Bitcoin, at its most fundamental level, is a breakthrough in computer science — one that builds on 40 years of research in cryptography to solve the double-spend problem that has perplexed computer scientists for decades.
The double-spend problem refers to the difficulty of ensuring digital money is not easily duplicated. With its launch in 2009, Bitcoin enables for the first time in human history the ability for individuals to exchange value using technology alone, without the need for trusted intermediaries like banks to verify transactions or maintain account balances.
Today’s Cryptocurrency Market
Since then, thousands of other crypto tokens, protocols, networks, and use cases have proliferated. CoinGecko currently tracks over 10,000 digital tokens; $50 billion worth of digital assets are traded every day across hundreds of digital currency exchanges around the world. In 2020, MicroStrategy became the first publicly-traded company to purchase bitcoin, followed next year by Tesla. In early 2021, blockchain technology entered the art world with the auctioning of one of Beeple’s NFTs at Christie’s for a staggering $69 million, making him among the top three most valuable living artists. Sotheby’s, the 279-year old British-American clearinghouse, quickly followed with its own auction of CryptoPunk #7523 for $11.8 million. And in late 2021, El Salvador became the first country to adopt Bitcoin as its official currency.
As of 2023, the global cryptocurrency market cap stands at $1.16 trillion. Whether or not Bitcoin will be the dominant cryptocurrency network in the future is difficult to predict. But there’s no question that the underlying blockchain technology will continue to gain adoption across a wide variety of use cases. In fact, research shows that 20% of Americans already own some form of crypto. Coinbase, the largest cryptocurrency exchange in the U.S., boasts over 100 million verified accounts. And as the industry grows, regulatory scrutiny has increased. In 2022 alone, the SEC has brought 30 crypto-related enforcement actions against crypto market participants.
What Receivers Need to Know About Crypto
As adoption becomes widespread and regulatory scrutiny intensifies, it’s important for receivers to possess at least some familiarity or basic understanding of this technology. While it may appear nascent, it’s inevitable receivers will encounter crypto at some point in the near future, if not already. Some important and practical considerations to consider when administering receiverships that involve cryptocurrency:
- Security & Custody. Receivers need to be knowledgeable about how to securely custody crypto that may be part of the receivership estate. Receivers should understand the various ways crypto can be stored, and how to manage the corresponding private keys. Receivers also need to consider situations in which it would be more appropriate to custody the crypto with qualified custodians like Coinbase Custody or Bakkt. And as a general matter, receivers should be aware of common scams like phishing, cybersquatting, social engineering, and sim-swapping to avoid the theft of cryptocurrency in their possession to cybercriminals.
- Asset Recovery. One common misconception about crypto is that it is completely anonymous. Few realize that cryptocurrency has evolved to be one of law enforcement’s most potent tools due to the transparent blockchain data that is publicly accessible to anyone with an internet connection. Receivers should understand how to communicate and work with cybercrime units that are now common in almost every modern law enforcement agency.
- Asset Tracing. Receivers should have familiarity with reading and interpreting block explorers like Blockchair or Etherscan to track and trace cryptocurrency, and have a general understanding of which entities to subpoena to efficiently gather information not otherwise publicly available. Receivers should become familiar with blockchain analytics companies like Chainalysis or Elliptic should a need arise for more in-depth investigations.
- Valuation. Receivers should understand how to properly value crypto assets, especially when the original asset has been part of a crypto-to-crypto trade, as opposed to a crypto-to-USD trade. Understanding the volatility of crypto markets is crucial when making a determination whether to liquidate a particular asset.
- Transferring Assets. The movement of cryptocurrency presents its own unique challenges due to the manner in which transactions are confirmed. The irreversibility of confirmed transactions is one of the central tenets of most blockchain protocols that allows for transactions to be settled immediately. As such, mistakes when attempting to transfer crypto may result in permanent loss. Mechanisms for chargebacks or reversals, by design, do not exist. It’s important to avoid inadvertently entering the wrong destination address, sending funds cross-chain, or failing to include sufficient miner fees for the transfer to be processed.
Griswold Law staff attorney Justin Lyn has extensive experience in the cryptocurrency arena. Justin previously spent several years as in-house attorney with Coinbase, the largest cryptocurrency exchange platform in the United States. Griswold Law has been appointed by the California court system to serve as a receiver in a wide variety of matters over the last 10+ years. Schedule a consultation today!
