Unsafe crypto assets

[trendcoin]

I was aware Tron had some mechanisms in place to freeze assets, but i had no idea XRP also had some in order to freeze tokens.

I don't know if freezing is important to them, but they can experience problems with lost ledgers. XRP is really a joke... :)

https://x.com/i_go_G/status/1919231955347915167

https://x.com/JoelKatz/status/1919233214750892305

Sometimes when illegal transactions occur, such as theft or terrorist financing, wallets get banned, and I'm sure this isn't a problem for anyone, but it goes against the idea of bypassing third parties like banks, and I know that nobody here likes that...

...

We know that USDT has done this on the Ethereum network before. Maybe we can add Ethereum to the list as well.

In January 2022, Tether blacklisted three Ethereum addresses containing over $150 million in USDT. In October 2022, the stablecoin issuer froze $8.2 million in USDT on the Ethereum network and added 215 Ethereum-based USDT addresses to its blacklist. Over the past years, Tether has frozen substantial amounts of assets due to various illicit activities. By late 2022, over $360 million had been frozen. Additionally, in the following month, $225 million in USDT linked to romance scams was also frozen.

https://coinmarketcap.com/academy/article/tether-freezes-dollar52m-usdt-in-response-to-phishing-scams

[DrBeer]

I was aware Tron had some mechanisms in place to freeze assets, but i had no idea XRP also had some in order to freeze tokens.

I don't know if freezing is important to them, but they can experience problems with lost ledgers. XRP is really a joke...

...


Sometimes when illegal transactions occur, such as theft or terrorist financing, wallets get banned, and I'm sure this isn't a problem for anyone, but it goes against the idea of bypassing third parties like banks, and I know that nobody here likes that...

...

We know that USDT has done this on the Ethereum network before. Maybe we can add Ethereum to the list as well.

In January 2022, Tether blacklisted three Ethereum addresses containing over $150 million in USDT. In October 2022, the stablecoin issuer froze $8.2 million in USDT on the Ethereum network and added 215 Ethereum-based USDT addresses to its blacklist. Over the past years, Tether has frozen substantial amounts of assets due to various illicit activities. By late 2022, over $360 million had been frozen. Additionally, in the following month, $225 million in USDT linked to romance scams was also frozen.

https://coinmarketcap.com/academy/article/tether-freezes-dollar52m-usdt-in-response-to-phishing-scams

Thanks for the information!
1. So, does that mean that XRP itself can also block wallets? That means my information is not entirely correct! This is a noticeable difference from the assumption that “XRP cannot be frozen, but IOU tokens (stables/securities) can have a global freeze or a freeze of a separate trust line.”
2. Regarding USDT on the Ethereum protocol, I will also add this clarification.
I understand that these mechanisms are used against real “bad guys,” but there is no guarantee that someone's wallet will not be mistakenly or intentionally transferred to USDT (Ethereum)/XRP, causing problems for that person. Therefore, I consider it necessary to add this information to the topic header. Thanks again!

[d5000]

1. So, does that mean that XRP itself can also block wallets? That means my information is not entirely correct! This is a noticeable difference from the assumption that “XRP cannot be frozen, but IOU tokens (stables/securities) can have a global freeze or a freeze of a separate trust line.”

While I think too that XRP is "a joke" (at least they should never be put in the same category than Bitcoin or even Ethereum), I also read that only tokens can be frozen on the XRP ledger, not the native currency. And they can only be frozen by the "token owner".

Here at least is the official FAQ of the XRP project about freezes.

There is a case involving Jed McCaleb from 2014 or so that often is brought up, for example in this Reddit thread, but in this case Ripple requested a centralized exchange (Bitstamp) to freeze McCaleb's funds on Bitstamp, not on the XRP ledger.

The "balance freeze" feature is afaik also only possible for token funds, not XRP funds.

[DrBeer]

1. So, does that mean that XRP itself can also block wallets? That means my information is not entirely correct! This is a noticeable difference from the assumption that “XRP cannot be frozen, but IOU tokens (stables/securities) can have a global freeze or a freeze of a separate trust line.”

