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Bitcoin wallet exposes ineptitude of Canadian gov't with blistering response after court tries to freeze crypto assets

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Dan Kitwood/Getty Images

The Canadian government's attempt to freeze cryptocurrency funds being used to help Freedom Convoy protesters was met with a defiant response by one cryptocurrency wallet.

What is the background?

After invoking the Emergencies Act and Terrorist Financing Act last week, Canadian authorities began clamping down on finances related to the Freedom Convoy protests.

As part of the Canadian government's efforts, the Royal Canadian Mounted Police sent a letter to banks and cryptocurrency exchanges demanding they "cease facilitating any transactions" with a list of 34 cryptocurrency addresses. Meanwhile, a judge on the Ontario Superior Court of Justice signed a Mareva injunction to freeze cryptocurrency assets in more than 120 crypto addresses.

What was the response?

Nunchuk is a self-custodial crypto-wallet that safety stores Bitcoin and other cryptocurrencies. The company was ordered in the Mareva injunction to freeze all assets the Canadian government believes are connected to the Freedom Convoy protests and disclose user information.

But the company refused.

And not only did Nunchuk hit the Canadian government with a blistering response, but the company highlighted that, in fact, the order demonstrates that the Canadian government does not understand how cryptocurrency works.

"Nunchuk is a self-custodial, collaborative-multisig Bitcoin wallet. We are a software provider, not a custodial financial intermediary," the response began. "Our software is free to use. It allows people to eliminate single points of failures (sic) and store bitcoin in the safest way possible, while preserving privacy."

Because the company does not "collect any use identification information beyond email addresses" or "hold any keys" related to the actual crypto assets of Nunchuk users, Nunchuk explained that it cannot, therefore, freeze assets or prevent the assets from being moved by Nunchuk users, nor does Nunchuk even know the "existence, nature, value, and location" of Nunchuk users' assets.

"This is by design," Nunchuk explained. "Please look up how self custody and private keys work. When the Canadian dollar becomes worthless, we will be here to serve you, too."

Because of the technology used by many cryptocurrencies, crypto-wallets, and other crypto-exchanges is decentralized, government orders freezing or seizing many crypto assets are, as Nunchuk explained, pointless.

"It is impossible to freeze a bitcoin or ethereum address and render it useless to the owner," Bitcoin.com explained. "The only way to do that is by using force or threats of imprisonment or death and ultimately obtaining a crypto owner’s private keys. This is why fundraisers, like the BTC fund that raised 21 bitcoin, utilize multi-signature controls."

However, not every crypto-exchange is decentralized.

Kraken, for example, is a cryptocurrency exchange and bank that would be subject to orders like those handed out by Canadian authorities. That is why Kraken CEO Jesse Powell explained that people should not use centralized exchanges if they want to ensure their crypto assets are untouchable.

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