A recent decision by a California appellate court has made the cliché saying “not your keys, not your bitcoin" case law, shining a spotlight on the importance of Bitcoin investors maintaining custody over their own coins.
This decision came about as a result of a lawsuit against cryptocurrency exchange Coinbase, in which the plaintiff claimed that he has rightful ownership of the digital assets resulting from past Bitcoin hard forks.
Specifically, the lawsuit was centered around the Bitcoin Gold fork, which the exchange refused to provide support for due to it potentially posing security risks for users.
When Bitcoin undergoes a hard fork, bitcoin owners can use their private keys to claim their share of the digital asset that results from the fork.
Centralized custodians like exchanges, however, are able to exercise discretion over whether or not their users receive the cryptocurrency resulting from a hard fork.
On March 27th of 2018, Darrell Archer sued cryptocurrency exchange Coinbase, claiming that the company’s refusal to offer support for the Bitcoin Gold fork constituted negligence, conversion, and breach of contract.
In total, Archer held 350 bitcoin on Coinbase, which he said entitled him to an equivalent amount of Bitcoin Gold (BTG). Had Coinbase offered support for the Bitcoin Gold fork, the 350 BTG he would have received would have been worth over $180,000 USD at its peak in 2018, and $3,800 USD at its current price.
Initially, the trial court governing this lawsuit rejected Archer’s claims and ruled in Coinbase’s favor. After attempting to appeal this decision, a California appellate court affirmed the initial ruling earlier this month.
The importance of this ruling cannot go understated, as the court essentially validated the “not your keys, not your bitcoin" statement, explaining that investors aren’t required to hold their coins in an exchange wallet.
“There is no requirement that investors keep their coins on exchanges; they can always withdraw the coins to their own private wallets,” the court stated, adding that there was no evidence presented that “Coinbase had a duty, contractual or otherwise, to give plaintiff access to the Bitcoin Gold.”
While speaking about this ruling, crypto-focused attorney Justin Wales explained that the court’s reasoning will likely be instructive for jurisdictions outside of California.
“‘Not Your Keys, Not Your Coins’ is now precedent in California and I imagine will be highly instructive for other jurisdictions hearing similar claims.”
As such, this may make exchanges based in California and the U.S. less apt to offer support for forked coins in the future.