Court Ruling – Crypto Funds Sent to Wrong Address Have to be Returned

Law and Regulation, News

In an important court case, a British Colombian court has ruled that crypto funds sent to the wrong address have to be returned. This puts cryptocurrency wallets in a similar position to bank accounts. It is legally established that people who receive money into their bank accounts have to return the money. They can be, and frequently have been, put into prison for spending money that is not theirs. The ruling was issued on September 12 by Justice Ronald A.Skolrood.

ETH to the wrong address

In this particular case, 530 ETH was mistakenly sent to an ICO investor by the Singapore blockchain firm Copytrack. At the time, the ETH was worth USD 381,000, and they are currently worth around USD 110,000. The defendant was supposed to be sent 530 CPY tokens but was mistakenly sent 530 ETH instead.

The defendant initially refused to send the crypto funds back but later agreed to comply. However, he then claimed that a hacker had stolen the funds from his wallet. To complicate matters even further, the defendant passed away before the case was heard. The case raised some interesting questions with regard to crypto funds sent to the wrong address. Ultimately, Justice Skolrood ordered that –

“regardless of the characterization of the Ether Tokens, it is undisputed that they were the property of Copytrack, they were sent to Wall in error, they were not returned when demand was made, and Wall has no proprietary claim to them. While the evidence of what has happened to the Ether Tokens since is somewhat murky, this does not detract from the point that they should rightfully be returned to Copytrack.”

Sending crypto funds to the wrong address – Not so easy to reclaim

From a legal standpoint, sending crypto funds to the wrong address means that you are entitled to the funds back. From a practical standpoint, it is not so simple. While with bank accounts the money will be returned, there is no similar legal and regulatory infrastructure with cryptocurrency wallets. A name is not associated with a wallet unless there are KYC procedures in place, such as with more recent ICOs. Whoever owns the keys has the funds, is a common idiom within the crypto community. Copytrack may have a hard time gaining the funds from the hacker. Even if the account was not hacked, they might find it impossible to acquire the keys to whatever kind of wallet holds the crypto funds. After all, cryptocurrency was designed so that the user holds all the power, and not third-parties of any kind.

Crypto wallets are hacked all the time, and it would have been interesting to see how this case played out. Would the onus be on the defendant (Brian Wall) to prove that his account was hacked, and how could this be done? Otherwise, everybody could simply claim that their account was hacked and send the funds to a different wallet address, especially in the case of privacy-based coins.

On the flip side, customers might now have a case when sending the wrong funds to wallet addresses. Traditionally, funds sent to the wrong address are gone. Crypto exchange platforms such as Litebit have a policy where bitcoin sent to a bitcoin cash address will not be returned to the customer unless the funds are large. They also actually charge a fee. In light of court rulings, this policy might not have a legal basis. As per Litebit

“We will only attempt to recover deposits that exceed 2000 euro’s at the time of deposit. Only deposits reported within seven days of this deposit can be recovered, and the cost of the recovery is 0.1 BTC. Recovering cryptocurrency cross chain is an inherently dangerous and time-consuming process. Not all deposits can be recovered and the time frame of recovery is at our discretion.”

Digital Nomad with an interest in Zen and Blockchain technology.

Law graduate with 3 years experience as a consultant in the capital markets industry and 4 years experience freelancing on UpWork as a Creative Writer.

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