Suppose You Are A User Or Investor In The Digital Currency Space And The Crypto World. In that case, You Are Probably Familiar With The Important Principle Of “Without Private, you Will Not Own Your Currencies. 

By this principle, many of us think that if we protect our private keys well, no one can access our assets on the blockchain, and it is impossible to block the blockchain.

While blocking assets on the blockchain is not only technically possible; Rather, it has been done many times in recent years.

The reason is the increase in criminal activities and scams in this industry. An issue that has prompted the judicial authorities to block and confiscate the assets of criminals with the cooperation of some blockchain developers.

Therefore, it is better to abandon the notion that blocking assets on the blockchain is impossible and accept the reality. In this article, we will first talk about how to close an account in the blockchain and the reasons for confiscating users’ digital assets.

Then we will examine the process of detecting suspicious activities in this space. If you want to know more about this process, stay with us until the end of this article.

How to block the blockchain or close the account in it?

Before explaining how to close an account in blockchain, it is better to talk a little about how tokens work.ERC-20 tokensActually, they are a reference to a database that keeps track of the number of tickets available at each address. The management of this database is the responsibility of the token contract.

When several tokens are transferred from one address to another, the token contract is an intelligent contract tract that changes the number of tickets available per address. This means it subtracts tickets from the sender’s address and adds them to the recipient’s.

This contract is the only smart contract that can change the database of that token. So it can block access or confiscate or burn those tokens entirely.

If this intelligent contract blacklists an address, that address may no longer be able to buy, sell, receive, or send the associated token.

In other words, updating a smart contract with an address in its blacklist is only possible with the permission of its administrator.

What is the process of blocking blockchain and digital currencies?

In most cases, the address is blacklisted by the innovative contract illegal activity happens. For example, when an attacker exploits a software bug and transfers tokens to their address or when a judicial authority makes a request, the assets of the suspect address are temporarily blocked until the investigation is complete.

Tether(USDT) is one of the tokens whose smart contract can block and reissue USDT. According to reports, the Tether token contract has already blacklisted more than hundreds of addresses. In another example, Tether stopped more than $150 million from three wallet addresses at the request of law enforcement.

Ed. It is not only Ethereum-based token contracts that can close the account on the blockchain or confiscate it; intelligent contract managers can freeze funds associated with criminal activities in the appsDefayare also related. St. In some first-layer blockchains, this feature is one of the main features of token contracts. For example, RippleAndStellarBoth allows developers to create blockable tokens.

It should be noted that the blocking operation is often only applicable to tokens. Contrary to popular belief, blocking native blockchain assets such as Bitcoin, Ether, BinancecoinAnd Ripple is impossible unless in a centralized platform like centralized exchanges and service providers to be kept safe.

We should mention that these centralized platforms often do not block funds unless ordered by the police or the court.

How to recognize and act against suspicious and criminal activities

Dealing with suspicious and illegal activities on digital currency platforms can differ depending on whether the platform itself first identified them or a private sector investigator or legal entity.

Through digital currency platforms

Platforms such as digital currency exchanges can use various tools to monitor incoming and outgoing transactions. If an activity looks suspicious due to the ‘s structure of trade and how the value is transferred or if the source or destination is illegal, these tools can identify and flag it. Once identified, the platforms will perform one or more of the following steps:

• Submit a suspicious activity report to FinCEN if the user is in the United States; Otherwise, they send equivalent documents.
• Asking for an explanation from the user
• Restricting the user from making transactions with more significant amounts
• Temporary blocking of digital currencies of the user
• Ban the user from entering the platform

Which of the aforementioned actions is taken depends on the perceived risk level of the transaction, the user’s description, his activity history, and the level of commitment of that digital currency platform.

It is essential to review transactions and report anything suspicious, especially with digital currencies, Because platforms often do not have control over incoming funds. For example, if someone has deposited digital money into a terrorist financing campaign, the platform cannot block the deposit. However, it can prohibit the account owner from withdrawing funds as fiat currency or transferring them to other accounts. The blockchain network processes these transfers, So they cannot be stopped.

Platforms fromAuthentication procedures and follow anti-money laundering laws, they can easily report the profile of the account holder and its activities.

Can the property of the victims be returned?

The private sector can help victims of all kinds of scams and those interested in tracking and recovering their digital currencies. This department includes private detectives, lawyers, and accountants who can help the victims return their property using their expertise. For example, we can refer to the case of Grant Thornton, the owner of the exchangeCryptopia, Cited. After liquidating the exchange, they turned to the private sector to investigate and recover the assets.

through the private sector

The review process is almost identical to the platform review process in data collection and the use of blockchain analytics and requests for information. However, in many cases brought before civil courts, we have seen rulings that include the usual process of holding assets pending trial and new practical approaches that do not undermine the decentralized and anonymous nature of the blockchain. The following will examine several examples of sentences some courts have established.

Examples of sentences that some courts have imposed

To date, the rulings that some courts have issued to block blockchain include the following:

1. Rules for placing digital currencies in the “assets” category: with these rules, the usual rules for securing and recovering other forms of assets about digital currencies can also be used.

2. Freezing orders for blockchain and assets on it: Courts can freeze assets linked to criminal activities, Even if their owner’s identity remains unknown.

3. Worldwide asset freezing orders: With these orders, all the assets of the criminal person can be frozen in different countries.

4. Disclosure Orders: These orders allow third-party entities to disclose information about the transactions and identities of account holders involved in illegal activities if they have them.

5. Out-of-jurisdiction services: With these services’ help, the decrees imposed on the freezing of assets of criminals in one country can also be implemented in other countries.

