Bitcoin Association for BSV is proud to announce the launch of its Blacklist Manager, the first software tool making it possible for Bitcoin miners to comply with court orders to freeze lost or stolen Bitcoin tokens.

The ability to freeze digital assets is the first step in a process that will allow rightful owners of digital assets to enforce their property rights in the event of theft, loss of keys, or any other instance where a rightful owner is unable to control their digital property.

There have been several high-profile examples of digital assets being stolen and ransomed in recent years. Where there is an official court order, this tool prevents the spending of the affected assets at the coin level, rather than just at the account level. This also means that centralised exchanges are not needed to enforce the law.

Demand for digital asset recovery tools

Marcin Zarakowski, General Counsel and Chief of Staff at Bitcoin Association, highlights the demand for a Digital Asset Recovery process:

‘Bitcoin Association and the broader BSV ecosystem do not believe that “code is law”. All the laws in the classical sense still apply to blockchain technology and therefore BSV. If someone has a valid right to digital assets but doesn’t have the technical means to access them, there should be a way to recover access to those assets,’ he said.

Zarakowski gave the example of a person losing their car keys. ‘If someone else takes them, that doesn’t mean that that somebody is now suddenly the owner of my car. What we are doing with the Blacklist Manager tool is providing the technical means to have digital assets either frozen or reassigned to the rightful owner if there is a valid court order.’

Blockchain for grownups

Zarakowski pointed to problems with the current system where, even if someone has a valid court order, it can be almost impossible to freeze digital assets or transfer them to the rightful owner.

Zarakowski said that for security reasons it is usually advisable not to store digital assets on wallets that are hosted by a third party, e.g. on exchanges. However, he also pointed to cases where users have lost access to their private wallets which are not hosted by a third-party, effectively locking them out from their digital assets, even if they do have a court order.

‘The introduction of the Blacklist Manager tool is a sign of the maturing blockchain space. If we want to have a massive adoption of blockchain technology by the corporate world, large firms, banks and governments, there needs to be a way to recover lost or stolen assets.

‘Without this, blockchain technology will not be massively adopted but will continue to be used as a layer for hosting asset classes used primarily for trading and speculation. We have heard that many times from large players. We are heavily scrutinised when it comes to compliance and we can’t allow digital assets to sit on the blockchain where a court order has been issued or a crime has been committed.’

Using a digital asset recovery process, legal entities like banks, custody providers, law firms or eventually courts themselves will first validate a court order containing a list of compromised digital assets and transcribe it into a machine-readable format the network can understand. This is digitally signed and broadcasted to every miner’s Blacklist Manager, or BM, tool.

Miners will then add the digital assets to their freeze list, rejecting transactions that use them, thus preventing the assets from being spent. The service does not allow anyone to arbitrarily enforce a freeze, and miners will only accept a court order or document of equivalent value, on the same consensus basis that the network uses now.

Digital asset recovery can be made possible on BTC, BCH and BSV. However, BSV blockchain, BSV, is the first blockchain to take the step towards it with the launch of the BM tool – creating the world’s first regulatory-friendly blockchain.

Consistent with the original Bitcoin white paper

The technology does not require any addition to the current protocol. Like Bitcoin’s now-retired Alert System for the broadcasting of network messages, it is also consistent with the original Bitcoin white paper where there is a distinction between key holders and key ‘owners’, a legal term.

Releasing Blacklist Manager and providing possibilities for freezing lost/stolen assets is just a first step. Bitcoin Association is continuing to work on delivering functionalities which will allow frozen digital assets to be recovered or restored to their owner, which will also require a valid court order.

How a digital asset recovery process can benefit users

The below provides a step-by-step overview of how the a digital asset recovery process will benefit users:

• You’ve lost your wallet keys or inherited digital currency without having received the keys or you’ve been the victim of a crime that stole your digital currency.
• You use the legal system to obtain a court order or document of equivalent value that determines your rightful ownership of the assets under question and orders the freezing of the particular digital assets.
• You commission a Notary to broadcast the legal document to the mining network with a software tool compatible with Blacklist Manager.
• The Bitcoin miners receive the freeze order via their Blacklist Manager tool, which prevents them from accepting any transactions attempting to spend the digital assets.
• Once a Reassignment tool has been launched, the process of reassigning the coins to their rightful owner will begin.
• If miners do not respect the order they can expect to face legal implications. It will no longer be possible for miners and exchanges to argue that it is ‘not technically possible’ to retrieve your assets.

‘Such a digital asset recovery process will make public blockchains compliant with the applicable laws and allows for the recovery of lost and stolen assets – that’s the entire selling point in a nutshell,’ said Zarakowski.

You can read more about the new Blacklist Manager tool here.