CipherTrace CEO Serves as Bitcoin Expert Witness in $1.4 Million Darkweb Crypto Case

Dave Jevans, CEO of blockchain security company CipherTrace, was recently qualified in a Canadian court as an expert witness on Bitcoin. The court’s decision to qualify Jevans as a Bitcoin expert witness was the first of its kind, but it is unlikely to be the last.

Jevans testified as an expert witness in a forfeiture hearing. In 2015, Ontario police obtained a warrant to search the defendant’s property, seizing $2.5 million in narcotics and paraphernalia. Authorities also searched the defendant’s computer, where they found a digital wallet containing 288 Bitcoins – estimated to be worth about $1.4 million CDN.

As the use of Bitcoin and other cryptocurrencies continues to spread, cases involving the use of cryptocurrencies are likely to increase, demanding additional attention from witnesses who can explain cryptocurrencies to juries.

The Complexities of Cryptocurrencies

Bitcoin is the oldest and most well-known of the cryptocurrencies. However, dozens of these currencies exist, and additional cryptocurrencies are being created on a regular basis.

Cryptocurrencies are based on blockchain technology, which functions as a distributed ledger system. Instead of a single entity like a bank keeping track of all transactions in cryptocurrencies, each currency’s transaction history is maintained as part of each digital coin. The “real” transaction is the one that at least 51 percent of the ledgers agree is the one that occurred.

Proponents of cryptocurrencies claim that this makes the currency nearly impossible to counterfeit or embezzle, as an attacker would be required to change the copies of the ledger in at least 51 percent of all existing coins. Since Bitcoin, and many other cryptocurrencies, are also traded through the use of pseudonymous or anonymous encrypted keys, the currencies also protect their owners’ identities, making them popular for a number of legal and illegal purposes.

A related issue that will undoubtedly require the use of expert witnesses in certain cases is that of Initial Coin Offerings (ICOs). Like an IPO, an ICO is used to raise funds for a business. Instead of selling stock, however, the business sells crypto tokens that can be used on its blockchain once the project is up and running.

While some ICOs have resulted in legitimate products and services, others have been classified as scams, leading several major countries to limit or prohibit ICOs within their borders.

Cryptocurrency Regulation

Regulation of cryptocurrencies has been slow to develop. Currently, the United States Securities and Exchange Commission (SEC) holds that most cryptocurrencies are not currency, but securities. From the SEC’s point of view, using Bitcoin is similar to buying or selling stock or bonds.

The Commodity Futures Trading Commission (CFTC), however, maintains that cryptocurrencies are a commodity. The CFTC states that because currencies like Bitcoin are not backed by a government and do not have liabilities attached to their possession or use, they are more similar to commodities like gold than they are to securities.

While neither the SEC nor the CFTC view cryptocurrency as a currency, some agencies do. These include the Financial Crimes Enforcement Network (FINCEN), which manages both the Anti-Money Laundering and Known Your Customer standards, and the US Office of Foreign Assets Control (OFAC). The IRS views cryptocurrency as property and holds that profits from sales of digital currencies are taxable as capital gains.

In December 2018, U.S. Representative Warren Davidson (OH-8) announced a plan to regulate cryptocurrencies and ICOs by creating an asset class for digital assets, including cryptocurrencies. Under Davidson’s plan, cryptocurrencies would not be classified as securities under US federal law, but would provide clear rules by which regulatory departments could address Bitcoin and other cryptocurrencies.

Choosing Expert Witnesses in Cryptocurrency Cases

Attempts to regulate Bitcoin and other cryptocurrencies are underway, but many questions remain unanswered. In any case involving cryptocurrencies, the assistance of an expert witness may help judges and juries understand how these currencies work and which regulations, if any, apply.

Cryptocurrency expert witnesses can help fact-finders understand how these digital assets function as currency, how they can be traced, and how the details of their use might be tracked, erased or altered. Here, an expert may be asked to testify or may support a legal team by helping attorneys and their staff understand how cryptocurrencies work.

In some cases, parties may benefit from an expert who can analyze cryptocurrency transactions between various parties. Here, the expert will need experience in cybersecurity and blockchain applications in order to authenticate the data attached to these cryptocurrencies and explain how that data works in relationship to the movement of the currency.

As interest in blockchain and cryptocurrency grows, the number of available experts qualified to discuss the technology and the digital assets it supports is likely to grow, making it easier for attorneys to find experts and to demonstrate their qualifications to the courts.