In the penultimate episode of Contentious Crypto, Christopher Pease and Megan Elms, along with Kalo guest speaker James Drury, discuss what steps can be taken when the identity of the wrongdoers is unknown, the challenges posed by pursuing persons unknown and how the courts are adapting.

Key takeaways

• What are the legal implications of digital asset ownership being pseudonymous?
• What are the requirements for bringing a claim against "persons unknown"?
• How can legal proceedings be served on unknown persons?
• How is the court is adapting to meet the new challenges posed by the increase in digital asset fraud?
• What are the benefits of seeking relief, including interim injunctive relief, against "persons unknown"?

In the third episode of Contentious Crypto, Christopher Pease and Megan Elms, along with Kalo guest speaker James Drury, discuss how digital asset tracing operates in practice and some common obstacles that arise.

Key takeaways

• How block explorers and specialist software can be used when tracing digital assets.
• How custodian wallets and mixer funds operate, why they are used and why they can create obstacles when tracing digital assets.
• What steps can be taken when these obstacles are encountered and the common tools used to overcome them.
• The standard of proof required when evidencing the digital tracing exercise in court proceedings.

In the second episode of Contentious Crypto, Christopher Pease and Megan Elms, along with Kalo guest speaker James Drury, explain what steps they took to secure a successful recovery for their clientin the landmark BVI case of ChainSwap v Persons Unknown.

Key takeaways:

• How the exploit of a smart contract enabled a hacker to misappropriate a substantial number of tokens from ChainSwap’s users.
• How ChainSwap, Harneys, and Kalo were able to use blockchain explorers to identify what the hackers had done with the misappropriated tokens.
• The practical steps that can be taken to recover certain tokens, which have a functionality that allows tokens in the wallets of hackers, or other wrongdoers, to be burned and an equivalent number of the same tokens re-issued to those that suffered the loss.
• How tokens were laundered by the hackers by using a mixer fund, Tornado Cash, and how the tokens were traced through the mixer and into a wallet that interacted with a centralised exchange that held KYC on the hackers.
• ChainSwap’s claims and the other legal actions it took to make a recovery and to identify the wrongdoers behind the hacking.
• And, of course, the ultimate outcome of the case (spoiler alert: the hackers capitulated)!

Introducing our Contentious Crypto podcast series, where we take a look at what makes blockchain technology and crypto ownership fertile ground for asset tracing and recovery exercises.

In this introductory episode, Christopher Pease and Megan Elms of Harneys in conjunction with James Drury of Kalo consider the basics of digital asset ownership and how crypto disputes tend to arise. This sets the groundwork for more in-depth discussions in this series, which include a look at the BVI’s first reported crypto recovery case (ChainSwap) where they will explore the mechanisms available for tracing digital assets, the use of mixers, how they can be overcome and the ways the courts are adapting to the challenges posed by the growth of disputes in the digital asset sector.

Key takeaways:

• Fraud, disputes, and litigation concerning digital assets are on the rise globally. The British Virgin Islands prevalence in the market means it is seeing a commensurate increase in digital asset disputes and recovery work.
• The BVI Commercial Court has recently handed down a “first of its kind decision” in ChainSwap v Persons Unknown, in which it granted an interim freezing injunction and other relief against unknown hackers.
• Digital assets use blockchain technology – a live public ledger of transactions. Transactions concerning digital assets are therefore often traceable using public explorers.
• One of the mechanisms used by those seeking to dissipate and conceal misappropriated digital assets are decentralised mixing services. However, with the right tools and expertise, these can be traced through and overcome.
• The key to recovery often entails identifying centralised exchanges that hold critical information regarding the wrongdoer - understanding how to leverage these “gateways” and the information they hold is all-important.