Invest: Bitcoins in a dump

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Remember the news earlier this year? A guy in Wales named James Howells threw out a hard drive with 8000 Bitcoins on it back when Bitcoin was just a hobby, and now that those Bitcoins are worth hundreds of millions of dollars. He is, of course, crusading to dig up the garbage dump to find the hard drive. This story was an irresistible subject for jokes back then.

I think it is safe to say that this guy is much worse off for being a Bitcoin-millionaire-but-they’re-in-a-dump than he would be if he had never had the thousands of Bitcoins.

According to a report,

He told me that his children were into other things now, and didn’t visit anymore. He didn’t wish to discuss any romantic relationships that he’d had since Hafina left. “I try to keep to myself,” he said, “women are costly.”

Howells was no longer employed. For more than a year after the loss of the hard drive, he had continued at his job as a systems engineer. To make the workday tolerable, he’d limited how often he consulted the bitcoin-tracking app. He’d even tried to avoid driving routes that took him by the dump. But, eventually, the memory of the money he had thrown away overpowered his work ethic. “I kind of lost the motivation,” he explained.

Also he constantly checks how much his lost Bitcoins are worth and worries he might get robbed because he’s a Bitcoin celebrity.

Now with the rise of NFT, I believe that Howells should mint a non-fungible token representing “I threw away 8,000 Bitcoins.” This would have 2 benefits,

  1. He’d own a tangible thing representing his Bitcoins in the dump, which might make him feel better, and
  2. Maybe he could sell it? Or a share of it? How much would an NFT representing 8,000 vanished Bitcoins be worth? Search me, but maybe something.

But actually you don’t need to get into the metaphysics of NFTs to do this; this is just regular finance. Right now Howells has some sort of claim to those lost Bitcoins. That claim is not worth 8,000 Bitcoins or anything close to it, because:

  1. Nobody has possession of the hard drive; it’s somewhere in the dump.
  2. Actually you can’t be 100% sure it’s even in the dump. Maybe a seagull carried it away, or everyone’s memory of throwing it in the dump is wrong.
  3. The town of Newport, which runs the dump, has emphatically denied his requests to dig up the dump to find the hard drive and doesn’t seem likely to budge on that.
  4. Even if you did find it in the dump, it might have decayed to the point where his private key is not recoverable.
  5. Even if the town authorities change their mind, he digs up the dump, he finds the hard drive, it works, his key is on it, and he recovers the 8,000 Bitcoins, many of those Bitcoins have been promised to someone else at this point: “He met with potential investors, and eventually made arrangements with two European businessmen who agreed to support a recovery operation. Howells would get only about a third of the proceeds. He had hoped for a much higher sum; the money was his, after all. He recalls being told, ‘James, that’s not how it works.’” 
  6. It’s not clear to me what his legal ownership of the hard drive is; if I snuck into the dump at night, found the hard drive myself and took it, could anyone demand it from me? It was thrown away; who owns it? Or if I formed my own consortium of diggers and promised Newport a 50% cut of the proceeds, and Newport let me dig, would Howells have any claim to stop me?

Still! Howells’ murky contingent residual claim – “if I get permission to dig up this dump and if I find this hard drive and if we find the Bitcoins on it and after I pay off everyone else, I’ll have some Bitcoins left” – seems like it might be valuable? It is somewhat better than a lottery ticket. There is some imaginable future – he certainly imagines it, and he’s convinced some people to back him financially – where he actually digs up the hard drive and gets (some of) the Bitcois and his stake is worth $120 million. If there’s a 5% chance of that happening then that chance is worth $6 million. Maybe someone would pay him $3 million for a 50% share of his claim? He’s got a potentially valuable asset, which, by the rules of finance, means that he’s got an actually valuable asset. Why not sell it? Isn’t that better than hanging on to it obsessively?