Crypto-currencies, in contrast to centralized virtual currencies, operate without any coordinating or centralized structure. Therefore, seizure orders need to be served upon individual users, while the object of seizure would be virtual currency contained in the addresses/wallets associated with the user.
Theoretically, taking control of the virtual currency wallet can be done in two different ways. The first would be to compel the user to surrender their credentials associated with the wallet to the seizing authority. The pros of such an approach may include the possibility of further intelligence and investigative activities, since, at the level of transactions, ownership of the wallet is not visible due to anonymity; however, the cons far outweigh the pros in this regard:
- In the current state of affairs, the availability of legal powers to compel the user to submit their confidential data is largely dependent on the state’s legal system. While, in the context of the GUAM states, refusal to provide login information may be interpreted as tampering with evidence attracting separate criminal charges, the lack of expediency in this approach and volatility of electronic evidence may work against the interest of the investigation;
- The lack of guarantees that, even if credentials for a wallet are handed over to the state, no copies have been made by the offender or crime associates that would allow those individuals to regain control of the seized assets.
Therefore, the viable option is taking control over virtual currencies by using the regular transaction mechanisms to transfer the currency
to the account (wallet) of the law enforcement authority. Naturally, there would be some steps involved in this process:
- Determining the number of virtual currency items, wallets, or both to be seized;
- Securing suspect’s cooperation or exercising control over the wallet through other means permitted by law, so that the required sum can be transferred to a government-controlled wallet, pending liquidation upon forfeiture;
- Confirmation of receipt duly recorded; or
- Where cooperation or control over the wallet is not viable:
- Determine the value of the virtual currency to be seized in local
currency based on the exchange rate;
- Apply value-based recovery procedures.
Needless to say, value-based recovery can be used from the initial steps of the process, especially where direct seizure and control of virtual currency is not viable due to either security or asset management considerations. One of the additional arguments in favor of transferring virtual currencies or their value to state accounts is that, in the absence of more detailed information, this seems to be a preferred method in those very few cases that have used seizure and confiscation of virtual currencies. Namely, in the already noted Silk Road case, the US Government appears to manage the largest Bitcoin wallet in the world comprised of currency seized from the mastermind of the Silk Road.