Spitfire List Web site and blog of anti-fascist researcher and radio personality Dave Emory.

For The Record  

FTR #764 Bit[coin]burg, Part 2, The Snowden-Inspired, Bitcoin-operated Online Murder Incorporated

Dave Emory’s entire life­time of work is avail­able on a flash drive that can be obtained here. (The flash drive includes the anti-fascist books avail­able on this site.)

Side 1   Side 2

NB: On Side 1, Mr. Emory mis­pells Pierre Omidyar’s name. At the begin­ning of Side 2, the pro­gram is misiden­ti­fied as “FTR #760, its pre­de­ces­sor broadcast.

This descrip­tion con­tains sup­ple­men­tal infor­ma­tion not included in the orig­i­nal broadcast.

INTRODUCTION:  In FTR #760, we exam­ined the techno-libertarian, Lud­wig von Mises milieu-affiliated nature of the bit­coin phe­nom­e­non. Quite pos­si­bly devel­oped by ele­ments of Ger­man intel­li­gence and the Under­ground Reich, bit­coins are not only vul­ner­a­ble to “tape-painting,” but can be stolen by hackers.

In a [per­haps] pre­dictable exten­sion of the Lud­wig von Mises, anarcho-fascism under­ly­ing the bit­coin phe­nom­e­non, as well as the polit­i­cal forces behind Eddie the Friendly Spook” Snow­den, some­one oper­at­ing under the name “Kuwabakatake San­juro” has begun a bitcoin-funded, online assas­si­na­tion con­sor­tium called “The Assas­si­na­tion Mar­ket.” His project was inspired by the “dis­clo­sures” of Snowden.

After dis­cussing the bitcoin-funded assas­si­na­tion con­sor­tium, we will under­score the extreme vul­ner­a­bil­ity of this vir­tual cur­rency to theft.

Pro­gram High­lights Include these Points of Information:

  • “San­juro” was inspired to real­ize the project by the “dis­clo­sures” of Edward Snowden.
  • The largest “bit­coin bounty” is on the head of Ben Bernanke, chair­man of the Fed­eral Reserve, to whom Snow­den referred as a “cock­bag” in the 2009 online post­ing in which he advo­cated the elim­i­na­tion of social secu­rity and a return to the gold standard.
  • “San­juro” also has bit­coin boun­ties on the heads of  Pres­i­dent Obama and Gen­eral Keith Alexan­der, the head of the NSA.
  • “San­juro” sees his online assas­si­na­tion con­sor­tium as a real­iza­tion of laissez-faire mar­ket the­ory to politics.
  • We note that the the­o­ries of Hans Hermann-Hoppe (dis­ci­ple of Lud­wig von Mises, stu­dent of Juer­gen Haber­mas, idol of bit­coin advo­cate R. Cody Wil­son) explic­itly reject democ­racy. So does the Lud­wig von Mises Insti­tute, the epi­cen­ter for the eco­nomic the­o­ries of Ron Paul and Edward Snow­den. So does Peter Thiel, a bit­coin advo­cate and cap­i­tal­izer of Ron Paul’s 2012 polit­i­cal cam­paign. Thiel is also the largest stock­holder in Palan­tir, which appears to have devel­oped the PRISM soft­ware at the cen­ter of the Snow­den leaks. (Palan­tir CEO Alex Karp is also a stu­dent of Juer­gen Haber­mas.) “San­juro” takes this benighted phi­los­o­phy to its [per­haps inevitable] conclusion.
  • The endgame of lib­er­tar­ian phi­los­o­phy does indeed appear to be “anarcho-fascism.”
  • The techno-libertarians war­rant seri­ous con­sid­er­a­tion as the “neue-wandervogel.”
  • In an update, we learn that the alleged mas­ter­mind of the bitcoin-funded Silk Road–the Lud­wig von Mises/Ron Paul devo­tee Ross Ulbricht–allegedly sought the con­tract mur­ders of six people–five more than orig­i­nally stated. It is inter­est­ing and rel­e­vant that both Ulbricht and “San­juro” pro­ceed from an anarcho-libertarian per­spec­tive, decry­ing slav­ery AND democ­racy, ulti­mately arriv­ing at a lethal advo­cacy posi­tion, allegedly so in Ulbricht’s case.
  • Inter­est­ingly, Ulbricht was appar­ently think­ing of mov­ing to Dominica, the island nation tar­geted by a Nazi/white suprema­cist inva­sion known as “The Bayou of Pigs.” Ulbricht’s 2012 Pres­i­den­tial selectee Ron Paul was appar­ently involved in that gam­bit, along with Paul’s long-time asso­ciates David Duke and Storm­front cre­ator Don Black.
  • As “Pter­rafractyl” informs us: “One thing is clear from this arti­cle: Ross Ulbricht had a HUGE per­cent of the total bit­coin sup­ply. At least for an indi­vid­ual. The FBI received 144,336 bit­coins off of just one of Ulbricht’s com­put­ers, and with ~12 mil­lion bit­coins already in sup­ply (a lit­tle over half of the total 21 mil­lion), that means Ulbricht had over 1% of the cur­rent bit­coin sup­ply on that sin­gle com­puter alone. Accord­ing to the researchers, 78% of Ulbrich’s bit­coins are still “buried” and beyond the FBI’s reach. So Ulbricht, alone, may have actu­ally con­trolled closer to 5% of the total bit­coin sup­ply. It’s a reminder that bit­coins have an addi­tional built-in defla­tion­ary force: Lost bit­coins that can’t be recov­ered are lost for good, per­ma­nently reduc­ing the sup­ply of trade­able bit­coins while main­tain­ing the over­all sup­ply offi­cially in exis­tence (because a lost bit­coin is indis­tin­guish­able from one that’s sim­ply being saved). The small casual users with tiny frac­tions of a bit­coin in their accounts are prob­a­bly the most likely source of bit­coin losses, but since we have no real idea who the large bit­coin own­ers are at this point, you have to won­der how many more hid­den bit­coin barons are going to end up either hand­ing siz­able per­cent­ages of the total bit­coin sup­ply over to law enforce­ment agen­cies or just los­ing them altogether.
  • In another update, we learn that the suc­ces­sor to Silk Road–Sheep Marketplace–has van­ished tak­ing vast amounts of its users’ bit­coins with it. The users of Sheep Mar­ket­place, it would seem, have been fleeced!
  • “Pter­rafractyl” informs us of another aspect of the vul­ner­a­bil­ity of Bit­coin: “One of the inter­est­ing aspects about the bit­coin phe­nom­ena is that the more peo­ple that start using bit­coin the greater the defla­tion­ary pres­sure on the value of the bit­coins. That’s because there’s a fixed max­i­mum of 21 mil­lion bit­coins that can ever exist, so the greater the demand for bit­coins the more each bit­coin will cost in other cur­ren­cies. With the Chi­nese mar­ket now warm­ing up to bit­coin, and all those new poten­tial users, we might see a fas­ci­nat­ing exam­ple of a hyper­de­fla­tion­ary vir­tual gold bub­ble.”
  • The per­ils of “Bit­coin­ery” were illus­trated when a Hong Kong Bit­coin mar­ket van­ished, tak­ing $5 mil­lion dol­lars with it!
  • Fur­ther updat­ing the dis­cus­sion “Pter­rafractyl” informs us: It would be pretty hilar­i­ous if Bit­coin, a cur­rency cher­ished by haunted by hyper­in­fla­tion­ary fears, becomes an object les­son in the dan­gers of defla­tion. But it’s hard to see how this les­son will be avoided if Bit­coin ever really catches on because one of the main fea­tures of the cur­rency is that it’s capped out at 21 mil­lion coins but you can divide each coin up into smaller and smaller pieces. There­fore, the rea­son­ing goes, Bit­coin has defeated the infla­tion beast while still main­tain­ing the scal­a­bil­ity required to han­dle the vol­ume of trans­ac­tions in vir­tu­ally any sized econ­omy! Rev­o­lu­tion awaits! The vic­tory over infla­tion comes at the cost of built-in defla­tion cor­re­lated to the growth of the Bit­coin econ­omy (imag­ine if dol­lars grew more expen­sive with the growth of the US econ­omy). So the more Bit­coin grows in pop­u­lar­ity the greater the defla­tion, the greater the pay­out to the ear­li­est bit­coin investors, and the greater the temp­ta­tion to keep hold­ing onto those Bit­coins.
  • Cor­nell Uni­ver­sity researchers have dis­cov­ered a fun­da­men­tal flaw in bit­coin that can per­mit a very small num­ber of users to take over the market.
  • Not sur­pris­ingly, it turns out that Bit­coin is highly vul­ner­a­ble to self­ish “min­ing,” which could per­mit knowl­edge­able and enter­pris­ing male­fac­tors to cor­ner the market.
  • Bit­coin users have relied on the TOR net­work, to a con­sid­er­able extent. Because TOR is not as secure as advertsed, some have avoided using it. Now the Max Planck Insti­tute is research­ing the devel­op­ment of a more secure oper­a­tion, that might per­mit dras­tic pro­lif­er­a­tion of the types of ills that appear inher­ent in the bit­coin concept.
  • A sup­ple­men­tal story, not included in the orig­i­nal pro­gram, con­cerns Ron Paul’s enthu­si­as­tic views on bitcoin.
  • In another sup­ple­men­tal story, not included in the orig­i­nal pro­gram, we learn that the Euro­pean Cen­tral Bank views bit­coin as rooted fun­da­men­tally in the Lud­wig von Mises/Friedrich von Hayek the­o­ret­i­cal construct.

