If you have $10,000 in your bank account, and thieves hack into your account and drain all of the money, and you go to your bank and establish that that\u2019s what happened, and the hackers get away successfully, what will the bank do? The three main theoretically possible answers are:<\/p>\n
Which one it chooses will be determined mostly by regulation and somewhat by how effectively you complain, but none of that is the point here. The point is that what will not <\/em>happen is:<\/p>\n 4. The bank will say \u201cWell the dollars <\/em>are gone, but we can credit you with 10,000 Theft Bucks, enjoy!\u201d<\/p>\n I am not even sure I know what that sentence means. But let me try. A bank is a system of computers<\/a> that keep lists of people who have stuff. For the most part, your entry on the list shows how many U.S. dollars you have at the bank. There is an important sense in which this entry means \u201cthe number of U.S. dollars that the bank has to pay you when you ask,\u201d but there is a more important sense in which it doesn\u2019t. Most people\u2019s primary interaction with their bank is not withdrawing paper money<\/em>; for most people, the number next to their name on the bank\u2019s list simply is <\/em>the number of dollars that they have. If they want to spend those dollars, they do it by sending electronic messages telling the bank to decrement the number next to their name and increment the number next to someone else\u2019s name; the dollars never leave the banking system\u2019s computers, never become paper money, always remain numbers on lists. The number on the list is not the number of dollars that the bank has to give you if you ask; it is the number of dollars that you have already. \u201cDollars\u201d are <\/em>entries on the bank\u2019s list.<\/p>\n The bank controls the computers, so it is a little tempting to say that it could put any number it wants next to your name. It can\u2019t, though, for important reasons of regulation and tradition and, you know, the whole banking system would crumble if the bank just made up numbers arbitrarily. Well, it would crumble if the bank just made up numbers of U.S. dollars<\/em>. U.S. dollars are very important and widely accepted and there is a huge financial and regulatory apparatus built up around the function (banking) of keeping lists of them. But the bank could make up other <\/em>numbers on other <\/em>lists. The bank could say \u201cevery time you use an ATM we will give you 10 loyalty points,\u201d and then it could keep a list of customers and their loyalty points, and then one day it could say \u201calso we\u2019ll give you 20 loyalty points every time you smile at a teller\u201d without any particularly serious implications for the banking system. 3<\/a><\/p>\n And so you could just about <\/em>imagine discovering that your account was hacked and that your $10,000 is gone, and going to the bank and saying \u201chey your list says I have $0 but I should have $10,000,\u201d and the bank saying \u201cwell your entry on that list of dollars was decremented to $0 using the established procedures of banking, and we cannot reverse those procedures because that would mess everything up, but we will write another <\/em>list, not <\/em>of dollars, but of something else \u2014 call it Theft Bucks \u2014 that we just made up, and we can put 10,000 next to your name on that list, does that help?\u201d And you will say, no, it absolutely does not, because dollars can be used to pay rent and buy sandwiches, while Theft Bucks are a thing that the bank made up just now. <\/p>\n But this is because there is a very stark binary, in traditional banking, between dollars<\/em>, which are money, and other stuff<\/em>, which is not. Move this bank into the world of cryptocurrency<\/em> and the situation gets much hazier. Crypto tokens can be created arbitrarily, in a sense all of them are money, in another sense none of them are, and there is a continuum between the ones that feel a lot like money and the ones that don\u2019t. If you have an account at a crypto exchange and it contains 10,000 Shiba Inu tokens<\/a>, and a thief drains your account and you complain to the exchange and the exchange says \u201csorry about that, the SHIB are gone \u2014 immutable blockchain and all that \u2014 but to make it up to you we will create a brand-new Lost Dog token and give you 10,000 of them,\u201d does that help? Maybe? The Shiba Inu tokens were worth a somewhat arbitrary and variable amount of money based on speculative interest, and the Lost Dog tokens will also be worth a somewhat arbitrary and variable amount of money based on speculative interest. Context clues here suggest that the Shiba Inu tokens are worth more<\/em>, and have more general interest, while the Lost Dog tokens are just nonsense and won\u2019t be worth much, but, I mean, are the Shiba Inu tokens not <\/em>nonsense?