Crypto Disputes: An Offshore Perspective

• Published date: 05 April 2023
• Subject Matter: Litigation, Mediation & Arbitration, Insolvency/Bankruptcy/Re-structuring, Technology, Insolvency/Bankruptcy, Court Procedure, Fin Tech
• Law Firm: Walkers
• Author: Mr John O'Driscoll and Daniel Hayward-Hughes

Synopsis

The British Virgin Islands ('BVI') and the Cayman Islands have become the jurisdictions of choice for many developers and entrepreneurs when incorporating cryptocurrency exchanges, structuring cryptoasset funds or blockchain enterprises. As such, when a user has an issue with their account (e.g. their trade is not honoured or their account is frozen) or their cryptoassets are misappropriated there is a high probability that an exchange or entity located in the BVI or Cayman will be somewhere in the mix.

This article discusses the legal remedies that may be available in the BVI and/or the Cayman Islands in the event that crypto-related proceedings have been or will be commenced in these jurisdictions.

For the purposes of this article, we have excluded from our analysis crypto-related insolvencies, of which there are many, especially of late, varying in size and complexity

Introduction

The growth of blockchain technology over the last decade has been staggering. Emerging in 2008, partly in response to the Great Financial Crisis, Bitcoin and other cryptocurrencies were initially developed and intended to give people greater control over their finances, by removing the intermediates (usually traditional banks) and storing the currency on a public distributed ledger, that is, a decentralised blockchain.

After a somewhat slow and narrow adoption of cryptocurrencies and blockchain technology, the recent explosion in all things crypto (from banking, trading, insurance, intellectual property rights and so on to personal information custody and the interactions between governments and citizens) has meant that, traditionally, the law and regulation has had to play catch-up. However, over the last few years, that has changed and the legal world is increasingly adapting to blockchain technologies and a steady stream of case law has emerged which explains how the law applies to, and can be used to govern, cryptocurrencies.

There has been a sharp increase in crypto disputes involving companies and exchanges incorporated in the BVI and the Cayman Islands. The nature of the disputes often fall into one of the following four categories:

1. Stolen cryptoassets, often by 'persons unknown', where the cryptoassets are moved to or through an exchange-hosted wallet provided by an exchange incorporated in the BVI or Cayman Islands;
2. Algorithmic trading claims, that is, where an offshore exchange reverses or refuses to honour a trade, often citing 'unilateral mistake' as...