Applying the 80/20 rule to a Mt. Gox settlement

[DrApricot]

Italian economist Vilfredo Pareto noticed that in his country twenty percent of the people owned eighty percent of the wealth. This has become known as "Pareto's Principle" and has often been abbreviated as the 80/20 rule. It has since come to be applied in many contexts where it can be stated that 20 percent of something always are responsible for 80 percent of the results.

With Mt. Gox, there are a great number of web site members who only ever held very trivial amounts of bitcoin in their accounts--often less than one bit cent. This was recently hilighted by the gentleman who had only a few satochi in his account, yet the cost of airmailing him his notice from the Mt. Gox bankrupcy court in Tokyo was several powers of 10 higher than his balance.

Assuming the 80/20 principle does apply to Mt. Gox depositors:

                                                                                  BTC
Originally held by Mt. Gox                                     950,000
Less Mark Karpeles personal fortune                  -100,000
                                                                             -------------
Bitcoins "disappeared"                                         850,000

There are 127,000 Mt. Gox members.

Using the Pareto's Principle, that means 680,000 btc were owned by 25,400 depositors (20%), and 170,000 btc were held by 101,600 members (80%).

Bankruptcy trustee, Mr. Kobayashi, stated in the recent meeting in Japan that he was willing to consider returning bitcoin balances as bitcoins. If this is the case, then the trustee could return all of the deposits held by 80% of the members, say less a 30% contingency, for only 119,000 btc. These could be taken from the 202,000 btc that are now being held on behalf of the depositors by the trustee.

This could be accomplished in a very orderly way by simply opening up a web page on the Mt. Gox web site, and allowing users to log on and withdraw their bitcoins. Since most customers have already provided picture IDs to Mt. Gox, there should be zero conflict with KYC rules. Bitcoins could be withheld from any accounts that are not properly IDed. The returned coins should also include gox/btc purchased through bitcoinbuilder.com, since that web site serves essentially as unofficial escrow service and agent for Mt. Gox, most of its depositors are quite small ones, and all of them have provided government picture IDs.

Going with this 80/20 return of bitcoins should greatly simplify the task of settling on Mt. Gox's final destiny. Should there be a takeover by Sunlot, BitOcean/Atlas ATS, or another group, then these parties would not have to deal with distributing any stock to 101,000 Mt. Gox members since these people will have already had their bitcoins returned immediately and in full. That would leave the field open for the trustee, and any successor company, to negotiate a deal with the larger bitcoin holders (the 20%) who qualify for distribution of bitcoins and stock.



                     

[Rannasha]

Why on earth would someone from the 20% group agree with this? All funds are being distributed to other people in this scenario, while the remaining creditors will still have to wait and see if they get anything back.

[DrApricot]

Why on earth would someone from the 20% group agree with this? All funds are being distributed to other people in this scenario, while the remaining creditors will still have to wait and see if they get anything back.

Assuming that you are in the 20%, I can easily imagine myself in your position, and agree that this proposal seems counter-intuitive. E.g. "Why give up something, when I don't have to?"

However, realistically, should you ever have the bulk of your funds paid out by the trustee, they will have to come mainly from those still unrecovered Mt. Gox bitcoins, and not from the portion that has already been found in the old-format wallet. Also, it is an inescapable fact that the 80% of the smaller depositors will need to be dealt with somehow, and as fairly as possible.

If those bitcoins still missing are ever returned to their owners, it will most likely result from some kind deal-making with whomsoever holds these "disappeared" bitcoins now, as well as any new successor entity which may acquire Mt. Gox and/or its assets. This process will be greatly simplified without the voices of 100,000 small depositors clamoring for the return of their bitcoins. In any event, the added return from proportionally dividing their funds with the 20% who held 80% of the funds is actually not so great and hardly worth it.

If you agree with Pareto's Principle at all, then clearly the vast majority of Mt. Gox members will support the idea of having all of their bitcoins returned, and as soon as possible.

[freedombit]

This process will be greatly simplified without the voices of 100,000 small depositors clamoring for the return of their bitcoins.

Agreed. But in exchange for taking a smaller percentage, the 20% should have full and complete disclosure of the MtGox situation. Further, should the 20% accept a smaller percentage so that the 80% can receive theirs in full, then I would expect that the 80% would help the 20% recover the remaining funds. Not sure what that would look like. Maybe the 20% take an equitable stake in the new entity PLUS have rights to "lost" Bitcoin, and the 80% receive their full deposits back, but they must remain in the new entity for a period of X years.

