What Patoshi Is and How It Affects Craig Wright - Ep.127

Transcript

Hi, everyone. Welcome to Unconfirmed, the podcast that reveals how the market names in crypto are reacting to the week's top headlines and gets the inside scoop on what they see on the horizon. I'm your host, Laura Shin. Before we begin, a couple notes. First, I'm doing another survey to find out what you want from the podcast and how I can make them better. Last year, we heard you loud and clear on the news front and so have begun including a weekly news recap at the end of every Unconfirmed. This year, what would you like to see from Unchained? Please take a moment to fill out the survey to let us know what you'd like from the show. The link is in the show notes, or you can go to surveymonkey.com slash r slash unchained 2020. Again, that's surveymonkey.com slash r slash unchained 2020. And guess

what? Crypto.com has offered our survey respondents a chance to win a metal MCO Visa card. And Crypto.com will stake these cards indefinitely. 10 lucky winners will enjoy card benefits including free Spotify, free Netflix, and 3% back on all spending. And they'll earn extra interest on their crypto deposit and more. Thanks, Crypto.com. Again, take the survey now. SurveyMonkey.com slash r slash Unchained2020. One other thing: Unchained is hiring! I'm looking for a remote editorial assistant to start working later this summer, as one of my staff is leaving to go to grad school.

This role handles numerous editorial tasks from booking to proofreading to social media and deals with everything from the show itself to the show notes to the newsletter. If you love crypto and have journalism experience, get in touch. I have a link to the job posting in the show notes and the listing is also available on my website. There it explains what you should send in and how. Diversify is the first self-custodial exchange that can match the leading centralized cryptocurrency platforms. No more sacrifices. You can enjoy high speeds, deep liquidity, privacy by default, and low fees directly from your private wallet. In response to the challenging times, Crypto.com is waiving the 3.5% credit card fee for all crypto purchases. Download the Crypto.com app

today. Hi, thanks Laura for inviting me. This week's episode relates to some events regarding some Bitcoins that were mined very early on in Bitcoin's lifetime. In fact, it was so early that it was a time when there weren't that many miners besides Satoshi. But before we get to the recent events, let's talk about something else called Potoshi, which you discovered. Can you explain what Potoshi is? Yes.

To describe Patoshi, I just would like to go back in time to the time I did this research. And this was 2013. And I had been working like a year, strengthening the security of the Bitcoin Core, working with the Core 11 team, trying to find vulnerabilities. And I didn't know any Bitcoin at those times. So I wanted to and I wanted to make sure that, you know, what happened on the first years of Bitcoin that were transparent and I could and there was very, very few information about that. So I just thought that what would Satoshi have done? I mean, he would have... use his computer to mine Bitcoins and he would have kept

his computer on for the time it needs until the network was bootstrapped. And if you take a look at the very first hours of the Bitcoin network and you say, okay, this might be Satoshi, right? Because he just launched the network. He wants everyone to join. So he's running a node to enable all the other people to connect. But if you take the hash rate in the very first hours of Bitcoin and you extrapolate that for the whole first year, you realize that it's highly probable that Toshi collected 22,000 coins, right? And I said this in a Bitcoin talk forum and I was heavily criticized because, you know, the Bitcoin ethos and the narrative of Bitcoin, it's like kind of it says

that Satoshi was kind of a fully altruistic guy and he didn't want, you know, money for himself because money is related with banks and banks are related with power. And we are trying to, you know, to build a completely new decentralized system, financial system. So I was heavily criticized and said, OK, let's try to find a proof of this. Let's try to find some evidence of this. Because for me, it was something very, you know, what Satoshi would have done. And so I went to the first version of the Bitcoin Core source code, 0.1, and I found out there was a flaw. And to explain this flow, I have to explain a little bit about the technical part of Bitcoin mining. So when you mine, you increment a nonce value.

