Bitcoin and the principle of quantum uncertainty – seen through a legal prism
Does the government in Bulgaria really hold more than 200 thousand BTC? What does Bitcoin have to do with Schrodinger’s cat? What does Patek Philippe and Bitcoin have in common? It may take a while to read the introduction, but bear with us for all answers below.
Bitcoin’s legal status and quantum physics – how crazy is that
Bitcoin and cryptocurrencies fear quantum computers. Every crypto nerd knows that. And every Bitcoin hodler knows that if quantum computers evolve fast, the fate of crypto may become less certain. It’s all about breaking encryption after all. But today we will talk about another (un)certainty, not the (un)certainty you may be thinking of…
Does Bulgaria really own (hold) more than 200 000 BTC?
or the lawyers’ view on owning Bitcoin and what does it have to do with quantum uncertainty
What does it really mean to own something?
Without going too deep into the legalities (as we talk global here, not only about the laws of a certain jurisdiction), to own something means to have full control over it. In other words, the “item” you own must be in your possession. Generally, this is achievable in two ways:
- If the “item” is in your physical possession, in case it doesn’t need to be registered in a central (usually governmental) register. Your personal things, money in cash, jewelry, household items, etc. are usually being owned that way. If one takes possession of these “items” (ie steals your cash or you hand it over to pay for something), the “item” ceases to be yours;
- In the case that the “item” has to be registered centrally, then it is the registration that matters. A real estate for instance needs to be registered and you are the owner if the estate is on your name. You may let tenants in it and hand them over the key, but the property remains yours. The same is with your car, bank accounts, etc.
You never actually own a Patek Philippe. You merely look after it for the next generation.The above is the Patek Philippe’s slogan, but how very true it is for Bitcoin…
How do you own Bitcoin (and other cryptocurrencies)?
Through an exchange
Owning Bitcoin is another story. You can basically own it the old fashioned way too – through an exchange. This is done by means of registering the BTC in the exchange in your own name. In this case, you are letting the exchange have (basically create them) your private keys in return for keeping a record in their own registers that you own certain amount of Bitcoins. It resembles to great extend a bank account, where the bank has your money and keeps a record that you own certain amount.
But this is not true ownership of Bitcoin. From professional point of view (that of a cryptocurrency expert), this is as ridiculous as it can be. Everyone in the crypto business will tell you that if you don’t own the private keys, you don’t technically own the bitcoins. And this is indeed, very true. Don’t believe us? Ask the ex-clients of Mt. Gox for references.
Many novice crypto owners tend to believe that they store the Bitcoins in their BTC wallet on their laptop or other device. This can’t be further from the truth. The record of how many BTC are associated with each Bitcoin address is held publicly on the blockchain. The thing is that no names are linked to the BTC addresses, unlike with a bank account or holding BTC with an exchange. And this is what guarantees the anonymity of Bitcoin. To access the Bitcoins and to move them from one address to another (ie to pay), one must be in possession of the secret key linked to the address (the address being in fact the public key). This secret key is the thing that can be stored on a computer device or even on paper.
So in a nutshell, the “owner” of the Bitcoins doesn’t possess any actual Bitcoins (ie like money in cash). He does however have control of the secret keys that give him access to the Bitcoins, by manipulating the BTC address records through the private key. The “owner” in fact only has knowledge of something (the private keys) rather than possession of something physical. The fact that the secret keys may be optionally stored somewhere (on PC, paper, etc.) is only to ensure that the keys won’t be forgotten.
Back to the mystical Bulgarian 200 000+ Bitcoin hoard
How can a government own or hold Bitcoin?
The short answer is IT IS NOT POSSIBLE, neither legally nor technically. Unless of course, there are special laws and regulations in place that REGULATE how Bitcoin is “stored”. Such laws do not exist in Bulgaria however.
In fact, owning Bitcoins is not about having possession of something physical, but a knowledge of something intangible (the private keys that correspond to a certain BTC address). But the knowledge of something intangible may be available to more than one person and the very knowledge of who has the knowledge is uncertain. Sounds complicated, but this is in fact the core principle in quantum mechanics and the uncertainty principle. The thing in quantum mechanic is that you can’t tell where the electron is and what its energy is… until you measure it. And the very same idea is with cryptocurrencies – you can’t tell who knows the keys, until they are used (the Bitcoins moved from the address).
The story in short
The story that Bulgaria has confiscated huge Bitcoin hoard is circulating since 2017. It is believed, by many, that the Bulgarian Government has seized more than 200 000 BTC during a criminal investigation.
According to some reports, Bulgaria ranks as the third largest state holder of Bitcoin. Mysteriously, these reports were removed from the internet, shortly after they were published.
The quantum uncertainty principle, applied to Bitcoin and other cryptocurrencies
From legal point of view, it is not possible to know who holds the private keys to a Bitcoin address. This is true, because even if a person is caught to be in possession of the correct keys (ie the keys are found on his laptop in plaintext form), it is uncertain whether there are no other people who know the keys as well. The resemblance with the Schrodinger’s uncertainty equations is striking. You don’t know it, until you “measure” it. But if you wait for the Bitcoins to be spent, then it’s too late to recover them.
In other words, suppose the Bulgarian prosecutor’s office has indeed found the private keys to a certain Bitcoin address(es) with 200 000+ BTC balance. The prosecution can indeed deem, that the Bitcoins belong to the perpetrator in whose computer (or other media) the keys have been found. But the true ownership of the BTC is far from certain. Because, if the keys are known to anyone else, they can be spent even after the authorities have confiscated the media where the keys are found. And if this happens, then from both legal and technical point of view, the Bitcoins do not belong to the person whose computer has been confiscated.
How can the prosecutor’s office guarantee that the Bitcoins (if any have been found) will remain under their control
Apart from the legal challenge of identifying whose the Bitcoins are, the problem of safeguarding them is even more challenging. In the scenario, where BTC private keys have been confiscated from a suspected criminal, the only option to preserve the Bitcoins is to immediately transfer them to a new BTC address. Only then, the old private keys that may be known to others, will become obsolete.
But how can the BTC be transferred to another address? For that to happen, a new address needs to be created by someone who will know the private keys. And who will this person be? The Prosecutor General? The President? The Prime Minister? This is all so ridiculous, because it can’t be really done. Of course, the crypto protocols provide options to split signatures, etc. But in order for these to be utilized, a special law needs to be created. A law that will define strict protocols of who and how can hold the secret keys in case the cryptocurrency should be deemed to be property of the Bulgarian state.
And do we really need such law? Probably yes. Otherwise, there is no way for the State to own cryptocurrency. Because you only know who really owns it, only after it’s spent. But then may be way too late. The Schrodinger’s cat may very well be death after we open the box…
In other words, before such law is created, pretty much like the Pathek Philippe slogan:
You never actually own Bitcoin. You merely look after it for the next BTC address.Alexander Dobrinov