Bitcoin-based scams mean the federal government now needs a crypto bank

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Due to a wave of cryptocurrency-fueled crime, federal law enforcement is seizing a lot of bitcoin. Now the US government is figuring out what to do with all of this.

This week, a small cryptocurrency custody platform called Anchorage Digital announced that it had won a Department of Justice contract to store and liquidate digital assets that federal law enforcement officials seized as a result. criminal investigations. The government essentially hired a bank to store and sell billions of dollars in confiscated cryptocurrency, including bitcoin and ethereum treasures. Anchorage Digital, which is based in San Francisco, is an obvious choice for a partner, as it is the first federally chartered bank for crypto.

There is no traditional bank that actually offers these services because it is technically extremely complex, Diogo Monica, co-founder and chairman of Anchorages told Recode. It is very difficult to store them safely. In fact, there are many, many stories of people losing access to their Bitcoin and other cryptocurrency wallets and completely losing access without being able to get them back.

The fact that the US Marshals Service needs to hire a cryptocurrency company for help reminds us that as these types of digital assets become more widespread, they are also becoming more popular with criminals. In fact, as law enforcement has shut down illegal cryptocurrency operations, from ransomware programs to illegal online marketplaces, it is clear that the U.S. government could hold a very large amount of bitcoin, from ethereum and other cryptocurrencies. As a result, Uncle Sam could even become a bigger player in the crypto market in the months and years to come.

Since its inception, cryptocurrency has been popular with criminals because accounts and transactions are difficult to trace to a single person. Now, crypto is at the center of a wide range of illegal schemes, including blackmail scams, counterfeit Covid-19 vaccines, money laundering operations, and illicit sales on the darknet. In the first half of this year alone, people sent over $ 2 million worth of cryptocurrency to Elon Musk impersonators following a social media scam, according to the Federal Trade Commission (FTC) . And earlier this month, a Swede was sentenced to 15 years in prison after pleading guilty to orchestrating one of the biggest cryptocurrency-based Ponzi schemes the U.S. government has ever pursued. The man had tricked people into sending him bitcoin, along with other digital payments, under the guise of a (fake) gold-backed investment opportunity.

Cryptocurrency is not government currency so it has a very international reach, which is why it has become even more popular with transnational organized crime, as well as terrorism, said Suzanne Lynch, a professor specializing in economic crime at Utica College.

By investigating these crimes and prosecuting the perpetrators, federal law enforcement has acquired a large cache of cryptocurrency. In June, the DOJ seized approximately $ 2.3 million in bitcoin that the FBI obtained after tracking the movement of a ransom payment associated with the Colonial Pipeline cyberattack earlier this summer. This was after the agency seized around $ 1 billion in cryptocurrency that was once owned by Ross Ulbricht, creator of the online black market Silk Road, which federal officials shut down in 2013. Ulbricht was arrested this year there and found guilty of drug distribution and money laundering in 2015..

There is no difference here between crypto and an oil tanker, for lack of a better example, or a car or a fiat, when it comes to how it will ultimately be used in a forfeiture scheme. holdings, said Ari Redbord, former prosecutor and head of government affairs at TRM, a cryptocurrency fraud detection startup.

The US Marshals Service is the agency responsible for holding and auctioning many seized assets, including works of art, rare collectibles, and real estate, from the Pharmaceutical CEO’s Wu-Tang album. out of favor with Bernie Madoff’s apartments. Since at least 2014, the DOJ’s asset forfeiture program, which is run by marshals, has taken the same approach with cryptocurrency and has opened up its crypto stores it is seizing for public offering. But the Marshals Service announced in 2019 that it was looking for more help managing all of these digital assets.

Price, how to value it, how to assess how to liquidate it, how to keep it, people are forced to deal with the asset class because it’s so prevalent now, Monica, from Anchorage, told Recode. Getting it right can be especially tricky, as cryptocurrency markets can be extremely volatile.

As the DOJ moves forward with its digital asset management plan, calls for tighter cryptocurrency regulations are coming higher and higher. Senator Elizabeth Warren (D-MA), for example, said this month that cryptocurrencies would face tougher rules, while some senators recently proposed taxing cryptocurrency transactions to fund President Joe Bidens’ infrastructure plan. Earlier this month, Federal Reserve Chairman Jerome Powell even suggested that the federal government could launch a digital version of the US dollar as an alternative to cryptocurrencies, though he is still unsure whether that is. is a good idea.

Despite growing concern from lawmakers and regulators over cryptocurrencies, their popularity is forcing the government to adapt. A recent survey by NORC, a research institute at the University of Chicago, found that 13% of people in the United States have bought or traded cryptocurrency in the past year alone, compared to an estimated half of households. Americans who have invested in the stock market, according to Pew.

All of this reminds us that cryptocurrencies are only becoming more prevalent, which means crypto scammers aren’t going away anytime soon. So beware of requests for cryptocurrency payments from shady romantic prospects, too good to be true investment opportunities, purported blackmailers, and people claiming to be Elon Musk. If you’re not careful, your bitcoin could end up in the federal government’s new crypto bank.

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