In a 2-1 decision issued today, the Tenth Circuit affirmed the denial of a Federal Reserve master account to Custodia Bank, the Wyoming-chartered Special Purpose Depository Institution (SPDI) that has become the test case for crypto-native banking. The panel upheld the district court across the board and left Reserve Banks with broad (and potentially unreviewable, in the words of the dissent) discretion over access.

Master accounts are the keys to the fiat kingdom. They’re the ledger entries that let institutions clear and settle directly at the Fed; without one, a “bank” is functionally just a vault dependent on fickle intermediaries and third-party rails. That practical choke point (which has been abused by regulators before) gives any discretion over access extraordinary policy significance.

Wyoming created SPDIs to pair traditional (but fully reserved) dollar banking rails with segregated digital-asset services. Custodia, barred from making loans and required to keep dollar deposits 100% backed by high-quality liquid assets, applied for a master account in October 2020. Early signals from the Kansas City Fed were positive (“no showstoppers”), but after the Board finalized its 2022 access Guidelines, FRBKC treated Custodia as a Tier 3 applicant, the bucket that “generally receive[s] the strictest level of review,” and formally denied the account in January 2023. The Board, consulted beforehand, emailed it had “no concerns” with FRBKC communicating a denial.

The Majority Opinion

Writing for the court, Judge Ebel rejected Custodia’s statutory and administrative claims, and essentially granted the Federal Reserve broad, and potentially unbounded, discretion on this point. Reading the Federal Reserve Act’s § 342 (“may receive deposits”) together with the Monetary Control Act’s § 248a, the panel concluded that access decisions remain discretionary with the Reserve Banks; § 248a(c)(2)’s “shall be available” language concerns pricing and parity for services the Board prices, it doesn’t force the Banks to open an account for every eligible institution. The court also treated the 2022 “Toomey Amendment” (§ 248c) as transparency-oriented, not a mandate to approve applications.

On the APA front, the panel held the Board’s “no-concerns” email was not final agency action, the ultimate decision belonged to FRBKC under the Guidelines, so it carried no independent legal effect. That also undercut theories aimed at the Board itself. Finally, Judge Ebel dispenses with Custodia’s constitutional argument related to the Presidential appointment of inferior officers on a (in my opinion) flimsy technicality: that the argument was not properly preserved.

The Dissent 

Judge Tymkovich dissented, reading § 248a(c)(2)’s “shall be available” as a substantive access guarantee, not mere pricing boilerplate. In his view, when Congress opened the Fed’s services to “nonmember depository institutions,” it made master-account access a duty enforceable, if necessary, through traditional tools like mandamus, rather than a roving veto lodged in unappointed Reserve Bank officers (a framework he warns invites constitutional headaches). He also emphasized that courts in related master-account litigation (e.g., Banco San Juan) recognize the centrality of § 342 but do not resolve away the MCA’s “shall” command.

We are bound by the ordinary language of the statute and, in my view, shall means shall. Section § 248a(c)(2) mandates access to the Fed’s payment services for all nonmember depository institutions. By denying Custodia a master account, the Kansas City Fed has unlawfully denied it access to those services which are vital to its business. That, it cannot do.

The Road Ahead

We need to see the result in PayServices (Ninth Circuit). If that court goes the other way, a circuit split would materially increase the odds of Supreme Court review. It’s interesting to note that Judge Tymkovich was also on that case. But, for now, the ball is firmly in Custodia’s court.  

Today’s ruling cements Reserve Bank discretion at the access gate; the dissent, by contrast, reads the MCA as Congress’s promise of open access for state-chartered, deposit-taking institutions like Custodia’s SPDI. The stakes, for constitutional structure, state innovation, and Bitcoin-adjacent banking, couldn’t be clearer.

Disclosure: I authored an amicus brief on behalf of Wyoming’s Secretary of State supporting Custodia.

This is a guest post by Colin Crossman. Opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.

This post Tenth Circuit Hands Fed a Win: Custodia Denied Master Account in Blow to Crypto Sovereignty,  Dissent Brings the Heat first appeared on Bitcoin Magazine and is written by Colin Crossman.

Introduction: Patent Trolls Targeting Bitcoin Mining

Bitcoin’s use of elliptic curve cryptography (ECC), which is essential for generating key pairs and validating digital signatures, has drawn the attention of a nonpracticing entity (NPE), more commonly known as a patent troll. In May 2025, Malikie Innovations Ltd., a troll that acquired thousands of patents from BlackBerry’s portfolio, filed lawsuits against major mining firms Core Scientific (CORZ) and Marathon Digital Holdings (MARA). (Some considered MARA an original patent troll itself and thus have expressed schadenfreude at the current attacks.) Malikie claims that routine Bitcoin operations (like verifying transactions with ECC-based signatures) infringe on several ECC-related patents originally developed by Certicom (later owned by BlackBerry). The patents cover techniques for accelerated digital signature verification, finite field math optimizations and other ECC improvements.

Malikie’s lawsuits, in Texas’ Eastern District against CORZ and Western District against MARA, demand damages for past infringement and an injunction against further use of the patented methods. In essence, Malikie seeks to impose a licensing regime on Bitcoin’s core cryptographic functions, a move that could set a dangerous precedent for the entire industry. If Malikie succeeds, virtually anyone running Bitcoin software (miners, node operators and potentially even wallet providers) could be exposed to patent liability. This threat has galvanized the Bitcoin and open source communities to explore every available defensive tool. In this preparatory briefing, we examine: 

1. Historical legal strategies used to fend off troll lawsuits. 
2. The mechanics, costs and effectiveness of Inter Partes Review (IPR) in challenging software/crypto patents. 
3. Community-led responses (EFF, Linux Foundation, COPA, etc.) that help defendants by funding prior-art searches or legal defenses. 
4. The potential ramifications for Bitcoin mining if Malikie’s claims prevail, drawing parallels from other industries.

1. Historical Strategies Against NPE Patent Lawsuits

Over the past two decades, tech companies and industries have developed several tactics to combat patent trolls. Key strategies include challenging patent validity, shifting lawsuits to favorable venues via declaratory judgment actions, leveraging recent case law to dismiss abstract patents and simply refusing to settle in order to deter trolls.

While not all strategies will apply to these cases, for completeness I’ll outline these approaches:

Rigorous Invalidity Challenges (Prior Art – §102/103): The most direct way to neutralize a troll’s patent is to demonstrate that the patent should never have been granted in the first place because earlier technology already taught the same invention. Defendants search for prior art — such as earlier publications, academic papers, standards (RFCs) or open source code — that predate the patent’s priority date and disclose the claimed invention. If a single prior art reference embodies every element of a patent claim, the claim is “anticipated” (invalid for lack of novelty under 35 U.S.C. §102). If no one reference is complete but a combination of references would have been obvious to a skilled person, the claim is invalid for obviousness (§103). In the Malikie cases, for example, Bitcoiners have been called to urgently collect publications from before January 18, 2005 (the priority date of one asserted patent, U.S. 8,788,827), and before December 31, 2001 (for U.S. 7,372,960). to prove the patented ECC techniques were already known. The Bitcoin community has noted that Hal Finney and others actively tracked ECC patents and even delayed certain optimizations in Bitcoin until patents expired — for instance, the famed “GLV endomorphism” speedup was only added to Bitcoin Core after its patent lapsed (and caution on the GLV issue was taken by developers, which Malikie itself acknowledged in its complaint — paragraphs 20 and 21 of the MARA complaint, for instance). Unearthing such prior art may not only win the case at hand but invalidate the patent for everyone.

• Inter Partes Review (IPR) and Post-Grant Proceedings: Beyond raising invalidity in court, since 2012 defendants have relied on IPR at the Patent Trial and Appeal Board (PTAB) as a powerful forum to knock out bad patents. IPR is an administrative trial within the U.S. Patent Office where challengers can present prior patents or publications to show a granted patent is invalid. We detail IPR’s mechanics in Section 2, but historically it has been a favored tool against NPEs because of its high success rate (around 70%+ of patents see claims canceled when reviewed) and lower burden of proof (“preponderance of the evidence,” 51%, rather than the “clear and convincing,” 75%, standard in court). Companies sued by trolls often file IPR petitions early and then move to stay (or pause) the litigation pending the PTAB’s decision — a stay which many courts grant once an IPR is instituted, given the likelihood that the patent may be invalidated. Notably, in the landmark Personal Audio “podcasting patent” case, the Electronic Frontier Foundation (EFF) filed an IPR that successfully invalidated a troll’s patent on podcast distribution, even as the troll was suing podcasters in East Texas. That IPR, funded by over a thousand small donations from the community, culminated in the Patent Office canceling all claims of the patent in 2015, a result later affirmed on appeal. This victory protected not just the sued targets (like comedian Adam Carolla) but all podcasters going forward. Similarly, the best path for the Bitcoin ecosystem may be to file IPR (or the related Post-Grant Review) against Malikie’s ECC patents, leveraging the mountain of cryptography literature from the 1990s and early 2000s to demonstrate that Bitcoin’s use of ECC was not novel to Malikie’s assignors.
  
• Declaratory Judgment (DJ) Actions: Another defensive tactic is to preempt the troll by filing a declaratory judgment lawsuit in a preferred court, seeking a ruling that your product does not infringe or that the patent is invalid. Under U.S. law, a company that feels threatened by a patent (e.g., it received a demand letter or sees peers being sued) can sometimes sue first if it can show a substantial controversy. The goal is to avoid being haled into the NPE’s chosen venue (historically, the Eastern District of Texas was favored by trolls) and instead litigate in a more neutral or defendant-friendly forum. For instance, when notorious troll Lodsys threatened dozens of small app developers over in-app purchase patents, one strategy (supported indirectly by Apple and Google) was to seek declaratory rulings outside of East Texas to undermine the troll’s jurisdiction. In practice, DJ actions can prompt a faster resolution or even settlement on better terms. However, the patent owner must have made a concrete infringement assertion to establish the requisite “case or controversy.” In Malikie’s situation, if other Bitcoin companies (exchanges, wallet providers, smaller miners) suspect they are next in line, those companies could file a declaratory suit in a jurisdiction of their choice. This would flip the script, making Malikie the defendant and potentially consolidating the fight in a forum less favorable to NPEs.
  
• Motions to Dismiss Under Alice (35 U.S.C. §101): Since the 2014 Alice Corp. v. CLS Bank decision, many software patents have been invalidated early in litigation for claiming unpatentable abstract ideas. Courts now examine whether a patent is directed to a fundamental abstract idea (like a mathematical formula) without an “inventive concept.” Defendants often file Rule 12(b)(6) motions to dismiss, arguing the patent is invalid on its face under §101. While cryptographic algorithms can be viewed as mathematical computations (a classic abstract idea), success with an Alice motion depends on how the patent claims are drafted. If the claims merely cover a generalized math formula or the concept of using ECC on a computer, a judge could void them as abstract. Indeed, some defendants have beaten trolls this way, sparing the cost of trial. In Malikie’s case, their patents seem to cover specific techniques to speed up ECC computations (like endomorphisms, modular reduction optimizations, etc.) — arguably “technical improvements” in cryptography rather than a naked abstract idea. That may make an Alice challenge less straightforward, but it remains an option to explore. At minimum, raising a §101 defense preserves it for later and signals to the court that the patents’ validity is dubious on multiple grounds.
  
