- “It is impossible to confiscate properly stored cryptocurrencies on a large scale.”
- “The main attack vector would be the seizure of bitcoin holdings on deposit.”
- “What can happen is that governments start limiting self-care.”
There may be stiff competition, but one of the most concerning things to happen to crypto in 2022 was the Ontario Superior Court of Justice issuing a Mareva injunction. Amid protests and blockades that “paralyzed” Ottawa earlier this year, this injunction allowed the seizure of crypto-assets belonging to protesters, who were receiving financial support in the form of bitcoin (BTC) and other crypto-assets .
When combined with US reports justice department by seizing $3.6 billion in BTC in February, for example, the injunction appeared to fatally undermine the idea that cryptocurrency is immune to government control. Indeed, US government agencies have seized cryptocurrencies on numerous occasions in recent years, helping to create suspicion that any sense of cryptocurrency’s inviolability is mostly an illusion, and that a sufficiently determined government can grab bitcoins, ethereum (ETH) or anything else at any time. it wants.
However, figures working within the crypto industry say that successful capture of cryptocurrency ultimately depends on entering the private key of an address, which should be more or less impossible, assuming that holders keep their funds in their own wallets. That said, they also recognize that with the continued popularity of crypto exchanges and increased anti-money laundering regulations, seizing funds held by a third party is becoming easier.
Bitcoin and crypto “properly stored”
It should be noted that the aforementioned injunction was not entirely successful in seizing the crypto-assets given to protesters in Canada. Based on the latest published information (published by the Royal Canadian Mounted Police), Canadian law enforcement managed to freeze only 29% of the cryptoassets sent to protesters following the February Mareva injunction.
This highlights the difficulties in capturing truly decentralized cryptoassets. As long as holders store their funds themselves in a hardware wallet in self-custody (and securely store their private keys offline), there is simply no way for government agencies to seize the crypto yet. , according to commentators.
“It is impossible to confiscate properly stored cryptocurrencies on a large scale,” said data analyst Boaz Sobrado.
He points out that the key phrase here is “properly stored,” as much of the crypto-based wealth is currently in the hands of exchanges and custodians, who are obligated to follow the laws of the countries in which they operate.
“Coins are vulnerable to mass confiscation if you’re not the one with the keys,” Sobrado said. Cryptonews.com. “If a person holds their own keys, typing is trickier, because holding your keys can be as simple as memorizing a 12- or 24-word seed phrase.”
Sobrado also notes that in theory it is not impossible for governments to arrest individuals and ask them to reveal their keys. That said, “it requires more coercion and is difficult to do on a large scale.”
Most other players in the industry agree that it is almost impossible to capture properly stored cryptocurrencies.
“It would be very difficult for governments to seize bitcoin. The main attack vector would be to seize bitcoin holdings on deposit, which is why it is important to withdraw your coins from exchange and learn how to self-custody,” said Samson Mow, CEO of the bitcoin technology company. JANUARY 3.
Another believer that cryptocurrencies are safe as long as they are stored correctly is Ryan Shea, a crypto-economist at the digital investment platform Trakx. However, he points out that there are at least two avenues through which a government can be more successful in gaining control of the funds, with the aforementioned seizure of $3.6 billion in BTC being perhaps the most notable example of this. an attack vector.
“What made this possible in this case was that the alleged perpetrators stored their private keys in a cloud account and law enforcement obtained a search warrant to gain access to that account,” a- he declared. Cryptonews.com.
According to Shea, this was itself only possible because by tracking transactions on the blockchain – which is publicly visible – law enforcement was able to link wallet addresses containing illegally obtained coins to personally identifiable information. identifiable, as some of the transactions were made through mandatory centralized exchanges. to perform KYC (know your customer) checks.
The other route, according to Shea, is to identify wallet owners and blacklist associated wallets, which can be difficult on a large scale. However, this makes it very difficult to transfer funds to a regulated exchange and cash out.
“Funds may not be recoverable, but they become virtually unusable as most exchanges will not knowingly process transactions from blacklisted wallets for fear of further government scrutiny,” a- he added.
Will governments take more legislative action to make it easier for them to seize crypto-assets? The answer to this question varies from country to country, with opinions divided as to 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 economic situation is dire and they need to back their fiat currency, chances are they will move in that direction,” Samson Mow said.
For Ryan Shea, specific legislation for the seizure of cryptocurrency is probably not necessary in most cases.
“Crypto regulation is already being introduced and enforced more rigorously to ensure that, where possible, that link is made. Seizing cryptocurrencies therefore simply requires governments to prove that the coins in question were obtained illegally, which likely falls under existing money laundering and terrorist financing laws,” he said.
Of course, the enforcement of existing laws depends on funds passing through regulated exchanges, which is not always possible. So for Boaz Sobrado, that means governments might need new regulations to reach those who lean more towards self-care.
“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 not clear how a government could impose any sort of limitation or ban on self-custody, other than perhaps banning the sale of hardware wallets in their jurisdictions (which seems a remote possibility right now).
Because the possibility of banning self-custody is very remote at the moment, keeping funds in a hardware wallet remains the best method for anyone worried about what their government might be up to in the not-too-distant future. Beyond that, worried holders can also consider using decentralized exchanges and (most likely overseas) no KYC requirements.
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