And when you run out of space, when this nonce wraps around, you have to increment something else. And this something else is called the extra nonce. So the speed of these extra nodes and the speed of the nodes is related to the computer you are using for mining. So if you are using a fast computer, you get a faster increment in the extra nodes. And what I found was that the extra nonce counter was not reset at every block. So it was running a counter that was kept running. So in a sense, every block a miner produces is stamped with a kind of a real time clock that identifies the speed of his computer. So I plotted this on a very simple graph, like having

in the x-axis the block numbers and in the y-axis the extranomes, and a very, very interesting pattern popped up. And this pattern perfectly separates the different miners at different times, because each of these miners has a clear line, a clear slope on this graph. So I said, okay, this is all, I mean, this graph describes everything. So I published this in my blog and I had, you know, like 30,000 visits in a couple of days. And so at those times, the whole Bitcoin community was about 30,000 people. So I think that everyone looked at this graph. And the other interesting discovery of this graph is

that Satoshi spent almost none of these coins, like spent like 40 Bitcoins in the whole first year, probably in the whole time. And the amount of money, the value of those Bitcoins was about $5. So clearly there was two discoveries. One was this pattern that I tried to correlate with Satoshi. And the other was that this person or this group or the one who was mining had a complete confidence in the system. He had never sold these coins after a few tries, a few initial tries. So this was kind of a shock for the market. And the price of Bitcoin actually went up because

of this, like 15%. So I think that was very, very good for the community and showed some transparency that was missing. And I call this "Petoshi" because we don't know if it is actually Satoshi. We can argue, we can have our guess that this was Satoshi, but really, we don't really know for sure that if this miner was Satoshi. And one thing that I wanted to understand, because I wasn't fully sure I understood it from looking at the graph, it essentially looks almost like Satoshi or Potoshi was mining faster. But obviously that's, is that possible? Or it's simply just that the Potoshi miner was incrementing the extranauts more quickly between blocks or something? Is that what was going on? Like, I wasn't sure exactly why. That's correct. It

turns out when I saw the graph, same as you did, you realize that Satoshi computer seems to be faster than any other computer. And that is kind of suspicious. So I tried to dig deeper into this and I found that what was triggering, what was making this extra nonce increment faster it was that the nonce was being incremented in a shorter space, like about one fifth of the space that any other miner was using. So if you reduce the range that you increment in the nonce, then you will end up incrementing the extra nonce faster. So what we see in the graph is essentially a probably a

normal computer and it just stands up because this other watermark in these blocks. And the existence of this other watermark is in fact a confirmation that the first pattern is actually something very, very particular for a very specific miner. Okay. And yeah, presumably maybe that was like some kind of optimization or there was some advantage in doing that. And that's why that one particular miner. I did research on that. And the answer is no, there was no particular optimization. And what I did to realize that was to remind all Satoshi blocks. So I say, OK, so it was something special about this reduced non-storage that maybe he had, you know, a backdoor in the algorithm. And the answer is

no, because if you mine the rest of the space, you find the number of solutions that you would expect on on that space. So actually, we don't know why Satoshi or Patoshi used that reduced space. And I would guess that he was maybe mining with different computers and he used the LSB of the NOS to identify the different computers. Or maybe there was a group of people and they used this to identify for whom these Bitcoins would go. We don't know. This is something. Or maybe he just wanted to leave this watermark. He just wanted to tell us, okay, these are my blogs. I'm not planning to move them. And you can

count that they will not be moved ever. So I'm pretty sure that this is kind of done in purpose. Hmm. so interesting okay well the mystery just deepens all right you guys so in a moment we're gonna now discuss the recent bitcoin transactions which are the reason for this episode but first a quick word from the sponsors who make this show possible in this crisis many investors aim to keep and grow their digital assets others seek to maximize the yield on their cash next it allows you to achieve both of these goals The company offers instant crypto credit lines against all major cryptocurrencies, with interest rates starting from only 5.9% APR. Nexo also allows you to earn up to 8% annually on your fiat and digital assets. What's more, interest