• “Never Settle” and Fight to Verdict: An aggressive strategy some companies have taken is simply to refuse settlement and force the troll to prove its case in court, even if that means an expensive trial. The rationale is that paying off a troll invites more lawsuits (marking you an easy mark), whereas a courtroom victory not only ends that case but deters future attacks. Newegg pioneered this approach in the tech sector: Confronted by a series of patent trolls in the early 2010s, Newegg adopted a policy of zero settlements. In one famous instance, Newegg fought Soverain Software, which claimed to own the online shopping cart, all the way through appeal — and won a Federal Circuit ruling invalidating the patent, freeing the entire e-commerce industry from that threat. Similarly, Cloudflare, a web services company, was sued by an NPE called Sable Networks and refused to settle even as others paid licenses. Cloudflare not only went to trial (winning a defense verdict) but also launched “Project Jengo,” a crowdsourced prior-art hunt offering cash bounties to the public for any prior art that could invalidate any patent in Sable’s portfolio. This aggressive counterattack led to a remarkable outcome: Sable not only lost in court, it eventually paid Cloudflare to end the case and agreed to surrender its patents to the public domain. The message was clear: Trolls who pick a fight with determined defendants risk losing their entire arsenal. Of course, this approach requires deep pockets and high risk tolerance. Patent litigation costs can easily reach millions of dollars, and as patent attorney Bill Fowler notes, “there is no patent small claims court” — even relatively small infringement cases demand costly expert witnesses and extensive discovery. Thus, while fighting to the bitter end can yield industry-wide benefits, it’s often only viable for larger companies or those with community funding support.
  
• Joint Defense and Industry Coalitions: When a patent troll sues multiple companies over the same patent, defendants often form a joint defense group to pool resources. They can share prior art research, coordinate legal strategy and file unified motions (where appropriate) to avoid duplication. Some industries have gone further by creating defensive coalitions: For example, the Linux Foundation’s OIN (Open Invention Network) is a consortium where members cross-license patents and collaboratively defend against attacks on Linux/open source systems. In 2019, when an NPE sued the GNOME Foundation (a nonprofit open source project) over a photo management patent, OIN and others rallied to GNOME’s aid, providing legal counsel and digging up prior art to invalidate the troll’s patent. This unified front not only helped GNOME achieve a successful outcome (the troll Rothschild Patent Imaging was eventually stripped of all rights), but also sent a warning to other trolls targeting open source projects. We are seeing a similar spirit of coalition in the Bitcoin realm: Community leaders are calling to “engage EFF, the Linux Foundation, [and] the Bitcoin Legal Defense Fund to help fund or support,” a coordinated defense against Malikie. By combining efforts — from current and past core developers providing technical evidence that Bitcoin deliberately avoids patented methods to nonprofits bringing legal expertise — the industry can strengthen each defendant’s case.

In summary, industries hit by patent trolls have developed a toolkit of responses: invalidate the patent if possible (via prior art in court or PTAB review), challenge the troll’s chosen battlefield (through declaratory suits or venue fights), leverage legal precedent (Alice motions) to knock out weak claims early and stand together to share costs and knowledge. These strategies have repeatedly blunted NPE campaigns in the past and are directly relevant to the Malikie litigation.

2. Inter Partes Review: Mechanics, Costs and Effectiveness in Tech Cases

One of the most potent weapons against questionable patents is the Inter Partes Review process. Created by the America Invents Act of 2011, IPR allows anyone (usually a sued defendant, but it could be any interested party) to challenge a granted patent’s validity at the U.S. Patent and Trademark Office. Here’s how IPR works and why it has become a go-to defense, especially for software and cryptography-related patents:

• Mechanics of IPR: To initiate an IPR, a petitioner files a detailed petition to the PTAB (an administrative tribunal of specialized patent judges), laying out how the patent claims are invalid in light of prior patents or printed publications. Notably, IPR can only use prior patents or printed publications (no live testimony or other evidence), making it a focused prior-art battle. The petition must be filed within 1 year of being sued for infringement (if applicable) and it typically targets the most critical claims the troll is asserting. The patent owner gets a chance to file a preliminary response. The PTAB then decides whether the challenger has shown a “reasonable likelihood” of prevailing on at least one claim. If yes, the Board “institutes” the IPR, and from that point a one-year trial clock starts (extendable by six months for good cause). During this trial phase, both sides submit briefs, expert declarations and sometimes oral hearings. Finally, the PTAB issues a Final Written Decision determining which claims are invalid, usually on grounds of anticipation or obviousness.
  
• Lower Cost and Faster Timeline: IPRs were designed to be faster and cheaper than courtroom litigation. A typical IPR from start to finish lasts about 18 months, compared to multiyear court litigation. The cost, while not trivial, is often an order of magnitude lower than fighting a full jury trial. Filing fees for an IPR (for up to 20 claims) are around $20,000-$30,000, and legal fees can be a few hundred thousand dollars. In contrast, defending a patent case through trial can cost several million dollars. This cost difference is why even mid-sized companies or start-ups have been able to mount IPR challenges, sometimes with support from outside organizations. For example, EFF’s Save Podcasting campaign raised about $80,000 from the public specifically to fund the IPR against Personal Audio’s podcast patent. In the crypto space, the newly formed Crypto Open Patent Alliance (COPA) or the Bitcoin Legal Defense Fund might similarly bankroll an IPR to protect open source developers and businesses from Malikie’s claims. The relatively manageable cost makes IPR an attractive collective effort: Multiple parties who fear they could be next can split the bill for a single IPR that knocks out the threat for all.
  
• Effectiveness and Success Rates: IPR has proven highly effective at invalidating questionable software and tech patents. Since its inception, statistics show that a large percentage of instituted IPRs result in patent claims being canceled. Recent data (2023-2024) indicate petitioners succeed in invalidating some or all challenged claims about 70-80% of the time when the IPR reaches a final decision. This is partly because patents that make it to IPR are often the “low-hanging fruit,” those that likely should not have been granted over the prior art in the first place. The PTAB judges also tend to be technically skilled and less swayed by rhetoric than a lay jury, focusing strictly on the patentability issues. Given Bitcoin’s academic roots (Bitcoin’s white paper itself cited prior works, and ECC has decades of literature), the odds are favorable that a well-prepared IPR could uncover prior art that the original patent examiners missed. At this point it is useful to note that the vast majority of patents receive primary merits examination by only a single USPTO employee. In Malikie’s case, their patents stem from the early 2000s; already, researchers are pointing to early cryptography conferences and NIST publications that might anticipate those “innovations.” If such references are presented to the PTAB, there’s a strong chance the PTAB would agree that the patent should not have been issued and cancel the relevant claims.
  
• IPR vs. Court Litigation — Key Differences: A major reason defendants prefer IPR is the lower burden of proof. In an IPR, invalidity needs to be shown by a preponderance of evidence (just >50% convinced). But in a district court trial, a patent is presumed valid by statute (35 U.S.C. §282) and a challenger must provide clear and convincing evidence (a higher standard, often analogized to >70%) to get a jury or judge to void it. This disparity means that even if you have solid prior art, a jury might still side with the patent holder in close cases, whereas the PTAB would likely invalidate the claims under the more lenient standard. Additionally, juries (especially in Texas, at least historically…) are generally reluctant to invalidate patents, perhaps due to a layperson’s deference to an issued government patent. The PTAB has no such reluctance and was nicknamed a “patent death squad” by some patent owners because of how many patents it struck down in the early years. That being said, it’s worth noting some recent policy shifts: The current U.S. Patent and Trademark Office leadership has made instituting IPRs a bit harder, aiming to curb some challenges in favor of patent owners (a “pro-patent stance”). Discretionary denials of IPR (for instance, if a parallel court case is well underway) have increased. Bill Fowler’s commentary in June 2025 noted that Commerce Secretary Lutnick instituted policies to tighten IPR institution practices, prompting some challengers to consider the older ex parte reexamination process as an alternative. Ex parte reexam is another Patent Office proceeding to reconsider a patent’s validity (with no strict one-year time bar), though the challenger doesn’t get to participate after filing the request. Some defendants pursue both routes: file an IPR (if not time-barred) for a fast, adversarial trial, and simultaneously file an ex parte reexam as a backup to keep the pressure on the patent even if the IPR is denied or the challenger later settles.
  
• Costs in Context: While $300,000 or more for an IPR is not pocket change, it is often a fraction of the potential damages at stake or the cost of continued litigation. Malikie, for example, is reportedly seeking up to six years of back royalties from the miners (CORZ is not subject to this, due to its Chapter 11 Bankruptcy). If those royalties were, hypothetically, $50 million, spending a few hundred thousand on an IPR to eliminate that liability (or to gain leverage to settle for a nuisance amount) is a wise investment. However, smaller startups or open source projects could probably not afford it alone, which is why industry groups step in. We’ve seen crowdfunding and pooled funding make IPRs possible: Beyond EFF’s podcast patent IPR, there was also Unified Patents, an organization (calling itself “The Anti-Troll”) that files IPRs to protect sectors from trolls. Unified often operates by collecting annual dues from member companies and then challenging patents that threaten those companies’ industries, at no extra cost to the individual members. In fact, in late 2024 COPA (the Crypto Open Patent Alliance) announced a partnership with Unified Patents to launch a “Blockchain Zone” dedicated to challenging NPE-held blockchain and crypto-related patents. This means that if patents like Malikie’s pose a serious threat, Unified Patents could file IPR petitions on its own initiative, funded by the broader alliance, which would save individual defendants money. Unified boasts that it never pays trolls and only invalidates their patents, thus removing the incentive for future attacks. In COPA’s view, this proactive use of IPRs and other challenges is essential because an estimated 58% of all U.S. patent litigation in the crypto/blockchain sector comes from NPEs, a staggering figure that highlights how critical patent defenses are for the crypto community.
  
• Outcome of IPR — What Then? If an IPR is successful, the claims are invalidated (once appeals are exhausted), meaning Malikie or other trolls can no longer assert those claims against anyone. This benefit is industry-wide: Unlike a settlement or win in one lawsuit, which only affects the parties, an IPR win knocks the patent out of the system. If the IPR fails (e.g., PTAB finds the claims valid over the presented prior art), the litigation in court still proceeds, but the defendant loses the ability to reuse those same prior art arguments at trial (IPR estoppel applies to any ground that was raised or reasonably could have been raised). Even so, defendants often take the shot at IPR because a win is so decisive, the burden of proof is much lower and the forum is more educated on these issues. In high-stakes cases, defendants might pursue both IPR and traditional invalidity defenses in parallel (raising different prior art in each to avoid estoppel overlap). And if an IPR petition is denied at the institution stage — which can happen for procedural reasons or insufficient showing — the defendant isn’t estopped at all, and they can still litigate validity in court as if the IPR was never filed. Thus, filing an IPR is usually a no-brainer defense in modern patent litigation, and it is very likely Core Scientific and Marathon (or an allied group like COPA/Unified) will prepare IPR petitions on the ECC patents Malikie is asserting.

In sum, IPR has reshaped the patent troll battlefield by giving defendants a powerful, efficient way to invalidate patents outside the uncertainties of a jury trial. Especially for software and cryptographic patents, where a rich background of academic prior art exists, the IPR process tilts the playing field back toward technology innovators and away from shell companies exploiting older patents.

