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The U.S. Government Can Nationalize the Bitcoin Network at Any Time

7 points by michaniskin 5y ago

throw03172019 5y ago
So can China do this as well but instead just kill it off.
theamk 5y ago
This seems highly inefficient - why give money to random people (many of them non-US citizens) when you don’t have to? Here is a much cheaper plan which grants US a lot of control over bitcoins: - Some US government agency publishes “bad bitcoin address” list - this is initially a list of addresses of clearly evil people, like ransomware attackers. - The new law is passed, requiring all US-based bitcoin firms to refuse any transactions that derive, in whole or in part, from “bad bitcoin” list. And KYC laws require passing identities of people who use “bad bitcoins” to FBI. All exchanges have to follow that rule or be fined. - This will kill things like mixers (who wants a part of “bad bitcoin”), anonymous exchanges (if you receive money from stranger and it was “bad bitcoin”, FBI will visit you if it ever touches a legal exchange. Not a very pleasant situation). - This will be US only, but it will propagate to other countries. Let’s say you are in Russia, and you are accepting bitcoins. At some moment in the future, you may want to buy a new iPhone using all those coins. But if they are on “bad bitcoin” list, you won’t be able to do so! So it makes a fill economic sense to refuse bad bitcoins, or maybe accept them at a heavy discount. - Big players, such as investment funds or major payment processors, are almost unaffected. After all, only 0.001% of bitcoins are bad, and losing a few potential customers due to regulations is common in financial industry. - Eventually everyone gets used to “bad bitcoin” system, and the US starts putting more addresses in it. “Terrorist activities”, “embargoed countries” and so on. And that’s how US can get a fair amount of control over bitcoins, and without having to buy entire thing out!
- michaniskin 5y ago
  Simple: 1. Destroying bitcoin as a free market network would put the final nail in the coffin of crypto as an alternative to fiat. 2. They would have no obligation to buy bitcoin from anyone they don't like. 3. They can funnel a lot of wealth to the elites who own the lion's share of the bitcoin. 4. They're just printing the money. The cost to the government is zero. In fact, a 51% attack is probably cheaper than the bureaucracy required for a complex legislative effort and worldwide enforcement. Not that cheaper has any sensible meaning when you have a money printer in your basement, LOL. 5. This involves no messy legislation, no courts, at most a special purpose vehicle or two. The Fed can take it from there with their own "private" resources. 6. The bitcoin network has no legal protection against a 51% attack like this, there is no legal obligation for a miner to process any particular transaction they don't like.
  - alwillis 5y ago
    It's not true that the theoretical 51% attack is cheap. It either requires buying lots of ASICs or paying existing miners to collude with the attacker. At best, a 51% attack allows double spending a few transactions while destroying the miner’s business.
    - michaniskin 5y ago
      A 51% attack is not just cheap, it's FREE when you have a money printer in your basement. This is the point that is hard for people to wrap their heads around. I find this ironic given the philosophical revolutionary hard money stance many bitcoiners have, yet they can't really comprehend that the Fed can buy literally anything it wants, including hash power. To put it another way, consider that the Fed prints money to rig the entire treasury bond market and fix interest rates. Buying up 80% of the mining companies and ASICs in the world is not even a rounding error in comparison. A 51% is not only useful for double spending, it can also be used for un-spending. The Fed would use their hash power advantage to roll back transactions they don't like (this would be any transaction that didn't originate in their own crypto exchange). This puts all the non-Fed miners out of business. The icing on the cake is that the Fed can use its 51% attack to force Americans owning BTC to sell to them (as they won't be able to sell a bitcoin to anyone else at any price). This ensures that all that money they print goes right back into the US economy, it's just effectively an asset swap like quantitative easing. They can easily sell this to congress for its economic stimulus value.
    - michaniskin 5y ago
      Miners would not be "colluding", they would be given the choice to sell their business to the Fed and walk away with a nice bundle of money printer fiat, or try to keep mining at a loss until the Fed runs out of money. The Fed cannot run out of money because they just print it out of thin air. Any rational miner would sell their hash power to the Fed. Irrational miners will simply run out of capital and go bankrupt, and the Fed would then buy up their assets and have their hash power anyway.
- mikeblackson 5y ago
  This will just fuel the rise of background mixing and decentralized exchanges. Many Bitcoin holders and devs will consider it an honor to make as much of the Bitcoin supply as "dirty" as possible and the community will mostly support it. Layer 2 also further hinders easy tracking of "dirty" addresses/transactions. The FBI wants to interact with and attack the 200M+ people that will eventually hold "dirty bitcoin"? Much of whom are non-KYC holders? Good luck accomplishing that with a limited budget and man power.
  - michaniskin 5y ago
    Exactly. Also the carrot is far more effective and palatable to citizens than the stick. The US government could deploy the attack described in the article under the guise of a stimulus program, with their hands completely clean. No legislation required, the Fed would just need to print a little fiat from the money printer and everyone is happy. The government is happy because their fiat monetary system is secure from any threat crypto poses, bitcoiners are happy because the Fed buys their bitcoin for fiat at a good rate, the miners are happy because they got to sell their assets to the Fed for a sweet pile of fiat. The only people crying is the middle class who bears the burden of all this currency debasement. I think we have more empirical data than we'd ever need to predict that nobody who matters politically cares about the tears of the middle class.
    - mikeblackson 5y ago
      One more thing that's overlooked, the nodes control the Bitcoin network, not miners. In the face of a 51% attack, consensus would be reached that banning malicious miners is in the interest of the majority of node owners. They would fork Bitcoin and the Fed would burn a ton of money with very little to show for it. The miners they bribed would pile into the non-Fed controlled fork using the Fed funds they received. The network may actually grow after this kind of attack is successfully sidestepped purely from the Streisand Effect and the corrective action proving what people theorized about the difficulty of censoring the bitcoin network.
      - michaniskin 5y ago
alwillis 5y ago
Absolutely not. How can the US nationalize a global, decentralized network?
- LinuxBender 5y ago
  I am not an expert in this area and have never used virtual currency. That said, I vaguely recall governments already making it hard for some currencies to be converted to regular fiat currency. I don't know the implementation details, but I assume that if you can block conversion or transfer, then the money can only be used within the virtual currencies own network. If enough governments or central banks from enough countries align with this, they can make the currency harder to use internationally or at least limit its functionality. I don't have any references for this, just passing vague memories of news reports being submitted here.
  - michaniskin 5y ago
    The point TFA is making is that the US government can force holders of bitcoin to sell their bitcoins to the government. And, importantly, they can do it via the Fed (which is nominally a private institution), thereby avoiding any politically messy legislation. The Fed can do this by launching their own bitcoin exchange and then dominating the mining of blocks on the blockchain (AKA a 51% attack). They can then prevent any other miners from being able to mine blocks, and they can configure their own miners to only accept transactions which are depositing bitcoin into the own exchange's wallet. At this point nobody can sell bitcoin to anyone other than the Fed's exchange, at any price, because the transaction will not be recorded in the blockchain. The Fed can now set the exchange rate to whatever they want, and they can pay for the bitcoin they exchange with whatever instrument they want. They can run the money printer to buy your bitcoin with USD, they can make you accept US treasuries at a certain price, whatever makes the most sense for their balance sheet. Your alternative is to HODL and never be able to sell your coins.
    - mikeblackson 5y ago
      The network would be forked long before all of that could be setup. Millions of developers around the world working towards a goal generally move faster than governments.

