The U.S. Marshals Service doesn’t normally make economic policy but this week they apparently did so by auctioning 30,000 Bitcoins, a crypto currency I have written about before. This auction effectively legitimizes Bitcoins as part of the world economy. Am I the only one to notice this?
My first column on this subject was a cautionary tale pointing out the two great areas of vulnerability for Bitcoin: 1) the US Government might declare Bitcoins illegal, and; 2) someone might gain control of a majority of Bitcoins in which case their value could be manipulated. While number two is still theoretically possible it becomes less likely every day. And number one seems to have been put to rest by the U.S. Marshals.
The Marshals dispose of property confiscated by federal authorities, giving the proceeds to the Treasury Department and back to the Department of Justice. This auction — worth about $11 million — could not have happened without the permission of both agencies (Treasury and Justice). This is why I can claim that economic policy has been made, because it was authorized by the very agencies normally responsible for such policies.
When drug dealers lose their helicopters, Swiss watches, and Cigarette speed boats, the U.S. Marshals sell them for money. However the Marshals don’t sell confiscated drugs because drugs are illegal and are destroyed. If Bitcoins were illegal they, too, would have been destroyed, not sold. Hence Bitcoins are not illegal.
And why should they be, really? Between derivative securities, futures and options there are already plenty of financial instruments that don’t look much like money to me but are treated as such.
Now, even though nobody has yet announced it, we can add Bitcoins to that list.
And who bought all those Bitcoins? Third generation VC Tim Draper, saying he’ll use the coins as a currency hedge.
In theory this threatens the US dollar‘s role as the reserve currency, but that theory is pretty weak with a finite number of Bitcoins even possible and most users still thinking of it as anonymous dollars.
It’s this anonymous nature of Bitcoins that has me puzzled. My guess is they aren’t anonymous at all and the NSA has thrown its elves into de-cyphering Bitcoin metadata. Otherwise this auction would never have happened.
Where is Edward Snowden when we need him?
You’re right, Bob.
I haven’t seen anything on Marketwatch.com or some of the other financial sites that like to comment on Bitcoin news. Thanks for the heads up.
It’s hard to say no to $11 million, especially when it’s not explicitly illegal like drugs are.
This might be the kick in the pants Bitcoin needs to start rising like a 4th of July rocket again.
MarketWatch has been all over the BiteCon many times, the comments generally trending towards backbiting between the two sides (evil vs. good.)
it basically falls under the Buffett rule for me… “If I can’t understand it, I don’t invest.”
consider the BiteCon as currency of sorts (you can trade bean cans, bullets, pretty rocks, whatever has value to the acquirer and causes transfer of value to the seller is a currency of barter at least) for the following question…
Mining BiteCon involves performing a number of calculations faster than anybody else in the chain, yielding a small number of the asset. This means there is a store of value someplace, real or imagined, that is supporting the whole value proposition. the rest of the package is folks trading real, bite-it-it’s real, money for the BiteCon.
Pray tell, who thinks those calculations are of such high value, and why? is it a rogue nation looking to crowd source the hydrocodes for making nukes? a rich nut?
or is the whole BiteCon thing a Ponzi with somebody deciding one day to cash out from the middle and run?
nobody has answered that for me yet.
Brilliant.
.
And what could be more appealing to the NSA than a currency that people thought was anonymous, but actually phoned home? If it hadn’t existed, they would’ve had to invent it.
Clueless.
You clearly are puzzled & confused since bitcoins are not anonymous. Hurts to be so wrong for so long, doesn’t it?
I think it’s a common misconception that bitcoins are anonymous. They _can_ be if enough care is taken but in general use they are far from anonymous.
Every bitcoin has a history of wallets it’s been in. It would take a great amount of care ( that generally only a security expert, privacy champion or criminal would undertake ) in order to remain anonymous.
This might be an interesting read.. https://www.theguardian.com/technology/2013/dec/09/recovering-stolen-bitcoin-sheep-marketplace-trading-digital-currency-money
It was an interesting read. But the conclusion it came to is in the title of the article: “Recovering stolen bitcoin: a digital wild goose chase”.
