Here is Adi's response to my message:
Dear Meni,
First of all, I would like to thank you and several other members of the bitcoin community for your public comments and private emails, which provided us with a lot of authoritative information about someof the intricacies of the scheme. We will be happy to add more discussion and clarifications to a revised version of our paper, which will hopefully clarify our methodology and add more relevant materialabout the quantitative aspects of the transaction graph.
I would like to address two issues which created the most heated discussion over the last few days:
1. While the notions of a bitcoin and of an address are completely clear, the notion of an owner is quite fuzzy since it can not be derived in a precise way from the available data (this may be a feature ofthe scheme, rather than a bug!). There are several ways how to deal with this issue:
1.1 Ignore it completely, and derive from the graph only statistical information about the behavior of addresses. However, we believe that this will completely distort many types of statistical informationwe try to extract from the graph, e.g., what is the distribution of the number of bitcoins that users keep, how many bitcoins they receive and spend, how big are their typical transactions, etc. Since thescheme enables (and even encourages) users to keep multiple addresses and to constantly shuffle bitcoins internally among their accounts, we believe that it is essential to find a way to distinguish between"internal" and "external" transactions, and thus to determine in some way what is the common ownership of different addresses.
1.2 Use our methodology, which is to assume that in most of the transactions, sending bitcoins from multiple addresses indicates that all these accounts are owned by a single entity. This classification istechnically easy to apply, but it creates two types of errors: We underestimate the common ownership of accounts just because we never saw it in the given transactions, and we overestimate it sinceoccasionally there may be multiple owners who send bitcoins in a single transaction. All the anecdotal evidence we saw so far indicates that overall we tend to underestimate the number of addresseswhich are associated with a single entity (as was demonstrated in the case of Instawallet, in which we found only about 1/3 ot the actual addresses associated with it), and that the errors in the otherdirection, while they exist, are not likely to distort our statistical conclusions in a major way.
1.3 Use a different methodology, which will be closer to the ground truth, and which can be derived either from the available data, or from reliable alternative sources. Here we need your help insuggesting such a methodology, which will be discussed by and accepted by most of the bitcoin community as better representing the issue of common ownership. It is always easier to complain about theshortcomings of one methodology than to suggest a better one!
2. The question of how many bitcoins are dormant. Even though this was only one of our many findings, it was the one statistic that caught the attention of most commentators and web journalists. Webelieve that measuring this aspect is extremely important, since it implies some fundamental truths about whether the bitcoin scheme is used mostly to trade in goods or to speculate, and how thescheme will behave if its current users will change their current pattern of behavior. Once again , we have several possible approaches, and I would like to recruit your help in initiating a frank discussionin your community about how to measure this fundamental statistics in the most accurate way. We have spent a lot of time and effort in collecting all the data, but once we have it, it will be easy for us toadapt our measuring methodology based on your suggestions as a service to your community and as a contribution to the scientific study of the bitcoin scheme. However, there is one thing I would like toclarify: I do not want to have a target-shopping experiment, in which once you will see the results you will decide whether you like it or would prefer to change the methodology again in order to geta politically more appealing result. We thus propose to wait until some consensus emerges, and only then run the selected methodology on the data and announce the results.
2.1 In order to start this discussion, I would like to make an initial suggestion: Fortunately, the issue of dormant bitcoins can be made independent of the issue of common ownership of addresses(even though several comments we received argues the politically convenient point that since our decisions about the later point did not absolutely match the ground truth, our results about dormantbitcoins were completely invalid). Let us thus work entirely at the level of addresses, paying no attention to our attempt to find such common ownerships. We propose to compile the followingstatistics: For every amount of time x (e.g., in units of full months), we will measure how many bitcoins were deposited into addresses in transactions that took place more than x months before ourcutoff date (May 13-th 2012), and were not followed by any later transaction in which the address was one of the sending addresses.
2.2 Notice that if someone keeps moving his bitcoins every few days from one address to the next (which seems to be a relatively common behavior), we will not count these bitcoins at all as dormant(and in this sense we will underestimate the number of dormant coins) unless that user stopped doing this sometime before the relevant point in time (x months before the cutoff date), and in this casewe will only count these bitcoins once, in the last transfer which he executed (since all the previous transactions had a later outgoing transaction).
2.3. To deal with the issue of coins which were minted at the earliest period, when they had little value and could have been abandoned by early experimenters, we can also consider only transactionthat took place after a certain date.
2.4. To be fair, we will have to take into account that if we consider a large value of x, there were fewer coins at that time, so when we compute percentages, we will have to use in the denominatorthe number of coins that had been minted up to x months before the cutoff date.
I would appreciate it if you can bring this proposal to the attention of the bitcoind community, in order to initiate some discussion (and hopefully some kind of consensus). Once you tell us how we shouldmeasure the number of dormant coins in a way that will be accepted to the community, and assuming that this proposal is scientifically sound and technically doable), we will be happy to run theexperiment and report our findings.
Finally, I would like to explain a point that seemed to raise the level of paranoia in your community, and this is the involvement of the Citi Foundation in the project. I can assure you that it was ourdecision to use some of the money that the Weizmann Institute got as a gift from this foundation in order to fund some research on alternative payment systems, that the Citi Foundation had zeroinfluence on the choice of topic, that they did not get any information about our findings while the research was going on, and that they did not see our scientific report before we published it. Our research wasthus motivated by scientific curiosity about the bitcoin scheme, and we had no hidden motives to support or discredit it when we embarked on this project.
Best personal wishes,
Adi.
The tl;dr version:
1. They would like the help of the Bitcoin community for devising an optimal scheme to determine common ownership of coins.
2. They would like the help of the Bitcoin community for devising an optimal scheme to determine dormant coins.
3. There is nothing nefarious about the usage of Citi Foundation funding.
Please see:
How to determine common ownership of addresses? (Inspired by Shamir's paper)How to determine dormant coins? (Inspired by Shamir's paper) 