<\/p>\n We talked yesterday<\/a> about the Bitfinex hack. In 2016, Bitfinex, a cryptocurrency exchange, was hacked; thieves made off with 119,754 Bitcoins. At the time this was a $71 million haul. When I wrote about it yesterday, though, it was a $5.3 billion haul, as Bitcoin went up about 7,000% over the past six years. (As of this morning it\u2019s a $5.4 billion haul.) We talked about it yesterday because the Justice Department arrested two people for allegedly trying to launder the money, and managed to recover at least 94,636 of those Bitcoins, worth $4.2 billion at yesterday\u2019s price. And the Justice Department has promised to give the Bitcoins back to the victims of the hack.<\/p>\n The simplest way to interpret that is that if you had 10 Bitcoins in your Bitfinex account in 2016, worth about $6,000,and they went missing, then now the Justice Department will give you 8 Bitcoins (it recovered about 80% of the missing Bitcoins), worth about $360,000. From 2016 until now you had an asset \u2014 Missing Bitcoins \u2014 that appreciated by about 6,000%, which is a worse performance than actual <\/em>Bitcoins but much better than, you know, the S&P 500. Owning Bitcoins stolen from Bitfinex was an incredibly good trade. Here\u2019s Bloomberg\u2019s Olga Kharif<\/a>:<\/p>\n David Silver, a lawyer who specializes in financial and cryptocurrency-related fraud, said since the seizure was announced Tuesday he\u2019s received dozens of calls from individuals saying they lost money in the 2016 online heist and they want to get their coins back. Twitter has been whipped into a frenzy as well, with posters asking how to claim lost crypto. Justice Department officials said they plan to establish a court process for victims to reclaim the stolen digital assets, which have since surged in value. <\/p><\/blockquote>\n But there are other ways to interpret it. Bitfinex, in particular, has other views. 4<\/a> Bitfinex\u2019s views are, approximately, \u201cwe gave you 119,754 Theft Tokens to make up for your 119,754 stolen Bitcoins, so you are fine and those Bitcoins are ours now.\u201d Kharif:<\/p>\n Bitfinex considers that it\u2019s made investors whole, and said in a statement<\/a> that it will \u201cfollow appropriate legal processes to establish our rights to a return of the stolen Bitcoin.\u201d If Bitfinex and users start off on a collision course, the legal battle would likely be protracted.\u201cThe world has changed dramatically since 2016, and everyone is going to lay claim to this newfound bag of Bitcoins,\u201d Silver said. \u2026At the heart of Bitfinex\u2019s argument is a long-ago token distribution. After the attack in August 2016, when a hacker made away with more than 119,000 Bitcoin, Bitfinex allocated losses of more than 30% to all customer accounts. It then created and credited BFX tokens to customers at a ratio of one for every $1 lost. Within eight months, all holders had those tokens redeemed, or had exchanged them for iFinex capital stock. During that time, Bitcoin\u2019s price had nearly doubled, according to Bloomberg data.Bitfinex also created another coin named Recovery Right Token, or RRT, for holders that had converted their BFX tokens into iFinex shares. In case the stolen Bitcoins were ever recouped, recovered funds would be distributed to RRT holders, at up to $1 per RRT. There are currently 30 million RRT tokens outstanding, according to Bitfinex. That could lead to a reimbursement of up to $30 million. \u2026\u201cI think that\u2019s ridiculous,\u201d Alan Aronoff, a 52-year-old San Francisco resident, said in an interview. \u201cThat\u2019s my Bitcoin that they took from my multisig wallet. I would like my Bitcoin back.\u201d Aronoff doesn\u2019t remember whether he signed away any rights to his stolen Bitcoin while accepting the Bitfinex reimbursement. <\/p><\/blockquote>\n I don\u2019t know! The traditional analysis would be:<\/p>\n In practice I assume that Bitfinex gave the tokens to the customers to make them less mad at Bitfinex, but you can do that with or without a signed contract selling the claims. I am not sure who wins here.<\/p>\n\n