Governments May Have Had Some Successes, but Seizing Bitcoin and Crypto Is Still Very Hard

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  • “Impossible to confiscate properly stored cryptocurrencies on a large scale.”
  • “The main vector of attack would be to seize custody of bitcoin holdings.”
  • “What can happen is that governments start limiting self-custody.”

It may have strong competition, but one of the most disturbing things that happened to cryptography in 2022 was that the Ontario Superior Court of Justice issued a Mareva warrant. Set in the context of protests and blockades that “paralyzed” Ottawa earlier this year, this order allowed the seizure of cryptocurrencies belonging to the protesters, who had been receiving financial support in the form of bitcoin (BTC) and other cryptocurrencies.

When combined with US reports Department of Justice seizing $ 3.6 billion in BTC in February, for example, the order seemed to fatally undermine the idea that cryptocurrency is immune to government control. In fact, U.S. government agencies have seized cryptocurrencies on numerous occasions in recent years, helping to create the suspicion that any sense of inviolability of cryptocurrency is primarily an illusion and that a sufficiently determined government can seize bitcoins, ethereum (ETH) or anything else as long as it is. wants.

However, figures working in the cryptography industry claim that the successful seizure of cryptocurrency ultimately depends on seizing the private key of an address, which should be more or less impossible, assuming that holders keep their funds. in their own custody portfolios. That said, they also recognize that with the continued popularity of cryptographic exchanges and the increase in anti-money laundering regulations, the seizure of funds held by a third party is becoming easier.

Bitcoin and crypto “stored properly”.

It is worth noting that the order was not entirely successful in seizing cryptocurrencies donated to protesters in Canada. Based on the latest published information (published by Royal Mounted Police of Canada), Canadian law enforcement agencies managed to freeze only 29% of cryptocurrencies sent to protesters after Mareva’s February term.

This highlights the difficulties in seizing truly decentralized cryptocurrencies. While holders are storing their funds in a self-contained hardware wallet (and securely storing their private keys offline), there’s no way government agencies can seize cryptocurrencies right now, according to commentators.

“It is impossible to confiscate properly stored cryptocurrencies on a large scale,” said Boaz Sobrado, a data analyst.

He points out that the key phrase here is “properly stored,” as much of the cryptocurrency-based wealth is currently in the hands of stockbrokers and custodians, who are required to follow the laws of the countries in which they operate.

“Coins are vulnerable to mass confiscation if you are not the one holding the keys,” Sobrado said “If an individual has their own keys, the seizure is more complicated, as keeping their keys can be as simple as memorizing a seed sentence of 12 or 24 words.”

Sobrado also points out that, in theory, it is not impossible for governments to detain people and demand that they reveal their keys. That said, “it requires more coercion and it’s hard to scale.”

Most other players in the industry agree that seizing properly guarded cryptocurrencies is almost impossible.

“It would be very difficult for governments to seize bitcoins. The main vector of attack would be to seize custody of bitcoin holdings, so it’s important to withdraw coins from the exchange and learn self-custody,” said Samson Mow, CEO of Bitcoin technology. JANUARY 3.

Another believer that cryptocurrencies are secure as long as they are stored properly is Ryan Shea, a cryptoeconomist on the digital investment platform. Trakx. However, he points out that there are at least a couple of ways in which a government can be more successful in taking control of funds, with the aforementioned seizure of USD 3.6 billion in BTC being possibly the most notable example of an attack vector.

“What made it possible in this case was for the alleged perpetrators to store their private keys in a cloud account, and law enforcement obtained a search warrant to access that account,” he said.

According to Shea, this was only possible because by following the transactions in the blockchain, which is publicly visible, law enforcement was able to link wallet addresses containing illegally obtained coins with personally identifiable information, as some of the transactions were made through exchanges. forced centralized. to perform KYC checks (meet your customer).

The other way, according to Shea, is to identify wallet owners and associated wallets on the blacklist, which can be difficult to scale. However, this makes it very difficult to move funds to a regulated exchange and withdraw cash.

“The funds may not be recoverable, but they remain virtually unusable as most stock exchanges will not knowingly process blacklisted portfolio transactions for fear of further scrutiny by the government,” he added.

Future movements

Will governments take more legislative action to facilitate the seizure of cryptocurrencies? The answer to this question varies from country to country, with mixed opinions on whether new laws are really needed to make seizure more feasible.

“Whether or not governments will move in this direction ultimately depends on their needs. If their financial situation is dire and they need to support their fiat currency, they are likely to move in that direction, “said Samson Mow.

For Ryan Shea, specific legislation to seize cryptocurrency is probably not necessary in most cases.

“Cryptocurrency regulation is already being introduced and applied more rigorously to ensure that this link is established as far as possible. The seizure of cryptocurrencies therefore simply requires governments to prove that the currencies in question were obtained illegally, the that it is likely to be under existing money laundering and terrorist financing laws, “he said.

Of course, the application of existing laws depends on funds going through regulated exchanges, which is not always possible. Therefore, for Boaz Sobrado, this means that governments may need new regulation to reach those who are more inclined to self-custody.

“What can happen is that governments start limiting self-custody, which is likely to be a precursor to confiscation,” he said.

That said, it’s unclear how any government could control some kind of self-custody restriction or ban, in addition to banning perhaps the sale of hardware wallets in its jurisdictions (which seems like a distant possibility at the moment).

Because the possibility of banning self-custody is so remote at the moment, keeping funds in a hardware portfolio remains the best method for anyone concerned about what their government might do in the not-too-distant future. In addition, concerned holders may also want to consider using decentralized exchanges and exchanges (probably overseas) without KYC requirements.
Learn more:
– How to buy Bitcoin without ID in 2022
– Hygiene of the Bitcoin and Crypto 101 portfolio

– How to protect your absolute cryptographic lifeline – Seed words
– Here’s what US senators have put in the new cryptocurrency-friendly bill

– With cryptographic regulation looming, how should industry leaders prepare?
– The crypto cat is out of the bag, but can we still see more bans similar to China?

– CBDCs are likely to make you less anonymous
– EU decision-makers start negotiations on controversial regulation on homeless portfolios

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