Bitcoin Seizure

[notorial dissent]

Eric Daniel Hughes of South Carolina had 11.02 Bitcoins from Hughes, worth $814 seized by the DEA over what appears to be a drug related issue.

So, it would seem that Bitcoins are seizable by the gov't.

[The Observer]

So, it would seem that Bitcoins are seizable by the gov't.

Yes. Any asset, intangible or tangible, can be seized, apart from those that have been exempted by law. The question is whether buyers can be found for the asset, or if the government would prefer to keep the asset for its own use.

[notorial dissent]

The point being, that they were being touted as beyond the reach of the IRS/gov't, which obviously they aren't, and I think the only ones really holding that opinion were the ones trading in them. My understanding, such as it is, is that they can be traded in anytime for a dollar equivalent, and I am quite sure the gov't could force the issue if necessary. Basically, another sovrun money bug myth bites the dust.

[JamesVincent]

How do you place a value on something that has no intrinsic value? I mean, you can seize cash, cash is good. You can seize a bank account, remove the assets, convert it to cash, cash is good. You can seize a house or car. Take it to auction, sell it for cash, cash is good. You seize x amount of gold, sell them at auction for cash, cash is good. But my understanding of bitcoins is that they only have a value when someone assigns a value to them. Company X assigns a value of $.50/ per while Company Y has a value of $.25 assigned to them. Do you shop around, get your best bang for the buck, and swap them for cash, cash is good? I admit, I have not followed bitcoins as well as I could have since they seemed, well, kinda dumb to me. Cash is always good.

[The Observer]

How do you place a value on something that has no intrinsic value?

Value for something like that will always be determined by the bidder at a government sale, although there is typically a minimum bid value established by the agency who is holding the asset. The thing to keep in mind is that the government does not provide any guarantee or warranty to the value or quality of the asset being sold, this is going to be one of those caveat emptor moments.

In this case, the government is going to have to decide if there is enough interest to attract bidders for the bitcoins to warrant a sale. That will require some research, some targeted advertising and some luck to get the item sold. If the bitcoins go to sale, the government is never going to receive full value in any event. And if the bids don't cover the costs of the seizure/sale, then the government may either release the bitcoins back to the owner (the most likely scenario) or hold on to them (least unlikely scenario).

[The Observer]

The point being, that they were being touted as beyond the reach of the IRS/gov't, which obviously they aren't, and I think the only ones really holding that opinion were the ones trading in them.

They were probably banking on the fact that the government may find it harder to sell bitcoins at sale and would just not seize them in the first place. I note that this seizure involved DEA, so this was probably done on the spur of the moment and not much thought given as to what to do with the bitcoins. The amount is pretty small (and open to question about its true value) so this may be a situation where the government may end up dropping the matter.

However, if bitcoins do start gaining a measure of confidence as a currency that can be converted readily to cash, the issue of whether to seize will be put to rest.

[notorial dissent]

My question, for someone who knows more about this than I do would be how does one determine ownership or possession of bitcoin to be used in a transaction?

[KickahaOta]

My question, for someone who knows more about this than I do would be how does one determine ownership or possession of bitcoin to be used in a transaction?

The real, technical answer is complicated and involves entirely too much math. Here's a grossly simplified explanation:

• The Bitcoin network is based on public-key cryptography. In public-key cryptography, you start by generating two related, extremely large numbers. One of them is your public key -- you share it with everybody. The other is your private key -- you share it with nooooobody. You can now "sign" digital data, using your private key. Others can validate that digital signature using only your public key.
• When you first create, or "mine", a bitcoin -- I'll skip the details of that -- it essentially creates a transaction record in the Bitcoin network, that says "Bitcoin 37000382 has been created, and it's owned by (your public key)".
• When you want to pay someone using that bitcoin, you need to know the public key of that person. You create a new transaction record, saying "Bitcoin 37000382 now belongs to (new owner's public key)", and you sign it using your private key.
• So every bitcoin is just a series of transaction records in the network, starting with its creation, and covering all the transactions involving it since then.

That means that if I want to know "Does bitcoin 37000382 really belong to you?", I look on the network, find all the transaction records for that bitcoin, and verify that they all seem to be authentic -- that each new transaction was properly signed by the person who owned that bitcoin before. Whoever's public key is listed as the new owner in the last transaction record is the owner of the bitcoin.