1. In FTR #‘s 758, 759, we looked at the anti-democratic, pro-monarchist phils­o­phy of Hans-Hermann Hoppe, a devo­tee of the Lud­wig von Mises school of eco­nomic and social the­ory and a stu­dent of Juer­gen Haber­mas. Haber­mas was exam­ned at length in FTR #757. One of the most vis­i­ble sup­port­ers of bit­coin is a “techno-libertarian” named Cody R. Wil­son, whom we exam­ined in FTR #760. Wil­son, not sur­pris­ingly, is a devo­tee of Hans Hermann-Hoppe and an active oppo­nent of democracy.

“All Mar­kets Become Black” by Daniel Fel­len­stein and Cody R. Wil­son; Blink; 12/27/2012.

. . . . Accord­ing to your pro­file on defense dist. you’re “a stu­dent of Bas­tiat, Hoppe, and Anthony de Jasay”. Could you go over your philo­soph­i­cal basics before we dive into the project? How much of a state would you accept in your life?. . .

. . . . I am but a con­duit for ide­ol­ogy. Mod­ern neolib­eral democ­racy is a crum­bling idol. The God has failed, to invoke Hoppe. . . .

2. “San­juro” was inspired to real­ize the project by the “dis­clo­sures” of Edward Snow­den. The largest “bit­coin bounty” is on the head of Ben Bernanke, chair­man of the Fed­eral Reserve, to whom Snow­den referred as a “cock­bag” in the 2009 online post­ing in which he advo­cated the elim­i­na­tion of social secu­rity and a return to the gold stan­dard. “San­juro” also has bit­coin boun­ties on the heads of  Pres­i­dent Obama and Gen­eral Keith Alexan­der, the head of the NSA. “San­juro” sees his online assas­si­na­tion con­sor­tium as a real­iza­tion of laissez-faire mar­ket the­ory to politics.

We note that the the­o­ries of Hans Hermann-Hoppe (dis­ci­ple of Lud­wig von Mises, stu­dent of Juer­gen Haber­mas, idol of bit­coin advo­cate R. Cody Wil­son) explic­itly reject democ­racy. So does the Lud­wig von Mises Insti­tute, the epi­cen­ter for the eco­nomic the­o­ries of Ron Paul and Edward Snow­den. So does Peter Thiel, a bit­coin advo­cate and cap­i­tal­izer of Ron Paul’s 2012 polit­i­cal cam­paign. Thiel is also the largest stock­holder in Palan­tir, which appears to have devel­oped the PRISM soft­ware at the cen­ter of the Snow­den leaks. (Palan­tir CEO Alex Karp is also a stu­dent of Juer­gen Haber­mas.) “San­juro” takes this benighted phi­los­o­phy to its [per­haps inevitable] con­clu­sion. The endgame of lib­er­tar­ian phi­los­o­phy does indeed appear to be “anarcho-fascism.”

“Meet The ‘Assas­si­na­tion Mar­ket’ Cre­ator Who’s Crowd­fund­ing Mur­der With Bit­coins” by Andy Green­berg; Forbes; 11/28/2013.

EXCERPT: As Bit­coin becomes an increas­ingly pop­u­lar form of dig­i­tal cash, the cryp­tocur­rency is being accepted in exchange for every­thing from socks to sushi to heroin. If one anar­chist has his way, it’ll soon be used to buy murder, too.

Last month I received an encrypted email from some­one call­ing him­self by the pseu­do­nym Kuwa­batake San­juro, who pointed me towards his recent cre­ation: The web­site Assas­si­na­tion Mar­ket, a crowd­fund­ing ser­vice that lets any­one anony­mously con­tribute bit­coins towards a bounty on the head of any gov­ern­ment offi­cial–a kind of Kick­starter for polit­i­cal assas­si­na­tions. Accord­ing to Assas­si­na­tion Market’s rules, if some­one on its hit list is killed–and yes, San­juro hopes that many tar­gets will be–any hit­man who can prove he or she was respon­si­ble receives the col­lected funds.

For now, the site’s rewards are small but not insignif­i­cant. In the four months that Assas­si­na­tion Mar­ket has been online, six tar­gets have been sub­mit­ted by users, and boun­ties have been col­lected rang­ing from ten bit­coins for the mur­der of NSA direc­tor Keith Alexan­der and 40 bit­coins for the assas­si­na­tion of Pres­i­dent Barack Obama to 124.14 bitcoins–the largest cur­rent bounty on the site–targeting Ben Bernanke, chair­man of the Fed­eral Reserve and pub­lic enemy num­ber one for many of Bitcoin’s anti-banking-system users. At Bitcoin’s cur­rent rapidly ris­ing exchanges rate, that’s nearly $75,000 for Bernanke’s would-be killer.

Sanjuro’s grisly ambi­tions go beyond rais­ing the funds to bankroll a few polit­i­cal killings. He believes that if Assas­si­na­tion Mar­ket can per­sist and gain enough users, it will even­tu­ally enable the assas­si­na­tions of enough politi­cians that no one would dare to hold office. He says he intends Assas­si­na­tion Mar­ket to destroy “all gov­ern­ments, everywhere.”

“I believe it will change the world for the bet­ter,” writes San­juro, who shares his han­dle with the name­less samu­rai pro­tag­o­nist in the Akira Kuro­sawa film “Yojimbo.” (He tells me he chose it in homage to cre­ator of the online black mar­ket Silk Road, who called him­self the Dread Pirate Roberts, as well Bit­coin inven­tor Satoshi Nakamoto.) ”Thanks to this sys­tem, a world with­out wars, drag­net panopticon-style sur­veil­lance, nuclear weapons, armies, repres­sion, money manip­u­la­tion, and lim­its to trade is firmly within our grasp for but a few bit­coins per per­son. I also believe that as soon as a few politi­cians gets offed and they real­ize they’ve lost the war on pri­vacy, the killings can stop and we can tran­si­tion to a phase of peace, pri­vacy and laissez-faire.

...

Just read­ing about that coldly cal­cu­la­tive sys­tem of lethal vio­lence likely inspires queasy feel­ings or out­rage. But San­juro says that the public’s abhor­rence won’t pre­vent the sys­tem from work­ing. And as a mat­ter of ethics, he notes that he’ll accept only user-suggested tar­gets “who have ini­ti­ated force against other humans. More specif­i­cally, only peo­ple who are out­side the reach of the law because it has been sub­verted and cor­rupted, and whose vic­tims have no other way to take revenge than to do so anonymously.”

Even set­ting aside the immoral­ity of killing, doesn’t the notion of enabling small minori­ties of angry Bit­coin donors to assas­si­nate elected offi­cials sound like an attempt to crip­ple democ­racy? “Of course, lim­it­ing democ­racy is why we even have a con­sti­tu­tion,” San­juro responds. “Major­ity sup­port does not make a leader legit­i­mate any more than it made slav­ery legit­i­mate. With this mar­ket the great equal­is­ing forces of cap­i­tal­ism have the oppor­tu­nity to work in pol­i­tics too. One bit­coin paid is one vote closer to a veto of what­ever leg­is­la­tion you dislike.”

San­juro didn’t actu­ally invent the con­cept of an anony­mous crowd­funded assas­si­na­tion mar­ket. The idea dates back to the cypher­punk move­ment of the mid-1990s, whose adher­ents dreamt of using encryp­tion tools to weaken the gov­ern­ment and empower indi­vid­u­als. For­mer Intel engi­neer and Cypher­punk Mail­ing List founder Tim May argued that uncrack­able secret mes­sages and untrace­able dig­i­tal cur­rency would lead to assas­si­na­tion mar­kets in his “Cryptoanarchist’s Man­i­festo” writ­ten in 1992.

A few years later, another for­mer Intel engi­neer named Jim Bell pro­posed a sys­tem of fund­ing assas­si­na­tions through encrypted, anony­mous dona­tions in an essay he called “ Assas­si­na­tion Pol­i­tics.” The sys­tem he described closely matches Sanjuro’s scheme, though anonymity tools like Tor and Bit­coin were mostly the­o­ret­i­cal at the time. As Bell wrote then:

If only 0.1% of the pop­u­la­tion, or one per­son in a thou­sand, was will­ing to pay $1 to see some gov­ern­ment slime­ball dead, that would be, in effect, a $250,000 bounty on his head. Fur­ther, imag­ine that any­one con­sid­er­ing col­lect­ing that bounty could do so with the math­e­mat­i­cal cer­tainty that he could not be iden­ti­fied, and could col­lect the reward with­out meet­ing, or even talk­ing to, any­body who could later iden­tify him. Per­fect anonymity, per­fect secrecy, and per­fect secu­rity. And that, com­bined with the ease and secu­rity with which these con­tri­bu­tions could be col­lected, would make being an abu­sive gov­ern­ment employee an extremely risky propo­si­tion. Chances are good that nobody above the level of county com­mis­sioner would even risk stay­ing in office.

Bell would later serve years in prison for tax eva­sion and stalk­ing a fed­eral agent, and was only released in March of 2012. When I con­tacted him by email, he denied any involve­ment in Sanjuro’s Assas­si­na­tion Mar­ket and declined to com­ment on it.