3. Community-Led Responses and Industry Support Networks

Beyond the formal legal tools, an equally important aspect of fighting patent trolls is the mobilization of the community and industry support structures. In many NPE showdowns, collective action and public interest initiatives have made the difference between a lone defendant being coerced into settlement and a unified front that quashes the troll’s campaign. Here we explore how open source communities, advocacy groups and industry alliances contribute to defending against patent trolls:

• Crowdsourced Prior Art Searches: The global developer and academic community can be an invaluable resource for finding prior art, especially for patents in niche technical fields. Patent trolls count on the fact that individual defendants might not have the time or expertise to dig up obscure conference papers or decades-old source code. But when a call to action is issued, experts worldwide often volunteer leads. The EFF has a long history of organizing these efforts. In the Personal Audio case, EFF put out a public request for any evidence of pre-1996 podcast-like technology. Submissions poured in, including old Usenet postings and early Internet Radio projects, which helped form the basis of EFF’s successful IPR. Similarly, in 2017 Cloudflare’s Project Jengo offered cash bounties for prior art on all of a troll’s patents, not just the one asserted, flipping the script to put the troll on the defensive. I personally called for such a scorched-earth approach and believe that such a vigorous response is not only warranted but necessary. In the Bitcoin context, we’re already seeing this approach: Bitcoin developers and enthusiasts are actively hunting for prior art that predates Malikie’s patents. By pooling such knowledge on forums or via organized initiatives (perhaps a “Bitcoin Prior Art Repository” for ECC and other core technologies), the community can bolster the invalidity case. Dan Sanchez explicitly issued a call to arms for builders and researchers to unite and “delete these [patent] claims” by compiling prior art, emphasizing that “if you are a builder of any kind, you are at risk!” This kind of rallying cry is reminiscent of open source communities in the past, for instance, when the GIF image format’s patent threatened open web use, developers created patent-free alternatives (PNG) and shared work-arounds until the patent expired. It’s a combination of defensive documentation and morale-building, showing trolls that the community won’t be easy prey.

• The Bitcoin Legal Defense Fund: In January 2022, a Bitcoin Legal Defense Fund was announced by Jack Dorsey and others, initially to help Bitcoin Core developers facing frivolous lawsuits (like Craig Wright’s claims). While its primary focus was on defending open-source devs from harassment and liability, the fund could extend to patent issues if needed. Its mandate is to financially support legal defense for Bitcoin ecosystem participants who cannot afford it. Patent battles definitely fit that description for smaller companies and individual devs. These community-funded efforts create a safety net: They ensure that a smaller Bitcoin mining operation or wallet startup hit by a patent suit isn’t left to choose between bankrupting itself in litigation or paying an unjust licensing fee. Instead, they can get backing to mount a proper defense.

• COPA (Crypto Open Patent Alliance): COPA deserves special attention. Formed in 2020 by fintech and crypto firms (with Block, Coinbase and others as founding members), COPA’s mission is twofold: encourage members to pledge not to offensively assert their own crypto-related patents (to prevent an arms race) and actively challenge patents that threaten the community. COPA has already taken on a high-profile fight by suing Craig “Faketoshi” Wright over the Bitcoin white paper copyright/patent claims (and won a U.K. court ruling that Wright’s assertions were false). In the patent troll sphere, COPA’s partnership with Unified Patents led to the creation of the aforementioned Blockchain Zone, explicitly targeting NPE-held patents in blockchain. COPA’s chief counsel has stated that “patent trolls must be stopped so the community can continue to build,” and that COPA will provide “pass-through protection at no cost” to its members. This implies that if a COPA member (say a smaller Bitcoin company) is sued, COPA and Unified might handle the IPR or even the litigation, effectively shielding the member. Malikie’s broad net, with the implication that no Bitcoin infrastructure company is safe, is precisely the scenario COPA was created for. We can expect COPA to rally its member companies (over 300 of them as of late 2024) to share prior art and perhaps file collective amicus briefs or petitions. They might even engage in licensing negotiations as a bloc, though given COPA’s stance, they’re more likely to fight than pay.

• Public Awareness and Stigma: Community response isn’t only behind the scenes. There’s also value in controlling the narrative. Patent trolls often operate in the shadows, pressuring targets quietly to sign licenses. Publicly calling them out can undermine their strategy. We see Bitcoin media outlets and influencers doing just that: referring to Malikie plainly as a patent troll, and framing the lawsuits as an attack on the Bitcoin network rather than a legitimate claim. This narrative puts moral pressure on Malikie; if they push too hard, they risk a backlash or even legislative attention. It’s happened before: When an NPE started sending mass demands to small businesses for using Wi-Fi (the infamous Innovatio case), it garnered negative press and eventually, the major Wi-Fi equipment makers stepped in to defend their customers. In another case, the state of Vermont sued the MPJH Scanner Troll for violating consumer protection laws by sending misleading demand letters to local businesses. Other states, such as North Carolina, have passed strong anti-troll legislation that has been upheld in court. In the crypto world, portraying Malikie’s campaign as an existential threat to innovation can rally lawmakers or regulators to scrutinize the situation. We already see experts noting that if Malikie truly enforced its patents broadly, “it might undermine the security of the Bitcoin network” — a dire consequence that no regulator or politician would want to be responsible for. While patent law is federal, there’s precedent for the FTC investigating patent trolls for anticompetitive behavior if they abuse a dominant patent in bad faith. Community outcry can prompt such oversight.

In summary, the defense against patent trolls is not just legal filings, but also community solidarity and resource-sharing. From EFF’s legal battles and COPA’s patent pool, to crowdsourced prior art and joint defense groups, these collective efforts ensure that even those without deep pockets have a fighting chance. The Bitcoin community, much like the open source software community before it, is leveraging these tools: engaging nonprofits, coordinating through alliances like COPA, and tapping the wisdom of the crowd. This multipronged community response can significantly tilt the balance against Malikie’s assertions.

4. Ramifications for Bitcoin and Parallels in Other Industries

What happens if, despite all defenses, a patent troll like Malikie succeeds in court? The implications for the Bitcoin industry, especially smaller players, could be profound, and analogous scenarios in other industries provide cautionary tales. Here we consider the potential fallout and compare it to past outcomes in tech sectors:

• Financial Strain and Market Exit: The most immediate impact would be financial. If Malikie were to prevail and secure a judgment or licensing agreement, miners and possibly other Bitcoin companies would face ongoing royalties (or a hefty one-time payout). Patent damages can include up to six years of back royalties (the statutory limit for past infringement), which for large-scale miners could mean tens of millions of dollars. As attorney Aaron Brogan noted, a win could even risk pushing defendants like Core Scientific or Marathon into bankruptcy (or back into bankruptcy in CORZ’s case) given the sums involved. For smaller and mid-size miners, the prospect is grim: Many operate on thin profit margins tied to the BTC price and energy costs. An additional “patent tax” could make their business unsustainable, forcing them to shut down or relocate to jurisdictions where U.S. patent law can’t reach them. In Bitcoin, a few well-capitalized miners might weather the fees, but independent miners could be priced out, further centralizing the U.S. mining ecosystem — ironically contributing to the opposite of Bitcoin’s decentralization ethos.
  
• Precedent for More Lawsuits: A successful assertion by Malikie would set a precedent and embolden further litigation. Malikie itself could go down the list of targets: other public mining companies, mining pool operators, hardware manufacturers (if any of the patent claims cover aspects of mining devices or wallets, as Malikie’s complaint suggests). Moreover, other patent trolls might dust off old cryptography patents in adjacent areas (hash algorithms, networking protocols in blockchain, etc.) seeing that the Bitcoin industry is “open for business” to patent licensing. This has happened in industries like semiconductors and smartphones; one troll’s big win triggered a “gold rush” by others holding similar patents. For example, after NPEs successfully extracted settlements from some small mobile app developers, a wave of new demand letters hit the market targeting every popular app. The cost of legal defense creates a vicious cycle: Even meritless claims can cause companies to settle to avoid litigation expenses, and those settlement dollars then fund the troll to sue the next target. If Malikie proves profitable, it could lead to a long-running drag on the Bitcoin sector, where innovation slows because companies must allocate budget to patent licensing or lawsuits instead of development.
  
• Future Safeguards: Looking forward, success against Malikie could also spur the Bitcoin community to adopt more systematic safeguards. This might include deeper participation in organizations like COPA. It could also lead to patent insurance products for miners or developers, and increased lobbying for patent law changes (for example, raising the bar for patent eligibility of pure software, or fee-shifting to penalize trolls). The outcome of these cases could even influence how protocol upgrades are approached. There might be a push to more thoroughly vet any BIPs for patent risks and document alternatives or get explicit patent grants from inventors (somewhat similar to how the IETF requires disclosure of patents on proposed standards). In a sense, the Bitcoin ecosystem may mature in its IP awareness, much as the Linux community did after early legal scares.

Conclusion

The clash between Malikie Innovations and Bitcoin miners exemplifies a classic conflict between open innovation and legacy fiat intellectual property rights. History shows that industries can fend off patent trolls by using every available legal tool, from IPRs at the PTAB to robust invalidity defenses in court and by banding together through community-driven initiatives. U.S. law provides mechanisms like declaratory judgments, prior-art based invalidity challenges and the Alice test for abstract ideas to defend against overly broad or old patents repurposed by NPEs. The Bitcoin community, much like the open source software community before it, is now mobilizing these defenses.

If there is a silver lining, it’s that such challenges often rally the community to emerge stronger: Weak patents get knocked out, collaboration intensifies, and a clear message is sent to would-be trolls that this ecosystem is not an easy target. Cases in parallel industries, from podcasting to Wi-Fi to Linux, demonstrate that a determined defense can not only defeat the immediate threat but also set precedents that discourage future suits. On the flip side, complacency or capitulation could impose a tax on innovation and dent the growth of Bitcoin technology in the crucial years ahead.

Ultimately, the fight against Malikie will likely hinge on demonstrating that Bitcoin’s cryptographic methods were neither novel nor proprietary to any one company, but rather stemmed from decades of public research and collaborative development. By clearly articulating that story in court, in the Patent Office and in the court of public opinion, the defendants and their allies can not only protect their own operations but also preserve the freedom to build and use Bitcoin for everyone. As Paul Grewal, chief legal counsel for COPA member Coinbase, said, “Patent trolls are barriers in the path of innovation… They must be stopped so that the community can continue to do the important business of building the crypto-economy.” 

The coming together of miners, developers, legal advocates and industry groups in this case will be crucial in determining whether that vision holds true.

This is a guest post by Colin Crossman. Opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.

This post The Trolls Are Coming: Defending Bitcoin Mining from Patent Trolls first appeared on Bitcoin Magazine and is written by Colin Crossman.

Nebraska lawmakers have just passed Legislative Bill 526 (LB526), and while not explicitly anti-Bitcoin, its effects may be anything but neutral. With a unanimous 49-0 vote, the Legislature sent the bill to Governor Jim Pillen’s desk, where it’s expected to be signed into law. Supporters call it a commonsense infrastructure bill. Bitcoin miners call it a slow-motion exodus in the making.

On paper, LB526 is about large energy users. But in practice, it singles out Bitcoin mining facilities with one megawatt (MW) or greater loads and layers on operational constraints that look more like punishment than policy.

