One of the challenges for law enforcement is managing the items seized, where control of the assets is handed over to the state. Naturally, since the property ownership, pending confiscation decision, rests with the original owner, diligent care must be taken of the seized assets.
Whether centralized or decentralized, virtual currencies represent the least of such challenges since, as digital items, they do not physically deteriorate. However, virtual currencies, especially decentralized crypto-currencies, are susceptible to very significant fluctuations in exchange rates, which may be a concern for law enforcement from the perspective of pending confiscation in favor of the state. The differences in value at the asset tracing stage and the actual seizure may require a review of the amount and value of virtual currencies to be seized. However, because of the open availability of the exchange rate data, this should not require expert review and support.
Where assets are seized as instrumentalities of crime, one of the issues is the preventive nature of the seizure, meaning that the instrumentalities of crime must be taken out of circulation. Although no cases have been reported as to the seizure of centralized or decentralized virtual currencies as instrumentalities of crime, there still may be the need to place the seized virtual currency (wallet contents) on removable hardware to take it “off the grid.”
Similar logic would also apply to bitcoins seized as proceeds of crime and transferred to the wallet operated by the competent authority. It would be advisable, in these cases, to take the wallet and its contents “off the grid” by creating local files and storing those safely on removable and/or secure storage. The reason for this, besides the wish to protect seized property from manipulation through transactions and mining, is that virtual currencies, as digital items, may be inadvertently altered or lost through mismanagement, service disruptions, or be compromised employing a cyber-attack. These and other necessary security tips can be taken from the Bitcoin network itself.