San­juro tells me he’s long been aware of Bell’s idea. But he only decided to enact it after the past summer’s rev­e­la­tions of mass sur­veil­lance by the NSA exposed in a series of leaks by agency con­trac­tor Edward Snow­den. “Being forced to alter my every happy mem­ory dur­ing inter­net activ­ity, every inti­mate moment over the phone with my loved ones, to also include some of the peo­ple I hate the most lis­ten­ing in, analysing the con­ver­sa­tion, was the inspi­ra­tion I needed to embark on this task,” he writes. “After about a week of mut­ter­ing ‘they must all die’ under my breath every time I opened a news­pa­per or turned on the tele­vi­sion, I decided some­thing had to be done. This is my con­tri­bu­tion to the cause.”

Assas­si­na­tion Mar­ket isn’t the first web­site to sug­gest fund­ing mur­der with bit­coins. Oth­ers Tor-hidden web­sites with names like Quick Kill, Con­tract Killer and C’thulhu have all claimed to offer mur­ders in exchange for bit­coin pay­ments. But none of them responded to my attempts to con­tact their admin­is­tra­tors, and all required advanced pay­ments for their ser­vices, so they may be scams.

...

If the sys­tem does prove to work, the launch of Assas­si­na­tion Mar­ket may be ill-timed for San­juro, given law enforcement’s recent crack­down on the dark web. In August, the FBI used an exploit in Tor to take down the web host­ing firm Free­dom Host­ing and arrest its founder Eric Eoin Mar­ques, who is accused of offer­ing his ser­vices to child pornog­ra­phy sites. And just last month, the FBI also seized the pop­u­lar Bit­coin– and Tor-based black mar­ket for drugs known as Silk Road and arrested its alleged cre­ator, Ross Ulbricht.

San­juro coun­ters that in addi­tion to Tor, Bit­coin, and the usual encryp­tion tools, he has “mea­sures in place to pre­vent the effec­tive­ness of such an arrest. Nat­u­rally these will have to be kept secret.”

He adds that, like an ear­lier gen­er­a­tion of cypher­punks, he puts his faith in the math­e­mat­i­cal promise of cryp­tog­ra­phy to trump the government’s power to stop him. “With cryp­tog­ra­phy, the state, or any pro­tec­tion firm, is largely obsolete…all activ­ity that can be reduced to infor­ma­tion trans­fer will be com­pletely out of the government’s, or anyone’s, hands, other than the par­ties involved,” he says.

“I am a crypto-anarchist,” San­juro con­cludes. “We have a bright future ahead of us.”

3. In an update, we learn that the alleged mas­ter­mind of the bitcoin-funded Silk Road–the Lud­wig von Mises/Ron Paul devo­tee Ross Ulbricht–allegedly sought the con­tract mur­ders of six people–five more than orig­i­nally stated. It is inter­est­ing and rel­e­vant that both Ulbricht and “San­juro” pro­ceed from an anarcho-libertarian per­spec­tive, decry­ing slav­ery AND democ­racy, ulti­mately arriv­ing at a lethal advo­cacy posi­tion, allegedly so in Ulbricht’s case. Again, these peo­ple are indeed the “neue-wandervogel.”

“One thing is clear from this arti­cle: Ross Ulbricht had a HUGE per­cent of the total bit­coin sup­ply. At least for an indi­vid­ual. The FBI received 144,336 bit­coins off of just one of Ulbricht’s com­put­ers, and with ~12 mil­lion bit­coins already in sup­ply (a lit­tle over half of the total 21 mil­lion), that means Ulbricht had over 1% of the cur­rent bit­coin sup­ply on that sin­gle com­puter alone. Accord­ing to the researchers, 78% of Ulbrich’s bit­coins are still “buried” and beyond the FBI’s reach. So Ulbricht, alone, may have actu­ally con­trolled closer to 5% of the total bit­coin sup­ply. It’s a reminder that bit­coins have an addi­tional built-in defla­tion­ary force: Lost bit­coins that can’t be recov­ered are lost for good, per­ma­nently reduc­ing the sup­ply of trade­able bit­coins while main­tain­ing the over­all sup­ply offi­cially in exis­tence (because a lost bit­coin is indis­tin­guish­able from one that’s sim­ply being saved). The small casual users with tiny frac­tions of a bit­coin in their accounts are prob­a­bly the most likely source of bit­coin losses, but since we have no real idea who the large bit­coin own­ers are at this point you have to won­der how many more hid­den bit­coin barons are going to end up either hand­ing siz­able per­cent­ages of the total bit­coin sup­ply over to law enforce­ment agen­cies or just los­ing them altogether.”

“Alleged Silk Road Boss Ross Ulbricht Now Accused of Six Murders-for-Hire, Denied Bail” by Andy Green­berg; Forbes; 11/21/2013.

EXCERPT: A New York judge denied bail to alleged Silk Road cre­ator Ross Ulbricht Thurs­day, based in part on fresh accu­sa­tions of vio­lence: That the 29-year-old allegedly com­mis­sioned the mur­ders of a total of six peo­ple through would-be hit­men he con­tacted online, four more than the two attempted killings described in pros­e­cu­tors’ orig­i­nal crim­i­nal complaint.

Judge Nathaniel Fox said that the risk that Ulbricht might flee or present a dan­ger to the com­mu­nity over­whelmed argu­ments that he be released on bail, cit­ing “pow­er­ful evi­dence pre­sented to us that the defen­dant has attempted to secure the mur­ders of a num­ber of people.”

Pros­e­cu­tor Ser­rin Turner laid out that evi­dence in a state­ment to the court, say­ing that much of it was gath­ered from a Silk Road server located by the FBI as well as Ulbricht’s seized com­puter after he was arrested in Octo­ber and accused of run­ning the Silk Road’s mas­sive anony­mous online drug sales oper­a­tion under the pseu­do­nym the Dread Pirate Roberts. Ser­rin said that Ulbricht had not only sent mes­sages to two would-be hitmen–an under­cover agent on one of those two occa­sions–ask­ing to have a wit­ness and a black­mailer killedbut had fol­lowed up by order­ing the killing of the blackmailer’s asso­ciate and three peo­ple who lived with him.

Mys­te­ri­ously, Turner said that in none of the cases were actual vic­tims found; In the first, FBI agents say they faked the death of alleged for­mer Silk Road employee Cur­tis Greento con­vince Ulbricht the mur­der had taken place. But the out­come of the other five mur­ders remains unex­plained. Nonethe­less, Turner argued, “the evi­dence is crys­tal clear that the defen­dant intended these mur­ders to happen.”

Crim­i­nal com­plaints against Ulbricht pre­vi­ously accused him of order­ing the killing of for­mer Silk Road employee Cur­tis Green in Jan­u­ary of 2013 for $80,000 and then pay­ing a user known as “redand­white” $150,000 in the cryp­tocur­rency Bit­coin to kill a Silk Road user iden­ti­fied as “Friend­ly­Chemist,” who claimed to have hacked another Silk Road ven­dor and threat­ened to release Silk Road cus­tomers’ iden­ti­fy­ing infor­ma­tion if he wasn’t paid $500,000.

In court Thurs­day, Turner added four more attempted mur­ders, say­ing that Friend­ly­Chemist had impli­cated another Silk Road user known as “tony76.” And when redand­white had told Ulbricht that tony76 lived with three other peo­ple who would have to be killed if they were to obtain the money and pos­ses­sions in his home, Ulbricht allegedly agreed to have all four killed for $500,000 in bit­coins. “Based on the say-so of [an online assas­sin,] he was will­ing to kill three oth­ers just liv­ing with him,” said Turner.

Turner also described evi­dence on Ulbricht’s com­puter that included a log he kept of his activ­i­ties that he said included the line “com­mis­sioned hit on black­mail­ers with angels,” imply­ing that redand­white may have been a mem­ber of the Hell’s Angel motor­cy­cle gang, given its asso­ci­a­tion with the col­ors red and white. Another line allegedly read “sent pay­ment to angels for hit on tony76 and his 3 associates.”

In fact, Turner enu­mer­ated evi­dence found on Ulbricht’s seized machine that went far fur­ther in tying him to his alleged Dread Pirate Roberts iden­tity. When Ulbricht was arrested in the Glen Park library in San Fran­cisco, Turner said he was logged into the Silk Road under his Dread Pirate Roberts account and was look­ing at an admin­is­tra­tor con­trol page for the site as well as another page called “Mas­ter­mind” that showed Silk Road sales num­bers. Turner added that he was also logged into a chat pro­gram under the han­dle “dread,” and his Mac­book had the user­name “Frosty,” which he said was linked to Ulbricht’s email address in a post he’d made to a coding forum.

Remark­ably, Turner also described a jour­nal taken from Ulbricht’s hard drive that recounts the story of Silk Road’s cre­ation. He listed details like the fact that Ulbricht had ini­tially called the Silk Road “Under­ground Bro­kers,” but had later decided to change the name. The pros­e­cu­tors’ let­ter to the court includes this passage:

I began work­ing on a project that had been in my mind for over a year. I was call­ing it Under­ground Bro­kers, but even­tu­ally set­tled on Silk Road. The idea was to cre­ate a web­site where peo­ple could buy any­thing anony­mously, with no trail what­so­ever that could lead back to them.

