Tuesday, April 9, 2013

How Bitcoin Dies

By Mencius Goldbug

TL:DR - Bitcoin dies in two very simple steps.

1: A DOJ indictment is unsealed which names everyone on Planet Three who operates, or has ever operated, or perhaps who has ever even breathed on, a BTC/USD exchange, as a criminal defendant.

The charge: money laundering.  The evidence: the defendants knew that BTC were used for organized criminal activity.  Therefore, they knew they were transferring money for criminals.  This is quite simply the definition of "money laundering." 

(Obviously, prosecution under our modern "rule of law" proceeds according to these broad definitions, without regard to any specific technicalities.  For instance, Aaron Swartz downloaded many more papers from JSTOR than JSTOR wanted him to.  Therefore, he used JSTOR's computers in a way that JSTOR didn't want them to be used.  Therefore, he could be prosecuted for "computer hacking." Indeed he seemed to sense this when he put his bike helmet over his face and ran from the police.  The details?  They might have mattered, at the trial.  But of course there was no trial.)

2: The BTC/USD price falls to 0 and remains there.  BTC are permanently worthless.  Everyone who was involved in the Bitcoin market and was holding BTC when the indictments were unsealed feels burned.  Everyone who got out feels lucky.  Many who escape prosecution, in fact, feel lucky.  And BTC is remembered as an epic bubble. 

This is a very strong prediction.  Am I right?  Am I this confident?  I never get hate mail.  Really - never.  But won't I get hate mail for this?

Obviously, I have no inside information at all and am just speculating - as a devout student of the fascinating organism that is USG.  However, my guess is that this event will happen soon - ie, probably in 2013.  Why?  Because of the ECB report on Bitcoin, which quoth:
All these issues raise serious concerns regarding the legal status and security of the system, as well as the finality and irrevocability of the transactions, in a system which is not subject to any kind of public oversight. In June 2011 two US senators, Charles Schumer and Joe Manchin, wrote to the Attorney General and to the Administrator of the Drug Enforcement Administration expressing their worries about Bitcoin and its use for illegal purposes. Mr Andresen was also asked to give a presentation to the CIA about this virtual currency scheme.
Further action from other authorities can reasonably be expected in the near future.  (Note: RW highlight) 
Neighbor, if you're at all involved with BTC, I'd advise you to heed this remarkably direct warning. You'll note that (a) the people who wrote this reportdo have inside information (since the ECB and our own dear "other authorities" operate, of course, in practice as a single global institution), and (b) these are people with actual power, and people with actual power tend to do what they say they're going to do - regardless of how Reddit might feel about the matter.

Obviously, I am no fan of USG, DOJ, or JSTOR.  My ideal outcome for the Aaron Swartz case would have involved Aaron getting away with it, and putting the JSTOR archive online.  Indeed this would have been a remarkable and wonderful outcome.  I can only hope the next person who tries the same thing comes has the same talents as Aaron Swartz, but brings his A game and comes armed for bear.  But certainly, don't take on the Man if you have any suspicion that the Man might take you instead. 

And when it comes to USG, and USD - creating a successful distributed digital currency is what I call "coup-complete."  Ie, as a difficult problem, it is fundamentally equivalent to the well-known difficult problem of regime change.  Are coups impossible?  No, of course not.  What's impossible, however, is pulling a coup when you don't know you're even trying to pull a coup.

Government control (excuse me, "public oversight") of all major monetary transactions is one of the basic attributes of sovereignty in the modern world.  If you can get away with "money laundering," ie, circumventing this control, you can get away with anything.  If you can systematically disable it, perhaps you yourself are the new regime.  You're certainly on the way.

Indeed, if we all traded in our dollars and dollar assets, and fully restandardized the global monetary system on BTC (technically a far superior design), it's quite possible that Satoshi Nakamoto himself would simply emerge as our new global overlord.  I suspect he'd be richer than the Rockefellers.   How do you indict that?