is paid out daily and you can add or withdraw funds at any time. Get started at nexo.io. Diversify has partnered with Starkware to bring serious traders a speed and security advantage without sacrificing the cornerstones of profitable trading. They enable high-speed UI or API access to deeply liquid order books, instant execution of 9,000 plus trades per second, as well as rapid withdrawal certainty for when you need to move fast. If you're an arbitrage, algorithmic, or day trader, you can capitalize on the best of centralized trading while preserving complete control of your assets 24-7. Want the edge? Head to D-E-V-E-R-S-I-F-I.com and learn more today. Back to my conversation with Sergio Lerner. So last week, there were some Bitcoin from a block

mined on February 9th, 2009, 11 years ago, that were spent. And why did that event bring up, why did people then start talking about your old Potoshi posts again? Yeah, the reason is kind of obvious. Traders are very anxious that if some of these coins move, these early coins move, and if they belong to Satoshi, then Satoshi is on the move and he might dump everything in the market. And I'm pretty sure that that will never happen. And even if Satoshi wanted to sell some coins, he would never destroy the market by dumping all the coins. So this, I think it was

a tweet that said, okay, these coins are probably Satoshi. And that had no background. I mean, no reason to suspect this was Satoshi. And if you look at my research and the research of other of other people that confirm my research, like Organ of Conti is one of them, one of the early researchers that confirmed my findings and then BitMEX also confirmed. And if you look not only my research, but in any of this research, you find out that those coins do not belong to the Patoshi pattern and probably are not Satoshi's. We don't know if Satoshi, maybe he was mining with another computer. So they might be Satoshi's, but they are not part of the Patoshi pattern. And so then this week, there was

even more that happened. What happened this week regarding some of the early Bitcoins? Yes. What happened on this week was that 145 coin bases. Each one of these coin bases is of course associated with a private key. And one person used those private keys to sign a message that says basically that those coin bases do not belong to Satoshi. And for me, it was interesting because this person of this group of people really took the time and the opportunity the risk to put those private keys online again to make this message clear. So I'm fully sure

that, of course, this has to do with the CalWrite trial. And what these signatures prove is that, I mean, Carl Wright was lying to the court because he mentioned this Coinbase in a document that he gave to the court. So it was a very interesting use of the early private keys to prove that this fake Toshi is not Satoshi. Yeah, and actually in one of the transactions, or well actually I don't know if it's one, but the person who signed these transactions wrote,

"Craig Steven Wright is a liar and fraud." And Craig Wright is the Australian computer scientist who is in court claiming to be Satoshi and has also claimed to control the coins, or at least some of the coins that were moved this week by this other player. So when you are saying that these different Bitcoins in these various transactions don't fit the Potoshi pattern, so how confident are you in general whether any given block was mined by Potoshi versus someone else? Well, it's very interesting that for some coinbases, for some blocks, we can know for sure with 100% certainty because they

are completely away from any other pattern, from any other line. So for some blocks, I can be very sure that they belong to the Patek Gouchy pattern. Some other blocks, I think that there was one particular block in this set, in this paste being set. that was kind of in the middle of two lines, like in the intersection of two lines. One of the lines was a patoshi pattern and the other was just another miner. So there was this confusion about this block. But if you take a look closely at this block, you realize that you cannot say much about that. So I would say that it depends on the block. Even though it depends on the block, the actual error rate of the whole Patochi pattern, that

is 22,000 blocks, I estimate it to be about 0.3%. So even though there is some error margin, some blocks you cannot tell, overall the whole pattern securely belongs to the same miner. And for the Craig Wright case, what significance do you think that these transactions have for him? Well, I think it's a... Craig Wright did a lot of lying on the court. So this is just one stripe, additional stripe to the tiger. This is not the thing that will completely turn the case. I mean, for me, it was completely clear that he was lying from the first day. But yes, this is another proof that he

was lying. And when you say from the first day, what was the other evidence that made you convinced of that from the start? Oh, there is a lot. There's people collecting a lot of evidence. There's backdating signatures from... There's a lot of stuff there. And in my particular case, I received some responses to my blog in 2013 or 2014 from him. And what he was saying didn't sound like Satoshi. It was kind of criticizing some of my work.