At another point, he wrote that in 2011, he would be “cre­at­ing a year of pros­per­ity and power beyond what I have ever expe­ri­enced before,” and added that “Silk Road is going to become a phe­nom­e­non and at least one per­son will tell me about it, unknow­ing that I was its creator.”

The jour­nal, accord­ing to Turner’s account, also details how Ulbricht grew sev­eral kilos of psy­che­delic mush­rooms in a lab in an “off-the-grid” cabin to have an ini­tial prod­uct to sell on the Silk Road. In a spread­sheet found on Ulbricht’s com­puter, Turner said Ulbricht’s expenses and income were listed, includ­ing a line for “sr inc.” that he said listed its value at $104 million.

To sup­port the prosecution’s argu­ment Ulbricht rep­re­sented a flight risk, he noted that Ulbricht had taken steps towards apply­ing for cit­i­zen­ship in the island nation of Dominica, and had dis­cussed mov­ing there with friends on Facebook.

...

4. In another update, we learn that the suc­ces­sor to Silk Road–Sheep Marketplace–has van­ished tak­ing vast amounts of its users’ bit­coins with it. The users of Sheep Mar­ket­place, it would seem, have been fleeced!

“Anony­mous Online Mar­ket­place that Replaced Silk Road Van­ishes . . . Tak­ing $100 Mil­lion of Users’ Money With It” by Joshua Gard­ner; Daily Mail [UK]; 12/2/2013.

EXCERPT: A shady online mar­ket­place that anony­mously sold drugs and guns has vir­tu­ally dis­ap­peared, leav­ing ille­gal ven­dors believ­ing they’ve been scammed out of as much as $100 million.

Sheep Mar­ket­place emerged as the go-to replace­ment to Silk Road, a sim­i­lar bazaar shut­tered by the FBI in October.

Now users of the site, which oper­ated out­side the law to begin with and dealt only in anony­mous Bit­coins, fear it was a scam all along.

Shielded from author­i­ties and using spe­cial soft­ware to access the so-called ‘Deep Web’ site, buy­ers could find drugs, guns, and even hit men.
Buy­ers would put their Bit­coins into the mar­ket­place, where sell­ers would with­draw them, with all the trans­ac­tions mod­er­ated by the web­site.
Which is where the issue first arose.

In the days before the site shut down, ven­dors sud­denly found them­selves unable to access the Bit­coins tied up in the site’s wal­let.
As they com­plained, reports RT, they found their com­ments sud­denly yanked from the site’s forums.

Buy­ers also began to see sus­pi­cious things in the time lead­ing up to this pos­si­ble scam. Some ven­dors, though not all, began to list their drugs and other goods at prices far lower than ever before.

Now, many believe they were being bilked out of as many of their Bitcoins—a dif­fi­cult to trace form of online cur­rency cur­rently worth over $1,000 a piece—as pos­si­ble before tak­ing the money and running.

On Sun­day, vis­i­tors to the site found a note in place of the home­page that claimed a ven­dor called EBOOK101 had stolen from the site’s cache of Bitcoins.

‘This ven­dor found bug in sys­tem and stole 5400 BTC,’ reads the brief note. ‘Your money, our pro­vi­sions, all was stolen.’
How­ever, accord­ing to a post on Hacker News, a wal­let of far more Bit­coins has been traced back to the site.

Val­ued at $45 mil­lion, 39,918 in Bit­coins could now be in the hands of a those behind the site after scam­ming untold num­bers of hope­ful drug users and gun tot­ers out of their hard earned vir­tual cash.

Or per­haps even more.

Accord­ing to the Daily Dot, one Red­di­tor claims to have engaged in a vir­tual chase with Czech com­puter pro­gram­mer Tomáš Jiřikovsky, who user sheeproadreloaded2 claims is behind the site and has absconded with 96,000 bit­coins, or about $95 mil­lion dollars. . . . .

5. “Pter­rafractyl” informs us of another aspect of the vul­ner­a­bil­ity of Bit­coin: “One of the inter­est­ing aspects about the bit­coin phe­nom­ena is that the more peo­ple that start using bit­coin the greater the defla­tion­ary pres­sure on the value of the bit­coins. That’s because there’s a fixed max­i­mum of 21 mil­lion bit­coins that can ever exist, so the greater the demand for bit­coins the more each bit­coin will cost in other cur­ren­cies. With the Chi­nese mar­ket now warm­ing up to bit­coin, and all those new poten­tial users, we might see a fas­ci­nat­ing exam­ple of a hyper­de­fla­tion­ary vir­tual gold bub­ble.”

“Bit­coins Climb to Record, on Wider Accep­tance, China Trade” by Olga Kharif; Bloomberg News; 11/6/2013.

EXCERPT: Bitcoin’s price hit a record at $265 on the Bit­Stamp online exchange, dri­ven by wider accep­tance of the vir­tual currency.

The dig­i­tal money, which can be used to pay for goods and ser­vices on the Inter­net, has risen 20-fold so far this year, as trad­ing activ­ity has increased. Bit­coins were trad­ing at $251.36 apiece at 6:30 p.m. in New York on Bit­Stamp, one of the more active Web-based exchanges where Bit­coins are traded for dol­lars, euros and other currencies.

The rally comes a month after the clos­ing of the “Silk Road Hid­den Web­site,” where peo­ple could obtain drugs, guns and other illicit goods using Bit­coins. The vir­tual cur­rency lost a third of its value in the days after the web­site was shut down. Bit­coins are becom­ing increas­ingly pop­u­lar, par­tic­u­larly in China, said Ugo Egbunike, direc­tor of busi­ness devel­op­ment at Index­U­ni­verse, an index-fund researcher.

“I thought Silk Road is going to do some dam­age to the price,” Egbunike said. “But with BTC China buy­ing this up — they seem to have picked up the slack.”

BTC China is now the world’s largest Bit­coin exchange, Nicholas Colas, a Con­vergEx Group ana­lyst, wrote in a Nov. 5 report.

The vir­tual cur­rency exists as soft­ware that’s designed to be untrace­able, mak­ing it an attrac­tive ten­der for those seek­ing to trade anony­mously via the Web. There are about 30 trans­ac­tions per minute, at an aver­age amount of 16 Bit­coins, accord­ing to a report today by the Fed­eral Reserve Bank of Chicago. . . .

6. Fur­ther updat­ing the dis­cus­sion “Pter­rafractyl” informs us: It would be pretty hilar­i­ous if Bit­coin, a cur­rency cher­ished by haunted by hyper­in­fla­tion­ary fears, because an object les­son in the dan­gers of defla­tion. But it’s hard to see how this les­son will be avoided if Bit­coin ever really caught on. One of the main fea­tures of the the cur­rency is that it’s capped out at 21 mil­lion coins but you can divide each coin up into smaller and smaller pieces. There­fore, the rea­son­ing goes, Bit­coin has defeated the infla­tion beast while still main­tain­ing the scal­a­bil­ity required to han­dle the vol­ume of trans­ac­tions in vir­tu­ally any sized econ­omy! Rev­o­lu­tion awaits! And this is sort of true of Bit­coins but the vic­tory over infla­tion also comes at the cost of built-in defla­tion cor­re­lated to the growth of the Bit­coin econ­omy (imag­ine if dol­lars grew more expen­sive with the growth of the US econ­omy). So the more Bit­coin grows in pop­u­lar­ity the greater the defla­tion, the greater the pay­out to the ear­li­est bit­coin investors, and the greater the temp­ta­tion to keep hold­ing onto those Bit­coins.

“If You Believe in Bit­coin, You Should Never Buy Any­thing in Bit­coin” by Jon Weisen­thal; Business Insider; 11/10/2013.

EXCERPT: Many Bit­coin believ­ers think that the dig­i­tal cur­rency will one day become the pre-eminent cur­rency of the inter­net. They basi­cally see it becom­ing the internet’s ver­sion of gold in that it’s nat­u­rally scarce, inde­pen­dent, vir­tu­ally impos­si­ble to manip­u­late, and cru­cially suited for a dig­i­tal world when money ought to be able to be moved seam­lessly and at no cost.

Well here’s a tip: If you think that this is true, then never use Bit­coin in a transaction.

As more peo­ple have got­ten into Bit­coin, the price has gone way up.

Vir­tu­ally every­one who has ever bought any­thing in Bit­coin has been a huge loser, who would have been bet­ter suited just hold­ing onto the Bit­coins instead.

Remem­ber the pizza that was pur­chased for $25 in Bit­coins years back? Had the per­son not bought that pizza, it would be worth nearly $3 mil­lion. That pur­chase was a cat­a­strophic deci­sion, as that was prob­a­bly the most expen­sive pizza of all time.

Of course this presents a Catch-22. How can Bit­coin become a real cur­rency if it’s not used in trans­ac­tions? And why would any­one use it in trans­ac­tions if becom­ing a real cur­rency offers so much more price appre­ci­a­tion? This con­tra­dic­tion is a core prob­lem, and it’s a rea­son why it’s prob­a­bly doomed to fail (real cur­ren­cies don’t have this issue, since cen­tral banks pre­vent rapid price appre­ci­a­tion, and they man­date that the cur­rency be used). . . .

7. The per­ils of “Bit­coin­ery” were illus­trated when a Hong Kong Bit­coin mar­ket van­ished, tak­ing $5 mil­lion dol­lars with it!

