Friday, May 24, 2013

Could an Inside Sneak Attack on Bitcoin Destroy It?

LRC has an important article posted to day about Bitcoin and regulation.

The article is written by Paul Rosenberg. I can't argue with great passion against the points he is making, but I do have a slightly different view.

Rosenberg writes:
I’ve been warning about an outside attack on Bitcoin for some time, but the biggest threat may come from inside: from people who profess to love Bitcoin.

The people I’m talking about don’t love Bitcoin itself, and they don’t love the freedom it brings, no matter what they say. Instead they love the money they hope to make by becoming the new techno-riche: successors to Zuckerberg, Gates and the rest. (Yes, that’s an unfair thing for me to say, but I’d also be willing to bet large on it.)

The people I refer to are a neo-plutocracy — insiders who wish to institutionalise Bitcoin, making billions for themselves while turning it into just another version of PayPal.

One long-time bitcoiner has been warning for some time that this group controls the Bitcoin Foundation. He describes them as “regulatory statists.”[...]

Let’s be clear about this:

Bitcoin is a new thing. If it is forced into the old mold of politics, regulation and control, it will become just another tool of an oligarchy. And the prospective Bitcoin oligarchy are precisely those people who wish to shove Bitcoin, against its nature, into the same old statist, plutocratic mold. The result would be a few dozen insiders getting very rich and leaving the rest of us back where we started.

Regardless of the new plutocracy’s creative justifications and their fear-based scenarios, Bitcoin will be neutered and co-opted by governments and bankers if they get their way.

This is the largest single threat facing Bitcoin at the present time. Fear and greed work, and corruption follows with them.

 The Winklevoss twins are part of the group that holds the view that the Bitcoin community needs to cooperate with government. Rosenberg writes:
 I got an article entitled Winklevoss twins on Bitcoin: Time to work with the Feds. The article quotes Cameron Winklevoss (one of the Facebook twins) saying this at the conference:
I don’t think anyone wants a fight — I think everyone here wants to build Bitcoin, to work with regulators, cooperation is really the way forward.
Let me say this about the Winklevoss twins. I heard the presentation the twins gave (see: The Not So Impressive Winklevoss Twins Presentation: Notes from Bitcoin 2013)  and talked to them over the weekend. They are nice guys, but it is not hard to see how Zuckerberg was able to pull a fast one on them.

The twins are nowhere near key players as far as Bitcoin is concerned. They have money, so no one is going to diss them and the media will focus on them, but there are much smarter players around Bitcoin than the twins. The real smart ones are working things from the shadows, you won't see their names anywhere--or, if you do see their names, it won't indicate at all the behind the scenes power they wield.

Here's the thing about government co-operation and Bitcoin. I think there is the possibility in can be a good cover for other things going on with Bitcoin. If no one worked with the government, I think the government would be much more focused on shutting down all of Bitcoin, right now. That some are willing to work with government may fake government out and give government the sense that it is somehow regulating Bitcoin.

The most important thing for Bitcoin right now is greater adoption. If the government cracks down on Bitcoin now, that adoption stops. If the government is slowed in an all out attack on Bitcoin because some dealers are government registered exchanges and follow government rules, then that will allow Bitcoin adoption to proceed. If the government really doesn't understand what kind of beast it is dealing with until adoption is much broader, then it may be too late politically for the government to stop Bitcoin.

I don't know who is going to win this cat and mouse game between government and Bitcoin players, but to me those wanting to play footsie with the government are in my view providing help,   at this time, by lessening government's short-term aggressiveness against Bitcoin.

Of course, if in the end nothing is left standing of Bitcoin other than registered exchanges then Bitcoin will be of limited value, but there are very smart people developing many different types of workarounds to government threats. Bitcoin is a very complex beast and I doubt regulators understand it in its entirety. In a 20th century industry, news of an association forming to deal with government would be of great concern, but with Bitcoin, government may be regulating the Bitcoin border crossing but have no clue that Bitcoin planes are flying overhead at atmospheric levels.


  1. "the government would be much more focused on shutting down all of Bitcoin"

    That's literally impossible. So long as a network of some form exists (i.e. the ability of one computer to talk to another computer, or multiple computers), then there isn't anything that can shut down Bitcoin. Even if the government shut down the entire internet there are still numerous ways for computers and other digital devices to communicate with one another that are beyond the hand of government, thus people can still trade in Bitcoin.

    Thus far the US government has focused on the exchange services, which shows a certain naïvety on their part, because the Bitcoin exchange services aren't necessary at all for Bitcoin's existence, nor are they necessary for trading in Bitcoin, they just make the process easier and more convenient for the less knowledgeable.

  2. Go(v)llum: They're thieves! They're thieves! They're filthy little thieves! Where is it? Where is it? They stole it from us, our precious. Curse them! WE hates them! it's ours it is, and we wants it! We wants it, we needs it. Must have the precious. They stole it from us. Sneaky little bitcoinses. Wicked, tricksy, false!