By Nick Marshall
Who’s coming after your crypto assets? We usually tend to focus on the scammers. Cybercriminals stole $3.2 billion in 2020 through a variety of means, ranging from wallet hacking to elaborate “rug pull” investor scams. We shouldn’t assume, however, that secure wallets are beyond the reach of law enforcement. Government agencies are increasing the sophistication of their campaign against fraud involving cryptocurrencies, and not without reason. Illicit cryptocurrency addresses received $14 billion in 2021, although that total represents less than one percent of all cryptocurrency transactions. Here’s when your crypto assets could be seized, and how to protect yourself.
What Is Crypto Asset Seizure?
Cybercriminals can hack into an account to seize assets, but under civil asset forfeiture laws, federal or local law enforcement can also confiscate assets or property from anyone suspected of committing a crime. The problem is that neither proof of a crime nor a conviction is required. Authorities have taken more than $69 billion since 2000, and it’s not just cash they’re pocketing — digital assets are fair game too. In February 2022, the US Department of Justice seized crypto assets (Bitcoin) valued at over $3.6 billion. With the creation of the National Cryptocurrency Enforcement Team (NCET) in 2021, the message is clear. If your assets are linked to cybercrime, there is nowhere to hide.
The concern for legitimate crypto asset owners is that the application of civil asset forfeiture laws often lacks transparency, due process or the presumption of innocence. When cryptocurrency assets can hit values as high as $68,000, as bitcoin did in 2021, the stakes are significant.
How Assets Can Be Seized
When an asset is held digitally, the owner is responsible for securing it through a strong password, authenticator app or password vault. Even that may not be enough. Assets can be compromised because the owner accessed their wallet using unsecured or compromised WiFi, or inadvertently downloaded malicious software that logs keystrokes to reveal the password. Cybercriminals are not targeting the blockchain; its decentralized structure gives it a built-in resilience. They are either targeting the wallet or the exchange where transactions are made.
The same goes for law enforcement or government bodies intent on seizing cryptocurrency. They know that investors and traders can easily hide their assets across a number of different cryptocurrencies, but that they need a Virtual Asset Service Provider (VASP) or exchange to later convert those assets into a fiat currency. Since these exchanges are regulated, they offer an opportunity for law enforcement to spot suspicious activity and pounce. They don’t need to seize the asset; they just need to restrict access to the crypto.
Protect Yourself With Title Registry
The greater anonymity and privacy of cryptocurrencies can be the biggest vulnerability. Unless that is, the owner can prove title. The convention up to now has been that whoever holds the private key to access a wallet is the owner. If that key is stolen, crypto owners can struggle to reclaim what is rightfully theirs. After all, crypto wallet owners do not enjoy the same level of protection that bank customers do when it comes to cybercrime and fraud.
Nevertheless, crypto exchanges (at least those in the US) are bound by the Bank Secrecy Act (BSA), and are obliged to report suspicious activity. If you are suddenly redeeming a high-value crypto portfolio into fiat currency without any legitimate “paper trail” to establish where the funds came from, the long antennae of law enforcement may indeed be alerted.
Here’s how owners can implement end-to-end security for their crypto assets:
- Enable two-factor authentication for mobile crypto apps.
- “Cold store” your private key on printed paper (or memorized) to keep it out of reach of online hackers.
- Establish proof of ownership with a record of title.
How TransitNet Can Help
With the first offchain title registry from TransitNet, you can establish proof of ownership over your crypto assets and build a legitimate defense if your assets are seized. Title registry adds a second layer of authentication beyond ownership of the private key. There is a verified third-party record that crypto assets are held in your name.
To borrow an analogy, you wouldn’t have to move out of your house just because you misplaced your door keys, and nobody can move in while you’re away on vacation. The existence of a notarized deed secures your property until you choose to sell it, regardless of whether you currently enjoy access or not. The same applies to title registration through TransitNet. We secure ownership of your crypto assets, and you secure access through your private key. Find out more about fortifying the security of your assets with TransitNet.
Sources
DLA Piper – US Department of Justice, aided by cryptocurrency exchanges, seizes over US$3.6 billion in stolen Bitcoin
River – Can Bitcoin Be Seized?
Northwestern Journal of Technology and Intellectual Property – “Throw Away the Key, or the Key Holder? Coercive Contempt for Lost or Forgotten Cryptocurrency Private Keys, or Obstinate Holders”
National Conference of State Legislatures (NCSL) – Cryptocurrency 2021 Legislation
Office of the Comptroller of the Currency (OCC) – Bank Secrecy Act (BSA)