Can Bitcoin or any other cryptocurrency be confiscated?
The government can confiscate Bitcoin or any other cryptocurrency, but it depends on how you use it and store your private keys; otherwise, cryptos should be bulletproof. Many are told that Bitcoin can't be confiscated or seized by any third party or government. That is not true, but it also depends if the user has done their homework to keep safe whatever satoshis a person may have.
If you store your cryptocurrencies with third parties like exchanges or custodial wallets, your Bitcoin or any other crypto asset can be seized at request by the government and the actual party holding your private keys. It includes the Wallet of Satoshi, Strike, Blue Wallet, Coinbase, Gemini, Binance, and many others. They can seize your funds because they control the private keys. Every time you need to move your money, you have to ask for permission. When using those services, any government agency can send a letter to those services to stop serving you or even halt any transactions you may have until they can either verify you or seize your funds. Custodian services and wallets are essentially just bank-like services, and it is almost like PayPal in that respect.
Another way that third parties can seize your funds is if you send your funds from your private wallet to a custodian exchange or wallet. Once funds leave your purse, they are no longer yours. You could lose your funds if your interaction suspects that your coins were involved in illegal activity such as ransomware, illicit sales of drugs, or any other unlawful activity. Any centralized exchange or custodian can seize your funds because of that or any other reason those services may or may not specify or give you notice.
Another way that you could lose your coins or your coins could be seized is if you share your private keys with a third party being that a person, company, or the government, anyone that has your private keys has access to your money. So never share your private keys with anyone. You could get your funds seized or stolen if a hacker accesses your wallet.dat file or can read your seed words.
Many wallets now encrypt your wallet.dat file, and also other wallets require a password as well for the seed words to unlock and restore a wallet from a seed phrase which means that if you give your passwords to third parties, they could open your private keys if they have access to your keys as well.
A government could force you to give your private keys and password by either threatening you with more rigid convictions if you don't spill your passwords or could also torture you so that you tell them your passwords, private keys, and backup locations also. Governments could ask your exchanges to give them your funds as part of a criminal investigation. Another way could be to brute force passwords with supercomputers that the government has access to and hack into your devices where sensitive data is saved. I am referring to private seed phrase files.
All of the vulnerabilities mentioned before are ways not just for your funds to get seized by the government but also for hackers to access your funds using the same tools governments use. And the best way to protect against that is if you have many assets, split them into at least three different wallets and, if possible, write down the seed phrases. If you must keep a digital copy of your seed, you must encrypt them with at least three passwords.
When saving private keys on a hard drive or external storage unit, it is always a good idea to encrypt the actual device with a password, encrypt the folder which holds the files, and put passwords to the real word document or text document. If you are going to upload to online storage, make sure you are using a different password and that your storage service provider supports 2FA.
I am bringing up the case of losing your coins because lately, I read in the news that the hackers that hacked the oil pipeline got their coins seized by the U.S. government. Up to this point, we don't know how the government was able to hold the hackers' coins, and we can only speculate on how the government did it. But just in case, make sure that your private keys are well saved and protected with a strong password.
The title of the news read like this:
The U.S. seizes $2.3 mln in Bitcoin paid to Colonial Pipeline hackers.
I wrote the article to explain how to seize Bitcoin from users, yet we don't know precisely how the U.S. government got access to the coins taken in the Colonial Pipeline case. So try to keep your cash safe and prevent an event like that from happening to you.
