Not your keys, not your coins – and the police in Germany are learning this the hard way.
According to reuters, a fraudster was caught in Germany and sentenced to two years in prison. In his possession when he was arrested, an encrypted Bitcoin wallet that held his ill-gotten-gains. Using blockchain analysis, investigators were able to determine that the man was in possession of 1,600 BTC, valued today at roughly $60 million USD.
Investigators were able to determine this because the Bitcoin blockchain is open and transparent, when funds are sent anyone in the world can see where they were sent from, and to whom. Because the Bitcoin blockchain is also permissionless, and requires no personal information to use the network, it was a common myth that Bitcoin was anonymous. What Bitcoin actually is, is psuedoanonymous.
The German fraudster decided that he wasn’t going to give up the encryption key to investigators, and now his $60 million fortune rests in limbo. The man was recently released from prison after serving his sentence of two years.
Can the fraudster still access his ill-gotten-gains?
If the fraudster has a backup of his seed phrase that investigators did not seize, then yes the fraudster can still access his fraudulently obtained bitcoin. There is one huge problem for the fraudster, and that is as soon as any of those funds move, the authorities will know he moved them. All major crypto exchanges today use blockchain analysis to prevent dirty funds from accessing their platforms.
Contrast this with cash. If the fraudster had hidden $60 million in cash that the police could not find, he could use this cash anywhere at anytime. Businesses would accept the cash without issue.
Can the police eventually access the fraudulently obtained Bitcoin?
Yes, the police can eventually gain access to the funds. To do this, the police will have to crack the encryption key. To do this, computers will need to run around the clock trying hundreds of thousands of different password combinations until they guess the correct one. The only problem for the police, is that some passwords will take thousands of years to crack, so it might be a long time until they seize the funds.
If this same situation happened in a rogue state, the police could obtain the encryption key by using a hammer to beat the man until he gave up the password. Even though the man is located in Germany, the fraudster is still in danger of being tortured to give up his password. Everyone now knows this man is in possession of a password that grants access to 1,600 Bitcoins.
The takeaway for law-abiding citizens
In 1933, US President Franklin D Roosevelt confiscated gold from USA citizens. The president did this by signing an executive order, which doesn’t require the approval of congress. For people who did not comply with the order, the government fined them and even prosecuted people.
Across the globe, governments are always changing and cryptocurrency is a new technology. If some government somewhere went rogue and decided to seize all crypto held by citizens, not much can be done to stop it. However, by encrypting and backing up your funds, you can possibly keep your funds secure by waiting out the rogue government – they won’t be able to guess the password!
Always follow the laws of your country, and always backup your crypto.