Bob, you seem to be missing a very simple option that also exists: While bitcoin isn’t illegal, the gov’t might not view it as anything more than an asset – albeit an intangible one (more akin to traditional investments such as stocks and bonds). This move by the US Marshals does not seem to provide any actual legitimacy to BTC as an actual currency or legal tender as far as the gov’t is concerned. (I believe the IRS taxes capital gains on the sale of BTC, but it also obviously does that taxation in US dollars, not BTC.)
#2 has happened, check ghash.io reaching 51% if compute power
Bob said in the article: “most users still thinking of it as anonymous dollars. It’s this anonymous nature of Bitcoins that has me puzzled. My guess is they aren’t anonymous at all”. The article doesn’t discuss the 51% issue.
This makes no sense. I do recall writing the two sentences (above), however they were each part of a different thread or post.
To the US government, this is just another asset that someone will pay good money for and isn’t illegal.
I would take Bitcoin more seriously if the government hadn’t auctioned them off.
Imagine the US government had seized $11 million in Euros or Rubles or even Icelandic Kroners. Would they have auctioned it off? No, they would have deposited them in a bank account or convert it to dollars.
The fact that the US didn’t convert the Bitcoins into dollars shows how far from a currency Bitcoins are. $11 million is less than the price of many Manhattan apartments. It’s less than the price of buying a small business. It’s less than the amount of ketchup packets McDonald’s buys from Heinz each time they place an order.
Yet, the best way to dispose what in the grand scheme of things, a tiny amount of money was an auction. That’s because Bitcoins are so illiquid that the Bitcoin ecosystem can’t handle a transaction that size.
What was even more interesting were the other bids. These were low ball bids from people who were interested in buying 30,000 Bitcoins on the cheap and flipping them for real money. Even the winning bid translates into a mere $370 per Bitcoin. Considering that Bitcoins are allegedly worth over $500 per coin, that’s a steep discount. If someone was auctioning off 15.5 million dollars, would you think that the winning bid would be only $11 million?
You add to that the worry expressed in many Bitcoin forums that the winner would “dump” this many Bitcoins onto the market at once and how it might affect the price of Bitcoins. That shows you how few Bitcoins there are in circulation.
I don’t know Tim Drapper’s plan. He claims he’s going to create a hedge find with it and market it in third world countries to help the poor. The man is worth billions. Certainly he could have done that long ago. You also need Internet connectivity in order to use Bitcoins, and much if the world doesn’t even have steady electric power.
My take is that he’s going to turn around and sell it for $20,000,000. The tale he tells is the same one Bitcoin enthusiasts have been telling for years. The price of Bitcoins is at a high for this year. Over $600 each. This is because the auction “proved” Bitcoins are legitimate and are about to make their grand entrance into the market. Plus, Drapper isn’t going to dump then on the market (a fear that caused the price of Bitcoins to drop Below $500).
If I was Drapper, I too would reassure the Bitcoin environment how I want to invest in Bitcoins. How I want to expand their market. How much faith I have in Bitcoins.
Then turn around and sell them for a quick $8 million in profit.
uh, the auction was for dollars. so the asset was liquidated, like any McMansion, Cigarette boat, or stash of gemstones. those items are not Federalized as currency, either. all the Marshals Service did was convert an asset of value to somebody for cold hard Federal Reserve Notes or electronic equivalent for the Treasury.
so I’m not buying recognition as currency for commerce. that requires recognition which hasn’t happened from the Treasury. between nations, that becomes an agreement. you can’t take a stack of greenbacks to a bank and convert them into North Korean Sillyness, or whatever they call their scrip.
> The fact that the US didn’t convert the Bitcoins into dollars shows how far from a currency Bitcoins are.
The US government did convert the Bitcoins into dollars. They sold them. That’s virtually the definition of converting something into dollars.
You don’t action off money, you exchange it. If these were $18,000,000 worth of Euros or Yen, there would be no auction. Instead, they auctioned off what was was last week worth $18,000,000 for $11,000,000. By the way, they’re now worth almost $20,000,000. Drapper has almost made 50% on his investment in a single day.
“2) someone might gain control of a majority of Bitcoins in which case their value could be manipulated.”
As previously mentioned, this just happened last month. See article here for more information:
http://arstechnica.com/security/2014/06/bitcoin-security-guarantee-shattered-by-anonymous-miner-with-51-network-power/
Although, in this case, the “control of a majority of Bitcoins” is not control of the actual bitcoins, but control of the hashing algorithm that authenticates the Bitcoins. It’s a bit of a distinction, but in the end, someone with that type of control can manipulate the market, if they wanted to.
