Satoshi Nakamoto, the mysterious creator of bitcoin, has a lot of coins that remain unspent. What is he or she likely to do with them, and how might it affect the bitcoin universe?
This article was inspired by a CoinDesk commenter, who worried that we don't know much about Satoshi's intentions. "That hoard gives him way, way, way too much potential influence and wealth," they said.
Satoshi certainly has a lot of funds. Bitcoin security consultant Sergio Lerner's oft-cited analysis puts the figure at around 1m BTC, based on the early mining that he or she did.
Most of those coins were unspent, the exceptions being some test transactions during the first ten days after Satoshi mined the genesis block (the first block on the blockchain).
That puts Satoshi's personal fortune at around $383m at the time of writing, based on CoinDesk's index of bitcoin prices, the BPI.
But how many yachts Satoshi could buy is less important than how much of bitcoin's inventory he or she owns. Today, there are around 13.5m bitcoins in existence.
Satoshi owns 7.5% of the entire bitcoin inventory: one thirteenth of a digital currency with a $4.9b market capitalisation at press time. And that's not counting the rapidly growing digital economy that sits atop it.
All of this makes people like Jeremy Glaros nervous. Glaros runs CoinArch, a bitcoin hedging system designed to pay interest on bitcoin investments.
The worst-case scenario
"Concentrating control of a market in a few hands is not generally good for integrity, fairness or transparency," said Glaros, citing Silver Thursday as an example.
In that 1980 event, two billionaire brothers tried to corner the market in silver, sending prices soaring and subsequently plummeting after the US government stepped in to regulate.
With such a huge holding, could Satoshi exact similar pressure on the bitcoin market? It could be catastrophic, said Glaros. He points to the bear whale incident, when 26,000 bitcoins were unloaded on BitStamp on 6th October, slashing market prices by 10%.
What would happen if a much larger stash of coins like Satoshi's was unleashed on the market at once?
"If Satoshi were to dump one million bitcoins, it is not only the price effect we have to worry about but what I'll call the 'faith' effect: after all, if the creator appears to lose confidence in bitcoin then what are the rest of us to believe?" Glaros said. Bitcoin companies would become insolvent, he suggested, and the market would take a long time to recover – if it were to recover at all.
A gentler scenario
That's the nuclear option, but there are others. One other option, Lerner said, is that Satoshi sells off his or her coins responsibly.
"Suppose that Satoshi spends one satoshi on block N, two satoshis on block N+1, and three satoshis on block N+2, from different addresses known under his control," Lerner said. That proves that he or she has the control of those addresses, and the ability to move the coins.
Then, Satoshi waits a week, and lets the community know in a message that he or she plans to spend the coins. But Satoshi also tells people that he or she won't do it all at once.
The first market reaction could be a drop in the price, because people might be spooked that addresses known to be Satoshi's are moving coins.
The subsequent reaction could be positive, because of Satoshi's explanation and already-measured approach, Lerner suggested. Who knows – maybe having this Jesus-like figure come back might increase confidence in the market and drive the price up over time?
Burn, baby burn
There's another option that could drive up the price: burning the coins. Bitcoins can be effectively destroyed by sending them to an address that is unspendable. Satoshi could simply eliminate the coins by spending them to an unspendable address.
"If he did burn them, the market reaction would be terribly bullish," Lerner said. Fewer bitcoins would mean that the ones left would be considered more valuable.
Gavin Andresen, who was Satoshi's closest disciple, thinks that Satoshi could combine elements of both approaches, which he believes could let the shadowy figure cash out some of his coins without revealing his or her identity.
Andresen suggested that Satoshi could buy bitcoins at current market rates on an exchange, and then burn bitcoins from his or her early stash, which would push up the price. Assuming the price does rise, Satoshi could then sell the coins purchased from the exchange at a profit, Andresen said.
To get full market value via this method, Satoshi would first have to recoup the amount that he or she paid for bitcoin on the exchange, and then make the same amount in profit. That means that he or she would have to force the price of bitcoin up 100%.