Cost Shifting, Public Shaming, and Curtailment

At the heart of LB526 is a mandate: miners must shoulder the costs of any infrastructure upgrades needed to support their demand. Utilities are empowered to demand direct payments or letters of credit after conducting a “load study.” And while the law pays lip service to “fairness” and non-discrimination, it’s clear who the target is. Bitcoin miners are the only industry named.

Further, mining operators must notify utilities in advance, submit to their interconnection requirements, and, critically, accept interruptible service. That means that when the grid gets tight, it’s miners who go dark first. Voluntary demand response, the hallmark of Bitcoin mining’s grid-friendly posture? Replaced with mandated curtailment and utility discretion.

And the kicker: public disclosure of energy consumption. Utilities must publish annual energy usage for each mining operation. No such requirement exists for other data-heavy sectors — not for cloud computing, not for AI clusters, not for Amazon data centers. Just Bitcoin. It’s not just surveillance, it’s signaling.

The Tax That Wasn’t, and the Costs That Remain

To its credit, the Legislature dropped an earlier provision that would’ve added a 2.5¢/kWh tax on mining. This punitive levy would’ve tacked 50% onto typical industrial rates. That tax would have been an open declaration of hostility. Removing it was necessary. But not sufficient.

Because what remains in LB526 is a less visible, but no less potent deterrent: uncertainty. Miners already operate on razor-thin margins and seek jurisdictions with predictable power costs and clear rules. Instead, Nebraska is offering infrastructure tolls, discretionary curtailment, and regulatory spotlighting.

The Market Responds: Warning Shots from Miners

Industry leaders didn’t stay silent. Marathon Digital Holdings, one of the largest publicly traded mining firms, testified that it had invested nearly $200 million in Nebraska and paid over $6.5 million in taxes, and warned that if LB526 passed, further expansion would likely be scrapped.

Their message was clear: Nebraska had been a pro-mining, pro-growth jurisdiction. But LB526 sends a signal that miners aren’t welcome, or at best, are second-class citizens in the energy economy. As one executive put it, “If the same rules don’t apply to other energy-intensive industries, this isn’t about infrastructure, it’s about discrimination.”

Others warned that mandatory curtailment replaces cooperative grid services with coercion. Bitcoin miners can, and do, offer real-time load shedding that stabilizes grids during peak demand. But that value proposition only works when there’s a market signal. LB526 turns it into a liability.

Politics, Power, and Public Utilities

Senator Mike Jacobson, the bill’s sponsor, insisted LB526 is agnostic toward Bitcoin. “This is about electricity usage,” he said. But that’s hard to square with a bill that surgically targets one user class.

Jacobson pointed to Kearney, where half the city’s power goes to a single mining facility. But rather than view that as an opportunity, a dispatchable industrial customer willing to scale up or down based on grid needs, the Legislature opted for risk aversion and central planning.

And in Nebraska’s public power model, that matters. With every utility publicly owned, the regulatory posture of the state isn’t advisory, it’s existential. There is no retail competition. If Nebraska’s power authorities begin treating Bitcoin miners like unreliable freeloaders rather than willing partners, miners have no recourse. Just the exit.

For now, LB526 awaits only the governor’s signature. Given that LB526 was introduced at the behest of the governor, it is likely to be signed. Once enacted, it will take effect October 1, 2025. Miners have until then to decide: adapt, relocate, or fold.

States like Texas, Wyoming, and North Dakota have gone the opposite direction, offering tax clarity, grid integration, and legal protection. Nebraska, once on that shortlist, may find itself dropping off the radar.

Bitcoin mining doesn’t need handouts. But it does need equal footing. LB526 imposes costs, limits flexibility, and broadcasts suspicion. If the goal was to balance innovation with infrastructure, the execution leaves much to be desired.

Because when one industry is burdened while others are exempted, when voluntary partnerships are replaced with mandates, and when operational data is made public for no clear reason, it’s not hard to see why miners view LB526 not as regulation, but as retaliation.

This is a guest post by Colin Crossman. Opinions expressed are entirely their own and do not necessarily reflect those of BTC, Inc. or Bitcoin Magazine.

This post Nebraska’s New Mining Rules: Infrastructure Safeguard or Soft Ban in Disguise? first appeared on Bitcoin Magazine and is written by Colin Crossman.

Looking to cement Wyoming’s position at the forefront of Bitcoin innovation, freshman Representative Jacob Wasserburger (@jacob4wyoming) has introduced the “State Funds-Investment in Bitcoin Act” (HB0201), a bill aimed at creating a Bitcoin Strategic Reserve for the state. Following the footsteps of groundbreaking Bitcoin legislation previously passed in Wyoming, this bill seeks to secure the state’s financial future while paving the way for broader national adoption.

Wyoming: A Tradition of Innovation

“Wyoming has always been a pioneer—from women’s suffrage, to the first national park; from the invention of the LLC, to the frontier of digital assets,” Wasserburger remarked when introducing the bill. “HB0201 ensures that Wyoming remains the leading state for legislative innovation in Bitcoin, while providing our citizens with the long-term benefits of sound money and financial sovereignty.”

HB0201 would allow the allocation of a portion of Wyoming’s state funds into Bitcoin as part of a diversified investment strategy. By doing so, the state aims to capitalize on Bitcoin’s long-term appreciation potential while promoting its principles of decentralization and monetary resilience. The initiative aligns with Wyoming’s established reputation as the most Bitcoin-friendly jurisdiction in the United States, a legacy cultivated by laws such as the Wyoming Special Purpose Depository Institution (SPDI) framework, and includes more than two dozen other laws and regulations passed or promulgated since 2018.

National Collaboration: Supporting Senator Lummis and President-elect Trump

Representative Wasserburger’s ambitions extend beyond Wyoming. The freshman legislator emphasized the importance of supporting efforts by Wyoming Senator Cynthia Lummis and President-elect Donald Trump to establish a United States Strategic Bitcoin Reserve.

“As a proud supporter of Senator Lummis and President-elect Trump’s efforts, I believe Wyoming can play a vital role in this national initiative,” Wasserburger stated. “Building a strategic Bitcoin reserve isn’t just about securing financial strength—it’s about ensuring that both Wyoming and America remain leaders on the global stage.”

This collaboration underscores the growing recognition of Bitcoin as a geopolitical asset. Advocates argue that holding Bitcoin as a reserve asset could hedge against inflation, protect against economic instability, and strengthen the United States’ position in an increasingly digital global economy.

The Economic Case for a Bitcoin Strategic Reserve

At the heart of HB0201 lies an economic argument as compelling as it is revolutionary. Bitcoin, often described as “digital gold,” has demonstrated remarkable resilience and growth over the past decade. For Wyoming, a state that has consistently championed financial independence and innovation, the potential upside of Bitcoin aligns with its long-term vision.

“We can’t afford to sit on the sidelines while other states, like Texas, Pennsylvania, North Dakota, New Hampshire and others move forward with their own Bitcoin reserve bills,” said Wasserburger. “Passing HB0201 quickly ensures that Wyoming remains the leader among the states, setting the standard for financial innovation and sovereignty. With many other states likely to follow suit, now is the time to solidify our position as the trailblazer in the digital economy and ensure Wyoming stays ahead of the pack.”

“Wyoming’s economic future depends on embracing innovation while staying true to our principles of individual liberty and financial independence,” said Wasserburger. “Investing in Bitcoin is not just smart policy—it’s Wyoming’s way of saying we’re ready for the future.”

In a time when states are grappling with economic uncertainty and inflationary pressures, Bitcoin’s fixed supply and decentralized nature offer a stark contrast to traditional financial systems. By adopting HB0201, Wyoming positions itself as a leader not just in Bitcoin regulation, but in integrating Bitcoin into the financial apparatus of state governance.

This is a guest post by Colin Crossman. Opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.

This post Wyoming Introduces Bitcoin Strategic Reserve Bill first appeared on Bitcoin Magazine and is written by Colin Crossman.

We can’t live in a world where somebody starts a company that’s a completely legal thing, and then they literally [] get sanctioned [] and embargoed by the United States government through a completely unaccountable [process] by the way. No due process. None of this is written down. There’s no rules. There’s no court, there’s no decision process. There’s no appeal. Who do you appeal to, right? [] Who do you go to to get your bank account back? 

— Marc Andreessen, speaking to Joe Rogan, published on 11/26/2024

In yet another troubling manifestation of “Chokepoint 2.0,” a Wyoming company was summarily debanked in early November, 2024, by Mercury, a banking platform operated with Evolve Bank (and other banking partners). After years of seamless operations and exemplary service, Mercury abruptly terminated the account without clear cause. The excuse? A vague nod to “internal factors” that remain as opaque as the regulatory pressures likely behind them.

Let’s be clear: The company’s banking activity was uncontroversial. The only potential offense is that the company accepts a sizable portion of its customer payments in Bitcoin. Aside from monthly wires from Kraken (a regulated crypto exchange), its transactions included rent, utility payments, hardware store purchases, and subcontractor invoices.

The termination couldn’t have had anything to do with risky behavior or financial misconduct. Instead, the closure is emblematic of a systemic effort to hobble Bitcoin businesses by exploiting the centralized banking choke points regulators have turned into tools of suppression.

This is Chokepoint 2.0 in action. Regulators have found new ways to suppress industries they disfavor—this time, targeting Bitcoin miners and businesses. Instead of legislative debate or due process, unelected bureaucrats leverage their oversight of banks to nudge them into “de-risking” clients that engage in entirely legal activities. The company was simply collateral damage in the campaign to isolate Bitcoin from the traditional financial system.

This is a chilling echo of Operation Chokepoint 1.0, where federal regulators illegally pressured banks to cut off services to lawful but disfavored industries, such as firearms dealers and payday lenders. That campaign ended in disgrace when the FDIC was forced to settle a lawsuit in 2019. The settlement affirmed what should have been obvious: weaponizing the financial system against legal businesses is unconstitutional. Regulators know this—and yet here we are again.

Why This Matters

Debanking isn’t just an inconvenience. For businesses, it’s existential. Operating without a reliable banking partner in today’s economy is like trying to breathe without air. When banks are coerced into severing ties with Bitcoin-related companies, it sends a chilling message: engage in this industry at your peril. It also stifles innovation, a dangerous precedent for a country founded on economic freedom.

Moreover, this practice undermines the core tenet of fairness in financial services. The American banking system isn’t a private fiefdom. It operates under public charters and with public trust, and its gatekeepers should not act as arbiters of political or ideological purity.

The harm extends beyond Bitcoin. If regulators can throttle this industry, what stops them from targeting others? What happens when innovation, dissent, or inconvenient truths are deemed “too risky” for the comfort of entrenched powers? This is about more than Bitcoin—it’s about the integrity of the financial system and the preservation of free markets.

A Call to Action: Accountability for Regulators

The new Congress and Trump administration must seize this moment to hold the architects of Chokepoint 2.0 accountable. This isn’t a partisan issue; it’s a constitutional one. Regulators acting as de facto lawmakers, imposing policies that would never survive public scrutiny, must be reigned in.

1. Investigations into Regulatory Overreach

Congress must launch comprehensive investigations into the agencies pressuring banks to sever ties with Bitcoin businesses. Who issued these directives? Under what authority? The American people deserve answers, and the offending parties deserve consequences.

1. Personal Accountability for Regulators

Bureaucrats who abuse their power should not be shielded by the anonymity of the regulatory machine. Those responsible for weaponizing the financial system against lawful businesses must be named, shamed, and removed from their positions, permanently lose any security clearances they may have, and potentially lose their government pensions and retirement benefits.

