What Do You Get When You Mix Government Employees With Disruptive Technology?

[Editor's Note: The following post is by TDV Editor-In-Chief, Jeff Berwick]

What do you get when you mix government employees with disruptive technology? 

A disaster. Two events in the last week underscore this.

The US Marshals had to wrap their head around the disruptive digital currency bitcoin this week, but it was e-mail, that artifact from the 1990s, they would fail to use correctly, exposing many personal e-mails on accident.  Similar happened to the Internal Revenue Service (IRS), as that government agency apparently lost Lois Lerner’s e-mails, e-mails which might have implicated her in a new Watergate-type scandal.

When late last week the US Marshals made the surprise announcement that they would be auctioning off 30,000 bitcoins stolen in the Silk Road raid, worth nearly $18 million USD, they were getting in over their heads when it came to the “blind carbon copy” technology available with most e-mail services. 

AUCTION PROCESS

The Marshals made it clear there were certain requirements one had to meet in order to take part in the auction. For example, the US Marshal’s required any potential bidders to wire them $200,000 as a deposit and required potential bidders reveal any relationship they have with Ross Ulbricht:

“Please describe any contact, communication or other relationships between the Bidder and/or any Control Person with Ross William Ulbricht or the Silk Road, or anyone whom you know to be acting on behalf of Ross William Ulbricht or the Silk Road…“The USMS will not sell to any person who is acting on behalf of or in concert with the Silk Road and/or Ross William Ulbricht, and bidders will be required to so certify.”

Documents are required and there will be a three-day wait period between the auction and when the bidders would be notified. 

LEAKED E-MAILS OF INTERESTED PARTIES 

As the auction process got underway, things got sticky for all involved right away as the US Marshals leaked the list of interested individuals on accident via e-mail. Lynzey Donahue, a US Marshals spokeswoman, explained: “The message was not intended for any particular group of people, but for anyone who had emailed a question to the general mailbox to ask about the auction. Only recipient email addresses were disclosed.”

She added: “The USMS apologizes for this mistake which was in no way intentional”.

The list of names includes:

Daniel Folkinshteyn, assistant professor at Rowan University
Barry Silbert, CEO for SecondMarket
Luther Lowe, director of public policy for Yelp
Malcolm Oluwasanmi, chairperson of Little Phoenix Investment Group
Fabrice Evangelista, quantitative arbitrage at BNP Paribas
Michal Handerhanm, co-founder and COO of Bitcoin Shop
Dave Goel, managing general partner of Matrix Capital Management
Dinuka Samarasinghe, investment professional
Chris DeMuth Jr., Rangeley Capital
Fred Ehrsam, co-founder, Coinbase
Jonathan Disner, corporate counsel at DRW Trading Group
William Brindise, head investment manager at DigitalBTC
Michael Moro, director at SecondMarket
Jennifer R. Jacoby, lawyer at WilmerHale
Sam Lee, co-founder, Bitcoins Reserve
Shem Booth-Spain, artist and musician
Avarus Corporation

STOLEN COINS

The government says the bitcoins are clean despite the fact that the US government stole the coins from Ulbricht who was operating a perfectly legitimate business which might have actually made drug dealing safer, according to an academic study. When the FBI confronted Ross Ulbricht in the science-fiction section of the San Francisco Library, they began the process of stealing the coins they are now auctioning off. Even when it came to Ross Ulbricht allegedly hiring hits – and we don’t know if he even truly did that – it was the government that created the circumstances. 

GETTING RID OF EVIDENCE OR SPECULATION?

The sale itself was interesting as the trial for Ross Ulbricht is not yet underway and the coins are evidence, but the feds are using a clause that allows them to sell off stolen property and stolen goods that “are perishable or are susceptible to deterioration.”

The feds believe that bitcoins could drop in price. If this happened they would lose all of the profit they could have made by stealing the coins from Ulbricht. In a panic sell of sorts they are now rushing to move the “Silk Road Seized Coins.” 

MONEY TRANMISSION LICENSE

One question that popped into my mind, having considered doing bitcoin business in the US is, ‘Does the US Marshal service need a Money Transmitter License?’ The first sentence of the Marshal’s notice-of-sale might preclude this, however: 

THIS NOTICE DOES NOT CONSTITUTE AN OFFER TO SELL BUT INVITES INTERESTED PARTIES TO SUBMIT A BID FOR PURCHASE.”

So for interested bitcoin entrepreneurs looking to sell bitcoins, instead of selling bitcoins, just advertise you are making bitcoins “available for purchase,” and don’t say you’re selling them…

VIVA BITCOINS

The feds have been considering auctioning off the coins since January. This has been great for bitcoin itself. It is more advertisement. First the announcement itself made waves throughout various press outlets and the botching over the list of interested parties stoked the fire. It is fun watching this disruptive technology disrupt on a daily basis. I feel lucky to be a part of history in the making. 

Bitcoins are here to stay. If you haven’t already jumped into the deep-end of this technology I suggest you do so now. We have been covering it regularly in the TDV Newsletter and we have a Bitcoin Guide coming out in the coming months, available to subscribers. Even if you don’t intend on buying bitcoins it is very important to start learning about the technologies that make it and many other coming innovations possible so that you can better understand The End Of The Monetary System As We Know It (TEOTMSAWKI).

Comments on bitcoin? Let us know your toughts over at The Dollar Vigilante.