A few blockchain surveillance companies like Cyphertrace have recently published reports on criminal activities tied to bitcoin usage and the studies mentioned the topic of “virgin bitcoins.” According to industry executives, freshly minted bitcoins with no transaction history can sell for a 10-20% premium compared to coins sold on the open market. Even though the subject of ‘clean’ and ‘tainted’ bitcoins is debatable, the following editorial is a look at why virgin bitcoins might be sought after and why institutional investors and even criminals want to acquire bitcoins with no onchain history.
Also read: There’s No Such Thing as Tainted Bitcoins
What Are ‘Virgin Bitcoins?’
Bitcoin transactions are not anonymous and the blockchain provides the world with a record of every transaction that takes place when people send or receive the digital asset. It doesn’t mean that people cannot obfuscate their transaction data by using Tor, VPNs, and mixers like Cashfusion. But most people are unaware of such tools and their transactions can be traced all the way back to the coin’s creation. Freshly minted bitcoins are captured by miners hashing away at the network in hopes they acquire a new block. When a miner finds a block, the mining operation or pool is rewarded 12.5 coins per block. The coinbase reward of 12.5 bitcoins is comprised of coins that have never been transacted, as they are brand new and untouched. Cryptocurrency enthusiasts have called these new coins “virgin bitcoins” and there are claims that institutional investors will pay a 10-20% premium to get their hands on untouched crypto.
In June 2019, the CEO of Babel Finance, Flex Yang, discussed the subject of virgin bitcoins with reporter Shiraz Jagati. Yang explained during the interview that virgin bitcoins were essentially tokens with no transaction history and this can be quite valuable to certain entities. Yang noted that virgin bitcoin buyers stem from the U.S. and other regions with stricter regulations. The sellers, of course, derive from mostly Chinese miners mining bitcoins on the mainland in areas like Sichuan. “Buyers may be pursuing these coins because of their novelty as well as the perceived ease-of-compliance in regulatory uncertainty. In truth, virgin bitcoin might not benefit family funds or intuitions/individuals making the purchase,” Yang stressed. The Babel Finance founder highlighted:
Jagati not only spoke with Yang but also conversed with Dave Jevans, the CEO of the blockchain surveillance firm Ciphertrace about the subject of virgin bitcoins. Jevans explained that coins that have traversed the darknet (dark tx) can render a coin unclean. Not only are institutions searching for virgin bitcoins, but criminal entities find untouched coins valuable because they mask assets acquired illegally.
“Dark tx histories also impede the fungibility of the btc if these tokens have a lower value,” Jevans said in July. “This a big concern for hedge funds that are concerned that their entire fund could be tainted by a few bad tokens. While this is less likely to affect those holding small amounts, larger traders could potentially, and unwittingly, hold larger amounts of stolen assets, lowering the value of their investment pool through association.”
The Babel Finance founder Flex Yang also wrote a comprehensive opinion editorial on the subject of virgin bitcoins. Yang noted that stricter regulations might create even more demand for so-called ‘clean’ bitcoins.