Crypto trading has taken the back seat in the digital economy in 2022, with the market remaining under the bears' control for most of the year. Furthermore, traders have seen their faith rocked by the consecutive failures of centralized exchanges. These intermediary marketplaces have been the powerhouse of the industry since its humble beginnings. Now, they seem to crumble under mounting allegations of scams, lawsuits, and solvency concerns. Meanwhile, they make a convincing case for the imminent decentralization of crypto…
Freedom is a word synonymous with crypto. There is freedom from traditional finance systems, freedom from government control, and of course, financial freedom.
So it made sense that when Canadian Freedom Convoy protesters needed an alternative platform to receive donations, they chose crypto. At least, it aligned with what the protesters stood for literally and figuratively. However, despite what should have been a smart move, the government exerted its influence on protestors’ holdings, raising questions on how free crypto really is.
Freedom Convoy and Bitcoin: The Backstory
The Group, their Agitations
On January 15, the Canadian government mandated truckers who used the US-Canada border to present proof of vaccination to cross the border. A week later, the US government gave a similar mandate.
On Friday, January 28, Ottawa, Canada’s capital city, came under siege. A convoy of trucks blockaded streets. And what started with a few hundred protesters snowballed into an agitation involving about 8,000 people. These protesters pestered citizens and forced business closures. And for more than two weeks, this was the reality of Ottawa as protesters demanded a reversal of the Covid-19 vaccine mandate.
In addition to revoking the mandate, protesters demanded an end to every Covid-19 restriction in Canada or the resignation of Justin Trudeau, the country’s prime minister. Although similar protests sparked off in New York, Wellington, and Paris, it was Ottawa’s protest that attracted international attention — because of its political undertone.
The Demonstration, the Divide, and the Donations
What started as a demonstration against Covid-19 restrictions quickly morphed into a clash of political ideologies. Behind the scene were the financiers who sustained the protest with sizeable donations. Leaked data from GiveSendGo, a Christian crowdfunding platform, revealed that donors also had connections with activism against American democracy and the Black Lives Matter movement.
The Freedom Convoy protest received donations through GoFundMe and GiveSendGo and raised up to $7.9 million and $9.2 million respectively. But days later, GoFundMe paused donations to the protest. In their official statement, GoFundMe said:
[we have] evidence from law enforcement that the previously peaceful demonstration has become an occupation, with police reports of violence and other unlawful activity.”
They also announced that they would refund the contributions of all donors. About a week later, Toronto-Dominion Bank froze $1.1 million transferred from GiveSendGo to individual accounts. The bank had received an order from the Ontario Superior Court of Justice after Prime Minister Justin Trudeau invoked the Emergency Act.
Even though it seemed the government went for the jugular, the truckers sustained momentum. With their fundings intercepted, they had to turn to a boundless, decentralized mode of funding.
Enter Bitcoin — and other cryptos
Although Bitcoin’s safe-haven function during economic turmoil is still a debated topic, it has not failed as a safe haven during protests. From the #EndSARS protest in Nigeria to the pro-democracy movement in Thailand, Bitcoin has been a sanctuary for demonstrators to escape government-imposed financial restrictions. And the Freedom Convoy protest was no exception.
Supporters of the protest started donating Bitcoins towards the protest. Bitcoin donations surpassed the 21-Bitcoin goal set by the truckers as 5,511 donors raised over 22 Bitcoins worth about $932,000. 20% of the donations were held in a hardware wallet for meeting the immediate needs (food, accommodation, legal aid) of the truckers. The remaining 80% went to a multisig wallet for collaborative custody.
But the Canadian government wasn’t ready to give up yet. In an unprecedented move, crypto assets tied to over 120 wallets connected to the protests were frozen by the government. The police ordered regulated financial firms to stop processing transactions from these wallets. The sanctioned wallet addresses were tied to Bitcoin (BTC), Ethereum (ETH), Cardano (ADA), Ethereum Classic (ETC), Litecoin (LTC), and Monero (XMR).
These assets were frozen after the Ontario Superior Court of Justice signed a Mareva Injunction. According to Coindesk, this injunction freezes an individual’s assets to prevent them from being spent, moved or hidden. This means that the government can order the freezing of assets in any financial institution holding them — including crypto firms in this case. Digital assets firms mentioned in the injunction include Binance Smart Chain, Bull Bitcoin, PancakeSwap, TallyCoin, Nunchuk, Bylls, Satoshi Portal, Shakepay, and BitBuy.
The freezing of these digital assets begs the question: Can cryptocurrencies actually escape governmental control?
Crypto’s Achilles Heel in the Mareva Injunction
A purely peer-to-peer version of electronic cash would allow online payments to be sent directly from one party to another without going through a financial institution.” – Satoshi
This was the opening statement in the famous Bitcoin whitepaper. Satoshi Nakamoto’s aim was to create an autonomous and decentralized financial system where traditional financial institutions do not act as a bridge. However, governments have continued to clamor for the regulation of cryptocurrencies and other digital assets. The crypto community, on the other hand, has been unfazed by the moves of governments to halt or control crypto transactions. At least, there is the popular belief that crypto transactions are untraceable. But the dramatic turn of events during the Freedom Convoy protest raises a cause for concern.
