So anyone knows if we Canadian are allowed to trade on Bitfinex or not?
Of course you can. Bitfinex has put out an official statement saying that they are not going to provide services to anyone residing in the USA. They have not put out a statement saying the same for residents of Canada.
How do they plan on blocking American residents specifically? Is it through IP address analysis or just the manual prompt that anyone can falsify to get past like ICOs have done.
This one is a little bit harder to answer as obviously Bitfinex is not going to tell us how they will enforce this. Others have expressed the opinion that they will only enforce it on verified US customers as they have records to reference. Also, anyone could be using a VPN so if they went the IP address route they could end up barring non-US customers by mistake.
I'm not affected by this as I'm not in the US, but I think if I was I'd probably withdraw everything as I wouldn't want to take the risk of getting my account frozen.