Many cases show that assets can be identified and temporarily frozen pending trial. However, except for issues such as the bankruptcy of the Mt.Gox exchange (Mt.Gox), the process of recovering digital currencies in the private sector began in 2018 and is relatively new.

through legal institutions

In the government sector, when law enforcement investigators somehow become aware of a suspect engaging in illegal activities with digital currencies, they are likely to take the following actions:

• Collection of related digital currency addresses, transaction details, parties involved, and other important information required
• They use blockchain analysis tools to determine the feature, origin, and destination. For example, are they de, origin-exchanges with authentication or not? Are they linked to illegal activity, and how are they spent and moved?
• Sending subpoenas or requesting information from businesses related to digital currencies that have an authentication process and the suspect has had an account or made transactions with them.

The information obtained from this process helps legal entities determine whether digital currencies result from illegal activities such as drug sales, ransomware, fraud, or extortion. If it turns out that the suspect is trying to hide the true origin of the funds and intends to launder money, his assets will be subject to seizure in many jurisdictions. Even if the transactions are legal, the money exchanged will be determined to have been obtained from criminal activities.

How is the asset seizure process?

Once enough evidence has been gathered to indict and arrest a suspect, investigators often coordinate with the business holding the suspect’s digital assets to transfer them to a government-controlled wallet or freeze them indefinitely. However, sometimes the assets remain in the suspect’s wallet; Because they may agree to hand over the funds in exchange for a reduced prison term.

Confiscated digital currencies are usually held this way until a court order is issued. If the accused is acquitted, the assets will be returned. If convicted, confiscation of purchases will be part of his sentence. A separate sub-process is then initiated to determine the ownership interests of all third parties in the help the government seeks to seize.

After all ownership interests are determined and addressed, the remaining funds are auctioned off to convert them into fiat currency. These funds are allocated to all agencies involved in the case. Ultimately, these assets are returned to the victims identified in the subject or deposited into the government treasury as fines. Depending on the relevant jurisdiction, some funds may be allocated to social programs such as addiction treatment centers, housing homeless people, and job skills training.

Blocking the blockchain and digital assets of users through sanctions

Besides criminal activities, sanctions are another reason for stopping blockchain and users’ support. European Central Bank President Christine Lagarde’s warning about users using digital assets to circumvent sanctions prompted G7 leaders to state prosecuting such people.

Unlike the United States and the United Kingdom, the European Union takes specific measures to target nationals and companies based in sanctioned countries for using digital currencies. Those required to comply with the EU sanctions law if their total digital assets in any wallet exceed 10,000 euros are prohibited from providing wallet services, opening accounts, or holding assets belonging to nationals of these countries or natural persons. Residents or institutions based in them are not permitted.

US, UK, and EU sanctions on blockchain blocking

Sanctions of the United States, the United Kingdom, and the European UnionThey include different forms of restrictions to block the blockchain. These restrictions prohibit any dealings with suspected persons and providing services to them. These measures are also valid for digital assets. Consequently, if the individual or company whose assets are frozen also have digital assets, those assets must be frozen.

In addition to specific users, these countries can sanction digital currency exchanges, miners, and all active people in this field. While the United Kingdom and the European Union have not yet implemented this step, on April 20, 2022, the US Office of Foreign Investment Control (OFAC) sanctioned BitRiver, a mining company, and several subsidiaries as Special Nationals (SDN). According to it, all those subject to OFEC’s jurisdiction were required to freeze BitRiver’s assets and were not allowed to do business with this company.

These countries have anti-regulationsAvoiding sanctions they also implement. For example, in April 2022, the United States sentenced Virgil Griffith to 5 years in prison and a fine of $100,000; Because they worked on the Ethereum digital currency platform and were influential in evading sanctions.

Griffiths’ crime was to finance the infrastructure of digital assets in North Korea, some of which included detailed instructions on using these assets to evade US sanctions.

Cryptocurrency industry compliance with sanctions

In October 2021, OFEC published sanctions compliance guidelines for private operators in the cryptocurrency industry. This guideline suggests actions for these operators to ensure compliance with the sanctions.

Some include risk assessment, customer screening, geolocation, and transaction monitoring tools.

Notably, two major digital currency exchanges, Coinbase and Binance, have taken preventive measures to ensure compliance with these guidelines. For example, Coinbase has blocked 25,000 accounts associated with Russian users.

Binance also announced that it would limit the provision of services to those citizens and residents and legal entities based in Russia whose digital assets are equal to more than 10,000 euros. Among other measures taken by Binance to comply with sanctions, laws are the requirement for users to complete authentication procedures.

Also, this exchange has announced that, if necessary, it will cooperate with legal entities to freeze the assets of some specific accounts. The English courts have also announced their desire to block the blockchain and the help of the offenders on it and have implemented this work in several cases.

Conclusion

According to what we said, blocking blockchain and digital currencies is possible, and legal and judicial authorities can stop users’ digital assets with various measures.

However, these measures do not solve the problem of effective blocking of blockchain and assets on it.

For example, suppose digital assets are held in an account directly controlled by the holder. In that case, their transfer can only be prevented if they are transferred to a separate escrow account with the account holder’s private keys.

This requires the cooperation of the account holder. Although courts can use methods to compel these people to cooperate, the limitations of these methods make the work somewhat tricky, Especially if fraud is involved.

However, if digital assets are transferred despite a blocking order, it may still be possible to track them with the help of some specialized companies.

The advancement of Chinese research and the willingness of private providers of digital currency services have also helped to track and analyze digital currency transactions.

Maybe in the future, some measures can help reduce fraud and criminal activities; But for the residents of the embargoed countries, including our country, this will not be very pleasant.