Saturday, November 16, 2013

Homeland Security on Bitcoins

Wired  reports (my bold):
The toughest comments came from the Department of Homeland Security. “The anonymity of cyberspace affords a unique opportunity for criminal organizations to launder huge sums of money undetected,” wrote DHS Acting Assistant Secretary for Legislative Affairs Brian de Vallance. “With the advent of virtual currencies and the ease with which financial transactions can be exploited by criminal organizations, DHS has recognized the need for an aggressive posture toward this evolving trend.”

The DHS has also targeted “virtual currency platforms and the network of virtual currency exchange makers,” de Vallance added. Earlier this year, the DHS seized about $5 million in bank accounts belonging to the world’s largest bitcoin exchange, Mt. Gox. Since then, the exchange has found itself shunned by much of the international banking community, and it has had difficulty moving money to its U.S. customers.
The current Bitcoin price is $466.00.


  1. My emphasis:
    “The anonymity of cyberspace affords a unique opportunity for criminal organizations to launder huge sums of money undetected,”

  2. Bob, we love your blog, we appreciate your understanding of Austrian economics, we rejoice at your opposition to foreign wars of aggression.

    But I have to ask: in this battle between the state and bitcoin, which do you want to win? Not which do you THINK will win---you've made that opinion clear and time will tell---but which do you WANT to win? Do you think that a crypto-currency that can (at least partially) evade state surveillance and is (at least partially) resistant to easy seizure, is a good thing if it can succeed?

    Full diclosure: I have never bought or sold a single bitcoin and own zero of them. But I would LOVE to see bitcoin prosper. I would LOVE to see all the greatest fears of the government about bitcoin come true in spades.

    And if bitcoin fails, at least it fails while daring greatly. At least it forces the mask covering the true nature of the state to slip off a little more.

    1. Count me as another person rooting for Bitcoin while having no financial interest in its success or failure. Don't forget that Bitcoin is only the first mainstream crypto-currency - others will follow. Also, every time the government comes out with new 'security features' in the latest cash, it makes me wonder how long it will be until cash contains electronic tracking features such as RFID. It wouldn't be that hard to set up a system where every vendor is required to scan a bill's serial number / RFID during a transaction, and a bill becomes defunct if it's transaction history can't be traced.

    2. Three cheers for Lysander. Hip hip hurray!

    3. @ Chad, it would be ironic if the government's never ending attempt to monitor each and every single transaction actually encourages more and more people towards bitcoin. Let us all root for poetic justice.

      And thanks to Anon 1 and 2

  3. Bob nailed the fact that bitcoin would be attacked relentlessly by the statists on behalf of the bankers/statists in real time long before it was obvious to most. He stated it plainly before any of the recent attacks were on the radar.

    I consider what he has done for his readers to be a public service, saving some from the intercourse that is coming. They were always free to reject his insight and go for it.

    If bitcoin fails taking its maximum believers with it, it will be no consolation that hey, at least they tried something. Refer to the Adam Kokesh affair.

    1. Bob had no special visionary ability. The creators of Bitcoin KNEW it would be attacked from the outset and that is why it was created the way it was. That is why the true identity of Satoshi Nakamoto was kept private. Bitcoin is not taking the State head on. It is leapfrogging it. Sit back or join the fight for liberty. Either way, it's going to be a hell of a ride.

    2. "Refer to the Adam Kokesh affair."

      While I'm sure you didn't mean it that way, I get a bit annoyed at people who supposedly understand the true nature of government but then point out, almost with glee, what happens to those who challenge its power.

      Bob was absolutely right that the government will do whatever it can to crush bitcoin. He was right about the reasons they would do so. He is right to warn people that owning bitcoin is risky and it could collapse to zero (hypothetically, but I doubt it)

      But he is wrong if he "knows" what is going to happen. None of us really "know." All of us are making a guess and some of us may be right. Bitcoin might collapse, it might be co-opted by the state, it might remain a thorn in the side of the state, and it might emerge as the best rival to the fiat currencies and the best hedge against government asset seizures, just as alternative media and the internet have challenged the MSM in ways few that possible 20 years ago. I think the latter is possible and is definitely what I'm hoping for.

      Bitcoin traders are taking a risk, just like stock traders do, just like precious metals traders do. Bob is correct to warn them of the risks. There is no such thing as profit without risk. But what I'm saying is that bitcoin traders, while acting out of their own self interests, are providing a huge service to the public by creating a market (hopefully) beyond the control of the state. Exactly the way the free market is SUPPOSED to work.

      I hope they are handsomely rewarded for the risk they are taking. We all profit if they are.

    3. Agreed. Let it also be noted that people can join the quiet, non-violent revolution by minimizing their use and holdings of fiat currencies.

    4. @Lysander,

      There is no glee here. If you read RW's blog regularly I don't understand how or why you think that he would take "glee" in seeing government win.

      But he doesn't need me to defend him.

      Kind regards,

    5. "If bitcoin fails taking its maximum believers with it, it will be no consolation that hey, at least they tried something. Refer to the Adam Kokesh affair. "

      Yeah, let's all mock and ridicule those that actually have the balls to stand up and resist while we gloat about their failure from behind the safety of our brave keyboards. That's the spirit.

