What are some ways that the powerful elite can thwart cryptocurrencies?

Question

What are some ways that the powerful elite can thwart cryptocurrencies?

Cryptocurrencies appear to be not susceptible to most forms of power, regulation, or control. Due to their decentralized and anonymous nature, they are often touted as an antidote to government, Wall Street, etc manipulation through currency and money.

How accurate is this? What are some ways that an actor who has an interest in say the dominance of Wall Street or just any old reason for using their power to control otherwise free actors could do so through cryptocurrency economies?

Answer 1

Here are a few ways Bitcoin can be affected by the decisions of a wealthy investor:

• Value manipulation: A wealthy investor can sell coins or purchase coins in such a rapid pace that the market sinks or rises to an unrecoverable level. In real exchanges, the SEC protects investors from these hostile trades. There is no SEC protection with Bitcoin. Update: there apparently is now SEC prosecution for Bitcoin matters

• Negative press / word of mouth: Part of the success of Bitcoin rests on it being freely exchanged for goods and services. If Bitcoin becomes overly associated with the darker parts of the internet, then some businesses will become risk adverse and not want the additional scrutiny on their private ledgers (tax, audit, etc). However if BTC is associated with "good" things then the inverse is likely to happen.

• Protocol hacks: If an elite person discovered, or a team is funded to discover protocol issues with the Bitcoin network, and a flaw is found, that will undermine investor confidence in the system. (e.g. Malleable Transactions)

• Laws on M1, M2, M3 transfers: Bitcoin is unique in that it can be purchased with USD and sold back to Bitcoin and back to USD. This feature is different than other items such as a calling card, gift card, Amazon coins don't have this two way feature. The less isolated a currency is, then the more likely it will have regulations apply to it. Regulations are supposed to protect the merchant and consumer, and these regulations will likely be placed on all exchanges. It has already started with the recent FinCEN announcement.

• Manipulate or create a Internet outage, a massive sustained power outage, like the 2003 Northeast blackout, covering an area with a heavy miner concentration.

• An over dependence on a single exchange, with no auditing or external oversight, could manipulate the currency value with a double set of books.

Any player in the Bitcoin system who also needs to use the value of Bitcoin in a local currency will likely have most regulations placed where the BTC ↔ currency conversion is done. Identification "checkpoints" and other analysis will eventually be done on trades to identify the good guys from the bad. Depending on which side you're on, this could be thwarting one's intentions.

Answer 2

In terms of thwarting P2P currencies, in addition to those mentioned in makerofthings7's answer, I will add:

• Delaying transactions with only minority Proof-of-work share.
• Forking the protocol with majority Proof-of-work share.
• Employing black budgets outside of public view.
• Selling put options to gain the money to attack with.
• Using the law to keep the economy-of-scale too low for mainstream.
• NSA anonymously dumping on the market value (selling for dollars) the massive # of private keys they've harvested (not necessarily by mining).

Of all the answers so far, I think the most realistic attack will the use of the law. The next most likely is the manipulation of the value, such as how JPMorgue et. al. have been profiting by front running speculators and offloading (socializing) losses onto the public sector with bailouts. I consider these two threats as very plausible. The latter one will only be attractive to smaller manipulators until Bitcoin's marketcap is orders-of-magnitude larger.

As for using P2P currencies to attack Wallstreet, I don't have any thoughts yet about that.

Regarding the claim in your question about being an antidote, the most powerful feature of P2P currencies is their anonymity. The problem is that some significant weaknesses may take precedence and limit adoption. The main weakness is the value is not stable. And now that FinCEN has published guidance that any conversions to other currencies make the customers personally liable for money transmitter reporting, the anonymity is illegal if you can't hold the value in the system and only spend it on goods and services.

Answer 3

I really think Bitcoin's biggest vulnerability is the 51% attack that can be performed by entities with large amounts of money, not any regulatory issue. Last I heard, it would cost $16 million to carry out a 51% attack.

While this is a lot of money to most people, it's chump change to the federal government or Visa / Mastercard / Large banks. I saw a post recently in the Bitcoin Foundation blog about how there is a legal deterrent against the 51% attack. This is nice to know about in theory, but given how the big banks were bailed out, I don't feel like any of them would feel reluctant to carry out this attack if bitcoin became large enough to start eating into their profit margins on credit cards. Ditto the Federal Reserve if it got big enough to really negatively impact its ability to control the US currency.

Answer 4

Being decentralised, it appears Bitcoin is less susceptible to regulation. But the weak point may be where you attempt to bring your Bitcoins back into the real economy - and this appears to be where the USG is striking first:

"US Begins Regulating BitCoin, Will Apply 'Money Laundering' Rules To Virtual Transactions" (Zero Hedge, 21 Mar. 2013)

Answer 5

I know i will get a -4 ( or worst ) for this answer but . . .

All the answers above are very good, one of the best ways to discredit bitcoins is to buy many and generate very big volatility.

After that, one of the best ways to attack bitcoin could be . . . . to create ripple.

Answer 6

My 5 cents:

• Through developers elite, who now have access to commit to main branch.

One day, source of bitcoin will different from Satoshi's code in more than 90%. Little injection to the bitcoin's code will give access to kill-switch the network of bitcoin.

With hypothetical backdoors in compilers, already placed by powerful elite. Much, much more...

Answer 7

Dirty Bomb

Pay an "anonymous troll" to steganographically copy child pornography into the block chain. Then get the mainstream media to publicize this fact. Then threaten anyone who is running a full node with CP charges. Unwitting possession would not work as a defense because the fact that the block chain contains CP is already widely known.

A "nuclear option" like this could easily backfire though. The government itself would need to do something highly illegal first before it can use the law to its advantage. Even the people working for three letter agencies are normal human beings, so many of them will oppose this out of disgust.

It would probably only cause a temporary disruption because bitcoin would quickly switch to a pruned block chain model that doesn't require a single node to store all the transactions.