The United States Court of Appeals for the Fifth Circuit has ruled that cryptocurrency transactions fall under the third-party exception to the Fourth Amendment. This means that cryptocurrency transactions can be monitored without a warrant, and law enforcement can seek information on cryptocurrency exchanges without consulting people who trade on those exchanges. This ruling will likely have a chilling effect on cryptocurrencies everywhere, as one of the central appeals of cryptocurrency is the supposed anonymity it affords.
The term “cryptocurrency” refers to a type of digital currency that supposedly allows individuals to engage in economic transactions anonymously. However, this has not stopped law enforcement from repeatedly requested information from cryptocurrency exchanges in relation to criminal investigations. This has led to cases like U.S. v. Gratkowski, the case before the Fifth Circuit, where law enforcement subpoenaed a cryptocurrency exchange for information relating to the alleged use of cryptocurrency to pay for child pornography through the exchange.
The cryptocurrency exchange argued that a mere subpoena was not sufficient for this information and claimed law enforcement would need to obtain a warrant to access data on its customers’ transactions. However, the Fifth Circuit sided with law enforcement, ruling that cryptocurrency transactions fell under the third-party doctrine. This doctrine states that an individual has no right to contest a search by law enforcement against a third party, even when that search is intended to discover information against the individual. This is the same doctrine, for example, that permits law enforcement to search bank records without a warrant.
Given the fact that a major appeal of cryptocurrency is its supposed anonymity, this decision is likely to shock many cryptocurrency investors and traders. If this decision stands and it is determined they have no Fourth Amendment protections, data from cryptocurrency transactions can be uncovered at any time, without any warning to the people whose transactions are being monitored. As a result, it may become essentially impossible to conduct anonymous transactions using cryptocurrencies, for better or for worse.
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