← All insights Finance and crypto

Stolen cryptoassets: a visible trail is not a recoverable one

The transfer is on the ledger, and you can follow it out of your wallet and into the next one. Because the money remains visible, it feels retrievable. Visibility and recovery are different things.

A public ledger records addresses and amounts. It does not record people. An address is a string of characters belonging to whoever holds the key that unlocks it, and nothing written on the chain connects that string to a name, a company or a country. The record is complete and anonymous at once, which is an uncomfortable combination for someone who has just watched their own money move somewhere they cannot follow it in person.

The practical questions are therefore about the destination rather than about the trail: whether the funds come to rest somewhere the courts of England and Wales can reach, whether whoever holds them will act, and whether they are still there when anybody asks.

Those conditions are independent of each other, and a case can fail on any one of them while the tracing work behind it is entirely correct.

What the ledger proves, and what it does not

The chain proves that value moved between addresses in a particular order. It does not prove who controlled either end of any transfer, and it does not prove wrongdoing. The person who persuaded you to authorise a transfer is frequently not the person holding the keys at the far end of it.

Reading a trail also requires knowing what its apparent end actually represents, and an apparent end is not always an end. Getting that wrong changes the entire shape of what can follow, and it is a mistake made confidently, and made most often by people looking at their own case with a strong view about what they are seeing.

Cryptoassets are treated as property in England and Wales

The courts of England and Wales have been willing to treat cryptoassets as a form of property: something capable of being owned, of being held for the benefit of someone else, and of being the subject of a claim to the asset itself rather than only a claim for its value in money. That is not a piece of classification for its own sake.

A claim for money is a claim against a person, and it is worth whatever that person turns out to have. A claim to property attaches to the asset, which means it can in principle be asserted against someone now holding the coins who did not take them, subject to the protection English law gives an honest purchaser who knew nothing of the position. It can also survive the failure of the business holding the assets. Where an exchange or custodian collapses with your holdings inside it, the difference between ranking as one of its creditors and being the owner of an identifiable asset it was merely holding for you is not a difference of degree. It frequently decides whether anything comes back at all.

Relief against people who cannot be named

Court procedure in England and Wales once assumed a defendant with a name and an address. It has adapted, and relief can be granted in matters where the person responsible has never been identified.

This is a genuine development and it is routinely oversold to people in your position. The unnamed defendant is placed under an obligation they may never learn of and would disregard if they did. Whatever value the order carries comes from its effect on others, rather than from any effect on the person who took the money.

Whether anybody in the chain can be reached

Whether an intermediary can be reached at all is the question that decides these cases.

The legal position and the commercial reality diverge at this point more sharply than anywhere else on this page. Whether an intermediary is worth pursuing turns on matters that have nothing whatever to do with the merits of your claim, and a great deal to do with where it sits and how it is run. Some will co-operate readily with an order made in England and Wales. Others treat such an order as a document concerning a country they do not consider themselves to operate in, and no feature of the technology exists to make them care.

Which of those categories a given intermediary belongs to can usually be assessed before serious money is committed. It is also the assessment most often skipped, because it is unglamorous and it sometimes produces an answer nobody wants.

Self-custody is where the law runs out

If the assets have been moved into a wallet whose key is held privately, by someone who cannot be identified and who has no intention of passing them through any business that would identify them, there is nothing to freeze and no one to compel. No order operates on the ledger itself, which will go on recording the position faithfully and permanently.

The claim does not evaporate. The assets remain identifiable, and a holder who eventually attempts to turn them into ordinary money becomes exposed at that moment. That is a real possibility rather than a plan, and it belongs in the reckoning as a possibility. Watching a dormant address carries a cost that recurs for as long as the watching continues, and the decision to keep paying for it should be taken deliberately, not adopted as a way of avoiding the conclusion that a particular sum has gone.

When not to act

Some of these matters should not be pursued, and hearing that at the outset is worth more than discovering it after the invoices have started. Where the loss is modest against the cost of an urgent application in the High Court in England and Wales, where the funds were combined with other people's and dispersed before anyone raised the alarm, or where the destination is plainly a privately held wallet with no regulated business anywhere along the path, the honest answer is that there is nothing proportionate to be done.

Where the loss sits inside a platform that has itself failed, the route is ordinarily the insolvency process for that platform rather than a separate action of your own. Separately, an approach offering to recover your funds in return for a payment made in advance, arriving with convenient timing after a loss that was not public, is better understood as the second attempt on your money than as the remedy for the first.

Two things are worth saying whatever you decide. Do not tell the other side what you have worked out, and do not post about it. And do not tidy anything away, however much you would prefer the episode behind you: the messages, the emails, the statements and the addresses you used are the evidence.

The judgement running underneath all of this is whether the assets have come to rest somewhere that can be compelled to give them up. The ledger does not answer that question, the size of the loss does not answer it, and it governs whether any expenditure at all is sensible. The instinct to act first and assess afterwards is what turns a difficult position into an unrecoverable one.

This guide is general information about how these matters usually run. It is not advice, and nothing becomes advice until terms are agreed in writing. Brandleys Legal Ltd delivers reserved legal activities alongside regulated partners.