what you said... " There is a lesson here for criminals hehehe. Never use Coinbase or any exchange or any bitcoin centralized service to make payments directly to a child pornography website. Are you stupid? "

Are you into child pornography? Why do you want to learn lessons from this and why would you want to teach people better ways to pay for child pornography?

The real lesson to be learned from this, is not to buy or pay for something that is illegal .... that includes child pornography. I do not like regulated exchanges with all these KYC/AML requirements, but if they can be used to catch these monsters, then I am fine with that. 

[o_e_l_e_o]

The problem is Bitcoin transactions are even if not handled with a custodial service will still be recorded in Bitcoin's blockchain which all transactions are shown publicly, it is just unfortunate that the judge didn't go to this route but instead point out that Coinbase is a financial institution where they can legally obtain particular transactions of a person.

His argument wasn't that the transactions themselves were private - obviously this is not the case since every transaction is publicly recorded on the blockchain. His argument was that his Coinbase account history was private.

This guy is currently in prison, which is obviously where he belongs, but the case does highlight the fact that centralized exchanges are anything but private. It is so utterly naive to think that Coinbase, the exchange which hands over their customers' data to the IRS to harass for taxes, the exchange which employs software developers who aided dictators in torturing and murdering citizens to help spy on their users, the exchange which sells their customers' data to third parties, the exchange which has a partnership with the DEA and other three letter agencies to help them analyze blockchain transactions, would do anything other than immediately hand over all the relevant data. Coinbase are anti-privacy. Anything and everything you do involving Coinbase should be assumed to be public knowledge.

[figmentofmyass]

On a side note, this part of news is quite controversial

The other two judges agreed with Haynes, and the court noted that unlike cellphone data, bitcoin transactions are not “an intimate window into a person’s life.” The panel also highlighted that cryptocurrency transaction data was not a “pervasive or insistent part of daily life.” Of course, even though the case is controversial, bitcoiners are unsure of how the case will affect other U.S. lawsuits going forward.

Image if you're doing something that could be controversial such as donation to non-profit organization. People would criticize or even terror you if you're forced to give up your bitcoin "data" and government publicize analysis result of the data.

don't use your coinbase account to participate in controversial (or certainly illegal) activities---that's the long and short of it. coinbase and other exchanges are essentially banks. that was actually part of the basis for this ruling. the 4th amendment does not protect banking records.

this ruling doesn't apply to your personal bitcoin transactions, and unless the government has cause to bring litigation against you (for example, the nonprofits you are donating to are classified as terrorist organizations) facts like that wouldn't come out in open court anyway.

It is so utterly naive to think that Coinbase, the exchange which hands over their customers' data to the IRS to harass for taxes, the exchange which employs software developers who aided dictators in torturing and murdering citizens to help spy on their users, the exchange which sells their customers' data to third parties, the exchange which has a partnership with the DEA and other three letter agencies to help them analyze blockchain transactions, would do anything other than immediately hand over all the relevant data. Coinbase are anti-privacy. Anything and everything you do involving Coinbase should be assumed to be public knowledge.

gemini, kraken, bitflyer, etc would do exactly the same thing if subpoenaed in this case. no USA-based exchange executives are going to risk being held in contempt of court (read: go to jail) just to save their customers' privacy.

did you really expect coinbase to defy court orders to turn over data to the IRS? i'm just being realistic here.....

[o_e_l_e_o]

did you really expect coinbase to defy court orders to turn over data to the IRS?

No of course not, and that's exactly my point. No centralized exchange is going to care more about your privacy than they do about anything which could hurt their bottom line. This is an extreme case involving a subpoena, but many exchanges will hand over your data for far less. Coinbase are the worst for it since they are quite literally working with the DEA and IRS, but anything that you do on any centralized exchange is fair game. Anyone who expects anything in the way of privacy or protection from a centralized exchange is fooling themselves.

You see people on this forum and elsewhere not infrequently suggest using centralized exchanges like Coinbase as "free mixers", since your deposits and withdrawals go to/come from different addresses. I would suggest any coins you pass through centralized exchanges become less private, not more.

