Thread by @propelforward

Fascinating argument about "where" a #bitcoin transaction occurs in briefing on appeal of conviction for wire fraud (18 U.S.C. § 1956(c)(4)), in US v. Costanzo; Defendant argues in person cash for bitcoin trades do not implicate interstate commerce. Let's dive in on this one:

transasctions at issue were IRL cash for #crypto. USGovt argues interstate nexus b/c the website localbitcoins.com is “based” outside the US, and that a #bitcoin node alleged to be in Germany was involved in this transasction. LOL. Defense here argues that /2

localbitcoins.com is “based” outside the United States is irrelevant b/c localbitcoins.com was not used for any of the charged transactions; used Mycelium, Breadwallet, and other wallets. Defense argues no evidence that #Bitcoin "travels through" /3

the location where the website used in a transaction is “based,” or that using a website based in another country to conduct a transaction establishes that the transaction affects interstate or foreign commerce involving the movement of funds. (AMHNote- fact specific last pt)/4

USGovt also argues that screencaps taken by govt witness/counterparty to #bitcoin transactions at issue included a map with a “pin” stuck in Germany; GovtWitness testified that the image showed “like a network area for the nodes, I believe - for the nodes, the Bitcoin nodes /5

that actually processed our transaction,” adding, “[s]o they had nothing to do with us personally. It was just the #Blockchain network confirming the transaction.”Defense argues that screencaps don't relate to transaction at issue, speculation that other transactions also rely /6

on“nodes” in other states/countries, GovtWitness did not testify that the Bitcoin involved in a transaction actually passes through these “nodes.” ...he testified that they were “just the Blockchain network confirming the transaction” and “had nothing to do with us personally.”/7

Defense argues Govt comparisons to money transfers across borders and transfer of child porn do not apply because #bitcoin does not use traditional intermediaries. and "avoid[s[ financial institutions and “normal banking channels.”/8

UGH. 1956 is money laundering not wire fraud. Got my "wires" crossed. Twitter, #wheneditbutton?

ANALYSIS: Where is a #bitcoin? "Where" does a #bitcoin transaction take place? Incredibly, neither is a settled issue. We'll take them one by one. /9

Let's start with "where is a #bitcoin?" To locate a given bitcoin, you have to know what you are looking for- that is, to be able to identify a bitcoin. A bitcoin is an intangible asset (to be accurate, data) that exists only on its ledger. It has no corporeal form. /10

So bitcoins may be thought to be “on the ledger.” Where's the ledger? It's on the nodes that host /update their copies of the ledger when notified by miners of a new block. This leads to 3 potential conclusions. 1. Every #bitcoin transaction is interstate/intl b/c devices /11

worldwide are involved in every transaction. 2. Data is updated on the ledgers where they exist & all #bitcoin "transactions" occur local to that copy of the ledger, so bitcoin transactions are not interstate/intl. 3. Bitcoins "move" when miners notify nodes to update their /12

ledgers, & thus it is the communication between miner & node that instructs the node to update the ledger to reflect a transaction of #bitcoin, and depending on the locations of the nodes & miners, may be a interstate/intl transaction. /13

Looking closer, all 3 would result in all transactions being "interstate/international" b/c #bitcoin requires all nodes to reach consensus i.e. update together, & nodes are not all located in a single jursdiction. A node update that only affects a subset of nodes in one /14

physical place will either be a fork or abandoned later. If the analysis focuses on where the asset is "physically" (i.e. updates to the data on the ledger) because the decentralized architecture /consensus mechanism of #bitcoin requires all nodes in all locations to update /15

together, any transaction will require updates to all #bitcoin #nodes everywhere & therefore, could be viewed as "interstate" or international transactions for the purposes of establishing federal jursidiction. But, come on Hinkes, don't be so pedantic- don't keys matter? /16

You could analyze this question by looking where the private keys exist. Private Keys, credentials that authorize transactions, can be viewed as the thing that allows transactions; therefore, where keys are, coins are. Simple, but probably wrong. Keys are not the asset /17

but they are access and power over certain assets. The situs of a key is convenient to point to but may be difficult to ascertain- keys may exist in mulitple locations (indeed they may move with the travels of a human), and keys may be in the posession of multiple custodians. /18

but let's ignore that and look at keys as the way to locate the assets. In an IRL peer to peer bitcoin transfer, the keys are being used to send in the same place as a recipeint- not interstate/intl, assuning they are not looking at eachother across a state/national boundary. /19

This roughly maps out to the way hand to hand cash would work. However, the law in its modern interpretation would look past the keys and look....at the cell phones (plot twist!). Yep. It's time to talk Hobbs Act. <Record scratch> Wut? /20

Hobbs Act (18 USC 1951) makes robbery or extortion a federal crime if it is" affecting interstate or foreign commerce "in any way or degree." The Hobbs act interstate/foreign issue has been interpreted super broadly with potentially problematic implications for #bitcoin.

In US v. Sejour, the 11th Cir held that a robbery of $200 from an unstaffed gas station implicated interstate commerce and thus satisifed the jurisdictioanl element of a Hobbs Act claim b/c the gas station accepted credit cards & bought products for sale from out of state. /21

As argued by Sejour's counsel in his peititon for cert to the SCOTUS (PCD), given our modern economy & the ubiquity of digital payments, almost every crime is interstate if the crime involves consumer products or payments, including #bitcoinand and also including cell phones /22

back onto the rails- a court could expansively conclude that using a mobile internet-connected device to use a private key to transact #bitcoin is itself interstate/foreign b/c cell phones use interstate wires & the Internet is global /23

We have seen this argument play out in the "long arm" jursidiction context, with court's (predictably) looking at precedent used to determine if a web site being avaialble satisfies the requisites to find jurisdiction. These cases (Tezos, Alibaba coin) used the location /24

of the network and nodes and servers supporting the network as factors in the overall analysis to be conducted and came to opposite conclusions (of course). In Tezos, the presence of nodes in the jursidiction was a relevant factor. in Alibabacoin, the court focused /25

on where the sale transaction at issue occurred and "ignored the plumbing" so to speak. So while these cases illustrate perspectives, they are not " on all 4's" /26

So....where's a wallet? If the wallet moves with the person, then the inquiry isn't just "where's the wallet" it's also "who was using the wallet at the relevant time and where were they"? If not, the wallet is "online" which may default back into interstate/foreign as well..

Obviously this has signficiant tax implications as well- it's hard to have #foreign #bitcoin` if bitcoin doesn't exist in a place, much less a foreign place.

To wrap this up: Courts will wrestle with this for years. Hypertechnical arguments will probably lose out to practical constructive implementations of existing doctrines. I'm excited to litigate these!