[cabalamat]

> Governments could lose money on each manipulated boom-bust cycle, and at the bottom of each cycle, Bitcoin would still be alive and ready for new uses.

Not only that, once people realised they could make money by buying when it's cheap and selling when it's expensive, new users would flock to the currency.

So I agree with you that this attack probably wouldn't work. What is much more likely is that if banks decided they wanted to destroy Bitcoin, they would bribe governments to do so. They would also spend money on a propaganda campaign linking Bitcoin with terrorists, pedophiles and drug dealers.

[wintersFright]

A lot of governments intervene in their currency to target an exchange rate (eg: Swiss). I don't see a lot of people flocking to frontrun them. It's volatile and risky. Sure traders do it, but not 'people' as in 'the people'.

Governments also won't care about losing money when taking strategic action to protect their seignorage and inflation tax racket.

Maybe the boom/bust wouldn't matter too much. It depends on how people see bitcoin. Are they trying to save in it? Anyone trying to save in bitcoin is delusional given its infancy and volatility. A better description would be some people are trying to speculate in it. For similar reasons, people won't use it as a unit of account.

If people use it as a medium of exchange then volatility won't be of as much concern. If you need to make a trade in BTC then obtain the BTC and trade your item quickly. Given there would be spreads to pay on each trade in and out of BTC then it doesn't seem that likely a strategy unless people wrongly think of BTC as anonymous and are 'hehe, the man have no idea i'm ordering this off silkroad'.

What is interesting is that BTC is not a sovereign currency. So say BTC takes off in Russia and Putin decides to smash it: Does he need to think of the American's reaction if he does? Any country in the world - or any entity big enough (a corporation, a multi billionaire) could decide to cause mischief without it being considered an act of war - which say if China decided to sell 1 trillion of US treasuries might be construed as.

[cabalamat]

> A lot of governments intervene in their currency to target an exchange rate (eg: Swiss).

Generally to stabilise their currency, not destroy confidence in it -- only kleptocracies would deliberately damage their own currency in that way.

> Governments also won't care about losing money when taking strategic action to protect their seignorage and inflation tax racket.

Sometimes, even governments find it too expensive to manipulate currencies, e.g. in 1992 the UK government lost £3 billion in an afternoon propping up sterling. (http://en.wikipedia.org/wiki/Black_Wednesday)

> Maybe the boom/bust wouldn't matter too much. It depends on how people see bitcoin. Are they trying to save in it? Anyone trying to save in bitcoin is delusional given its infancy and volatility. A better description would be some people are trying to speculate in it.

Agreed.

> If people use it as a medium of exchange then volatility won't be of as much concern. If you need to make a trade in BTC then obtain the BTC and trade your item quickly. Given there would be spreads to pay on each trade in and out of BTC

The sprreads make this costly. My main interest in BTC is in the hope that it could be used as a cheap way of transferring money, particularly in small amounts, which obviously isn't going to be possible if there are big costs in exchanging it.

> So say BTC takes off in Russia and Putin decides to smash it

Putin can smash BTC in Russia. It would be harder fro him to do so in the rest of the world.

> Does he need to think of the American's reaction if he does?

If BTC are being heavily used in the USA or other countries, then those countries would be unhappy about Putin's meddling.

[socillion]

From the government's perspective, Bitcoin could be the least of very many evils. Don't forget that the protocol logs every single transaction publicly, and companies have the usual mandatory reporting for transactions over $10,000. In the future, if Bitcoin becomes a well established currency, Bitcoin companies would have no option to refuse requests for information - Liberty Reserve is a good example of what noncompliance will result in. They could only pray the deal is not altered further.

Sidenote: Liberty Reserve was shut down a month after the FinCen released clarification of regulations that neatly closed the loophole they exploited, and at the same time greatly legitimized Bitcoin operators that comply with the strict MSB regulations.

[cabalamat]

> From the government's perspective, Bitcoin could be the least of very many evils. Don't forget that the protocol logs every single transaction publicly

That's a good point. Would it be possible to have something like Bitcoin but with better anonymity?

[mateuszf]

There is a protocol called Zerocoin which may be integrated with Bitcoin. AFAIK it is currently being tested. However it's not sure if Bitcoin developers will integrate it with current protocol. In theory it makes possible to do totally anonymous transactions.