[bbc.reporter]

On a side note, this part of news is quite controversial

The other two judges agreed with Haynes, and the court noted that unlike cellphone data, bitcoin transactions are not “an intimate window into a person’s life.” The panel also highlighted that cryptocurrency transaction data was not a “pervasive or insistent part of daily life.” Of course, even though the case is controversial, bitcoiners are unsure of how the case will affect other U.S. lawsuits going forward.

Image if you're doing something that could be controversial such as donation to non-profit organization. People would criticize or even terror you if you're forced to give up your bitcoin "data" and government publicize analysis result of the data.

don't use your coinbase account to participate in controversial (or certainly illegal) activities---that's the long and short of it. coinbase and other exchanges are essentially banks. that was actually part of the basis for this ruling. the 4th amendment does not protect banking records.

this ruling doesn't apply to your personal bitcoin transactions, and unless the government has cause to bring litigation against you (for example, the nonprofits you are donating to are classified as terrorist organizations) facts like that wouldn't come out in open court anyway.

Also, with or without a 4th amendment, when the government knocks on their doors and pressures them to comply or else a takedown, I reckon it always ends in compliance that sacrifices some of its customers to save the business.

In chess it is known as the gambit hehehe.

[philipma1957]

This ruling is huge break for USA taxpayers.
The federal judge has decided coinbase is essentially a bank and that BTC is a virtual currency.

Thus he has given real ammo to fight IRS rulings that BTC is more like a property. ie stock.


It actually is a beginning and a First Federal USA court decision to call BTC currency and not property.

At op thanks for the case info.


One could go after all of IRS reporting rules on US tax returns based on this ruling.

On a side note, this part of news is quite controversial

The other two judges agreed with Haynes, and the court noted that unlike cellphone data, bitcoin transactions are not “an intimate window into a person’s life.” The panel also highlighted that cryptocurrency transaction data was not a “pervasive or insistent part of daily life.” Of course, even though the case is controversial, bitcoiners are unsure of how the case will affect other U.S. lawsuits going forward.

Image if you're doing something that could be controversial such as donation to non-profit organization. People would criticize or even terror you if you're forced to give up your bitcoin "data" and government publicize analysis result of the data.

don't use your coinbase account to participate in controversial (or certainly illegal) activities---that's the long and short of it. coinbase and other exchanges are essentially banks. that was actually part of the basis for this ruling. the 4th amendment does not protect banking records.

this ruling doesn't apply to your personal bitcoin transactions, and unless the government has cause to bring litigation against you (for example, the nonprofits you are donating to are classified as terrorist organizations) facts like that wouldn't come out in open court anyway.

Thanks for the insight, but that won't help people who have no idea how to protect their privacy or rights.

[Harlot]

The problem is Bitcoin transactions are even if not handled with a custodial service will still be recorded in Bitcoin's blockchain which all transactions are shown publicly, it is just unfortunate that the judge didn't go to this route but instead point out that Coinbase is a financial institution where they can legally obtain particular transactions of a person.

His argument wasn't that the transactions themselves were private - obviously this is not the case since every transaction is publicly recorded on the blockchain. His argument was that his Coinbase account history was private.

This guy is currently in prison, which is obviously where he belongs, but the case does highlight the fact that centralized exchanges are anything but private. It is so utterly naive to think that Coinbase, the exchange which hands over their customers' data to the IRS to harass for taxes, the exchange which employs software developers who aided dictators in torturing and murdering citizens to help spy on their users, the exchange which sells their customers' data to third parties, the exchange which has a partnership with the DEA and other three letter agencies to help them analyze blockchain transactions, would do anything other than immediately hand over all the relevant data. Coinbase are anti-privacy. Anything and everything you do involving Coinbase should be assumed to be public knowledge.

Yes I know about his argument with Coinbase being a private services but not unless we are talking about off-chain transactions happening in Coinbase he is wrong to make this an argument as still their transaction goes through Blockchain. Even before this case was on the news we have known very well that Coinbase is known to comply with the IRS when it comes to handing out their customers' transaction data in trading for AML purposes. His transaction was no different and the subpoena signed by the judge is valid.

[buwaytress]

Actually, I thought the main lesson here is: don't do illegal shit, and certainly don't participate in universally criminal activity.

