The United States has built up a huge Bitcoin treasure over the years. The American authorities 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 bitcoin treasure. The American justice in fact regularly seizes cryptocurrencies involved in criminal activities to the extent possible. Similarly, 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 trading platform that was based on a Ponzi scheme. “In fiscal 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 Internal Revenue Service (IRS), the agency that collects income tax and miscellaneous taxes, to CNBC.
The United States seizes more and more cryptocurrencies
From year to year, the number of cryptocurrencies seized by the authorities increases. For now, government officials are not trained in managing or understanding digital currencies, but this is expected to change in the years to come. “The government usually lags a few steps behind the criminals when it comes to innovation and technology. It’s not the sort of thing that shows up in your basic training but soon there will be training manuals edited to include tracking cryptocurrencies and how to approach the seizure of those assets ”, prophesies Jud Welle, former federal prosecutor specializing in cybercrime.
To manage the recovered digital assets, the US government has a specific protocol in place. “We only keep private keys at the head office so that they cannot be altered”, explains the IRS official. Without the wallet encryption key, it is strictly impossible to access bitcoins stored online. A blockchain wallet is in fact 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. Likewise, several agents are involved in the seizure in order to avoid fraud or theft.
However, cryptocurrencies stored by the United States are not held in a single wallet. All agencies and states involved keep bitcoins in different places. “I don’t believe there is a single place that keeps all the cryptocurrency that the United States holds. It is really a strange jumble. I don’t even know if someone in the government would want to get everything back how they would proceed ”, says Jarod Koopman.
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Seized bitcoins are auctioned off
The United States does not keep bitcoins seized by the courts forever. Recovered digital currencies are quickly auctioned for dollars once the case is officially closed. The auction is managed by the United States Marshals Service, a law enforcement agency linked to the Department of Justice, with the assistance of other federal agencies and specialist private firms. In particular, the US government requested the assistance ofAnchorage, the first federally chartered digital asset bank in the United States, and BitGo, an officially licensed digital asset trust company.
“You basically stand in line to auction them off. 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 bitcoin in one go so as not to influence the price of the currency. 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”, emphasizes the manager. In recent years, Washington has notably sold more than 30,000 BTC to Tim Draper, a famous American investor.
Money collected from auctions is deposited into the Treasury Confiscation Fund or the Assets Confiscation Fund of the Ministry of Justice. According to Jarod Koopman, more than 60% of the Treasury’s confiscation funds come from cryptocurrencies seizures by the IRS. The funds are then allocated to various government projects. “Organizations can submit requests for access to part of this money for the financing of operations”, details the head of the IRS.