And it didn't seem to be Satoshi. So I think that from the very first days, I thought this was not the voice of Satoshi. Yeah. And there was a document that he... produced that claim to prove that he had ownership of some early bitcoins but then um he said that it was dated I think it was like 2011 or 2012 but the font used in the document was not created until 2015. so um you know later he claimed that that was due to something with an optical scanner But yeah, there are things like that. Yeah, there are a lot of

frauds there. I mean, Jameson Lopp has been collecting information and some other people have. And yeah, it's surprising how this person can go on and keep saying that. All right. And as for the Potoshi pattern and the blocks mind under that pattern, has there been any other activity involving them other than what we just mentioned? Yeah, I mean, there are some additional information that is there in the blockchain and you can go and try to find it. I don't feel, I mean, personally inclined to go and try to de-anonymize Satoshi. I think that we should,

you know, try to leave that away. But there are people who published private emails email exchanges and transactions with Satoshi, like Hal Finney, like Nicholas Baum, like Mike Hearn, Dustin Trammell, they all published either the amounts they transacted with Satoshi or the block numbers. And since in the early times there were so little blocks, so there were very, very few blocks in blockchain. So with that information, you can just pinpoint the block in the blockchain. So if you connect that information that these people publish with the Satoshi pattern, realize that for any of them, they

are in the Satoshi pattern, in the Patoshi pattern, sorry. So that's the strongest connection of Satoshi to the Patoshi pattern. But yeah, this is what people said and published. So this is not hard evidence. Alright, well, it's incredibly fascinating stuff either way. Thank you so much for coming on Unconfirmed. Thank you, Laura, for giving me the opportunity. Don't forget to stick around for the news recap. Check out This Week in Crypto after this short break. In response to the challenging times, Crypto.com is introducing three measures to help the community. First, the 3.5% credit card fee for all crypto purchases will be waived for the next three months. Second, you can now get up to 10% back by using the MCO Visa card on

food and grocery shopping. Lastly, you could buy gift cards on the Crypto.com app from merchants like Whole Foods, Safeway, Burger King, and more, and get 20% back on food and 10% back on groceries. Download the Crypto.com app today. Hi everyone, thanks for tuning in to this week's news recap. First headline: When it comes to Bitcoin, Goldman Sachs is unimpressed. A Goldman Sachs analyst call on COVID-19 and Bitcoin got everyone excited. Until the actual call occurred. And it was clear that Goldman thinks little of the first cryptocurrency. The slides from the call sum up the firm's perspective pretty well. One headline says: Cryptocurrencies, including Bitcoin, are not an asset class. The bullet points were: Do not generate cash flow like bonds. Do not generate any earnings

through exposure to global economic growth. Do not provide consistent diversification benefits given their unstable correlations. Do not dampen volatility given historical volatility of 76%. And it had a sub-bullet that said: On March 12, 2020, the price of Bitcoin fell 37% in one day. Last bullet: Do not show evidence of hedging inflation. The slide continued, quote, We believe that a security whose appreciation is primarily dependent on whether someone else is willing to pay a higher price for it is not a suitable investment for our clients. We also believe that while hedge funds may find trading cryptocurrencies appealing because of their high volatility, that allure does not constitute a viable investment rationale. The following slides can

be summarized with three phrases criminal money, hacks, and tulips. Fortune had a fun recap of the crypto Twitter reaction, including Neeraj Agrawal of Coin Center making fun of Goldman's erstwhile double man bun Bitcoin trading division. You have to see the tweet replete with a photo to see what I'm talking about. Although Goldman didn't evaluate Bitcoin on its actual features, the fact that the analysts felt the need to cover it at all suggests that there's interest from clients. As Kevin Wook treated, Grayscale's Bitcoin Trust bought 18,910 Bitcoins since the halving. Only 12,337 Bitcoins have been mined

