A GUY placed an order for supplies on a foreign website and paid for them in bitcoins.
The shipment never came, he got locked out from his account, and the admin is uncontactable. He wants to sue but worries it’s a lot more hassle than it’s worth.
Disclaimer: What you’re about to read is not legal opinion. If you’re facing a similar transaction, get advice beforehand not after. Had he done this, he wouldn’t be here.
First, he was asked by a lawyer to choose the jurisdiction for his case to be heard, each with its own private laws and civil procedure, as he needs to establish geographic connections like where the goods are based, where the loss occurred, and where the parties are located.
Bitcoins live on the public blockchain that is operated by nearly 20,000 computer nodes scattered worldwide.
Unlike cloud storage where one can pinpoint specific physical server locations where data is kept, each node has a duplicate copy of the bitcoin ledger.
All of this is virtual, hence the paradox: ‘nowhere and everywhere’. Lawyers have a word for it: “omni-territorial”.
The bitcoin wallet he used to make the payment is a browser extension, which could be accessed wherever he’s at with an internet connection.
Same goes for the website domain, hosting service, and InterPlanetary File System gateway, which are foreign. How then is his location of loss determined?
He’s also unsure whether the interface is actually a decentralised application (dApp) that runs by itself. He could have been interacting with a bot all along i.e. there’s no one for him to sue.
Some dApps are set up as decentralised autonomous organisations (DAO); but most jurisdictions don’t recognise DAO as a legal person, which means it cannot enter contracts, own property, and sue or be sued.
So, he’s back to square one: ‘Random Victim vs Persons Unknown’.
Naturally he’d filed a police report. He heard about the recent Cybercrimes Bill which addresses extra-territorial concerns, but for now, time is his biggest enemy.
At this junction, he’d hired an expert to trace the movement of bitcoins in the recipient’s wallet address with a ‘blockchain explorer’ (search engine for crypto activity).
He was told they are parked at a digital asset exchange (DAX) registered to an island somewhere on the Indian Ocean.
He wants to seek urgent interim relief from the court to freeze the funds before they’re dissipated, like how it’s done for bank accounts.
But he only has a lead. He can’t even bring a fully pleaded claim since there’s no information about the name or address of the other party!
He has no choice but to compel the DAX to disclose the name of its customers, even though the DAX is probably just a transit point and an innocent third party who got mixed up in this.
To assist him with such discovery, the court may grant free-standing information orders but they are highly discretionary and rarely used in foreign proceedings; and this is assuming there’s a strong cause of action for the court to assert jurisdiction on his claim.
Then there are service issues, i.e. proper delivery of court documents to the unknown defendant. Some judges allow serving directly to the wallet address with a non-fungible token ( T) that contains hyperlinks to the lawsuit.
But this isn’t always reliable, as the address is anonymous and can only be accurately linked to a human owner if the DAX has verified updated records.
To paraphrase an analogy from Lord Sumption (former Justice of UK Supreme Court): a hit-and-run driver who cannot be identified does not subsequently become identified simply because an T has been nailed to a tree near the scene of crime!
Let’s say he finally gets his way in court, he could still face obstacles with the judgment – will the foreign court recognise it, how to enforce it, are the funds already gone?
Truth be told, there’s a ‘silent majority’ crisis: studies show that 78% of crypto crimes are never escalated to the authorities. Of those that do, just US$1 is recovered for every US$65 lost, though it depends on fraud type and response time (93% don’t even report within 24 hours!).
Less than 6% consult a lawyer, and even far less would end up with civil litigation.
Most victims don’t seek recourse unless the amount of loss is huge because they feel that the legal process is expensive, slow and complex; and is largely designed for prosecution rather than compensation or refund.
But this perpetuates a vicious cycle: there’d be insufficient data points for investigators to develop typologies and for public interest groups to push reform, and courts won’t have the right cases to rule on for precedent – while fraudsters out there continue to get bolder without reprisal.
In the end he decides not to sue. Sorry, there are no heroes in this story.
Edmund Yong is a director of the Generative AI Association of Malaysia and ambassador of the Global Blockchain Business Council founded in Davos.
