Sure, cryptocurrencies are a relatively new form of financial technology. But they’re already subject to some very old laws.
In fact, the concept of cryptoasset realization and how cryptocurrencies are frozen is as old as money itself. And when it comes to how cryptocurrencies are frozen and cryptocurrency forfeiture laws, there’s a lot more than meets the eye — which means it’s time for all of us serious crypto enthusiasts and users to take notice.
A frozen seized and forfeited status as a legal term relates to the state of any given asset. In the case of cryptocurrencies, these assets are seized by law enforcement authorities and frozen at a specific address. If a state or local authority claims ownership of cryptocurrencies that have been seized, they are referred to as being forfeited. Cryptoasset realization and legal forfeiture are processes that allow the government to seize digital assets for law enforcement purposes. The process of cryptoasset realization involves identifying, isolating, and seizing virtual currencies
With the recent reports of large amounts of cryptocurrencies becoming frozen, seized, and forfeited; as well as warnings about virtual currencies issued by leading regulators; it is becoming increasingly clear that cryptocurrency regulation. That attempt though has so far been in a state of flux. If you want to know how cryptocurrencies are frozen then keep reading-
What Happens When Suspicious Activity is Recognized?
When suspicious activity is recognized, the bank will take steps to investigate the situation. This may include working with law enforcement and other financial institutions in order to determine whether or not the activity was authorized. Cryptoasset realization and legal forfeiture are two processes that can help law enforcement agencies combat the use of crypto assets to launder money.
1. By Cryptocurrency Platforms
When suspicious activity is recognized, a cryptocurrency platform will typically investigate the activity to determine if it is in fact suspicious. This can involve looking at things like:
- The IP address from which transactions originated.
- The user’s location (based on IP address).
- Whether or not the user has previously engaged in suspicious activity.
- Other factors that may indicate suspicious behavior.
A cryptocurrency platform will take one of several actions when they identify suspicious activity.
- Blocking the user from accessing the platform
- Contacting law enforcement to investigate the activity
- Pausing transactions while they investigate the activity
2. By Non-Public Sector Investigators
The ability of non-public sector investigators to track down and recover cryptocurrencies has led to an increase in demand for their services from victims who have had their cryptocurrencies stolen or otherwise misused by criminals. While this may seem like an easy task for a private investigator or lawyer, it isn’t as simple as one may think. In fact, when it comes to tracing cryptocurrencies back to their source there are several factors that will affect how difficult it will be.
- The amount of time that has passed since the transaction occurred; The number of transactions involved;
- The type of currency used (Bitcoin vs Litecoin vs Ethereum); And
- Whether or not you are dealing with an anonymous wallet or real name address.
When suspicious activity using crypto is recognized by non-public sector investigators, the government’s first step is to alert the public sector. This includes the FBI and Interpol, who are responsible for investigating crimes that cross international borders.
3. By Public Sector Investigators
Public sector investigators have a duty to report suspicious activity that they become aware of. They can do this by reporting it to the proper authorities and making sure that their reporting is followed up on.
They conduct an investigation to determine if the activity is a crime.
- If it is, they investigate the suspect, including by asking for information from cryptocurrency platforms and performing surveillance on them.
- Once enough evidence has been gathered to support charges, law enforcement may obtain a search warrant and execute it to search for and seize criminal evidence.
- Law enforcement may contact the suspect’s lawyer in order to arrange for the surrender of the suspect or their arrest as they lay out their case against them.
How Does the Asset Forfeiture and Realization Process Work?
Cryptoasset realization is a method by which law enforcement agencies can seize the cryptoassets used in illegal activities. The process begins with the agency identifying suspicious activity. If a defendant is found guilty and the Judge orders that they forfeit property, it’s usually ordered that the items are sold off through a public auction with proceeds going to the state. Since cryptocurrency can be transferred anonymously, it’s difficult to trace who owns it and do cryptoasset realization. Equally important as the how of cryptoassets being forfeited, is what happens next.
In order to ensure that the correct person receives their assets, there are several steps that must be taken:
- The government obtains a warrant for seizure of assets and freezes them until an indictment is made or bail is posted.
- The government hires an appraiser to determine what value each asset has on the market today, as well as how much work has been put into creating it (which can increase its value). This information will be used at trial to determine whether or not the defendant should have been allowed to keep their property instead of having it forfeited.
- If there are multiple defendants in one case, then prosecutors must decide whether or not each individual’s assets should be seized separately or together (this depends on whether or not they all acted together). If so, then each defendant will receive a portion of any money gained from selling off their share of goods; if not then they’ll receive nothing at all because they were found guilty anyway.”
Once the crypto asset has been seized by law enforcement agencies cryptoasset realization process starts, they will either sell it directly on exchanges or use an exchange like us at Bitfunder to liquidate it into fiat currency like US dollars or Euros depending on the kind of cryptocurrency used for illicit activity.
The Importance of Training, Expertise, and Third-Party Services
As the crypto industry grows, so does its need for training, expertise, and third-party services. Training on evidence handling is also crucial. This can be a challenge for many businesses, especially smaller companies or those that are just starting out in the space.
But there are solutions that can help your business succeed in this new environment. This may seem like a mundane detail, but it’s actually quite important. If investigators do not have the expertise needed to handle these types of things safely, they could lose access to critical evidence.
All in all, cryptocurrency is still a relatively new technology. It hasn’t been around long enough for us to know exactly what kind of regulations we need yet. There are some obvious ones like making sure people can’t use their coins or tokens to buy illegal goods — but there may also be some not-so-obvious things like how much anonymity someone should have when trading on an exchange or whether anyone needs to report transactions made using virtual currency at all times. That makes it really hard to do cryptoasset realization.
As society grows more familiar with cryptocurrency and its potential uses, we’ll develop more rules that make sense for everyone involved—from the average consumer who wants to buy groceries with Bitcoin. Until then, at least you – the reader – know you know how cryptoassets are forfeited.
Disclaimers: Opinions expressed in this publication are those of the author(s). They do not necessarily purport to reflect the opinions or views of Shardeum Foundation.
About the Author: Anuska is a sci-fi lover freshly exploring the blockchain and Web3 space. Her expertise lies in simplifying complex Web3-related concepts and topics for herself and others.
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