since the halving. Next headline, Coinbase acquiring prime broker Tagomi in a $70 million plus deal. First reported by the block last fall, crypto unicorn Coinbase is acquiring prime broker Tagomi, which helps clients execute large trades at the best possible price. The deal is pending regulatory approval. The block also reports that Tagomi was also in talks with Binance and that two sources indicate that the price tag was somewhere between $70 million and $100 million. In an interview with Coindesk, COO Mark Bhargava says that the acquisition will not pose a conflict of interest. He said, quote, we think we will still be able to deliver really great pricing to our clients. Obviously, we will still have market maker relationships. Over time, we'll disclose which exchanges we continue to

work with. In case you missed it, be sure to listen to the Unchained interview with Tagomi. Next headline, Calibra renames itself to Novi. Facebook's Calibra has a new name, Novi. Head of Novi, David Marcus tweeted, Novi comes from the combination of two Latin words, novus equals new and via equals way. Novi will also be interoperable with WhatsApp and Facebook Messenger. Next headline, Polkadot launches its first chain candidate. Polkadot launches what is its first chain candidate for the Polkadot mainnet. As founder Gavin Wood wrote in a blog post, Polkadot hopes that it is eventually selected as the final Polkadot chain. He also explained that Polkadot had not actually launched and so its token is not yet transferable. That will happen only toward

the end of the launch process and under a governance motion. He also said that the final stage would be to bring in parachains, quote, once the various security logic is in place and has been audited, and that's still some weeks away. Next headline: Steam Forks and Wars Put Binance Other Exchanges in a Bind Steam underwent a fork that made the asset balances of certain users go to zero. The addresses targeted were owned by 64 people who did not support the acquisition of Steemit by Tron and Justin Sun. In an official statement, Binance co-founder and CEO Chengpeng Zhao, also known as CZ, said, "We are very much against zeroing other people's assets on the blockchain. This goes against the very ethos of blockchain

anti-centralization. The fact that this can happen on a blockchain means it is overly centralized. We don't want to support this upgrade. But there is a flip side. If we don't support it, technically, no users can withdraw any Steem coins. The wallet stopped sinking at a certain height and there are no other forks. We waited to see what other exchanges would do. And soon enough, other exchanges did the upgrade and enabled withdrawals. Lots of our users demanded it as well. This was his explanation for why Binance supported the fork. He went on to practically advocate that the targeted users create a new fork and said that Binance would likely support "any other reasonable community forks." Andreas Antonopoulos tweeted that he expected that the hard fork would result in a class action

lawsuit and that any exchanges that participated could be named as defendants. CZ said he was surprised to see Andreas bringing up lawsuits on issues around hard forks, consensus, and decentralization. BlockTower Capital's Ari Paul called the drama with Steem, quote, "probably the most important thing happening in crypto now. It's an amazing experiment in crypto M&A, adversarial strategy, and the legal/social repercussions of stealing via hard fork, forcing tough discussions across many large exchanges." What this drama really shows is that the arbiters of reality in a practical sense are likely to remain economically important nodes, i.e. most centralized exchanges, for the foreseeable future. Next

headline: Aragon Association sues grantee Autark On May 22nd, both Autark and the Aragon Association published competing blog posts, and they read like a he-said-she-said DAO edition. Autark received two grants voted on by the Aragon Network token holders, and the Aragon Association paid for all of the first grant and then for part of the second grant. In January, the Aragon Association stopped payments, which Autark says was "for no reason." Autark also claims that even though the community approved the grant, Aragon co-founders Luis Quende and Jorge Izquierdo stopped the payments themselves. In contrast, Aragon says that it did not continue funding Autark "due to the breach of the grant

agreement." Aragon also says it became aware that Autark was working on other projects "using the association's funding that were not in benefit to the Aragon community at all," and that Autark also threatened Aragon "underperformed, lacked quality in its code, and breached confidentiality." The Aragon Association is now suing Autarch and Swiss Court, which is ironic because Aragon's main focus is governance and it has a court for resolving disputes. Therefore, of course, prominent Ethereum players like Eva Bailyn asked why Aragon wasn't using its own court. She tweeted, "If you can't use your own dispute resolution platform for community challenges prior to seeking legal action, then you're basically a fraud." Luis's defense was, quote,