While I think too that XRP is "a joke" (at least they should never be put in the same category than Bitcoin or even Ethereum), I also read that only tokens can be frozen on the XRP ledger, not the native currency. And they can only be frozen by the "token owner".

Here at least is the official FAQ of the XRP project about freezes.

There is a case involving Jed McCaleb from 2014 or so that often is brought up, for example in this Reddit thread, but in this case Ripple requested a centralized exchange (Bitstamp) to freeze McCaleb's funds on Bitstamp, not on the XRP ledger.

The "balance freeze" feature is afaik also only possible for token funds, not XRP funds.

Thanks for clarifying! The same information was in my original post, so I'm making corrections to the update. After all, we have to be honest!
But if tokens have this capability, why shouldn't the main token have it? In my opinion, if a cryptocurrency positions itself as a promising asset for the financial market (and XRP has positioned itself exactly that way), then it should have the features that regulators will definitely require. But that's just my personal opinion.
 

[d5000]

But if tokens have this capability, why shouldn't the main token have it?

The main token of a blockchain often has some function apart from transferring value, such as transaction fees or be available for PoS validation. This means that a "freeze" of funds could have unexpected effects on the blockchain ecosystem.

In a PoS currency's case this is quite obvious: let's say we have a group of validators whose addresses are all frozen. Imagine for example a group of PoS validators being operated by the government of North Korea, being discovered by intelligence agents and then subject to sanctions. Depending on how big that validator group is, this could have effects on the security of the blockchain.

In XRP's case, according to a quick web search, the XRP token is used for transaction fee payment and for bridging operations between other tokens. It looks like freezing wouldn't have as strong effects as on a PoS currency like Ethereum. But there are some possible "systemic" consequences, for example transaction fee payments could become invalidated.

Thus I think even for "regulation-abiding" "crypto" projects like Ripple there are strong reasons to deny "freezing" to the main token (or "utility token") of the ecosystem.

[DrBeer]

But if tokens have this capability, why shouldn't the main token have it?

The main token of a blockchain often has some function apart from transferring value, such as transaction fees or be available for PoS validation. This means that a "freeze" of funds could have unexpected effects on the blockchain ecosystem.

In a PoS currency's case this is quite obvious: let's say we have a group of validators whose addresses are all frozen. Imagine for example a group of PoS validators being operated by the government of North Korea, being discovered by intelligence agents and then subject to sanctions. Depending on how big that validator group is, this could have effects on the security of the blockchain.

In XRP's case, according to a quick web search, the XRP token is used for transaction fee payment and for bridging operations between other tokens. It looks like freezing wouldn't have as strong effects as on a PoS currency like Ethereum. But there are some possible "systemic" consequences, for example transaction fee payments could become invalidated.

Thus I think even for "regulation-abiding" "crypto" projects like Ripple there are strong reasons to deny "freezing" to the main token (or "utility token") of the ecosystem.

Regarding blocking the ability to pay fees, this is a very interesting scenario. On the one hand, you are not blocking the token itself, but... you are blocking the ability to pay fees on the network, which is essentially synonymous with “blocking network transactions.”
And if we talk about the example with “validators from North Korea,” here we see another example of a “double-edged sword.” On the one hand, blocking is bad, on the other hand, it is necessary... And there is no compromise here.

[zeuner]

how do you feel about such solutions? And is it worth keeping your savings in such assets?

I feel like that we cannot expect decentralization to be persisting with the evaluation of cryptocurrencies as  corporates and dictators may join at any time. I am sure that there would be no point of saving the assets which are very much similar to my bank account because my government may freeze my all type of asset on their own discretion whenever they need. Simply we can conclude that these assts are centralized ones and we need to face bank account kind of similar consequences on adapting them.

Honestly I am here just for the reason of decentralization. I still remember all my struggle with paypal and alertpay in my initial phase of online career. Bitcoin provided me freedom along with wealth creation whereas these coins/tokens may push anyone back to the era of paypal.

This is where the complexity or dissonance of the situation lies. On the one hand, cryptocurrencies were created for freedom. When it was just a hobby for geeks, that was the case. But then a full-fledged crypto business appeared, with companies, legal entities, and... compliance with the laws of one jurisdiction or another. Now we see that state mechanisms are forcing crypto projects, while remaining technologically decentralized, to become legally centralized and add centralization mechanisms to the blockchain itself.

