[Cryptography] Bounties

Stephen P. Berry spb at meshuggeneh.net
Sat Mar 8 02:18:37 EST 2014

In message <20140307004156.4CA0A2280F0 at palinka.tinho.net>, dan at geer.org writes:

>What odds do you give that the theft was a state-level op to
>derail the Bitcoin economy, i.e., that making money was not the
>object, rather, let's imagine, that this op hedges the vulnerability
>of fiat currency to disintermediation.

Assuming the state is a rational actor, approximately zero.  Their
interests are better served by allowing evildoers to continue to
act on the observably false belief that the technologies involved
allow for anonymous and untraceable criminal transactions.  

Compare the public records of bitcoins seized to the number of bitcoins
in circulation, and then the value of assets seized in drug busts
versus the size of the drug market.  This vastly understates the proportion
of bitcoins used for criminal activity seized (presuming there's a
market for bitcoins that isn't criminal), but it shows that even with
that caveat a drug dealer is far better off, statistically, avoiding bitcoin.

And presuming that the Feds aren't disproportionally dedicating resources
to bitcoin busts this implies, as an aside, that bitcoin criminal
enterprises are, statistically, more likely to be incompetent than their
cash-only compatriots.  Which actually seems to be a pattern in bitcoin
enterprises.  One exchange lost all their bitcoins because the wallet
was on an AWS instance that wasn't being backed up.  Karpeles appears
to have brought mtgox up literally hours after asking basic questions
about confirming transactions in bitcoin.  And so on.

The public story for the mtgox failure, remember, is that they lost
literally everything to a bug that was publically known years earlier.  I
don't think we need to imagine elaborate clandestine operations here,
just garden-variety incompetence fueled by greed.

The real issue, I think, is that if we accept the reports at face
value---that a criminal or criminals has walked off with 850,000 bitcoins---is
why anyone should ever believe that anything going on in the market is
not manipulation on the part of the criminal enterprise.  850k bitcoins
is approximately 7% of all bitcoins ever mined, and closer to 12%
of all the bitcoins ever circulated.  That's enormous.  It dwarfs the
daily transaction volume of any of the USD exchanges.  It's approximated
the MONTHLY transaction volume of any one of the large exchanges.  If those
numbers are true (and can't be accounted for by dead weight loss due
to raw incompetence---hard drive failure with no backups, for example)
then there's no reason to believe that the legitimate market in bitcoin
is anything but rounding error compared to the activity of THIS ONE criminal


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