Dr Craig Wright is a leading and, for reasons that will become apparent, controversial figure in the cryptocurrency industry. He lives in Surrey but grew up in Queensland. He completed his schooling at Padua College on Brisbane’s northside and studied computer systems engineering at The University of Queensland. He spent most of his life in Australia until 2015, when he moved to the United Kingdom.
Dr Wright is an unusual man. He has described himself as having “one of the highest IQs you’re likely to encounter. It is counterbalanced by a severe deficit in social skills.” He has claimed to be the true author of the “Bitcoin White Paper”, which proposed the new online electronic cash system with which we are all acquainted to one degree or another.
Over the past 18 months, he has been involved in a number of cases in the English courts that concern theft, fraud, defamation and fiduciary duties and, for that reason, may be of interest to Queensland lawyers. But, before we examine those cases, it will be helpful to go over what Bitcoin is and how it works.
What is Bitcoin?
On 31 October 2008, a nine-page paper entitled, “Bitcoin: A Peer-to-Peer Electronic Cash System” was published. This paper has become known as the Bitcoin White Paper. The author of the paper was stated to be “Satoshi Nakamoto”. This name was a pseudonym. As noted above, Dr Wright has claimed that he wrote the White Paper and that he is Satoshi Nakamoto. More on that later.
The problem that “Satoshi Nakamoto” was trying to solve is that commerce on the internet relies almost exclusively on financial institutions serving as trusted third parties to process electronic payments. Third parties mean additional costs.
In order to eliminate these costs what was needed was, to quote the White Paper, “an electronic payment system based on cryptographic proof instead of trust, allowing any two willing parties to transact directly with each other without the need for a trusted third party.” Bitcoin was this solution.
In the Bitcoin scheme, transactions are recorded in a ledger or database known as a blockchain, with each Bitcoin network having its own ledger. There are four (4) main Bitcoin networks: BSV, BTC, BCH and BCH ABC. Each network started life as a copy of the blockchain of a pre-existing network but by then applying different software thereafter.
The blockchain constitutes a public registry recording every transaction. A given amount of Bitcoin is simply a number held at a certain digital address. A transaction simply involves reducing the value at one address and correspondingly increasing it at another. The amounts held at every address are public, but the identity of the parties is not.
Each digital address is associated with a pair of public and private cryptographic keys. The public key identifies the address on the network. The relevant private key is the means by which Bitcoin can be dealt with. The holder of the private key uses it to cryptographically sign a record of the transaction moving Bitcoin from one address to another. The record is called a cryptographic hash.
The public/private key pair means that the person signing with the private key is proving that they are associated with the public key (and so the address), without revealing the private key itself. The hash ensures that any attempt to alter the record would be noticeable, because even the smallest change would alter the hash.
For each network there are devices on the network that undertake “mining”. This is the means whereby transactions are validated. The latest transactions are gathered together into a block, which also includes a hash of the previous block (hence each block is chained to its predecessor, making a “blockchain”).
The miners work in competition with each other to produce an appropriate hash of this new block. The competition is to find a unique “number used once” or nonce, which causes the hash of the new block to have certain defined characteristics. This is called a “proof of work”. Blocks that have been validated this way are broadcast to the network and incorporated into further work. Miners receive both transaction fees and new Bitcoin.
A Bitcoin network is supported by client software. The source code for the client software for a given network is, like blockchains, publicly available. To participate in a given network, participants run the source code for that network from the relevant database. It is that software which embodies the rules applicable to that network. Anyone can propose a change to the software, however a change can only be implemented by someone with the relevant electronic password for the particular code database.
Tulip Trading Ltd v van der Laan [2023] EWCA Civ 83
Dr Wright controlled a company called Tulip Trading Ltd. Tulip claimed to own Bitcoin worth about US$4 billion. The Bitcoin allegedly owned by Tulip were held at two addresses on the blockchain. Tulip’s private keys were supposedly kept in encrypted electronic files which were password protected. The files were stolen as a result of an electronic hack. The Bitcoin were not moved from the addresses because, although the hackers took the files, they could not crack the encryption that protected the private keys inside them. But Tulip could not move the Bitcoin without the private keys.
As noted above, a change to a Bitcoin network’s software can only be implemented by someone with the relevant electronic password for the particular code database. Tulip alleged that the defendants were such software developers. Tulip’s case was that the defendants controlled and ran the relevant Bitcoin networks and that it would not be technically difficult for them to develop a patch to the code that operated the network which would have the effect of transferring the Bitcoin to a new address operated by Tulip. At first instance, Falk J held that Tulip had not established a serious issue to be tried. Tulip appealed.
In the Court of Appeal, the defendant software developers argued that, to the extent that they were involved in software development for Bitcoin networks, they were part of a very large and shifting group of contributors without an organisation or structure.
Furthermore, they submitted that the patch that Tulip wanted went against the core values of Bitcoin as a concept. Any change that they were able to propose would be ineffective because miners would refuse to run it and instead would continue to run earlier versions of the software. A disagreement could lead to a “fork” in the networks, resulting in the creation of additional networks rather than a resolution of the issue.
The Court of Appeal held that there was a realistic prospect that Tulip could establish that the defendant developers had undertaken a role that involved making discretionary decisions and exercising power for and on behalf of other people, in relation to property owned by those people.
As that property had been entrusted into the care of the developers, there was a realistic prospect that they might be found to be fiduciaries. The essence of their duty as fiduciaries would be single-minded loyalty to the users of Bitcoin software. The content of their duties would include a duty not to act in their own self-interest and a duty to act in positive ways in certain circumstances.
