How are crypto assets frozen - On the Blockchain or wallet?

[Felicity_Tide]

Frozen assets are common matters we may have come across, as they mostly involve centralized financial institutions like banks. For any asset to be frozen, there must have been a breach in the bank's protocol, such as cybercrime or any form of illegal fund transaction related to the account in question. We sometimes prefer to use the phrase "frozen account" instead, which I think means the same thing, as both terms refer to sanctions and restrictions on transactions in and out of a particular account.

As I continue my journey of learn more about Bitcoin, I also tried to imagine if crypto assets can also be frozen when illegal activities are detected. However, I am not sure where such sanctions or restrictions would be placed, whether on the blockchain or the wallet address.

From what I have learned so far concerning centralized exchanges, there is a higher chance of experiencing frozen crypto assets when a complain has been made regarding any wallet address that receives illegal funds. These funds are often seized, and some might be returned to the real owners when all the proof has been analyzed and clarified, although I haven't experienced such an event. Aside from centralized exchanges, crypto assets can also be frozen in a smart contract, possibly due to a dispute between one or both parties involved.

The main issue here is that I can't really tell where the freezing is done, whether on the blockchain or the wallet. I tried to understand how both of them work and analyze the possibility of applying this restriction on either.

The blockchain is a decentralized distributed ledger that houses transaction records or data that are immutable after being sealed. By immutability, I mean it’s tamper proof and can't be altered. Since stored transactions are immutable, there shouldn't be a way for sanctions to penetrate a block and affect the transaction record within the block(I said to myself).

A wallet, on the other hand, is like a portal that allows users to access the blockchain where their Bitcoin is stored in the form of transaction record. A wallet does not necessarily hold our coins, but it contains two keys (private and public) that enable us to access and move our funds (private) and receive funds from others (public). There are many types of wallets, ranging from desktop wallets, web wallets, mobile, etc. Centralized exchanges have their own form of wallets, which I believe fall under web wallets. These wallets are usually called custodial wallets, as exchanges also have access to a user's funds, making the crypto assets vulnerable to restrictions.

ideally, miners work with the Blockchain in a direct manner on a regular basis. I can't really tell if they are involve in giving assistance to the restriction procedure. someone should clarify me on this too.

Unfortunately for me, I couldn't find a record that contains list of frozen Bitcoin or other crypto assets. Maybe I didn't search well, but if you know of any, kindly share a photo or link.

My Questions:
1. How do you think centralized exchanges freeze crypto assets? Directly from the blockchain or from the wallet address?
2. Please explain the technicalities behind it and how it doesn't affect the protocols guiding cryptocurrency in general.
3. Can miners actually freeze a particular asset, assuming it was passed for validation?.


I am 100% open to correction as I still see myself as a learner. Pardon any of my error and share your personal opinion

[Frankolala]

Centralized exchange don't use wallet. It is called account in which they are in charge of it just like banks are in charge of your bank account. This is why it is very easy for CEx to freeze your account with them. No one can freeze any bitcoin in your self custody wallet because you have the private keys of that wallet. Bitcoin cannot be feezed in the blockchain.

This is the reason why people are advised not to keep their funds in an exchange, because the exchange can do whatever they like with your coins because they are with your keys. Miners cannot do anything to the transactions which has been signed, because their own work is to  validate add your transaction to the next block. Miners can only reject your transaction from adding it to the next block to be mined due to low TX fee

This is why bitcoin is unique and decentralized, because only you have full access to your bitcoin that is locked to your wallet address and only you can unlock it, because you have the private keys. There is no back door in bitcoin blockchain.

[Hatchy]

My Questions:
1. How do you think centralized exchanges freeze crypto assets? Directly from the blockchain or from the wallet address?

It's very simple, NOT YOUR KEYS, NOT YOUR COINS
this is the reason you should avoid storing funds in exchange accounts. They literally own your wallets and any funds in them. Just like a normal bank when you store your assets with them, they can choose to spend or loan out your money but make it ready any time you need it.
When your assets are frozen, they literally remove your access to your own funds that mean you can no longer spend them.

You shouldn't get it confused here. You cannot automatically freeze assets of someone who owns his own keys through the Blockchain. These assets are frozen or taken from them physical when they are arrested or caught by handing over the keys of such wallets to the authorities

Can miners actually freeze a particular asset, assuming it was passed for validation?.

No. Miners cannot freeze or access any ones funds on the Blockchain. Their job is to validate and add blocks to the network. They can only decide not to validate a transaction( due to fees being too small ) aside that, miners cannot temper any funds already sent or broadcasted on the network.

[Amphenomenon]

.

The blockchain is a decentralized distributed ledger that houses transaction records or data that are immutable after being sealed. By immutability, I mean it’s tamper proof and can't be altered. Since stored transactions are immutable, there shouldn't be a way for sanctions to penetrate a block and affect the transaction record within the block(I said to myself).

Not all blockchain are decentralized while some gives a level of decentralisation and others are decentralized though it should be noted decentralized blockchain like Bitcoin can't be affected by frozen address, legal or illegal bitcoin is still considered the same disregarding the Ordinals this stand. Though while bitcoin address might also be flagged for illegal activities such bitcoin in such address are seen as the same but exchanges or any centralized services following the tainted/flagged coin rule will reject though exchanges will freeze your account for having connection to a flagged address or if the flagged address is yours.

My Questions:
1. How do you think centralized exchanges freeze crypto assets? Directly from the blockchain or from the wallet address?

This occurs from the blockchain since if it was freeze in the walletswhich you have the private key or seed phrase, you could have been able to moved it to another wallet and use.

2. Please explain the technicalities behind it and how it doesn't affect the protocols guiding cryptocurrency in general.