"Aragon court handles on-chain cases for DAOs. Legal agreements made by lawyers in accordance with Swiss law should be disputed in Swiss courts. the same way that an Aragon agreement should be disputed in Aragon court. Maria Paula summed it up this way: "Regardless of who's right on the Aragon-Outark dispute, this is a very interesting case and shows the limitations of DAOs. It shows we're not ready to base everything on chain and I hope more people understand the need for hybrid solutions: DAOs plus real-life legal entities." In case you missed my interview with Aragon, I've linked to it in the newsletter. Next headline, dangers for Bitcoin in custodial banking. Independent crypto researcher Hasu wrote an interesting essay on the Deribit blog this week. The basic premise of what

he says is that since the Bitcoin block size is limited, the incentive is for users to use custodial banks because, quote, they offer lower transaction cost over a variety of dimensions. These can include stronger network effects, faster payment clearing, legal recourse, lower transaction fees or access to financial services like exchange or money markets. He advocates for things like quote, pioneering ways for multiple users to share a single UTXO, which stands for unspent transaction output. So they can also bundle their interest and survive in the on-chain marketplace for a block space with custodial banks. Last main headline, DEVCON 6 to be held in Bogota in 2021. The Ethereum Foundation announced that it would decentralize a series of community, regional, or virtual

events for 2020, but stay focused on delivering an in-person event for DEVCON 6 in Bogota, Colombia in 2021. Fun bits! First fun bit: Best of the year at Coinmetrics. The excellent team at Coinmetrics is celebrating its first year and created a year in review of highlights. Since I know many of you are nerds who enjoy good analyses of data, I figured I'd let you know about it if you want to pursue some of the… peruse some of the posts on your own, in addition to the ones that have already been featured here on Unchained and Unconfirmed. And last fun bits: How this 15 year old stole $23.8 million in cryptocurrency. In January 2018, at the height of

the crypto bubble, crypto OG Michael Turpin of BitAngels had his cryptocurrency account hacked and $24 million was whisked away. In a recent lawsuit, Turpin alleges that Ellis Pinsky was the thief. He was 15 at the time of the theft. The New York Post describes Pinsky as a 10th grader who ran track, played soccer, and got good grades. It also says his mother is a physician at NYU Langone. However, he did at that time write to an acquaintance, "I could buy you and all your family. I have $100 million." And the complaint alleges that an accomplice saw in 2017, "records indicating that Ellis had $70 million." In case you were wondering what method

Pinsky allegedly used to carry off his heists, it was, of course, a SIM swap. Read the full post article for details on how Pinsky and his alleged collaborators carried out these thefts and for details on how he lived the high life as a 15-year-old by doing things like keeping an account at the private jet company JetSmarter. The kicker After Turpin's lawyer contacted Pinsky's mother at her office, Pinsky sent cryptocurrency, cash, and a Patek Philippe Nautilus watch, which was worth over $100,000, to Turpin without any conditions. Still, Turpin is suing the kid that he's nicknamed Baby Al Capone for $71.4 million. Thanks for

tuning in. To learn more about Sergio and the early bitcoins that were recently moved, be sure to check out the links in the show notes of your podcast player. Don't forget, if you're interested in working at Unchained and Unconfirmed as an editorial assistant, there is a job posting in the show notes for you. Also, don't forget to take the Unchained Survey at surveymonkey.com slash r slash unchained 2020 to have your say in how we can, how you all can improve the show. Again, you can have a chance to win a metal MCO Visa card that crypto.com will stake indefinitely and that offers free Spotify, free Netflix, and 3% back on all spending, plus extra interest on your crypto deposit. For your chance to win, fill out the survey at surveymonkey.com slash r slash unchanged 2020. Unconfirmed is produced

by me, Laura Shin, with help from Fracture Recording, Anthony Yoon, Daniel Ness, Josh Durham, and the team at CLK Transcription. Thanks for listening.