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Despite Recent Threats From Canadian Officials, ‘Real Crypto’ or Decentralized Assets Cannot Be Frozen

Over the last week, there’s been a lot of discussion about Canada ‘freezing’ digital currency accounts that are associated with the Canadian trucker’s Freedom Convoy. Amid the topical conversation, it should be stressed that decentralized cryptocurrencies like bitcoin and ethereum, cannot be frozen directly within the network. However, the Canadian government can flag specific digital currency addresses and take it even further, by asking centralized entities like crypto exchanges and payment processors to freeze the funds.

Canadian Officials Can Flag Crypto Addresses and Threaten Exchanges, but They Can’t ‘Freeze Bitcoin’

Last week, the Canadian government and Prime Minister Justin Trudeau invoked the country’s Emergencies Act and enacted Canada’s terrorist financing policy in order to blanket cryptocurrencies donations. Trudeau and the government did this to quell the protesters occupying the streets of Ottawa.

The Canadian government managed to get Gofundme to shut down the Freedom Convoy’s fundraiser and it flagged 34 crypto addresses allegedly associated with crypto fundraisers. Reports had indicated that Canada’s police sent letters to banks and crypto-asset exchanges and insisted that companies “cease facilitating any transactions” with the aforementioned flagged addresses.

According to a number of financial institutions and crypto companies, the Royal Canadian Mounted Police (RCMP) did in fact send the letters. Furthermore, another report details that an Ontario Superior Court judge has ordered financial institutions to freeze any assets tied to the Freedom Convoy including digital assets.

The order reportedly derived from a “secret hearing” initiated by Ottawa residents and attorney Paul Champ. “I can confirm that this is the first successful Mareva order in Canada targeting bitcoin and cryptocurrency exchanges,” Champ explained to the press.

Meanwhile, despite the headlines that talk about directly freezing crypto assets, it should be noted that this can only happen by threatening enforcement and targeting crypto-to-fiat off-ramps.

It is impossible to freeze a bitcoin (BTC) or ethereum (ETH) address and render it useless to the owner. The only way to do that is by using force or threats of imprisonment or death and ultimately obtaining a crypto owner’s private keys. This is why fundraisers, like the BTC fund that raised 21 bitcoin, utilize multi-signature controls.

According to the software developers behind the non-custodial bitcoin wallet Nunchuk, the team was sent a Mareva injunction letter. Nunchuk wrote back to the Ontario Superior Court of Justice and told the court it could not comply with the orders.

“Dear Ontario High Court Judge, Nunchuk is a self-defense, collaborative, multi-sig bitcoin wallet,” the Nunchuk team’s letter says. “We are a software provider, not a security finance intermediary. Our software is free to use. While protecting privacy, it helps people to eliminate single points of failure and save bitcoin as safely as possible.” Nunchuk’s letter adds:

We do not collect any user identification information beyond email addresses. We have no keys. So: ‘Our users’ assets cannot be disabled.’ ‘[We] Cannot “block transactions.’ We do not know the ‘presence, nature, value and location’ of our users’ assets. See how self-defense and personal keys work. When the Canadian dollar is worthless, we will be here for you.

Kraken’s CEO Jesse Powell: ‘We Cannot Protect You — Stick to Real Crypto’

Kraken’s CEO Jesse Powell explained on Twitter that if people are worried about getting their crypto funds frozen then they should not keep crypto on centralized platforms. Responding to someone commenting about crypto exchanges freezing funds, Powell said that this was “100%” the case.

“100% yes it has/will happen and 100% yes, we will be forced to comply,” said Powell. “If you’re worried about it, don’t keep your funds with any centralized/regulated custodian. We cannot protect you,” Powell Tweeted. In a later tweet, Powell discussed that going on-chain to top reserve tokens like stablecoins may not be safe either.

“You’re not necessarily safe just going on-chain,” Powell said. “The top reserve tokens with centralized issuance and redemption, like USDT and USDC have centralized control of freeze functionality that can be commandeered as easily as a bank account. Stick to real crypto,” he added. Both USDC and USDT issuers have frozen specific stablecoin addresses in the past.

In July 2020, Circle’s Centre Consortium blacklisted $100,000 in USDC after getting a request from law enforcement. Tether has blacklisted hundreds of USDT addresses and last month, the company froze $160 million worth of USDT. So while digital currency exchanges, crypto payment processors, financial institutions, and banks can “cease facilitating any transactions” with crypto addresses, decentralized assets or “real crypto” cannot be commandeered unless the accounts’ private keys are taken by threats or physical force.