Digital Asset Recovery process has use cases far beyond simple theft

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A ground-breaking new mechanism for recovering lost or stolen digital assets such as Bitcoin has been launched by the BSV Blockchain Association, which has the potential to effect a much-needed change in the conversation around digital property rights.

The Blacklist Manager and Notary Toolset means that anybody with a court order establishing ownership of digital assets can use a designated Notary entity to translate the court order into a machine readable format that can be transmitted and interpreted by the mining network. Once enough honest nodes confirm receipt and acceptance of the order, a freezing order is broadcast to the network, ensuring attempts to move or spend the assets are blocked by the network at the node level. In the future, the assets will be able to be reassigned to the actual owner as well.

The tools themselves sound groundbreaking if you’ve been conditioned to think that digital asset private keys are the be all and end all of ownership, but the idea that stolen assets could be seized and returned to their rightful owner isn’t new at all. In fact, it’s treated as a given in every sphere apart from that of digital assets—and there is no good reason for the difference. The courts have held that digital assets are property just like anything else: if you can prove your ownership over your property which happens to be in the possession of another, then it’s self-evidently true that the property is legally required to be returned to you. Not only is anyone who originally stole the property from you both criminally and civilly liable to you, but so is any person who has control of the property and refuses to hand it back to you, the rightful owner.

This idea is not even new within Bitcoin: on the contrary, the idea that assets on chain could be frozen and reassigned was a part of Bitcoin since the beginning. Earliest iterations of Bitcoin included an alert key functionality which would allow for an order to be broadcast across the Bitcoin network to freeze or reallocate UTXOs and there was early OP codes in the scripting language that allowed coins to be moved. The functionality was removed, but it is an absolute necessity for Bitcoin to live up to its original ambition as a system that would work within the confines of the law and achieve large-scale adoption.

So given the existing law of property, the tool doesn’t give anybody any legal rights they don’t already have. But it does provide a mechanism by which those rights can be enforced over digital assets, paving the way for digital assets to finally be embraced by government, enterprise and law enforcement.

Potential use cases

Stolen coins—such as via a hack—is the easy use case. But there are many more.

Inheritance: If digital assets form part of the estate of somebody who has passed away, it’s unlikely that the beneficiaries of that estate will be able to access or even find the wallets containing the assets unless the deceased person has sufficiently planned ahead. The digital asset recovery process can become an essential part of how estates are managed as the number of people with significant digital asset holdings increases.

Misappropriated client assets: In 2018, Gerald Cotton, CEO of Canada’s largest digital asset exchange QuadrigaCX, died unexpectedly. As it turns out, Cotton was the only person with the keys required to access $250 million worth of client assets, and any hope of accessing the assets died with him. Quadriga’s creditors could have used the digital asset recovery process to return the assets to their legal owners rather than launch claims against the company or Cotton’s estate—neither of which had any hope of affording to reimburse the clients.

Landfill divers: You may have heard the story of the British man who mistakenly threw away a laptop containing £150 million worth of BTC and has spent the years since convincing his local council to let him dig through landfills in search of his lost coins. But if the man can prove he purchased or legally acquired the Bitcoin, he could pursue the far simpler route of declaring this ownership in the courts and having the coins reassigned to him.

Preventing corporate sabotage: As more companies add digital assets to their balance sheet, the image of a malfeasant CFO running away with money from company accounts will be replaced by the CFO absconding with the Bitcoin keys. There already exists the infrastructure to pursue this in the former case (such as the freezing of corporate cards), but in the latter case things become more difficult. The CFO might be the only person with the keys required to access the coins, leaving the company powerless to do anything but watch as the coins are spent and moved between various accounts. With the recovery process in place, the company can simply secure an order over the stolen assets and have them frozen and, if necessary, reassigned to the control of the company.

From the perspective of government & regulators, the ability to freeze and reassign digital assets that have been stolen is a necessity. But the tool can deliver great value to government beyond instances of theft.

Sanctions enforcement: For example, early in September, the U.K. Treasury issued updated guidance obliging digital asset exchanges and wallet providers to freeze and report assets which are associated with suspected sanctions breaches. Rather than relying on the diligence and compliance of third-party exchanges, government agencies would be able to act on the non-compliant assets directly via the freeze and recovery process.

Proceeds of crime: Authorities typically have the authority to confiscate assets gained from criminal activities, for example from the sale of illegal drugs. The U.K. has the Proceeds of Crime Act 2002, and the U.S. has a host of similar civil forfeiture laws which allow for the seizure of assets linked to crime. Such laws play an important role in depriving criminals of the fruits of their illegal activity, but also allows for proceeds of crime to be put back into the community. As criminals increasingly use digital assets to transact, these funds can be rendered inaccessible without the cooperation of the criminal in control of them. It is vital that these illegal funds are recoverable by law enforcement, and the digital asset recovery process can serve this purpose.

The beauty of the blockchain of course is that it is not merely the place where your coins live. Property stored on the blockchain can come in a variety of forms, and as property can be frozen and returned to its rightful owner just as easily as coins can.

Stolen NFTs: Actor and director Seth Green was in the headlines recently because his Bored Ape NFT was stolen in a phishing scam. After pleading on social media, the actor reportedly had to pay the thief 165 ETH—about $260,000 at the time—for the Ape’s safe return. Rather than being forced to pay a bribe for the return of property of Green which he knew the exact location of, Green would have been able to go apply to the courts for an order recognizing his ownership of the property and demanding its return using the digital asset recovery process.

The idea that any verified owner of property would be forced to pay a bribe for its safe return, even when the location of that property is publicly known, would be ridiculous when talking about physical property, and there is no difference in the case of digital property. To the extent there is a difference, it lies in the fact that thanks to Bitcoin and blockchain, stolen property can be easily identified and returned to its rightful owner. Thanks to the BSV Blockchain Association, this process is now near-automatic.

When people talk about the groundbreaking nature of Bitcoin, that’s what they should be talking about.

Learn more about the Digital Asset Recovery tools here.

Watch: Digital Asset Recovery on Bitcoin Explained