Imaginary games with imaginary money
It just vanished — $190 million. But was it ever there?
The $190 million was in crypto-currency, controlled by a Canadian firm called QuadrigaCX. The best known crypto-currency is probably Bitcoin — an imaginary currency invented, appropriately, by an imaginary person who used the name Satoshi Nakamoto, just ten years ago.
QuadrigaCX, once Canada’s largest crypto-currency exchange, was founded by Gerald Cotten, a resident of Nova Scotia. According to a death certificate issued by the Fortis Escorts Hospital in India, 30-year-old Cotten died on Dec. 9 of multiple heart attacks.
He was admitted suffering from septic shock, perforation peritonitis, and intestinal obstruction, brought on by chronic Crohn’s disease.
Only Cotten knew the encrypted passwords required to access the company’s digit assets.
As I understand crypto-currencies — and I don’t — they’re supposed to be an unhackable way to store wealth. It can’t be touched by governments, banks, or internet thieves, because its security depends on a “block chain” of computers, all of which have to be convinced that a transaction is legitimate before it can go ahead.
To unlock the block chain, you have to have a key — a random collection of data bits, generated by an algorithm to ensure that your key is unique, untraceable, and uncrackable.
And encrypted too. Encrypting garbles the original computer code by replacing real characters with other characters, defined by a formula. You need to know that formula to convert the garbled code back. (Which makes the 80 or so passwords for my software, my subscriptions, my bank accounts, and my memberships look like child’s play.)
David Gerard, author of a book on blockchain technology, says that the biggest problem with asking outside regulators to solve the “digital cash conundrum” is that hardly anyone is qualified to do it. As the crypto-currency newsletter Chepicap asked, “How can we trust a judge to understand the hopelessly complicated world of crypto-currency, if he doesn't even know what a subreddit is?”
When Cotten died, his cryptokeys died with him. (Hmmm… Maybe you can take it with you.)
Since then, accounting giant Ernst and Young has been trying to crack the supposedly uncrackable encryption, to get at QuadrigaCX’s crypto-assets for crypto-creditors allegedly owed around $260 million.
So far, they’ve found nine so-called “cold wallets,” used to store digital assets offline. But all the wallets were empty.
Which makes we wonder if there was ever anything in them.
Wikipedia estimates that 20 per cent of Bitcoins, worth about $20 billion in conventional currencies, have been lost. Forever. Plus another $7 billion stolen.
Nakamoto himself, whoever he was, created Bitcoin out of nothing, essentially. By applying his own algorithms, he earned a million or so Bitcoins for himself.
The whole business makes me think of an anonymous parable circulating on the internet a decade ago:
It’s a slow day in a small town. Times are tough. Everybody is in debt.
A tourist passing through town stops at the motel. He asks to check out the rental cabins. He leaves a $100-bill on the desk as security.
As soon as he goes out to examine the cabins, the motel owner grabs the $100 bill and runs next door to pay his debt to the butcher. The butcher takes the $100 down the street to pay the pig farmer. The pig farmer pays off his bill at the feed store. The feed store guy runs to pay his debt to the local prostitute, who has had to offer her services on credit because her clients have no money. The hooker rushes to the hotel and pays off her room bill. The motel owner puts the $100-bill back on the counter.
When the traveler comes back, he declares that the cabins are not satisfactory, takes back his $100 bill, and leaves.
No one produced anything. No one earned anything. But the whole town is now out of debt.
Of course, today there would be no real cash involved. The transactions would all take place online. Just digital data flying back and forth.
Long ago, a silver dollar was worth a dollar of real silver. But today’s $100 bill cost the Canadian Mint no more than a $10 bill. And, each probably cost less to make than a single $1 coin.
Our whole monetary system seems based on a mutually agreed fiction that something worth nothing is actually worth something.
So why not extend the fiction to imaginary currency? Like Bitcoin. And QuadrigaCX.
If it’s all imaginary, what makes us think there was anything there to find?