This gives the US government a lot of power over bitcoin...
That both gives the government an incentive to let bitcoin thrive (to protect it's holdings), but also an opportunity to substantially manipulate bitcoins market price, possibly down to nearly zero.
Or the keys to these bitcoin will sit idly in a filing cabinet forever...
They will auction it off as soon as possible like they did several times before.
I'm not sure why the bitcoin price has gone up in response to this news, because it means more supply is coming to the market soonish. These coins might have been presumed lost before. Certainly they would not have been able to be sold on any legitimate exchange. Now they will be washed clean and enter the markets.
On the other hand, a billion dollar bitcoin auction from the US government will generate some publicity, and publicity definitely drives the Bitcoin price up. We'll see which effect dominates.
There's another billion+ hoard of bitcoins which has the potential to be released to the markets in the next year or two, which is the MtGox reserves. Crazy story: MtGox went bankrupt after losing a bunch of bitcoins in hacks, but during the years-long bankruptcy proceedings the bitcoins they have left have been frozen, and their value has gone up so much that they could exit bankruptcy and pay all their debts many times over. But it's unclear what the bankruptcy court will ultimately allow them to do.
If the MtGox bitcoins are released to their many thousands of creditors (MtGox customers who had balances at the time of collapse), I expect a crash in the bitcoin price as many will choose to sell at the same time. This is different from the government bitcoin auctions, where there are only a few winners who probably don't plan to sell right away.
True, but by essentially forcing creditors to hold their bitcoins instead of allowing them to sell, it's likely that MtGox has actually done most of their creditors a perverse favor, and they will end up with more money than if they had received their full bitcoin balance in 2014 and sold some of it since then. Assuming they are actually allowed to distribute the full value to creditors in the end, either as bitcoin or yen (the bankruptcy is in Japan).
The funny thought is that once the creditors are paid off in dollars/yen, the remainder goes to the shareholders that usually get wiped out in a bankruptcy, but not this one.
But bitcoin is a currency. If I lost $100,000 to something like this and it took a few years to resolve, I would expect to get back $100,000, not some other form of currency that was worth $100,000 at the time. What I'm saying is that MtGox can't claim they're making people "whole" from their losses by giving them what their money was worth at the time. Plenty of those people would have held on to the bitcoins and had their full value.
Sure, I don't expect MtGox to be able to make everyone whole. I just don't think it's accurate to say they're doing so by giving them their 2014 dollar equivalents.
The creditors' claims were converted to yen at the time of bankruptcy by court. MtGox has no say in the matter. Neither I nor MtGox are claiming that they are going to make people 'whole' in terms of the bitcoin balances they had. But MtGox (Mark Karpeles) is trying to get the court to allow them to pay creditors a whole lot more than their claim value, instead of distributing the excess to shareholders, and to do it in bitcoin instead of yen.
All I'm saying is if you compare a hypothetical scenario where the bitcoin was distributed to creditors in 2014 to the hypothetical scenario where they receive it today, it's practically certain that creditors' aggregate wealth is astronomically higher in the latter scenario, because very few would have held the bitcoin long enough or sold at the right time to realize all of the 15x+ appreciation that has happened in that time.
> Certainly they would not have been able to be sold on any legitimate exchange
I'm ignorant about this. Would they not have been able to be sold because there's some kind of master list of coins related to criminal activity, and exchanges blacklist them? Or would buyers somehow know specifically which coins they'd be buying and their provenance?
Well, I don't know exactly how much policing of this kind exchanges generally do, but these coins in particular were very closely watched and would not have gone unnoticed, wherever they ended up. Bitcoins are 100% traceable, and when these coins were moved yesterday it was instantly posted on many news sites, before today's announcement that it was actually a seizure by law enforcement.
My guess is that almost all exchanges would flag any account that deposited coins from a list of known tainted addresses like this one, and either immediately freeze it or prevent withdrawals. And any exchange that didn't do it automatically would do it manually after it hit the news.
> Certainly they would not have been able to be sold on any legitimate exchange.
May I ask why? (Genuine, not a crypto expert). Do exchanges by default trace any bitcoins back and see if they were connected with illegality? Is there a list of tainted bitcoin addresses that are effectively worthless?
Many reputable exchanges and other Bitcoin service providers use anti-fraud/AML services which will flag transactions involving Bitcoin with an apparent history of laundering or other malfeasance. This is more or less mandatory in the US and many other countries via AML treaties. There are, of course, exchanges with no such scruples, but converting Bitcoin to currency does become more difficult when it has a known suspicious background, particularly if you want to deal with an exchange in a country with reputable financial regulation.
This is of course similar to the situation with conventional currencies. Banks will refuse to open an account if they suspect the money you're depositing is laundered. Bitcoin just makes this process far more amenable to automation, since detecting a history of laundering becomes a graph analysis problem.
Is $1B in bitcoins enough to manipulate the price more than say ... just $1B in cash, something the government could somewhat easily just have if it wanted to do so?
I feel like if they wanted to, they'd already be playing that game.
It's not out of the realm of possibility this would give an actor more of an opportunity to do so, but it hardly seems required if the motivation was already there. I think it would already be happening if that was the case.
In the meantime the gov has auctioned off their bitcoins like they do other property pretty often.
I would think they'd have access to plenty of legit and illegitimate wallets as well. So many people are thinking they are doing anonymous transactions while governments have wallets associated with our facebook profile.
Despite loads of blockchain haters on HN, the government recognizes that bitcoin has value and has formal processes to seize, custody, and auction off the assets to add money to the federal treasury.
I simultaneously believe blockchain vastly underperfoms its promises and is a net waste of so much investment (human talent + time + capital) and also believe that bitcoin can be exchanged for real US dollars.
It's an example of "arbitrary effort wasted for a bigger slice of a fixed size pie".
An equivalent would be advertising for the US election. If all parties cut their ad budgets by a factor of 10, the result would likely be the same. Yet they all "waste" their ad budgets on yard signs simply to get a bigger share of the vote, and they have to because their competitors do too.
I understand that, but this doesn't make it better. The max effort you put in is proportional too how much bitcoin is valued, so if more people use it and the value goes up, the energy requirements rise as well.
You honestly don't see one valuable use-case for bitcoin? And if serious mainstream investors start buying it as an inflation hedge, they are just idiots?
I think there are other mechanisms to accomplish most things that can (currently) be done with bitcoin. I think there's a good chance that will change at some point. Institutional investors are starting to take notice of crypto, but it doesn't appear to be a significant part of anyone's inflation hedge quite yet due to volatility and concerns of manipulation. Again, I think there's a good chance that will improve with time. But yes, for right now, I don't see an existing compelling use-case for crypto except in its future potential.
You can't win arguing about crypto on HN. I list 50 use-cases, everyone says a centralized DB can do it better. I say the most crucial one - inflation hedge - and you say "What, that's it?" You can lead a horse to water, but you can't make it drink.
I didn't look through 50 use cases, but as far as the potential as a hedge ... that seems really ephemeral and like so many things, is a thing that is already a thing.
This is not an endorsement of the value of bitcoin, any more than it would be an endorsement of the value of beanie babies if such a collection was part of the assets seized.
All this means is the government is aware that bitcoins can be traded for real dollars. Its job when seizing assets is to simply perform that transaction.
They would do the same thing if they had found a truckload of Funko Pops, that's not the government recognizing anything besides the fact that they have market value.
That both gives the government an incentive to let bitcoin thrive (to protect it's holdings), but also an opportunity to substantially manipulate bitcoins market price, possibly down to nearly zero.
Or the keys to these bitcoin will sit idly in a filing cabinet forever...