the United States holds a large stock of cryptocurrencies seized by justice

The United States has built up a huge treasure in Bitcoin over the years. The American authorities indeed seize the cryptocurrencies held by the criminals to resell them at auction to the highest bidder. We explain how it works.

Over the years, the United States government has amassed a significant hoard in Bitcoin. American justice regularly seizes cryptocurrencies involved in criminal activities as far as possible. In the same vein, assets such as boats, cars or works of art are confiscated by the authorities.

For example, the US government seized $56 million in Bitcoin during the fall of BitConnect, a crypto-asset exchange platform that was based on a Ponzi scheme. “In fiscal year 2019, we recorded approximately $700,000 in cryptocurrency seizures. In 2020, it was up to $137 million. And so far in 2021, we’re at $1.2 billion.”, explains Jarod Koopman, head of cybercrime at the IRS (Internal Revenue Service), the agency that collects income tax and various taxes, to CNBC.

The United States seizes more and more cryptocurrencies

From year to year, the number of cryptocurrencies seized by the authorities increases. Currently, government officials are not trained in the management or understanding of digital currencies, but this should change in the years to come. “The government usually lags the criminals behind when it comes to innovation and technology. This is not the sort of thing that appears in your basic training but there will soon be training manuals edited to include tracking cryptocurrencies and how to approach capturing these assets”, prophesies Jud Welle, a former federal prosecutor specializing in cybercrime.

To manage the recovered digital assets, the US government has implemented a precise protocol. “We only keep private keys at the head office so they cannot be tampered with”, explains the head of the IRS. Without the wallet encryption key, it is strictly impossible to access bitcoins stored online. A blockchain wallet is indeed secured by a recovery phrase consisting of 12 or 24 words. This is why some users lose access to their bitcoins by forgetting their private key. Similarly, several agents are involved in the seizure in order to avoid fraud or theft.

However, the cryptocurrencies stored by the United States are not held on a single wallet. All agencies and states involved retain bitcoins in different places. “I don’t believe there is one place that keeps all the cryptocurrency that the United States holds. It really is a funny mess. I don’t even know if anyone in government would want to get it all back how they would do it”, says Jarod Koopman.

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Seized bitcoins are auctioned

The United States does not keep bitcoins seized by the courts forever. Recovered digital currencies are quickly sold at auction for dollars once the case is officially closed. The auction is managed by the United States Marshals Service, a police agency linked to the Department of Justice, with the help of other federal agencies and specialized private firms. In particular, the American government requested the assistance ofAnchoring, the first federally chartered digital asset bank in the United States, and BitGo, a digital asset trust company that has an official license.

“You’re basically lining up to put them up for auction. We never want to flood the market with a huge amount, which could then have an effect on the price of cryptocurrencies”, explains Jarod Koopman. The authorities avoid sell massive amounts of bitcoins in one go so as not to influence the currency rate. On the other hand, the United States does not seek to resell cryptocurrencies at the highest price on the market. “We are not trying to play with the market”, underlines the person in charge. In recent years, Washington has notably sold more than 30,000 BTC to Tim Draper, a famous American investor.

Money raised from auctions is deposited into the Treasury Forfeiture Fund or the Department of Justice Asset Forfeiture Fund. According to Jarod Koopman, more than 60% of Treasury confiscation funds come from cryptocurrencies seized by the IRS. The funds are then allocated to different government projects. “Agencies can apply to access some of this money for operations funding”, details the head of the IRS.

Source: CNBC

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