In a lot of cases, there is a fallacy involved. Only if a protocol is sufficiently decentralized, a participating actor can plausibly deny exercising control. However, if you build in mechanisms of control and centralization, legal systems rightly demand that you exercise that control in order to fulfill your responsibilities. A sensible response would be to strengthen centralization and to limit the possibilities for control. Ironically, some projects go in the opposite direction, making it easy to hold them legally accountable.

The thing is, we are in a very specific situation:
- If you want to be a “good crypto project,” stop being anonymous, decentralized, and uncontrolled. Become a commercial version of CBDC
- If you disagree with the rules and want to be a “true crypto,” you are outside the law, you will be persecuted, you will not be allowed to enter the market, and you will become a tool for very specific consumers, who are usually illegal.
What is the solution? I don't see one...

Option 3 is probably "being too big to be ignored". For BTC, no one really asks who is Satoshi Nakamoto, and many jurisdictions still don't want to make it impossible for BTC to enter the market. Of course, it might be hard to repeat this today. But who says we need a gazillion of different coins...

[d5000]

On the one hand, you are not blocking the token itself, but... you are blocking the ability to pay fees on the network, which is essentially synonymous with “blocking network transactions.”

IMO if a native currency like XRP was "blockeable", a problem could arise if you block an account which is very active in DEXes for example.

Let's say this account X has a lot of open DEX swaps where he's in charge to pay the fees. Then suddenly X lands on the blacklist. This could especially generate problems in the period when the transactions created by X are still not "final", but already have their first confirmations (many PoS networks have this "feature"). In DeFi protocols this could mean a lot of transactions depending on fast reactions to market conditions would be initially "recognized", and thus have a reaction to price and market conditions (buy/sell orderbook), but then are rewinded because the fee payment was invalid, which could lead to disruptions.

This would probably be only problematic if it occurs very often, as every now and then DEX transactions would also not confirm for other reasons, for example if someone is trading a token and then this token gets blacklisted for his address (which is possible on XRP). But it adds an additional source of instability. At least that is my interpretation. It simply appears to me that DeFi protocols would become more "wonky" and unreliable, and thus such a feature would not be desirable for the currency you pay the fees in.

[DrBeer]

how do you feel about such solutions? And is it worth keeping your savings in such assets?

I feel like that we cannot expect decentralization to be persisting with the evaluation of cryptocurrencies as  corporates and dictators may join at any time. I am sure that there would be no point of saving the assets which are very much similar to my bank account because my government may freeze my all type of asset on their own discretion whenever they need. Simply we can conclude that these assts are centralized ones and we need to face bank account kind of similar consequences on adapting them.

Honestly I am here just for the reason of decentralization. I still remember all my struggle with paypal and alertpay in my initial phase of online career. Bitcoin provided me freedom along with wealth creation whereas these coins/tokens may push anyone back to the era of paypal.

This is where the complexity or dissonance of the situation lies. On the one hand, cryptocurrencies were created for freedom. When it was just a hobby for geeks, that was the case. But then a full-fledged crypto business appeared, with companies, legal entities, and... compliance with the laws of one jurisdiction or another. Now we see that state mechanisms are forcing crypto projects, while remaining technologically decentralized, to become legally centralized and add centralization mechanisms to the blockchain itself.

In a lot of cases, there is a fallacy involved. Only if a protocol is sufficiently decentralized, a participating actor can plausibly deny exercising control. However, if you build in mechanisms of control and centralization, legal systems rightly demand that you exercise that control in order to fulfill your responsibilities. A sensible response would be to strengthen centralization and to limit the possibilities for control. Ironically, some projects go in the opposite direction, making it easy to hold them legally accountable.

The thing is, we are in a very specific situation:
- If you want to be a “good crypto project,” stop being anonymous, decentralized, and uncontrolled. Become a commercial version of CBDC
- If you disagree with the rules and want to be a “true crypto,” you are outside the law, you will be persecuted, you will not be allowed to enter the market, and you will become a tool for very specific consumers, who are usually illegal.
What is the solution? I don't see one...

