Experts are starting to muse about the possible strategies governments could use if they ever decided to wage war on Bitcoin (BTC) – and derail an asset whose rise in the past few months has been nothing short of meteoric.
PayPal’s crypto plunge last year (set to expand in 2021) and Tesla’s decision to purchase USD 1.5bn worth of bitcoin have arguably been watershed moments for the token – bringing it to mainstream conversations around the world. But some undoubtedly feel that the BTC movement has grown too big for its boots, and could plot its demise.
Should a government decide to side with this latter group, how could it go about attacking BTC?
Per a Quillette opinion piece, Alex Gladstein, a prominent BTC advocate and the chief strategy officer at the Human Rights Foundation, a non-profit that claims to support civil liberties in authoritarian societies, governments may have limited options when it comes to fighting BTC, as it appears strong on the protocol level.
However, governments are far from powerless, and could attempt to seize power through taking “control of a majority of the bitcoin hashrate” – a little stunt that would cost a government some USD 5bn in hardware purchases alone.
But Gladstein all but discounted this possibility, noting that it would not enable governments “to change the bitcoin consensus rules, or print more bitcoin or steal anyone’s holdings.”
Such an “exotic assault,” would also disrupt the “world’s few semiconductor manufacturers” – already flat out at work on other projects, requiring them to instead contribute “to this very speculative purpose,” he wrote.
However, BlockTower Capital founder Ari Paul has a different opinion.
In either case, Gladstein claimed that targetting users or miners could suit governments better. One option is a so-called 6102 attack, a reference to President Franklin D. Roosevelt’s drastic Executive Order 6102, a move that outlawed the ownership of gold in the United States, with offenders threatened with jail time.
‘The US government, or any other government, could try doing the same, giving citizens a window to declare and sell their bitcoin to the government, or else face jail time.”
However, many in the BTC community are already wise to the potential risks of a 6102 attack, and know that countering such a drive is possible if enough BTC owners choose self-custody options, rather than relying on exchange and wallet providers to store their tokens.
He also posited that an “unrealized gains tax” could de-incentivize holding bitcoin, while a successful central bank digital currency (CBDC) project could eliminate the need for bitcoin – undoubtedly one of China’s goals with its digital yuan project.
The author also spoke about the possibility of banning BTC mining “inside democracies” – a move that would arguably simply play directly into the hands of Beijing and Moscow should Washington and its allies decide to pursue it.
Perhaps, Gladstein suggested, leaning on exchanges would provide governments with an answer.
“The ‘two-bitcoin’ problem is perhaps the biggest existing threat to Bitcoin users today. If the top 25 global exchanges in the US, EU and East Asia agreed to end-user withdrawals, then that would effectively bifurcate the system. Bitcoin inside the bubble would be “whitelisted” and bitcoin outside could be “blacklisted” – meaning, if a merchant accepts bitcoin from you that is not on a certain list, they’d be running a risk. No matter how private you are with your bitcoin, it wouldn’t matter. You’d need to find people willing to accept your bitcoin with no trail.”
Such a move, though, would require the compliance of almost all of the major exchanges the world over, and would, Gladstein suggested, also involve the complete capitulation of the DeFi market, “ given it relies on users being able to purchase ethereum (ETH) with dollars on big exchanges and then withdraw to trading platforms like Uniswap.”
He added that bitcoin’s tenacity was down to the fact that “it is a globally distributed phenomenon” and that “unlike every other cryptocurrency, there is no central point of failure.”
And his conclusion was relatively positive for bitcoiners – suggesting that “the only way to kill” bitcoin was “to make it so that people don’t need it anymore,” so that “no one will feed it energy, and it will die.”
“Perhaps humanity can come up with another technology that addresses” the needs that BTC meets, he wrote, “But until then, bitcoin will thrive.”
However, others have suggested that governments may not come to the same conclusions.
Michael Burry, the American hedge manager who famously made some USD 100m for himself by speculating on the 2008 economic crisis, took to Twitter to opine that inflation was on its way as coronavirus lockdowns ease – and that governments would now come gunning for BTC and gold.
“Re-opening and stimulus on the way. […] In an inflationary crisis, governments will move to squash competitors in the currency arena.”
And in an interview with the New York Times, Eric Rosengren, the head of the Federal Reserve Bank of Boston, opined that CBDC issuance would eventually marginalize BTC. He was quoted as stating,
“I would suspect, down the road, that a number of central banks will have digital currency. When there is a digital currency available, other than the underground economy, it’s not clear why people would use bitcoin.”
Regardless, some international experts have warned governments that they may be harboring overblown estimations of the appeal of CBDC projects, warning that digital currency projects will not have the same advantages as a truly decentralized protocol like Bitcoin.