The curse of intelligent criminals is all powerful. Intelligent criminals have to get lucky every single day for the rest of their lives. The police only need to get lucky once!! :)
That was a fun thought exercise and I hope your deserved upvotes rain in.
As the Silk Road proceedings showed - getting someone for wet work even with a lot of money is hard.
The pseudoanonymity is perfect for phishing and ponzi schemes though...
1. Satoshi is likely carrying $300M in his head, today. Imagine what it will be in 10 years. You can't carry $1,000,000,000 in cash in your head for example.
2. Allowing criminals to steal BTC from you by force or extortion sets up horrible incentives. First, the criminals must voluntarily relinquish control of the BTC if you are to get it back, so there's little the State can do to help you even if they wanted to. Are you willing to use equal or greater force to compel hardened criminals to get your money back? The police probably aren't, and your government is almost assuredly corrupt regardless of where you live.
Ponzi schemes are the least of your worries in a world where Bitcoin is truly ubiquitous.
Also, shouldn't there be ways to indicate ownership with the private key?
Well, it's possible to prove control of the address (simply transfer something to an address of the choosing of the person who you're trying to convince). "Ownership" is more difficult to prove.
It's just a crime, but the rewards can be well worth the risks. You expect returns comparable to robbing a bank, but the criminal method is much safer for the robbers, they can even avoid violence altogether.
In the real world, badass shellshocked war veterans who've done time in a russian prison would meet very little resistance from a bitcoin-rich geek.
They don't need AK-47s to extort most of us, they just have to say something really scary, like 'All your bitcoins are belong to us. Now!' and pretty much all the geeks I know would shit their pants and hand over their private keys or make the transfer.
It's also certainly possible to prove that you did own the funds. That is, if the police is not in on it. And when we're talking big money, impossible things become possible, especially in corrupt countries.
Bitcoin is used all over the world. Maybe it's hard to imagine such crimes in US or Europe, but I wouldn't vouch for the rest of the world. Much much shittier things are happening every day.
Multi-sigs and address shuffling makes sense to us, but some random investor who's storing part of his wealth in cryptocurrency may have no idea.
Besides, I think most "mainstream Bitcoin users" have their wallets on sites such as Bitstamp, Coinbase and so on. So they can prove the Bitcoin was theirs.
BTW, instead of signing a message, you could also move around some money through that account. This may be easier to achieve for non-tech people, as it can be done with any Bitcoin client.
It shouldn't be very hard to design the UI to make it hard to fall into this trap, either. Easy way: when doing a small payment from an address with a large balance, the client can automatically add intermediate transfers to avoid the direct link.
I've lived in the ex Soviet Union in the 90's and extorsion through torture was a common thing back then. But now we might see the 21st century version of those guys, probably a bit more gentle - no need to shoot or kill people, just force them to press Enter and you're done.
The recipient has no sure way of knowing that the original address was mine - I might just have withdrawn from a service like Coinbase.
Because a robber can't demand you transfer money from your bank account and expect not to be traced, that's why.
Firstly, this problem exists in current society too. I don't think anyone has any problem picking out rich people, and anyone in a city will be able to tell you where the rich neighborhood is. Bitcoin doesn't make this any easier. In fact, best (and common) practice is to never reuse addresses, and use bitcoin inputs from various addresses. (e.g. to pay $5 for a pizza, you could theoretically, if you wanted, use inputs from millions of addresses each having only tiny fractions of a penny). Despite the public ledger, bitcoin offers a lot of financial privacy. As such the first premise of your story I think is flawed: that it's easier to find out who is bitcoin-rich.
Second, extortion, kidnapping, stealing, these are all things that on paper are pretty easy to do now, but to say it leaves no trace or that it's in any way easy (regardless of what token you steal, whether it's platinum bars or World of Warcraft gold) is clearly not true. Regardless of what is being extorted, this is really hard. For example, ideas can be extorted, too, passwords, keys to nuclear launch facilities etc. But it doesn't really happen too often, even though the tools to 'trace' a stolen idea or a stolen digital file are (and can be) limited.
