The Digital Asset Recovery process has applications that go far beyond simple theft.

The BSV Blockchain Association has created an innovative new way to get back lost or stolen digital assets like Bitcoin. This could change the way we talk about digital property rights in a way that was badly needed.

With the Blacklist Manager and Notary Toolset, anyone with a court order establishing ownership of digital assets can use a designated notary entity to translate the court order into a machine-readable format that the mining network can transmit and interpret. Once enough honest nodes confirm receipt and acceptance of the order, a freezing order is broadcast to the network, preventing attempts to move or spend the assets at the node level. In the future, the assets will also be able to be given back to the real owner.

The tools themselves sound revolutionary if you’ve been trained to believe that digital asset private keys are the be-all and end-all of ownership, but the concept that stolen assets can be seized and returned to their rightful owner isn’t new at all. In fact, it is taken for granted in all fields except digital assets—and there is no good reason for the distinction. The courts have ruled that digital assets are property just like any other: if you can prove your ownership of your property while it is in the possession of another, it is self-evident that the property must be returned to you. Not only is anyone who steals your property criminally and civilly liable to you, but so is anyone who has control of the property and refuses to return it to you, the rightful owner.

This concept is not even new to Bitcoin: the ability to freeze and reassign assets on the blockchain has been a part of Bitcoin since its inception. Early Bitcoin iterations included an alert key functionality that allowed an order to be broadcast across the Bitcoin network to freeze or reallocate UTXOs, as well as early OP codes in the scripting language that allowed coins to be moved. The feature was taken away, but it is an absolute must for Bitcoin to live up to its original goal of being a system that could work within the law and become widely used.

So, given existing property law, the tool does not confer any legal rights on anyone that they do not already have. It does, however, give a way for these rights to be enforced over digital assets, making it possible for the government, businesses, and law enforcement to finally accept digital assets.

Potential applications

The most obvious use case is stolen coins obtained through a hack. However, there are many more.

Inheritance:

If digital assets are included in the estate of a deceased person, the beneficiaries are unlikely to be able to access or even locate the wallets containing the assets unless the deceased person planned ahead of time. As the number of people with large amounts of digital assets grows, the process of recovering digital assets may become an important part of managing estates.

Misappropriated client assets:

Gerald Cotton, CEO of QuadrigaCX, Canada’s largest digital asset exchange, died unexpectedly in 2018. Cotton, it turns out, was the only person who had the keys to access $250 million in client assets, and any hope of accessing the assets died with him. Creditors of Quadriga could have used the digital asset recovery process to return the assets to their rightful owners instead of filing claims against the company or Cotton’s estate, neither of which could pay back the clients.

Landfill divers:

You may have heard the story of the British man who threw away a laptop containing £150 million worth of Bitcoin by mistake and has spent the years since convincing his local council to let him dig through landfills in search of his lost coins. However, if the man can demonstrate that he purchased or legally acquired the bitcoin, he could take the much easier route of declaring this ownership in court and having the coins reassigned to him.

Preventing corporate sabotage:

As more companies add digital assets to their balance sheets, the image of a corrupt CFO fleeing with company funds will be replaced by that of a corrupt CFO fleeing with Bitcoin keys. In the former case (such as the freezing of corporate cards), the infrastructure exists to pursue this, but in the latter case, things become more difficult. The CFO may be the only person with access to the coins, leaving the company powerless to do anything but watch as the coins are spent and transferred between accounts. With the recovery process in place, all the company needs to do to get the stolen assets back is get a court order to freeze them and give them back to the company.

The ability to freeze and reassign stolen digital assets is critical from the standpoint of governments and regulators. However, the tool can provide significant value to the government in areas other than theft.

Enforcement of Sanctions:

For example, the United Kingdom Treasury issued updated guidance in early September requiring digital asset exchanges and wallet providers to freeze and report assets associated with suspected sanctions violations. Instead of relying on the care and compliance of third-party exchanges, government agencies would be able to act directly on non-compliant assets through the freeze and recovery process.

Proceeds of crime:

Authorities typically have the authority to seize assets obtained through criminal activity, such as the sale of illegal drugs. The Proceeds of Crime Act of 2002 governs the United Kingdom, and the United States has a slew of similar civil forfeiture laws that allow for the seizure of assets linked to crime. Such laws not only deprive criminals of the fruits of their illegal activity, but also allow the proceeds of crime to be returned to the community. As criminals increasingly use digital assets to transact, the funds may become inaccessible unless the criminal in control of them cooperates. It is critical that law enforcement be able to recover these illegal funds, and the digital asset recovery process can help with that.

The blockchain, of course, is more than just a storage facility for your coins. Property stored on the blockchain can take many forms, and it can be frozen and returned to its rightful owner in the same way that coins can.

Stolen NFTs:

Recently, actor and director Seth Green made headlines after his Bored Ape NFT was stolen in a phishing scam. After pleading on social media, the actor was reportedly forced to pay the thief 165 ETH (approximately $260,000 at the time) in exchange for the ape’s safe return. Green could have gone to court and gotten an order recognizing his ownership of the property and demanding its return through the digital asset recovery process instead of having to pay a bribe to get back his property, the location of which he knew. This would have saved him from having to pay a bribe.

When discussing physical property, the idea that any verified owner of property would be forced to pay a bribe for its safe return, even when the location of that property is publicly known, would be absurd, and there is no difference in the case of digital property. To the extent that there is a distinction, it is that stolen property can now be easily identified and returned to its rightful owner thanks to Bitcoin and blockchain. This process is now nearly automatic thanks to the BSV Blockchain Association.