A Bitcoin Magic Trick

I love this scene from Digital Gold, Nathaniel Popper’s entertaining book on the history of and people behind Bitcoin. Wences Casares, a successful internet entrepreneur and Bitcoin enthusiast, is at a party of millionaires and billionaires and he wants to impress the crowd:

To prove how easy this all was, Wences asked Blodget to take out his phone and helped him to create an empty Bitcoin wallet. Once it was up, and Wences had Blodget’s new Bitcoin address, Wences used the wallet on his own phone to send Blodget $250,000..the money was then passed to the phones of other people around the table once they had set up wallets. Anyone could have run off with Wences’s $250,000, but that wasn’t a risk with this particular crowd. Instead, as the money went around, Wences saw the guests’ laughter and wide-eyed amazement at what they were watching.

Wences is something of a character. Russ Roberts did a good interview with him on EconTalk.

Comments

Did Wences assist his fellow guests with filing a Form 709 for the transfer, too?

No...and uh, that's exactly the point.

I'm afraid I don't quite get it. Still, in the end, isn't this about moving money around where people can't see it? And, well, doesn't that mean that the value is more for those who don't want they money tracked? Which typically means it's for a socially and politically unwelcome activity?

"Which typically means it’s for a socially and politically unwelcome activity?"

Maybe. Or maybe it's nobody's business who I give my money to.

"..in the end, isn’t this about moving money around where people can’t see it?"
No, not quite. Every bitcoin transaction is open and easily visible to everyone. This transparency is one of the most amazing aspects of the technology, and also how users can be sure of instant settlement. There is a degree of anonymity because personal information is not included in the transaction. Nonetheless, if every transaction is visible that aids law enforcement and renders the system better at discouraging socially and politically unwelcome activity such as corruption, bribery, ect. Many bitcoin thieves have been caught while many more crimes using fiat will never be solved.

Despite the FUD being spread in news reports, Bitcoin is a rather bad thing to use if you don't want your money tracked. What makes people incorrectly think it is anonymous is that each wallet does not contain information which identifies the person(s) that own it. However, every transaction between wallets is visible to everyone. There is a full paper trail from the creation of every bitcoin to where it is today. Points on that paper trail can correlate wallets to personal identity.

Take the bitcoin ransomware for example, where someone illegally encrypts your hard drive and requires a bitcoin ransom to unencrypt it. If you pay the bitcoin ransom, law enforcement knows what bitcoin and wallet was used in the illegal activity. They will also know the moment that bitcoin is moved or spent and can track every step. The moment any portion the ransom bitcoin is involved in a transaction which can can be cross referenced to an identity (i.e. any merchant) you can follow the money back to the criminals. Stolen bitcoin will be very difficult to spend anonymously.

If you don't want your money tracked, use US $100 bills because it is tailor made for all socially and politically unwelcome activity around the globe.

Was that the reason Dread Pirate Roberts kept so much off his wealth in bitcoins? That he couldn't convert it to useful things?

I think I'll hold on to my Federal Reserve Notes and Krugerrands, thank you.

How often would this capability be valuable? Sure it might be nice to sell stock and use it as a down payment on a house within the same hour, but given all of the other issues in property purchases this is really minor.

One cost of this convenience with Bitcoin is that money is harder to recover from thieves. Furthermore same day settlement capabilities are being built without bitcoin.

Big deal. What did anyone actually get out of this little parlor trick? He could have written a check to each of them in the same amount of time. This is more evidence of a cyber-gadgetry craze that's becoming goofier by the hour.

Actually a large check takes about 10 days to clear. Moreover, "clearing" does not mean what people think it means and to be sure that the money has actually transferred can take 30-60 days.

How often are you transferring such large sums of money, and are they times when you really don't want things to be above board?

This just reaffirms that Bitcoin really is just a parlour trick.

Well Wences' from Argentina. Given the capital controls in that country, an application would be obvious to him...

Is that the same Wences that had the puppet drawn on his hand on the Ed Sullivan show?

Oh really. There are capital controls in Argentina. What specifically. Identify them. Thanks

The artificial parameters for holding of funds (availability) on check deposits is a found in FR Regulation CC. Automated Clearing House systems provide for immediate paying of electronically presented checks. When (years ago) checks were physically presented there was a 24 hour return (for insufficient funds) return requirement. There is no reason (outside the reg and banks' need to hold the funds) for funds not to be available either immediately or within 24 hours.

Note "cashing" a check is the function of a bank giving cash for a presented check, often the bank will place a hold on the customer's account in case the check is returned. Paying a check is where the bank on which the check is drawn has its correspondent bank or FRB clearing account debited and debits the customer's account for the amount of the check. When that takes place through ACH it is very quickly accomplished.

The 10 days is not the time it takes the funds to clear, but the length of a hold placed by the bank to protect it against fraud risk---that the signature or check were forged. A wire transfer can clear within the same day.

In bitcoin land the fraud would be committed by the theft of a private key and the victim would likely have no recourse.

oh no our jobs are at stake...

Bitcoin is dead, long live the Blockchain.

While I have long believed Bitcoin will ultimately fail, the identity of its most vociferous enemies makes its survival and success desirable to me. Long live Bitcoin!

Who needs Bitcoin just wear two 25000 dollar watches or if you really like to gamble one 25000 watch and two 25000 dueling pistols. I know the two watch thing sounds pretty Persian and gauche but it's saved my arms from being broken a time or two at gambling houses in the Orient.

Piker. Get a $620,000 watch.

https://www.washingtonpost.com/news/worldviews/wp/2015/08/03/how-could-vladimir-putins-spokesman-afford-a-620000-watch/

To me personally, the more impressive magic trick is actually when all of the billionaires are on Skype calling in from six different countries and it doesn't make a second of difference :)

Right... and by the time the bitcoins were transferred back to Wences at the same party, their price in USD has dropped to 220k.

Also, Ayman Al-Zawhiri, the current leader of Al Qaeda, has issued a fatwa stating that Bitcoin has been created by Allah (posting, in this case, under the pseudonym 'Satoshi Nakamoto'), with the special purpose of facilitating the transfer of funds among the believers to help them infiltrate 'Dar-al-Harb'.

Great article, exactly what I needed.

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