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I was reading this interesting discussion in the comments section on ZH where this guy was talking about how a single entity (think corrupt government and banksters) can throw money and processing power at will at the network to successfully manage a 51% attack or just cause havoc in the system by sending incorrect network messages, such as denying valid transactions or allowing invalid transactions.

The initial part of the discussion quoted here

Assume I'm a completely unscrupulous and ammoral person, for example, and I want to shut down bitcoin. Here are the ways I would attempt to do it.

  1. Write a virus to mine bit coins and spread it across the internet.
  2. Write a virus to steal bit coins, and spread it across the internet.
  3. Write a virus to act as part of the bitcoin network, and deny transactions that are valid
  4. Write a virus to act as part of the bitcoin network to approve transactions that are invalid.
  5. Dump the bit coins I mined as part of step #1 and #2 on the market
  6. Create a mania in bitcoins by dumping billions into buying bitcoins after doing step #5
  7. Associate it with terrorism
  8. Associate it with drugs
  9. Claim that people like me are manipulating it

And that's just off the top of my head.

I gots unlimited money. I am working in a market that is unregulated. I run the government or own it. Try to stop me.

Here is a link to that discussion. http://www.zerohedge.com/news/2013-03-25/bitcoin-mania-accelerates?page=2#comment-3373165

Can someone please comment on whether this is possible and if not, how does the bitcoin algorithm/ecosystem counter such an attack

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With unlimited money, you could destroy almost anything. I don't really see why it matters. If someone with unlimited money spends a few billion dollars to destroy Bitcoin, we'll just create Bitcoin2 and maybe he'll spend another few billion destroying that. We can keep creating new crypto-currencies indefinitely. If each one gets a few billion dollars out of the hands of some evil entity, that's a win in my book.

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    Doesn't work this way: if you destroy one currency, the trust in the next one would be back at zero... – o0'. Mar 26 '13 at 14:37
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    Quite the reverse, the inflow of billions of dollars will spur massive interest among people trying to get a piece of that money. – David Schwartz Mar 26 '13 at 18:22
  • Oh, if you put it that way, that makes sense! – o0'. Mar 27 '13 at 9:41
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In fact they can. Somebody who could raise 20x of the entire network's computing power can rerun the transaction history from the beginning, throwing out any transactions they don't like. So long as the rest of the transactions are consistent, they should be able to gain the trunk blockchain line. This would make the entire blockchain we have been running up to this point a very large split.

See What is the longest blockchain fork that has been orphaned to date? for a few details.

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