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

by michaniskin • 5 years ago

7 45 5 years ago

throw03172019• 5 years ago

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

theamk3• 5 years 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!

michaniskin22• 5 years 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.

alwillis2• 5 years 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.

mikeblackson14• 5 years 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.

michaniskin22• 5 years 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.

theamk3• 5 years ago

Oh, the FBI is secondary. The primary method id carrot: do you want your to buy bitcoin via Paypal? Do you want to pay bitcoin everywhere where the VISA is accepted? Do you want touse US based firms like coinbase? Do you want to invest into bitcoin via tax-free retirement saving program? Then avoid “bad bitcoin”.

People may want to participate in mixing, but then they won’t be able to get their money back in the US. It is that simple. Imagine a future where almost everyone has a Paypal(tm) Bitcoin app on their phone. And here is a bitcoin dev who has mixed all of their money. They just had a pizza with their non-technical friend, and the friend asks “Can you send me you portion of the bill? Thanks! Ugh, my phone is not accepting your payment, something about dirty money error.. Can’t you send me some normal bitcoin”? There will be no convicing that non-technical person of the problem with the “bad list”, the do not care.

In other words, you are going to have 46M people who just want bitcoin to work and don’t care about “bad bitcoin” list (US non-technical population), maybe 0.1M of principled bitcoin holders and dev who are against the mix, and 150M+ people in other countries who simply don’t care.

alwillis2• 5 years ago

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

LinuxBender• 5 years 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.

michaniskin22• 5 years 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.

michaniskin22• 5 years ago

Did you RTFA? It's like 20 lines of text, that's exactly what it explains. Any entity with the ability to print money can simply buy a dominating share of the hash power and force all the honest miners to either sell out to them or go out of business.

the network is only global and decentralized to the extent that the miners operate with a profit motive. The government that prints the world's reserve currency can afford to print more money than honest miners can afford to lose. Game over.

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

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