Lost Coins Are Good for Bitcoin

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PLUS: Gemini partners with Colombia's biggest bank, Nexo with Fidelity, and more |

The biggest crypto news and ideas of the day

Dec. 7, 2021

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–Daniel Kuhn

Today’s must-reads

Top Shelf

JAPAN: Japan’s top banking regulator will introduce new legislation in 2022 that seeks to limit the issuance of stablecoins to banks and wire transfer companies, according to a report. Japan’s Financial Services Agency (FSA) regulations are an effort to tighten the agency’s grip on the stablecoin market to protect consumers from potential risks from asset-backed stablecoins like tether. According to the report, the legislation will also include steps to prevent money laundering via stablecoins by giving the agency additional oversight over intermediaries such as wallet providers, and also adding additional know-your-customer (KYC) measures.

PARTNERSHIP: U.S.-based cryptocurrency exchange Gemini plans to allow users in Colombia to trade crypto through a partnership with its largest private bank, Bancolombia. Starting on Dec. 14, Gemini will allow a select group of Bancolombia’s users to trade bitcoin, ether, litecoin and bitcoin cash through an on-and-off-ramp, the company announced Monday. The partnership between Gemini and Bancolombia is part of a year-long, government-sponsored pilot program to test banking services for crypto platforms.

ANOTHER ONE: Cryptocurrency lender Nexo will partner with Fidelity Digital Assets to provide products and infrastructure for institutional investors, Nexo announced Tuesday. Institutional investors who use Fidelity as their custodian will have access to Nexo’s products and crypto prime brokerage under one umbrella. This will bridge the gap between Nexo’s lending solutions and Fidelity’s asset protection businesses, the firm said in a press release.

–Helene Braun

A message from Nexo

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Overheard on CoinDesk TV...

Sound Bites

“With time, NFTs as digital art will become more detached from the crypto world.”

–Sotheby’s Deputy Director Michael Bouhanna, on CoinDesk TV’s “First Mover.”

What others are writing...

Off-Chain Signals

Ocasio-Cortez says US lawmakers shouldn’t hold crypto to “remain impartial” (Cointelegraph) YouTube’s crypto influencers try shouting over the scammers (Bloomberg) From a meme to $47 million: ConstitutionDAO, crypto and the future of crowdfunding (The Verge)

A message from CME

Now available for trading: Micro Ether futures (product code MET), the latest addition to the CME Group suite of leading Cryptocurrency derivatives products.

Sized at 1/10 of one ether, the new futures contract offers a cost-efficient way to fine-tune ether exposure. Like all CME Group Cryptocurrency contracts, Micro Ether futures are CFTC-regulated, which helps allow for market transparency, centralized trading, and reduced counterparty risk.

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Most Influential is CoinDesk’s recognition of this wide-ranging field of innovation. These names were selected first by readers in a survey and then by staff over two rounds of (intense) meetings. Check out the top 10 here.

Putting the news in perspective

The Takeaway

Lost Coins Are Good for Bitcoin

Hi, Daniel Kuhn here. The New Yorker recently published a profile about early bitcoin user James Howells, who mined about 7,500 BTC using his gaming computer in 2009, only to discard the hard drive storing his private keys while cleaning his home office. That trove, worth today approximately $383 million, is likely sitting in a dump in Newport, Wales.

Howells thinks he has a decent chance of recovering the hard drive. He’s worked to raise £5 million ($6.6 million) to finance an excavation. That project would dig up and sort through 40,000 tons of household waste, buried for nearly a decade. But the Newport government thinks it’s too dangerous and isn’t worth the cost.

The story is familiar enough: There are plenty of tragic tales about people throwing out their old computers, forgetting passwords or getting hacked. Sometimes people regret spending bitcoin too soon. One South Carolina hypnotist even markets services around helping people recall forgotten private key pairs.

Sad though it may be for Howells, this is simply how bitcoin works. In creating a tamperproof, append-only distributed database, bitcoin founder Satoshi Nakamoto also created a monetary system that would be very hard to hack, censor or dismantle.

Howells told the New Yorker, if it were any other way, if he or anyone else were able to reverse the Bitcoin blockchain to recover lost coins, then so would nefarious actors – like governments or corporations.

Some bitcoin boosters and critics alike say the network will never become a widely adopted payments system without the ability to reverse transactions. Real life is messy – people make mistakes or change their mind. Having that fallback is good for business.

The amount of capital in this industry obscures the relatively simple aims Nakamoto set out to accomplish. A healthier view might be that crypto – admittedly a difficult thing to wrap your head around, let alone use – is a better fit for a small subgroup of sophisticated users. That sounds elitist. But changing bitcoin at its core isn’t crypto; it’s fintech.

On this subject, Nakamoto wrote about irretrievable coins as a “donation to everyone.” The more coins that are permanently taken out of circulation, the more valuable the rest become. Data analytics firm Chainalysis estimates that about a fifth of all coins mined to date (somewhere between 2.78 and 3.79 million) are lost.

Blockchain rollbacks have happened before, and will likely happen again. The version of Ethereum we all know and love is the result of a reimbursement plan for victims of the DAO hack. The issuers of U.S. dollar-pegged stablecoins tether and USDC routinely freeze funds. But it will almost, certainly never happen to bitcoin. And that’s its strength.

There’s a price tag, often a painful one, attached to lost coins. But bitcoin’s core principles, of censorship-resistance, of personal responsibility, are invaluable.

–Daniel Kuhn

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