Freezing 5.6 million dormant bitcoin could trigger ‘worst’ single-day repricing

Maximalists warn freezing 5.6M BTC risks instant sell-offs, while others say quantum threats leave no alternative.

What to know:

• Bitcoin developers and analysts are fiercely debating a proposal to freeze about 5.6 million long-dormant coins to protect them from potential future quantum-computing attacks.
• Critics warn that freezing any coins would shatter Bitcoin’s promise of unconditional, censorship-resistant ownership and could trigger one of the worst single-day repricings in the cryptocurrency’s history.
• Supporters argue that quantum computing poses an existential threat that may justify controversial tradeoffs, while others insist that inaction and voluntary defenses are preferable to what they see as protocol-level confiscation.

Freezing dormant bitcoin BTC$78,118.74 would trigger an immediate repricing and mark one of the world's oldest cryptocurrency's worst trading days since its 2009 launch, advocates told CoinDesk.

Bitcoin developers and crypto industry participants have debated for weeks whether they should freeze dormant tokens to protect them against the risk of theft through quantum computing, whenever those machines begin going online.

“Freezing any coins, even ‘lost’ ones, tells the market that all (roughly) 19.8 million BTC currently in circulation are conditionally owned,” said Samuel "Chad" Patt, who is also the founder of Op Net. “Institutional risk desks do not care about the reason, they care about the precedent.”

Read more: A simple explainer on what quantum computing actually is, and why it is terrifying for bitcoin

Although Jason Fernandes, a market analyst who describes himself as a pragmatic maximalist, said he agrees with Patt's repricing thesis, he said he believes that a successful quantum attack would trigger a far more severe repricing.

“Institutions won’t just price precedent, they’ll price whether the system can survive a break in its core assumptions,” added Fernandes, also the co-founder at AdLunam.

Mati Greenspan, also a self-described maximalist and a market analyst, said that if “quantum computers ever crack early Bitcoin wallets, it won’t trigger a rollback or a freeze; it will trigger the largest bug bounty in human history.”

The debate follows weeks of discussion over how to respond to the potential threat quantum computing poses to the bitcoin network, particularly the estimated 5.6 million BTC. These tokens are held in wallets that have been dormant for more than a decade, in addresses that have not been upgraded and, therefore, are the most vulnerable in the event that quantum computing attacks become a reality.

A week ago, Jameson Lopp, a core Bitcoin developer and research analyst, told CoinDesk he would prefer to see the dormant bitcoin, worth roughly $440 billion, frozen by the network than left at risk of being stolen by future quantum hackers. He said he already sees those bitcoin as being lost.

Lopp and a team of other core bitcoin developers released Bitcoin Improvement Proposal 361 (BIP-361) earlier this month. The proposal contemplates phasing out bitcoin’s current cryptographic signatures, potentially freezing assets that fail to migrate.

‘Instant' repricing

If that were to proceed, Patt said, “bitcoin’s repricing would be instant, not gradual and would be the worst single day in bitcoin's history, but not because of a hack, but because the network will have proven its core value proposition is negotiable.”

The bitcoin maximalist said all fund managers, “who allocated on the censorship-resistance thesis, would be forced to unwind. Not by choice, but by mandate, because the asset no longer fits the risk profile it was purchased under.”

Read more: To freeze or not to freeze: Satoshi and the $440 billion in bitcoin threatened by quantum computing

Another bitcoin maximalist, Kent Halliburton, CEO and co-founder at SazMining, said he believes the intentions behind BIP-361 are good.

“However, you don't defend Bitcoin by breaking its core promise of inviolable property rights,” he said. “We operate data centers on four continents, and our clients own every machine. That model only works because Bitcoin guarantees unconditional ownership.”

Halliburton said he believes, as many others do, that the quantum computing threat is real, but that there are better ways to deal with the risks it poses, such as better tooling and voluntary migration, “but not a protocol-level confiscation dressed up as a contingency plan.”

Deeply flawed

Khushboo Khullar, venture partner at Lightning Ventures and a bitcoin maximalist as well, said freezing dormant coins is a deeply flawed approach, despite appearing to be a pragmatic approach against quantum threats.

“It directly undermines Bitcoin’s core principles of immutability, permissionlessness, and no central enforcement. Such a move would require a contentious hard fork, violating the network’s decentralized ethos where no one can unilaterally seize or freeze anyone’s coins,” she said.

However, not all maximalists agree with Patt, Halliburton or Khullar, and instead believe Lopp’s proposal is sensible.

“It’s extremely challenging to build systems that are truly future-proof, and while Bitcoin has come quite close, quantum may pose a threat that requires tradeoffs participants won’t be happy with.” said Ken Kruger, founder and CEO of Moon Technologies.

“So far there’s no solution that doesn’t include compromise: freeze funds or let them be stolen? If solved elegantly, this could be a critical moment Bitcoin proves its resilience as a global monetary system,” he said.

Bitcoin could still evolve

Fernandes said he understands Patt’s and other maximalists' points on precedent, adding that it is a real concern among the bitcoin community when discussing the network’s censorship-resistance ethos. In fact, he added, “I don't think there is time; I think quantum will be upon us way faster than anybody thinks.”

“However, framing this as a question of purity misses the bigger issue: quantum risk is an existential threat to the system, not a philosophical debate,” Fernandes said. He believes bitcoin could evolve as it has in the past with SegWit and Taproot, upgrades designed to improve the network’s efficiency, privacy and scalability.

“The protocol isn’t ‘finished,’ it’s just conservative in how it changes,” he said. “But the risk of inaction far outweighs any concern about precedent or philosophical purity.”

Ultimately, Fernandes believes very few people within the community care in the long run, and that the majority of bitcoin holders, whether maximalists or not, are “more interested in preserving capital rather than preserving some vague notion about what bitcoin is ‘supposed to be.’”

Greenspan echoes what many of the maximalists ultimately prefer. “As with many cases in life, and especially with bitcoin, doing nothing is better than doing something.”

He concluded: “The Bitcoin community seems to feel strongly that freezing coins would be antithetical to bitcoin's quintessential value proposition.”

Read more: How a quantum computer can be used to actually steal your bitcoin in '9 minutes'

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