Court Opinion

ID: 4545398
Source: CourtListenerOpinion
Date Created: 2020-07-01 00:00:17.891264+00
Date Added: 2024-06-11T12:51:38.872925
License: Public Domain

Case: 19-50492     Document: 00515473290        Page: 1   Date Filed: 06/30/2020

              IN THE UNITED STATES COURT OF APPEALS
                       FOR THE FIFTH CIRCUIT
                                                                      United States Court of Appeals
                                                                               Fifth Circuit

                                                                             FILED
                                       No. 19-50492                      June 30, 2020
                                                                        Lyle W. Cayce
UNITED STATES OF AMERICA,                                                    Clerk

                Plaintiff - Appellee

v.

RICHARD NIKOLAI GRATKOWSKI,

                Defendant - Appellant

                    Appeal from the United States District Court
                         for the Western District of Texas

Before STEWART, DENNIS, and HAYNES, Circuit Judges.
HAYNES, Circuit Judge:
          Richard Gratkowski appeals the district court’s denial of his motion to
suppress evidence obtained through a search warrant. We AFFIRM.
                                 I.     Background
     A.       Factual Background
          Gratkowski became the subject of a federal investigation when federal
agents began investigating a child-pornography website (the “Website”). 1 To

        The actual name of the Website remained confidential during the district court
          1

proceedings in light of an ongoing investigation. We continue to use this generic name.
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                                   No. 19-50492
download material from the Website, some users, like Gratkowski, paid the
Website in Bitcoin.
      Bitcoin is a type of virtual currency. Each Bitcoin user has at least one
“address,” similar to a bank account number, that is a long string of letters
and numbers.      Bitcoin users send Bitcoin to other users through these
addresses using a private key function that authorizes the payments. To
conduct Bitcoin transactions, Bitcoin users must either download Bitcoin’s
specialized software or use a virtual currency exchange, such as the one used
here, called Coinbase.
      When a Bitcoin user transfers Bitcoin to another address, the sender
transmits a transaction announcement on Bitcoin’s public network, known as
a blockchain. 2 The Bitcoin blockchain contains only the sender’s address, the
receiver’s address, and the amount of Bitcoin transferred. The owners of the
addresses are anonymous on the Bitcoin blockchain, but it is possible to
discover the owner of a Bitcoin address by analyzing the blockchain.
      For example, when an organization creates multiple Bitcoin addresses,
it will often combine its Bitcoin addresses into a separate, central Bitcoin
address (i.e., a “cluster”).   It is possible to identify a “cluster” of Bitcoin
addresses held by one organization by analyzing the Bitcoin blockchain’s
transaction history. Open source tools and private software products can be
used to analyze a transaction.

      2  Blockchain is a technological advancement that permits members in a shared
network to “record a history of transactions on an immutable ledger.” See Ashley N.
Longman, Note, The Future of Blockchain: As Technology Spreads, It May Warrant More
Privacy Protection for Information Stored with Blockchain, 23 N.C. BANKING INST. 111,
118–19 (2019) (citing Brittany Manchisi, What is Blockchain Technology?, BLOCKCHAIN
PULSE:          IBM          BLOCKCHAIN            BLOG (July          31,     2018),
https://www.ibm.com/blogs/blockchain/2018/07/what-is-blockchain-technology/).
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                                  No. 19-50492
   B.     Procedural History
        Federal agents used an outside service to analyze the publicly viewable
Bitcoin blockchain and identify a cluster of Bitcoin addresses controlled by
the Website. Once they identified the Website’s Bitcoin addresses, agents
served a grand jury subpoena on Coinbase—rather than seeking and
obtaining a warrant—for all information on the Coinbase customers whose
accounts had sent Bitcoin to any of the addresses in the Website’s cluster.
Coinbase identified Gratkowski as one of these customers.             With this
information, agents obtained a search warrant for Gratkowski’s house. At
his house, agents found a hard drive containing child pornography, and
Gratkowski admitted to being a Website customer.
        The Government charged Gratkowski with one count of receiving child
pornography and one count of accessing websites with intent to view child
pornography. Gratkowski moved to suppress the evidence obtained through
the warrant, arguing that the subpoena to Coinbase and the blockchain
analysis violated the Fourth Amendment.          The district court denied the
motion.      Gratkowski entered a conditional guilty plea to both counts,
reserving the right to appeal the denial of his motion to suppress.     After the
district court issued its final judgment, Gratkowski timely appealed.
                         II.   Standard of Review
        In reviewing “a district court’s ruling on a motion to suppress, we
review questions of law de novo and factual findings for clear error.” United
States v. Ganzer, 922 F.3d 579, 583 (5th Cir.), cert. denied, 140 S. Ct. 276
(2019) (mem.) (internal quotation marks and citation omitted).          “We will
uphold a district court’s denial of a suppression motion if there is any
reasonable view of the evidence to support [the denial].” Id. (internal
quotation marks and citation omitted).

