Canada’s Seizure Of Crypto From Freedom Convoy Highlights Digital Currency’s Flaws

Canadian law enforcement seized an unspecified amount of crypto donated to the Freedom Convoy that terrorized the city for weeks last month. The crackdown highlighted how digital currency’s security bona fides stand up to real world tests. It’s definitely not everything boosters have promised.

Nicholas St. Louis was “Bitcoin Team Lead” for the Freedom Convoy protest. Once GoFundMe froze the protest’s $10 million in contributions, St. Louis proposed raising funds via Bitcoin. He felt the digital currency was “Uncensorable, permission-less and when you custody it properly it is unconfiscatable,” according to the Calgary Herald.

Police would put that assumption to the test. They raid St. Louis’ home for the funds’ private keys less than an hour after a judge order the digital currency handed over. Louis claims the raid was in violation of the court order, but when you advertise your funds as “unconfiscatable” police have an interest in acting quickly before any monkey business can occur.

Of course a cryptocurrency is traceable. That’s the whole point of recording your ownership on a blockchain. You could possibly buy private keys in person with real cash (the actual secure, untraceable way to buy stuff), but there isn’t much point to crypto if you can’t transfer it into real world dollars. That’s where crypto exchanges come in as a weak but necessary point for the currency.

Cryptocurrency may or may not ultimately prove to be a viable global currency, but there’s no denying that it carries immense value. Bitcoin alone has a market cap of over $730 billion, and anytime there’s that much money floating around, sharks are sure to be attracted.

Coupled with the “Wild West” atmosphere surrounding decentralized finance, in some ways it can be even easier for scammers to steal crypto than U.S. dollars.

It turns out, the less a country regulates crypto, the safer it is. From the Herald:

There are various tools and tactics, such as privacy mixers, that can make it more difficult for people to trace where cryptocurrency originated and ended up. Michael Fasanello, the former director of training and regulatory affairs at Blockchain Intelligence Group, said the convoy fundraiser doesn’t appear to have made use of them, however.

The often-repeated concept that cryptocurrency is useful to criminals because they’re difficult to trace is a myth, Fasanello said. “Depending on the circumstances, it can be extremely transparent and very traceable.”

John Paul Koning, a Montreal-based financial blogger and a columnist with the cryptocurrency news outlet CoinDesk, said Canada’s regulatory regime for cryptocurrency-trading platforms likely helped make the various freezing orders on the Bitcoin raised in support of the convoy effective. The past year has seen Canadian securities regulators assert jurisdiction over the sector, including platforms based outside the country—giving them oversight over key infrastructure people need to turn crypto into money they can actually spend.

Koning said Russia, a country affiliated with about three-quarters of global ransomware revenue, according to blockchain analytics firm Chainalysis, provides an interesting counterexample. Somewhat ironically, cryptocurrency’s censorship-resistant properties work better in countries where the sector is less regulated, he said.

“Bitcoin is not as good as its marketers claim it to be at being a censorship-resistant payment rail,” Koning said. “The exchanges are key to making the stuff useful. You’ve got to sell it somehow.”

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