7 points by michaniskin 5y ago

throw03172019 5y ago

So can China do this as well but instead just kill it off.

This seems highly inefficient - why give money to random people (many of them non-US citizens) when you don’t have to? Here is a much cheaper plan which grants US a lot of control over bitcoins: - Some US government agency publishes “bad bitcoin address” list - this is initially a list of addresses of clearly evil people, like ransomware attackers. - The new law is passed, requiring all US-based bitcoin firms to refuse any transactions that derive, in whole or in part, from “bad bitcoin” list. And KYC laws require passing identities of people who use “bad bitcoins” to FBI. All exchanges have to follow that rule or be fined. - This will kill things like mixers (who wants a part of “bad bitcoin”), anonymous exchanges (if you receive money from stranger and it was “bad bitcoin”, FBI will visit you if it ever touches a legal exchange. Not a very pleasant situation). - This will be US only, but it will propagate to other countries. Let’s say you are in Russia, and you are accepting bitcoins. At some moment in the future, you may want to buy a new iPhone using all those coins. But if they are on “bad bitcoin” list, you won’t be able to do so! So it makes a fill economic sense to refuse bad bitcoins, or maybe accept them at a heavy discount. - Big players, such as investment funds or major payment processors, are almost unaffected. After all, only 0.001% of bitcoins are bad, and losing a few potential customers due to regulations is common in financial industry. - Eventually everyone gets used to “bad bitcoin” system, and the US starts putting more addresses in it. “Terrorist activities”, “embargoed countries” and so on. And that’s how US can get a fair amount of control over bitcoins, and without having to buy entire thing out!