Option 3 is probably "being too big to be ignored". For BTC, no one really asks who is Satoshi Nakamoto, and many jurisdictions still don't want to make it impossible for BTC to enter the market. Of course, it might be hard to repeat this today. But who says we need a gazillion of different coins...

D, but most likely it will be a product of one of “his trusted people/companies,” or a product that will come under such control as a result of the rule “if you can't beat it, then lead it!”
Bitcoin's capitalization exceeds the GDP of many countries, but because of its “independence,” it is not particularly welcome in the economy.
I once considered a scenario in which the “big players” would simply buy up most of the Bitcoin, legislatively or by other means restrict the ability of small owners to work with it, and make it “their asset,” with which they would then play to their heart's content.
 And they would be allowed to conduct transactions, investments, etc. through it. In other words, they would have all the necessary rights “in their own hands.”

[DrBeer]

Here is an example of how such tokens work:

Tether froze approximately 3.3 billion USDT at 7,268 addresses from 2023 to 2025. During the same period, competitor Circle blocked 109 million USDC at 372 addresses, according to AMLBot platform experts. USDT issuer Tether has blocked more than 2,800 addresses at the request of US law enforcement agencies, including cases involving investigations into major fraud schemes and cybercrimes. AMLBot sees the reason for the high number of frozen stablecoins in the fact that USDT is the largest stablecoin on the market of digital assets pegged to fiat currencies. 
53% of all blocked USDT are on Tron, which may indicate frequent use of this network in fraudulent operations due to low fees and high transaction speeds, according to AMLBot representatives.
 
At the same time, Tether actively cooperates with government agencies and law enforcement authorities, responding to requests in a wide range of cases, including cyber fraud, phishing schemes, and investment pyramids.
 
Unlike Tether, Circle has only frozen funds based on official legal orders from judicial authorities or regulatory agencies.
The USDC stablecoin is less involved in fraudulent schemes, as most of the coins are stored on centralized exchanges and with Circle's partners. The issuer's operating model is more similar to that of a traditional bank, the AMLBot team explained. The difference in Tether and Circle's approaches to freezing coins may cause capital to flow between the two largest stablecoins depending on user preferences — high flexibility or strict legal transparency, analysts explained. Earlier, MistTrack platform experts reported that Tether had blocked 22 suspicious accounts with $13.4 million in assets on the Ethereum and Tron networks.

(c) Bits.media: https://bits.media/stalo-izvestno-kolichestvo-zamorozhennykh-tether-i-circle-steyblkoinov/

[execijutiere]

In my opinion, this is a situation that could occur in any cryptocurrency network except the Bitcoin network. From this perspective, none of them are secure, and all of them pose a threat in the future. BNB is already in Binance's hands, and Binance can intervene immediately in any situation. Looking at TRX, it is also under Justin Sun's control and can be easily intervened. Chiliz doesn't have much of a presence, and I don't think it's particularly interested in Viction and XDC Network, to be honest. Aptos and Sui are projects written in the Move language, and they are quite similar. A problem that arises in one could potentially occur in the other as well.

[DrBeer]

In my opinion, this is a situation that could occur in any cryptocurrency network except the Bitcoin network. From this perspective, none of them are secure, and all of them pose a threat in the future. BNB is already in Binance's hands, and Binance can intervene immediately in any situation. Looking at TRX, it is also under Justin Sun's control and can be easily intervened. Chiliz doesn't have much of a presence, and I don't think it's particularly interested in Viction and XDC Network, to be honest. Aptos and Sui are projects written in the Move language, and they are quite similar. A problem that arises in one could potentially occur in the other as well.

“In my opinion, this is a situation that could occur in any cryptocurrency network except the Bitcoin network” - as I wrote earlier, cryptocurrencies that were created as full-fledged commercial products are LIKELY to have such built-in mechanisms, since they, as legal entities, are required to comply with government regulations and “recommendations.” The Bitcoin project is truly independent, although it is supported by the community. Will “government systems” be able to force the community to make the necessary changes to the protocol? I am not ready to answer in the affirmative, but I do not completely rule out this possibility.