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Bitcoins : The "Frozen Coins" problem

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Bitcoins : The "Frozen Coins" problem

(Cryptocoins are not like cash, which is truly anonymous)

I haven't heard many people discuss the problem of "Frozen Coins" - but it does come out in this revealing podcast



The basic idea behind "Frozen Coins" is as follows:

+ Bitcoins are not really anonymous, they are pseudo-nonymous; meaning that all the transactions are transparent on a public ledger, but they are done in "pseudo-names" - i.e. through specific Bitcoin addresses.

+ If you can determine who is the real holder of a Bitcoin address, you can see ALL the transactions that have been done with that address

+ "Bad guys" doing illegal transactions, such as selling illegal drugs or weapons, may have thought they could deal anonymously. But is at some point in the future, the same address does a transaction where they identity is determined, than it will be possible tie that account to a specific currency. (For example, if someone earns $1 million by selling illegal weapons, and then uses those Bitcoins to buy a villa in Spain - and the purchase of the villa gets registered in a specific person's name, it may be possible to map that name backwards to the sale of illegal weapons.)

+ The US government's "busting" of Silk Road, may have enabled the US government to see what addresses Drugs were sold to, or where money was sent from. And so the government may now be able to associate specific Bitcoin addresses with historical illegal transactions.

FROZEN COINS become "stuck" in an account, when the holder of the account thinks his anonymity has been "busted" or will be busted when he tries to spend the coins. Such a holder may decide to leave the coins "frozen" or unused in an dormant account, rather than spending them and alerting enforcement officials who are watching the account for movements.

What's the impact on the Coin market. It could be bullish. If the coins never get used, then it is as if they did not exist - It will reduce the potential supply of Bitcoin "currency."

I have heard it said that 5% of Bitcoins have been lost forever. It is possible that another 5% will be permanently frozen in accounts that are afraid to spend him. And that number could be higher still, even 10% or 20% of the total coins supposedly in circulation.

I think the Frozen Coins concept needs much more investigation.

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Hey, does anyone know how to publish this story on Reddit ??


(in edit):

Got it published ! : http://www.reddit.com/r/Bitcoin/comments/1ximlh/bitcoins_the_frozen_coins_problem/


... and on Godlike Productions, too:


GLP story ------- : http://www.godlikeproductions.com/forum1/message2481193/pg1#42768350

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(here's a related story about Bitcoins):


The case against bitcoin (self.Bitcoin)


2 months



by dretone

$800 for a digital coin is absurd beyond all tenable logic

let's see..... very few retailers accept it

converting bitcoins to dollars involves a substantial currency/friction risk

market is very illiquid unlike forex which contributes to the market friction

no one gets paid in bitcoins. so even if major retailers accept bitcoin only .00001% of the population will have any to spend with

spending fiat to buy bitcoins so you can shop with bitcoin is redundant

obvious bubble. parabolic chart doomed to crash

not even anonymous. the feds are all over bitcoin now

cumbersome, hard to use for non-tech people, 14 minute delay between transactions

no consumer protection. perfect for scammers

most of the usage here http://blockchain.info/charts/n-transactions is from satoshi dice, wallet transfers, etc and relativity few actual productive commerce

environmental waste from the inordinate power required to mine bitcoins

edit..wow didn't expect post to go viral

edit 2. dropping fast

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