michaniskin 5y ago
Simple: 1. Destroying bitcoin as a free market network would put the final nail in the coffin of crypto as an alternative to fiat. 2. They would have no obligation to buy bitcoin from anyone they don't like. 3. They can funnel a lot of wealth to the elites who own the lion's share of the bitcoin. 4. They're just printing the money. The cost to the government is zero. In fact, a 51% attack is probably cheaper than the bureaucracy required for a complex legislative effort and worldwide enforcement. Not that cheaper has any sensible meaning when you have a money printer in your basement, LOL. 5. This involves no messy legislation, no courts, at most a special purpose vehicle or two. The Fed can take it from there with their own "private" resources. 6. The bitcoin network has no legal protection against a 51% attack like this, there is no legal obligation for a miner to process any particular transaction they don't like.
- alwillis 5y ago
  It's not true that the theoretical 51% attack is cheap. It either requires buying lots of ASICs or paying existing miners to collude with the attacker. At best, a 51% attack allows double spending a few transactions while destroying the miner’s business.
  - michaniskin 5y ago
    A 51% attack is not just cheap, it's FREE when you have a money printer in your basement. This is the point that is hard for people to wrap their heads around. I find this ironic given the philosophical revolutionary hard money stance many bitcoiners have, yet they can't really comprehend that the Fed can buy literally anything it wants, including hash power. To put it another way, consider that the Fed prints money to rig the entire treasury bond market and fix interest rates. Buying up 80% of the mining companies and ASICs in the world is not even a rounding error in comparison. A 51% is not only useful for double spending, it can also be used for un-spending. The Fed would use their hash power advantage to roll back transactions they don't like (this would be any transaction that didn't originate in their own crypto exchange). This puts all the non-Fed miners out of business. The icing on the cake is that the Fed can use its 51% attack to force Americans owning BTC to sell to them (as they won't be able to sell a bitcoin to anyone else at any price). This ensures that all that money they print goes right back into the US economy, it's just effectively an asset swap like quantitative easing. They can easily sell this to congress for its economic stimulus value.
  - michaniskin 5y ago
    Miners would not be "colluding", they would be given the choice to sell their business to the Fed and walk away with a nice bundle of money printer fiat, or try to keep mining at a loss until the Fed runs out of money. The Fed cannot run out of money because they just print it out of thin air. Any rational miner would sell their hash power to the Fed. Irrational miners will simply run out of capital and go bankrupt, and the Fed would then buy up their assets and have their hash power anyway.
mikeblackson 5y ago
This will just fuel the rise of background mixing and decentralized exchanges. Many Bitcoin holders and devs will consider it an honor to make as much of the Bitcoin supply as "dirty" as possible and the community will mostly support it. Layer 2 also further hinders easy tracking of "dirty" addresses/transactions. The FBI wants to interact with and attack the 200M+ people that will eventually hold "dirty bitcoin"? Much of whom are non-KYC holders? Good luck accomplishing that with a limited budget and man power.
- michaniskin 5y ago
  Exactly. Also the carrot is far more effective and palatable to citizens than the stick. The US government could deploy the attack described in the article under the guise of a stimulus program, with their hands completely clean. No legislation required, the Fed would just need to print a little fiat from the money printer and everyone is happy. The government is happy because their fiat monetary system is secure from any threat crypto poses, bitcoiners are happy because the Fed buys their bitcoin for fiat at a good rate, the miners are happy because they got to sell their assets to the Fed for a sweet pile of fiat. The only people crying is the middle class who bears the burden of all this currency debasement. I think we have more empirical data than we'd ever need to predict that nobody who matters politically cares about the tears of the middle class.
  - mikeblackson 5y ago
    One more thing that's overlooked, the nodes control the Bitcoin network, not miners. In the face of a 51% attack, consensus would be reached that banning malicious miners is in the interest of the majority of node owners. They would fork Bitcoin and the Fed would burn a ton of money with very little to show for it. The miners they bribed would pile into the non-Fed controlled fork using the Fed funds they received. The network may actually grow after this kind of attack is successfully sidestepped purely from the Streisand Effect and the corrective action proving what people theorized about the difficulty of censoring the bitcoin network.
    - michaniskin 5y ago

alwillis 5y ago

Absolutely not. How can the US nationalize a global, decentralized network?

LinuxBender 5y ago
I am not an expert in this area and have never used virtual currency. That said, I vaguely recall governments already making it hard for some currencies to be converted to regular fiat currency. I don't know the implementation details, but I assume that if you can block conversion or transfer, then the money can only be used within the virtual currencies own network. If enough governments or central banks from enough countries align with this, they can make the currency harder to use internationally or at least limit its functionality. I don't have any references for this, just passing vague memories of news reports being submitted here.
- michaniskin 5y ago
  The point TFA is making is that the US government can force holders of bitcoin to sell their bitcoins to the government. And, importantly, they can do it via the Fed (which is nominally a private institution), thereby avoiding any politically messy legislation. The Fed can do this by launching their own bitcoin exchange and then dominating the mining of blocks on the blockchain (AKA a 51% attack). They can then prevent any other miners from being able to mine blocks, and they can configure their own miners to only accept transactions which are depositing bitcoin into the own exchange's wallet. At this point nobody can sell bitcoin to anyone other than the Fed's exchange, at any price, because the transaction will not be recorded in the blockchain. The Fed can now set the exchange rate to whatever they want, and they can pay for the bitcoin they exchange with whatever instrument they want. They can run the money printer to buy your bitcoin with USD, they can make you accept US treasuries at a certain price, whatever makes the most sense for their balance sheet. Your alternative is to HODL and never be able to sell your coins.
  - mikeblackson 5y ago
    The network would be forked long before all of that could be setup. Millions of developers around the world working towards a goal generally move faster than governments.