Can Cryptocurrencies Be Frozen on the Blockchain?

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Bittime  - Cryptocurrencyis a digital asset that runs on a decentralized network called blockchain. Blockchain is a system that stores and verifies transactions collectively without the need for a central authority. 

Many people consider cryptocurrencies to be assets that are free from interference from third parties, including governments and financial institutions.

However, is it true that cryptocurrencies cannot be frozen or confiscated on the blockchain? The answer turns out to be not that simple.

How to Freeze Cryptocurrency on Blockchain

There are several ways that can be used to freeze cryptocurrency on the blockchain , depending on its type and characteristics. One of the most common ways is to use smart contracts. 

Smart contracts are programs that run on the blockchain and can execute certain rules automatically. For example, smart contracts can be used to regulate the distribution and circulation of tokens built on a blockchain such as Ethereum.

Smart contracts can have functionality that allows token creators or admins to block, delete, or burn tokens owned by certain addresses. This function can be used to prevent attacks, confiscate illegal funds, or comply with legal regulations. 

However, this function can also be misused if the token creator or admin is dishonest or attacked by hackers.

Therefore, it is important for users to check the smart contract source code before purchasing or using smart contract-based tokens.

Also Read: Leveraging Blockchain to Increase Machine Learning Accessibility

Reasons to Freeze Cryptocurrency on Blockchain

There are several reasons underlying the freezing of cryptocurrency on the blockchain, both from a technical, ethical and legal perspective. Here are some examples:

Prevent attacks 

If there is a security hole or bug in the smart contract, the token creator or admin can freeze the affected token to prevent further losses.

For example, in 2016, a project called The DAO that raised $150 million through a DAO token sale on Ethereum, was attacked by hackers who stole approximately $50 million. 

To solve this problem, the Ethereum community decided to perform a hard fork, namely splitting the block chain into two different versions, one of which froze the stolen DAO tokens.

Confiscate illegal funds 

If there is evidence or suspicion that a token is being used for illegal activities, such as money laundering, terrorism financing, or fraud, the token creator or admin may freeze the associated token to comply with requests from legal authorities. 

For example, in 2020, a cryptocurrency exchange called KuCoin experienced a hack that resulted in the loss of approximately $280 million.

To recover lost funds, KuCoin collaborated with other token creators to freeze stolen tokens and track the hackers.

Comply with the law 

If there are changes or legal conditions that apply to tokens, the token creator or admin can freeze tokens that do not meet these terms or conditions. 

For example, in 2019, a project called Tether, which issues USDT tokens froze approximately $850,000 in USDT tokens held by two addresses suspected of being involved in the scam. This action was taken to comply with a court order from the New York Attorney General.

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Impact of Freezing Cryptocurrencies on Blockchain

Freezing cryptocurrencies on the blockchain can have both positive and negative impacts, depending on the situation and perspective. The following are some of the impacts that may occur:

Increase security and trust 

With the ability to freeze cryptocurrency on the blockchain, token creators or admins can take preventive or corrective action if there are problems or threats that disrupt the function or value of the token. 

This can increase user security and trust in the token, as well as prevent greater losses.

Reduced decentralization and freedom 

With the ability to freeze cryptocurrency on the blockchain, token creators or admins can also have excessive power over the token, which can conflict with the principles of decentralization and freedom that are characteristic of blockchain. 

This could create a risk of manipulation, misuse or oppression of token users, as well as reducing their rights and responsibilities.

Causing controversy and division 

With the ability to freeze cryptocurrency on the blockchain, token creators or admins can also face differences of opinion or interest with other token users, especially if there are radical or unpopular changes or decisions.

This can cause controversy and division among the token community, as well as affect the reputation and performance of the token.

Conclusion

Cryptocurrencies can be frozen on the blockchain using smart contracts. Smart contracts function to block, delete, or burn tokens owned by certain addresses. 

This freeze can be done for various reasons, such as preventing attacks, confiscating illegal funds, or complying with legal regulations. However, this freeze can also have positive and negative impacts, depending on the situation and perspective. 

Therefore, it is important for users to understand the risks and benefits of freezing Cryptocurrencies on the blockchain, as well as choose tokens that suit their preferences and goals.

How To Crypto from Bittime

You can buy and sell crypto assets in an easy and safe way via Bittime . Bittime is one of the best crypto applications in Indonesia which is officially registered with Bappebti. 

To be able to buy crypto assets on Bittime , make sure you have registered and completed identity verification. Apart from that, also make sure that you have sufficient balance by depositing some funds into your wallet . For your information, the minimum purchase of assets on Bittime is IDR 10,000. After that, you can purchase crypto assets in the application. 

Monitor price chart movements of Bitcoin (BTC) , Ethereum (ETH) , Solana (SOL) and other cryptos to find out today's crypto market trends in real-time on Bittime.

Also read:

What is Blockchain 2.0?

What is Blockchain 1.0? A Blockchain Starting Point

What is a Blockchain Network?

What is the Blockchain Trilemma?

DISCLAIMER : This article is informational in nature and is not an offer or invitation to sell or buy any crypto assets. Trading crypto assets is a high-risk activity. Crypto asset prices are volatile, where prices can change significantly from time to time and Bittime is not responsible for changes in fluctuations in crypto asset exchange rates.