Introduction
In a significant move that could alter the landscape of digital privacy in the U.S., Coinbase is asking the Supreme Court to consider a pivotal case about user privacy rights in the context of digital financial data. Although not a direct participant, the popular cryptocurrency exchange has allied with various states, Elon Musk’s social media platform X (previously known as Twitter), and several privacy advocacy organizations to submit an amicus brief regarding the legal case Harper v. O’Donnell on Wednesday.
The Third-Party Doctrine
This brief calls into question the application of the third-party doctrine, a legal principle that has been in place since the 1970s, which asserts that individuals forfeit their expectation of privacy when they voluntarily share their information with third-party entities such as banks or transaction platforms.
The Controversy
The controversy at the heart of the matter began when the IRS issued a John Doe summons to Coinbase in 2016, a legal mechanism that forces third-party companies to disclose information about unidentified individuals believed to be violating tax laws. This kind of summons is different from traditional legal orders that target specific persons, as it seeks data on a wide array of users; in Coinbase’s case, the IRS demanded information on over 14,000 users who might not have reported their cryptocurrency earnings.
Similar demands were made in 2021 to competitive platforms such as Kraken and Circle, which markets the USDC stablecoin.
Arguments Presented
In its brief, Coinbase implores the Supreme Court to reassess how the Fourth Amendment is interpreted concerning digital financial records, contending that simply using a third-party service does not mean users renounce their right to privacy. While this legal issue extends beyond cryptocurrency, it encapsulates key elements of what digital assets and blockchain technology stand for. The brief comments on the extensive insight a blockchain can provide into an individual’s financial activities, making it easy to monitor all transactions linked to a specific wallet address.
Coinbase cautions that the IRS’s deployment of John Doe summonses effectively serves as a “real-time monitor” of crypto transactions for the users involved, infringing on their privacy rights. Their arguments draw parallels to the landmark case Carpenter v. United States (2018), where the Supreme Court decided that warrantless government access to historical cell site location data constitutes a violation of the Fourth Amendment. Coinbase asserts that the IRS’s power to unravel vast amounts of blockchain transaction history is even more penetrating, describing it as akin to a “financial ankle monitor.”
Call for Change
Notable Coinbase executives, including CEO Brian Armstrong and Chief Legal Officer Paul Grewal, have been prominent proponents for updated digital privacy protections. Their amicus brief requests the Court to “clarify” or even eliminate the outdated third-party doctrine’s relevance to digital transactions, emphasizing the distinctiveness of blockchain technology which pseudonymizes user activity rather than anonymizing it.
“It is unimaginable that the IRS could achieve such extensive surveillance of numerous blockchain users’ transactions by attaching a financial ankle monitor to anyone suspected of tax evasion through their wallet addresses,” the brief states.
Implications of the Case
A decision on whether the Supreme Court will tackle this case is anticipated later this year, with oral arguments likely scheduled for the next term if it is accepted. Should the court rule in favor of the privacy advocates, the implications could be monumental, leading to a reevaluation of how digital data is protected under the Fourth Amendment. This could prompt both government agencies and private firms to revise their data management practices, potentially altering the future of financial oversight and law enforcement strategies.
