Tulip V Van Der Laan: The Future Of Cryptocurrency In The United Kingdom

• Published date: 02 June 2023
• Subject Matter: Technology, Fin Tech
• Law Firm: Norton Rose Fulbright
• Author: Mr Adam Sanitt

An abridged version of the article was published in IFLR on May 16, 2023.

The Tulip Trading v van der Laan litigation may impact the use and legal enforcement of cryptocurrency in the United Kingdom, following a recent decision of the Court of Appeal.

Introduction

In Tulip Trading v van der Laan¹, the Court of Appeal allowed an appeal against a jurisdiction challenge, finding that the argument that bitcoin developers owed fiduciary duties to users had a real chance of success. The Court did not decide that such a duty existed, only that there was a serious issue that required the facts to be established. Giving the leading judgment, Birss J recognised that Tulip Trading's case boiled down to one central assertion: that "the decentralised governance of bitcoin really is a myth."² In this article, we set out how this dispute arose, what may happen when the facts come to be established and how this will affect the future of cryptocurrency, and digital assets more widely, in the United Kingdom.

Tulip Trading is a company associated with Dr Craig Wright, who has initiated a series of legal actions around the world seeking to prove that he is Satoshi Nakamoto, the inventor of bitcoin. Dr Wright is a key architect of bitcoin satoshi vision (BSV), a cryptocurrency that is a hard fork of another cryptocurrency, bitcoin cash (BCH), which was itself a hard fork of bitcoin (BTC). These forks originated due to various doctrinal, philosophical and technological differences as to the correct development of bitcoin - without descending into the details (of these differences or what exactly is a hard fork, which we discuss below), the importance to the current litigation is that the proponents of BSV are in some sense in conflict with proponents of BTC bitcoin. The converse is not necessarily true: BSV is minuscule compared to BTC. At the time of writing, BSV is not completely valueless, but each BSV coin is worth about 0.1% of a BTC coin and trade flows of BSV have declined to negligible levels.

The Court of Appeal decision

Tulip Trading asserted that it owned a large amount of cryptocurrency contained in a wallet to which it no longer had the private key. It argued that the software underlying bitcoin³should be amended so as to constitute it owner of that cryptocurrency. And it also argued that the developers of bitcoin owed it a duty to create and promulgate those amendments. The Court of Appeal held that an argument along these lines could be constructed: that the developers of a given network were a sufficiently well-defined group, that they had undertaken a role which involved making discretionary decisions and exercising powers for and on behalf of other people, in relation to property owned by those people and entrusted to the care of the fiduciaries, and that therefore the developers were fiduciaries with a duty to act in the interests of owners, even by introducing new code to the bitcoin software. Whether this argument would succeed would depend on the facts, to be decided later at trial.

In approving this argument, the Court of Appeal took a largely orthodox view of the definition of a fiduciary as someone who has undertaken to act for another in circumstances giving rise to a relationship of trust and confidence (see Bristol and West BS v Mothew⁴). The definition was applied objectively - the fiduciary did not have to see themselves as such. Although this definition was expanded incrementally, that did not preclude the Court from determining that a completely new situation, such as the current one, could involve a fiduciary relationship.

The Court of Appeal recognised that this argument would only succeed if Tulip established that bitcoin worked in a way that was surprisingly different to the orthodox view. And, in fact, Tulip only cleared the low hurdle of plausibility because the Court took a certain view of the basic facts of bitcoin. In particular, they started from the basis that bitcoin software was released via a single repository only amendable by certain developers with access to the password.

How bitcoin software is developed

Users of bitcoin access the network through a specific computer programme, the client software. The canonical version of this software is maintained in a widely...