I am curious, what that proportion might look like.
 

[freedombit]

Can someone post a list of the Gox accounts with their balances on the web so I can copy paste it into Excel? I don't need any personal information, only the account balances. (I don't want to open up an Excel file with a Trojan).

[trace666]

Following the same reasoning, let's redistribute the wealth of the top 1% to the rest of the population.
That would 99% of people happy. You can hardly wish for more support!

[DrApricot]

Following the same reasoning, let's redistribute the wealth of the top 1% to the rest of the population.
That would 99% of people happy. You can hardly wish for more support!

You are obviously being a little sarcastic, and I quite agree what you've outlined would be a ridiculous result.

The bulk of the bitcoin wealth originally held by the 20% will only come back to its owners through making a complete recovery of all "disappeared" bitcoins. Someone has them, and whether you're in that 20% or the 80% group, you're not being let in on the secret. I refer here to the 650,000 BTC Mt. Gox claims are still missing.

My point simply was that the whole issue of dividing up the 200,000 bitcoins is meant to be a distraction. So long as people are fighting over getting their slice of a considerably shrunken  pie, attention is being diverted away from the fact that the pie is actually much larger than advertised--by more than 4 times as much, yet the largest slice has already been appropriated by an undisclosed party.

Rather than fall for this kind of distraction, as most likely, at least indirectly perpetuated by the perpetrators, it might be far wiser to simply let the 100,000 or so Mt. Gox members in the 80% group have their coins back. That can be accommodated from the "old-format wallet" ones with approximately 80,000 BTC still left over for immediate distribution to the 20% owners. Naturally, once the 80% group have their bitcoins returned in full, they would have no further claim on the, as yet, still to be recovered 650,000 bitcoins, nor any other compensation provided, such as stock issued by a successor company.

[btcinsight]

I checked against MtGox leaked database what would be the balance threshold if we applied this rule: it yields 0.49 BTC. So potentially, that would mean only people having less than $300 worth at stake would get back something. In other words, only people whose life has not been affected by this debacle would potentially get back something significant. That seems unfair to me.

[DrApricot]

I checked against MtGox leaked database what would be the balance threshold if we applied this rule: it yields 0.49 BTC. So potentially, that would mean only people having less than $300 worth at stake would get back something. In other words, only people whose life has not been affected by this debacle would potentially get back something significant. That seems unfair to me.

Here's my math. Please tell me if it is somehow wrong.
127,000 total depositors
850,000 BTC disappeared
200,000 BTC found

number in 80% group of depositors     ( .8 )(127,000)      =     101,600
    "         "  20%    "      "        "               ( .2 )(127,000)      =       25,400
original funds:
belonging to 80% group                       ( .2 )(850,000)   =   170,000 BTC    
belonging to 20% group                       ( .8 )(850,000)   =   680,000 BTC      

30% contingency withheld for unclaimed and/or recovered coins (only applies to 80% group)
(.3)(170,000) = 51,000 BTC
amount returned under proposal to 80% group    170,000 - 51,000 = 119,000 BTC
average return per depositor in 80% group          119,000 / 101,600 = 1.17 BTC

amount returned under proposal to 20% group    200,000 - 119,000 = 81,000 BTC
average return per depositor in 20% group          81,000 / 25,400 = 3.18 BTC

The latter does not include any returns eventually coming back from any recovered from disappeared 650K BTC and/or any stock distributions. These would never be available to the 80% group, since they have already been paid off.

[bakada]

Its a stupid idea.   Each creditor should get back the same percentage of whatever they have invested.   Period.

[DrApricot]

Its a stupid idea.   Each creditor should get back the same percentage of whatever they have invested.   Period.

Mt. Gox's banks are also its "creditors". According to Mt. Gox's bankruptcy filing, it had debts of $63.6 million exclusive of any funds owed to depositors. Depositors are involuntary creditors--essentially forced to make a loan (still unpaid)--to the bankrupt company.

Their coins were originally given to Mt. Gox for safekeeping, and for some people, their deposit, be it bitcoin or cash, was a major part of their personal wealth.

Banks knowingly took a risk when they lent money to Mt. Gox, and deemed that it was going to be a safe bet for them. Call them voluntary creditors. They had all the tools at their disposal to determine whether or not Mt. Gox was a credit risk, and planned to profit from their loans.

As it now stands, more than half of the $120 million or so in bitcoins would go to repay bank loans should they ever be paid in full. Even their proportionate share would be huge.