Hong Kong Bit­coin Trad­ing Plat­form Van­ishes with Mil­lions” by Liu Jiayi; ZDNet; 11/12/2013.

EXCERPT: When ardent Chi­nese Bit­coin investors found that they could no longer access the web­site of Global Bond Lim­ited (GBL) in the early morn­ing of Octo­ber 26, it was already too late.

One investor under the pseu­do­nym of South Amer­i­can Vicuna orga­nized an online group for the los­ing traders and told IT Times on Mon­day that more than 30 mil­lion yuan from 500 investors, many of whom sold homes to get in the vir­tual cur­rency trade, could never be retrieved.

Accord­ing to the Vicuna, after the GBL’s web­site shut­down, it left only one mes­sage, say­ing that the site was com­pro­mised and investors who want to get back their invest­ment data shall trans­fer money to a des­ig­nated account. Now all con­tacts are not respond­ing, and the com­pany office in Hong Kong is as empty as the traders’ pockets.

GBL self-proclaimed that the local gov­ern­ment had approved vir­tual cur­rency exchange back on June 8, and lured buy­ers in with high lever­age rate and high yield. How­ever, the too-obvious-to-ignore trad­ing loop­hole in its trad­ing sys­tem raised con­cerns, but the “always-winning” traders were too obsessed to get out, accord­ing to Vicuna. . . .

8. Cor­nell Uni­ver­sity researchers have dis­cov­ered a fun­da­men­tal flaw in bit­coin that can per­mit a very small num­ber of users to take over the market.

“Bit­coin Vul­ner­a­bil­ity Could Allow Mali­cious Min­ers to Seize Con­trol”; MIT Tech­nol­ogy Review; 11/8/2013.

EXCERPT: One of Bitcoin’s big advan­tages is that it is decen­tralised with nobody in over­all con­trol. But now a sim­ple strat­egy has emerged that could allow almost any group to take over, say com­puter secu­rity analysts.

The dig­i­tal cur­rency Bit­coin is one of the zeit­geist phe­nom­ena of our time. Since 2009, it has grown from a dig­i­tal curios­ity to an online phe­nom­e­non. There are now some 11.5 mil­lion Bit­coins in cir­cu­la­tion and each one is worth over $300.

The Bit­coin sys­tem is specif­i­cally designed to over­come one of the seri­ous flaws of pre­vi­ous dig­i­tal currencies—the pos­si­bil­ity of dou­ble spend­ing; that two peo­ple could spend two copies of the same cur­rency at the same time. It is also decen­tralised so that no sin­gle organ­i­sa­tion or organ­ised group of indi­vid­u­als can con­trol the cur­rency and pre­vent cer­tain types of transactions.

But Bit­coin may not be quite as secure as every­body thought. Today, Ittay Eyal and Emin Gun Sirer at Cor­nell Uni­ver­sity in Ithaca say they’ve dis­cov­ered a flaw that allows any organ­ised group of Bit­coin min­ers to take over the cur­rency. And they say that some groups today are already big enough to do the job.

First some back­ground. Per­haps Bitcoin’s biggest advan­tage is its unique approach to pre­vent­ing dou­ble spend­ing. It does this by record­ing every trans­ac­tion in a sin­gle log known as a blockchain. An indi­vid­ual account can only spend a Bit­coin if the blockchain records that it owns the Bit­coin in the first place.

This log is pro­tected by cryp­top­uz­zles that can only be solved by large scale num­ber crunch­ing. When any­body solves such a puz­zle, they can record new trans­ac­tions and are rewarded with a fee in the form of new Bitcoins.

Hence the emer­gence of Bit­coin min­ers. These are peo­ple who devote com­put­ing power to solve cryp­top­uz­zles and are paid for their work in Bitcoins.

If you’re think­ing of a career as a Bit­coin miner, you’ll imme­di­ately run into a prob­lem. The cryp­top­uz­zles are so dif­fi­cult that the chances of solv­ing one by your­self is tiny. So Bit­coin min­ers work together in groups so that they can solve the prob­lems more quickly. If any one of them solves a puz­zle, they all share the proceeds.

There are lots of groups to join and there’s no advan­tage in join­ing one over another. The received wis­dom is that this keeps the min­ing decentralised.

But now Eyal and Sirer say that’s not true and have worked out how a self­ish group of min­ers could take over the cur­rency. “We show that the con­ven­tional wis­dom is wrong,” they say.

The trick is to mine for Bit­coins but to keep the results secret. This cre­ates a fork in the blockchain so that one half of the fork is pub­lic and the other half is secret.

The Bit­coin sys­tem has a way of resolv­ing these kinds of forks, which occur by acci­dent from time to time. It requires min­ers to join the longest fork. The trans­ac­tions in the other fork are then resub­mit­ted for resolution.

If the self­ish min­ers make their fork longer than the pub­lic one, it becomes the chosen chain.

The prob­lem is that the num­ber crunch­ing done on the fork that is aban­doned is wasted. So the self­ish min­ers end up get­ting more than their fair share of Bit­coins. This “enables pools of col­lud­ing min­ers that adopt it to earn rev­enues in excess of their min­ing power,” say Eyal and Sirer.

Hav­ing skewed the sys­tem in favour of self­ish min­ers, other min­ers see that they can make more Bit­coins by join­ing this group. The result is a tip­ping point in which the Bit­coin min­ing sys­tem sud­denly becomes dom­i­nated by a sin­gle group. And this group can exer­cise what­ever con­trol it likes over how trans­ac­tions are recorded.

Of course, self­ish min­ing only reaches a tip­ping point if the self­ish group con­sists of a cer­tain frac­tion of Bit­coin min­ers. Groups that are smaller than this can­not force the sys­tem to tip.

The key result that Eyal and Sirer have cal­cu­lated is that the tip­ping thresh­old is close to zero zero. So almost any group could adopt the self­ish min­ing strat­egy and end up con­trol­ling the system.

Eyal and Sirer have a solu­tion of sorts. This involves a chang­ing the sys­tem so that it chooses one fork over another at ran­dom (rather than choos­ing the loner one). When this choice is ran­dom, then it is harder for the self­ish min­ers to take control.

But not that much harder. Eyal and Sirer cal­cu­late that this raises the tip­ping thresh­old to groups that con­trol around 25 per cent of all Bit­coin min­ing. “Even with our pro­posed fix that raises the thresh­old to 25 per cent, the out­look is bleak: there already exist pools whose min­ing power exceeds the 25%,” they point out. . . . .

9. Not sur­pris­ingly, it turns out that Bit­coin is highly vul­ner­a­ble to self­ish “min­ing,” which could per­mit knowl­edge­able and enter­pris­ing male­fac­tors to cor­ner the market.

“In the Murky World of Bit­coin, Fraud is Quicker than the  Law” by Nathaniel Pop­per; The New York Times; 12/05/2013.

EXCERPT: It was an invi­ta­tion to a penny stock-style pump-and-dump scheme — only this one involved Bit­coin, the soar­ing, slightly scary vir­tual cur­rency that has beck­oned and bewil­dered peo­ple around the world.

While such bid ’em up, sell ’em off scams are shut down in the finan­cial mar­kets all the time, this one and other frauds involv­ing dig­i­tal money have gone unchecked. The rea­son, in no small part: Gov­ern­ment author­i­ties do not agree on which laws apply to Bit­coin — or even on what Bit­coin is.

The per­son behind the recent scheme, a trader known on Twit­ter as Fontas, said in a secure Inter­net chat that he oper­ated with lit­tle fear of a crackdown.

“For now, the lack of reg­u­la­tions allows every­thing to hap­pen,” Fontas said in the chat, where he ver­i­fied his con­trol of the Twit­ter account, which has thou­sands of fol­low­ers, but did not give his iden­tity. He added that Bit­coin and its users would ben­e­fit when some­one steps in to police this finan­cial wild west, and would stop his schemes when they do.

Chi­nese author­i­ties drew atten­tion to the issue on Thurs­day when they announced that they were bar­ring Chi­nese banks from mak­ing Bit­coin trans­ac­tions. The same day, the Bank of France issued its own warn­ing about the poten­tial risks. The news sent the price of Bit­coin tum­bling, but it quickly bounced back to near its all-time high of around $1,200. . . .

10. Bit­coin users have relied on the TOR net­work, to a con­sid­er­able extent. Because TOR is not as secure as advertsed, some have avoided using it. Now the Max Planck Insti­tute is research­ing the devel­op­ment of a more secure oper­a­tion, that might per­mit dras­tic pro­lif­er­a­tion of the types of ills that appear inher­ent in the bit­coin concept.

“Anonymity Net­work Tor Needs a Tune-Up to Pro­tect Users from Sur­veil­lance” by Toni Simonite; MIT Tech­nol­ogy Review; 10/25/2013.

EXCERPT: . . . . This month’s reports, based on doc­u­ments leaked by Edward Snow­den, didn’t say whether the NSA was doing so. But a 2012 pre­sen­ta­tion marked as based on mate­r­ial from 2007, released by the Guardian, and a 2006 NSA research report on Tor, released by the Wash­ing­ton Postdid men­tion such techniques.

