Blockchain Bites: Satoshi’s Sword of Damocles

clicks | 14 days ago | comments: discuss | tags: bitcoin cryptocurrency

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Yesterday, some of the earliest mined bitcoin moved after more than a decade of dormancy. Whale Alert – a popular, mostly-automated Twitter account that tracks major crypto transactions – broadcasted the message across the cryptoverse, saying 40 coins mined in the first month of the network’s operation had transferred from a “possible #Satoshi owned wallet,” referring to Bitcoin’s long silent creator, Satoshi Nakamoto. This unfounded connection – based on the age of the bitcoin, and the fact that they had never moved – caused a minor market stir. You’re reading Blockchain Bites , the daily roundup of the most pivotal stories in blockchain and crypto news, and why they’re significant. You can subscribe to this and all of CoinDesk’s newsletters here . Since then, blockchain archeologists and Bitcoin sleuths have poked holes in the theory that the coins are Nakamoto’s, who, as far as we can tell, has never moved a single satoshi from the hoard of bitcoin he mined in the network’s early days. (Except for a test transaction sent to Hal Finney.) Determining the sender of these coins is impossible, for now. But the occurrence is a moment to reflect on some important insights about the Bitcoin community, infrastructure and market. Of the approximately 18.5 million coins already mined, about 2 million are dormant – either unspent because the keys have been lost, or for other personal or technological reasons. Estimates on the higher side assume as many as 4 million bitcoin are “ lost forever .” Nakamoto once referred to lost coins as a “ donation ” to the network. The Bitcoin protocol hardcaps the total supply of Bitcoin at 21 million coins, but knowing that some coins have been “donated” has led some researchers to develop a new metric: Realized Capitalization . This measure discounts Bitcoin’s total supply to account for lost or otherwise inaccessible coins. When previously inert coins move – be they Nakamoto’s or not – this should challenge the assumption that coins in deep storage are out of circulation. Unless they’ve been tossed in the bin . Therefore, a price adjustment is logical. A partial cause for yesterday’s price movements were fears that Nakamoto has returned, and could potentially dump billions of dollars worth of bitcoin on the market. Nakamoto’s seemingly altruistic, or at the very least, mysterious, “donation” to the Bitcoin community hangs over the market like the sword of Damocles. Like Nakamoto’s motivations, it’s an open question as to how many coins he holds. In 2013, Sergio Lerner wrote a blog post estimating the Satoshi stockpile to be around 1 million bitcoin. Years later, derivatives exchange BitMEX recounted and found the hoard to be in the neighborhood of 700,000 coins. Both estimates look at a technical detail called the nonce value to determine what blocks Nakamoto was likely to have mined. It’s analysis of this same block feature that leads many to assume yesterday’s transaction did not belong to Nakamoto, but one of the dozens of other miners assumed to be live on the network at the time. Curiously, when these bitcoin were mined, bitcoin itself had no market value. The block reward is now worth just shy of half a million dollars. There were also no CoinJoins or SegWit code updates, modern wallet features yesterday’s transaction utilized, nor a host of blockchain analyzers watching where these coins will jump to next. How far Bitcoin has come! Castle Island Venture’s Nic Carter, in conversation with Moneymail developer Lawson Baker, said the biggest clue into the identity of the owner of the coins could come in a couple of days. Just look at the OP_RETURN field, a place to encode permanent messages on the Bitcoin blockchain, Carter said. We’ll be watching. Media Diet Red Flags: Citizen, the mobile application that alerts its more than two million users to crime and disaster around them, has launched a contact tracing functionality, called SafeTrace, in the fight against the coronavirus. The application, which makes use of GPS and Bluetooth proximity tracking and stores data in a centralized manner, has raised alarms among privacy experts and technologists . “GPS data tracking a person’s movements is very revealing, and difficult to effectively anonymize,” said Ángel Díaz, counsel at the Liberty and National Security Program of The Brennan Center for Justice in New York. Brazil Banks Investigated: On Wednesday, Brazil’s antitrust watchdog, the Administrative Council for Economic Defense (CADE), voted to continue its investigation of banks who denied financial services to crypto brokers in alleged violation of Brazilian competition law. CADE’s nearly two-year-old inquiry into Itaú Unibanco, Banco do Brasil, Santander, Inter, Bradesco and Sicredi now returns to the General Superintendency for further review. Those six banks, which comprise nearly 80% of Brazil’s deposit market share, could face eventual sanctions and even be forced to provide financial services to crypto brokers. Geograp...