security How can government “seize” bitcoins? Bitcoin Stack Exchange


The government’s crypto seizure and sale operation is growing so fast that it just enlisted the help of the private sector to manage the storage and sales of its hoard of tokens. For years, the U.S. government has maintained a side hustle auctioning off bitcoin and other cryptocurrencies. Historically, Uncle Sam has done a pretty lousy job of timing the market. Because it’s possible to trace how individual Bitcoins move around the network, federal agencies may be able to link them to an illegal source, such as a Silk Road transaction.

While many other countries have been disposing of their crypto, according to new research provided exclusively to Forbes, the U.S. has been steadily adding to its supply as a result of asset seizures. Last year, the U.S. held 69,640 bitcoins according to the research a doctoral thesis by Sachin Jaitly, a general partner at investment advisor Morgan Creek Capital. In terms of tracking and seizing, Koopman said that the US uses legacy crime-fighting tools to hunt down illegal digital assets. However, given that such assets are designed to evade law enforcement, the relevant bodies face numerous challenges.

The government can also discourage miners from processing transactions that involve seized addresses by automatically seizing the mining reward of blocks that include such. It will be economical for miners to occasionally process seized transactions, but the confirmation times will be much higher. In a lot of other cases there is a hardware / storage / printed paper containing the key that the government puts its hands on.

Even when the stolen funds were recovered, the thefts underscored the security vulnerabilities in the relatively new world of cryptocurrency. In some cases, the incidents drastically affected cryptocurrency values. At issue are thousands of bitcoins seized in November 2020 in connection with the illegal Silk Road marketplace, a dark web forum on which drugs and other illicit products were bought and sold with the digital currency. Through blockchain analysis and good old-fashioned police work, law enforcement and blockchain analytic experts was able to recover more than 50,000 bitcoin from Zhong. They even uncovered crypto stored on a computer submerged under blankets in a popcorn tin in a bathroom closet, according to the press release. As an example, Fortune found that 322 bitcoins were seized from a marijuana dealer in Texas in 2014, but there is no record of their sale.

While Jaitly believes government ownership of bitcoin is a hedge against inflation, it is improbable that a $5 billion stash would have any meaningful effect as a hedge considering the size of the U.S. government’s balance sheet. German state prosecutor Jana Ringwald says that in her country immediate sales are not mandatory. She says she’s “one hundred percent sure that there will be recent seizures which have not yet been sold” and that “the prosecutor can order the “emergency sale” but may also refrain from it.”

How can government “seize” bitcoins?

On the contrary, MicroStrategy holds 189,150 BTC, acquired for around $5.9 billion, and is working on measures to add more. MicroStrategy stands out as the dominant corporate player, boasting the market’s largest cryptocurrency holdings. However, the U.S. govt holds an even bigger stash of Bitcoins seized from notorious routes. Last month itself, the U.S. govt seized a total of 70,000 Bitcoins from the Silk Road. While the above governments have publicly auctioned bitcoin holdings that were seized from criminal activity, North Korea’s government has shown some signs of actually collecting and hoarding BTC. The United States has also taken part in auctions of bitcoin holdings that were seized in criminal investigations.

  • A Department of Justice spokesperson told CNBC he’s “pretty sure” there’s no central database of cryptocurrency seizures.
  • Leslie Sammis, a Tampa-based criminal defense lawyer whose practice includes several Binance seizure cases, says that it is more likely that Justice Department bureaucrats are waiting for more clarity on cryptocurrencies in general.
  • Perhaps the most high-profile example came in October 2013, when the FBI raided the online marketplace Silk Road, a hub for transactions involving illegal drugs and criminal activities.