1. Restoration of Due Process

Any decisions to restrict banking access should require clear, codified standards and a transparent appeals process. No more shadow rules. If a business is to be debanked, the reasons should be public, defensible, clearly articulated & defined, grounded in law, and appealable.

1. Legislation to Protect Financial Access

Congress should pass laws prohibiting banks from discriminating against lawful industries based on political or ideological reasons. The free market thrives on neutrality; it withers under bias.

1. Decentralization of Financial Systems

Bitcoin exists as a hedge against precisely this kind of overreach. Policymakers should embrace and encourage its growth, not fight it. America cannot afford to fall behind in the global race for financial innovation.

Much of the above could be addressed through Section 10 of the SAFER Banking Act, which directly limits undue regulatory influence over banking services. Specifically, it prohibits federal banking agencies from pressuring financial institutions to terminate relationships with lawful businesses, including those in the Bitcoin and cryptocurrency industry, based on reputational risks or political motivations. This provision reinforces the principle that decisions about financial services should rely on risk-based analysis of individual accounts rather than blanket biases against entire industries. By codifying such protections, the SAFER Banking Act would promote fairness and transparency in financial services, ensuring that regulators adhere to their duties of impartial oversight while respecting the rights of businesses operating legally under state or federal law.

In addition to legislative solutions, the presence of even one bank with the willingness and capability to resist undue regulatory pressure could dramatically reshape the financial landscape for Bitcoin businesses. Caitlin Long’s Custodia Bank, based in Wyoming, exemplifies this potential. Custodia has consistently demonstrated its commitment to operating within the law while challenging the overreach of federal regulators, as seen in its lawsuit against the Federal Reserve.

A bank with this level of resolve, direct access to the Federal Reserve itself, and a proven track record of standing up to regulators will provide a lifeline for Bitcoin (and other) businesses seeking reliable financial services. By fostering an ecosystem where lawful businesses can thrive without fear of arbitrary debanking, Custodia Bank offers a template for how other institutions might follow suit, ensuring that innovation and economic freedom remain protected.¹

Taken together, the
SAFER Banking Act and the perseverance of institutions like Custodia Bank represent two critical fronts in the fight against financial discrimination. While the SAFER Act provides a legislative framework to curtail regulatory overreach and protect lawful businesses from debanking, it has faced significant resistance, having been introduced multiple times in Congress only to be repeatedly blocked. Meanwhile, Custodia Bank’s struggle underscores the severity of institutional hostility; the Federal Reserve’s refusal to grant Custodia access to the banking system forced the bank to file a federal lawsuit just to claim its rightful place in the financial ecosystem. These challenges highlight the entrenched opposition to reform, but they also emphasize the urgent need for a multi-pronged strategy—legislative, judicial, and entrepreneurial—to ensure fair and impartial access to banking services for all lawful businesses.

Bitcoiners: The Frontline of Freedom

Bitcoin isn’t just money; it’s an idea—an idea that money and power belong to the people, not the state. This is why we’re here. This is why Bitcoin exists. The legacy financial system is crumbling under its own corruption, and every act of suppression only underscores the need for decentralized alternatives.

To be clear, I don’t fully blame Mercury and Evolve for this. They’re likely being forced into it by their regulators.² Indeed, due to the Orwellian Bank Secrecy Act, the banks aren’t allowed to disclose the reasons for these matters to the affected customers. Banks like Mercury, and any others who have willingly cooperated with Chokepoint 2.0 should be subject to Congressional Subpoenas to explain themselves, and also name-and-shame the regulators who coopted them.

The future of Bitcoin—and America’s role as a leader in innovation—depends on exposing and dismantling Chokepoint 2.0, and holding all those who participated in it accountable.

¹ Of course, Custodia Bank having a master account doesn’t eliminate the possibility of governmental censorship, but it does force it to be direct and open, rather than the indirect, hidden, and unappealable route the regulators can take now. See this x-post by Caitlin Long.

² Another reason to believe that, in the case of Mercury and Evolve, the regulators are responsible, is that Evolve Bank was penalized in June 2024 by the Federal Reserve, and likely forced into these actions by their overreaching and overreactive regulators as part of that penalty.

This is a guest post by Colin Crossman. Opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.

This post Debanked: The Financial Suppression of Bitcoin Businesses Must End first appeared on Bitcoin Magazine and is written by Colin Crossman.

The judge in the Tornado Cash case delivered an oral ruling today, rejecting both the Defense’s motion to compel discovery and their motion to dismiss the charges. This represents a massive setback for the Defense, and the judge’s reasoning may not bode well for developers and projects going forward.

Motion to Compel

The Defense’s motion to compel discovery sought to access a broad range of government communications, including exchanges with foreign authorities under the Mutual Legal Assistance Treaty (MLAT) and with domestic agencies like the Office of Foreign Assets Control (OFAC) and the Financial Crimes Enforcement Network (FinCEN). Citing Federal Rule of Criminal Procedure 16, the Defense argued that these materials were essential to understanding the government’s case and could potentially include exculpatory evidence. The judge, however, made it clear that Rule 16 imposes a stringent requirement: the Defense must show that the requested information is material to their case, not merely speculate on its potential usefulness.

The court dismissed the Defense’s arguments as speculative, noting that references to what the information “might” or “could” reveal do not meet the necessary standard for materiality. For example, the Defense argued that MLAT communications with the Dutch government might shed light on the evidence against Tornado Cash or reveal the government’s investigative theories. The judge found this reasoning unpersuasive, emphasizing that materiality cannot be established through conjecture or vague assertions.

The court similarly rejected the Defense’s request for all communications between the government and OFAC and FinCEN. Although the Defense claimed these documents were necessary to understand the government’s theories and potential witnesses, the judge concluded that the Defense failed to demonstrate how these communications were directly relevant to the charges at hand. The court reiterated that the burden is on the Defense to show a specific link between the requested documents and their defense strategy, a burden they did not meet.

When the Defense suggested an in-camera review—a private examination by the judge of the requested documents—to determine their materiality, the court refused. The judge argued that granting such a request based on speculative assertions would set a dangerous precedent, effectively forcing in-camera reviews in all criminal cases when a defendant speculates about the relevance of certain documents. This, the judge stressed, would undermine the purpose of Rule 16 and transform the pretrial discovery process into an unrestrained search for potentially helpful evidence.

The Defense also raised concerns under Brady v. Maryland, arguing that the government might be withholding exculpatory or impeachable evidence. While the court acknowledged the government’s obligations under Brady, it found no indication that these duties had been neglected. Without concrete evidence suggesting the government was withholding information, the court saw no reason to compel additional disclosures. The judge cautioned that while the Defense’s arguments were theoretically possible, they lacked the factual support needed to warrant the court’s intervention. She did say, however, that if she later finds that the government has “interpreted its obligations too narrowly” then there will be “unfortunate consequences for their case.”

Motion to Dismiss

The motion to dismiss presented a much more significant set of issues. Central to the Defense’s argument was the definition of a “money transmitter” under the Bank Secrecy Act (BSA). The Defense contended that Tornado Cash did not qualify as a money transmitter because it did not exercise control over users’ funds; it merely facilitated the movement of cryptocurrencies. The court, however, rejected this narrow interpretation. The judge clarified that the BSA’s scope does not require the control of the funds; Tornado Cash’s role in facilitating, anonymizing, and transferring cryptocurrency was sufficient to bring it within the statute’s ambit. The judge likened Tornado Cash to custodial mixers, which have been deemed money transmitting businesses.

Further complicating the Defense’s argument was their reliance on the 2019 FinCEN guidance, which uses a four-factor test to determine whether a wallet provider is a money transmitter. The Defense claimed this guidance, which includes a “total independent control” standard, should apply to Tornado Cash. The court disagreed, stating that this standard is specific to wallet providers and does not extend to mixers like Tornado Cash. Consequently, Tornado Cash’s lack of “total independent control” over funds was irrelevant to its classification as a money transmitter.

Another key point in the court’s analysis was the distinction between expressive and functional code under the First Amendment. The Defense argued that prosecuting Storm for his involvement with Tornado Cash was tantamount to punishing him for writing code, which they claimed was protected speech. The judge acknowledged that while code can be considered expressive, the specific use of code to facilitate illegal activities—such as money laundering or sanctions evasion—falls outside the bounds of First Amendment protection. The judge emphasized that the court must focus on the conduct enabled by the code, not merely the code itself. Even under intermediate scrutiny, which applies to content-neutral restrictions on speech, the judge found that the government’s interests in preventing money laundering and regulating unlicensed money transmission justified the restrictions imposed by the relevant statutes.

The court also addressed concerns about the immutability of Tornado Cash’s smart contracts, an issue raised by both parties. The judge acknowledged the existence of a factual dispute but noted that it was not a decisive factor in the current motion. However, the issue of immutability may play a role at trial in determining the extent of Storm’s control over the service and his responsibility for its operations.

In concluding remarks, the judge underscored that while the use of code to communicate ideas may be protected under the First Amendment, using that code to facilitate illegal activities is not. This distinction is critical in the context of emerging technologies like blockchain, where the line between speech and conduct can be blurred. The court’s ruling serves as a reminder that the legal system is prepared to hold participants in the digital economy accountable, even as it grapples with the complexities of applying traditional legal principles to new and evolving technologies.

The full transcript of the ruling will be released once prepared by the court reporter.

This is a guest post by Colin Crossman. Opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.

This post Tornado Cash Loses Motion to Dismiss first appeared on Bitcoin Magazine and is written by Colin Crossman.

Following the announcement on July 27th at the Bitcoin conference in Nashville, the “Boosting Innovation, Technology, and Competitiveness through Optimized Investment Nationwide” or BITCOIN Act of 2024, introduced by Senator Cynthia Lummis of Wyoming, seeks to firmly establish Bitcoin as a strategic asset in the United States’ financial arsenal. At its core, the Act proposes the creation of a Strategic Bitcoin Reserve (SBR) and a structured Bitcoin Purchase Program, and comprehensive national custody policy. While the bill is quite brief, what follows is a breakdown of the Act’s key provisions, their implications, and the innovative funding mechanisms employed.

The Strategic Bitcoin Reserve

The establishment of the SBR signifies a paradigm shift in how the United States government manages and custodies Bitcoin at the Federal level. Mirroring many of the best practices currently discussed in the field, such as geographically distributed keys, a cold storage mandate, and independent proof-of-reserves audits, the SBR creates a decentralized network of secure Bitcoin storage facilities across the United States. (Notably not mentioned, however, is a multi-signature system, however it is not explicitly prevented either.) The Act thereby aims to protect against breaches and vulnerabilities to a single catastrophic event.

Bitcoin Purchase Program

The Act lays out a plan to acquire up to 1,000,000 Bitcoins over a five-year period, capping purchases at 200,000 Bitcoins annually, and then holding such reserves for twenty years. Furthermore, the Act places limits on the use and sale of the reserve following the holding period. During the minimum holding period, no Bitcoin held by the Federal government in the SBR may be sold, swapped, auctioned, encumbered, or otherwise disposed of for any purpose other than retiring outstanding Federal debt instruments.

Funding the Bitcoin Purchase Program

In order to minimize the impact on taxpayers, the Act employs several methods to finance the acquisition of Bitcoin, ensuring economic sustainability without increasing Federal debt.