The secondary lesson is that Coinbase and any other regulatory compliant service will be obligated to turn over your data to the state or enforcement. We have known this for years.

Also, using bitcoin even without coinbase won't protect you from enforcement if you're a bad guy. Man deserves to sit in jail.

[bbc.reporter]

@buwaytress. The main lesson should not apply on everything. There are many borderline cases that make bitcoin very useful hehe.

Also, the United States of America was founded by a group of people who did the most illegal shit versus the British. Treason hehehehe.

[o_e_l_e_o]

Yes I know about his argument with Coinbase being a private services but not unless we are talking about off-chain transactions happening in Coinbase he is wrong to make this an argument as still their transaction goes through Blockchain.

We are talking about off-chain transactions. He deposited to an address on Coinbase, and later paid an illegal service out of a different address on Coinbase. There would probably have been no clear link simply from looking at the blockchain between his deposit and withdrawal, as the first would be to an individual deposit address, while the latter would have come from Coinbase's collective hot wallet.

Presumably without Coinbase's compliance law enforcement were unable to make a definitive link between the two, which is why the went to the effort to subpoena Coinbase.

[Harlot]

Yes I know about his argument with Coinbase being a private services but not unless we are talking about off-chain transactions happening in Coinbase he is wrong to make this an argument as still their transaction goes through Blockchain.

We are talking about off-chain transactions. He deposited to an address on Coinbase, and later paid an illegal service out of a different address on Coinbase. There would probably have been no clear link simply from looking at the blockchain between his deposit and withdrawal, as the first would be to an individual deposit address, while the latter would have come from Coinbase's collective hot wallet.

Presumably without Coinbase's compliance law enforcement were unable to make a definitive link between the two, which is why the went to the effort to subpoena Coinbase.

According to how the Feds discovered the illegal transaction they have analyzed Gratkowski as one of the customers in the website using Blockchain.

Federal agents used an outside service to analyze the publicly viewable
Bitcoin blockchain and identify a cluster of Bitcoin addresses controlled by
the Website. Once they identified the Website’s Bitcoin addresses, agents
served a grand jury subpoena on Coinbase—rather than seeking and
obtaining a warrant—for all information on the Coinbase customers whose
accounts had sent Bitcoin to any of the addresses in the Website’s cluster.
Coinbase identified Gratkowski as one of these customers. With this
information, agents obtained a search warrant for Gratkowski’s house. At
his house, agents found a hard drive containing child pornography, and
Gratkowski admitted to being a Website customer.

So definitely it is an on-chain transaction based on how the discovery went down since they have been tracking this website and have linked the Bitcoin address and traced it to the customers who have paid them using Blockchain. So yeah it would have been better if the judge said it about blockchain being a public record and the authorities have just used Coinbase to verify if the transaction was legit.

[hatshepsut93]

The secondary lesson is that Coinbase and any other regulatory compliant service will be obligated to turn over your data to the state or enforcement. We have known this for years.

And they also can sell your data to other parties secretly, so even if the judge ruled otherwise, there would still be no good reason to trust exchanges and other centralized companies with your personal data.

Maybe someone views this as negative news, but it should really be something that we knew all along - there's no privacy where there's centralization.

[o_e_l_e_o]

-snip-

The quote you've shared from the court documentation tells quite a different story from the bitcoin.com news article (although assuming known scam site bitcoin.com would be a reliable source of information was probably naive on my part).

The bitcoin.com article states:

Now the Federal Bureau of Investigation (FBI) searched Gratkowski and found illicit materials at his home and they subpoenaed Coinbase for transaction records.

Whereas the court documents state:

Once they identified the Website’s Bitcoin addresses, agents served a grand jury subpoena on Coinbase—rather than seeking and obtaining a warrant—for all information on the Coinbase customers whose accounts had sent Bitcoin to any of the addresses in the Website’s cluster. Coinbase identified Gratkowski as one of these customers. With this information, agents obtained a search warrant for Gratkowski’s house.

Note the difference. The news article suggests that Gratkowski was already a suspect, had searched his house and equipment, found a Coinbase account, and subpoenaed Coinbase for his account history. In reality, they had no idea who the suspects were, and used Coinbase to specifically identify people. While the implication is that the Coinbase records were simply another piece of evidence for them to use, in reality, Coinbase identified by name and address an otherwise unknown person to law enforcement.