Satoshi would have to burn a lot of bitcoin and potentially destabilise the market to pull that off. It isn't a sustainable method when you're trying to offload a large number of coins.
In any case, it's difficult to know what Satoshi is going to do with those coins, because we know very little about him or her.
"As far as I know he never talked about if or when or on what he might spend those early coins," said Andresen, who was as close to Satoshi as anyone was in the time that the anonymous figure contributed to bitcoin.
Guessing at Satoshi's intentions
We know that Satoshi's achievement with bitcoin used developments made by many others, and we also know that he or she announced bitcoin via the MetzDowd cryptography mailing list. This email list was a hangout for a loosely coupled group known as the cypherpunks, which focused on using cryptography to preserve privacy. Eric Hughes' 'Cypherpunk Manifesto' lays it out here.
There are some references in Satoshi's few posts on emailing lists and forums suggesting an ideology of equality.
"We can win a major battle in the arms race and gain a new territory of freedom for several years," Satoshi said in one posting, replying to a point about cryptography solving political problems.
"Governments are good at cutting off the heads of a centrally controlled networks like Napster, but pure P2P networks like Gnutella and Tor seem to be holding their own."
The Nakamoto Institute, which collates information about cryptography and freedom of information, keeps copies of Satoshi's mails and forum postings, and of some cypherpunk literature.
Bitcoin activist Cody Wilson, who helped create Dark Wallet and also founded the 3D gun design site Defense Distributed, is also a spokesperson for the Nakamoto Institute.
"Having these coins is almost necessary. The whole system was predicated on this kind of original distribution," Wilson said. After all, someone had to kickstart the bitcoin network, seeding it with coins when few other people were paying attention.
"There is something less than anonymous about Satoshi," continued Wilson. "You could even argue that the system he built and his own behaviour with the coin gives you enough data points about his personality to trust this figure."
Lerner quantifies that behaviour, and reaches similar conclusions. He believes that Satoshi wasn't mining for profit, because of the way he or she gradually pulled out of the mining process as other miners took on a greater percentage of the hashrate.
He explains that this was done in multiple stages, each with two phases. Satoshi would first reduce the hashing rate on his or her machines. Then, Satoshi would turn off a single machine and then increase the hash rate on the rest of the machines to compensate.
"This could be done to test how the network would react to the disconnection of the machine. This method suggests that Satoshi did not turn each machine off because it was broken, but because he wanted to," Lerner said. "This two-phase disposal method contradicts the hypothesis that Satoshi was mining for profit, and reinforces the idea that Satoshi wanted to let others get the mining rewards."
There's certainly a chance, we must suppose, that the conspiracy theorists may be right, and that Satoshi was indeed a malicious force: one of the three letter agencies, an international cartel of banking bigwigs, or a nation state playing some shady geopolitical game. Occam's razor wouldn't cut that way, but that won't stop people suggesting it.
Let's assume Satoshi was malicious for a minute. Most of his or her code has been rewritten at this point, so back doors seem unlikely. The coins that he or she is hoarding could be dumped immediately, with catastrophoic effect, it's true. But then, there are more ways to mitigate the risk.
"Diversify!" advocated Andresen. "Bitcoin is a high-risk investment and should be a small part of a well-diversified portfolio." Or, in other words, don't invest more than you can afford to lose.
In the meantime, Satoshi's position is being diluted to the tune of 25 bitcoins every ten minutes. When the last one is mined, assuming that he or she doesn't spend or burn his or her coins, Satoshi would have just under 5% of the bitcoin inventory.
"He could act like he’s playing a long con, but at this point it becomes an increasingly untenable position," Wilson suggested.
Satoshi could burn the market badly if he or she truly wanted to, but there's nothing in the evidence we have to suggest that he or she will. As one person said when I asked this question on ZapChain, maybe it's best not to worry too much about things that you can't control.
After all, if a handful of decidedly non-anoymous banks can bring the financial system to its knees overnight, perhaps we have other, more pressing things to fret about.
Disclaimer: The views expressed in this article are those of the author and do not necessarily represent the views of, and should not be attributed to, CoinDesk.
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