It first proposes an amendment to the Federal Reserve Act to reallocate discretionary surplus funds from the Federal Reserve Banks. This reduces the discretionary surplus funds from $6.825 billion to $2.4 billion. The Federal Reserve is then required to remit net earnings to the Treasury, and the Act redirects the first $6 billion towards purchasing Bitcoin.

Furthermore, the Act also involves an adjustment in the valuation of gold certificates held by the Federal Reserve. Currently, the Federal Reserve holds gold certificates which are marked at $42.22/oz, while the market price of gold is closer to $2,400 today. Essentially, this forces the Federal Reserve to mark-to-market the gold certificates, then remit the gain on the gold to the Treasury for the purpose of funding the initial acquisition.

State Participation

The Act contemplates accepting State-level Bitcoin holdings into the national framework through voluntary participation. This aspect allows individual states to store their Bitcoin holdings within the SBR in segregated accounts. By offering this option, the Federal government allows (but does not require) States to add Bitcoin to their own treasuries, without having to reinvent and reimplement a robust security plan.

States participating in the program maintain exclusive and segregated title to their Bitcoin, and the right to withdraw or transfer their Bitcoin holdings from the SBR, subject to the terms of their contractual agreement and any applicable Federal regulations, but are not subject to the Federal restrictions otherwise applicable to the SBR. This flexibility ensures that States can manage their Bitcoin treasuries in accordance with their specific financial strategies and needs.

Implications & Next Steps

By tapping into existing financial resources and leveraging the economic value of gold, the BITCOIN Act aims to acquire Bitcoin without directly burdening taxpayers or increasing federal debt. This multifaceted approach underscores the innovative financial strategies the Act employs to integrate Bitcoin into the national reserve system, setting the stage for a comprehensive Bitcoin policy throughout all levels of the United States government.

Readers who wish to support the Act should contact their legislators, either directly or through a tool such as this one built by the Satoshi Action Fund.

This is a guest post by Colin Crossman. Opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.

This post The BITCOIN Act of 2024 first appeared on Bitcoin Magazine and is written by Colin Crossman.

Introduction

As it moves into the active appeal stage at the Tenth Circuit, the ongoing legal battle between Custodia Bank and the Federal Reserve has garnered significant attention, especially given the involvement of various amicus briefs. A total of seven briefs were filed on July 3rd, the last day for supporting, or neutral, briefs to be filed.¹ This case has attracted significant interest from top-flight appellate attorneys, drawing three former Solicitors General, two representing amici and Ian Gershengorn who represents Custodia itself.

In Federal appellate practice, an amicus curiae (“friend of the court”) brief allows non-parties to provide the court with additional perspectives, expertise, or insights. These briefs, submitted by states, individuals, organizations, or entities with a strong interest in the case, aim to highlight broader implications, advocate for legal principles, and ensure the court understands potential impacts beyond just the parties to the case.

Among the briefs filed in the Custodia case, all of which are powerful and explore different aspects of the case, the one submitted by former Solicitor General Paul Clement stands out due to its comprehensive argument on the constitutionality of the Federal Reserve’s actions. This article presents a high level summary and analysis of each of these briefs, examining how each addresses the core issues at stake, starting with a more detailed focus on Clement’s brief for The Digital Chamber.

The Clement Brief: A Deep Dive into Constitutional Arguments

Paul Clement, who served as the Solicitor General under President George W. Bush, brings a brief on behalf of The Digital Chamber and The Global Blockchain Business Council. It is worth noting that Mr. Clement prepared this brief while freshly off his Supreme Court victory taking out the Chevron doctrine in Loper Bright Enterprises v. Raimondo.

The Appointments Clause and the Federal Reserve’s Authority

The Clement amicus brief in support of Custodia lays out a robust constitutional argument, primarily focusing on the Appointments Clause. This clause, found in Article II, Section 2 of the U.S. Constitution, empowers the President to appoint officers of the United States with the advice and consent of the Senate. Clement argues that the Federal Reserve, in its current structure, violates this clause.

The upshot is that Federal Reserve Bank presidents are not appointed by the President with the advice and consent of the Senate and removable by the President (as principal officers must be), nor are they appointed by the President, the courts of law, or the head of an executive department and removable by the President or a principal officer (as inferior officers must be).²

Clement asserts that the Federal Reserve’s board members, who wield substantial regulatory power, are not properly appointed under the Appointments Clause. This lack of adherence to constitutional procedures undermines the legitimacy of their actions, specifically including the denial of Custodia’s master account application. By bypassing the constitutionally mandated process, the Federal Reserve operates with a degree of autonomy that the framers of the constitution did not intend.

The brief underscores the idea that significant executive powers vested in individuals who are not appointed in accordance with the Appointments Clause are fundamentally unconstitutional. This argument is particularly compelling with respect to Custodia because it directly challenges the very structure and legitimacy of the Federal Reserve’s decision-making process, bypassing the argument of whether or not granting a Master Account is discretionary.

The Role of Judicial Review

Another significant aspect of Clement’s brief is the emphasis on judicial review. Clement argues that the actions of the Federal Reserve should be subject to strict judicial scrutiny to ensure they comply with constitutional and statutory mandates. Noting that the District Court’s opinion would render the Federal Reserve’s actions unreviewable, he points out that the judiciary has a crucial role in curbing administrative overreach, aligning with the recent Supreme Court decision overturning Chevron deference.

The Chevron doctrine, established in Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837 (1984), required courts to defer to agency interpretations of ambiguous statutes. Clement’s brief references the Supreme Court’s recent move to overturn this doctrine, emphasizing that courts must independently interpret statutes rather than deferring to agencies. This shift reinforces the need for judicial oversight of the Federal Reserve’s actions, ensuring they do not exceed their statutory and constitutional authority.

Clement underscores the necessity of having an independent judiciary that can review and, if necessary, overturn decisions made by federal agencies that overstep their boundaries. Their protestations aside, the Federal Reserve Board is not, nor should it be, exempt from this oversight. This argument is crucial because it reinforces the checks and balances designed to prevent any single branch of government from exercising unchecked power.

Implications for the Dual Banking System

Clement’s arguments extend beyond constitutional principles to the practical implications for the dual banking system. He argues that the Federal Reserve’s discretionary power to deny master accounts to state-chartered institutions like Custodia undermines the balance between federal and state regulatory systems. This imbalance threatens the innovation and diversity that the dual banking system aims to promote.

Clement provides a historical perspective, highlighting the origins of the dual banking system going back to the Civil War, and its role in fostering financial innovation. By granting undue power to the Federal Reserve, the current system deviates from this historical precedent, centralizing authority in a way that stifles competition and state-level regulatory experimentation.

The dual banking system was designed to create a healthy balance between federal oversight and state innovation. Clement argues that the Federal Reserve’s current practices disrupt this balance, leading to a more centralized and less dynamic banking system. This disruption not only affects state sovereignty but also limits the potential for financial innovation and diversity.

Constitutional Grounds for Challenging the Federal Reserve

Clement’s brief builds a case on constitutional grounds, arguing that the Federal Reserve’s actions violate several key principles enshrined in the U.S. Constitution. These include the Appointments Clause, the separation of powers, and the necessity for judicial review to prevent administrative overreach.

Clement emphasizes that the separation of powers is a fundamental principle that ensures no single branch of government can wield unchecked power. By allowing unelected officials at the Federal Reserve to make significant regulatory decisions without pr
oper oversight, this principle is compromised.

The brief points out that the separation of powers was designed to prevent the concentration of power and to protect individual liberties by ensuring that legislative, executive, and judicial functions remain distinct. Clement argues that the Federal Reserve’s actions blur these boundaries, granting quasi-legislative and quasi-judicial powers to an executive agency.

Clement’s arguments have broader implications for how constitutional principles are applied in the context of modern administrative agencies. He suggests that the issues raised in Custodia’s case are not isolated but indicative of a larger trend where federal agencies increasingly operate with autonomy that challenges constitutional limits.

By bringing these arguments to the forefront, Clement’s brief builds on his victory against Chevron in Loper Bright and invites the courts to again reconsider the extent of administrative agency powers and reinforce the constitutional boundaries that must govern their actions. This approach not only addresses the specific issues faced by Custodia Bank, but also aims to further cement precedent for future cases involving federal regulatory agencies.

But even setting that history aside, the critical importance of master accounts to state-chartered banks and the serious constitutional questions that the decision below raises make this case a paradigm example of the circumstances in which constitutional-avoidance principles should control. Allowing the decision below to stand will enable politically unaccountable federal officials to exercise broad discretion to place massive and unwarranted obstacles in the path of state-chartered financial institutions, upending the traditional balance between federal and state banking regulators and affording Federal Reserve Bank presidents expansive power without meaningful political or judicial oversight. Whether as a matter of federalism, the Appointments Clause, or both, the judgment below cannot stand.³

Verrilli’s Blockchain Association Brief: Impact on Innovation

The Blockchain Association’s amicus brief was filed by Donald Verrilli, who served as President Obama’s Solicitor General. It brings a tech and innovation heavy perspective, championing the cause of financial innovation and digital assets.

Unfortunately for Custodia, its application was caught in the current of federal regulators’ aggressive, coordinated efforts to “debank” the digital asset industry. Beginning in 2021, federal regulators began rolling back prior guidance that had permitted depository institutions to provide digital asset services, and imposing new restrictions.⁴

Emphasizing Innovation in Financial Services

Verrilli’s brief centers on the critical role of innovation in the financial sector. It contends that the Federal Reserve’s denial of Custodia’s master account application stifles technological advancements and limits the potential for financial inclusion. The brief underscores that innovation is not just a buzzword but a necessary evolution for a dynamic financial ecosystem.

Digital Assets and Fintech

The brief highlights the burgeoning field of digital assets and fintech, emphasizing that these assets are now deeply embedded in our financial system, and institutions like Custodia are at the forefront of this revolution. It argues that by denying Custodia access to Federal Reserve services, the Federal Reserve is intentionally hampering the growth of these cutting-edge financial technologies. The brief advocates for an inclusive financial system that supports digital asset integration, ultimately benefiting consumers and the broader economy.

Non-Discriminatory Access to Federal Services

A cornerstone of the brief is the argument for non-discriminatory access to Federal Reserve services. It posits that all depository institutions, regardless of their focus on digital assets, should have equal access to the essential services provided by the Federal Reserve. This access is crucial for fostering a level playing field where innovation can flourish without regulatory bias.

Despite the digital asset industry’s pressing need for banking services, federal regulators have waged a concerted, coordinated campaign to debank the industry. That effort is central to a complaint recently filed against FDIC by an affiliate of Coinbase, the United States’ largest, and only publicly-traded, digital asset trading platform, and is widely acknowledged in the financial sector.⁵

Wyoming Attorney General’s Brief: Focus on Wyoming’s Regulatory Framework

Wyoming’s Attorney General steps into the ring with a staunch defense of the state’s regulatory prowess. This brief is a clarion call for recognizing and respecting the meticulous framework Wyoming has established for Special Purpose Depository Institutions (SPDIs).

Championing State Sovereignty

The Attorney General’s brief is grounded in the defense of state sovereignty. It argues that the Federal Reserve’s denial of Custodia’s master account application undermines the authority and innovation fostered by Wyoming’s robust regulatory framework. The brief emphasizes that states have the right to regulate financial institutions within their borders and that this sovereignty is crucial for financial innovation.

