
Do Bitcoin Markets Have a Conversion Tort Problem? - bobcostas55
https://mechanicalmarkets.wordpress.com/2017/11/05/bitcoin-nemo-dat/
======
empath75
More on this: [http://jpkoning.blogspot.com/2017/06/on-
currency.html](http://jpkoning.blogspot.com/2017/06/on-currency.html)

> Property that had been granted currency had a different legal status from
> property that didn't. Let's assume that a good has been stolen and sold by
> the thief to a third party, a shopkeeper, who innocently accepts it not
> knowing that it has been stolen. For most forms of property the original
> owner could sue the third party and get the stolen article back. But not if
> that good is one of the few to be considered by society to have currency,
> wrote Macleod. When an article is said to have currency, or to be current,
> the original owner cannot chase the third party to recover stolen property.
> So in our example, our shopkeeper gets to keep the stolen good, even if its
> stolen nature has been proven in court.

~~~
nosuchthing
The Bitcoin community seems to have shifted the terminology away from currency
to a digital asset or commodity.

US regulators have classified it not as a currency, but as a commodity.
[https://www.bloomberg.com/news/articles/2015-09-17/bitcoin-i...](https://www.bloomberg.com/news/articles/2015-09-17/bitcoin-
is-officially-a-commodity-according-to-u-s-regulator)

Side note, the talks of micropayments and currency use has shifted due to high
fees and a paradoxical aversion to updating the network to reduce clogging.

~~~
tfha
Paradoxical aversion to upgrade the network much like California has a
paradoxical aversion to increasing the speed limit to improve highway
throughput.

It's so strange to me... commutes would be much shorter if cars were allowed
to drive 150, and your roads would be able to move more people per day, too.

~~~
nosuchthing
You've attempted to create a false equivalence here.

Increasing bandwidth and reducing fees is trivial and would be user friendly.
Dynamic blocksize and fees as implemented on Monereo [1] would be a good
example of a dev community that can implement forward thinking designs without
ideological constraints to exploit the user experience for the financial
benefit of a minority.

[1] [https://monero.stackexchange.com/questions/4562/how-does-
the...](https://monero.stackexchange.com/questions/4562/how-does-the-dynamic-
blocksize-and-the-dynamic-fees-work-together-in-monero)

~~~
tfha
No, that's where you are mistaken. Block size is a security parameter.

------
test6554
Anybody could report some bitcoin as stolen and make a claim on it at any
point in time if the private key for that bitcoin ever became public or was
cracked.

All you have to do is come across a private key of an old account with no
bitcoin in it and then announce to the world that it was your account and it
was stolen and the money should be returned to you regardless of who has it
now.

Also, any transaction can have multiple inputs and outputs. If your btc is
stolen and combined with 10 other accounts and then funneled into 37
completely different accounts, you now have some percentage rightful claim on
37 different accounts. If each of those 37 create transactions get combined
with other bitcoin inputs and have more outputs you could end up with some
dilute percentage of all bitcoin accounts holding some claimed stolen coins.

~~~
freeloop3
You could also just move the funds, from address a to address b, then buy
something from some merchant, say monero from shapeshift, and claim some
dastardly fellow hacked into your account and stole the funds from address a.
Now do you have a claim against shapeshift?

~~~
nosuchthing
That's what the legal system exists for, burden of proof.

------
PaulAJ
Ultimately this is still legally undecided, and will remain so until a court
decides it. Given that cryptocurrency exchanges have operated in a legal and
straightforward way by treating cryptocurrencies as money, I suspect that
courts will tend towards preserving the status quo.

It is true that in other legal contexts courts and governments have decided to
treat Bitcoin as a commodity, but they have no problem calling it "money" when
requiring exchanges to register as money service businesses. This is not
inconsistent because the definitions of "money" and "commodity" are local to
each law; tax law has a narrower definition of money than the laws regulating
money service businesses.

So it would be perfectly reasonable and consistent to say that, for the
purposes of title, cryptocurrencies are treated as money regardless of the way
they are treated elsewhere in the law.

Even if Bitcoins are treated as a commodity for property law purposes, title
is unlikely to follow them in practice. If I take some BTC from source A and
put it in an address, and then some BTC from source B and put it in the same
address, the two lots of BTC are now mixed up in a single address. In cases
where this occurs as a physical process (e.g. putting petrol in a car) the law
(at least in the UK, I don't know about anywhere else) treats the mixing as a
one-way step. So if you put petrol in your car and then find you can't pay,
the garage is not allowed to siphon the petrol back out because they will
inevitably take some of your petrol as well as their own. Once the mixing has
happened the petrol is your property, although of course you still have to
identify yourself and accept the debt, or be guilty of "making off without
paying". Similar arguments apply to food at a restaurant.

By a similar argument, it can be argued that once stolen Bitcoins have been
mixed with others in a common address it is not possible to distinguish the
stolen bitcoins. Hence they become the property of the person who has acquired
them.

