The History of Freezing in Bitcoin
The solution to problems with crime and money laundering always existed within Bitcoin. In the white paper itself, it is explained many times that attackers could be controlled by honest nodes. When I launched Bitcoin, I had not yet completed implementing the system of the alert key, and I still had not fully determined how it would best work. It was always envisioned. When I said that there was a strategy to protect systems based on simplified payment verification (SPV) using alerts from nodes, I was not limiting the nature of alerts to the same one possible form of attack. The difficulty in the implementation, at the time, lay in determining which nodes should be trusted. It involved not the core approach of proofs, but rather one of determining the voting strategies of nodes. Remember here, of course, that nodes are miners.
In 2010, I introduced the alert key to Bitcoin. It was not a concept that was particularly new. An alert mechanism is noted within the Bitcoin white paper: the best way for nodes to alert each other to events is to use the same protocol that is used to distribute blocks and transactions. There were problems with the alert key that was issued in 2010. Primarily, it did not link into individual nodes; at the time, nodes were very small. But from the inception of Bitcoin, I have explained that nodes will be large.
I’ve covered the concept many times in my blog, and I was very clear when I said that Bitcoin would end in data centres. I’d had the same argument with the paedophile James Donald, in 2008, before I realised what sort of lowlife scum he was. The reason, of course, people like him want Bitcoin to be a completely decentralised system that is not associated with commercial data centres stems from the desire to engage in illicit activity. Yet, Bitcoin, at scale, is designed to specifically avoid catering for such people. And Bitcoin has already exceeded the scale that will stop such a form of use outside the control of government. You see, Bitcoin was never about an anarchist peer system. Bitcoin uses a peer network for nodes to gain resilience and increase security. They present distinctly different uses.
The use of the term decentralised in 2008 was radically different than what people try and say it is about now. The decentralisation of systems is not new, and it is not about avoiding government. Very simply, it is a means to increase reliability and survivability in complex systems. If you read the second reference in my white paper, you will see a centralised blockchain solution dating back to the late 1990s. The solution extended the third reference in the white paper, which had been published in 1991. The authors did not believe that it would be possible to have a decentralised or distributed version of a timestamp server, which is what Bitcoin achieves.
Bitcoin is not democratic. The rules of Bitcoin were set upon the creation of Bitcoin. There is no cryptographic protection that is associated with how many coins (bitcoin) you have. It is not about centralisation or any other wacky, false analogy by anarchists and criminals. Bitcoin is simply a peer-to-peer cash system that enables micropayments. The system is designed to work with low transaction costs, and it is the first system ever created that will allow the introduction of micropayments.
Bitcoin doesn’t stop people censoring transactions. Bitcoin doesn’t stop governments from issuing orders against nodes. Remember here, nodes are miners. The mantra of ‘your keys your bitcoin’ is utterly wrong. The ledger is not where your bitcoin is held. Bitcoin is simply an arbitrary denomination of a certain number of indivisible tokens: a bitcoin is a designation for 100 million indivisible and fungible digital tokens — no more and no less. The property you own is not the keys or the addresses, it is simply the chattel property rights associated with each individual token. Each token is held in a set contained in an unspent transaction output (UTXO). Each UTXO is the equivalent of an envelope holding a defined number of tokens. Possession is not ownership. More importantly, although the keys are used to assign tokens from each UTXO-based envelope to another, the keys are not the bitcoin itself.
The alert key would and did allow the freezing of bitcoin. It does not require every single person running Bitcoin to hold, validate, or accept the alert key. The process is not a new idea; rather, it stems from my introduction of the key. In discussions with people such as Mike Hearn, I failed to adequately describe all the mechanisms that would be involved.
Mike understood very well that Bitcoin would end up in a few selected, corporate data centres. Not because of ASICs, as he thought, but in fact because CPU power in Bitcoin is not simply the hash rate. It is the overall processing of blocks and transactions. As Bitcoin ‘halves’, the subsidy will become less and less important compared to the collection of fees. Bitcoin is only valuable when it is competitive. Very shortly, people will start to understand that Bitcoin is not a good system for illicit activity. Anti-money laundering (AML) directives are already in place that will limit the use of Bitcoin or derivative systems, including the one associated with BTC, in illicit activity. More importantly, Bitcoin is incredibly simple to freeze.