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                                 III.    Discussion
        Gratkowski presents the novel question of whether an individual has a
Fourth Amendment privacy interest in the records of their Bitcoin
transactions. 3 For the Government to have infringed upon an individual’s
Fourth Amendment protection against unreasonable searches, the person
must have had a “reasonable expectation of privacy” in the items at issue.
United States v. Jones, 565 U.S. 400, 406 (2012).                 Under the third-party
doctrine, a person generally “has no legitimate expectation of privacy in
information he voluntarily turns over to third parties.” Smith v. Maryland,
442 U.S. 735, 743–44 (1979). But relying on Carpenter v. United States, 138
S. Ct. 2206, 2217 (2018), which limited the applicability of the third-party
doctrine in the context of cell phones, Gratkowski argues that the
Government violated his reasonable expectation of privacy in the records of
his Bitcoin transactions on (1) Bitcoin’s public blockchain and (2) Coinbase.
In that regard, Gratkowski argues that the district court erred in denying his
suppression motion. We hold that it did not.
   A.       The Third-Party Doctrine
        Applying the third-party doctrine, the Supreme Court in United States
v. Miller held that bank records were not subject to Fourth Amendment
protections. 425 U.S. 435, 439–40 (1976). The Court concluded that the bank
records were “not confidential communications but negotiable instruments,”
which “contain[ed] only information voluntarily conveyed to the banks and

        3So far, we have found only two other federal district courts (and no circuit courts)
that have addressed the issue of whether an individual has a privacy interest in the records
of their Bitcoin transactions on a virtual currency exchange. See Zietzke v. United States
(Zietzke II), No. 19-cv-03761, 2020 WL 264394 (N.D. Cal. Jan. 17, 2020); Zietzke v. United
States (Zietzke I), 426 F. Supp. 3d 758 (W.D. Wash. 2019). In each case, the district court
held that the defendant did not have a privacy interest in their Bitcoin transaction records
because the transactions were shared with a third party, the virtual currency exchange.
Zietzke II, 2020 WL 264394, at *13; Zietzke I, 426 F. Supp. 3d at 768-69.
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                                No. 19-50492
exposed to their employees in the ordinary course of business.” Id. at 442. It
recognized that in enacting the Bank Secrecy Act, Congress assumed that
individuals lacked “any legitimate expectation of privacy concerning the
information kept in bank records.” Id. at 442–43 (noting that the express
purpose of the Act was “to require records to be maintained because they
‘have a high degree of usefulness in criminal tax, and regulatory
investigations and proceedings’” (quoting 12 U.S.C. § 1829b(a)(1)).
      The Court has also held that the third-party doctrine applies to
telephone call logs. Smith, 442 U.S. at 742–44. It held that individuals had
no privacy interest in the telephone numbers they dialed because people
generally do not have any actual expectation of such privacy and “voluntarily
convey[]” the dialed numbers to the phone company by placing a call. Id.
      However, the Supreme Court recently concluded differently in the
context of cell phones. See Carpenter, 138 S. Ct. at 2217. In Carpenter, the
Court held that individuals had a privacy interest in their cell phone location
records, known as cell-site location information (“CSLI”), despite the records
being held by a third party. Id. In discussing the third-party doctrine, the
Court noted that the sole act of sharing did not eliminate an individual’s
privacy interest. Id. at 2219. Rather, the Court considered (1) “the nature of
the particular documents sought,” which includes whether the sought
information was limited and meant to be confidential, and (2) the
voluntariness of the exposure.      Id. at 2219–20 (internal citation and
quotation marks omitted).
      Regarding the nature of the information sought, the Court noted that
“telephone call logs reveal little in the way of identifying information” and
that checks are “not confidential communications but negotiable instruments
. . . used in commercial transactions.” Id. at 2219 (internal quotation marks
and citations omitted).     Unlike telephone call and bank records, CSLI
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                                    No. 19-50492
provides    officers   with   “an   all-encompassing    record   of   the   holder’s
whereabouts” and “provides an intimate window into a person’s life, revealing
not only [an individual’s] particular movements, but through them [their]
familial, political, professional, religious, and sexual associations.”      Id. at
2217 (internal quotation marks and citation omitted). Because individuals
“compulsively carry cell phones with them all the time[,]” cell phones have
become “almost a feature of human anatomy.” Id. at 2218 (internal quotation
marks and citation omitted). Thus, the Court held that CSLI “implicate[d]
privacy concerns far beyond those considered in Smith and Miller.” Id. at
2220.
        As for the voluntary exposure component, the Court noted that CSLI
was not voluntarily shared information for two reasons. First, “cell phones
and the services they provide are such a pervasive and insistent part of daily
life that carrying one is indispensable to participation in modern society.” Id.
(internal quotation marks and citation omitted).         Second, CSLI does not
require “any affirmative act on the part of the user.” Id. So long as the user
has their cell phone on, a third party receives CSLI. Id.
   B.      Gratkowski’s Reasonable Expectation of Privacy in his
           Information on the Bitcoin Blockchain
        Gratkowski cites Carpenter to support his argument that he had a
privacy interest in the information held in the Bitcoin blockchain. But the
information on Bitcoin’s blockchain is far more analogous to the bank records
in Miller and the telephone call logs in Smith than the CSLI in Carpenter.
        The nature of the information on the Bitcoin blockchain and the
voluntariness of the exposure weigh heavily against finding a privacy interest
in an individual’s information on the Bitcoin blockchain.             The Bitcoin
blockchain records (1) the amount of Bitcoin transferred, (2) the Bitcoin
address of the sending party, and (3) the Bitcoin address of the receiving

