The emergence of cryptocurrency heralds a new, revolutionary solution. It provides access to a new universe of decentralized finance, beyond the reach and control of government oversight. Like any powerful tool, such as the internet itself, it’s been co-opted by those with less-than-noble intentions. Governments are now beginning to push back, confiscating digital assets that have been connected to criminal activity. But at what cost? How many decades of our financial freedom will we give up in exchange for health security? This is even more urgent in developing economies, where crypto provides an essential lifeline.

Financial Freedom's Price Tag

Imagine this: you're a small business owner in Nigeria, struggling to access loans from traditional banks. Cryptocurrency gives you a solution to get paid by clients all over the world without the eye-watering fees and red tape involved with traditional methods. It's freedom. What if, in a good faith effort to prevent money laundering, the government decides to freeze your account? Rather, when a transaction associated with your wallet is deemed suspicious. You are guilty until proven innocent, your entire life saved or ruined by the verdict. This isn't a hypothetical scenario; it's a reality for many in developing nations where faith in traditional institutions is low and crypto adoption is high.

After all, the US government’s very first move was to create a “Strategic Bitcoin Reserve”, which is a scary signal to send. The reason given – ensuring asset management decisions better support national security – is appealing on the face, but that’s not the point. Now, governments can keep cryptocurrency they seize. This creates a dangerous precedent that could shape the entire crypto market, while crossing the line between law enforcement and financial speculation. Not unlike the sheriff becoming the town’s largest landlord – an obvious conflict of interest just waiting to emerge.

Overreach, Innovation, and Africa

We've seen the headlines: the DOJ seizing millions in crypto from pig butchering scams, recovering Bitcoin from the Colonial Pipeline ransomware attack. These are clear victories. What about the grey areas? How does that play out with the small-time investor in Kenya who loses all their savings due to an overbroad asset forfeiture policy? What of the local tech start-up whose funding is frozen because they have a remote connection to a sanctioned party?

The tools they utilized – Chainalysis Reactor, TRM Labs and Elliptic – are indeed powerful tools, but they’re not all-powerful. The problem is they depend on probabilistic analysis, not absolute certainty. As a result, innocent people are sometimes killed or seriously injured. During this time, in a developing economy, the access to legal resources is exponentially scarce. Yet, for many, fighting seizures often feels like an uphill battle.

Consider the unintended consequences. Overly aggressive digital asset forfeiture policies have a chilling effect on innovation. Why would a promising blockchain start-up choose to operate in a country where their assets are at constant risk of arbitrary seizure? They’ll move to other locales, taking higher-paying jobs and the accompanying economic development with them. Africa, home to one of the fastest growing tech ecosystems globally and an extensive embrace of crypto, faces the greatest harm.

Safeguards Against Government Power

The key is balance. We need robust mechanisms to combat illicit activity, but we need safeguards to protect the financial freedoms of ordinary citizens. Here's what that looks like:

  • Clear and Transparent Laws: Laws governing digital asset forfeiture must be crystal clear, specifying the criteria for seizure and the rights of individuals to contest these actions.
  • Independent Oversight: An independent body should oversee asset forfeiture proceedings, ensuring fairness and preventing abuse of power.
  • Due Process Protections: Individuals whose assets are seized must have timely access to legal representation and a fair opportunity to challenge the seizure.
  • Proportionality Principle: Forfeiture should be proportionate to the crime committed. Seizing a person's entire life savings for a minor offense is unjust.

Yet, these laws must be interpreted and applied with an awareness of the peculiar difficulties facing developing economies.

We cannot permit the war on crime to be used as an excuse for a big government power grab. We can’t have a free country if driving requires you to suppress your speech. After all, a society’s true measure lies not in how well we’re able to punish the criminals among us. Yet, its brilliance really comes through in its dogged devotion to defending the rights of its citizens. Especially the most vulnerable among us. The alternative? A future in which economic security is only available to the few who can afford it. And that’s a world where innovation withers, and opportunity dies.