On Jan. 28, a federal judge in Florida dismissed without prejudice the nation’s first antitrust suit involving cryptocurrency. The plaintiff, United American Corporation Inc., (UAC), alleged that five entities and six individuals conspired to hijack and centralize the Bitcoin Cash network by combining their efforts during a crucial software upgrade vote, causing the diminution in value of UAC’s cryptocurrency mining operation. The court’s decision to permit UAC to amend its complaint leaves open the potential applicability of antitrust laws in this already legally opaque industry.
Bitcoin Cash and Blockchain
Bitcoin Cash is a form of cryptocurrency. Cryptocurrencies are peer-to-peer versions of electronic cash. Since there is no central financial intermediary, a decentralized “blockchain” network of ledgers verifies and records the currency’s transactions. Blockchain networks depend upon cryptocurrency “miners” to verify and record new transactions. Miners compete by solving complex mathematical equations and are compensated for their efforts with newly minted currency. UAC and the defendants are participants in the community of software developers, miners and exchanges that supports Bitcoin Cash.
Background of the Case
In 2018, Bitcoin Cash was preparing for a software upgrade, which led to what is known in the industry as a “fork.” Forks allow individual miners to “vote” on the proposed changes in the rules governing aspects of the operation of the blockchain. Miners vote by implementing the relevant upgrade of their choice and then using that upgrade to “mine” the currency – voting by doing, as it were. Disagreements among miners can lead to “hard forks,” where a single currency and corresponding blockchain split into new currencies and new corresponding blockchains governed by their own respective rules.
According to UAC, there were two competing potential upgrades, known as Bitcoin ABC and Bitcoin SV. UAC was a proponent of the Bitcoin SV upgrade. Apparently, some of the defendants were proponents of the Bitcoin ABC upgrade and allegedly rallied others to their cause, similar to how a shareholder might wage a proxy war to install a new director.
In the end, the Bitcoin ABC upgrade won the vote. However, although Bitcoin ABC received more votes than Bitcoin SV, both systems survived the fork and now compete in the market for users and miners. After the vote and subsequent split, some of the defendants associated with Bitcoin ABC installed checkpoints in the software to prevent miners from reversing the software upgrade, in essence locking in the upgrade and irreversibly splitting the two systems. Continue Reading