Make of that what you will.

[Harlot]

-snip-

Note the difference. The news article suggests that Gratkowski was already a suspect, had searched his house and equipment, found a Coinbase account, and subpoenaed Coinbase for his account history. In reality, they had no idea who the suspects were, and used Coinbase to specifically identify people. While the implication is that the Coinbase records were simply another piece of evidence for them to use, in reality, Coinbase identified by name and address an otherwise unknown person to law enforcement.

Make of that what you will.

Technically you are right but the thing is Gratkowski is still wrong using that argument that transactions done with Coinbase is private since we all know that KYC and AML procedures apply in custodial wallets and these documents and information can be pulled out anytime by the authorities not only by the IRS for legal purposes such as this one where he bought child pornography. If bank records and transactions can be subpoenaed I don't know why he thought or even his lawyer made Bitcoin transactions through Coinbase be private since they aren't covered by some kind of secrecy privilege.

[bbc.reporter]

Also Coinbase hehe.

I assume their blockchain analytics data analysis might begin on their own users' transactions. Where will they begin?



Crypto exchange Coinbase is providing its blockchain analytics software to the U.S. Secret Service, according to a public record obtained by The Block.

The Secret Service, which is part of the U.S. Department of Homeland Security, is charged with conducting financial crime investigations in addition to protecting the nation's top leaders.

The record shows that the Secret Service awarded a four-year contract to Coinbase in May in order to use its blockchain analytics software, called Coinbase Analytics. The contract is worth $183,750 in total and ends on May 9, 2024.

Source https://www.theblockcrypto.com/post/71261/coinbase-is-selling-blockchain-analytics-software-to-the-us-secret-service

[jseverson]

I assume their blockchain analytics data analysis might begin on their own users' transactions. Where will they begin?

Well they did say they use it internally for regulatory compliance:

It added: "Coinbase Analytics data is fully sourced from online, publicly available data, and does not include any personally-identifiable information for anyone, regardless of whether or not they use Coinbase. Coinbase Analytics is a blockchain analytics product that we use internally for compliance and global investigations. It's an important tool to meet our regulatory requirements and protect our customers' funds. We developed Coinbase Analytics with technology from the Neutrino acquisition."

They  flag users here and there, so we at least know their methodology isn't as black and white as "this batch came from a mixer, so ban." That's probably still not a good thing for users though, since it means Coinbase probably knows more about them than they think. That being said, I'm sure all the other large exchanges use an analytic service of sorts -- they're just less likely to report their findings to authorities lol.

[buwaytress]

And they also can sell your data to other parties secretly, so even if the judge ruled otherwise, there would still be no good reason to trust exchanges and other centralized companies with your personal data.

Maybe someone views this as negative news, but it should really be something that we knew all along - there's no privacy where there's centralization.

I don't think they had my trust even 20 years ago, they'll never get my trust today or tomorrow. Was always just never keen to give away my details if I didn't have to (unfortunately I do have to for at least 1 place to reliably and legitimately trade my coin now), so imagine my lack of shock when things like these come to light =)

That people keep getting surprised by this shouldn't happen. Fool me once...

[o_e_l_e_o]

That's probably still not a good thing for users though, since it means Coinbase probably knows more about them than they think.

Absolutely they do. They probably know more about you than your average fiat bank.

If I withdraw cash from my bank, I can go and spend that on gambling, drugs, and prostitutes, and my bank have no idea. My bank know how much I have withdrawn, but they don't know how much I have in my wallet, they don't know when or where I spend it, they don't know where any new money is coming from. Their monitoring capabilities are limited to one transaction deep.

Coinbase, on the other hand, are known to probe several transactions prior to a deposits and several transactions after a withdrawal. The exact number seems to vary depending on how "suspicious" or otherwise they think you are, but there are reports of users having their Coinbase accounts banned for gambling with 4 or 5 transactions between withdrawing from Coinbase and depositing to a casino. Once you make a withdrawal from Coinbase, they know how much you withdrew, how much you are holding in total, when you spend, where you send it to, when you bring in new money, where that new money is coming from, etc.