Cryptocurrency is becoming more mainstream. However, the law has not kept pace with the technology, leaving a vacuum, akin to a “Wild West”. In the recent decision, Cicada 137 LLC v. Medjedovic, 2021 ONSC 369, Justice Myers touches upon the issue of litigating cryptocurrency, an area that is under regulated.
In Cicada, it is alleged that the defendant stole money ($15 million in cryptocurrency tokens). In handling the interlocutory matters, Justice Myers notes that there are different theories on when cryptocurrency can be considered stolen. At paras 5-6, Justice Myers writes that one theory is that if a person can trade within the parameters of the code, then whatever comes of it is fair.
There is a theory in some cryptocurrency academic thought, that because blockchain technology is based on publicly available or ‘open source’ programing code and is based on a laissez-faire contract theory, that ‘the code is law’. … if one is able to trade with a blockchain participant within the parameters of the programming code or the notional contract among the voluntary participants, the result is lawful whatever it may be… That means that if a clever person can devise a way to exploit a loophole or weakness in the code to induce the holder to enter into an unexpected and unfavourable transaction, more power to him or her. The code is public and the users are deemed to take the risk of placing their cryptocurrency assets in a repository with a program that functions as it does with whatever vulnerabilities it may have.
The other side relies on the principles found in Ontario common law.
In the article “Precedent, Principles, and Presumptions” by Terry Skolnik, Skolnik writes that precedent plays a central role in the enforcement of the law. Yet “abiding to old precedents may make little sense when applied to modern technologies”. One path around this problem is using legal principles and presumptions. Legal principles have several hallmarks. They are deeper and broader than rules. They are connected to philosophical values of dignity, liberty, equality, fairness, and justice. Legal principles complement rules and can help guide the court’s answers. Whereas presumptions require inferences to be drawn that can be rebutted (e.g. the presumption of innocence). Both presumptions and principles can help guide the court when precedent is not enough.
If the Cicada case gets to trial, then it will be a key decision on how cryptocurrency should be regulated. Is it a winner take all if you are a math whiz? Is the code law? Or, will case law, principles, and presumptions be determinative? And if so, what previous court decisions should apply to this new technology?
My guess is that legal principles will be applied to the case to prevent people from taking advantage of loopholes in the code.