First I’d like to provide some initial clarification on terms used in this post:
Legal Inquiry (or investigation) is any investigation, criminal or civil, that is supported by the appropriate and applicable law, rules of discovery, and probable cause (in the case of a criminal probe).
Probable Cause exists when there is a reasonable basis for believing that a crime may have been committed, or when evidence of the crime is present in the place to be searched.
Privacy-Centric Alt Coins are any digital asset that has a clear focus on the elimination or purposeful non-existence of historical data that could be used to determine origin, destination, user, and purpose. Examples of these assets would be: Monero, ZenCash, Zcash, Pivx, Dash, etc.
Nefarious Use is any endeavor that intends to circumvent, undermine, or hide the elements of a transaction for the purposes of concealing an illegal activity.
Here’s a short article that essentially says, “…privacy cryptocurrencies are on our radar.” <—TLDR if you don’t want to click.
Initially I think we can toss out any questions regarding civil inquiry, mostly because I do not think new case law developed in the tort system would be a ‘first discovery’ case that declared a need to reveal information concealed by a privacy coin. It is my opinion that if legal compulsion to reveal becomes a reality, that it would be born in the criminal system, and would most likely involve a national agency such as the FBI, DHS, etc. Additionally, the standards of proof in a civil suit do not require the investigative standards of a criminal case. In other words, and again this is only in reference to a civil case, I do not think a high level probative inquiry into a privacy coin, one that attempts to reveal all the details said privacy coin attempts to shield, are material, at least in the sense that the standard of proof for conviction is considerably ‘lower’ than the standards of proof in a criminal case. I do not mean to infer that I am unable to envision a civil case where the need for information would demand the kind of information privacy-centric coins mask. A dispute over inheritance for instance, where a member of the dispute used a privacy coin to conceal an asset that was part of the civil case, and both the members and the asset in question are pertinent to the parties and the legal questions being addressed in the case.
Tabling the Argument: A Core Question
Criminal investigations entail discovery and discovery entails making requests for information. If in the course of an investigation it is determined that there is a need for the money chain details concealed, cloaked, or masked through the use of a privacy-centric digital token, does current law provide for legal compulsion to reveal those details?
To get closer to an answer on this question let us first get rid of some potential mental noise. There are only two forms of information privilege in the U.S.
- Attorney Client Privilege: Not applicable
- Patient Doctor Privilege: Not applicable
In both instances there are legal provisions (or exceptions) for the exposure of these privileges, but the methods created to make privacy-centric digital assets are not entitled to these privileges. The client’s nefarious use intent has no privileged protection(s).
“U.S. Magistrate Judge Sheri Pym said in her order, Apple can write software that can bypass the feature. Federal prosecutors stated in a memo accompanying the order that the software would affect only the seized phone.” (The Washington Post, Ellen Nakashima, February 17th, 2016)
In the end, the FBI paid hackers to crack the phone (crack Apples code to gain access). I find this to be a most interesting approach as it implies a ‘means to an end’ view. The FBI sought any means necessary to accomplish it’s end goal. A dangerous precedent in my opinion, even if you claim the accomplishment of justice as it’s end result.
Which brings up another question: Can a privacy coin, who’s claim is the concealment of money chain data, be compelled to create code that reveals that data, by leverage of a federal entity or judge?
The answer is not clear. Apple’s claim was that they weren’t able to crack the phone, a claim I am sure most privacy coins would also make. Further, in order to crack the phone, a backdoor would have to be created, an avenue they were firmly against. Again, a claim I believe most privacy coins would make.
To my knowledge this is the only case where a government request was stymied by an answer of ‘we can’t’. So the question still stands. But…other avenues appear to be available to federal endeavors of discovery. What if they hire hackers to crack a privacy coins code? <— I hate ‘what-if’s’ but there is a legitimate interest in asking this question.
Investigative Pressure: A Potential to Devalue
The crypto-space is much like a giant mesmerizing flock of Starlings. When one changes direction all seem to follow. It’s beautiful to watch and completely unpredictable. I may not know the answers to the questions I’ve posed above, but I do know the questions, and I do know that a federal probe of any privacy-centric asset, especially if it makes the national spotlight (which it will), will be that first Starling, and then the madness will ensue, and it will not be beautiful to watch. It is my view that this event would cause an en masse devaluation of the entire privacy-centric space, create a giant fracture in a collective faith as to their use, and potentially damage the privacy-centric concept in a permanent way. Moreover, if it were learned (i.e a national news article) that an overt attempt by a federal investigative body, through the use of an outside hacker(s), was in progress or experiencing progress, it would equate to a near collapse of that sector of the crypto-space, and that it’s effects would bleed over into non-privacy centered assets (i.e. the rest of the crypto-space). I am by no means stating a view that says crypto will not survive. I think it will (for other reasons), and it is wholly another subject.
All of this remains to be seen, but I much prefer to explore potential outcomes, as one or more of them eventually lead to actual outcomes.
I haven’t had to time to explore the ramifications of these questions on the larger scale, meaning the entire crypto-space, but those questions are worth asking, just not in this article.