Comment by theamk | Hacker News Reader

Comment by theamk | Hacker News Reader

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!

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.

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.

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.

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.

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.

> funding is not an issue for projects that solve the issues Bitcoin does

Funding is far less of an issue for an attacker who has a printing press, and it's the relative level of funding that matters. In order to defend against a 51% attack the defender must be able to spend more resources than the attacker. It's the "who can afford to lose more money game", where one side can just print as much money as they need while the other side has to earn every dollar. Are you really betting on the workin' man here? I wouldn't.

> attacking any single network does nothing to limit that demand

Demonstrating that they can afford a 51% attack on any blockchain they want to attack will affect the price of all crypto. Investors will need to discount that risk. This will surely affect demand.

> 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.

Nobody is claiming that the Fed's intention is to compete with bitcoin. They only need to attack it and destroy it. Remember, they want people to be stuck using their fiat currency, they don't want to make a competing type of sound money.

They are competing with Bitcoin whether they like it or not. CBDCs are a result of Bitcoin applying pressure to central banks. As long as the money offered by central banks is censorable and heavily debased, they will be in this battle.

And no, they can't destroy something that can be forked and updated an infinite number of times. Not sure why you don't understand that its trivially easy to copy Bitcoin and build an alt. As long as that is the case, Bitcoin cannot be defeated.

If the current POW mechanism is repeatedly attacked and defeated it will adapt or projects will move to another consensus method. This is an arms race that CBs cannot win and they will burn a lot of money in process of losing, which is a beautiful thing.

Realize a successful 51% attack is just the beginning of the war, not the end of it.

*All the arguments you put forth so far are defeated by this simple flip of a consensus mechanism switch.

They don't need to compete with a thing they can destroy. And they can destroy bitcoin with a 51% attack that is funded by their ability to print as much fiat as it takes.

> Realize a successful 51% attack is just the beginning of the war, not the end of it.

I think you're right; the war will go on for awhile. But I'm convinced by https://news.ycombinator.com/item?id=28028542 that in the end, if anything bests fiat, it will be gold.

Barring some new technological breakthrough, it seems to me that bitcoin has no value in a fiat world, and no value proposition in a sound money world. It's a noble dead end.

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.

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.

> That is irrelevant because the main point is, the attack will be unsuccessful.

Is your claim here that the Fed cannot afford to buy the 51% attack? Keep in mind that they printed about 6 trillion dollars last year.

If the Fed can buy a 51% attack then they will be successful. They will demonstrate beyond a doubt that an entity with the power to print fiat can always take down a decentralized, permissionless network by exploiting those very features.

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

The same way sovereigns have since the dawn of time--divide and conquer. In the 20th century they discovered the secret, international socialism.

Give millions of people stimmys and enhanced unemployment checks. Destroy the savings of responsible, productive people so they can't afford to take risks without the promise of government bailouts. Make the people dependent on the state in every way.

Deficit spending and the money printer is the only way to fund all of these social programs the people are addicted to. Do you really believe that these millions of people hate the central banks who fund the welfare state?

They are winning. Their power increases every day, and it never decreases. They are ruthless, and I think it's reasonable to expect that they will not think twice about nuking bitcoin from orbit with a 51% attack, and print as many billions as they need to succeed.

They are not winning. The fiat standard is imploding as we speak, have you not recognized that yet? Any attack on a popular network exposes a larger audience to the fraud that central banks engage in. Hence, central banks don't survive in the sunlight.

How are they not winning? They have repeatedly exceeded even the most paranoid fears of people who value sound money. They are increasing the scope and magnitude of their interventions every day. They are continually eroding any checks or balances that were in effect historically. Sovereign debt is at levels that have never been experienced in the history of mankind, and they continue to bask in the glow of favorable public opinion. The average person is thankful that the Fed is here to save the economy from disaster. In America we have a treasury secretary who is literally a Fed chairman.

The fiat standard may be imploding, but the central banks are definitely winning. The Weimar hyperinflation, for example, did not destroy the Reichsbank; it empowered it. When the currency collapsed they did not replace it with sound money, they replaced it with new fiat of a different color with less zeroes on it. It's the same with all the other hyperinflations we've seen in the past century. The mantra of "this time is different" makes a pretty bold claim and requires some evidence to back it up.

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

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

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.

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.

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”?

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