But let's imagine it does happen? Let's compare it to a debit card. They kidnap you, take you to an ATM and force you to use it or give them the code. It happens every now and then, but the amount stolen is usually very limited, a few hundred bucks as that's the limit for most ATMs per day.
Bitcoin has similar options. You can have more than 1 key, and you can give such a key to say a friend, a bank, a server. Technically it's easy to set up a system where you have $1m, and to send $1m requires you and multiple other keys to sign, the key at the bank (stored behind armed guards), your notary or your friends. You can keep it simple or super complicated depending on your risk profile and the amount of money. In a small village as an unknown rich entrepreneur, keep it simple. As a known billionaire in guadalajara? Probably require lots of keys for any amount over $10k or something. Just making something up. Point is, technically you can set it up any way you'd want.
So they'd extort you and you'd say 'just like my ATM, I only possess a key that allows $500 to be transferred per day. For more I need more keys which I don't possess, I own them but I don't have them with me. I'd need to go to a bank' or whatever.
Now there are a lot of caveats to this. The whole notion of keeping all your money in your brain carries physical risks, and keeping keys with a third party (as opposed to 100% autonomy over your money) is sort of contrary to the spirit of bitcoin. But you can keep keys at multiple parties, neither of which individually have enough keys to control your money, while providing security benefits. In short, there are lots of possible solutions to the horror story you wrote (of an easy & perfect crime) that should be arriving in fully consumer-friendly ways over the next few years for sure.
We can have a broader discussion about physical security, but it's clear this isn't a problem that's unique to bitcoin at all. In fact, bitcoin allows anyone to configure their security according to their own risk profile, and retain full financial privacy in their ordinary lives.
I'm not saying it's a perfect world with bitcoin and that you're fully secure against overwhelming physical intimidation and force, but as I mentioned in another comment, acting like this is a unique problem to bitcoin just isn't true.
For digital extortion it is true, bitcoin is unique, for physical extortion it isn't. The reason being that it's very hard to send money without a trace digitally without using cryptocurrency, so bitcoin is unique here. If you run an extortion over Paypal, you're in jail by the end of the week usually. But physical extortion is possible because cash (or say jewelry) from ATMs is difficult to trace, bitcoin doesn't make this any easier. On the contrary, I'd rather steal from my ATM card than from my bitcoin wallet, as I only have $150 or so in a non-multi signature wallet, but my ATM has a $1250 a day limit, because I can configure my risk profile with bitcoin myself.
You may keep paying afterwards... or you may not. But even if they do not follow on their threats, $1K each for a weekend of "light work" is still pretty good money.
And interestingly this virtually never happens that I know of outside of some countries in South America (where there's actually a term for it, express kidnapping)
In any case, it's no different to someone being abducted for his ATM card, it applies exactly the same.
We can have a broader discussion about physical security, I'm not saying we're all perfectly secure, but acting like it's a unique problem to bitcoin money is disingenuous.
In fact, it would be easier to make the case that this was you money, thanks to the transparency of the block chain (and the fact that you have the keys).
1000 BTC on the other hand have no physical form so it's much more convenient.
Oleg and Boris mean business: they have a hammer, clippers, a soldering iron and an AK-47 in the trunk. Their target: your Bitcoins.
They wait patiently for your to exit your apartment or they follow you around or they just come knocking at your door. They are ready to patiently torture you until you transfer all your bitcoins to their address. They will enjoy the process, you .. not so much.
After you finally give in and transfer them your bitcoins, they leave and disappear. Now you've got absolutely nothing to show to the police: You cannot prove that those were your bitcoins and you cannot prove that the address you've transferred your balance to isn't yours. And you have no idea that it was the pizza place that tipped the bad guys.
For Oleg and Boris, it's the perfect crime: They just made $30k in 20 minutes and they didn't even have to kill anyone, a finger here, a finger there and they are rich!
This, in my opinion, is a great risk for cryptocurrency owners, because it offers potentially great returns for the bad guys and the risk is pretty small, plus it's very hard to prove that the theft/extorsion did happen.