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Looks like this is a duplicate of http://news.ycombinator.com/item?id=2105439
It was a Dupe -- Somehow someone used a different URL so it didn't just upvote it. When I submitted it I didn't catch it on there yet. In this case, having it twice I guess doesn't hurt so we can get some awareness.
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I'm no spy, but that doesn't look anything like a bugging device. It looks like a large transformer (what kind of bug needs a 20-60W transformer??) and a crappy wiring job. It looks like maybe wiring for lights for a vanity mirror in the bathroom. I think the bottom of the image is a mirror reflecting a roll of toilet paper.
I would think that a bugging device would be much more discreet. :) That was a pretty ugly job. Must be something more to it.
A transformer is not a bad place to hide a bug. That's assuming there was a transformer originally and it was just swapped for a bugged version.

The more relevant question is why bug the bathroom?

Agreed. So that raises the possibility he may have a paranoid schizophrenic episode, which would certainly explain his disappearance. Hopefully he hasn't really left his apartment and is just hiding. Worst case, he is drifting aimlessly around the city as a homeless person.
Does he have a record of schizophrenia? And how far back does that record extend?
The peak age range for schizophrenia onset in men is teens through early 30s, it would not be unusual at Dancho's age to have not had a history of symptoms. If he has indeed become schizophrenic.

It might be worth pointing out that Dancho is far more intelligent and more educated than average, and so perhaps better able to moderate schizophrenia. Its symptoms may appear more subtle to observers, being filtered through a more rational intellect, which might make it more difficult to spot.

All of this is speculation of course and not terribly helpful without more information on Dancho's whereabouts and activities. I hope he's ok.

Assuming he is his own worst enemy here, the actual worst case is probably suicide. Confused and drifting as a homeless person is perhaps a couple of rungs up the ladder.
Yeah, agreed. I've seen bathroom and bedroom wiring all like this through Eastern Europe and South East Asia. Not the usual super clean lines and junction boxes like in regulation constrained countries. The transformer looks like a halogen step down transformer providing 11.5V at almost 5 amps. That's a crazy amount of juice for a bug. Which would operate on the 3V or less range and have a current draw in the milliamp range.

Also there is no way to corroborate if this letter is in good faith. This could be anyone sending this letter. It could be complete fabrication designed to send a "hes gone crazy" message.

I find this whole situation suspicious.

It is obviously low-voltage halogen downlights, to the extent that this kid is either a paranoid schizophrenic or is trolling everybody.

I scanned through his blog (which is a good read) and couldn't find anything that somebody would kill him or make him disappear over.

I would be more interested in knowing why it took ZDNet 6 months to report one of their bloggers missing?

Could it possibly be a Steganography?
If it is it would explain what to use his PGP key for.
The images are not originals. I think ZDNet scanned original photos
It's worth noting that Dancho says nothing about it being a bugging device, that's purely ZDnet's editorial.
As others have said, it's certainly not a bug in any obvious sense. There is some discussion in the dupe thread (http://news.ycombinator.com/item?id=2105439) about the possibility of the image having some hidden meaning.

It's quite possibly a script kiddie successfully trolling the world, or a serious professional suffering some sort of psychotic break, or there may actually be something sinister going on. Better safe than sorry, I guess - I'm not entirely sure what to do with this information though besides continuing to raise awareness.

[1] Dancho writes, "someone who understands the big picture of cyber crime and cyber espionage." I'm not so sure I understand the hidden side of cyber espionage.

[2] Dancho alludes to having done some sort of favor for the FBI, to which they "thank him" by releasing his name to the Bulgarian government – "clearly you can see how they say “You’re Welcome”. Could there be something going on here involving the US trading Dancho for some other information?

[3] "I’m sending you these not with the idea to see them published, but as an insurance in case things get ugly, knowing that a trusted third-party [...] can always distribute them." Here is where all logic breaks down. The use of a simple pronoun "these" throws everything off. We have up until this point assumed that the word "these" represents the photos. What else could Dancho mean by "these"?

Of course, there is always the possibility that Dancho is a paranoid schizophrenic and on a very bad trip.