[mikeblackson]

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.

[theamk]

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.

[mikeblackson]

>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.

[theamk]

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”?

[michaniskin]

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]

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]

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.

[mikeblackson]

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.

[michaniskin]

This "perpetually moving target" will need funding to operate. The Fed will always be able to afford to lose more money than the private sectors can afford to lose. Remember that the government doesn't need infinite resources, they just need more resources than the private sector can muster.

This is something the Fed does all the time, this is exactly how they distort the economy to set interest rates and bond yields. They have been 51% attacking the bond markets for decades, and all the bond shorts who thought "they can't possibly keep printing at this rate" lost their shirts.

[mikeblackson]

All these coins are funded by the people that adopt them, funding is not an issue for projects that solve the issues Bitcoin does. These projects exist because there is demand for the solutions they offer, attacking any single network does nothing to limit that demand.

I disagree with the 2nd part too, the idea that the Fed does anything tech related with a higher level of competency than the private sector has not been proven to me.

The idea that a centralized closed network that's severely hampered by operating restrictions can beat a well designed adaptable open network in the long run is a joke.

[michaniskin]

Also consider that the price of crypto is determined by people's expectations of future price; since it pays no dividends the only way to make a return is to sell it or rent it out. What effect do you think this "perpetually moving and atomizing target" would have on investors? How would a rational investor price this completely unpredictable asset? Clearly there would be a discount for risk, like a shitcoin.

[mikeblackson]

That is irrelevant because the main point is, the attack will be unsuccessful. People will pay a premium for a coin/payment network that defeated the Fed and proved its censorship resistance.

How long can the fed fight a few hundred million (soon to be few billion) people?

In the war of attrition, this small group of people with incentives that are not aligned with the majority of the humans on this planet will lose, it's just a matter of time.

I expect Bitcoin will destroy/neuter most central banks in your lifetime.

[michaniskin]

What prevents the Fed from operating as many nodes as they need to overrule the "honest" node operators?

[mikeblackson]

If fed nodes run a different version of bitcoin that permits censorship, they will not be in control of the forked chain.

[michaniskin]

OK, now you're talking about inventing a new altcoin that introduces censorship, governance, and control. This has already been done a number of times, and they all failed.

Bitcoin is the ultimate fiat in that it's not backed by anything tangible. The bitcoiners will say that the intrinsic value of bitcoin lies in the value the network provides, eg. facilitating uncensorable, permissionless transfers across borders. It is definitely not a given that a new coin without this utility will be a success. I'd bet against it given the history of altcoins that have attempted to do it.

[michaniskin]

Oh, I think i didn't understand your comment, sorry. In the scenario laid out by the article the Fed runs the same software as any other miner, they simply ignore transactions that are not depositing bitcoin into their wallet, they refuse to record those transactions in the blocks they mine.

This is completely compatible with the bitcoin network, any miner can do that today without forking the chain. However, if the Fed had say 85% of all hash power it would be extremely expensive for any other miner to mine a block, so the Fed would gain complete control over the network over time.