Bitcoin beatdowns and decentralized dispute resolution

Would you take $20,000 in cash to meet a stranger who you met on the internet named BTC Warrior to buy bitcoin? 

Maybe I'm not a very trusting person, but it doesn't sound like a good way to get bitcoin or, for that matter, to keep all of your teeth.

Indeed, as this week’s case shows, one of the design problems with peer-to-peer, in-person digital asset sales is that, instead of getting bitcoin for your money, you can get beaten up and have your car stolen in the process. Stated differently: for every not-your-keys-not-your-crypto story there are stories like the one we read about in Scott v. State, a Nevada Court of Appeals opinion that was filed last week on February 11, 2020.[1]

This was a criminal case. According to the Court, the victim used the Mycelium app to find someone to sell him Bitcoin. A user named "BTC Warrior" responded with interest, sent a text message, and arrangements were made to meet at a Target (the retail chain).

The victim went to the store with $20,000 in cash and also showed that he could send money electronically using a banking app. After the defendant was unable to prove they could send money to the victim's wallet, the victim canceled the deal. Suspicious that this was a setup and "he might get robbed", he called his wife, she met him at the Target, and "and he secretly passed her the $20,000 when she arrived. He left the Target without his wife, stopped at a 99 Cents Store, and then went to a McDonald's to get something to eat."

While leaving McDonald's, the victim was set upon by two men, one of whom was the defendant. They took his truck keys, computer, and some other property.

The police tracked the defendants by using the phone numbers they provided during the meeting at Target. This, along with video surveillance and license plate data, allowed the police to connect the defendant to the crime. A police detective then set up a Mycelium account, connected with BTC Warrior, and arrested the Defendant when he showed up for a meeting to sell bitcoin.

Pretty low tech all around – and it was the in-person meetings that got the victim robbed and the defendant arrested. Once again we see how fiat off-ramps are the things that take trustless peer to peer currency transactions and reintroduce trust risk to them. 

Thus, on the one hand, if you're dealing with an exchange, you trust that they won't steal, lose or allow your crypto to be stolen, while accepting that the exchange will facilitate easy state surveillance and reporting of your transactions – in many cases without your knowledge. 

On the other hand, peer to peer sales with people you don't know can end up getting you robbed. 

An interesting issue raised on appeal was whether or not screenshots from a phone tracking app could be introduced into evidence. The defendant argued that the maps shouldn't have come in because they were hearsay. The hearsay evidence rule prevents the admission of out-of-court statements to prove the content of the statement ("the truth of matters asserted therein", is the way it's usually phrased). In the United States, this connected to a right protected by the Constitution, the Sixth Amendment – which guarantees the right to confront (ask questions) of your accusers. 

There are many exceptions to the hearsay evidence rule. In this case, the Court said the rule didn't apply "because the assertions made by the cell phone tracking app are not statements as defined by the hearsay rule." (citing United States v. Lizarraga-Tirado, 789 F.3d 1107, 110910 (9th Cir. 2015) (""[a] tack placed by the Google Earth program and automatically labeled with GPS coordinates isn't hearsay" and joining other federal circuit courts of appeal in the rule that "machine statements aren't hearsay")).

The reasoning here seems, in part, to be the notion that a machine statement is not subject to the same sort bias and so cross-examination isn't necessary. Of course, garbage in/garbage out isn't changed by software, so there will certainly be cases where courts will make admissibility of such statements dependent on some proof of their reliability. This could also include examination of the people responsible for the design and maintenance of software that makes the statement possible.

Certainly, if Google Maps data is admissible non-hearsay evidence, the same is likely true of a crypto transaction – evidence of purchase or sale could be shown by data from the public blockchain. 

At the same time, human statements contained within and encoded in a transaction might remain hearsay and not admissible to prove the truth of the assertion that they contain. 

Anyway, the Court rejected the Defendant's argument here, along with several others, and affirmed his conviction in its entirety.

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On a sort of related subject, a quick note on the Aragon project, which has caught my eye recently. The claim is that it's "the world's first digital jurisdiction."

I'm personally quite interested in the use of technology for dispute resolution. As I've written elsewhere, it's what got me interested in bitcoin and Ethereum to begin with. 

With that said, I am highly skeptical of the claim that Aragon is a digital jurisdiction, is actually a Court and that people who participate in it are actually jurors (all of which the project claims is the case). I mean, given the fact that there isn't a country in the world that recognizes Aragon as a jurisdiction, the claim that is one can be best be described as hopeful puffery. 

In trial practice – at least here in the United States – there’s a difference between evidence and argument. To be admissible, evidence must make a fact of consequence to a dispute more or less true. Evidence can be direct or circumstantial and can take the form of testimony or documentary evidence (books, papers, printouts etc).  

Say you want to prove it was raining. Direct evidence might be in the form of a witness saying “I was outside and got soaked in the rain”; circumstantial, on the other hand, would be “I saw Jim’s umbrella by the door, heard thunder” – either can be used.  Argument is the subjective

I’m not saying that a pseudonymous dispute resolution framework might not have some utility. Here, however, setting aside whether or not paying jurors is actually a thing that can work could become something a bit more like a pseudonymous bulletin board where people can make arguments disguised as evidence without ever being subject to cross-examination.

Do I think this is a good idea?  Maybe not so much, and not if this is what passes for "evidence"

Look, online dispute resolution has some a lot of merit and definitely fills a need.  The way to do this is maybe not to try to reinvent the wheel as a square box, but rather to find and simplify basic building blocks of the dispute resolution process and make them easier to manipulate and traverse.  

Adding complexity – which this seems to do – doesn't necessarily advance the ball.

And going back to the Scott case, and our discussion of hearsay, what we have here is a mixture of argument and pure hearsay, without the ability to cross-examine the statement's maker, learn anything of their bias or motive for making the statement.  

In short, there is nothing about this approach that – at least as far as I can tell – that makes it more or less likely for fair and impartial justice to be rendered.

[1]  2020 Nev. App. Unpub. LEXIS 108, if you are into citations.