For some, the appeal of using cryptocurrencies like Bitcoin includes the perception that they may offer greater privacy protections for financial transactions, including shielding them from law enforcement scrutiny. But a recent federal appellate ruling in a Fourth Amendment case suggests this perception may not align with current legal reality.

In United States v. Gratkowski, 2020 WL 3530575 (5th Cir. June 30, 2020), the U.S. Court of Appeals for the Fifth Circuit held that the government's warrantless search of a Bitcoin blockchain associated with a child-pornography website and the government's subpoena to the cryptocurrency exchange Coinbase did not violate the defendant's Fourth Amendment protections against unreasonable searches and seizures. The ruling—the first time a federal appeals court has addressed the constitutional protections implicated by the use of cryptocurrencies and information stored on public blockchains—stands as a warning that the expectation of greater privacy in cryptocurrency transactions may be unwarranted, especially where transaction-related information is voluntarily shared with third parties like a cryptocurrency exchange.

Background

In Gratkowski, federal agents investigating a child-pornography website determined that the website accepted payment in Bitcoin. After analyzing a publicly viewable Bitcoin blockchain, the agents identified a "cluster" of Bitcoin addresses (a separate central address into which an organization combines multiple addresses that it controls) that was controlled by the child-pornography website. Rather than seek a warrant, however, the agents served a grand jury subpoena on the cryptocurrency exchange Coinbase, seeking information about Coinbase customers who had paid the website in Bitcoin. Coinbase identified the defendant Gratkowski as one of these customers. The agents then used this information to obtain a search warrant for Gratkowski's house, where they found a hard drive containing multiple images of child pornography. Gratkowski also admitted to being a website customer.

Gratkowski was charged in a two-count indictment with receiving and accessing child pornography. He moved to suppress the evidence obtained through the search warrant, arguing that the preceding blockchain analysis and subpoena to Coinbase on which the warrant was based were themselves Fourth Amendment searches that required a warrant. The suppression motion raised the "novel" question of whether Gratkowski had a constitutionally protected interest in the records of his Bitcoin transactions on a cryptocurrency exchange.

The 'Third-Party Doctrine'

The suppression question turned on the application of the "third-party doctrine" under the Fourth Amendment. Under the third-party doctrine, a person generally "has no legitimate expectation of privacy in information he voluntarily turns over to third parties." Smith v. Maryland, 442 U.S. 735, 743–44 (1979) (no Fourth Amendment protection for telephone call log information); see also United States v. Miller, 425 U.S. 435, 442 (1976) (depositors have no protectable Fourth Amendment interest in their bank records). Where the person lacks a "reasonable expectation of privacy" in the particular items at issue, the Fourth Amendment's protections against unreasonable searches and seizures are not triggered.