Federal Magistrate Judge Aunt M. Faruqui has learned not to worry anymore and to love non-hosted wallets. "The horror story of non-hosted portfolios is fiction, not reality," wrote the judge in a Jan.6 memorandum to the DC district court.
It cited a Coin Center thinkpiece related to the negativity of over-regulation of non-hosted wallets, adding its view that “Indeed, cash poses a greater challenge to law enforcement than cryptocurrency in wallets. non-hosted ".
Non-hosted portfolios still at the center of public debate
Written in a footnote to a document concerning a cryptocurrency confiscation case, Faruqui's claim runs parallel to the debate currently stirring non-hosted wallets.
Its memorandum does not directly mention the proposed law launched in mid-December by the Financial Crimes Enforcement Network (FinCEN) to monitor high-profile private wallets through a controversial law that has ignited the cryptocurrency industry.
FinCEN wants exchanges to collect information about participants in transactions over $ 3.000 in cryptocurrency that involve a non-hosted wallet - here quotations of the major cryptocurrencies in real time. Faruqui's opinion highlights the difference between untraceable money and intrinsically traceable cryptocurrency.
The blockchain could claim to guarantee anonymity for people, he wrote. But he said law enforcement can use blockchain forensic tools to "unmask" those individuals with relative ease: "Ironically, the public nature of blockchain makes it exponentially easier to follow the flow of cryptocurrency than fiat funds."
A new generation of judges who understand new technologies
Ari Redbord, head of legal and government affairs at blockchain forensic investigation firm TRM Labs, said the opinion is a "significant" contribution from the federal judiciary, even if it carries little weight.
Redbord, who worked as an assistant U.S. attorney for a decade, said few judges have the technical know-how to analyze the intricacies of cryptographic tracking, let alone cite tracking tools in a seizure order.
But the situation is starting to change thanks to appointees like Faruqui, he said. "You are seeing a new generation of federal judges coming and understanding these technologies," Redbord said, adding that Faruqui was one of the federal government's "leading" crypto industry attorneys before joining the judiciary in September 2020.
Faruqui's opinion underscores the strength non-hosted wallets offer law enforcement in stealing crypto funds from suspected criminals. The United States Civil Forfeiture Act allows for the seizure of criminal proceeds.
Assets used to commit or promote a crime may also be subject to confiscation. It is this aspect that Faruqui specifically links to non-hosted wallets, writing that the pseudonymous nature of cryptocurrencies "automatically justifies the seizure of all non-hosted funds as facilitating properties". All of this would benefit the victims, Faruqui said.