Bitcoins have never really been anonymous, hence the Bitcoin laundering companies. ie bitlaunder.com, etc.
But maybe now maybe they are run by the NSA?
Just a theory based on no facts what-so-ever:
Is it possible the government auctioned them off in an effort to gain more information on them.
It is only code after all, could they have altered the code and then released it back into circulation?
Bitcoins are not code.
A “bit” is a 1 or 0. Why not say it’s code?
Not all 0’s and 1’s are code, sometimes their data.
Bitcoins are data.
There are many uses of the word “code” Including:
Every item in the store has a product code.
Enter your security code to access the computer.
Each employee is given a code number.
He was hired to write programming code.
https://www.merriam-webster.com/dictionary/code
I think this means that Bitcoin are not illegal – but they are not a currency. An early post suggested that if they were currency they would have been deposited in a bank account. So I think you can say they have been recognised as an asset but not as a currency.
There is a distinction. In the UK it is not legal to trade in ‘made up money’ since it can’t be taxed. There are various schemes like Letts but they don’t work very well, and the taxman has shown an interest in them.
And I don’t think the conspiracy idea about the NSA is very useful as they have been sold to someone ‘legit’ (if you can call hedge funder traders such).
The NSA would have been much more interested in the transaction chain leading to the naughty boy they are confiscated from.
In the UK you are still taxed on non-monetary income, or benefits in kind.
That’s what the P11D is for.
Let me see if I can recall the conversation between the FBI, the Marshalls Service, DOJ and DOT that I recorded for the Russian KGB (now FSB) on behalf of the Russian Mob…..
FBI: “Boy, wasn’t that easy to track down who the owners of those Bitcoins were! The coin tracks them for us! Better than any surveillance we could do! Slam dunk!”
DOJ: “Our prosecutors absolutely love Bitcoin! Wish we could catch more crooks as easily! Maybe even terrorists!”
DOT: “Well….let’s do it again, kind of like Fast and Furious? Let’s auction off the Bitcoins, see who picks them up and keep tracking the ownership until they are used again in a felony, like a gun, but this time we have something better than fingerprints!”
Marshalls: “So we just auction them off?”
DOJ: ”
Yeah! These crooks will take the heat off Eric if we catch more.”
Marshalls: “But aren’t we then making Bitcoins legal with an auction?”
DOJ: “Sure, but only temporarily. It’s only an asset, it’s not currency. For that you need Congress to authorize it. Am I right, DOT?”
DOT: “Yep, and if no crooks take a bite at the bait, then it even gets better than with Fast and Furious!”
DOJ: “Because we’ll then ask Congress to outlaw Bitcoins , keep the money and then the next owner becomes a felon! Fantastic!
Marshalls: “Going to auction those Bitcoins ASAP! Can’t wait to but that bait in the water to see what sharks bite!”
FBI: “But do it quietly….we’ll tell the NSA.” LoL!
The Treasury, about a year ago, ruled on Bitcoins. They are a commodity and not a currency. They are no different from stocks or old comic books or automobiles. Trade them and you are actually selling them and capital gains taxes might come into play.
What is more, according to arcanities of the law, if a company deals in bitcoins, a bank might have a claim on assets of anybody taking possession of those bitcoins. Naked Capitalism did a few posts on this back then. Really crazy case law involved.
So no, Bob, you have not discovered anything new, and the US Government does not consider Bitcoins to be legal currency in any shape manner or form.
On a completely different note, this just in from M.S.it must be a hoax “We have reviewed our processes and are resuming security notifications by email commencing with the release of this monthly Advanced Notification Service (ANS) mailing.” then something about making donations by Bitcoin…. 🙂
Draper is also the character behind the drive to split California into six states, one named “Silicon Valley.” https://www.sixcalifornias.info. When you’re rich, you’re not crazy, you’re eccentric.
Not long ago, it was illegal to own gold, but the government would buy and sell it for $35/oz. It was not illegal for the government to own gold, only US citizens.