Bidding on a .7501 share of one Bitcoin, currently valued at more than $38,000 as of March 5, 2021, opens on the GSA Auctions website starting March 15 at 4 p.m. A special sneak peek of the auction with additional details can be found on the GSA Auction website. ZHONG, 32, of Gainesville, Georgia, and Athens, Georgia, pled guilty to one count of wire fraud, which carries a maximum sentence of 20 years in prison. etfinance review- the forex brokerage of 2020 “Agencies can put in requests to gain access to some of that money for funding of operations,” said Koopman. “We’re able to put in a request and say, ‘We’re looking for additional licenses or additional gear,’ and then that’s reviewed by the Executive Office of Treasury.” As cybercrime picks up — and the haul of digital tokens along with it — government crypto coffers are expected to swell even further.

US Govt. Bitcoin Holdings

Effectively, this means that 322 bitcoins within the cryptocurrency’s network could belong to addresses that have not transacted for a long time. The blockchain is by its very design a public ledger – this means that every single transaction that has ever been recorded is visible online. They can completely monitor the flow of funds and automatically tell whether a transaction includes seized funds. They can publish free tools that tell anybody who receives a bitcoin transaction whether those funds were legitimate, and if not, to transfer those funds to the government. In 2015, following a groundbreaking prosecution by this Office, Silk Road’s founder Ross Ulbricht was convicted by a unanimous jury and sentenced to life in prison.

Another story of the government getting Bitcoin

Through his scheme to defraud, ZHONG was able to withdraw many times more Bitcoin out of Silk Road than he had deposited in the first instance. As an example, on September 19, 2012, ZHONG deposited 500 Bitcoin into a Silk Road wallet. Less than five seconds after making the initial deposit, ZHONG executed five withdrawals of 500 Bitcoin in rapid succession — i.e., within the same second — resulting in a net gain of 2,000 Bitcoin. The breach in 2016 was among a spate of hackings into currency exchanges that have allowed for the theft of large amounts of digital currency.

“The government is usually more than a few steps behind the criminals when it comes to innovation and technology,” said Jud Welle, a former federal cybercrime prosecutor. ZHONG funded the Fraud Accounts with an initial deposit of between 200 and 2,000 Bitcoin. After the initial deposit, ZHONG then quickly executed a series of withdrawals.

The Government’s Seizure of Forfeitable Property

However, readers are advised to verify facts independently and consult with a professional before making any decisions based on this content. Please note that our Terms and Conditions, Privacy Policy, and Disclaimers have been updated. Bitcoin (BTC) advocates have highlighted a clause in Valkyrie’s spot Bitcoin exchange-traded fund (ETF) application that could allow the US government to seize the underlying BTC. Koopman added that they are deliberately auctioning off crypto in blocks to avoid a significant market reaction. We don’t ever want to flood the market with a tremendous amount, which then could have an effect on the pricing component,” he said, adding that they don’t seek to “time” the market and sell at peaks.

The U.S. government has a massive, secret stockpile of bitcoin — Here’s what happens to it

Then in 2020 that person voluntarily turned it over to the US government. The U.S. General Services Administration, an agency that typically auctions surplus federal assets, such as tractors, added confiscated cryptocurrencies to the auction block earlier this year. While executing the September 2012 fraud, Zhong did not list any item or service for sale on Silk Road, nor did he buy any item or service on Silk Road.

Bitfinex Halts Deposits for UK Individuals Amid Regulatory Clampdown on Exchanges

Law enforcement officials gained access to Mr. Lichtenstein’s wallet on Jan. 31, after they obtained a search warrant that gave them entry to encrypted files in Mr. Lichtenstein’s cloud storage account. Over the last five years, about 25,000 of those Bitcoin were transferred out of Mr. Lichtenstein’s wallet using a complicated series of transactions meant to obscure that the currency had been stolen from Bitfinex, the Justice Department said. These funds were traced to a bitcoin address, court records say, owned by an unidentified person who is alleged to have hacked into Silk Road and stolen the money. The bitcoins are still in the government’s possession, for bureaucratic reasons. The largest-ever seizure of cryptocurrency by the U.S. government has worked out to be a windfall for taxpayers. The federal government’s relationship with bitcoin has generated numerous headlines over the years, which is surprising, considering that the U.S. government is one of the largest holders of bitcoins.