The Court of Appeal held that it might also, realistically, include a duty to act to introduce code so that an owner’s Bitcoin could be transferred to safety. As Tulip’s claim was not bound to fail and as there was a serious question to be tried, the appeal was allowed and the defendants’ application for summary judgment was dismissed.
Wright v McCormack [2023] EWCA Civ 892
As noted above, Dr Wright has maintained that he is Satoshi Nakamoto. As you can imagine, the true identity of Satoshi Nakamoto is a hotly debated topic on the internet and elsewhere. In April 2019 Peter McCormack, a cryptocurrency blogger and podcaster, posted a series of tweets about Dr Wright. He began with “Craig Wright is not Satoshi”. He repeated that assertion, adding “Craig Wright is a fraud”, “BSV is a fake Bitcoin run by frauds”, “Craig Wright fraudulently claimed to be Satoshi”, “let’s go to court and prove once and for all that he is a liar and a fraud”, and other similar statements.
In October 2019 Mr McCormack also took part in a video discussion on YouTube in which he said, among other things, “Craig Wright is a fucking liar, and he’s a fraud; and he’s a moron; he is not Satoshi.” Dr Wright sued him for defamation.
At trial, Mr McCormack admitted responsibility for all the tweets, that they meant that “Dr Wright is not Satoshi and his claims to be Satoshi are fraudulent”, and that this meaning was defamatory. The trial judge held that the words spoken during the YouTube broadcast meant “there were reasonable grounds for questioning or enquiring into whether Dr Wright had fraudulently claimed to be Satoshi”. Mr McCormack accepted that this imputation was also defamatory.
Mr McCormack’s defence was not that the publications were true but rather that Dr Wright had not suffered serious harm. Section 1(1) of the Defamation Act 2013 (UK) provides that “A statement is not defamatory unless its publication has caused or is likely to cause serious harm to the reputation of the claimant.” Section 10A(1) of the various Australian Defamation Acts contains a similar requirement.
In order to prove serious harm, Dr Wright pleaded that, as a result of the publications, he was often excluded from cryptocurrency events and industry panels. This allegation was abandoned after Mr McCormack sought further information about it.
Dr Wright then pleaded that ten (10) invitations to speak at academic conferences were withdrawn because of the publications. Mr McCormack served witness statements from organisers of two (2) of those conferences. One organiser said that Dr Wright had submitted a paper but it had been rejected as a result of negative peer reviews. The other said that Dr Wright had never been invited to speak. Dr Wright then abandoned the whole of his pleaded case about being disinvited to conferences.
Dr Wright had a fallback position on serious harm, namely, that given the inherent seriousness of the imputations, the significant extent of publications and evidence of actual harm in the form of replies to some of the tweets, Mr McCormack’s statements must have caused serious harm within the meaning of the Act. This was accepted by the trial judge.
However, the trial judge also found that Dr Wright’s original case on serious harm was deliberately false and, consequently, awarded him nominal damages of £1. Dr Wright appealed on the ground that “the trial judge was wrong to hold that his litigation misconduct could or should serve to reduce his general compensatory damages to a nominal sum”. He did not challenge any of the judge’s findings of fact.
The Court of Appeal held that the trial judge did not ascertain the damages to which Dr Wright was entitled and then reduce that figure to reflect his litigation misconduct. Rather, the Court found that the trial judge took account of Dr Wright’s lies and his attempt to deceive the court as part of the process of ascertaining his entitlement, namely a sum in damages that would be proportionate to the aims of compensating and appropriately vindicating the relevant aspect of Dr Wright’s reputation.
The Court held that where the libel was an accusation of dishonesty, the dishonest conduct of the litigation was relevant for that purpose. The Court of Appeal held that the trial judge was correct to conclude that Dr Wright had so injured his own reputation that an award of substantial damages was no longer required for the purposes of vindication and the appeal was dismissed.
Crypto Open Patent Alliance v Wright [2024] EWHC 1198 (Ch)
Although it was not necessary for Mr McCormack to prove that Dr Wright was not Satoshi Nakamoto, that issue was at the heart of a claim brought by the Crypto Open Patent Alliance (COPA) against Dr Wright.
COPA is an industry body that represents corporate entities operating in the Bitcoin field. In January 2021, Dr Wright’s lawyers sent cease-and-desist letters demanding that certain Bitcoin websites stop hosting the White Paper. In response, COPA sought declarations in the High Court of Justice in London that Dr Wright was not the author of the White Paper, did not own the copyright in the White Paper and that any use of the White Paper by members of COPA would not infringe any copyright owned by him. The key issue in the litigation was whether Dr Wright was Satoshi Nakamoto.
After a five (5) week trial, Mellor J made the declarations sought by COPA. To say that his Honour was unimpressed by Dr Wright would be an understatement. Mellor J noted that “Dr Wright presents himself as an extremely clever person. However, in my judgment, he is not nearly as clever as he thinks he is.”
His Honour found that Dr Wright had lied to the court extensively and repeatedly, had forged many documents and had engaged in “technobabble” under cross-examination because he was unable to put forward any coherent explanation for the forgeries which had been exposed. Mellor J found that “[a]ll his lies and forged documents were in support of his biggest lie: his claim to be Satoshi Nakamoto.”
Although COPA won a smashing victory, this judgment might not be the end of the matter, as his Honour noted:
“I recognise that Dr Wright will disagree with my findings and this Judgment and, true to the form he displayed on numerous occasions during his oral evidence as regards the expert evidence, he may well allege that I didn’t understand his technical explanations or other aspects of the technology…[T]o the extent that I have made errors, the Court of Appeal is well qualified (a) to detect them and (b) to correct them.”
So, unless and until the Court of Appeal rules differently, Satoshi Nakamoto’s true identity remains a mystery.