      I'll never understand what it is with some "libertarians" that seem to hope for the failure of those who at least TRY to do something productive. People like Snowden, Manning, Kokesh and yes, the people behind Bitcoin are HEROES even more than the likes of Ron Paul, because nobody was ever going to arrest him for not touting the line. These people made sacrifices to try and achieve progress vis-a-vis the state. They should be celebrated, not safely ridiculed with sarcasm by people who's only actions for the liberty of others are mere words.

    6. Tony, there is no mock nor ridicule coming from me. I'm sorry you read it that way.

      There are means that are better suited to achieving goals that perhaps we all share. There are other means that are unintentionally self-destructive. I think it wise to prefer the former to the latter.

      Having ones heart in the right place is admirable. Living to fight another day is advisable.

    7. "Living to fight another day is advisable."

      At some point there may be nothing to fight for.
      Now, i do realize that some people's idea of action is flawed and dangerous, and i myself would not engage in them. I personally happen to believe any chance of libertarianism will only come after the current system "runs its course" straight into collapse (i subscribe to Albert Jay Nock's concept of there being a "remnant"). Because too many people will only learn the hard way if they ever learn at all. The propaganda and brainwashing is simply too thick. Even today on this very blog some guy delivered such a stereotypically neocon diatribe about America and its "values", and Israel that it was almost a parody.

      Nevertheless i would not dream of - in any way - criticizing, ridiculing, or otherwise blasting those that take any kind of action.
      Sure, some of these action can be considered "illegal" either now or in the future and are therefor unwise. But who is to say that 10 years from now the very expression of anti-government ideas would not be criminal? Aren't they already laying the groundwork by trying to depict them as potential terrorists? What's the alternative route going to be then? Pretend to be a socialist because not to do so will get you in trouble?

      Playing by the rules is safe. I don't think history is ever changed by people who play it safe.

  4. Cypherpunks and the Historical Roots of Bitcoin

  5. DHS and the rest of the meddle-junkies can do NOTHING against 256-bit encryption if it's employed correctly. When they start busting people for using Bitcoin, it will be the low-hanging fruit of the technologically inept that they'll end up with, not those that know what they're doing.

    The State can only react to technology, it can't innovate. Bitcoin is State-proof at the moment. That could change but right now, it's THE fact on the ground. If one is willing to self-educate and learn how to properly store and use bitcoins, the State can't touch you. Your coins are protected by the laws of physics and mathematics but it's up to you to protect yourself on the network, just like with everything else.

    Sorry for the long excerpt below, but it's germane in this case. It was written by crypto guru Bruce Schneier. Bitcoin's private keys are 256-bit numbers.

    "One of the consequences of the second law of thermodynamics is that a certain amount of energy is necessary to represent information. To record a single bit by changing the state of a system requires an amount of energy no less than kT, where T is the absolute temperature of the system and k is the Boltzman constant. (Stick with me; the physics lesson is almost over.)

    Given that k = 1.38×10^-16 erg/°Kelvin, and that the ambient temperature of the universe is 3.2°Kelvin, an ideal computer running at 3.2°K would consume 4.4×10^-16 ergs every time it set or cleared a bit. To run a computer any colder than the cosmic background radiation would require extra energy to run a heat pump.

    Now, the annual energy output of our sun is about 1.21×10^41 ergs. This is enough to power about 2.7×10^56 single bit changes on our ideal computer; enough state changes to put a 187-bit counter through all its values. If we built a Dyson sphere around the sun and captured all its energy for 32 years, without any loss, we could power a computer to count up to 2^192. Of course, it wouldn't have the energy left over to perform any useful calculations with this counter.

    But that's just one star, and a measly one at that. A typical supernova releases something like 10^51 ergs. (About a hundred times as much energy would be released in the form of neutrinos, but let them go for now.) If all of this energy could be channeled into a single orgy of computation, a 219-bit counter could be cycled through all of its states.

    These numbers have nothing to do with the technology of the devices; they are the maximums that thermodynamics will allow. And they strongly imply that brute-force attacks against 256-bit keys will be infeasible until computers are built from something other than matter and occupy something other than space."

    1. @anonymous:

  6. History is rife with proof that jailing men like adam kokesh will backfire on the state. I suspect that he is starting kokesh university's first campus and his professors in training will spread the gospel as the move through the system. His students will be among inmates and their captors alike.

  7. I love how nerdy that exposition of the safety of 256-bit encryption was. Love it.

    Unfortunately it's completely myopic. Passwords / secure key encryption breaks down at the source of randomness, not the theoretical limit of the energy required to make random guesses.

    In other words, you don't need to harness the full power of the sun to figure out that I use my son's birthday and my wife's pet name as my password, regardless of how many bits are used. Security fails at the human level, not the machine level.

    Until people are taught in grade school how to protect their information properly, things like bitcoin will always be vulnerable to theft and break downs because it people that built it. People are inherently predictable. I'm not suggesting that the bitcoin protocol will be cracked somehow, but there will always be vulnerabilites at the human to machine interface.

    Full disclosure, I own over $100k in bitcoin at current prices.