Stevens Le Blond, a researcher at the Max Planck Insti­tute for Soft­ware Sys­tems in Kaiser­slautern, Ger­many, guesses that by now the NSA and equiv­a­lent agen­cies likely could use traf­fic cor­re­la­tion should they want to. “Since 2006, the aca­d­e­mic com­mu­nity has done much work on traf­fic analy­sis and has devel­oped attacks that are much more sophis­ti­cated than the ones described in this report.” Le Blond calls the poten­tial for attacks like those detailed by John­son “a big issue.”

Le Blond is work­ing on the design of an alter­na­tive anonymity net­work called Aqua, designed to pro­tect against traf­fic cor­re­la­tion. Traf­fic enter­ing and exit­ing an Aqua net­work is made to be indis­tin­guish­able through a mix­ture of care­ful tim­ing, and blend­ing in some fake traf­fic. How­ever, Aqua’s design is yet to be imple­mented in usable soft­ware and can so far only pro­tect file shar­ing rather than all types of Inter­net usage. . . . .

11. A sup­ple­men­tal story, not included in the orig­i­nal pro­gram, con­cerns Ron Paul’s enthu­si­as­tic views on bit­coin.

“Ron Paul:Bitcoin Could Destroy the Dol­lar” by Jose Pagliery; CNN­Money; 12/4/2013.

Imag­ine a world in which you can buy any­thing in secret. No banks. No fees. No wor­ries infla­tion will make today’s money worth less tomorrow.

The dig­i­tal cur­rency Bit­coin promises all these things. And while it’s far from achiev­ing any of them — its value is unsta­ble and it’s rarely used — some have high hopes.

“There will be alter­na­tives to the dol­lar, and this might be one of them,” said for­mer U.S. con­gress­man Ron Paul. If peo­ple start using bit­coins en masse, “it’ll go down in his­tory as the destroyer of the dol­lar,” Paul added.

It’s unlikely that Bit­coin would replace the dol­lar or other government-controlled cur­ren­cies. But it could serve as a kind of uni­ver­sal alter­na­tive cur­rency that is accepted every­where around the globe. Con­cerned about the dollar’s infla­tion? Just move your cash to bit­coins and use them to pay your bills instead. Tired of hefty credit card fees? Bit­coin allows trans­ac­tions that bypass banks. . . .

12. In another sup­ple­men­tal story, not included in the orig­i­nal pro­gram, we learn that the Euro­pean Cen­tral Bank views bit­coin as rooted fun­da­men­tally in the Lud­wig von Mises/Friedrich von Hayek the­o­ret­i­cal construct.

“ECB: ‘Roots Of Bit­coin Can Be Found In The Aus­trian School Of Eco­nom­ics’” by Jon Mato­nis; Forbes; 11/3/2012.

The ECB (Euro­pean Cen­tral Bank) has pro­duced the first offi­cial cen­tral bank study of the decen­tral­ized cryp­to­graphic money known as bit­coin, Vir­tual Cur­rency Schemes. Ignor­ing for a moment the ECB’s con­de­scend­ing and deroga­tory use of the vir­tual cur­rency phrase and scheme phrase, the study pro­duced at least one land­mark achievement.

In claim­ing that “The the­o­ret­i­cal roots of Bit­coin can be found in the Aus­trian school of eco­nom­ics,” the ECB for­ever linked Bit­coin to the proud eco­nomic her­itage of Menger, Mises, and Hayek as well as to Aus­trian busi­ness cycle the­ory. This recog­ni­tion is also a direct tes­ta­ment to the mon­e­tary the­ory work of Friedrich von Hayek who inspired many with his 1976 land­mark pub­li­ca­tion of Dena­tion­al­i­sa­tion of Money.

Bit­coin fully embod­ies the spirit of dena­tion­al­ized money as it seeks no author­ity for its con­tin­ued exis­tence and it rec­og­nizes no polit­i­cal bor­ders for its cir­cu­la­tion. Indeed accord­ing to the report, pro­po­nents see Bit­coin as “a good start­ing point to end the monop­oly cen­tral banks have in the issuance of money” and “inspired by the for­mer gold standard.”

Econ­o­mists from the 19th and mid-20th cen­turies can be for­given for not antic­i­pat­ing an inter­con­nected dig­i­tal realm like the Inter­net with its p2p dis­trib­uted archi­tec­ture, but mod­ern econ­o­mists can­not be. From their own con­clu­sions (on page 48) which inac­cu­rately lump Bit­coin together with Lin­den Dol­lars, here is what the modern-day econ­o­mists at the ECB are still not get­ting:

1. ECB con­cludes that if money cre­ation remains at a low level, bit­coin does not pose a risk to price sta­bil­ity. This is incor­rect on two lev­els. One, the cre­ation of new bit­coin is capped at 21 mil­lion with eight cur­rent dec­i­mal places so it grows through adop­tion and usage rather than mon­e­tary expan­sion. And two, as with gold, sil­ver, and other com­modi­ties hav­ing a mon­e­tary com­po­nent, price sta­bil­ity is a func­tion of the mar­ket not cen­tral planners;

2. ECB con­cludes that bit­coin can­not jeop­ar­dize finan­cial sta­bil­ity due to its low vol­ume and lim­ited con­nec­tion with the real econ­omy. Con­versely, bit­coin will tend to increase finan­cial sta­bil­ity and over­all sound­ness. Bitcoin’s con­nec­tion with the real econ­omy is only a con­cern for the reg­u­lated and taxed econ­omy, whereas bit­coin inde­pen­dently may thrive in the $10 tril­lion shadow or “orig­i­nal” econ­omy. Besides, with its repeated mar­ket inter­ven­tions, no one has done more to jeop­ar­dize finan­cial sta­bil­ity than the ECB itself;

3. ECB con­cludes that bit­coin is cur­rently not reg­u­lated and super­vised by any pub­lic author­ity. It would be more accu­rate to say that State-sponsored reg­u­la­tion is largely irrel­e­vant because of the inher­ent design prop­er­ties of a peer-to-peer dis­trib­uted com­put­ing sys­tem. But hap­pily, this is still a con­clu­sion that I can agree with and rec­om­mend that it remains the case;

4. ECB con­cludes that bit­coin could rep­re­sent a chal­lenge for pub­lic author­i­ties, given the legal uncer­tainty and poten­tial for per­form­ing ille­gal activ­i­ties. While pub­lic author­i­ties will cer­tainly be chal­lenged by the intro­duc­tion of a mon­e­tary unit that can­not be manip­u­lated for polit­i­cal pur­poses, bit­coin in some cases does have the abil­ity to pro­vide track­ing capa­bil­ity that far exceeds that of national cash or money sub­sti­tutes. What author­i­ties will find most trou­bling though, with bit­coin, is that money flows between indi­vid­u­als and busi­nesses will no longer be exploitable for pur­poses of unlim­ited iden­tity track­ing and uncon­sti­tu­tional ‘fish­ing expeditions’

13. We link a char­ac­ter­is­ti­cally impor­tant and detailed post by “Pter­rafractyl” on this subject.

14. In a com­ment, “Pter­rafractyl” updates, not­ing that the prob­a­bly myth­i­cal “Satoshi Nakamoto” is appar­ently the biggest bit­coin holder. This would make Ger­man Intel/Underground Reich the biggest holder, if our work­ing hypoth­e­sis pre­sented in FTR #760 is valid.

15. Another “Pter­rafractyl” com­ment sup­ports the work­ing hypoth­e­sis that “Satoshi Nakamoto” is a fic­ti­tious name for prob­a­ble Euro­pean elements.

16. Yet another “Pter­rafractyl” con­tri­bu­tion notes that con­cen­tra­tion of own­er­ship appears to be a fun­da­men­tal char­ac­ter­is­tic of bit­coin miners.

 

 

 


Discussion

5 comments for “FTR #764 Bit[coin]burg, Part 2, The Snowden-Inspired, Bitcoin-operated Online Murder Incorporated”

  1. Here’s an inter­est­ing fun-fact about the con­cen­tra­tion of power in the bit­coin min­ing mar­ket and the risk of “self­ish min­ing”:

    If you go here you can find a charge of the “hashrate dis­tri­b­u­tion” that shows the rel­a­tive amounts of the total hashes (hashes are cal­cu­lated as part of the min­ing process). Notice how two guilds, BTC Guild and GHash.IO, con­trol well over 50% of of the total min­ing pro­cess­ing power. Sit­u­a­tions like this are a huge poten­tial prob­lem for how bit­coin is sup­posed to work. But, in a way, this is a sym­bol of bitcoin’s poten­tial pop­ulism in that a guild con­sists of THOUSANDS of users all work­ing together. So at least when the BTC Guild and GHash.IO take over the min­ing mar­ket the pro­ceeds would be going to a large num­ber of peo­ple and not just some hand­ful of super-miners. Except it may not be quite that clean because, as of April of this year, the top 10 users in the BTC Guild accounted for half of the entire guild’s pro­cess­ing power and would there­fore get about half of BTC Guild’s the pro­ceeds and it’s unclear why a sit­u­a­tion like that that wouldn’t still be the case today.

    Posted by Pterrafractyl | December 18, 2013, 12:16 pm
  2. We won’t know until Christ­mas day, but odds are Santa won’t be deliv­er­ing all of the items on Ross Ulbricht’s wish list this year:

    The Reg­is­ter
    Ross Ulbricht: ‘Oi! Give me back my $34m in Silk Road Bit­coin booty’
    Claims asset seizure was ille­gal
    By Neil McAl­lis­ter, 24th Decem­ber 2013

    After his arrest in Octo­ber, 29-year-old Ross Ulbricht main­tains that he is not the Dread Pirate Roberts, mas­ter­mind of the online drugs mar­ket­place Silk Road. But he also says the Bit­coins the author­i­ties seized from Silk Road belong to him, and the gov­ern­ment should give them back.