Whether these arguments will actually persuade a court remains to be seen, but
the legal situation is more complex than the original article lets on.

~~~
cesarb
> but they have no problem calling it "money" when requiring exchanges to
> register as money service businesses.

Is that because they treat Bitcoin as "money", or because they treat Bitcoin
as a "money transfer" mechanism, that is, a way to send money to someone else?

> If I take some BTC from source A and put it in an address, and then some BTC
> from source B and put it in the same address, the two lots of BTC are now
> mixed up in a single address.

That simplified view is not how Bitcoin actually works. In your example, the
single address now has two separate and distinct "unspent transaction
outputs", one for the transaction from source A, the other for the transaction
from source B. The mixing will happen only once they are spent, since the
wallet software can use either of them, or both, as the input(s) for the
outgoing transaction; but before that happens, they could easily be separated.

In fact, there is no real or virtual object which could be called a "Bitcoin".
The Bitcoin blockchain is a distributed ledger which records statements like
"of the combination of the previously unspent outputs A, B, and C, an amount
of X will go to a new output D with key K, an amount of Y will go to a new
output E with key L, and the rest will go to whoever generates a valid block
which includes this transaction"; the unit of measurement for these amounts is
what is "Bitcoin". Saying an address "has X Bitcoin" is a simplification for
"the address has the keys corresponding to a set of unspent transaction
outputs, which together sum to an amount of X Bitcoin".

So the "stolen Bitcoins" are "spent" the moment they are transferred to a new
address, and can't ever be given back (a transaction output can only be spent
once). What can be given back is a new set of transaction outputs, with the
equivalent amount of Bitcoin. Whether that makes a material difference for the
courts, I can't say, but it at least muddles the waters a bit more.

~~~
a_t48
How different is this _really_ from storing money in my checking account? The
bank doesn't allocate individual stacks of bills for each account, they just
have a number which is how much money of mine they are holding (which is
created from a series of deposits and withdrawals).

~~~
cesarb
A checking account is closer to the intuitive "this account has X amount of
money"; the transactions are "add X money to the account" and "subtract X
money to the account".

With Bitcoin, it's as if you had thousands of tiny checking accounts, every
time you received money created a new one, and you could withdraw each account
only once, and always for the full value (if you wanted to use only part of an
account, you had to send the rest to a new account).

------
mapumpum
Imagine that on average 1 unspent output gets signed over to 3 unspent
outputs. 1 -> 3 -> 9 -> 3³ -> 3⁴ ... 3^n outputs that would need to be
restituted.

Imagine the average number of times that an unspent output gets spent a year
is 50.

So, this means that after one year, it will be necessary to hunt down name,
address, and whereabouts of up to 3⁵⁰ unspent output owners, many of which
will turn out to be the same persons, but you cannot know that upfront. The
more time passes by, the worse the problem gets.

So, that means that you could easily end up suing something like 100,000
individuals in 190+ jurisdictions.

That is even more unrealistic than the failed attempts of the MPAA trying to
sue bittorrent users.

You see, someone sitting on stolen bitcoins will keep exchanging them back and
forth for other cryptocurrencies until he has nothing left from his original
stash. Therefore, you will most likely not even be able to sue the original
thief.

~~~
seanhunter
I know what the blog article says, but I don't think that's how this works.
They don't generally go after the 100k end people who have fragments of the
stolen coins in your example, they just go after the 3 who received the stolen
coins and say they have to make restitution. Otherwise you could get out of
any financial liability for receiving stolen goods just by flipping to someone
else. One of the things that regulators, prosecutors and counsel for wronged
parties take into account is how likely they are to get restitution based on a
particular construction of the case, so they may choose to pursue a party
where the theory of liability is a bit tortuous if it allows them to sue a
party with deep pockets where they are more likely to be able to get
restitution for example.

I am familiar with how tracing cash and securities transactions on behalf of
wronged parties was done in a couple of frauds and that's how it worked there
(although those cases didn't involve bitcoin it must be said).

//edited to explain more clearly that I had read the article so understand the
point the parent was making in that context

~~~
mapumpum
So, now you need the identities along the transmission chain too, up to:
1+3¹+3²+3³+3^n = (3^(n-1)-1)/(n-1).

It only makes the problem worse. Most of these identities cannot be recovered.
It is not realistic to believe that the first 3 identities in the chain will
be recovered. It may very well end up being identities further down the chain.

Furthermore, you will still need to try until you can find an identity in a
jurisdiction in which you can sue.

Imagine that you find someone at step 12 with some fraction of the coins, who
lives in Japan, and who bought the coin fractions at an exchange. Are you sure
that the Japanese courts will cooperate with your recovery efforts?

By the way, the MPAA mostly stopped suing bittorrent users in Europe and
elsewhere, because "Pirate parties" started springing up and gaining
increasingly more elected seats. At that point, we are no longer talking about
what the law would be, but what it should be, and things started looking bad
for the MPAA. So, they backed off.

Suing lots of random people on rather flimsy grounds would very soon get
political too.

Furthermore, as Von Clausewitz nicely argues in "Vom Kriege", war is just the
continuation of the political negotiations but then by other means. So, that
would be the next step, if even the political confrontation would fail. It was
not that the MPAA was ever going to win.

