Did the FBI Break Bitcoin?

What you need to know today in crypto and beyond

June 8, 2021

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Today's must-reads

Top Shelf

CODE BREAKERS? Federal officials have recovered $2.3 million in bitcoin that Colonial Pipeline paid to a criminal outfit during a ransomware attack, the Department of Justice announced Monday. According to redacted reports, an FBI agent tracked the bitcoin and “recovered the majority of the [$4 million] ransom paid” after “seizing” the wallet. NPR, speaking to security experts, offered three explanations for how the agency ended up in possession of the ransomed coin that have nothing to do with cracking Bitcoin's encryption:

Meanwhile, Colonial Pipeline CEO Joseph Blount will face Congress today for his involvement in paying the ransom. As an aside, at least one Biden adviser, tech and anti-trust expert Tim Wu, holds millions in BTC and filecoin.

DOLLARS, PLEASE: El Salvador’s proposed embrace of bitcoin would not end dollarization in the Central American economy, top government officials said. In a Central Bank conference, El Salvador Secretary of Commerce Miguel Kattán said bitcoin would be “opt-in” with the U.S. dollar (El Salvador’s official fiat since 2001) remaining supreme. President Nayib Bukele’s surprise announcement this weekend reportedly caused some confusion over what was meant by a “bitcoin standard.” It certainly didn’t boost the markets.

LOWER LEVERAGE: Justin Sun, in a rare interview showing his serious side, told of a near-liquidation event that could have cost him $1 billion in ETH. On May 19, a purported position on lending protocol Liquidity came under margin calls as ETH was crashing from $3,000 to shy of $1,500. “We would have been liquidated when it reached $1,500,” Sun says. That in turn could have triggered a larger sell-off, he says.

REDEMPTIONS? Bitcoin-focused investment funds suffered record redemptions by investors last week after May’s price drop soured sentiment on the largest cryptocurrency by market value. Investors redeemed a net $141 million from bitcoin funds during the seven days through June 4, the highest weekly total on record, according to the report from CoinShares, a digital-asset manager. That said, crypto exchanges saw a net outflow of 22,550 BTC on Monday, the biggest single-day net drain since Nov. 2, 2020, according to data provider Glassnode. Coins leaving exchanges is sometimes taken as a bullish sign.

–D.K.

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Putting the news in perspective

The Takeaway

Miami Coin and Voting With Your Tokens

In the shadow of El Salvador (likely) accepting bitcoin as legal tender, you may have missed that Miami is getting its own coin. Miami Coin, built on City Coins, which is built on Stacks, which is built adjacent to Bitcoin, is a new way for the city to potentially raise funds. And it appears to have Mayor Frances X. Suarez’s approval.

The idea is pretty simple: You contribute crypto to a city’s wallet that the city could then receive as a kind of charitable donation. Whatever money you donate earns a yield. It’s the type of win-win scenario that crypto could enable but may have little chance of taking off.

Apart from a few tweets from the project’s notable backers like Balaji Srinivasan and project organizer Patrick Stanley, it has been little noticed. Announced officially on June 4 but going live today, it seems worthwhile asking what it’s all about. Stanley says the project needs to attract at least 20 independent miners to launch.

City Coins is a way for people to support locales they vibe with. Mechanically, they send STX to a CityCoins smart contract on the Stacks blockchain, which is then split 30/70 for the city in question and the remaining CityCoin holders who stack their tokens. This is a process Stanley calls mining.

The reverse of this function is “stacking,” which yields STX or BTC rewards when people lock up their CityCoins, like Miami Coin.

“Crypto has this opportunity to transform the way people organize themselves,” Stanley said. “It’s a less-agonistic way for cities to be able to essentially generate revenue that they can spend and be accountable to markets and let communities be built.”

Whatever money is donated to a city is its to keep. A press release notes if Miami “#pickupthebag” it could put this windfall to “new public spaces, improvements to infrastructure, hosting city events, recruiting startups, and more.”

Stanley, being a bitcoiner, also played out the game theoretic position where if enough people begin mining or stacking on CityCoins – incentivized not just by their love of a city, but also the tokenomics of the system – cities could pay off their debts or eliminate taxes. He cited figures he asked me not to repeat where CityCoin could balloon past the spending requirements of Miami-Dade County.

Mayor Suarez, being pro-innovation, was taken by the idea. I had my doubts. Why wouldn’t I just give a normal, tax-deductible donation to a city or organization I like?

Stanley framed in the conversation of voice and exit, the idea popularized by economist Albert O. Hirschman that says governed people can signal their approval or disapproval by voting or exiting the system. You can speak up for what you want, or you can build a new world.

“I like what’s happening in Miami,” Stanley said. “But I'm not going to move to Miami because my wife and family are based in Los Angeles and I can't pick them up and move there.”

The constraints of leaving a city are real. Building one is even harder. But money speaks.

“Stakeholders and cities are both essentially doing work to raise the profile of the city, to attract people to move there and become stakeholders,” Stanley said. All of this is a function of feedback loops and token prices, which signal which cities are doing it right.

Is a token the way to do it? Only one way to find out.

–D.K.

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