    Since shut­ting down the secre­tive online shop, the FBI claims to have con­fis­cated elec­tronic wal­lets con­tain­ing more than 173,000 Bit­coins from Silk Road – an amount worth about $33.6m in real-world currency.

    The author­i­ties claim these funds are the pro­ceeds of a crim­i­nal con­spir­acy involv­ing drugs traf­fick­ing and money laun­der­ing. Ulbricht, on the other hand, says that’s got noth­ing to do with him – yet the New York Post reports that he has also filed papers with a fed­eral court in New York City demand­ing that the seized Bit­coins be returned to him.

    In a nota­rized state­ment dated Decem­ber 11, Ulbricht report­edly says he “has an inter­est as owner” in the seized funds and argues that as a vir­tual cur­rency, Bit­coins are “not sub­ject to seizure” under fed­eral for­fei­ture laws.

    It’s a neat argu­ment. Since the Silk Road raid was the largest Bit­coin for­fei­ture in US his­tory, the courts lit­er­ally have never heard a case quite like it. It’s pos­si­ble that a judge could rule that Bit­coins don’t count as the kind of prop­erty that can be seized in a crim­i­nal prosecution.

    It’s unlikely, though. In past cases, courts have seen fit for author­i­ties to seize every­thing from cash to cars, boats, houses, art­work, and even intel­lec­tual prop­erty such as inter­net domain names. Just the fact that Ulbricht wants the Bit­coins back would seem to estab­lish that they have value and are there­fore fair game for forfeiture.

    Still, Ulbricht could cer­tainly use the money. Although he was rep­re­sented by a pub­lic defender in his first few court appear­ances, he has since retained the ser­vices of New York attor­ney Joshua Dra­tel, and his case looks like it could be a long one. Among other offenses, he is charged with com­mis­sion­ing the con­tract killings of as many as six peo­ple (although there is no evi­dence that any­one was actu­ally killed).

    ...

    Posted by Pterrafractyl | December 24, 2013, 7:01 pm
  3. One of the yet to be answered ques­tions regard­ing the future of bit­coin is what hap­pens when one of the large stake­hold­ers decides to pub­licly cash out? It turns out the FBI is giv­ing us a mini-preview of such an event: The FBI just got clear­ance to auc­tion off nearly 30k bit­coins of the 144k they seized from Ross Ulbricht which means the bit­coin mar­ket has a bit of a stress-test com­ing up:

    ArsTech­nica
    Feds ready to auc­tion off $25 mil­lion in Silk Road Bit­coin
    Funds seized from alleged Silk Road founder Ross Ulbricht are still in contention.

    by Megan Geuss — Jan 16 2014, 8:15pm CST

    In a press release on Thurs­day, the US Attorney’s office for the South­ern Dis­trict of New York announced the for­fei­ture of 29,655 bit­coins that were seized from a Silk Road server dur­ing a raid in Octo­ber. At cur­rent exchange rates, that purse is worth about $25 mil­lion, up from $3.5 to 4 mil­lion when it was seized. The US Attorney’s office also announced that the Silk Road web­site will be for­feited along with the bitcoins.

    A spokesper­son for the US Attorney’s office told Forbes that the bit­coins will be auc­tioned off, although he could not say when the auc­tion will take place. It will be the fed­eral government’s first-ever auc­tion of bit­coins, and as Forbes points out, there is no legally cer­ti­fied US Bit­coin exchange, so con­vert­ing the stash into cash first will likely not be an option.

    Ross Ulbricht, who allegedly went by the name of Dread Pirate Roberts and who is sus­pected of being the mas­ter­mind behind the Silk Road, has been in cus­tody since fed­eral agents arrested him at the Glen Park branch of the San Fran­cisco Pub­lic Library three months ago. That day, feds also seized a cache of 144,000 bit­coins that belonged to Ulbricht per­son­ally. While the gov­ern­ment is seek­ing to auc­tion off those bit­coins as well, Ulbricht is con­test­ing the for­fei­ture in civil court.

    Just two days after the Silk Road and its assets were seized, Bit­coin enthu­si­asts dis­cov­ered the wal­let. At the time, it con­tained almost 27,000 bit­coins seized from the Silk Road that were being held by the fed­eral gov­ern­ment. As Bit­coin trans­ac­tions are pub­lic, sev­eral peo­ple began trans­fer­ring very small amounts of bit­coin into the fed­er­ally held wal­let so as to send a mes­sage to the author­i­ties in the “pub­lic field” of the trans­ac­tion. Some mes­sages included “Pub­lic Note: I THOUGHT OF SNIFFING FARTS WHILST SENDING THESE BITCOINS TO YOU” as well as “Pub­lic Note: hey com­puter geek, who con­trol this address. ‘Ross Ulbricht’ is not the bad guy, you are a bad guy. Please open your eyes, dont be brain­washed, and think your self!!!” Those micro-transactions will also be included in the auc­tion, it seems.

    ...

    So peo­ple vol­un­tar­ily send bit­coins to the FBI just to send the agency angry mes­sages in the transaction’s “pub­lic field” and make that mes­sage part of the bit­coin pub­lic record? It looks like we just dis­cov­ered how gov­ern­ments are going to fund them­selves after crypto-currencies have replaced cash and trans­ac­tions are no longer tax­able. Just think of how many angry revenue-enhancing bitcoin-messages gov­ern­ment agen­cies will receive once crypto-currency-agorism adds its force to the dom­i­nant Norquist-agorism that’s already has been Starv­ing the Beast for a gen­er­a­tion. Thanks to bit­coin, anti-government hate-mail can finance the gov­ern­ment. Hello sur­pluses!

    Posted by Pterrafractyl | January 18, 2014, 10:12 pm
  4. Cody Wil­son, the guy brought us the 3D-printable gun, has a new plan to lib­er­ate human­ity from the New World Order: The Dark Wal­let:

    Forbes
    Dark Wal­let Aims To Be The Anarchist’s Bit­coin App Of Choice

    Andy Green­berg, Forbes Staff

    Bit­coin may be the world’s first decen­tral­ized, state­less dig­i­tal cur­rency. But in the eyes of at least one group of anar­chists, the Bit­coin com­mu­nity has been get­ting a lit­tle too cozy with the estab­lish­ment. And they want to bring the cryp­tocur­rency back to its anti-regulatory roots.

    On Thurs­day a group of lib­er­tar­ian Bit­coin devel­op­ers call­ing them­selves Unsys­tem launched a crowd­fund­ing cam­paign to raise money to code a new Bit­coin “wal­let” they’re call­ing Dark Wal­let. Like any Bit­coin wal­let, Dark Wal­let will store a user’s Bit­coins and inter­act with the Bit­coin net­work, allow­ing the owner to spend and receive the cur­rency. But unlike other wal­lets, Dark Wal­let is designed specif­i­cally to pre­serve and even enhance the prop­er­ties of Bit­coin that make it a poten­tially anony­mous, tough-to-trace coin of the Inter­net underground.

    “If Bit­coin rep­re­sents any­thing to us, it’s the abil­ity to for­bid the gov­ern­ment,” says Cody Wil­son, Dark Wallet’s project man­ager. (If Wilson’s name sounds famil­iar, he’s also the cre­ator of the world’s first fully 3D-printable gun, another project designed to show how tech­nol­ogy can under­mine gov­ern­ment reg­u­la­tion.) “Dark­Wal­let is your way of lock­ing out the State, flip­ping the chan­nel to one beyond observation.”

    ...

    Bit­coin has already served as a pow­er­ful tool for the so-called “dark web”– the law­less, anonymity-enabled cor­ners of the Inter­net alluded to in some parts of Wilson’s video. Bitcoin’s most recent moment in the spot­light came with the shut­down of the Silk Road, the Bitcoin-based anony­mous online mar­ket­place for ille­gal drugs that gen­er­ated hun­dreds of mil­lions of dol­lars worth of sales in its 2.5 years online; The FBI seized another $28.5 mil­lion in stored bit­coins believed to belong to the site’s now-arrested alleged owner 29-year-old Ross Ulbricht just last week.

    Bit­coin enabled the Silk Road by act­ing as a trust­wor­thy form of pay­ment that didn’t require any real names. Though all Bit­coin trans­ac­tions are pub­licly vis­i­ble within the Bit­coin net­work, they’re only linked to pseu­do­nyms, and users can anonymize the coins fur­ther by send­ing them through a Bit­coin laun­dry that mixes up users’ bit­coins with those of other users to make them harder to trace; Silk Road auto­mat­i­cally mixed the coins of all its users.

    But Dark Wal­let would go fur­ther towards mak­ing Bit­coin a truly untrace­able form of dig­i­tal cash. The wal­let cre­ators plan to include a fea­ture called “trust­less mix­ing” accord­ing to Amir Taaki, one of Unsystem’s founders and a long­time Bit­coin devel­oper. Rather than hand a user’s bit­coins off to a typ­i­cal Bit­coin laun­dry ser­vice that must be trusted to send back another more anony­mous bit­coin, trust­less mix­ing bun­dles together a col­lec­tion of Bit­coin trans­ac­tions and simul­ta­ne­ously sends them to new Bit­coin addresses that are also con­trolled by the same users; Since no one watch­ing the trans­ac­tions can see whose coins went where, the tech­nique erases any ownership-identifying traces on the coins, while also avoid­ing the prob­lem of trust­ing a third-party ser­vice to suf­fi­ciently mix the coins and not to sim­ply steal them.

