Crypto Delisting Law & Policy

Crypto exchanges have the right to “delist” tokens & coins like BSV. But what’s the scope of those rights?

In the past few days, the crypto world has been witnessing something of a historical event — the delisting of a major platform crypto token, known as Bitcoin Cash SV (BSV).

Yesterday, another prominent exchange — Kraken — acted to delist BSV after soliciting community feedback in the form of online polls and related signal funnels.

Brief Background

Everyone in the space has their own theory on what’s motivating exchanges to take this extraordinary action. In a nutshell, here’s what it boils down to:

1. Bitcoin Cash SV (BSV) claims to be the original true Bitcoin (SV stands for “Satoshi’s Vision”);
2. Bitcoin Cash SV (BSV) is the result of a split within the Bitcoin Cash (BCH) community that produced two coins claiming to be the true Bitcoin — Bitcoin Cash ABC (trading under the old handle, BCH) and the new Bitcoin Cash SV (trading under a new handle, BSV);
3. Bitcoin Cash SV (BSV) is led by two notorious crypto cats, Craig Wright and Calvin Ayre;
4. Bitcoin Cash ABC (BCH) is led by another notorious crypto cat, Roger Ver, with significant buy-in from major crypto exchanges;
5. Bitcoin (BTC), Bitcoin Cash ABC (BCH), and Bitcoin Cash SV (BSV) are just three of multiple forks of the Bitcoin blockchain operating as now-separate blockchains and crypto instruments (others include Bitcoin Gold (BTG), Bitcoin Diamond (BCD), etc.);
6. In their own way, each of the aforementioned Bitcoin projects claims to be the most faithful embodiment & implementation of the object and purpose of the Bitcoin Whitepaper (2008);
7. Craig Wright (associated with Bitcoin Cash SV (BSV)) claims he is Satoshi Nakamoto, the pseudonymous author of the Bitcoin Whitepaper (2008) & claims to be the creator of Bitcoin.
8. Critics call Craig Wright Faketoshi.

To understand the broader implications of this delisting move, we should take a quick capture of the “politics” of this delisting action. Then, we’ll analyze the (legal) right to delist. Lastly, we’ll look to current delisting policies and suggest ways to improve system-wide outcomes during delisting events such as the present one.

Delisting Politics

The politics of this delisting imbroglio are messy.

In essence, it boils down to whether CW & Co. continued to operate in broader blockchain governance currents with some semblance of good faith or whether they exceeded community norms, and, consequently, had to be expelled.

If this seems a bit abstract, that’s ok for now. Please remember two points:

1. BSV was voluntarily listed by each of the exchanges that recently chose to delist;
2. Parties’ underlying postures are not radically different today than prior to delisting. For instance, CW & Co.’s claims to inherit “Satoshi’s vision” and CW’s intimation that he “is Satoshi” is far from new.

So, what happened?

What was the core community norm that CW & Co. violated that subjected them to the ultimate (legal) sanction of … expulsion & excommunication?

For that, we turn to Changpeng Zhao, CEO of Binance — colloquially known in crypto as “CZ” — who arguably kicked the #DelistBSV movement into overdrive.

From the context thus far, it seems that in this case, what really got under everyone’s skin was the fact that CW grew even more strident in his claims of being Satoshi Nakamoto.

Enough was enough, said CZ, and any more CW = Satoshi-ing would have dire consequences.

Faketoshi-ing as Highest Crime?

There’s more to the story, of course, which we’ll turn to shortly. But it’s important to take a moment to register the gist or essence of the claimed offense here.

Faketoshi-ing (claiming to be Satoshi Nakamoto) is a net disruptive market behavior.

For an industry built on the efforts of a pseudonymous thinker (or crew of thinkers), the enigma of Satoshi is a powerful central organizing force. It feeds into the mantras and ideologies of strong (1) supra-jurisdictionality, (2) alegality, (3) censorship-resistance, and (4) anonymity/pseudonymity — among others.

And there’s plenty of legal precedent for certain norms from which absolutely no derogation is permitted. In international law, for instance, this is the notion of a jus cogens (aka peremptory) norm.

Thus, there are certain rules (like, say, the prohibition of piracy or genocide) that are soooo foundational to the global order that any violation of that norm, by any actor, anywhere would subject the violator to prosecution by anyone, anywhere — on the basis of expansive notions of, say, universal and/or protective jurisdiction.

Think Inglorious Basterds, applied to crypto.

Whatever you may think of the legality or prudence of certain non-derogable norms, every socio-legal system has certain red lines that cannot be crossed. And so here, the core offense identified by CZ was the red line of Faketoshi-ing:

1. CW is not Satoshi;
2. Anymore CW Faketoshi-ing, Binance delists BSV.

Because CW did not stop, Binance delisted.

Crypto Legal Mortal Combat

The broader context is crucial here as well. The offense wasn’t just Faketoshi-ing. As we saw above, CW and many others have been accused of Faketoshi-ing for a while. What was qualitatively new seems to have been the tactics with which CW & Co. chose to fight this latest battle.

Another offense that seems to have led directly to #DelistBSV was the offense of recourse to traditional litigation in public courts of law!

This is a fascinating “offense” — premised on a complex and ambivalent relationship to law. But it’s an undeniable factor in the crypto community’s repudiation of CW & Co.

In fact, offensive litigation (more so than more abstract and longstanding acts of Faketoshiing) might have been the straw that broke the crypto camel’s back.

Faketoshiing might have been tolerable were it not for the mounting stack of pending and threatened litigation by CW & Co. against many leading crypto figures.

Violation of the anti-Faketoshiing norm by itself might have subjected CW & Co. to social expulsion, scorn, and ridicule. But Faketoshiing-while-suing was apparently the real red line:

(For further context, we must recall that all of this is happening in the broader context of litigation involving CW over control over a cool 1 meeeeelion BTC).

So, because CW & Co. allegedly committed a special bouquet of fraud (Faketoshiing + offensive frivolous litigation), their coin posed a special threat to the crypto ecosystem.

Let’s explore.

Business Ethics of Delisting

According to CZ, delisting BSV is an ethical choice as much as it is a business decision.

And here’s the essence of the anti-special-fraud argument: while fraud is rampant in crypto, this particular configuration of allegedly fraudulent parties (CW & Co.), instruments (BSV), and institutions (exchanges) heightened the risk of harm to … investors.

The right thing to do was to #DelistBSV.

Delisting Law

In the next installment of this piece, we’ll turn to crypto exchanges’ legal rights to list/delist tokens on their exchanges.

For now, we encourage everyone to get caught up on the long and sprawling #CryptoTwitter threads exploring the same:

More soon. Please stay tuned.

April 19, 2019 Update

Right after publishing this, we came across Megan Knab’s (@VeriLedger) excellent analysis. It offers the best objective overview of current delisting policies and practices available. We encourage everyone to read this prior to proceeding.

Coin Delisting: What to do when an exchange delists your asset