A crypto wallet theft lawsuit brought about by a man who claims to be Bitcoin creator Satoshi Nakamoto could jeopardise the future of open source software development.
That’s according to the Jack Dorsey-backed Bitcoin Legal Defense Fund which is taking on a case to defend 11 Bitcoin developers named in a lawsuit filed by Craig Wright, an Australian computer scientist who emerged into the spotlight back in 2016 with a hotly-disputed claim of being Bitcoin’s founding father.
The crux of the case in question dates back to 2021 when Wright, through a Seychelles-based firm called Tulip Trading, launched a so-called ‘letter before action’ against 16 Bitcoin software developers, in an attempt to regain access to £4 billion ($5 billion) worth of Bitcoin he claims to own. Wright said that he lost access to private keys for 111,000 Bitcoins after his home network was hacked the previous year, and that it was the responsibility of key Bitcoin Core (the main version of the Bitcoin protocol software) developers to remedy illegitimate crypto transactions.
Although the case was initially dismissed last year before it made it to court, a U.K. appeals court reversed that decision back in March, allowing the case to proceed with a trial expected some time in 2024. In his findings, Lord Justice Birss pointing to academic literature that questions whether public blockchains really are decentralized.
“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,” he wrote.
So on Wednesday this week, 11 Bitcoin developers filed their defence with support from the Bitcoin Legal Defense Fund, a not-for-profit set up in 2021 by Twitter and Block (formerly Square) co-founder Jack Dorsey; Block’s head of litigation Martin White; and Chaincode Labs co-founder Alex Morcos. The fund now also includes chief legal officer Jess Jonas, who joined in January.
‘Multi-front litigation’
The fund’s founders initally penned an open letter to Bitcoin developers last year to explain their raison d’être. They pointed to the “multi-front litigation” that the Bitcoin community faces, including Craig Wright’s efforts which they confirmed at the time it would be leading the defense for. While they noted that the main purpose of the fund was to defend developers “from lawsuits regarding their activities in the Bitcoin ecosystem,” they also noted that the ramifications extended far deeper into the broader open source realm.
“Litigation and continued threats are having their intended effect — individual defendants have chosen to capitulate in the absence of legal support,” the trio wrote. “Open source developers, who are often independent, are especially susceptible to legal pressure. In response, we propose a coordinated and formalized response to help defend developers.”
A familiar story
In truth, the issue of the legal system interfering with open source software development has become a hot topic of late. In a letter to EU authorities last week, more than a dozen open source industry bodies said that the newly proposed Cyber Resilience Act, which seeks to codify cybersecurity practices for digital products sold in Europe, may have a “chilling effect” on software development, as open source developers could be held personally liable for security slip-ups that happen in a downstream product. In other words, if the Act is to pass in its current form, developers might be less inclined to contribute to open source projects for fear of legal wrangles.
Elsewhere, some argue that the EU’s upcoming AI Act, which seeks to govern AI applications based on perceived risks, could create burdensome legal liability for general purpose AI systems (GPAI) and give greater power to well-financed big tech companies.
While the latest episode to emerge around Bitcoin is somewhat different, it gives rise to similar issues. The overarching story may well be about who does or doesn’t get to control Bitcoin, and whether the project’s core developer base should be forced to create some sort of “backdoor” to serve third-party access to private keys. But bubbling under the surface is something that’s fundamental to the future of software, and whether open source developers should have have a fiduciary duty to their users.
“We believe that these lawsuits are frivolous, but we still have to oppose them vigorously,” Jonas said in a statement.
Legal responsibility
Pivotal to the defendants’ case is the simple fact that Bitcoin was released under an open source MIT License, which bestows little in the way of any legal responsibility on those maintaining the software. The MIT License explicitly states:
In no event shall the authors or copyright holders be liable for any claim, damages or other liability, whether in an action of contract, tort or otherwise, arising from, out of or in connection with the software or the use or other dealings in the software.
But if, for whatever reason, a court was to rule on the side of Tulip Trading, this could effectively destroy one of the core tenets of the MIT License that underpins countless open source projects today, setting a dangerous precedent that compels open source developers — many of whom work in their own time on their own dime — to serve the end-user of that software, no matter what their demands.
“The Bitcoin Legal Defense Fund fights not just for Bitcoin but for the right of open-source developers to create and freely share their code with the world for the greater good,” Morcos said in a separate statement. “The Tulip Trading case threatens not only the MIT License but also the very notion of freedom of speech. Our collective mission is to safeguard innovation by shielding developers from legal intimidation.”
While there are 16 defendants in total, the Bitcoin Legal Defense Fund is only representing 11 developers who worked on Bitcoin Core. There is a 12th Bitcoin Core defendant who has not sought help from the Bitcoin Legal Defense Fund, plus a further 4 defendants that have worked on various Bitcoin forks who are arranging their own counsel.
Separately, Wright has initiated a secondary case against other Bitcoin developer entities, with Wright claiming ownership of Bitcoin copyright and database rights on the basis that he is Satoshi Nakamoto. This case was thrown out back in February, but the lawsuit quickly reemerged in a revised form with the defendants filing their defence last month. The Bitcoin Legal Defense Fund is supporting two Bitcoin Core developers named in that lawsuit too.
“The outcomes of these cases are important for everyone, even those who may not be interested in Bitcoin, because these lawsuits could have serious detrimental effects on open-source development writ large, which will negatively impact our lives in ways we may not even realize until it’s too late,” Dorsey added in a statement.