If I want to verify "Does the real-world Joe Blow own bitcoin 37000382?", then I need to take some sort of extra real-world steps to make sure that, yes, Joe Blow is the holder of that key. But if all I care about is getting paid for something I'm selling, all I need to verify is that the buyer has issued the right properly-signed transactions for the right number of bitcoins.

What happens if I'm a government agent and I want to seize a bitcoin? I can't just say "It's ours now"; the Bitcoin network is peer-to-peer and basically decentralized -- there's no technical way for someone other than the holder of a bitcoin to just arbitrarily say "This bitcoin belongs to me now" (since if you could, then the network would be useless). The only thing you could do would be to demand that the current holder of the bitcoin sign it over to you in the usual way, by signing a transaction with their private key. And if they refused, you would have to use the threat of contempt of court or some other legal sanction, just like you would for any other case of "This person knows something and won't tell us."

[notorial dissent]

KickahaOta, thank you. Your answer pretty much verified the basics of what I thought I knew, having it explained from an outside source helps and clarifies.

So in other words, other than the arcane bits of public/private keys, it is still all pretty much a bookkeeping process, just on a slightly different scale and format. Which means, when you get right down to it, that the putative "owner" of the bitcoin can be traced, if not outright identified. Which is apparently what happened here. As to actually collecting on it, I can see where that could get interesting, guess we'll just have to see what the DEA does with the seized bitcoins now.

[grixit]

Hmm, a federal seizure would take a lot of bitcoins out of circulation at once, the supply will be reduced until such time as more can be generated from the quantum flux of monetary theory. That should raise the value of the rest of them.

[KickahaOta]

Hmm, a federal seizure would take a lot of bitcoins out of circulation at once, the supply will be reduced until such time as more can be generated from the quantum flux of monetary theory. That should raise the value of the rest of them.

I suppose that yes, in theory, a federal seizure could greatly reduce the bitcoin market. In practice, bear in mind that there are currently about 11.3 million bitcoins in 'circulation', so this seizure of a double-digit number of bitcoins represents an extraordinarily small chunk of the pool. I would be more inclined to guess that the seizure would temporarily lower the value of bitcoins, as some folks who thought their holdings were immune from government interference realize "oh, crap," lose interest, and sell their bitcoin holdings. In practice, it's very difficult to draw conclusions, because the market is incredibly volatile.

[Burzmali]

I doubt the government seized the bitcoins as much as they seized an account that holds the bitcoins. It's the same as with stock, correct me if I'm wrong, but typically the government would simply assert ownership over a trading account, not demand paper stock certificates.

That said, given the government's notorious incompetence with all things computer related, if they did actually take the bitcoins to a government controlled address, chances are that they would use the same one as any stings they are running on Silk Road, forgetting that it is trivial to track where any bitcoin address got its coins from.

[The Observer]

I doubt the government seized the bitcoins as much as they seized an account that holds the bitcoins. It's the same as with stock, correct me if I'm wrong, but typically the government would simply assert ownership over a trading account, not demand paper stock certificates.

It all depends on how the asset exists. In some cases where there are paper certificates, the government would be required to seize the physical certificates instead of seizing the brokerage account that the owner had established. The reason being is that the certificates are needed in order to liquidate them. Most brokerage accounts are set up to allow for liquidation/sale of stock shares without the requirement of physical certificates, so the scenario of a physical seizure is rare nowadays.

In the case of the bitcoins, I agree that the likely scenario is that the government seized the account that has the bitcoins. Because the bitcoins are virtual, you can't seize them physically, just like you can't see the federal tax lien - it doesn't physically exist either, despite the claims of TPs.

But seizing just the bitcoin account would appear to be pointless without control of the private key.

[KickahaOta]

I can give you a couple of other details that might shed light on the transactions:

First, the bitcoins in question did indeed change hands -- move from one account to another -- on the day noted in the seizure notice.

Second, the bitcoin account in question was not emptied. In other words, not all the bitcoins in the account were transferred.

Putting those things together, the most popular speculation -- with the emphasis on speculation -- seems to be that this was a "honeypot" transaction. In other words, a DEA agent or a government informant set up a Bitcoin account and posted an offer on Silk Road offering to sell drugs or some other desirable-and-illegal thing, and that Mr. Hughes transferred the bitcoins to that account as payment for the desirable-and-illegal thing. Jailarity then ensued; and the government seized the bitcoins used as payment, just like the government would seize physical cash money used as payment in an ordinary drug sting.

