Court connects Coinbase to a ‘Traditional Bank’ in Child Porn Appeal Case

Court Rules Coinbase Comparable to Traditional Bank in Fourth Amendment Case

In a landmark ruling, a three-judge panel determined that Coinbase, as a cryptocurrency exchange, functions similarly to a traditional bank for Fourth Amendment purposes. The court rejected an appeal from Richard Gratkowski, convicted for using Bitcoin to access child pornography, claiming FBI subpoenas for Coinbase records did not violate his rights.

Court’s Ruling: Coinbase Is a Financial Institution

Comparison to Traditional Banks

The court likened Coinbase to a traditional financial institution, referencing the 1939 Supreme Court decision in United States v. Miller, which concluded that bank records are not protected under the Fourth Amendment.

Judge Catharin Haynes emphasized:

“Coinbase is a financial institution, a virtual currency exchange, that provides Bitcoin users with a method for transferring Bitcoin.”

While Coinbase deals with virtual currency rather than physical currency, the court found no significant difference in how financial records are treated under the law.

Gratkowski’s Appeal and Rejection

Background

• Gratkowski was convicted in May 2019 for receiving child pornography and sentenced to 70 months in prison and 10 years of probation.
• FBI agents traced Bitcoin transactions tied to child pornography websites by subpoenaing Coinbase records.

Fourth Amendment Argument

Gratkowski appealed, arguing that the FBI’s subpoena violated his Fourth Amendment rights, invoking the 2018 Carpenter v. United States decision, which protected cell-site location data as private information.

Court’s Response

The panel dismissed this claim, differentiating between cell-site location data and Bitcoin transaction data, stating:

• Bitcoin transaction data is publicly accessible via the blockchain.
• It does not reveal intimate details of an individual’s life as cell-site location data does.

Judge Haynes further clarified:

“The nature of the information on the Bitcoin blockchain and the voluntariness of the exposure weigh heavily against finding a privacy interest.”

Blockchain Transparency vs. Privacy

Public Nature of Blockchain

Bitcoin transactions, recorded on the blockchain, are transparent and accessible to anyone. This transparency undermines claims of a reasonable expectation of privacy in such data.

Legal Precedents and Implications

The court’s ruling aligns with prior cases, including the trial of Ross Ulbricht, founder of the darknet marketplace Silk Road, where similar arguments about blockchain privacy under the Fourth Amendment were rejected.

Academic Perspectives

A recent paper by legal scholar Paul Belonick, titled “Transparency is the New Privacy: Blockchain’s Challenge for the Fourth Amendment,” highlights the conflict between blockchain transparency and traditional privacy rights. Belonick argues that:

“The Fourth Amendment rests on physical-world analogies that do not hold in blockchain’s unique digital space.”

This case adds to the growing debate over how blockchain technology fits within existing legal frameworks.

Conclusion

The ruling against Richard Gratkowski establishes a significant precedent, treating cryptocurrency exchanges like Coinbase as traditional financial institutions under the law. By emphasizing the public nature of blockchain data, the court affirmed that Bitcoin transactions lack Fourth Amendment protections.

This decision reinforces the importance of understanding the legal implications of using blockchain technology in today’s digital economy.

To learn more about the innovative startups shaping the future of the crypto industry, explore our article on latest news, where we delve into the most promising ventures and their potential to disrupt traditional industries.