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The fate of Bitcoin






Some view bitcoins as like lottery tickets. They will probably go to zero, but they just might be worth a million, and they've certainly hit a thousand and will again. Everybody has a different answer of when you should sell. One common philosophy if you hold a lot of something speculative, is to sell at different times to reduce risk. When you might be at a peak, sell a large block -- up to half. If it goes up, you still have the other half for superb reward. If it plummets, you still got your FU money and did well. Opinions vary, but I think that $1K might be one of those points. $100 was also one (though hindsight tells you otherwise now.)

You can't sell, but you can give

If you're Satoshi, even if you felt that now is the time, you can't sell. It is arguable that it's quite likely that a large portion of that fortune can never be sold. But you can give. Donation of a large block to charity, done overtly in public, might not cause the panic selling. So it seems rational to give away the portion that probably can never be sold.

Others have faced this issue. If Bill Gates sold his stake in Microsoft, even after leaving the company, it would seriously depress the price. But he is able to donate to his foundation. The foundation has the option to hold or sell, though most foundations tend to sell upon donation.

Gifts to charity can be done in a couple of ways. They can be direct, or you can endow a foundation to give the money out over time. People with large gifts tend to make their own foundation, but for smaller donors, there exist many big charities that will run a "Donor Advised Fund." In a DAF, you give the money to the charity, and it is now theirs, but they make a non-binding promise that they will give out grants with it as you advise. It's non-binding, but if they didn't keep to the promise, donors would desert them.

Gifts to charity have big tax consequences, though I don't know what country Satoshi is in. The tax status of bitcoins is still uncertain. Are they currency? Are they a security? Are they just a collectible? Whatever the case, you probably owe tax if you convert them to fiat currency, with a basis value either of zero or the cost of mining. But if you give appreciated things to a charity you get a double tax deduction.

  1. You do not have to pay the capital gains tax on the sale of the security, because you didn't sell it.
  2. You get a deduction for the value of the security on the day you gave it. (Up to 50% of your adjusted gross income.)

This means that if you have a lot of bitcoins, and you think the price is decent, you should consider giving away coins up to half of your income. If your income is entirely from selling bitcoins, you will want to give away one coin for every 2 you sell, plus a bit more for your other income. And Satoshi has a lot of bitcoins.

Creating a foundation

A foundation normally makes sense when you have a year of huge gains and you want a big deduction, but are not ready to do all your giving. So you hold it in a foundation. You also hire staff to manage the grants. I don't know if it would be possible to create a whole foundation which is legally bound to obey orders that come in anonymously, signed by a special private key. It would be an interesting challenge for the lawyers. This is why the Donor Advised Fund might be more interesting. Since the promise is non-binding, I believe you could find one willing to take "advice" on grants via digitally signed messages.

Of course, to get these deductions you probably need to let the tax authorities know what you're doing, at least if they audit you. But you will also get that attention if you sell your bitcoins for yourself, and take the huge gain. If they're smart enough, and they look, they will see you are Satoshi. They are bound not to reveal it, but you can probably expect it might leak out to spies and others, if they don't already know. It's a tough call.

Who to give to?

Well, that's up to you. But it seems obvious to me that this foundation might be well served supporting things that made Bitcoin possible, like free and open source software, and cryptographic research. Even if Bitcoin goes down in flames, it could leave behind as a legacy the funding of hundreds of millions of dollars of great software for the world. And yes, my own charity, the EFF might be a candidate, though you might be a bit soured because of how we temporarily stopped taking BTC donations in 2011 when there were more legal questions around it. Our approach -- to preserve the foundation -- is to be the lawyer rather than the defendant in the legal battles we get involved in, but we shifted back and we've always been very grateful to all our supporters who donate BTC to us. There are many other great charities who could benefit, both related to Bitcoin and completely unrelated. The choice, as reward for having created Bitcoin, is entirely yours.

I also suggested in one of my earlier articles that incentive competitions could be a good use of the coins. "20,000 BTC for whoever cures a disease" or does something similar. I can hook you up with my friends at the X-Prize if you like that idea. Or perhaps create your own version of a recurring prize like the Nobel prize (The Satoshi prize) in cryptography or anything you like.

If bitcoins soar to astronomical heights, you'll have even more resources both for yourself and the causes you support, and you won't be hindered much by what you donated early on. On the other hand, if bitcoins collapse, it will be a great shame to have missed this opportunity to better the world even more than you've already done. The truth is, doing these donations might even acclimatize the marketplace to you using your bitcoins. You can give away those very earliest coins which are certain to belong to you, and sell some of the later coins for your own purposes.

Put out the word: Tell all open source projects and tech charities to be sure they have a bitcoin address on their pages, and can be accessed by TOR because they might win their lottery. It would cause a lot of folks to take bitcoin who don't already, and get the world ready for your donations. Warn the world you will also sell, more modestly, as you donate. For small open source projects without charity status, there will be no deductions, so a foundation makes sense there too.



Where does this estimate come from? The most credible estimate I know of comes from where his analysis estimates an upper bound of 980k or so.


Interestingly, Jed McCaleb (a name I'm sure many Bitcoiners will be familiar with) very recently gave something like $1m worth of the Ripple XRP currency to MIRI:

Well, 980k is pretty close to a million coins. Either way it's significant. If I were Satoshi, I might have tried to hide my later coins. No way to hide the very earliest coins, but as other miners joined, it becomes easier, and in fact, in hindsight a good plan would have been to deliberately make internal transactions on those coins to privately owned addresses to look like they were coins from other miners that quickly entered commerce. Perhaps this was done, perhaps not.

