Jack Dorsey and Dr. Craig Wright with concrete wall background with crack in the middle

Fact-checking the Legal Defense Fund on Tulip Trading’s developer duties case

Getting your Trinity Audio player ready...

The Bitcoin Legal Defense Fund was founded by Jack Dorsey to come to the aid of anyone who happens to be on the other side of a legal fight with Dr. Craig Wright.

In recent weeks, the Fund has been on a PR blitz. Its chief legal officer, Jessica Jonas, has given a slate of interviews in which she calls Dr. Wright a ‘frivolous’ litigant who is intent on destroying open-source software. She also says that the Bitcoin Legal Defense Fund are the only ones to stop that from happening (and please would you donate money to help us do it).

The latest is a 35-minute interview with Anthony Pompliano. Do Jonas’ claims hold up under fact checking?

The Bitcoin Legal Defense Fund was established in 2021… to support Bitcoin developers who are facing legal battles for the work that they do on Bitcoin Core.

That the Bitcoin Legal Defense Fund was established in 2021 might be the only unimpeachably true statement in the Pompliano interview. Other than that, it’s almost entirely PR spin.

Most obviously untrue is that the Bitcoin Legal Defense Fund was created to support Bitcoin developers facing legal challenges. This is also the description given on the Fund’s website, which decries that BTC contributors have “for years” been subject to abusive lawsuits and says “we owe them our support.” It’s also the impression given by Jack Dorsey in an email to the Bitcoin developer mailing list in early 2022, where he says that “the board of the Fund will be responsible for determining which lawsuits and defendants it will help defend.”

In reality, the Fund was created specifically to fight one individual: Dr. Craig Wright. It was established in 2021, immediately after Tulip Trading (the plaintiff in the coin recovery case which is ultimately controlled by Dr. Wright) first sent letters to the developers in question, informing them that they are legally obliged to return access over his stolen coins to it (Tulip Trading). The Fund’s establishment is self-evidently a response to that action. This is made clearer by the next case taken up by the Fund, which is to defend BTC Core partnership against Dr. Wright’s copyright claim over the Bitcoin white paper and the Bitcoin database.

Those two are the only cases that the Fund has ever involved itself with—which should be surprising given the ‘years’ of abusive lawsuits against Bitcoin developers that the Fund says it was established to counteract.

To this day, the Fund has not taken one action or issued one bit of press that is not about Dr. Wright.

The court system is abused by people who have the means to abuse them.

It’s true that many people seek to abuse the legal system in order to achieve one end or another.

However, what Jonas does not say is that the courts—and in particular the courts of the United Kingdom where Dr. Wright has filed most of his lawsuits—have rigorous mechanisms for filtering out frivolous lawsuits. These mechanisms are even stricter in cases where the proposed defendant to a lawsuit is based outside of the jurisdiction of the United Kingdom, as is the case in Tulip Trading.

Critically, also conveniently ignored by Jonas, Tulip Trading has already cleared these barriers. In fact, it did so under far more scrutiny than would be applied to most cases: Tulip Trading had to convince the U.K. Court of Appeal that its lawsuit was not frivolous. That court, consisting of three of the most senior judges in the country, found that Tulip Trading’s case deserved to proceed to trial.

Before a U.K. court will even allow a lawsuit to be served on an overseas defendant, the plaintiff must show:

  • There is a serious issue to be tried on the merits of the claim—meaning it must have a real prospect of success
  • The facts put the claim within one of the defined ‘gateways’ set out in 6.37 of the Civil Procedure Rules—in Tulip’s case, that damage was sustained or will be sustained in the jurisdiction and/or the claim concerns property within the jurisdiction
  • That England is clearly or distinctly the most appropriate forum for the dispute (forum non conveniens doctrine).

All three requirements must be satisfied before a claim can be served on a non-U.K.-based defendant.

The gateways and the forum non conveniens considerations provide ample barriers on their own, but the real gatekeeper is the ‘serious issue to be tried’ test. By definition, a frivolous lawsuit has to be one without any real prospects of success. If a person bringing a claim is making serious legal argument that they have been harmed and should have a remedy in law, on what basis should that person be prevented from pursuing that?

In Tulip Trading’s case, not only has it managed to clear the barriers expressly designed to prevent frivolous lawsuits, it’s managed to do so before the Court of Appeal before three of the most senior Judges in the country. Again: none of them felt the suit was frivolous, going as far as overturning the decision of a lower court to recognize that fact.

Jonas knows this, of course, and it’s obvious why she and the Legal Defense Fund would want to paint the Tulip lawsuit as frivolous.

The lawsuits are an existential threat to open source software development.

This is the lie that most often gets repeated by Jonas in her press tour. It’s both the easiest lie to disprove (all it takes is reading the lawsuit filed by Tulip Trading and the judgment of the Court of Appeal in considering it) and the lie where its motivations are most obvious.

Tulip Trading’s case against blockchain developers is not about open-source software. It’s about the legal duties that blockchain developers—specifically BSV, BTC, BCH and BCHABC—owe toward those that use their networks on the basis of the developer’s control and operation of those networks.

In particular, Tulip argues for two specific duties: a fiduciary duty and a duty of care. Fiduciary duties exist where one person has undertaken to act on behalf of another in circumstances that give rise to a relationship of trust and confidence—often as a result of somebody entrusting property to them. A duty of care requires a person whose actions might be reasonably foreseen to cause harm to another person of sufficiently close proximity to take reasonable care.