My guess, solely from the broad public hint above, is that the collective bureaucratic decision to unleash the full right arm of USG on BTC was almost certainly made in 2012 or even 2011. An easy decision - since it makes a lot of work for all the deciding agencies.   Meanwhile, the Bitcoin economy is buzzing merrily along, as if there was nothing wrong at all with Bitcoin.  Technically and economically, there is nothing wrong.  It's a remarkably beautiful architecture - in fact, I would say, a genuine work of art in the field of system software.  Its problems are entirely political.

Well, okay, that's not entirely true.  Bitcoin's engineering is impeccable and its economic design is entirely sound.  But most Bitcoin users - and, more important, supporters - seem to be laboring under a dangerous delusion as to the economic cause and effect behind Bitcoin's success.

To me, and I hope to other UR readers, the logical leap from step 1 (BTC exchangers are indicted) to step 2 (BTC price goes to 0) is obvious.[...]

After the crackdown I expect (but, of course, hope won't happen - these are, after all, government agencies, so hope really can spring eternal) there will be neither present nor future for BTC, just a past.    Even today's lame Bitcoin competitors (for obvious reasons, if you understand monetary standardization) have a market cap of epsilon.  Why epsilon?  Because they have a small fragment of a future.  A possible future.  The Bitcoin network could screw up its crypto somehow, or something.  It won't.  But fine, maybe it's worth a try.

Whereas after any such crackdown, it will be plain as day that Bitcoin and anything like it have no future at all.  Those who speculated and stayed in speculated unwisely, because they chose a monetary standard that had all the qualities of a successful currency except one: resistance to government attack.  You'll note that our fine USG securities, while substandard on many indicators of monetary quality, have the world's only perfect score in this department.

If I have one lesson to impart, here at UR, it is this: USG is what it is.  It is not what you want it to be.  It is not what you hope it will become.  It is certainly not what it claims to be.  No - it is what it is.  Respect that reality, and you will neither run afoul of Leviathan, nor live "free" as his spiritual servant. 

Read the rest here.


  1. His name is actually Moldbug, although he would probably think "Mencius Goldbug" is very funny.

  2. Bitcoin was dead before birth.

    A competing currency is fraudulent and the US Gov will take severe action against exchanges, and anyone converting from Bitcoin into US dollars.

    The entire power of the global financial system is at stake, and the national governments will do anything to shut it down.

    They WILL find a way to infiltrate and manipulate the market, just like gold and silver.

    Furthermore, any business that accepts Bitcoin inside the United States will be raided and shut down by the IRS for suspicious of financial fraud, money laundering, tax evasion, and more.

    Then the great collapse will happen.


    1. They can't stop bitcoins unless they shut down the internet.

    2. "A competing currency is fraudulent". LOL! Yes Tim, people wanting to use a medium of exchange that meets their needs is fraudulent?!? And everything the government does (even if it violates the constitution - like gold and silver being the only legal tender - is legal). I can only say that you're obviously not too sharp. Keep them coming!!!

  3. This is actually just another old fear-mongering piece, discussed in detail and dismissed here:


  4. This is stupid.

    1. can be used to arrest every dollar user, because dollars are laundered.

    2. is wishful thinking

  5. Unless people just start trading in bitcoins based on the value they have as global facilitators of anonymous, secure transactions.

  6. For a bunch of free maket antistatists, this site seems to attract people with more faith in the abilities of the State than in the market.

    Bitcoin is a market force. You're free to participate or not. The coercion of the State will only drive the value of Bitcoin up and make us bitcoin holders richer. I'd prefer a slower rise in price based on consent but if people keep calling for the thunder to come down, so be it.

    Bitcoin exchanges will open in countries where US law doesn't reach. I'll be dumping my dollars for whatever currency I can turn into bitcoins most easily.

    This is how the dollar dies, not Bitcoin.