1st) In Europe it is legit for quite a while: http://bitcoinmagazine.com/2937/bitcoin-central-licensed-to-work-with-payment-services-provider-in-france/
(if anybody cares)
2nd) Apologies, I didn’t follow this story closely but Chamath Palihapitiya (VC, early Facebook and bitcoin evangelist) talked in an interview about the SEC or whichever US govt. institute declared bitcoin as a commodity instead of money. And that is the good news, said Chamath P.
The last sentence in the article: “The headline has since been corrected to instead say ‘operate with a bank.’ ”
[Sorry if it’s a duplicate, maybe it didn’t go through:]
@Ronc
I didn’t say they became a bank or something. Previous sentence to your quote:
– We said “licensed to operate as a bank” which we mean as ‘open accounts to third-parties and hold fiat currency on their behalf in compliance with the regulatory framework’. –
The point. We are talking about bitcoin becoming ‘legit’; whatever that means.
Agreed. But I think a better phrase is “more accepted” rather than “legit”. Everything is legitimate until it is declared illegal. Bitcoin ownership by citizens has not yet been declared illegal in the US, nor is it fully accepted as a medium of exchange. The difference between the government selling bitcoins while destroying drugs, has to do with a desire or mandate to avoid harming others while benefiting itself. Giving drugs to others, no matter how much they may be willing to pay, or where they live, is considered harmful to society as a whole, which is not the case for other commodities.
* talked about in an interview, I mean
bitcoin rocks its easy to use and becoming more accepted every day visit the website to see how you can earn more and where to spend it http://morecoin.tk
That forum site has 19 members, and no guest use allowed. Here is an interesting story about their top level domain “.tk”: https://www.cnn.com/2012/06/13/tech/web/tokelau-domain-name-holder/
Hi Ronc thanks for pointing out that interesting article on the top level .tk we are growing at a good rate as not promoting very much just started with some link exchanges,but shall be promoting more soon just want to make sure everything ok with our live online chat system btw we are not just for bitcoin we talk about any subject if you have visited you already know but i say that for the benefit of other readers. We have many good features in the forum and its a fun place to be ! you can reach us on http://MoreCoin & Also http://LessCoin you see we are the website where we give you more for less coin even free & as they say less is more now im confused dot com lol
Maybe we see you there btw all we need is a name and email and you can post
Regards Andy Admin aka morecoin
I don’t want to post yet; I just want to read what others have posted before sharing my email address. That’s the way all legitimate, popular forums operate. They have guest access that allows reading without posting.
Bitcoin’s problems have been not with the ‘currency’ itself, but primarily with the exchanges.
Many of which have folded, taking some or usually all BC on deposit with them, as the WSJ found.
E.g. despite what BC proponents currently say, Mt. Gox was a trusted BC exchange for years prior to their implosion.
Even if you are lucky enough to hold six or seven figures worth of BC in your own private wallet, there’s no guarantee you can exchange them for more widely accepted digital dollars/Euros/yen/etc.
You may try https://localbitcoins.com/
(I never trusted the Gox)
Why did you not trust Gox when everyone else did? Why do you trust localbitcoins, which no one has ever heard of? Are there any well-known trusted sources (banks, brokers, blogs like Cringely’s) that have attested to its legitimacy.
Since they are not illegal, why wouldn’t the government sell them and make a profit?
Just because it’s not illegal today, doesn’t mean the government can’t make them illegal tomorrow. In fact, wouldn’t it make sense to sell them today, make them illegal, confiscate them, make them legal again, then sell them for a second profit…
Sound silly? Ever hear about prohibition?
There are two kinds of illegal substances: Those deemed harmful to society as a whole and those that are not. Drugs (and alcohol during Prohibition) are examples of the former, while bitcoin (and gold during the $35/oz era) are examples of the later. So I’d guess if the government made bitcoin illegal to own, they would pay for it as they acquired it, just as they did with gold.
Why couldn’t the government decide that an “anonymous” currency is harmful to society? They are already phasing out cash…
The government can do anything. My point is that they did not consider gold so harmful that it had to be destroyed rather than sold. Gold may be anonymous like bitcoin, yet they sold it to others. Bob sees that as reason to call it legitimate, meaning it’s unlikely to be outlawed. The other point I was making is that they could still make it illegal for US citizens to own, like they once did with gold. If they do that they would likely pay citizens to turn it in rather than confiscate it.