One of the most obvious objections to applying these duties to blockchain developers is to say that they are an unfixed, fluctuating group of volunteers who act more as passive stewards of their blockchains than active managers and developers. In that vein, they are often referred to as ‘decentralized.’ As a result, blockchain users can’t be said to have ‘entrusted’ anything to the developers, nor are of sufficient proximity to their them, to qualify for either duty.

The open source angle is little more than an attractive side issue, particularly for the likes of Jonas. The open source community is massive, and covers many popular software applications that have benefited greatly from their status as open source. If they (and the people who use open source software) can be convinced that Tulip Trading’s suit is an attack on all of them, then rallying support to the defense fund (and their coffers) is easy.

In truth, the Courts in the United Kingdom are very cautious to establish legal duties in novel fact scenarios. Success by Tulip Trading in this case would not impact open source development generally—it would impact only Tulip Trading, while setting a precedent that could be applied to other blockchain developers in the same or substantially similar fact situations.

It might be true that there may be other self-described ‘open source’ projects which are analogous to BSV, BTC, BCH and/or BCHABC and may be impacted by the outcome of this case. Indeed, some of the discussion around the centralized control of these networks will no doubt touch on or be relevant to open source development generally. However, given the nuances of blockchain development and administration (which will be argued over and scrutinized when Tulip Trading goes to trial), this would seem to be a miniscule proportion of all open source projects.

You can see this in both the court of appeal judgment: despite assessing whether the claim had any prospect of success, the Lord Justices don’t make a single reference to open source software—nor is it mentioned in Tulip Trading’s lawsuit.

So, when Jonas told an audience at the ‘Bitcoin 2023’ event in Miami that the case was “about whether open source developers should owe a fiduciary duty to people who use their code,” something she repeats throughout the Pompliano interview, she was and is playing a risibly dishonest rhetorical trick in order to rally as many concerned observers to her cause as possible.

Compare Jonas’ language to the language used by the Lord Justices of the Court of Appeal in framing the issue:

“The question in this appeal is whether the developers who look after bitcoin may arguably owe fiduciary duties or duties in tort to an owner of that cryptocurrency,” wrote Lord Justice Birss in delivering the unanimous opinion of the court.

The trick is obvious to anyone familiar with the case, but Jonas is banking on viewers having not read its filings or the rulings by the second-highest court in the United Kingdom in approving it.

It’s also an indictment on the interviewer, Anthony Pompliano, that he allowed the conversation to be dictated entirely by Jonas’ characterisation of the case. The result is a 35-minute interview with little-to-no relevance to the case put forward by Tulip Trading and Dr. Wright.

The case is about decentralization of Bitcoin.

We finally come to an assertion by Jonas that’s entirely true: this case is about the decentralization of Bitcoin (or the lack thereof).

As discussed above, key to the argument that blockchain developers owe fiduciary duties to their users is the idea that they have centralized power to change the protocol of their respective blockchains. This is precisely how the Court of Appeal characterized the issue in deciding that the case deserved a full trial:

“If the decentralized governance of bitcoin really is a myth, then in my judgment, there is much to be said for the submission that bitcoin developers, while acting as developers, owe fiduciary duties to the true owners of that property.”

When asked about the role decentralization plays in the case, Jonas starts with a comically revealing slip:

“Ultimately it’s just a myth- misunderstanding that the courts have as to how Bitcoin functions.”

However, she goes on to acknowledge that the centralization question is key to the case—even if she says that BTC happens to be decentralized enough for Tulip Trading’s arguments to not apply:

“I do think it’s potentially a bigger issue for some other protocols or cryptocurrencies et cetera. Because what the court is considering when they consider decentralization is whether there is an element of control. I think that is what the courts are interested in—whether there is one person or a group of people.”

She’s entirely correct, but this admission makes her earlier protestations about the suit being ‘frivolous’ ring hollow. Even Jonas can’t deny that Dr. Wright has an argument against blockchain developers with centralized power—she just says BTC does not fall into that category.

So how frivolous can Tulip Trading’s suit be, really?

This case is the most serious legal threat Bitcoin has ever faced.

Lastly, here’s another of Jonas’ true assertions:

“Today’s cases are the most serious legal threat Bitcoin has ever faced,” bloviated Jonas at the start of the interview.

She was right. If Bitcoin—or more accurately, any digital asset—can’t be shown to be compliant with the law, as these cases set out to prove, then Bitcoin won’t just be under threat: it will already be dead. Property law is foundational to the legal system—and if (as Jonas, the Bitcoin Legal Defense Fund and BTC argue) BTC or any other digital asset can’t be fit within its boundaries, such as by returning stolen assets to their rightful owners, then they are doomed to obsolescence.

Fortunately the law seems to be on the side of Dr. Wright and Bitcoin.

Follow CoinGeek’s Crypto Crime Cartel series, which delves into the stream of groups—a from BitMEX to BinanceBitcoin.comBlockstreamShapeShiftCoinbaseRipple,
EthereumFTX and Tether—who have co-opted the digital asset revolution and turned the industry into a minefield for naïve (and even experienced) players in the market.

New to blockchain? Check out CoinGeek’s Blockchain for Beginners section, the ultimate resource guide to learn more about blockchain technology.