The freezing of bitcoin was discussed following my departure in April 2011 . It wasn’t just an arbitrary thought. With the introduction of the alert key and the ability to have nodes freeze bitcoin, people started to discuss what it all meant. Some complete and utter scumbags, unfortunately, in their attempt to radically alter Bitcoin towards the system that they sought and create illicit, dark web markets that would not be traceable, wanted to hide such aspects. But fortunately, or unfortunately, depending on your perspective, they used Bitcoin. Bitcoin is completely traceable, and can be frozen. As such, it will never be a good system for illicit markets.
I should have stood up more at the time. In 2011, I was going through several personal difficulties. It has taken me a while to be able to maintain my composure when dealing with the types of people we find ourselves dealing with in Bitcoin, especially when it comes to the anarchist and illicit crime bent. It was not merely that I had a period of difficulty; I have Asperger’s, or, as it is now called, autism spectrum disorder. Dealing with people at the best of times is difficult for me. So, for good or ill, I was unable to lead the development of the system I had created in 2011. Some of the early people involved with Bitcoin understood as much, which they have used to their advantage.
The problem that Mike posed in April 2011 stems from a false dichotomy of avoiding ‘orphans’ and not realising that the maturity period of 100 blocks in Bitcoin allows for the valid ‘orphaning’ of blocks that violate a court order.
However, mining can be done anonymously. If the freeze order system were to be abused a group of miners would emerge that were not motivated by profit but rather by ideals. Whilst they would likely not be able to mine as fast as the big ASIC using companies, even reaching 5% of the total network hash power would be enough to allow the coins to be spent, albiet quite slowly. 
There are two problems with the comment made by Mike. Bitcoin mining in 2011 could have been implemented anonymously. It cannot be implemented anonymously, at any decent scale, now. Pool operators set the rules — not ones who are using a pool. Pool operators are the nodes — not the members. Any large node is easily detectable. As such, even miners associated with 5% of the hash power will never become anonymous. They have far too large of a footprint. Such is how Bitcoin was designed.
· More importantly, nodes enforce rules.
· A court order is a rule.
· Honest nodes reject blocks that don’t enforce the rules.
The logic here is very simple: honest nodes will reject blocks created by some arbitrary 5% of nodes by hash power. There will not be any slow release of coins. If the same small group of arbitrary miners decided to create a copy of Bitcoin, they would have a copy that is intentionally flaunting the law. The entire replicated copy of the database that is passing off as Bitcoin’s or a forked version of it would thus be completely illegal on any regulated exchange. Such a system would be almost completely valueless. More importantly, the true bitcoin would be frozen. Any attempt to bypass the scenario would result in the orphaning of the respective miners, putting them on an alternate system.
It is not simply a matter of freezing miners; it is an allocation of property rules. A freezing order issued against the miners would also alert other entities within the Bitcoin ecosystem, allowing them to protect their own assets. You see, an exchange that takes any bitcoin that has been forked and may be covered by a theft recovery or proceeds of crime order would be complicit. Bitcoin is a form of property. The receipt of stolen property presents a crime. Facilitating the exchange of stolen property or property covered by a proceeds of crime order presents a crime. Such exchanges would be quickly shut down. It’s not too difficult to do so.
Freezing coins by synchronizing the bulk of hashing power works better than attempting to force co-operation from every economic actor (exchangers, merchants etc). The latter is almost impossible because coins can be split and merged in arbitrary ways making it hard to really blacklist a coin. But once an address is frozen by miners, its value can no longer be merged or split. 
Freezing is simple when you start to realise that orphaning blocks is a part of how Bitcoin works. The recovery of assets is a little more difficult to carry out, but can be integrated just like block size increases .
User-activated soft fork (UASF) nodes don’t exist. The only part of Bitcoin that matters for the propagation of blocks is performed by the nodes. And simply put, nodes are solely and exclusively miners. Any system that does not mine a block is not a node.
Lots of people have attempted to alter my system. They have failed, and they will continue to fail. All that they can do is use proof of social media (POSM). Basically, they deceive, and they spread lies. It has taken me a long time to come to terms here. Being autistic, the concept of lying for such a reason holds a level of difficulty that I don’t like to address. It is difficult for me to comprehend the actions of some of the other parties. I do now, but it took a long time.
Some of Mike’s discussions stemmed from an article that had been published concerning money laundering and Bitcoin . Mike understood that the best approach was the one I had initiated with the alert key. At the time, it was far from being complete: an alpha software implementation at best. Even with the alert key, in 2011, tracing miners and implementing everything would have been difficult. It certainly would not have been cost-effective. But the scenario has radically changed. Bitcoin is large enough to be easily controlled now.