In Canada, crypto companies and exchanges must register with the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC). The institution requires these companies to collect the basic biodata of their users. So with the Mareva Injunction, the government could easily order these companies to identify the protesters on these platforms and freeze their assets. An exchange like Bitbuy willingly complied with the order.
Other exchanges like Kraken were forced to comply as well, despite taking a public opposite stance.
Crypto institutions and establishments must be legal to attain traction. To be legal, institutions must register with legally-required bodies. Their compulsory registration with the government means they are subject to its laws and vulnerable to the decree of a centralized system. It is at once a Catch-22: an impossible situation.
If government-regulated crypto platforms can freeze the assets of users, doesn’t this embody an amusing paradox in the crypto space: a decentralized technology run by centralized/political systems? Doesn’t this paradox mock the very reason behind the birth of Bitcoin and other altcoins? Lastly, doesn’t it cede control to the government and institutions of traditional finance?
Affirmative answers to these questions would have far-reaching implications for cryptocurrency; however, there are still positives.
Crypto’s Free Impenetrable Fort
The business model of several crypto firms in Canada made it easy for the Mareva Injunction to take effect. However, for Nunchuk.io, it was a different story.
Authorities could not freeze crypto assets stored in wallets provided by Nunchuk.io. The company stated the reason for this in their official response to the Mareva Injunction.
Dear the Ontario Superior Court of Justice,” the response began, “Nunchuk is a self-custodial, collaborative-multisig Bitcoin wallet. We are a software provider, not a custodial financial intermediary.”
In other words, Nunchuk only provides a platform for users to host their wallets. It has no repository of users’ details save their email addresses. According to their response, they could neither freeze assets nor stop their transfers to other wallets. Thus, as if meeting an impenetrable fort, Canadian authorities have not been able to seize about 14.6 Bitcoin transferred to 101 unique, unidentified wallets.
As of March 24th, despite numerous attempts from the authorities to seize more BTC, the assets remain free. This is also due in part to proactive sermons to protesters to ditch centralized exchanges for non-custodial wallets. Jesse Powell, CEO of major crypto exchange Kraken, was one of the loudest voices.
But multisig wallets are not the impenetrable fort per se, rather, their strength lies in the two qualities of crypto they preserve: autonomy and decentralization. In these two, crypto finds its strength and uniqueness. The more reasons why these qualities require preservation vis-a-vis blocking loopholes for control.
Decentralization is not the Government’s Friend
On March 25th, Coindesk reported that the European Union Parliament was mulling a ban on anonymous crypto transactions. The ban could, in effect, render most non-custodial crypto services in Europe illegal. The EU’s move also notably comes after the parliament pushed back an initial Anti-PoW draft. However, the proposed ban against anonymous crypto transactions might not be as fortunate.
An anti-anonymous ban had been initially floated in July last year, without much verve. Mairead McGuinness, the EU financial services commissioner, insisted at the time that authorities should subject crypto to the same laws as fiat money.
We shouldn’t have different rules for the financial system. They should apply across digital currencies as well.”
Except that cryptocurrencies actually thrive on the difference. A crypto token is different from its fiat equivalent, both in operation and characteristic. The crypto industry did not achieve traction in the past few years by behaving like fiat money. Perhaps, one could also argue this level of adoption wouldn’t be possible if crypto had been governable under the same centralized laws.
The tenets and prospect of cryptocurrency obviously depend on its decentralization, just as it relies on adoption. However, should the government manage to clamp or take away its freedom, then crypto would lose part of its meaning.
The Ultimate Dread
Could the government one day explicitly outlaw cryptocurrencies? Most likely not. A ban on crypto, like the Canadian authorities’ desperate crackdown on virtual assets, could have the opposite effect. The government knows this, and popular economist Saifedean Ammous perhaps sums it up just perfectly.
The way for them [the government] to kill Bitcoin is for them to make the economic incentive to use Bitcoin irrelevant — to make the demand for using Bitcoin go away at the source. They need to offer a technology that is better than Bitcoin — that can obviate the need for Bitcoin. Or, at least, they need to try.”
Freedom is synonymous with crypto quite alright, but the Freedom Convoy protest showed that this freedom could be threatened. Canada may have succeeded in dismissing the protest with the Mareva Injunction; however, that singular move has sparked up a new conversation: one filled with questions. Could anti-crypto governments exploit crypto’s, Achilles Heel? Does this weak point provide opportunities for indicting crypto fraudsters? If yes, can governmental institutions draw the line between nabbing cybercrime and infringing on the rights of honest crypto users?
Lastly, could crypto ever be truly, really, free?