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                                       No. 19-50492
party. The information is limited. Moreover, transacting through Bitcoin is
not “a pervasive [or] insistent part of daily life,” 4 and transferring and
receiving Bitcoin requires an “affirmative act” by the Bitcoin address holder.
See Carpenter, 138 S. Ct. at 2220 (internal citation and quotation marks
omitted).
       Further, Bitcoin users are unlikely to expect that the information
published on the Bitcoin blockchain will be kept private, thus undercutting
their claim of a “legitimate expectation of privacy.” See Smith, 442 U.S. at
743. Granted, they enjoy a greater degree of privacy than those who use
other money-transfer means, but it is well known that each Bitcoin
transaction is recorded in a publicly available blockchain. 5               Every Bitcoin
user has access to the public Bitcoin blockchain and can see every Bitcoin
address and its respective transfers. Due to this publicity, it is possible to
determine the identities of Bitcoin address owners by analyzing the
blockchain. 6 Gratkowski thus lacked a privacy interest in his information on
the Bitcoin blockchain. 7

       4  Unlike cell phones that are ubiquitous, Gratkowski points to nothing that suggests
Bitcoin is central to most people’s daily lives.
       5  See Satoshi Nakamoto, Bitcoin: A Peer-to-Peer Electronic Cash System 2 (2008),
https://bitcoin.org/bitcoin.pdf [hereinafter Nakamoto] (stating that Bitcoin transactions will
be verified with a public system that records Bitcoin transaction histories).
       6   See id. at 6.
       7  Because we hold that there is no privacy interest in information stored in the
Bitcoin blockchain, Gratkowski’s argument—that the federal agents’ method of using a
“powerful and sophisticated software” to analyze the Bitcoin blockchain intruded into a
constitutionally protected area and violated the Fourth Amendment—lacks merit. There is
no intrusion into a constitutionally protected area because there is no constitutional privacy
interest in the information on the blockchain.
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                                 No. 19-50492
   C.      Gratkowski’s Reasonable Expectation of Privacy in his
           Bitcoin Transactions on Coinbase
        Gratkowski again cites Carpenter to support his argument that he had
a reasonable expectation of privacy in the Coinbase records that documented
his Bitcoin transactions. Like the Blockchain, we hold that the Coinbase
records are more akin to the bank records in Miller than the CSLI in
Carpenter.
        Coinbase is a financial institution, a virtual currency exchange, that
provides Bitcoin users with a method for transferring Bitcoin.         The main
difference between Coinbase and traditional banks, which were at issue in
Miller, is that Coinbase deals with virtual currency while traditional banks
deal with physical currency. But both are subject to the Bank Secrecy Act as
regulated financial institutions. See Miller, 425 U.S. at 440–41. Both keep
records of customer identities and currency transactions. See id. at 437–38.
        In that regard, the nature of the information and the voluntariness of
the exposure weigh heavily against finding a privacy interest in Coinbase
records.    See Carpenter, 138 S. Ct. at 2219.     First, Coinbase records are
limited. Having access to Coinbase records does not provide agents with “an
intimate window into a person’s life”; it provides only information about a
person’s virtual currency transactions. See id. at 2217. Second, transacting
Bitcoin through Coinbase or other virtual currency exchange institutions
requires an “affirmative act on part of the user.” See id. at 2220. Bitcoin
users have the option to maintain a high level of privacy by transacting
without a third-party intermediary. But that requires technical expertise, so
Bitcoin users may elect to sacrifice some privacy by transacting through an
intermediary such as Coinbase. Gratkowski thus lacked a privacy interest in
the records of his Bitcoin transactions on Coinbase.

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                                 IV.     Conclusion
       For the foregoing reasons, we AFFIRM the district court’s denial of
Gratkowski’s motion to suppress. 8

       8 Even if the Supreme Court were to extend Carpenter to Bitcoin transactions in the
future, we would still affirm the district court in this case because the good-faith exception
applies to bar suppression. United States v. Molina-Isidoro, 884 F.3d 287, 290 (5th Cir.
2018) (this exception applies when the agents “acted with the objectively reasonable belief
that their actions did not violate the Fourth Amendment”). Gratkowski was arrested in
January of 2018 before Carpenter was decided and, of course, no court had applied such
reasoning to Bitcoin transactions at that time. Thus, in such a circumstance, we would
agree with the district court’s holding that the agents “had no way to know, prior to
Carpenter, that there could be a reasonable expectation of privacy in records like the ones
obtained here.”
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