Virtual currency exchanges and blockchain technology continue to raise novel questions for U.S. courts, including in the application or limitations of privacy rights to blockchain users under criminal prosecution. In the latest development, a federal appeals court has ruled that defendants do not have the type of privacy protections over crypto transactions that require law enforcement to first secure a search warrant. In short, a regular grand jury subpoena was sufficient to obtain the crypto data, resulting in a solid victory for prosecutors.
In United States v. Gratkowski, 964 F.3d 307 (5th Cir. 2020), the Fifth Circuit Court of Appeals held that there is no privacy interest in both Bitcoin blockchain data and Bitcoin transaction history to justify the requirement that law enforcement secure a search warrant first.
In Gratkowski, the Fifth Circuit analyzed whether the Fourth Amendment protected a criminal defendant’s privacy interests in data located on a virtual currency exchange and the virtual currency exchange’s blockchain. The background is that defendant Gratkowski became the subject of a federal investigation after using Bitcoin to pay for online child pornography. Federal agents were able to identify Gratkowski after analyzing the publicly viewable Bitcoin blockchain to identify a cluster of Bitcoin addresses controlled by the website. The agents then used that information to serve a routine grand jury subpoena on Coinbase for all information on the Coinbase customers whose accounts had sent Bitcoin to any of the addresses in the website’s cluster. The agents identified Gratkowski as one of these customers and thereafter, based on the information from the grand jury subpoena, obtained a search warrant for evidence in his home, where they obtained additional incriminating evidence.
Gratkowski filed a motion to suppress the evidence obtained through the search warrant, arguing that the original subpoena to Coinbase and the blockchain analysis violated his constitutional rights against unreasonable searches under the Fourth Amendment. In effect, the defendant argued that law enforcement needed a search warrant for his records located at Coinbase. The trial court denied the motion, and Gratkowski appealed the decision to the Fifth Circuit.
On appeal, Gratkowski argued that he had a reasonable expectation of privacy in his information held in the Bitcoin blockchain and Coinbase records by comparing it to cell-site location information (“CSLI”), which the U.S. Supreme Court has held to implicate constitutional privacy concerns such that a search warrant is required. The appellate court disagreed with Gratkowski and held that he lacked a privacy interest in both the Bitcoin blockchain data and his Bitcoin transaction history on Coinbase because that information is more analogous to bank records, which are not subject to privacy protections.
In reaching its conclusion, the court applied the third-party doctrine, which provides that a person generally does not have a legitimate expectation of privacy in information he voluntarily turns over to third parties. Specifically, the appellate court found that “Coinbase is a financial institution, a virtual currency exchange, that provides Bitcoin users with a method for transferring Bitcoin. The main difference between Coinbase and traditional banks… is that Coinbase deals with virtual currency while traditional banks deal with physical currency. But both are subject to the Bank Secrecy Act as regulated financial institutions.” The court further focused on “the nature of the information and the voluntariness of the exposure” in concluding that it “weigh[ed] heavily against finding a privacy interest in Coinbase records.” Unlike CSLI, information on the Bitcoin blockchain and held by Coinbase is limited to transaction amounts and identifying information about sender and beneficiary, and each Bitcoin transaction is recorded in a publicly available blockchain accessible to every Bitcoin user. Additionally, transacting Bitcoin through Coinbase or other virtual currency exchange requires the user to perform an “affirmative act” in transacting through a third-party intermediary. Therefore, Gratkowski did not have a reasonable expectation of privacy in either the Bitcoin blockchain data or his Coinbase transaction history requiring law enforcement to obtain a search warrant.
Other U.S. courts have relied on the Gratkowski court’s conclusion that account information and records obtained by the federal government from virtual currency exchanges are not subject to constitutional privacy protections.[1]
We will continue monitoring Gratkowski and its progeny and whether these issues ultimately come before the U.S. Supreme Court.
[1] See, e.g., Harper v. Werfel, 118 F.4th 100 (1st Cir. 2024); United States v. Patel, No. 23-CR-166 (DLF), 2024 WL 1932871 (D.D.C. May 1, 2024); Harper v. Rettig, 675 F. Supp. 3d 190 (D.N.H. 2023), aff’d sub nom. Harper v. Werfel, 118 F.4th 100 (1st Cir. 2024); United States v. Harris, No. 1:21-CR-74-6, 2023 WL 3475406 (S.D. Ohio May 15, 2023).