There has been a lot of talk about how governments could effectively regulate BitCoin given their mandate to fight crime. It’s definitely worth discussing that more. Banning BitCoins at the merchant or exchanger level is a non-starter because coins can be split and merged arbitrarily. Attempting to ban an address across all economic actors would cause “badness” to ripple outwards transitively eventually causing system collapse.
And unlike the childish ignorance of Theymos , bitcoin is a property asset that is easily traceable. There are rules for following through mixtures in law. As a fungible digital token, bitcoin perfectly aligns with all the rules of following and tracing. Even if bitcoin is moved through multiple addresses, all it does is taint multiple UTXOs and move to the legal process of following through a mixture, a legal process that has existed for over 2000 years.
The one true flaw in Mike’s reasoning lay in thinking that a freezing order would only slow and not stop the movement of bitcoin. One aspect of Bitcoin that I did not go into enough detail about is the block-maturity rate: a block that has been found by a node is not valid to be spent by the node until it is 100 blocks deep. It provides other nodes with enough time to orphan any block that contains any frozen bitcoin that have been moved. Importantly, any node that builds upon a block containing bitcoin associated with a freezing order is complicit. That is, both the miner who created the block and any node that builds upon it or any such block will, equally, be liable. Here lies the beauty of how Bitcoin grows at scale. Once its value is enough, the system always migrates towards data centres. There is no other solution. The result is a small number of commercial entities that act to secure the network.
Securing the network involves following rules. Court orders are rules. Bitcoin does not act outside of law; it is a cash-based platform that acts to provide digital cash. Cash is covered by rules. Global laws concerning money laundering already incorporate checks and balances over the use of different levels of cash. For small transactions, bitcoin may be used as cash, which can be used in small transactions without resorting to know your customer (KYC) checks. As the amount of bitcoin hits different thresholds, the various requirements for funding and cash-based transactions start to apply.
The reason Bitcoin was leaderless or operated without what people call centralised control is simple: I set the rules in advance. I said that the rules were set in stone. One of the problems a person such as myself, with Asperger’s, will experience is not understanding how other people don’t want to follow certain rules or that they will act dishonestly. I thought that by being explicit in saying that the rules were set in stone, individuals would adhere to the contract and bargain. If they did, I would not be required to act as a leader. The system would be able to grow without me if people simply followed the rules that I set. It is not a democratic system; you do not vote as an individual in any blockchain system. It’s designed to ensure that such a scenario cannot happen. If you don’t understand it, read my white paper.
The Bitcoin protocol was designed as a system that would not change from a well-designed protocol. One of the aspects of autism is a desire for things not to change. For things to be stable. Such is what I sought in my creation of Bitcoin. I desired a monetary system that was not subject to arbitrary changes. Such is my creation of Bitcoin.
What Bitcoin offers which no other system has been able to offer is the ability to handle micropayments. It was the Holy Grail of all digital payment systems. It is what Google worked on, it is what Facebook has salivated over the prospects of for over a decade, and it is the Holy Grail of online payment systems. My Bitcoin protocol delivered it. It delivers a methodology to enable the exchange of value in fractions of a cent. No system has ever managed to do so before. The system that is passing itself off as Bitcoin, the one now associated with BTC, does not do so. In fact, the people behind it are not seeking a system that works, they are seeking a pipe dream of a protocol that can act outside of law and regulatory control. By choosing Bitcoin as the platform to copy for such ends, they have failed in their desire.
The implementation of freezing within Bitcoin is not new. The discussions of freezing have been a part of Bitcoin since its inception. Those seeking to tell you otherwise are seeking to rewrite history and deceive.
 See: https://web.archive.org/web/20110420062418/http://www.bitcoin.org/smf/index.php?topic=5979.0 (accessed 21st April, 2020).
 See: https://bitcointalk.org/index.php?topic=1347.msg15366#msg15366 (accessed 21st April, 2020).
 See: https://web.archive.org/web/20110420061353/http://www.bitcoin.org/smf/index.php?topic=5907.0 (accessed 21st April, 2020).
 See: https://web.archive.org/web/20110421035241/http://www.bitcoin.org/smf/index.php?topic=5979.msg87896#msg87896 (accessed 21st April, 2020).