William & Mary Business Law Review
Abstract
The current crypto winter has given rise to a range of legal challenges. One of the most important sets of legal challenges goes to the heart of cryptocurrency. Cryptocurrency was intended to be non-duplicatable at will, that is, not to be counterfeitable. Blockchain technology is supposed to prevent token counterfeiting through a combination of game theory and cryptography that prevents normal users from simply ordering the system to generate more tokens for their benefit.
The difficulty is that blockchain software is still software. People in charge can order and program the software to generate many more tokens for those individuals’ benefit. Hackers can find ways to exploit the software to generate counterfeit tokens. Software will never be free from bugs and exploits, and humans with discretion within a system will always be susceptible to the temptations of power and greed.
Given the strong technological restraints on digital duplication of cryptocurrency and other crypto assets, many organizational structures and cultures surrounding cryptocurrency are set up particularly poorly to handle the problem of crypto-counterfeiting. Often in an attempt to avoid legal sanction, blockchain projects are set up in such a way that no legal entity controls the software. This is because there is a widely perceived vulnerability in having any single entity control a blockchain. Such a legal entity may be targeted for enforcement purposes in a murky regulatory climate.
When someone duplicates cryptocurrency, the harm is easily articulated: the duper has decreased the value of the cryptocurrency, and everyone else’s holdings, by virtue of having generated for themselves many more of the tokens. Similarly, the solution is fairly straightforward. The duped currency must be deleted in order to restore the value of the entire system. The difficulty is that legal rules must evolve in the face of the narratives crypto communities share and hold. In a fully decentralized system, who should be the plaintiff? If a token has been improperly generated, whose property has been stolen or converted?
Blockchain was supposed to solve the problem of asset duplication, referred to in blockchain circles as the double-spending problem, or in more recent incidents, an “infinite mint” attack. Ironically, it did not. Rather, blockchain created a difficult set of legal problems that this Article attempts to address. The future of the law in this space is clear. Wrongful generation of tokens will be sanctioned by courts with the remedy of deletion of those tokens. But the legal problems presented will benefit from clarification, and the precommitments of the communities that make those arguments do nothing to reduce the difficulty of the legal fit.