The reason why raise is possible is because the blockchain is centralized and the dev have power to do it though the blockchain will continue to work fine.

3. Can miners actually freeze a particular asset, assuming it was passed for validation?.

I guessed This is done by the dev, once the address has been flaged online as one for illegal activities, then they freeze such address

You shouldn't get it confused here. You cannot automatically freeze assets of someone who owns his own keys through the Blockchain. These assets are frozen or taken from them physical when they are arrested or caught by handing over the keys of such wallets to the authorities

It's actually possible in Centralized blockchain notably USDT(tether), since there are news about the dev freezing an hackers who possibly stole millions/hundreds of thousands of USDT.

[Hatchy]

It's actually possible in Centralized blockchain notably USDT(tether), since there are news about the dev freezing an hackers who possibly stole millions/hundreds of thousands of USDT.

Maybe on other Blockchains but not on the Bitcoin network mate. Bitcoin works used a decentralized network that cannot be controlled by any one or authority.
Centralized Blockchains like you mentioned are owned by bodies and can be controlled at will.

[Ruttoshi]

My Questions:
1. How do you think centralized exchanges freeze crypto assets? Directly from the blockchain or from the wallet address?

This occurs from the blockchain since if it was freeze in the walletswhich you have the private key or seed phrase, you could have been able to moved it to another wallet and use.

If we are talking about bitcoin, bitcoin cannot be feezed when it is not in a centralized exchange. It is impossible for anyone to tamper with any bitcoin locked in the blockchain except if the wallet is compromised.

Centralized exchange can only freeze assets in their custody. It is just like you keep your money in bank and when there is an illicit activity with your ac account the bank will freeze it. But if you keep the money in your house in a safe, no bank can have access to that money because it is with you.

[Amphenomenon]

It's actually possible in Centralized blockchain notably USDT(tether), since there are news about the dev freezing an hackers who possibly stole millions/hundreds of thousands of USDT.

Maybe on other Blockchains but not on the Bitcoin network mate. Bitcoin works used a decentralized network that cannot be controlled by any one or authority.
Centralized Blockchains like you mentioned are owned by bodies and can be controlled at will.

Yes this is true but the fact is that, you didn't specify it earlier because you said

You cannot automatically freeze assets of someone who owns his own keys through the Blockchain.

Which made it seems like you were generalising all blockchain. Here's a reference about it [UPDATED] PSA: Most Stablecoins Can Be Frozen, Even in Your Own Wallets

My Questions:
1. How do you think centralized exchanges freeze crypto assets? Directly from the blockchain or from the wallet address?

This occurs from the blockchain since if it was freeze in the walletswhich you have the private key or seed phrase, you could have been able to moved it to another wallet and use.

If we are talking about bitcoin, bitcoin cannot be feezed when it is not in a centralized exchange. It is impossible for anyone to tamper with any bitcoin locked in the blockchain except if the wallet is compromised.

Centralized exchange can only freeze assets in their custody. It is just like you keep your money in bank and when there is an illicit activity with your ac account the bank will freeze it. But if you keep the money in your house in a safe, no bank can have access to that money because it is with you.

True but if you read through my earlier reply, I guessed you would have noticed I spole about this.
Op question is about blockchain in general and not contained to Bitcoin only.

[tranthidung]

If you have keys, private keys I mean, someone want to freeze your wallet, will have to arrest you and force you to give him your private key. This is actual private key and only you have access to it after creating your wallet.

If you have keys, but someone can freeze your wallet without need to arrest you, it's not actual private key and you should avoid that project, blockchain because your money can be frozen anytime.

Example is stable coins with smart contracts that are tools for companies, governments to freeze your wallets, steal your money.

PSA: Most Stablecoins Can Be Frozen, Even in Your Own Wallets
Stable coin and blacklists

A video from Andreas M. Antonopoulos.
Bitcoin Q&A: Not your Keys, Not your Coins

[electronicash]

tether and usdc can be frozen if they want to since the own the blockchain and they comply with the laws so if the government deoands them to freeze cetain wallet with stablecoins in it, then they could freeze the funds. i think there have been examples of this.

exchanges can also freeze/locked/suspend the account with funds they suspect is acquired illegally.

[Abbatty]

As I continue my journey of learn more about Bitcoin, I also tried to imagine if crypto assets can also be frozen when illegal activities are detected. However, I am not sure where such sanctions or restrictions would be placed, whether on the blockchain or the wallet address.

How are you are asking questions and answering them yourself.

I am not a bitcoin expert and i am merely a learner as you but from my understanding if you utilize a custodial wallet it easy to place a sanction or restriction on your account because they have total control over your assets and it’s as though they are helping you keep your assets. I don’t think it’s the same case when using a non custodial wallet, you have full control of your wallet and assets and since the blockchain is decentralized it means it’s under the regulation of anyone but it doesn’t mean it’s untraceable, bitcoin transactions are recorded on a public ledger so it means everyone has access to it.

I understand your question is related to non custodial wallet so restrictions can’t be placed on a wallet or on the blockchain as you thought because everything is decentralized. Ps: my post is bitcoin related not sure it’s applicable to stable coins though.

[Z-tight]

You are talking about so many things at the same time, maybe if you want to ask questions next time don't write a wall of text, keep it simple and go straight to the point. If you are using BTC in the right way, and that is using your self custodial wallet and trading in p2p exchanges, your funds cannot be confiscated. Your BTC can only be confiscated when you lose custody of it by sending it into an address that you don't own the private keys.

As for miners, they don’t have the power to freeze assets. Their job is to validate transactions, not enforce legal actions.

Take note that miners do not validate tx's, nodes validate tx's, while miners confirm tx's.