“Un-confiscatable” is a term often used by proponents of Bitcoin.
This means that if you hold Bitcoin in self-custody, nobody can take it away from you.
But this has not been the case in practice, with many examples of the United States Federal Government (The Fed) recovering stolen Bitcoin.
The Fed recovered most of the billion-dollar Bitfinex hack six years after the fact.
And The Fed also partially rescued the $600M Axie Infinity hack in 2022.
So if even experienced and careful criminal groups get caught, what does that mean for the average user that disregards privacy and security?
Despite the authority, federal agents do not have as much control as it seems. It might seem that way because the blockchain shows everything, so there’s less detective work to follow the money. For a criminal, it’s more difficult to launder the money than the actual robbery.
If the feds took down a blockchain permanently, then all apps and tokens kept there would be lost. For this to happen, there have to be a few nodes, all identified, and a way to prevent new ones from restarting the network. Impractical.
Instead, the feds can:
Let’s look at some cases where they have already intervened.
Regulators don’t lack reasons to intervene in blockchain projects. The biggest one is that crypto and fiat interact with each other, and what affects one does the other. You can’t effectively regulate traditional money unless you also control crypto on and off ramps.
The problem regulators have with crypto is that there’s no direct way to minimize risk. If a scam project is successful, there’s little to no opportunity to:
That’s why regulators are wary of crypto. The countries that still don’t know how to deal with it have either banned Bitcoin, created centralized versions, or remained neutral until their development. As regulated as crypto may seem today, it’s nowhere as controlled as it might be years ahead.
Does that mean the feds will go after your crypto? Unlikely. So far, the FBI and DoJ have only intervened to stop criminals. The court has to warrant the search and seizure of assets before agents take action. Without a suspicious profile, you can even use a custodial exchange without fear of confiscation.
Now, is it possible that this crime investigation expands to others like tax evasion? It wouldn’t surprise many. Regulators are already increasing their efforts with crypto laws and central currencies.
If governments could track and control blockchain balances, many would try to extend their fiat regulations to cryptocurrencies.
Just because blockchain is decentralized, that doesn’t mean the feds can’t intervene or that regulators can’t impose rules. It’s easier than it sounds because a lot of coins are in centralized, crypto-fiat platforms. Any cryptocurrency converted to fiat becomes regulated.
Here are three indirect ways they achieve control:
The purpose of banning cryptocurrency isn’t to prohibit but restrict it until new laws come out. Once regulators understand how to control cryptocurrencies, their policies eventually become more neutral. As for 2023, cryptocurrency payments or businesses are illegal in several countries.
Thankfully, it’s unlikely that every government bans cryptocurrencies. As long as one country supports decentralized blockchains, they will be adopted. Even if all countries regulated crypto, there will be differences. It’s not the same to browse the Internet in the US as in China, register a company in California or the Virgin Islands, nor it will be with blockchains.
CBDCs are centralized versions of cryptocurrencies that allow central banks to regulate both their supply and demand. This would help governments regulate the economy and prevent criminal activity, all at the unreasonable cost of individual freedom. The feds would have no problem enforcing digital laws against criminals, but also limit what citizens can do with their money.
An overwhelming number of CBDCs are either launched or in development. But adoption ultimately depends on public acceptance, and whether or not the masses fall for the default effect.
Developers can update blacklists and program smart contracts to refuse those addresses. For example, Tether has banned +$400M USD after several incidents:
None of the 829 banned addresses can send, convert, or receive USDT. Any attempt would ban the destination address. Unless Tether decides to unlist these, all that USDT is forever frozen.
This isn’t meant to worry investors, but rather show the different ways the feds can intervene in crypto. Because there are ways to protect your coins from confiscation, especially after learning from recent cases like the Bitfinex or Sky Mavis attack.
The best advice is to keep coins in cold wallets and never store digital private keys. Whether it’s a note app, a cloud document, or Ledger Nano X, prosecutors can break and decrypt almost any device. If it doesn’t work for them, the last resort is to freeze or blacklist the address on different CeFi/DeFi apps.
Chances are they already have it depending on (1) who you send crypto and (2) if you’ve used CEXs before.
But they can’t blacklist every single dApp— just like they can’t force every country to have the same crypto laws. So your crypto isn’t trapped in a cold wallet. You can still use dApps and even spend crypto without any fear of asset seizure.
If tracking is your concern, there are coin mixer alternatives, mixnets, and privacy projects you can leverage. If you also follow the 9 security tips the pros use, you leave no opportunity for anyone to take away your coins.
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Disclaimer:Please note that nothing on this website constitutes financial advice. Whilst every effort has been made to ensure that the information provided on this website is accurate, individuals must not rely on this information to make a financial or investment decision. Before making any decision, we strongly recommend you consult a qualified professional who should take into account your specific investment objectives, financial situation and individual needs.
Max is a European based crypto specialist, marketer, and all-around writer. He brings an original and practical approach for timeless blockchain knowledge such as: in-depth guides on crypto 101, blockchain analysis, dApp reviews, and DeFi risk management. Max also wrote for news outlets, saas entrepreneurs, crypto exchanges, fintech B2B agencies, Metaverse game studios, trading coaches, and Web3 leaders like Enjin.
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