October 20, 2020

Volume X, Number 294

October 19, 2020

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Bitcoin Data Akin to Bank Records Under Fourth Amendment

Faced with the novel question of whether an individual has a Fourth Amendment privacy interest in the records of their Bitcoin transactions, the Fifth Circuit found that Bitcoin data is akin to bank records and not subject to Fourth Amendment protections.

In United States v. Gratkowski, federal agents analyzed the publicly viewable Bitcoin blockchain and subpoenaed Coinbase, a digital currency exchange, for all information on the Coinbase customers whose accounts had sent Bitcoin to a child-pornography website. In response, Coinbase identified Gratkowski as one of these customers. Federal agents then obtained a search warrant for Gratkowki’s house, which resulted in the discovery of child pornography in his possession.

On appeal, Gratkowski challenged whether the federal agents infringed upon his Fourth Amendment protection against unreasonable searches, arguing that the Government violated his reasonable expectation of privacy in the records of his Bitcoin transactions on (1) Bitcoin’s blockchain and (2) Coinbase.

Generally, a person must have a reasonable expectation of privacy in an item for Fourth Amendment protections to attach. Under the third-party doctrine, a person generally has no legitimate expectation of privacy in information he voluntarily turns over to third parties. Gratkowski argued that his Bitcoin information should receive the same protections as those set out in Carpenter v. United States, 138 S. Ct. 2206 (2018), which expanded Fourth Amendment Protections by limiting the applicability of the third-party doctrine in the context of cell phones.

The Fifth Circuit, however, found that the information on Bitcoin’s blockchain is more analogous to bank records, which are subject to the third-party doctrine and not protected under the Fourth Amendment. Similar to bank records, the Bitcoin blockchain identifies (1) the amount of Bitcoin transferred, (2) the Bitcoin address of the sending party, and (3) the Bitcoin address of the receiving party. The Court also opined that since every Bitcoin user has access to the public Bitcoin blockchain and can see every Bitcoin address and its respective transfers, Bitcoin users are unlikely to expect that this information will be kept private.

The Fifth Circuit also held that Coinbase records are akin to bank records, finding no reason for treating Coinbase and other virtual currency exchange institutions differently than traditional banks. The Court reasoned that Coinbase and traditional banks both are subject to the Bank Secrecy Act as regulated financial institutions, whose records provide only limited information about a person’s virtual currency transactions. The Court also suggested that Bitcoin users have the option to maintain a higher level of privacy by transacting without a third-party intermediary exchange, albeit this would require greater technical expertise.

Despite the fact that Bitcoin users enjoy a greater degree of privacy than those who use other money-transfer means, transaction information is not protected under the Fourth Amendment. 

Click here to view the Ninth Circuit’s complete opinion in United States v. Gratkowski.

© Polsinelli PC, Polsinelli LLP in CaliforniaNational Law Review, Volume X, Number 191

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Brian F. McEvoy Litigation Attorney Polsinelli Atlanta, GA
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Brian McEvoy is an accomplished litigator with a well-earned reputation for working tirelessly to achieve the best outcomes for clients and for thinking creatively and strategically to resolve difficult problems with efficiency and professionalism. Brian is a former federal prosecutor with a practice focus on white collar criminal defense and a special emphasis in health care fraud matters. During his service as a federal prosecutor, he received special commendation from the Department of Health and Human Services by receiving the Inspector General's Integrity Award for...

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As a member of Polsinelli’s Government Investigations practice, Andrew assists clients in all aspects of white collar criminal defense and internal corporate investigations. Working to understand each client’s unique situation, he helps guide clients through government inquiries and provides counsel that aligns to their business strategies. Andrew has experience drafting briefs, memoranda and responding to discovery requests.

Prior to joining Polsinelli, Andrew served as a law clerk to The Honorable Judge Douglas L. Rayes on the United States District Court for the District of Arizona.

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Nadia J. Hajji Government Investigations Attorney Polsinelli Atlanta, GA
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Nadia Hajji is an associate in the Government Investigations practice in Polsinelli’s Atlanta office. Nadia’s practice primarily focuses on representing companies and individuals in a full range of white collar criminal defense and internal corporate investigations. Her experience includes advising clients on government regulations and commercial and securities law for licensing and compliance matters. Prior to joining Polsinelli, Nadia served as an extern for the United States District Court for the Northern District of Georgia and as a summer clerk at the United States Attorney’s Office...

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