However, all I said applies to a fortune of many hundreds of thousands of bitcoins. It can't all be sold, it can't all be exchanged for any successor currency, so giving it to charity is the best available use of it.

As far as anyone can tell, none of the early coins that are thought to be Satoshi's have moved yet. This is very surprising. Why didn't he sell any when they were worth $100? He could have made many tens of millions of dollars even at that price. It seems like a ludicrous risk to wait for the price to climb even higher. Yet that seems to be what he's doing.

So - is he just a very high stakes gambler, waiting for the price to go all the way to $100,000 per coin before cashing out? Or is he committed to staying away from the project for some kind of extremist ideological reasons? That seems implausible, but why isn't he cashing in? Another possibility is that he's unable to spend the coins because he's incapacitated in some way, or he's dead.

Whatever the reasons, it's looking more and more like he's not coming back to spend those coins.

Analysis of what coins belong to Satoshi has in fact often included the fact that they are unspent. So that's a bad metric because she might have spent some coins and thus people decide they are not in her pool.

Satoshi will have many coins. The ones in the earliest blocks are well known to be hers. Spending those is almost impossible (especially now) because it would be a sign to many others that it's time to sell, if the creator of the system is selling. She'll also have coins mined much later, possibly even on other mining equipment, which are less likely to be judged as hers, and far less certain of being so if they are. People are less likely to panic if blocks less likely to be Satoshi's are traded.

So Satoshi should pick a threshold and start selling the ones that look least likely, but also, I am recommending, giving away the blocks that seem most likely.

If she lost the blocks, that would be a great shame, I guess. It seems unlikely for a person well skilled in using systems, though not impossible. But there are much simpler explanations for he silence. She certainly cares a great deal about bitcoin, and put a lot of work into it. Now that Bitcoin is mainstream, Satoshi can participate in the discussion under other identities, including real identities, and would only need to speak with the voice of Satoshi if pushing for something fairly radical, like getting majority agreement on changes to the algorithm etc.

Let me add another reason for not selling the coins. All who sell bitcoins to anything but a fully knowledgeable buyer are taking a modest legal risk, because of Bitcoin's uncertain legal status. You may judge it to be a small risk, but it is probably the greatest for Satoshi, because if the law wants to make an example of somebody, it would probably be Satoshi.

As long as no coins are sold, it is very hard to argue Satoshi has done anything illegal. She's just described a protocol, written papers and done some mining. Selling for dollars changes the whole game. Is bitcoin a currency? If so, it might run afoul of laws giving governments a monopoly on making currency that exist in some places. Is it a security? If so, it's very easy to run afoul of the law selling securities that have nothing behind them except the faith other people have that they can be spent elsewhere. A fully informed buyer (like, say, the Winklevoss brothers) might be safe to sell to, but what about the many buying in who really don't understand what it is they are buying? If it collapses, you can bet they, and regulators might come calling.

I'm not saying these doctrines are valid, but I am saying they are something that might be worth considering, especially if you are Satoshi. Look at how an outsider might view Bitcoin: Create a bizarre system where people think they can buy ownership in magic numbers when nothing backs them. Convince the that title to the magic numbers is really valuable. Sell them for lots of money. Later -- perhaps as a result of these very sales -- the price collapses. You have the cash and they have a record in a ledger that no longer means anything. It's certainly possible that some financial regulators could see it in such a simplistic (and malevolent looking) way.

The rest of us understand this is an experiment, and a breakthrough technology. And as far as I know, any instances of somebody actually trying to defraud are very rare, if they exist at all.

The statement by the FBI, when arresting Dread Pirate Roberts, that they did not feel bitcoin was illegal, though Silk Road obviously was, is quite a boon, and shows how people can be trading bitcoins in good faith. But can you be 100% sure? I would judge, not yet, though this is not legal advice, since I am not a lawyer and can't give that.

People will slowly lose interest in Bitcoin as they discover the difficulty of validating transactions. This is a fundamental effect of using Merkle Trees for the blockchain. Traditional money relies on an enormous maze of accounting regulations and banking regulations to maintain integrity and insure that when you transfer some amount of money to someone else, they receive the same amount of money that you sent. Bitcoin relies on a "simple" algorithm that gets slower and slower with every transaction, and slows down faster than the number of transactions grows (technically, by N log N). For scalability, money needs to close with complexity 1, or at worst N.

In order to bypass this limitation, alternative validation methods will appear (think of Underwriters Laboratories or JD Power, or even the Payment Card Industry
Security Standards Council), functioning as shadow banking
regulators. Without a government-backed FDIC or FSLIC or SIPC, everyone but
the craziest investors will stay clear. Then when bitcoin exchanges fail and online wallet
managers are breached, angry investors will look for someone to sue, and the legal
battles will be extended and spectacular.

I think some of these things may come to pass, and result in improvements for the successors to bitcoin. Once the blockchain has done several blocks, your transaction is pretty validated. You may view an hour as slow compared to say, paypal, but it's lightning fast compared to cheques, and while credit cards report approval immediately you can get a chargeback for months.

When you say people may not receive what you sent, you mean because of exchange rates moving fast? I agree that the current volatility is quite a problem.

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