United American Corp., operating as UnitedCorp, filed a lawsuit in the United States District Court for the Southern District of Florida last Thursday alleging that several prominent figures in the Bitcoin cryptocurrency market essentially “hijack[ed] the Bitcoin Cash network” causing widespread harm to U.S. Bitcoin holders. In the twenty-seven page, and one hundred and twenty-two paragraph complaint, UnitedCorp takes aim at bitcoin miner Bitmain Inc. and its owner Jihan Wu, well-known bitcoin investor Roger Ver and his company Bitcoin.com, and the Kraken Bitcoin Exchange, among others, claiming that they attempted to “centraliz[e] what is intended to be a decentralized transactional system enabling the corruption of the democratic and neutral principles of the Bitcoin Cash network.”
One of the central tenants of Bitcoin—or any blockchain technology—is the concept that there is a decentralized network of computers, with no single entity having control of more than fifty percent of the network’s computing power. The relative size of the network is intended to guard against any one entity having the ability to take control of more than half of the network and similarly prevents tampering or fraud by those who may have nefarious intentions.
However, in the Complaint, UnitedCorp alleged that the defendants conspired to take advantage of the Bitcoin network during a recent November system-update. The company claims that “[b]y essentially bringing in mercenaries from another network . . . to temporarily mine the Bitcoin Cash network during the software upgrade and then leave, Bitmain and Bitcoin.com effectively hijacked the blockchain.” Moreover, plaintiff asserts that the defendants implemented so-called “checkpoints” in the blockchain that would “allow anyone with 51 percent hashing power to quickly cement control of the blockchain ledger.”
Taking the alleged increase in “hashing power”—driven by the purportedly “mercenary” or rented hashing power from other networks—and the newly imposed “checkpoints” together, Plaintiff claims that the defendants, or someone similarly situated, “will be able to override any consensus reached by the rest of the network, forcing others to conform.” It is plaintiff’s position that defendants intentionally undertook these actions to undermine the Bitcoin system and, in doing so, created uncertainty in the system that has now caused significant financial harm. These acts allegedly “violated all accepted standards and protocols associated with Bitcoin since its inception.”
Plaintiff forwarded an array of claims which included violation of the Sherman Act, equitable estoppel, injunctive relief, and other tort-based theories of liability. Based on the alleged violation of the Sherman Act, Plaintiff seeks treble damages.
This lawsuit will present an opportunity for the courts to potentially weigh in on the effect of privatized “digital currency” systems and parties’ reliance thereon. As cryptocurrencies continue to evolve and become more prevalent, it is likely that the courts will be presented novel legal issues associated with the systems and their investors.