Wyoming’s Regulatory Framework

The brief examines the specifics of Wyoming’s regulations for SPDIs, highlighting their comprehensive nature. It argues that Wyoming’s framework provides robust oversight and consumer protections that should be recognized and respected by federal authorities. By denying Custodia’s application, the Wyoming Attorney General accuses the Federal Reserve of dismissing the effectiveness of state-level regulation.

A disregard of Wyoming’s right to charter depository institutions in the two tier banking system appears to be the motivation for this disparate treatment of Wyoming-chartered banks. Indeed, the Appellees appear to have arbitrarily created a distinction between federally regulated and non-federally regulated banks.⁶

Wyoming has positioned itself as a leader in financial innovation, particularly with its support for SPDIs. The brief argues that the Federal Reserve’s actions stifle this innovation, hindering the development of new financial products and services that could benefit consumers and the economy. It underscores the importance of allowing states to experiment with and implement innovative regulatory approaches.

The Importance of Historical Consistency

The Attorney General’s brief criticizes the Federal Reserve for deviating from its historical practice of granting master accounts to a wide range of depository institutions. It argues that such inconsistency undermines the predictability and stability of the financial system. By maintaining historical practices, the Federal Reserve can ensure a stable and predictable regulatory environment.

By denying Custodia’s application, the Federal Reserve has violated a longstanding principle of equality between federally-chartered and state-chartered banks. The brief argues that such overreach not only disrupts state-led innovation but also sets a dangerous precedent for the centralization of financial regulatory power.

This has created a Kafkaesque situation where a SPDI Bank is denied a master account because it is not federally regulated, even while it is also
denied federal regulation. This situation frustrates Wyoming’s regulatory scheme and its right to charter state banks.⁷

AFP Brief: Advocating for Federalism and Non-Discriminatory Access

The amicus brief from the Americans For Prosperity (AFP) Foundation emerges as a powerful advocate for non-discriminatory access and regulatory accountability. This brief is wide-ranging, and covers many areas also touched on by other amici, such as Federalism, protecting innovation, and state sovereignty. It emphasizes the critical need for the Federal Reserve to operate within clear statutory mandates, ensuring fairness and equality in the financial system.

Non-Discriminatory Access: A Legal Mandate

The AFP brief argues that the Federal Reserve’s denial of Custodia’s master account application blatantly violates 12 U.S.C. § 248a, which mandates equal access to Federal Reserve services for all depository institutions. By refusing Custodia’s application, the Federal Reserve is accused of engaging in discriminatory practices that undermine the statute’s intent. AFP underscores that statutory mandates must be followed to maintain fairness and integrity within the financial system.

For the dual banking system to function as Congress intended, State-chartered banks must be able to access the Federal Reserve’s services—and receive a master account—as a matter of right and on equal terms with federally chartered banks.⁸

Upholding the Administrative Procedure Act (APA)

A significant thrust of the AFP brief is its focus on the Administrative Procedure Act (APA). It argues that the Federal Reserve’s actions are arbitrary and capricious, thus violating the APA. The brief highlights the importance of the APA in ensuring that federal agencies operate transparently and within the bounds of their authority. By failing to adhere to these principles, the Federal Reserve’s decision-making process is called into question.

The Necessity of Judicial Review

AFP strongly advocates for robust judicial review to keep federal agencies in check. The brief posits that judicial oversight is essential to prevent federal overreach and ensure that regulatory bodies like the Federal Reserve adhere strictly to statutory and procedural requirements. This stance aligns with the recent judicial trend towards curbing administrative overreach, ensuring that agencies do not operate beyond their legally defined limits.

Ensuring Accountability and Transparency

The AFP brief emphasizes the need for transparency and accountability in federal regulatory actions. It argues that the Federal Reserve must be held accountable for its decisions, which should be subject to public scrutiny and judicial review. This approach ensures that regulatory practices are not only fair and equitable but also visible and accountable to the public and other stakeholders.

Congressional Brief: Addressing Statutory Overreach

This amicus brief was submitted by members of the United States Senate Banking Committee and House Financial Services Committee, specifically Senators Cynthia Lummis and Steve Daines, and Representative Warren Davidson, and stands out with a sharp focus on statutory overreach and the need for regulatory consistency. This brief argues that the Federal Reserve’s actions threaten the balance and predictability necessary for a stable financial system.

Statutory Overreach and Legal Boundaries

The Congressional brief argues that the Federal Reserve has overstepped its statutory authority by denying Custodia’s master account application. It contends that the denial not only violates the clear mandates of 12 U.S.C. § 248a but also represents a broader trend of federal agencies exceeding their legal boundaries. The brief meticulously outlines how the Federal Reserve’s actions contradict the statute’s intent to ensure non-discriminatory access to Federal Reserve services for all depository institutions.

Impact on Financial Stability and Innovation

It also addresses the broader implications of the Federal Reserve’s actions on financial stability and innovation. By denying access to state-chartered institutions like Custodia, the Federal Reserve stifles competition and innovation within the financial sector. The brief argues that maintaining a consistent and predictable regulatory environment is crucial for fostering innovation and ensuring the stability of the financial system.

Despite original concerns by some that the MCA would destroy our dual banking system, application of the law over the past 44 years has proven that those fears were unfounded because the dual banking system remains alive and well today, as Congress intended. Should the District Court’s decision be affirmed, however, it would serve as a quasi-legislative paradigm shift that would subvert the states’ role within our dual-banking system.⁹

Wyoming Secretary of State Brief: Defending State Sovereignty

The amicus brief from the Wyoming Secretary of State¹⁰ takes a direct approach, arguing that the District Court’s opinion opens the door for the Federal Reserve to erode state sovereignty and dismantle the dual banking system without Congressional approval.

The Backbone of State Sovereignty

Wyoming’s Secretary of State shines a spotlight on the Federal Reserve’s encroachment upon state regulatory authority. By denying Custodia’s master account application, the Federal Reserve is not only undermining Wyoming’s innovative financial framework but also violating Federal statutes designed to balance Federal action with state sovereignty.

Interpretation of 12 U.S.C. § 248a

At the heart of the brief is the interpretation of 12 U.S.C. § 248a, a statute mandating that all Federal Reserve services be available to depository institutions, which necessarily includes those chartered by states. The Wyoming Secretary of State argues that the Federal Reserve’s attempt to use a discretionary standard to deny Custodia’s application directly contravenes the plain language and intent of this statute.

Protecting the Dual Banking System

The brief then discusses the dual banking system’s significance, emphasizing its role in promoting financial innovation and diversity. By encroaching on state authority, the Federal Reserve threatens the delicate balance that allows both federal and state regulators to coexist and thrive. This balance is essential for fostering a robust financial system where innovation can flourish without undue federal interference.

Empowering Financial Innovation

Wyoming’s pioneering approach to business and financial regulation, as the birthplace of Limited Liability Companies (LLCs) and now Special Purpose Depository Institutions (SPDIs), is highlighted as a model of state-led innovation. The brief argues that the Federal Reserve’s actions stifle this innovation, limiting the potential for new financial products and services that could benefit consumers and the broader economy.

Can the Federal Reserve say with a straight face that a 772-page bank examination manual for SPDIs is really a “race to the bottom,” especially while the Federal Reserve itself allows such activities to take place in other banks today without adopting any standards for banks at all?¹¹

Toomey Brief: Transparency and Accountability

Former Senator Pat Toomey’s amicus brief takes a firm stand on the necessity of transparency and legislative oversight. Unlike the other amici, Senator Toomey has submitted a neutral brief, and does not explicitly support Custodia. He does, however, highlight the urgent need for clear guidelines and public accountability in the exercise of the Federal Reserve’s powers.

As explained above, the 2023 NDAA Amendment does not—and was not intended to—grant or opine on any substantive rights of the Board, or of the Reserve Banks. The Amendment was drafted in response to the Board’s, and Kansas City Fed’s, refusal to address repeated Senate inquiries into the handling of Reserve Trust’s master account application.¹²

Advocating for Transparency and Accountability

Senator Toomey’s brief underscores the critical importance of transparency in federal regulatory actions. It argues that the Federal Reserve must operate with clear, publicly accessible guidelines to ensure that its decisions are fair, consistent, and open to scrutiny. Noting that the Federal Reserve has a historical problem with transparency, it emphasizes that without more transparency, regulatory actions can become arbitrary, undermining public trust and the integrity of the financial system.

The Senate Banking Committee witnessed the lack of transparency in the master account approval process first-hand in January 2022 during the Senate vetting and confirmation process for a presidential appointee nominated to serve as vice-chair for banking supervision at the Board.¹³

Legislative Context and Recent Amendments

Toomey’s brief places significant weight on the legislative framework governing the Federal Reserve’s actions. It discusses recent amendments and legislative changes, stressing that any major regulatory decisions must be explicitly authorized by Congress. This focus aligns with recent judicial moves to curb administrative overreach, reinforcing the need for regulatory bodies to operate within clearly defined legislative boundaries.

The brief then goes into the legislative intent behind key statutes, arguing that the Federal Reserve’s nontransparent denial of Custodia’s master account application deviates from the principles those laws were passed to specifically address. Toomey asserts that the Federal Reserve must respect the boundaries set by Congress, ensuring that its actions reflect legislative intent rather than unchecked administrative discretion.

Promoting Legislative Oversight

Senator Toomey’s brief argues for enhanced legislative oversight of federal regulatory bodies. By reinforcing the role of Congress in setting and overseeing regulatory policies, the brief seeks to ensure that federal agencies remain accountable to the public and their elected representatives. This approach is intended to safeguard against arbitrary regulatory decisions and promote a more accountable regulatory environment.

Final Thoughts

The various amicus briefs submitted in Custodia’s appeal present myriad arguments against the Federal Reserve’s actions, ranging from constitutional arguments to statutory interpretation and the broader implications for financial innovation. The central theme, however, is that an unrestricted, unreviewable Federal Reserve system is neither supported by the Constitution, nor a healthy and desirable outcome for our country. As the legal battle unfolds, the arguments presented in these briefs will play a crucial role in shaping the future of financial regulation and state sovereignty in the United States.

1 Amicus briefs supporting the Federal Reserve may be filed up to seven days after their reply brief is filed.

2 Digital Chamber Brief, page 17.

3 Digital Chamber Brief, page 25.

4 Blockchain Association Brief, page 4.

5 Blockchain Association Brief, page 23 (internal citations omitted).

6 Wyoming Attorney General Brief, page 8.

7 Wyoming Attorney General Brief, page 8.

8 AFP Brief, page 11.

9 Congressional Brief, page 26 (internal citations omitted).

10 Full disclosure: the author of this article is also the author of the Wyoming Secretary of State’s amicus brief.

11 Wyoming Secretary of State Brief, page 15 (internal citations omitted, emphasis in original).

12 Toomey Brief, page 22.

13 Toomey Brief, page 6.

This is a guest post by Colin Crossman. Opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.

This post The Federal Reserve, Custodia Bank, and the Battle for Sovereignty first appeared on Bitcoin Magazine and is written by Colin Crossman.