If you really want to dive off the deep end into the details, have a look at this story. It gets into some of the real technical details, including some tidbits about how bitcoin 'money laundering' works -- essentially, by making lots of transactions into and out of lots of different accounts, you can make it increasingly difficult to follow the money trail.

[Burzmali]

Looks like there are at least two transactions tied to that honeypot so far, hopefully the DEA will wise up and stop reusing that honeypot.

Also, if that is a money laundering attempt it's amateur hour. A simple, automated transaction trace shows that all the intermediate transactions are without substance. It's like a money launderer shifting cash back and forth between his pockets, no one is going to buy that. Laundering bitcoins works the same way as laundering dollars, you have to funnel them through an intermediary that is big enough that they can obfuscate the connection between the inbound and outbound payments. And just like in the real world, that means casinos and reselling goods.

Admittedly you can launder through fees and mining with bitcoins too, but I can't imagine the rate of return would be too high.

[notorial dissent]

You must have gotten a more in depth article as the one I read only indicated that the bitcoins got seized as part of a drug buy, made it sound like they were watching the seller on Silk Road.

[tycho-brahe]

Seriously. None of you seem to even know what MONEY is, muchless how bitcoin works.

http://youtu.be/f6uuAupT4AQ

START THERE: This is a Duncan Initiative spin-off that has a life of its own. MONEY AS DEBT III covers monetary theory in simple layman's terms. It also covers cryptographic currencies.

I post this, because it's almost embarrassing reading these posts.

I suspect there are at least 2 lawyers here, judging by the writing. It boggles my mind that one can practice law, and not know what money is.

The term LEGAL refers to the CODES, ACTS, and STATUTES which form the legal system. What obligates you to follow these "laws" (They have the force of law, with consent) when you have not contracted?
Did you choose to be born in your country?
When did you consent?

The answer is MONEY. If you do not make it yourself, grow it yourself, or have it GIVEN to you, virtually EVERYTHING in your sad debt-burdened life was acquired with MONEY. A BILL OF EXCHANGE, CREDIT, and/or PROMISSORY NOTE, with the amendment "THIS NOTE IS LEGAL TENDER". THIS NOTE IS A TENDER FOR LAW. Get it? This amendment provides the benefit/protection of the Acts, Statutes, and Codes that form the legal framework that governs YOU.

Want to be "free" and not obligated and/or governed? DON'T USE MONEY. This is a small point the the "Free-Dumb" movement keeps missing.

Anyway, I figure if you are going to have a forum about "scams" you should probably know what money is. I hope this helps.

[Burnaby49]

Want to be "free" and not obligated and/or governed? DON'T USE MONEY. This is a small point the the "Free-Dumb" movement keeps missing.

Anyway, I figure if you are going to have a forum about "scams" you should probably know what money is. I hope this helps.

It helps me realize that tycho-brahe is right over the deep end.

[grixit]

His tin nose is on too tight.

[wserra]

Seriously. None of you seem to even know what MONEY is, muchless how bitcoin works.

http://youtu.be/f6uuAupT4AQ

Sorry, I don't get definitions of important terms from youtube videos. Perhaps you could take a stab at making your own point.

The term LEGAL refers to the CODES, ACTS, and STATUTES which form the legal system.

"CODES, ACTS, and STATUTES" are, for all practical purposes, pretty much the same thing. Moreover, "the term LEGAL" is an adjective - legal system, legal tender, legal secretary. If you want another term for "CODES, ACTS, and STATUTES", you need a noun. "Law" works as a start. Law, to be exact, consists of statutes, plus court decisions, plus administrative regulations and rulings.

See how it's done? Now, go ahead and explain "money" to us, why dontcha?

What obligates you to follow these "laws"

Philosophical/moral considerations aside, nothing at all. Of course, in the case of criminal statutes, if you violate them you may lose your freedom. In the case of civil statutes, if you violate them you may lose your property. If those consequences are acceptable to you - well, you have free will. Do what you want.

(They have the force of law, with consent) when you have not contracted?

Laws have the force of law? What a revelation. But consent has nothing to do with it, since laws are not contracts.

"THIS NOTE IS LEGAL TENDER". THIS NOTE IS A TENDER FOR LAW. Get it?

Well, no. "Legal tender" has a specific definition, and you don't get to make up your own.

Want to be "free" and not obligated and/or governed? DON'T USE MONEY.

Man, do I ever agree with that. I've been trying to convince people not to use money for years.

Send it to me instead.