BUSINESS

Bitcoin revelation under scrutiny

Newsweek's blockbuster claim that it had found the creator of the bitcoin virtual currency is coming under intense scrutiny after a strongly worded denial by a Temple City man whom the newsmagazine dubbed "the face behind bitcoin."

Dorian Satoshi Nakamoto has hired a law firm and issued a statement late Sunday saying he wanted to "clear my name."

When the story was published in early March, Nakamoto, 64, found himself at the center of a media circus as well as a raging online debate about whether he was the programmer who invented the currency that has become a multibillion-dollar global phenomenon.

"I did not create, invent or otherwise work on bitcoin. I unconditionally deny the Newsweek report," Nakamoto said in the lengthy statement, which was released by Ethan D. Kirschner, a Los Angeles lawyer.

Kirschner declined to comment on whether Nakamoto was planning to sue Newsweek and Leah McGrath Goodman, the senior writer who wrote the story.

Newsweek on Monday issued a statement, retweeted by Goodman, that said it had "not received any statement or letter from either Mr. Nakamoto or his legal counsel. If and when we do, we will respond as necessary." Newsweek previously said it "stands strongly behind" Goodman and the article.

Although retaining a lawyer typically indicates a forthcoming lawsuit, it's unclear what Nakamoto's intentions are beyond denying the Newsweek story on his own terms and pleading for privacy.

If he does sue, media law experts said he would most likely file for defamation. He might also argue that Newsweek invaded his privacy or that there was a breach of confidentiality, they said.

"I suppose he in this instance could prove alleging he founded bitcoin impugns his integrity or implies he's dishonest or engaging in criminal behavior," said Mark S. Lee, a lawyer at Manatt, Phelps & Phillips in Los Angeles.

But many questioned whether such claims would hold up in court.

"From a legal perspective, I think he'd have a difficult time asserting a claim," Lee said. "He doesn't have an obvious right of publicity or a right to privacy claim unless he can prove that this fact is not newsworthy, which I think is hard to do, or he'd have to prove that the statements were defamatory in some way, and I also think that would be difficult to prove."

David Schulz, a partner at media law defense firm Levine Sullivan Koch & Schulz, said a defamation claim probably wouldn't hold up because it doesn't lower people's opinion of Nakamoto to say he was the founder of bitcoin.

"Based on the publicly known facts, it's hard to imagine that he has a viable claim against Newsweek for the publication of the story," he said. "He might try to argue that this cast him in a false light and caused some sort of emotional damage, but that would seem rather far-fetched."

Nakamoto did in fact say in his statement that Newsweek's "false report has been the source of a great deal of confusion and stress" for himself and his family. He said he was suffering from "severe financial distress" that led him to discontinue his Internet service last year.

"I have not been able to find steady work as an engineer or programmer for 10 years," he said. "I am trying to recover from prostate surgery in October 2012 and a stroke I suffered in October of 2013. My prospects for gainful employment has been harmed because of Newsweek's article."

Nakamoto went on to explain that the first time he heard the term "bitcoin" was from his son in mid-February, and that he incorrectly thought the technology was called "bitcom." Despite his engineering and programming background, Nakamoto said he had never worked on cryptography, peer-to-peer systems or alternative currencies.

The March 6 story, "Bitcoin's face: The mystery man behind the crypto-currency," claimed to have finally discovered the identity of bitcoin's inventor: Temple City's Nakamoto, a disheveled, somewhat cantankerous man living in a modest two-story home with his elderly mother.

Goodman, who briefly spoke to Nakamoto outside his home in front of two police officers, reported that he admitted to a bitcoin connection, telling her: "I am no longer involved in that and I cannot discuss it. It's been turned over to other people. They are in charge of it now. I no longer have any connection."

The cover story, which strung together speculative comments from Nakamoto's family members, triggered a swift backlash from bitcoin loyalists who slammed Goodman for possibly outing someone who clearly did not want to be in the public eye. Others said she had fingered the wrong person and ridiculed the piece for what they called shoddy reporting.

After the story ran, one bitcoin enthusiast quickly set up a fund to collect money on Nakamoto's behalf, raising nearly $30,000 as of last week. The donation site was down Monday.

"These funds will serve as a 'sorry for what happened to you', help with medical bills his family is facing, any legal bills they may incur, or anything else. Most of all, it serves to soften the damage caused by irresponsible journalism and to demonstrate the generosity and empathy of the community," said the post on Reddit announcing the fund.

Goodman did not respond to requests for comment Monday. After her story ran, she had been vigorously defending it in media interviews.

The identity of bitcoin's creator has been a mystery since the virtual currency's start.

In a 2008 memo titled "Bitcoin: A Peer-to-Peer Electronic Cash System," "Satoshi Nakamoto" — believed to be an individual or a group of individuals — laid out the details for a new virtual currency. Rather than relying on banks and other financial middlemen, bitcoins would rely on a cryptographic protocol to ensure their value, security and anonymity.

Users would have to "mine" coins by solving complex mathematical problems. They could then buy and sell them through various exchanges. Initially, it was embraced by hackers and anarchists who loved the idea of a currency free from government or corporate control.

But over time, the value of bitcoins skyrocketed, making many of the original bitcoin members very wealthy. They also moved closer to mainstream acceptance as a growing number of businesses began accepting them and entrepreneurs and venture capitalists created an expanding economy of bitcoin-related companies.

Along the way, the real Nakamoto never stepped forward to claim credit. A couple of years ago, he withdrew from the bitcoin community completely, leaving others to carry on the work of developing the system and wonder about his true identity.

Lawsuit or not, "Newsweek's credibility has been destroyed" among bitcoin fanatics and in Silicon Valley, said Jerry Brito, a senior research fellow at the Mercatus Center at George Mason University.

Brito directs the technology policy program at the university and has been closely following the regulatory aspects of bitcoin for years. Although the recent media frenzy stirred up by the Newsweek article "plays up the circus atmosphere that surrounds bitcoin," he said unmasking the inventor was largely unimportant.

"If anyone can see it, anyone can see its value and anyone can use it," he said, "it really doesn't matter ultimately who the creator was or what his or her motivation was for creating it because the technology stands on its own."

andrea.chang@latimes.com

Follow Andrea Chang on Twitter.

 

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