In January 2009, an unknown person or persons using the name Satoshi Nakamoto announced the creation of Bitcoin, the first peer-to-peer electronic cash system—or, cryptocurrency. Now, 10 years later, Nakamoto is still a mystery, but Bitcoin is the most prominent cryptocurrency, and, as of December 2018, almost 32 million Bitcoin wallets have been set up globally.

In the last year, cryptocurrency has captured a great deal of investor interest and media attention. And while the technology underlying cryptocurrency is still not widely understood, “it’s becoming less fringe every day,” says Alan Cohn, a partner in the Washington, D.C., office of Steptoe & Johnson LLP, and the co-chair of Steptoe’s cryptocurrency and blockchain practice. Cohen explains, “Blockchain [the technology that powers cryptocurrency] has three key pieces: the ability to conduct digital, peer-to-peer transactions; a decentralized ledger function; and a decentralized consensus validation mechanism to prevent fraud and double-spending of assets.”

The main premise of cryptocurrencies is that they make it easier to digitally transfer funds directly between two parties without the need for a central authority or ledger-keeper, such as a bank or credit card company. Thus, no third party has access to your money or personal information. “The person or persons who created cryptocurrency were spurred on by the 2008 financial crisis, when in their view, banks lent out people’s money in wildly irresponsible ways, and with the full visibility of governments and central banks,” says Cohn. “Blockchain provides an internet overlay for the electronic transfer of value where everyone knows the rules and no single entity can change them.” (Litecoin, Ethereum, ZCash, and Dash are other popular cryptocurrencies.)

As might be expected, this new technology has introduced a new breed of regulatory issues, crimes, and lawsuits. There are currently two types of court proceedings that cryptocurrency litigators are seeing, according to Cohn. The first is criminal cases where litigators must determine who exactly is behind specific wallet addresses and dark web marketplaces (not easy information to uncover). The second is government enforcement investigations, such as regulatory requirements, money laundering, securities law, tax information reporting, and related class-action lawsuits. Cohn cites the growth of a third type of court proceedings as more companies begin to dabble in cryptocurrency and experiment with technologies like smart contracts. “We are also beginning to see general business disputes, involving garden-variety business relations gone wrong,” he says.

Since this technology is cutting edge, expert witnesses with expertise and experience in blockchain and cryptocurrency are highly desired. According to Cohn, two types of expert witnesses are needed: those who can simply explain the complex technology to judges and juries and those who can analyze transactions between various parties (typically from third-party analytics and tracing companies). “These companies, like Chainalysis, Elliptic, and CipherTrace, have experts with a variety of backgrounds — including, tech, financial, and cybersecurity — who have been doing this work for several years,” says Cohn. “They can authenticate the data that underpins blockchain analytics and set the foundation for evidence to supplement the case put on by federal prosecutors and agents, though now more state and local agencies are getting involved.”

The pool of expert witnesses who are experienced, impartial, and articulate is quite small. “Most of the experts were known by name and face in 2015,” says Cohn. “There are more people now, but generally there is a small group that is seen as credible.”

Cohn and his practice have seen huge changes in cryptocurrency and blockchain in less than four years. “What’s so fascinating is that this whole area of technology — its uses and what is possible, as well as its legal and regulatory settings — changes every six to nine months,” he says. Cohn started his practice counseling companies on how to handle cryptocurrency while complying with regulatory anti-money laundering, know-your-customer, and economic-sanctions compliance standards. The practice now spans cryptocurrency tax returns, compliance with securities and commodities laws, and launching investment funds and new trading platforms. “Our work evolves and changes by the demands,” he says. “Something becomes the new thing, like offering cryptocurrency-based banking services, and that changes the legal and regulatory landscape.”

Don’t expect the pace at which this technology expands and changes to slow down anytime soon. As more businesses and individuals begin to adopt cryptocurrencies, there will be more changes and, as one would expect, more lawsuits. Expert witnesses who can explain the complexities of cryptocurrency in easy-to-understand ways or who have the technological prowess to trace and analyze blockchain transactions will continue to be invaluable to litigators worldwide.

Erin Quinn-Kong writes for GLG, a platform that connects lawyers with expert witnesses in fields like cryptocurrency. She’s the former editor-in-chief of Austin Monthly and was an editor at Allure and Us Weekly. Erin has written for a number of publications, including The Alcade, OpenTable.com, and Woman’s Day.

Suggested citation: Erin Quinn-Kong, Cryptocurrency: An Expert’s Guide, JURIST – Professional Commentary, Mar. 31, 2019, https://www.jurist.org/commentary/2019/03/cryptocurrency-an-experts-guide/

This article was prepared for publication by Ben Cohen, a JURIST Section Editor. Please direct any questions or comments to him at commentary@jurist.org