In a landmark decision on June 28, 2024, the Supreme Court of the United States, by a 6-3 vote, overruled the longstanding Chevron doctrine, fundamentally reshaping the landscape of administrative law and judicial review. The case, Loper Bright Enterprises v. Raimondo, signals a significant shift in the balance of power between the judiciary and administrative agencies. This decision not only reinforces judicial independence but also presents substantial benefits for the Bitcoin industry, echoing the implications of last year’s West Virginia v. EPA decision.

The Case

The Chevron doctrine, established in Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837 (1984), required courts to defer to agency interpretations of ambiguous statutes as long as the interpretation was deemed reasonable. This two-step framework had become a cornerstone of administrative law, often tipping the scales in favor of agency authority over judicial oversight.

In Loper Bright, the petitioners challenged a National Marine Fisheries Service (NMFS) rule that required Atlantic herring fishermen to bear the cost of onboard observers, arguing that the Magnuson-Stevens Act (MSA) did not authorize such a mandate. The lower courts had upheld the NMFS rule, applying Chevron deference to conclude that the agency’s interpretation was permissible.

The Supreme Court’s Ruling

Chief Justice Roberts, writing for the majority, delivered a decisive opinion that dismantles Chevron deference. The Court held that the Administrative Procedure Act (APA) requires courts to exercise independent judgment when interpreting statutes, rejecting the notion that ambiguities in law should default to agency interpretations.

“Chevron defies the command of the APA that ‘the reviewing court’—not the agency whose action it reviews—is to ‘decide all relevant questions of law’ and ‘interpret . . . statutory provisions,’” Roberts wrote. “It requires a court to ignore, not follow, ‘the reading the court would have reached’ had it exercised its independent judgment. … Chevron cannot be reconciled with the APA… .” Slip Op., at 21 (emphasis added).

The ruling emphasizes that statutory ambiguities do not automatically delegate interpretive authority to agencies. Instead, courts must use traditional tools of statutory construction to determine the best reading of a statute, ensuring that agencies do not exceed their conferred powers.

Impact on Bitcoin and Bitcoin Mining

The implications of this ruling extend far beyond administrative law, reaching into the heart of the Bitcoin mining industry. Much like the Supreme Court’s decision in West Virginia v. EPA, which curbed the Environmental Protection Agency’s overreach, this ruling reinforces the need for clear congressional authorization before agencies can impose significant regulatory burdens.

For the Bitcoin mining industry, this decision is a clear win. Regulatory uncertainty has long been a thorn in the side of Bitcoin miners, who rely on predictable and stable access to power and other resources. By curbing the ability of agencies to unilaterally expand their regulatory reach, the Court has created a more favorable environment for Bitcoin mining operations.

Bitcoin miners have often been at the mercy of shifting regulatory landscapes, which can dramatically impact their operations. For instance, stringent environmental regulations targeting power consumption could have severely constrained the industry. With the Chevron doctrine overturned, any future regulatory attempts to impose such burdens will require explicit and unambiguous congressional authorization, followed by detailed judicial scrutiny.

This decision also invigorates the major question doctrine, which posits that significant regulatory actions with vast economic and political implications require clear congressional authorization. This doctrine can be a powerful tool for Bitcoin miners and other industries to challenge regulatory overreach, ensuring that agencies cannot impose wide-ranging policies without clear legislative backing.

Furthermore, recent developments have seen the Biden Administration intensify oversight on the U.S. Bitcoin mining sector through an Energy Information Agency (EIA) emergency survey, portraying electricity usage by miners as a significant threat to national grid stability. This move demanded detailed disclosures from miners, and mirrored actions in countries like Venezuela, signaling a concerning trend towards building a full registry of mining activities. The industry’s response united against such overreach, and resulted in a decisive victory against the Federal Government.

Insights from the NRA and Cantero Cases

The recent NRA and Cantero cases further illuminate the judicial shift towards protecting industry autonomy from regulatory overreach. In both cases, the courts have shown a willingness to scrutinize agency actions that appear to exceed their statutory authority. The NRA case, dealing with banking regulations, and the Cantero case, focusing on state versus federal regulatory powers, underscore the importance of clear legislative directives. These cases have set a precedent that benefits the Bitcoin mining industry by highlighting the judiciary’s role in curbing unwarranted regulatory expansion, akin to the protections now reinforced by the Supreme Court’s rejection of Chevron deference.

Final Thoughts

The Supreme Court’s decision to overturn Chevron represents a monumental shift towards judicial independence and a recalibration of the administrative state. For the Bitcoin industry, this ruling is particularly significant, promising a more predictable and less burdensome regulatory environment.

As industries and legal practitioners grapple with the implications of this ruling, one thing is clear: the era of agency deference has been significantly curtailed, marking a new chapter in the interpretation and application of federal laws. This ruling underscores the importance of clear legislative mandates and may prompt Congress to take a more active role in defining the scope of agency powers moving forward.

For Bitcoin miners, this decision is a beacon of hope, heralding a future where regulatory overreach can be more effectively challenged, fostering a more stable and supportive environment for the growth and sustainability of the industry. As the judiciary reclaims its role as the ultimate arbiter of the law, the Bitcoin mining community, and Americans as a whole, can now look forward to a more balanced and just regulatory landscape.

This is a guest post by Colin Crossman. Opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.

This post Supreme Court Decision Overturns Chevron: A Victory for Judicial Authority and Bitcoin first appeared on Bitcoin Magazine and is written by Colin Crossman.

Yesterday, the Supreme Court of the United States issued two important cases which will likely have wide ranging impacts for Bitcoin and crypto. The decisions are National Rifle Association of America v. Vullo (NRA) and Cantero, et al. v. Bank of America, N. A. (Cantero).

In NRA, the Court addressed a critical issue impacting not only traditional advocacy groups but any disfavored, but legal, industry. This ruling draws parallels to Operation Choke Point 2.0, where U.S. regulators have allegedly been targeting crypto businesses through financial exclusion. Moreover, the recent Cantero decision sheds light on how this legal framework might impact Custodia Bank’s appeal against the denial of their master account by the Federal Reserve.

The NRA Case

The National Rifle Association (the NRA) sued Maria Vullo, former superintendent of the New York Department of Financial Services (DFS), alleging that she used her regulatory authority to coerce financial institutions into severing ties with the NRA. The NRA claimed this was an unconstitutional suppression of their First Amendment rights.

Vullo argued that her actions targeted business practices and relationships, which she claimed were “non expressive activity” rather than speech, and as such wasn’t unconstitutional coercion. However, the Supreme Court found this argument misplaced. “That Vullo ‘regulate[d]’ business activities stemming from the NRA’s ‘relationships with insurers and banks,’ does not change the allegations that her actions were aimed at punishing or suppressing speech.” See NRA decision, page 17 (internal citations omitted, emphasis added).

The Supreme Court vacated the Second Circuit’s decision favoring Vullo and remanded the case, reiterating, again, that government officials cannot use coercion to punish or suppress disfavored speech or advocacy indirectly.

Operation Choke Point

Operation Choke Point was an initiative by the Department of Justice (DOJ) aimed at “choking out” businesses considered high-risk by denying them access to banking and payment networks. Although these businesses, such as firearms dealers, payday lenders, and adult entertainment, were legal, the DOJ pressured banks to terminate relationships with them, citing “reputational risk.” This initiative effectively coerced banks into compliance under the threat of federal investigation, significantly impacting legitimate businesses across various industries. The FDIC finally settled a lawsuit related to Operation Choke Point in 2019.

Operation Choke Point 2.0, a term coined to describe the alleged actions of U.S. regulators against the cryptocurrency industry, involves a series of informal guidance and regulatory pressures aimed at financial institutions to limit or terminate their relationships with crypto businesses. This echoes the original, and illegal, Operation Choke Point, which targeted industries like payday lending and firearms sales, without due process or clear legal justification.

Just as in NRA, Operation Choke Point 2.0 involves regulatory authorities overstepping their bounds and using undue influence and outright coercion against disfavored, but legal, actors. NRA emphasizes that such overreach, especially when used to suppress specific viewpoints or industries, is unconstitutional. In both scenarios, regulators are accused of using their power to enforce an ideological stance rather than following explicit statutory mandates.

The core of the NRA’s argument was that Vullo’s actions were a violation of their First Amendment rights. Similarly, if regulators are targeting crypto businesses because of a disfavored viewpoint on decentralization and financial autonomy, this could constitute a similar violation. The Supreme Court’s decision reinforces that indirect suppression of speech through coercion is unconstitutional.

NRA also highlights significant due process issues, where affected entities are denied a fair chance to defend themselves against covert regulatory actions. Crypto businesses facing sudden account closures and banking restrictions without clear explanations or recourse echo the NRA’s experience, raising serious due process concerns.

Finally, and this is a bit of speculation, now that the Supreme Court has stated it clearly, one can argue that Qualified Immunity should not be extended to government officials that knowingly violate the Constitution when they coerce or attempt to coerce the violation of First Amendment rights. Removing Qualified Immunity means that such officials can then be held personally liable for violating the Constitution.

The Cantero Decision and Its Implications for Custodia Bank

The Cantero case involved Bank of America, a national bank, and whether it was required to pay interest on escrow accounts as mandated by New York state law. The Second Circuit court dismissed the case based on an argument that the New York law was preempted by Federal laws, but did not engage in the required full analysis of this issue. The Supreme Court unanimously ruled that, while state laws significantly interfering with national bank powers are preempted, Congress provided a detailed process, outlined in the Dodd-Frank Act to determine if preemption is appropriate. The Court reversed the Second Circuit, requiring the Circuit court to fully engage in a thorough review of the issues.

As part of this ruling, the Court reiterated that:

The United States maintains a dual system of banking, made up of parallel federal and state banking systems. That dual system allows privately owned banks to choose whether to obtain a charter from the Federal Government or from a state government.

Banks with federal charters, called national banks, are subject primarily to federal oversight and regulation. And banks with state charters, called state banks, are subject to additional state oversight and regulation. Those two banking systems co-exist and compete.

Cantero emphasizes that a finding of significant interference by state laws with national banking powers requires a nuanced analysis aligned with the Dodd-Frank Act and prior Supreme Court precedents, and at a high level both explicitly and implicitly emphasizes that the dual-banking system is still alive and well.

However, if the Federal Reserve can exercise more than ministerial discretion in denying master accounts to state chartered banks, the entire existence of the dual banking system can itself be rendered a nullity. Going further, if the regional Federal Reserve banks do indeed have arbitrary discretion to grant or deny master accounts (as was held by Judge Skavdhal in Custodia’s district court decision), and, as is maintained by the Kansas City Fed that regional Reserve Banks are private, then the same undue influence and coercion arguments of NRA may also be brought to bear here.

Conclusion

The Supreme Court’s decisions in NRA and Cantero both provide steps toward addressing Federal overreach related to Bitcoin, impacting both Operation Choke Point 2.0 and Custodia Bank’s access to the financial system. While NRA is more immediately useful, and I believe will be used in short order to attack aspects of Operation Choke Point 2.0, and de-banking of legal but disfavored in
dustries and individuals, Cantero seems to suggest that Custodia is on solid ground in its appeal. But on a more general level, it further exposes the unrestrained nature of the modern administrative state that we also saw deployed against Bitcoin mining in the EIA case.

Small victories, yes. But like stacking sats, they build.

This is a guest post by Colin Crossman. Opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.

This post NRA & Cantero In The Supreme Court: Implications for Operation Choke Point 2.0 and Custodia Bank first appeared on Bitcoin Magazine and is written by Colin Crossman.