~~~
tromp
> 1+3¹+3²+3³+3^n = (3^(n-1)-1)/(n-1)

Sorry to be pedantic, but this contains 3 [sic] errors.

1) it's missing a ... denoting n-4 terms between 3³ and 3^n

2) the exponent on the right should be n+1 instead of n-1

3) the denominator on the right should be 3-1 instead of n-1

------
bendoernberg
Also see "Bitcoin's lien problem":

> "Indeed, given the high volume of fraud and default in the bitcoin network,
> chances are most bitcoins have competing claims over them by now. Put
> another way, there are probably more people with legitimate claims over
> bitcoins than there are bitcoins. And if they can prove the trail, they can
> make a legal case for reclamation."

[https://ftalphaville.ft.com/2015/03/24/2122678/bitcoins-
lien...](https://ftalphaville.ft.com/2015/03/24/2122678/bitcoins-lien-problem)

~~~
VarFarYonder
Fungibility is something other cryptocurrencies have and that could be added
to bitcoin via a hard fork.

That's one of the strengths of cryptocurrencies: they can adapt. And, in my
opinion, which version is most valuable is decided by the community -- not the
miners, but the people who are buying and selling.

------
chisleu
The problem is after it changes owners through exchanges and tumblers. It's
like stolen cash being deposited into a bank and given back to someone it was
stolen from 5 years and hundreds of transactions before.

It wouldn't be fair to anyone if we did that with cash, and it's not fair to
try to enforce that with bitcoin.

------
CryptoPunk
This post on Reddit explains how in 1749, a court sided with the Royal Bank of
Scotland in its legal challenge to a request for such a blacklist. The RBS
argument was that making money responsible for the acts of its previous
holders would "render the Notes absolutely useless":

[https://reddit.com/r/Bitcoin/comments/1le87j/bitcoin_core_de...](https://reddit.com/r/Bitcoin/comments/1le87j/bitcoin_core_dev_on_stolen_coins_and_transaction/cbycmhk)

------
julian_1
Isn't this why monero exists? By using ring signatures to guarantee
fungibility of spendable outputs by making them untraceable?

Also, you don't need to resort to property torts, when there are crimes of
stealing and fraud and statutory remedies like restitution available.

------
billytetrud
This kind of thing is where monero shines

------
zodiac
I wonder how some of the legal doctrines described would treat stolen zcash,
since anonymity of some transactions can be guaranteed mathematically
(assuming some cryptographic assumptions). If a jurisdiction would, for a
broker that didnt keep good records, place liability/taint pro rata on all its
depositors, would it follow that all participants in the zcash network are
similary pro rata responsible for reimbursing stolen coins in the eyes of that
jurisdiction?

~~~
ThrustVectoring
If all zcash is pro-rata considered "stolen" when one is, then you could argue
that zcash participants are all knowingly transferring stolen goods (since
it's public knowledge that some portion of the zcash is stolen). That'd be
enough to shut down the network at the interface with the state-sanctioned
banking system.

~~~
rohit2412
I don't agree with the reasoning. Since we all know that a few currency notes
are stolen sometime, the entire usd cash system will be shut down?

------
narrator
Could you imagine the guy who wrote this article in a bar with Satoshi in 2008
telling him the whole project should be abandoned because of this issue?

What's funny about bitcoin is that there are all kinds of ways it could have
failed, but it didn't. The government could have kicked down the door at any
moment with all kinds of trumped up legal stuff, but they didn't. What
happened?

------
bbqchippy
Yep, will be a serious liability of BTC. I wager it will take some for the
risk to actualize. The crypto craze continues until it doesn't. And when it
plummets, devoid of any legitimate value, it will fall hard and prove just
another blip on the screen for those who aren't laughing to the bank now.

~~~
freeloop3
You've got a lot of hubris saying that. You don't think this hasn't been
repeated before?

The truth is that a currency gains more utility when people value it more
which in turn makes it more valuable. Until you see that you will continue to
be blindslided by it's growth.

------
vinniejames
The exact same issue arises with laundered cash. Nothing revolutionary here

~~~
PaulAJ
No it doesn't. That is the difference with money. If you acquire a $10 note in
good faith as payment for something, the history of the note doesn't matter.

------
ionwake
This is quite a nice and subtle attempt at raising the value of newly minted
coins. 5/5 for effort.

------
__MatrixMan__
I question whether property rights are relevant at all in the Bitcoin case.

Controlling a private key != Ownership

------
apapli
They lost me at “I’m not a lawyer and don’t understand the relevant
intricacies...”

------
arisAlexis
What's different from Usd markets if bitcoin is currency?

