Coinmetrics Report Shows 2 Million Bitcoin Private (BTCP) Tokens Were Secretly Pre-Mined
A ground-breaking report from the crypto analysis team at Coinmetrics shows that 2 million Bitcoin Private tokens were covertly pre-mined. The secret pre-mine breaks the 21 million supply cap and throws the Bitcoin Private community into chaos.
Coinmetrics, which provides data on cryptoassets, released a 10-page study explaining their findings. The report called, “Don’t Trust, Verify: A Bitcoin Private Case Study” explores how BTCP has a secret, never-before-discovered pre-mine.
Bitcoin Private is a fork-merge of bitcoin (BTC) and ZClassic. ZClassic is a privacy-focused cryptocurrency that was itself a fork of Zcash. As a fork-merge cryptoasset, Bitcoin Private merged two existing blockchains into a single chain.
In the case of Bitcoin Private, the fork-merge combined two existing blockchain Unspent Transaction Output (UTXO) sets into a single chain. This meant UTXO sets from bitcoin and ZClassic were combined into one. ZClassic was originally forked away from Zcash to remove the blockchain founder’s reward – remember, ZClassic wanted to be a version of Zcash without the pre-mine and founder’s reward. Bitcoin Private, meanwhile, forked away from ZClassic to revitalize the ZClassic community.
This is where things get shady: the Coinmetrics report reveals that Bitcoin Private doesn’t actually have a 21 million BTCP supply cap.
Coinmetrics found that an additional 2.04 million units were covertly minted during the import of the bitcoin UTXO and send to a BTCP shielded pool, making them difficult to detect. This has increased the actual BTCP supply cap to 23.04 million – not the 21 million stated in the Bitcoin Private whitepaper and assumed to be true by the BTCP community.
A shielded pool contains coins stored in shielded addresses, with the shielded addresses using Zk-SNARKS to anonymize transactions.
Bitcoin Private Claimed To Have A 21 Million Supply Cap In Its Whitepaper
The fact that Bitcoin Private does not actually have a supply cap of 21 million is a big deal.
The whitepaper for Bitcoin Private specifically claimed that the currency had a cap of 21 million – just like bitcoin (BTC), Bitcoin Cash (BCH), Bitcoin Gold (BTG), and most other forks of bitcoin.
The same fact was mentioned in the Bitcointalk forum announcement thread for Bitcoin Private.
The fixed total supply is important for bitcoin, to say the least. The fact that 2 million Bitcoin Private were mysteriously created out of thin air is worrying for the future of BTCP.
Coinmetrics Found Discrepancies With The Total Supply Of Bitcoin Private
How did Coinmetrics uncover the clever heist? Well, Coinmetrics started by finding discrepancies between the supply data pulled from their Bitcoin Private node and the estimated outstanding supply of BTCP.
Coinmetrics’ calculations revealed there was an expected outstanding supply of 20.607M BTCP, although the Coinmetrics node showed an outstanding supply of 20.841M BTCP. This figure excludes the shielded pool containing 2 million BTCP.
Possible Reasons For The Bitcoin Private Total Supply Discrepancy
Coinmetrics initially proposed several different hypotheses to account for the discrepancy between expected total supply and actual total supply:
- Their node is not on the correct Bitcoin Private chain and was being fed bad data (Coinmetrics confirmed that their node was publishing the same block hash as the explorer run by BTCPrivate.org, the official page for Bitcoin Private, so this wasn’t the issue)
- A bug in the code prevented Coinmetrics from receiving accurate data (Coinmetrics confirmed that the same pull code was capable of sending accurate bitcoin data to their bitcoin node)
- The mining reward on the Bitcoin Private network had changed since the publication of the BTCP whitepaper, causing more BTCP to enter circulation that would be expected with the original block reward (Coinmetrics confirmed there had been no changes to the BTCP block reward)
- The Zk-SNARKS privacy technology used by Bitcoin Private had been compromised, and someone had been minting BTCP into shielded pools (Coinmetrics claims this isn’t likely because if Zk-SNARKS were exploited, hackers would attack a more valuable cryptocurrency like Zcash, which uses the same technology)
- There was a hidden pre-mine (Coinmetrics confirms that Bitcoin Private had a hidden pre-mine)
Is Bitcoin Private A Scam?
Typically, a hidden pre-mine is a sign that a cryptocurrency is a scam. The hidden pre-mine suggests that the founders released the cryptocurrency for their own monetary gain while claiming they had altruistic goals in mind.
Once Coinmetrics dug deeper into the Bitcoin Private pre-mine, the full extent of the scam became more obvious. Coinmetrics discovered that during the UTXO import leading to the Bitcoin Private fork, “special blocks” were produced by the Bitcoin Private network containing 400 extra outputs with 50 bitcoins apiece. 102 of these “special blocks” were produced, creating a total of 2,040,000 additional Bitcoin Private.
Of course, it’s not clear who pulled off this Bitcoin Private scam – whether it was core developers, rogue hackers, or members of the Bitcoin Private community. It could be that core BTCP developers were unwilling victims in this scam.
It’s too early to assume anything.
$1 Million To $3 Million of Pre-Mine BTCP Tokens Have Already Been Moved
Coinmetrics also tracked the movement of the Bitcoin Private tokens over time.
The tokens were sent to shielded addresses on April 29, 2018. Most of the tokens – 1.74 million – still sit in those addresses waiting to be spent. 300,000 BTCP, however, have already been withdrawn. The coins appear to have been spent or sold on the open market between July 11 and August 18, netting the pre-miners anywhere from $1 million to $3 million in profit.
Why Was the Pre-Mine Undetected?
Coinmetrics concludes its report by explaining two reasons why the pre-mine went undetected:
Inappropriate Supply Checks: The Bitcoin Private supply came from a variety of places, and the chain-merge was an unfamiliar process even for experienced crypto users. BTCP users had to trust that the UTXO import and mining processes were done in accordance with the goals of the BTCP goals. However, they had no feasible way of verifying this information.
Weak UTXO Import Verification: After the UTXO import during the chain-merge, the Bitcoin Private team released files and auditing tools to community members. Each of the files contained the contents of a single import block, including the 10,000 transactions imported by a single bitcoin UTXO. Users were told to audit the files to confirm there were 10,000 transactions per block and that the first output matched the expected BTC value and script. Users, however, checked the blocks using the consensus code, and this consensus code did not check that there “were no additional outputs” in a block. That means any additional outputs from a block – like coins – would have been overlooked.
What’s Next for Bitcoin Private?
The Bitcoin Private secret pre-mine is a big deal. In fact, at one point, 10% of all coins circulating in the Bitcoin Private community came from this illicit pre-mine. This isn’t a drop in the bucket: this is a serious violation of Bitcoin Private’s principles.
So where does the BTCP private project go from here?
Coinmetrics doesn’t actually accuse anyone, nor does it explain where Bitcoin Private goes from here. This is a big deal – but it doesn’t necessarily mean the end of the BTCP project.
Right now, the price of BTCP is in freefall, dropping 20% since the Coinmetrics report broke.
The BTCP team, meanwhile, has released a statement on Twitter. They will also be publishing a blog post via Medium in the next 24 to 36 hours explaining what is going on:
“We are aware of the recent “premine” allegations and are looking into it. We will let the community know more once we have all the details. We will be publishing an official statement via Medium in the next 24-36 hours.”
You can read the full report from Coinmetrics on the Bitcoin Private secret pre-mine here.