Maybe they are planning on bitcoins replacing the dollar ?
2008 like all collapses was caused by a desire by “non-experts” to become rich like the “experts” who had just become rich and moved on. VC Tim Draper is using Bitcoins to protect his “money” and a belief that the Green Back is the new Zimbabwean Pound – worthless.
Herein is the problem – flight from worthless currency. Sterling till WWI was the world currency then for almost 100 years the USA dollar. With mismanagement by the regulators, Feds and Wall St., insiders are jumping ship. The problem with Bitcoins is that they smell like tulips, and a new bubble could occur without government supervision. My advice is get in and get ready to sell to a sucker at a moments notice. The commodity I’d buy is real Maple Syrup because with Global Warming it will be scarce and increase exponentially! And it’s cost is a barometer for North American climate change!
Where NSA steps in is that Bitcoins could be the new Mafia coin – a criminal currency uncontrolled by regulators and difficult to attribute. But cigarettes or its equivalents would be a better horde-able and trade-able commodity.
[…] I, Cringely Bitcoin quietly goes legit – I, Cringely – You’re right, Bob. I haven’t seen anything on Marketwatch.com or some of the other financial sites that like to comment on Bitcoin news. Thanks for the heads up…. […]
[…] I, Cringely Bitcoin quietly goes legit – I, Cringely – You’re right, Bob. I haven’t seen anything on Marketwatch.com or some of the other financial sites that like to comment on Bitcoin news. Thanks for the heads up…. […]
[…] I, Cringely Bitcoin quietly goes legit – I, Cringely – You’re right, Bob. I haven’t seen anything on Marketwatch.com or some of the other financial sites that like to comment on Bitcoin news. Thanks for the heads up…. […]
[…] I, Cringely Bitcoin quietly goes legit – I, Cringely – You’re right, Bob. I haven’t seen anything on Marketwatch.com or some of the other financial sites that like to comment on Bitcoin news. Thanks for the heads up…. […]
[…] I, Cringely Bitcoin quietly goes legit – I, Cringely – You’re right, Bob. I haven’t seen anything on Marketwatch.com or some of the other financial sites that like to comment on Bitcoin news. Thanks for the heads up…. […]
[…] I, Cringely Bitcoin quietly goes legit – I, Cringely – You’re right, Bob. I haven’t seen anything on Marketwatch.com or some of the other financial sites that like to comment on Bitcoin news. Thanks for the heads up…. […]
[…] I, Cringely Bitcoin quietly goes legit – I, Cringely – This auction effectively legitimizes Bitcoins as part of the world economy…. […]
[…] I, Cringely Bitcoin quietly goes legit – I, Cringely – You’re right, Bob. I haven’t seen anything on Marketwatch.com or some of the other financial sites that like to comment on Bitcoin news. Thanks for the heads up…. […]
[…] I, Cringely Bitcoin quietly goes legit – I, Cringely – You’re right, Bob. I haven’t seen anything on Marketwatch.com or some of the other financial sites that like to comment on Bitcoin news. Thanks for the heads up…. […]
[…] I, Cringely Bitcoin quietly goes legit – I, Cringely – This auction effectively legitimizes Bitcoins as part of the world economy…. […]
[…] I, Cringely Bitcoin quietly goes legit – I, Cringely – You’re right, Bob. I haven’t seen anything on Marketwatch.com or some of the other financial sites that like to comment on Bitcoin news. Thanks for the heads up…. […]
[…] I, Cringely Bitcoin quietly goes legit – I, Cringely – This auction effectively legitimizes Bitcoins as part of the world economy…. […]
[…] I, Cringely Bitcoin quietly goes legit – I, Cringely – This means there is a store of value someplace, real or imagined, that is supporting the whole value proposition. the rest of the package is folks trading real, … Cringely Bitcoin quietly goes legit – I, Cringely – You’re right, Bob. […]
[…] I, Cringely Bitcoin quietly goes legit – I, Cringely – 1st) In Europe it is legit for quite a while: http://bitcoinmagazine.com/2937/bitcoin-central-licensed-to-work-with-payment-services-provider-in-france/ (if anybody cares) 2nd) … Cringely Bitcoin quietly goes legit – I, Cringely – You’re right, Bob. […]