    The soft­ware, which is intended to be a browser plug-in for Chrome and Fire­fox, would auto­mat­i­cally coor­di­nate the process with other users over the anonymity ser­vice Tor or sim­i­lar ser­vices to fur­ther hide users’ iden­ti­ties. The process could even be reduced to an anonymiz­ing “tog­gle switch” that would enable users to laun­der their coins on com­mand, says Taaki. “You buy the bit­coins in a nor­mal exchange, switch this on, and it slowly anonymizes them for you in the back­ground,” he says.

    Dark Wal­let would also aim to solve another poten­tial pri­vacy prob­lem with Bit­coin that arises from wal­let soft­ware “announc­ing” trans­ac­tions to the Bit­coin net­work from a tell-tale IP address. By broad­cast­ing the mes­sages from a proxy address or over the Tor net­work, Taaki says that Dark Wal­let could pre­vent any­one from track­ing a user based on those trans­ac­tion announcements.

    Wil­son and Taaki see Dark Wal­let in part as an answer to Bitcoin’s increas­ing adop­tion by users and devel­op­ers with more main­stream, government-friendly views. In the video above and in their writeup of Dark Wal­let on Unsystem’s web­site, they directly attack the Bit­coin Foun­da­tion, a non-profit group that has sought to engage with gov­ern­ments and use lob­by­ing tac­tics to com­pro­mise on poten­tial reg­u­la­tion of Bit­coin. “Many promi­nent Bit­coin devel­op­ers are actively in col­lu­sion with mem­bers of law enforce­ment and seek­ing approval from gov­ern­ment leg­is­la­tors,” reads one por­tion of the Dark Wal­let text. “We believe this is not in Bit­coin user’s self inter­est, and instead serves wealthy busi­ness inter­ests that make up the self-titled Bit­coin Foundation.”

    ...

    Posted by Pterrafractyl | January 21, 2014, 8:16 pm
  5. Cal­i­for­nia and New York appear to be rac­ing to lay down bit­coin reg­u­la­tions and become bit­coin busi­ness hubs, thus suck­ing away bit­coin enthu­si­asts from the rest of the coun­try. Brain-drains aren’t all bad:

    Bloomberg
    New York Vying With Cal­i­for­nia to Write Bit­coin Rules
    By Carter Dougherty Jan 27, 2014 7:18 PM CT

    Cal­i­for­nia and New York, home to Sil­i­con Val­ley and Wall Street, are prepar­ing to write rules of the road for entre­pre­neurs dri­ving a surge of inter­est in Bit­coin and other vir­tual currencies.

    The out­come could deter­mine how big a threat Bit­coin poses to estab­lished pay­ment com­pa­nies includ­ing JPMor­gan Chase & Co. and Visa Inc. as well as where ven­ture cap­i­tal and tal­ent con­verge to form a geo­graphic hub for U.S. startups.

    “If a state becomes Bitcoin-friendly, it will see a huge increase in com­pa­nies,” said Adam Ettinger, an attor­ney with San Francisco-based Strate­gic Coun­sel Corp., which advises tech­nol­ogy investors. “That will mean the bright­est minds work­ing on some of the most inno­v­a­tive pay­ment tech­nol­ogy we’ve seen in awhile.”

    Bit­coin, a five-year-old pro­to­col for issu­ing and mov­ing money across the Inter­net, has gained trac­tion with mer­chants sell­ing every­thing from Sacra­mento Kings bas­ket­ball tick­ets to kitchen mix­ers on Overstock.com. Ven­ture cap­i­tal­ists see promise in it as an alter­na­tive to the global pay­ment sys­tem cur­rently dom­i­nated by com­pa­nies includ­ing Visa, West­ern Union Co. (WU) and large banks.

    Legal Sta­tus

    Bitcoin’s legal sta­tus has been uncer­tain. In March, the U.S. Trea­sury Department’s Finan­cial Crimes Enforce­ment Net­work, which polices money laun­der­ing, said virtual-currency firms may be reg­u­lated as money trans­mit­ters. The move set off the race among states, which license such firms, to deter­mine if and how their laws apply.

    Reg­u­la­tors and law enforcers have expressed con­cern that Bit­coin could facil­i­tate money laun­der­ing and sales of drugs and other ille­gal goods.

    Fed­eral pros­e­cu­tors in New York today indicted the head of a dig­i­tal cur­rency exchange com­pany on charges of con­spir­ing to laun­der more than $1 mil­lion in Bit­coin tied to Silk Road, an online drug bazaar. Char­lie Shrem, the chief exec­u­tive offi­cer of BitIn­stant, is also the vice chair­man of the Bit­coin Foun­da­tion, the group that over­sees the currency’s soft­ware pro­to­cols and lob­bies reg­u­la­tors. In Octo­ber, U.S. author­i­ties shut down Silk Road and arrested its oper­a­tor for host­ing ille­gal transactions.

    Money Trans­mit­ters

    Stephanie New­berg, pres­i­dent of the Money Trans­mit­ter Reg­u­la­tors Asso­ci­a­tion, a group of state offi­cials, said Bit­coin will dom­i­nate her association’s agenda pre­cisely because its legal sta­tus is unclear.

    “Some states have statutes that are broad enough to do it imme­di­ately,” said New­berg, who is also deputy com­mis­sioner of bank­ing in Texas. “Other states don’t. It’s a state-by-state question.”

    JPMor­gan Chief Exec­u­tive Offi­cer Jamie Dimon has said he expects that Bit­coin will be less of a threat once reg­u­la­tors intervene.

    Bit­coin “will even­tu­ally be made as a pay­ment sys­tem, I think, to fol­low the same stan­dards as the other pay­ment sys­tems, and that will prob­a­bly be the end of them,” Dimon said Jan. 23 in an inter­view on CNBC.

    ...

    Dif­fer­ent Approaches

    Cal­i­for­nia and New York have so far adopted dif­fer­ent approaches. New York’s super­in­ten­dent of finan­cial ser­vices, Ben­jamin Lawsky, moved pub­licly against Bit­coin star­tups last year, issu­ing sub­poe­nas for infor­ma­tion on their busi­ness, a move the com­pa­nies com­plain has forced them to spend seed cap­i­tal on lawyers. Tomor­row Lawsky is sched­uled to con­vene two days of pub­lic hear­ings to con­sider whether New York should estab­lish what he has called a “BitLicense.”

    By con­trast, offi­cials in Cal­i­for­nia have been qui­etly meet­ing with lawyers and com­pli­ance experts for advice before mak­ing pub­lic moves, accord­ing to a per­son advis­ing Bit­coin com­pa­nies who asked not to be iden­ti­fied because the meet­ings were private.

    Patrick Murck, gen­eral coun­sel of the Seattle-based Bit­coin Foun­da­tion, a group that pro­motes the use of dig­i­tal cur­rency, point­edly com­pli­mented Cal­i­for­nia on its approach dur­ing a U.S. con­gres­sional hearing.

    ...

    Legal ‘Gap’

    Marco San­tori, a lawyer with Nesenoff & Mil­tenberg LLP in New York who advises virtual-currency star­tups, said com­pa­nies that receive money from a cus­tomer to con­vert into Bit­coin may not fall under that law, since the funds aren’t being trans­mit­ted. Since “money” isn’t defined in the law, New York may not have juris­dic­tion, he said.

    “These laws are nowhere near what they’d need to be to reg­u­late Bit­coin busi­nesses,” San­tori said.

    As a result, Lawsky’s depart­ment is con­sid­er­ing use of its “gap author­ity” to reg­u­late vir­tual cur­ren­cies, accord­ing to a per­son briefed on the dis­cus­sions. This author­ity, included in the law that cre­ated the depart­ment in 2011, allows it to reg­u­late finan­cial ser­vices not oth­er­wise cov­ered by state law.

    Com­pa­nies includ­ing New York-based Union Square Ven­tures have met with staff for Sen­a­tor Charles Schumer, a New York Demo­c­rat, to press their case for cre­at­ing a Bitcoin-friendly reg­u­la­tory envi­ron­ment, accord­ing to a per­son famil­iar with the dis­cus­sions. Union Square, headed by Fred Wil­son, con­tributed $51,500 to Demo­c­ra­tic can­di­dates and orga­ni­za­tions in the 2012 elec­tion cycle, accord­ing to the Cen­ter for Respon­sive Politics.

    Lawsky, who was pre­vi­ously chief coun­sel to Schumer, has said he is mind­ful of the effects of reg­u­la­tion on what could be an emerg­ing industry.

    “We want New York to be a place where these com­pa­nies are com­ing and thriv­ing, and at the same time, put in the rules of the road and pro­tec­tions to ensure we don’t have money laun­der­ing,” Lawsky told CNBC on Jan. 10.

    It’s for­tu­nate that the bit­coin brain drain is swirling into states with large pop­u­la­tions. Smaller states that become bit­coin hubs might not be states for much longer.

    Posted by Pterrafractyl | January 30, 2014, 10:30 am

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