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!
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.
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.
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.
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.
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.
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.
>People may want to participate in mixing, but then they won’t be able to get their money back in the US.
I see the issue here, you think the endgame is for bitcoiners is to own more fiat. That is not the goal, fiat is dead to most bitcoiners, they will hold until fiats currencies implode like they constantly do.
You seem to think the choice of money originates with banks or governments, it doesnt. The primary form of money is chosen by the masses. Good luck stopping billions of people that choose to opt out of bad money.
I thought that the “end game” of bitcoiners is to have it replace fiat - be accepted in stores, be the preferred way to send money to others, be the primary way to get paid and so on.
So what are bitcoiners gonna do if Paypal and VISA add “pay with bitcoin” option and give it to billions of users? It would be a nice and simple interface that is easy to use but that complies with “bad bitcoin” list.
For every hardcore bitcoiner who is waiting for fiat to implode, there would be 1000 laypeople who do not care but they bought some bitcoins because TV said so. And all of those laypeople will be forced to comply with “bad bitcoin” list.
So now let’s say you have a bitcoin business. You can accept “good bitcoins” that you can send to billions of people, or “bad bitcoins” which you can only send to hardcore bitcoin enthusiasts, 0.1% of population. Is there any economic sense to accept “bad bitcoins”?
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.
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.
But that's just turtles all the way down. The Fed can mine that forked chain even more easily than the original one.
When one actor has a money printer they can use the permissionless, decentralized nature of the bitcoin network as a weapon. It's a vulnerability they can exploit.
Regardless of how much money can be printed, no government has enough resources to attack a perpetually moving and atomizing target.
As long as governments debase the currency to carry out this attack, they are also continuously creating more reasons for variations of Bitcoin to exist.
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.
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.
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.
The Fed is (nominally at least) a private institution. They are not hobbled by government bureaucracy. Just look at all the things they did in 2020 that everyone would have imagined would have been impossible. All they need is the green light to do it, and the Fed can swoop in ninja style and get stuff done, as they do. There is no oversight, there are no constraints.
I have seen no evidence that central banks are as agile as you claim. Changing a number on a central database is not impressive and doesn't prove they can execute a much more technical attack on a well defended network.
Central banks are more fragile than the Bitcoin network and they definitely don't have the support of the masses. I expect they would lose a lot more than just money in this attack.
Bitcoiners would love to pull these institutions out of the shadows and I don't think central banks survive when exposed to sunlight. Just a small community of coders caught wind of how CBs operate and constructed powerful platforms to carry out large scale speculative attacks on them. Imagine what happens when a few billion people understand how CBs operate... their days are numbered.
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.
- 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!