The US Government’s Crypto Seizures

Crypto theft may not be as lucrative as it seems. In fact, it could be a very risky and costly endeavor for the perpetrators. This is because the US government has the power and the means to track down and seize the ill-gotten digital assets, as it has done in several high-profile cases. As a result, the US government has become one of the biggest holders of bitcoin and other cryptocurrencies in the world.

We will explore some of the recent examples of how the US government has confiscated millions of dollars’ worth of crypto from hackers, scammers and criminals. We will also discuss some of the challenges and implications of this practice for the crypto industry and the legal system.

The US government’s crypto seizures

One of the most notable cases of crypto seizure by the US government occurred in November 2020, when the Department of Justice (DOJ) announced that it had seized over $1 billion worth of bitcoin from an unnamed individual who allegedly hacked the Silk Road, a notorious online marketplace for illegal goods and services that was shut down in 2013.

The DOJ claimed that the hacker, known as Individual X, had stolen the funds from Silk Road’s founder, Ross Ulbricht, who is currently serving a life sentence for his role in the operation. The DOJ said that it was able to trace and seize the funds using a third-party company that analyzes blockchain transactions.

Another prominent example of crypto seizure by the US government happened in June 2021, when the DOJ announced that it had recovered $2.3 million worth of bitcoin from a ransomware group called DarkSide, which had attacked Colonial Pipeline, a major US fuel supplier, and demanded a ransom of $4.4 million in bitcoin. The DOJ said that it was able to locate and access the private key to a bitcoin wallet that contained most of the ransom payment, thanks to the cooperation of Colonial Pipeline and law enforcement partners.

A third example of crypto seizure by the US government took place in July 2021, when the DOJ announced that it had seized over $19 million worth of bitcoin from two Iranian nationals who were accused of running a sophisticated ransomware scheme that targeted hundreds of victims, including hospitals, municipalities and public institutions. The DOJ said that it was able to identify and freeze the funds using blockchain analysis tools and international cooperation.

The challenges and implications of crypto seizures

While these cases demonstrate the US government’s ability and willingness to crack down on crypto-related crimes, they also raise some questions and concerns about the legality, transparency and fairness of this practice.

One of the main challenges is how to determine the ownership and value of seized crypto assets. Unlike traditional assets, such as cash or property, crypto assets are not issued or controlled by any central authority. They are decentralized and distributed across a network of computers that validate transactions using cryptography. Therefore, it is not always clear who owns, or controls a given amount of crypto assets, especially if they are stored in anonymous or encrypted wallets or transferred across multiple jurisdictions.

Another challenge is how to dispose of seized crypto assets. Unlike traditional assets, such as cash or property, crypto assets are volatile and subject to market fluctuations. They can appreciate or depreciate significantly in a short period of time. Therefore, it is not always clear when and how to sell or auction off seized crypto assets, especially if they are subject to legal disputes or claims by third parties.

A third challenge is how to balance the interests and rights of different stakeholders involved in crypto seizures. These include the victims of crypto-related crimes, who may seek restitution or compensation; the perpetrators of crypto-related crimes, who may contest or appeal their charges or sentences; the US government, which may seek to deter or punish criminal activity or generate revenue; and the crypto industry and community, which may seek to protect their privacy, innovation and autonomy.

These challenges pose some ethical and legal dilemmas for the US government and its agencies. For instance:

Should the US government disclose how it tracks and seizes crypto assets? If so, how much detail should it provide? If not, how can it ensure accountability and oversight?

Should the US government sell or auction off seized crypto assets as soon as possible or hold them until legal proceedings are concluded? If so, how should it determine the best timing and method? If not, how should it manage the risks and costs of holding them?

Should the US government return seized crypto assets to their original owners or use them for other purposes? If so, how should it verify and compensate the rightful owners? If not, how should it allocate and distribute them?

These questions have no easy answers. They require careful consideration and consultation among various stakeholders and experts. They also require clear and consistent policies and regulations that balance security, justice and innovation.